| Hi, welcome to our chat with tax expert Sergio García.
Mr García walked over to The Tico Times office this morning for our live chat on real estate tax laws.
A couple of years ago the Municipality of Santa Ana gave property owners the opportunity to voluntarily increase their property values without asking any questions. Did this work for them? And have other Municipalities done the same since?
Hi skelley, welcome to the chat.
Who ordinarily pays the fees for the transfer of property, the buyer or the seller?
The law does not specifically address that issue. In practice, however, unless agreed otherwise it's 50/50. Some official interpretations confirm that practice.
Mr García is answering the next question
A couple of years ago the Municipalit of Santa Ana gave property owners the opportunity to voluntarily increase their property values without asking any questions. Did this work for them? And have other Municipalities done the same since?
This initiative was successful. Property owners declared reasonable values for their properties. The Municipality got more revenue without the effort of going to property owners, making appraisals, entering into procedures to adjust value, etc. Other municipalities have had similar initiatives: they have been "lenient" with voluntary declarations from property owners they consider reasonable.
Hi miamiandrews, welcome.
What is the risk to me as a buyer if the seller insists on registering the property as a lesser value and then there is a legal property with the title?
The problem you might have is that you would be liable for any taxes that the Tax Administration may consider due. It would now be your problem.
Mr. García is answering the next question...
Can I lose title to my property if I haven't paid the real estate taxes on it in years?
You do not lose title to your property just for not paying taxes. The municipality has to start a legal procedure to collect the taxes due and it may sieze your property to sell it and then collect the taxes due. You would have a chance to pay the taxes before the property is sold.
Mr García, you have been a columnist writer for the weekly El Financiero. What's your favorite topic to write about?
Welcome BW!
We're chatting live with a KPMG Costa Rica tax expert.
My topic of choice is how the Tax Administration oftentimes comes up with aggressive interpretations of the law to collect more taxes. Some times those interpretations cross the line and are frankly illegal. I tried to put my two cents and try to keep respectful of the law.
Mr García is working on the next question.
What is the transfer tax on a property sale?
There is a 1.5% on the transfer of real estate property in CR. This includes not just the land but also anything permanently fixed to the ground. There are other elements you should consider, namely stamp taxes and notarial fees. The whole package is close to 3%.
Mr García, you've mentioned the tax office's ways can be too agressive. How could they improve?
Sergio García has worked at KPMG Costa Rica for the past 11 years.
Everybody who works for the government has a duty to respect and uphold the law and the Constitution. The problem is that the folks at Hacienda get a lot of pressure to collect more taxes. One of the solutions that has been proposed is to create a more comprehensive regulation to the Income tax law. Also the Courts should observe closely the activity of the tax administration.
Mr Garcia is answering the next question...
Is there any personal income tax benefit from having a mortgage on a property?
You may deduct the expenses associated with that mortgage as long as the property is used to generate taxable income (for example, if you rent it out). You could not deduct the interest and expenses for your personal home if for example you only receive a salary.
I understand Costa Rica doesn't have a capital gains tax. Is that correct?
That is partially correct. Capital gains are not taxable. However, if the goods you are selling are depreciable, or if the sale constitutes your habitual activity, the capital gain would be taxable. So, for example, if you sell a property, the gain on the land (not depreciable) would not be taxable, but the gain on the building would be taxable.
How can I find out if back taxes are due on a property I want to buy?
You should ask the seller to provide you with a statement of accounts for the property. This document should be issued by the municipality.
Where do you go to pay your property taxes? Do they take credit cards?
You have to go to the municipality. To the best of my knowledge, none of them take credit cards. That would be a good suggestion though to make the collection simpler.
Don't miss our Feb. 15 special supplement on real estate in Costa Rica.
Very good clarification because this distinction is important and is different from in other countries. Thank you.
Well, as you may remember, the government has been talking about a substantial tax reform over the last 6 yrs or so. One of the amendments that was discussed was that capital gains would in fact be taxable. It was proposed that it would be possible to adjust the tax basis for your property based on indexes. My crystal ball is broken, so I cannot tell you what is going to happen with this initiative, but honestly I do not think it will gain momentum again, at least until the end of the Arias administration.
