Property owners renting a room, an apartment or a house, even if it is for a low amount, should start to issue a “factura electrónica” (electronic invoice) to their tenants starting September 1 of this year.
Tax experts say starting in September, taxpayers who have not been registered in the electronic invoicing system must begin to do so according to resolution number DGT-R-012-2018 de la Dirección General de Tributación (General Taxation) published in La Gaceta on March 20, 2018.
The application of the factura electrónica to residential rents was confirmed by Taxation. In addition, Dunia Zamora, legal advisor to the Association of Public Accountants; Alan Saborío, Tax partner of Deloitte and German Morales, Tax partner of Grant Thornton Costa Rica, confirmed that this resolution covers residential rents.
According to Zamora, the start date will depend on the last digits of the person’s cedula.
Persons with cedulas ending in 1, 2 and 3 must start issuing electronic invoices on September 1, those with cedulas ending in 4, 5 and 6 must start on October 1, and those with cedulas ending in 0, 7, 8 and 9 on November 1.
Saborío argued that every individual who rents a property must register as a taxpayer of income tax, either as an individual or create a legal entity (such as a corporation) that engages in that activity.
In addition, they must file an income tax return even if what they earn does not reach the minimum amount to start paying income tax.
Zamora clarified that the Ley de Inquilinato (Tenancy Law) says that for legal purposes, the tenant can defend themselves by way of the bank deposit receipt when making the rental payment, but that is only for the tenant, whoever rents is obliged to issue a factura electronica (electronic invoice).
Not issuing a factura electronica, not registering as a taxpayer and not submitting a tax return has penalties.
For example:
- Not registering as a taxpayer, the sanction is equivalent to one half of a base salary (a base salary is currently ¢431,000) per month or fraction of a month, without exceeding three basic salaries (¢1,239,000).
- Not issuing a facura electronica, the sanction is two base salaries (¢862,000).
- Not filing a tax return the penalty is 2% of the gross income, to a maximum of one hundred base salaries (¢43.100.000).
- Filing a return with errors, 1% of a base salary (¢4,310) for each error.
Of concern is that many people do not know this and it has become customary to rent without fulfilling these duties.
Who pays the tax?
Saborío that according to the current table for fiscal year 2018 (from September 1, 2017, to October 30, 2018), net income (income minus expenses) of up to ¢3,549,000 are exempt, on the excess of ¢3,549,000 and up to ¢5,299,000 the tax payable is 10%. For higher amounts, there is an escalating tax rate.
Thus, for example, if a person rents an apartment at ¢150,000 monthly, that is a gross income of ¢1,800,000, subtracting expenses such as painting and maintenance of ¢200,000 the remainder is aa net income of ¢1,600,000. As that amount is less than ¢3,549000 there is not tax payable. However, a factura electronica must be issued and a tax return filed.
The factura electrónica or electronic invoice is an electronic receipt generated when the sale of goods or services is made. That voucher/invoice reaches the consumer also by electronic means.
For example, if you subscribe to a Quickpass issued by a bank, notice that each month the bank sends you a receipt for the US$1? That is the factura electronica.
The factura electrónica became obligatory at the beginning of this year. The introduction was graduated, starting with professional services and the health sector in January; accounting and financial sector in February; lawyers in March; engineers, architects and IT in April; and on May 1 for all other service sectors.
Source (in Spanish): La Nacion
This article is not intended to be legal or accounting advice. Please consult with a professional on your particular case with respect to filing and paying income tax and the issuing of a factura electronica.
