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Soon, landlords will have to give tenants a rent invoice for rent paid. It seems that the good times that rental income will go unseen by the Costa Rican tax authorities are over.
Resolution DGT-R-012-2018 obliges landlords to give an electronic rent invoice for each rent paid by the tenant starting September 2018. This is for any form of rent, including long-term and short-term residential rentals, vacation rentals, as well as commercial rentals.
Landlords, real estate agents, and property managers must be aware of this obligation to give a rent invoice. This business model until now was not controlled by the tax authorities. Therefore, landlords were not paying income tax (impuesto sobre la renta) on rental income.
In this resolution, DGT-R-012-2018 of the tax administration (Dirección General de Tributación), published in the official government newspaper Alcance Digital N° 60 of La Gaceta number 52 of March 20, 2018, obliges all taxpayers not yet incorporated in the new electronic tax system have to start invoicing in September 2018.
Earlier this year, the tax office already started the obligation of electronic billing for doctors, dentists, lawyers and other professionals. Spanish language newspaper La Nación confirmed with 3 tax specialists and the tax authorities that this includes rents.
Real estate agents and property managers
This obligation to five a tenant a rent invoice also creates other results. The resolution will also automatically control rental commissions and property management fees earned as all expenses made are deductible from the taxable income.
All tenants, no matter how low the amount of rent is paid, should request an electronic rent invoice from the landlord. This includes rent paid in colones, in dollars, or any other foreign currencies.
Any landlords who deny giving their tenants an electronic rent invoice are automatically breaching the lease agreement that they have with their tenants. This obliges them to return the security deposit in case the tenant wants early termination of the agreement for this reason.
Landlords who do not declare (and do not give a rent invoice to their tenants) can be sanctioned. The fine is 50% of a minimum salary up to three minimum salaries (right now ¢431,000/month).
Starting September 2018
Landlords or their corporations that have a cédula that ends in 1,2 or 3 have to start giving a rent invoice on September 1st.
Those with a cédula ending with 4,5 or 6 on October 1st.
Landlords with a cédula ending with 0, 7, 8, or 9 on November 1st.
Corporations use a cédula jurídica (corporate ID number). If the property is in your own name, you have a DIMEX (Cédula de Residencia) or Tico cédula. If the property is registered in your own name but with a passport number, I don’t know what happens. I’m sure the tax authorities never thought of that. Ask your lawyer or accountant to find out for you.
Filing for rental income
All landlords that own the property in his/her personal name, will have to register with the tax office as a taxpayer or contribuyente del impuesto de la renta. Once registered, the landlord can just make the electronic invoice by registering with one of the online companies that offer that service.
Landlords who own the property in a corporation (Sociedad Anónima or other) should register their corporation with the tax office as an active corporation.
So with this obligation, an inactive corporation now becomes an active corporation and will have to pay a higher annual corporation tax.
Expenses such as maintenance, repairs, and mortgages are deductible from the income. Net income under ¢3,549,000 doesn’t have to pay any income tax. Learn more about income tax and other taxes in Costa Rica here.
How to make a rent invoice
There are many companies that offer online invoice services. These companies will take a while to understand how it works and get set up. If you don’t speak Spanish, I recommend you request the assistance of someone who does and is computer savvy. You can check for companies that offer online electronic billing systems on Google but compare prices before you sign up with anyone.
For all the above reasons, we recommend you start looking for an accountant to assist you in this.
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