Wednesday 27 September 2023

End of Real Estate…….

If the government's plan to include all residential rentals in its value added tax (VAT) proposal, it will surely kill the rental market, currently the most active real estate market in Costa Rica.

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27 September 2023 - At The Banks - Source: BCCR

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The Legislative Assembly, our answer to Congress, is looking favorably and closely to charging renters a 13% tax on rental housing in Costa Rica, as part of the plan to move the country from a sales tax (currently 13%) to a value added tax (VAT).

Landlords rarely, if at all keep track and pay any taxes on income other than real estate taxes and even that is a stretch. “Cash” payments rule for rent. Some receive the rent paid by way of funds transferred to their account a larger, much larger majority of landlords only want cash. And never declare the income.

“Yes,” I can accept the proposal to tax the thousands of Airbnb type rentals or anything short term, say, under two weeks, perhaps even three weeks at a 13%VAT. But the thousands of expats who have been lured here with Pura Vida and have rented prior to buying should not at all be taxed. Long-term and vacation (short-term) rentals are two different things.

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It is not clear who, in this proposal pays? The renter or the landlord? Either way, the renter ends up with the 13% bill on top of rent payments.

On short term rents, I agree, the hotels are being screwed (they are required to charge the sales tax) and this must stop. But for those who have long-term agreements should not be penalized. Go directly to the owner and honor whatever contract was signed.

Pura Vida is not cheap, and taxes are the subject of debate since most are not collected. Services, doctors, lawyers, dentists, etc. only take cash and despite some paper receipt never declare income.

The same for short-term rentals and most long-term payments. (Cash rules)

Having a 13% VAT tax paid to (by the renter) landlords is absurd! It will kill the rental market which is, as of now, the most active real estate market in Costa Rica.

Do not pass this legislation. Or at least keep the rents out of the tax loop.

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Juan Sebastian Campos
An expat from the U.S., educator and writer in English and Spanish since 1978 with a doctorate in business administrations (DBA) from the United States and Germany. A feature writer for ABC News, Copley Press and the Tribune Group with emphasis on Central America.

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