For many years now buyers and sellers of Costa Rica real estate have been evading the Costa Rica Property Transfer Tax Law. The seller transfers the shares of the corporation that owns the underlying property to the buyer and this changes everything.
By selling the shares of the corporation the parties in a real estate transaction did not have to file a real estate sales deed in the National Registry. Therefore, the sale did not trigger the applicable Costa Rica Property Transfer Tax.
The Costa Rica Department of Revenue was able to challenge some of these “indirect real estate transfers” but mostly for larger developments. Pursuing individual transfers became more difficult.
The Costa Rican Legislature recently approved the law the Ley de Fortalecimiento de la Gestión Tributaria, Ley No. 9069. This law modifies the existing law on Costa Rica Property Transfer Tax. This is the Ley de Impuesto Sobre el Traspaso de Bienes Inmuebles Ley No. 6999.
Costa Rica property transfer tax
The Costa Rica Property Transfer Tax Law provides that all transfers of property recorded in the National Registry are subject to a 1.5% transfer tax. The transfer tax is paid when a property is transferred and recorded in the National Registry. In addition, this triggers registration fees and documentary stamps, which added to the transaction costs as well. In order to stop the evasion of the property transfer tax by way of these indirect real estate transfers, the new law is aimed at pursuing these indirect transfers.
First off the law redefines what a transfer is as follows:
Article. 2 Definition of a Transfer
For purposes of this law a transfer shall be considered to be any legal transaction by which real property (real estate) is transferred either directly or indirectly. The legal nature of the transaction shall be considered in making the determination regardless of the name the parties have given to the transaction.
It is understood that a indirect transfer shall be deemed to exist when the transfer of the dominion and control of a corporation that owns real estate is carried out.
Property Transfer Tax Evasion
The bottom line is that The Costarican government wants to stop the evasion of the real estate transfer tax by transferring the shares of the corporation that owns the real estate. If you do so you will have to pay the property transfer tax and any fines and penalties established in the law.
The law stipulates that the tax must be paid within 15 business days following the date on which the transaction was carried out. The tax is based on the actual value of the transaction. This must be in line with the market value. It may not be less than the registered value. Also, homeowners should use any of the methods set forth in the Property Tax Law to calculate the tax.
This is aimed at cracking down on the local custom of underreporting the value of the real estate transactions.
Finally, the Municipal government requires property owners to file a copy of the sales deed. The Municipality is in charge of establishing property valuations.
Attorney Roger Petersen specializes in Costa Rica real estate and is a partner of Petersen & Philps, law offices in Escazu. The firm practices in Costa Rica in different areas such as
- Real Estate Purchase and Development,
- Commercial Transactions,
- Corporate Incorporation,
- Intellectual Property,
- Employment Law,
- Estate Planning,
- and Business Transactions.
Mr. Petersen is also the author of the well-known book “The Legal Guide to Costa Rica”. His website Costa Rica Law has a lot of useful legal information.
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