Thursday 28 January 2021

Comptroller questions vehicle exemption to attract foreign pensioners

Bill seeks to create a series of incentives for retired foreigners, investors and rentiers to establish themselves in Costa Rica,, allowing their cars and items to enter without paying taxes.

QCOSTARICA – The Comptroller General (CGR) detected a loophole in a bill that would allow foreign investors to enter the country without paying import taxes, which could eventually be marketed without paying taxes.

Foreigners could enter their vehicles without paying taxes, nor would the value of the liens be paid when they are sold or transferred to third parties. The text of the law does not establish a maximum value for the exoneration.

“The text enables these people to import a motor vehicle for personal or family use, free of all import, sales and economic stabilization taxes (…), which may be transferred or sold to third parties in the form exempt from such taxes,” said the CGR.

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The alert was issued by the controlling entity in its opinion on the bill called “Ley para la atracción de inversionistas, rentistas y pensionados” (Law for attracting investors, rentiers and pensioners).

The initiative aims to encourage the attraction of people from abroad to contribute to economic reactivation in a post-pandemic period.

The bill reads verbatim: “People may import a vehicle, whether for personal or family use, which will enter free of all import, tariff, sales and economic stabilization taxes, which may be sold or transferred to third parties exempt from such taxes after after the period of validity of this law.”

In addition, it indicates that, in case of loss of the vehicle, due to theft or destruction by fire, collision or accident, occurred during the period of validity of the law, another vehicle may be acquired completely free of encumbrances.

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According to the Comptroller’s Office, the exemptions proposed in the law would contribute to aggravating the critical problem facing public finances.

“The exemptions are part of the fiscal problem facing the country, since they constitute a burden for state finances, in terms of fiscal, administrative and control cost, and affect the transparency and equity of the tax system,” says the criterion.

Likewise, the criterion recommends that the economic repercussions that the proposal may generate be subject to evaluation.

They also ask that, “as far as possible” there be a source to replace the resources that would no longer be received due to tax exemptions.

Currently, as detailed in the text, the term of validity of the propsoed law is five years, which is in line with the criteria set forth by the CGR on the need to establish a temporality.

Another of the comptroller’s suggestions is that once the five-year period has elapsed, the vehicles can be released under the legal obligation that the tax provided for at that time be charged on the transfer to a third party.

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This is due to two problems that the text of the bill contains, which are “the ambiguity that may arise when reading it and its eventual fiscal consequences.”

“Additionally, (…) it is not completely clear whether by ‘interested persons’ it refers to the purchasers of the vehicle internally, as second hand, or to the direct recipients of the law, to enable them to own a second vehicle, which seems to be the intention,” adds the document.

Who can benefit

The bill would apply to all persons who are authorized to enter the country under the immigration categories of investors, retired residents or rentier residents.

The governing body that would safeguard legal compliance in matters of migration would be the General Directorate of Migration and Foreigners (DGME) – Costa Rica’s immigration service.

As to tax matters, it would be the Ministry of Finance.

As detailed by the CGR, the proposed investment is reduced from the current US$100,000 to US$150,000 given the changes experienced in the economic situation and the constant competition with other countries to attract this group.

The proponents of the project are legislator Silvia Hernández, from the Partido Liberacion Nacional (PLN), María Inés Solís from the Partido Unided Social Crisitna (PUSC) and Mileidy Alvarado, from the Partido Restoracion Nacional (PRN).

Proposal incentives

The bill, which was passed in November 2020 by the Tax Affairs commission, proposes the following incentives:

  1. Freeing of tariffs and all import taxes for a single time, for the importation of household goods, that is, all the articles necessary for the installation of the foreigner in this country.

    These items range from home furnishings, appliances, home decor items, kitchen and bathroom utensils, to bedding

  2. People may import a vehicle, whether for personal or family use, which will enter completely exempt from all import, tariff, sales and economic stabilization taxes.

    This vehicle may be sold or transferred to third parties without the cancellation of these taxes after the period of validity of this law has elapsed, so that neither party would return the money to the Treasury.

    Interested persons may import another vehicle with the same benefits, this prior to the payment of taxes corresponding to the vehicle since it was exonerated.

    In case of loss of the vehicle, due to theft or total accidental destruction, the law would enable the foreigner to acquire another vehicle free of taxes and import it.

  3. The sums that are declared as income by foreigners to become a creditor of the benefits of the bill, would be exempt from Income Tax.

    However, the income obtained in the country resulting from the investments will be taxed.

  4. They will also enjoy the exemption of 20% of the total transfer tax, in any real estate that they acquire within the five-year term of the law. This provided that the beneficiary is the registered owner of the asset.

    If the beneficiary person sold or transferred said assets before that period, they must pay the taxes from which he was exempted.

Previous initiatives

This proposal is not new. In 1971, during the third term of former president José Figueres Ferrer (1970-1974), a law was approved that contained exemptions similar to those of the current proposal.

The people covered by said law were allowed duty-free and other taxes, this for the importation of household goods, which at that time should be for the amount of US$7,000.

Likewise, vehicles would also enter exempt from any tax, but they must have a value below US$1,000.

However, this law was repealed on March 31, 1992, during the mandate of Rafael Ángel Calderón Fournier (1990-1994).


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