If I have my own company and have a home office, then I can deduct my mortgage payment and home insurance payments as legitimate business expenses on my personal income tax?
Short answer: yes. However, you are not allowed to deduct the amount of the mortgage and home insurance payments that pertain to your residence. You should only deduct the portion of those payments that is associated with your home office. You should therefore somehow make an allocation of those payments. Just try to use a reasonable method.
Mr García is answering the next question...
How do they determine the value of your taxable property?
In principle, the municipalities and their appraisers have access to technical documents that provide guidance of the value of the land in different territories and the value of constructions considering materials used, use, etc. In practice, they usually talk to the person that delivers the declaration, take a quick look at it and using their flare see if they consider it reasonable.
Don't forget to read The Tico Times' popular Real Estate and Business section.
What are the property taxes on concession land? Are they different from titled land?
The property taxes on concession land are basically the "canon" or fee that the municipality imposes for the concession. Those are dictated by the municipality at the time they grant the concession. If you do not pay your concession fee, you can actually lose your concession. They are different from the titled land, where you pay 0.25% of the value of your property.
Mr García is working on the next question.
Tico Times has a great Real Estate for Sale and Rent classified ad section.
What important property tax changes might be implemented this year?
In my opinion, there will not be any important property tax changes implemented this year. The Asamblea Legislativa currently has a number of priorities, and making changes to property taxes do not appear to be one of those. Some municipalities may take initiatives to go out and make massive appraisals, but those would not be actual changes in the system.
On Feb. 15, don't miss the Tico Times' 32-page supplement on Real Estate and Construction.
Can I deduct the interest payments on the loan I took to buy a company that owns property, to rent some of that property?
I'll get a bit technical: there is no tax consolidation in Costa Rica. The income of a company does not flow through to the shareholder. Therefore, interest expenses associated with the purchase of shares could not be deducted from the rent income. The problem is that the shareholder is the one that has the expense and the company is the one that receives the income. I do suggest that people seek assistance at the time of purchasing properties, so that they can avoid this type of pitfalls.
Hi Bananoman, welcome to our chat.
This chat is coming to a close soon. Please send in any last questions you might have for our tax expert.
hi, and thank you :)
How can I get in touch with you or your firm if I have additional questions after the chat?
Our website is www.kpmg.co.cr. My e mail is sgarcia1@kpmg.com. Please feel free to contact us.
Does KPMG have offices in other countries in Central America?
Yes, certainly. We have offices in all of the countries in Central America. You can either contact them directly (you can go to the page www.kpmg.com and look them up) or you can contact me at sgarcia1@kpmg.com.
Mr García is answering the final question of the chat.
KPMG also operates in a total of 148 countries worldwide
Regarding recent news that concession canons rose sharply in the Malpais area, is this likely to happen elsewhere in the country.
I think it will happen in other municipalities. All municipalities watch the value of the properties in their jurisdiction go up, and they will certainly want their share. I think that the important thing is that concessionaires get a due process of law and be able to make sure that the canon is not excessive.
While Mr. García works on the last question, I want to remind you all to check out our 32-page Real Estate and Construction supplement, coming out Feb. 15.
Bananoman, our tax expert is currently writing an answer to your question, thanks for participating.
i own, with title, a piece of property in the gandoca manzanillo and i have never paid taxes. i was told it is not collected from a protected area. can you confirm that is true please ?
According to the law, some protected areas are not subject to property tax. I would like to have more information of the legal status of your property before I respond. Due to time constraints, I would like to invite you to write me at sgarcia1@kpmg.com and I will get back to you.
Well, unfornutely our chat is coming to a close.
Thank you all very much for taking part. A special thanks to Sergio García, tax expert at KPMG Costa Rica, for taking the time this morning to answer all your interesting questions.
Keep an eye out for our monthly live chats.
muchisimas gracious |
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