Costa Rica Tax Reform – Effects on Capital Gains

Costa Rica Tax Reform – Effects on Capital Gains. A few short weeks ago the Costa Rican legislative branch enacted the controversial law ”Cleansing of the Public Finances”, and which was quickly signed into law by Costa Rican President Carlos Alvaro the same evening of its passage. While there are many aspects to this law, notably, a value added tax added to all product and services, the containment of the out of control growth of the public sector and its privileges, the bill introduces an increased capital gains tax now applicable on the sale of real estate. Not known to many, there has always been a capital gains tax applicable to real estate gains, but it is only applicable to ”depreciated” properties and or on property’s whose interest payments are deducted from the owner’s income taxes. This is only on the value of the property’s improvements at a rate of 8%. However, the new law shall apply to all capital gains on the sale of all real estate at a rate of 15% of said gain. Notwithstanding are primary residences which will not be affected. Said law shall go into effect in June, 2019. Our take is that this may trigger a sudden decrease in asking prices by those wishing to cash in on their investment prior to the implementation of the new law. In fact, we have already seen it on a couple of large, expensive tracks of land in the area. Our opinion is that we will see further drops as we move into next year 2020. which may translate into perfect buying opportunities for AAA grade assets.

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