A complete introduction to the Newest
Property Tax Law
Owners of LUXURY RESIDENCES
will build social houses
weeks many clients and friends have been asking me for orientation regarding
the Solidarity Tax, a new tax recently approved by the Congress and commonly
referred to as the Tax on Luxury Residences.
Luis Fernando Gonzalez L.
Consultant / Consultor Tributario
Since the topic is complex and many questions and
concerns have been voiced, we prepared this summary so that the thousands of
Utopia readers can become well informed and can achieve a broader understanding
of this subject that may be affecting several of you shortly.
What is the Solidarity Tax?
In very simple terms, it is a tax that will be
accessed each year to the owners of luxury homes (some 12,000
taxpayers). The extra revenue generated as a result of this tax
will then be fully applied to help fund the Social Assistance Housing Program,
that is, to build houses for people that live in extreme poverty conditions.
So far it seems quite straightforward, however, it
gets more complicated as we try to understand the method by which this tax will
actually be implemented.
To that end, I will address 6 of the most common
questions I have received since the new bill was passed.
Who does this tax apply to?
First let’s clarify that all property owners must
declare for this tax, regardless of whether they will be required to pay it or
The qualification parameters are:
1.- The Solidarity Tax applies only to residential
property with construction valued at more than ¢100 million (this
is the value of the construction alone, not inclusive of the value of the land). However, those who do meet this first
criterion will then be required to add the land value when actually calculating
the tax. For example, a property
with construction valued at ¢150 million (apply to
tax) on land that is valued at ¢50 million, will be
eligible for this new tax and the amount they are accountable for will be calculated
based on a full ¢200 million property value. By contrast, a house whose construction is valued at ¢90
million located in a lot valued at ¢110 million will be exempt (as
the value of the actual construction is under ¢100 million)regardless of the fact that the total value is also ¢200 million like the
2.- As well, the property must be designated for
residential use, whether permanent, temporary or recreational, including
boarding services. Any
construction exceeding ¢100 million that is used for agriculture, commerce,
industry or any other non-residential use, is exempt. Condominium owners must
also determine their % of possession of the common areas (called
Percentage of Measure), with the common areas that have
commercial use being exempt.
3.- In the event that a property qualifies for this tax
(building of residential use whose construction is assessed at over ¢100
million), the final amount payable will be calculated at a progressive rate
depending on the total valuation of the property (the
construction + the land). The minimum rate assessed will be a rate of 0.25% for the first ¢250 million with an increase
of 0.05% for each additional ¢250 million, with a maximum rate of 0.55% applied
to the portion of the property
valued over 1,500 million colones ( about 2.6 million dollar).
Did all of those numbers confuse you?
Don’t worry, the following chart presents things more
For Example: A house valued at ¢375 million pays a
0.25% for the first ¢250 M (¢625.000) and a 0.30% for the remaining ¢125 million, to pay a total
of ¢1 million.
When does this new tax take effect?
Even though the law was approved in November 2008, the
tax only went into effect on October 1st, 2009. In turn, this year only the prorated portion from October
2009 to December 2009 needs to be paid. However, this does not mean you are off the hook this
year as the tax will be collected in advance. In other words, immediately after paying the 2009 tax, you
will have to pay the 2010 corresponding tax (with a
deadline of January 15, 2010).
How is the declaration filed?
The calculations will be made directly by the property
owner or his advisor based on the parameters established in the law and in the “Manual
de Tipologías Constructivas” and the “Matrices de Zonas
major headache for those not familiar with this!
The good part is that the entire process, from the
registration to the declaration and payment is done via Internet at www.hacienda.go.cr (click on
To complete the declaration, the taxpayers must have
information on the land, the municipality, the district, the legal address, the
number of the Plano Catastrado, the area dedicated to residential use and the
value of the Mt2, among other information on hand.
Even though it might be tempting, it isn’t recommended
to manipulate the appraisal because the penalties will be very stiff and one
could end up paying up to 10 times more in fines than the amount that was owed.
The oversight promises to be very strict, backed by the new alliances among
Tributación (Tax Collecting Agency), the Public
Registry and the Municipalities. They will all share information pertaining to appraisals, updates, sales
or new mortgages and cross-reference them against one another to prevent
fraud. In the end they will be
able to derive an estimated actualization of the property value for both the
Solidarity Tax and for the Real Estate tax.
The declaration must be updated every 3 years. If the
property owner does not submit said update, Tributación will go ahead and do it
on their behalf, charging the tax according to their own appraisal. In the event of the sale of real estate
for a price above the one previously registered, the appraisal on file will
automatically be updated.
Is the Solidarity tax deductible from income tax?
Sadly enough, not only is it not deductible but the
due dates of the two taxes are almost simultaneous. (End of
December and beginning of January).
What is the relationship between the Solidarity tax
and the Real Estate Tax?
There is no relationship between the two. The real estate tax is collected by the
Municipalities and used within each municipality. The Solidarity tax on the
other hand, is a national tax collected by Hacienda and flowing into the
National Government Account, where it is then distributed by the Housing
Mortgage Bank directly to the Housing Assistance Program.
Is there a manual for the declaration?
Despite the system’s attempt to be user friendly,
there is yet to exist anything such as a “Manual for the Beginner Taxpayer”. Because this tax is new and quite
complex, it is advisable to seek quality guidance, at least for your “first
time” filing this declaration. A
well-informed consultant will provide assistance in the various details that
surround your specific situation and help to ensure that you are aware of any
future appraisal changes. Additionally, good guidance will help facilitate the process of making
the declaration, and will free you from making errors and possibly incurring
future penalties as a result. Finally, seeking proper guidance will help you feel secure that even if
you don’t know the law, you will not end up overpaying.
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