BDO Corporate Tax News

Costa Rica - Tax authorities clarify capital gains tax rules for nonresidents

Costa Rica’s tax authorities have released some tax rulings that address issues arising under the capital gains tax introduced as part of a tax reform that took effect in July 2020. Under these rules, capital gains derived by legal entities and individuals on the transfer of property in Costa Rica are generally subject to a 15% tax (outside of some enumerated exceptions). The tax is imposed on the difference between the historical cost of the asset and the transfer/sales price, with the seller responsible for reporting and paying the tax due within the first 15 days of the month following the taxable event.

However, when a nonresident sells property located in Costa Rica to a local purchaser, the purchaser is required to withhold 2.5% of the transaction price (although this withholding is defined as an advance payment of tax for the seller, there is no mechanism to charge any furth tax). This withholding obligation applies to the transfer or sale of immovable property in Costa Rica, as well as other rights situated in Costa Rica, such as shares in a Costa Rican corporation, provided in the latter case the purchaser or acquirer is a registered taxpayer in Costa Rica.

The rules do not explicitly address transactions where both the seller and the purchaser are nonresidents. The Costa Rican tax authorities have clarified in rulings that, in such cases, the nonresident seller must obtain a special tax identification number so it can register as a taxpayer in Costa Rica for purposes of reporting and paying capital gains tax.

The tax authorities have also issued clarifications on the applicability of a special 2.25% withholding tax rate for nonresidents that can be applied to transfers/sales of goods or rights acquired before 1 July 2020 (the date the tax reform became effective). Nonresident entities may apply this special rate if the transferred assets meet the “temporary” criteria in the law. i.e., that the assets were acquired before 1 July 2020. Otherwise, the standard withholding rate of 2.5% applies.

This framework aims to ensure that capital gains taxation in Costa Rica is clear and manageable for both resident and nonresident taxpayers.

Marianela Masis Cob
BDO in Costa Rica
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