The government of Carlos Alvarado is about to impose a 40.5% tax on the sales of properties used for business purposes.

Costa Rica has one of the highest taxes in the world.

The new rate has been in effect since July 1, 2019, in Costa Rica, and is be one of the highest of its kind in the world. The assets most affected will be real estate, La República reports in Spanish.

In its analysis,  La República explains how the rules work, and how they will affect you.

A company uses the property for business. The property can be a real estate, such as a farm, school, warehouse, retail store, tortilla factory, or intellectual property such as a brand or license, among others.

The State taxes up to 40.5% of the profit (the value above the original purchase price or valuation – plusvalía in Spanish) following the sale of the property.

The proceeds obtained on the sale is considered as income, which means the company must pay up to 30% of the profit from the sale, plus 15% of the remaining 70% when it compensates its investors, for a total tax of 40.5%.

The State charges a 15% on the sale of some properties: jewelry, an empty lot, a work of art, etc, but the low rate applies only to assets not used in production.

As far as the capital good used in the business is concerned, it is one of the highest rates in the world.

Before July, no sale of any capital goods was charged.

Don’t be confused

Many people believe that the State charges 15% on the increase in the value of any capital good in the year it is sold; However, that is not always true, since there are now two regimes applicable to this type of transaction, depending on the nature of the good (data in percentages).

Regime 1
Asset Capital asset not used in any business
rate*:

  • (a) About the increase in value 15%
  • (b) On the total value of the sale 2.25%
    * (a) or (b) at the taxpayer’s option

Regime 2
Asset Capital asset used in the business
rate:

  • Same as income, usually 30%
  • Dividend Tax** 10.5%
    Total 40.5
    ** 10.5% of the total amount of margin, equivalent to 15% of the balance after paying the income tax

The above is from Chapter I, Title I, of the Ley 7092 del impuesto sobre la renta (income tax of law 7092), effective as of July 1, 2019.

Please note, the information contained in this article is not to be considered as tax advice, rather for information purposes only. You should consult a tax expert for advice on your specific situation.