Everything about sales tax on real estate sales and rentals
Do real estate agents have to charge sales tax on real estate rentals and sales in Costa Rica? Do tenants now have to pay sales tax on top of their rental?
Many real estate agents and their clients are not very clear about the sales tax on real estate sales in Costa Rica, so let’s explain.
The sales tax in Costa Rica, at this time 13%, is mandatory for certain products with added value as well as services. The tax is regulated by N° 6826 Ley del Impuesto General sobre las Ventas. For a long time, many real estate agents have been able to circumvent the system by not formally invoicing real estate commissions. Others, who have been formally invoicing their services were therefore at a disadvantage.
The law was never very clear about the charges of 13% sales tax on real estate sales. Real estate commission on rentals was free of sales tax, but the commission on sales was mandatory. Therefore, many real estate agents charged their clients a consultancy fee or marketing services. That’s because these services were not taxed with sales tax.
Be aware that the seller does not pay the sales tax over the total amount of the sale. It is only paid over the amount of the real estate commission.
You should also be aware that the seller has to receive an electronic invoice for the services rendered by the agent, the lawyer as well as any other service charges received for the real estate closing.
Law N° 6826
The sales tax law N° 6826, in article 1, shows all products and services that carry the 13% sales tax, starting the 1st of July of 2019, including the sales tax on real estate sales. You will find in incision n) Servicios de correduría de Bienes Raíces (real estate services).
This obliges every real estate agent in Costa Rica, to charge the 13% real estate tax. In fact, the real estate agent is only representing the Costa Rican government as a collector of these taxes.
Sales tax registration
The real estate agent (or real estate company) is obliged to register as a sales tax collector on real estate sales at El Registro de Contribuyentes at the tax office in the Administración Tributaria.
The agent (or company) is obliged to keep purchase and a sales register and to declare and pay the sales tax every month, within the first 15 natural days of the next month.
The sales tax is declared with form D-104 “Declaración Jurada del Impuesto General sobre las Ventas- Sistema Tradicional”, through portal ATV.
Form D-104 has to be presented EVERY month, even if there have been no sales.
Sales tax payments can be made through the following banks:
– Banco de Costa Rica
– BAC San José
– Banco Nacional de Costa Rica
In any case, I recommend real estate agents to contact their accountant and clear up any doubts.
A tax credit is established by the taxpayer on purchases or spending that are needed within the production process. Ask your accountant to assist in this.
Can you just not pay?
When you go to buy a coke in the grocery store or a bar, the vendor charges you 13% sales tax on that coke. The bar charges you also 10% service tax on that same coke.
Can you just not pay? Yes, you can, but the store won’t allow you to take that coke with you.
The 13% sales tax on real estate sales, legal services, medical services, and educational program is regulated by law. Therefore, the sales tax is mandatory by law and not depending on the buyer of the product or service decision of paying it or not.
What if the seller doesn’t pay?
At closing, the notary public should make sure that all funds are paid to each party correctly. This means that the seller will get the funds that were agreed on to be received in the buy-sell agreement.
Also, the legal fees as well as the real estate commissions, with the mandatory 13% sales tax, should be disbursed as agreed on.
It is the notary public’s job to see that if these funds are not disbursed correctly and legally, there should be no closing.
I’m sure that there will be attorneys who don’t agree with me. But in my opinion, a property should not be transferred until all closing costs (including legal fees, transfer tax, stamps, escrow fees and sales commission) are disbursed. This also includes any pending mortgages and debts, employee’s severance pay, pending condominium fees, etc.
Sales tax on rental property
Also, starting the 1st of July, Decree N° 9635 “FORTALECIMIENTO DE LAS FINANZAS PÚBLICAS” will come into force.
This decree forces landlords to charge sales tax on residential rental property (furnished and unfurnished, short term and long term). The sales tax is only charged on the monthly rent in excess of one point five (1.5) of a basic salary. This year, 2019, the legal basic salary is ¢426,200. Therefore, sales tax is only charged on rents that exceed ¢639,300. In this case, the sales tax is ¢83,109.
For your referral, you can find the history of basic salaries here.
The landlord, just like the real estate agent, is only a tax collector and is in the obligation to register with the tax office and make the monthly payments as described above.
Wondering what the fines are for not following the law? Then check here.
Commission on rentals
Normally, the real estate agent, for supplying a tenant, charges one month rent. All real estate services carry sales tax, so the agent has to invoice the landlord for this commission, no matter the amount.
For example, an agent brings the landlord a tenant for a $650/month rental. This amount, at a ¢600 exchange rate, is ¢390,000. At this amount, the landlord does not have to charge his tenant the 13% sales tax.
But, the agent invoice is obliged to invoice $650 + 13% = $734.50 to his client, the landlord. The agent keeps the $650 (over which he/she has to pay income tax), and transfers the $84,50 to the tax office.
In case the rent is higher than the 1.5 basic salaries, the sales tax charged by the agent (and any other services and products purchased that are needed to make the lease/rental possible), serves as a credit to the tax that the landlord charges the tenant. Therefore, the landlord transfers to the tax office the amount charged to the tenant, less the tax amount paid to the agent (and sales tax on other expenses needed for the rental).
On commercial rentals, the same rules apply as on the residential rentals. Only commercial rentals for small and micro businesses are exempt, as long as they are registered at MEIC and MAG as such.
How not to pay
How to stay away from paying sales tax on real estate sales or rentals as a property owner? By not hiring a real estate professional. Do it all yourself, then you don’t have to pay the sales tax. Landlords will still have to charge the sales tax to their tenants if the rent applies to the law.
I hope this article clears up any doubt you might have had about the 13% sales tax on real estate sales.
If you are looking for professional assistance with your property sale or rental in Costa Rica, contact us.
The grammar of the Spanish version of this blog was checked and corrected by Wagner Freer of Spanish School for Residents and Expats. We strongly recommend this language school as your best choice to learn Spanish, click here to contact them.
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