The Capital gains tax in Costa Rica

Costa Rica’s real estate market has experienced steady growth in recent years, attracting both local buyers and international investors. However, before selling a property or asset, it is essential to understand how the Capital Gains Tax works—a tax introduced in July 2019 under the Law for the Strengthening of Public Finances.

This tax seeks to levy profits obtained from the sale of goods and assets, and its application has a direct impact on property owners. Below, we explain how it works, its exceptions, and what happens in the case of professionals who are regularly engaged in real estate transactions.

What is the Capital Gains Tax?

Capital gains arise when an asset—such as real estate, vehicles, or shares—is sold at a higher value than its purchase price. In Costa Rica, this tax applies a 15% rate on net profit.

Basic Example:

• Purchase of land: $120,000
  
• Sale of the same land: $200,000
  
• Profit obtained: $80,000
  
• Tax payable: 15% of $80,000 = $12,000
  

Important Exceptions to Consider

Not all sales are subject to this tax. The law establishes several exceptions:

• Primary residence: The sale of the owner’s main home is exempt from the tax.
  
• Assets acquired before July 1, 2019: The seller may choose between:
  
  • Paying 15% on the actual profit, or
    
  • Paying 2.25% of the total sale price as a one-time tax.
    
• Inheritance and donations: Exempt from this tax.
  

What Happens if the Seller is a Real Estate Agent or Developer?

A key distinction lies between occasional sales and those carried out by individuals or companies whose regular activity is the purchase and sale of properties.

In such cases, the profit is not considered capital gain, but rather ordinary income, which means it is taxed under the Income Tax regime instead of the 15% capital gains tax.

Example for a real estate developer:

• A developer buys a lot for $50,000 and sells it for $100,000.
  
• Profit: $50,000.
  
• Since this is part of their regular economic activity, the 15% capital gains tax does not apply. Instead, the $50,000 must be declared as income in the income tax return.
  
• The applicable tax will depend on income tax rates for individuals or corporations (for companies, the general corporate income tax rate is currently 30% on net taxable income).
  

This means that for those professionally engaged in real estate, the tax burden may be higher than the 15% paid by an individual in an occasional sale.

The Positive Side of Capital Gains Tax

While it represents an additional cost, this tax also has positive aspects:

• International competitiveness: At 15%, Costa Rica offers a relatively favorable scheme compared to many countries.
  
• Legal certainty: Establishes clear rules that give confidence to foreign investors.
  
• Fair taxation: It taxes only the profit, not the total sale price (except for the optional 2.25% on pre-2019 assets).
  

Conclusion

The Capital Gains Tax in Costa Rica is a factor every property owner or investor should consider when planning a sale. While it may reduce final profits, it also fosters transparency and confidence in the market.

The legal exceptions—such as the exemption for primary residences and the 2.25% option for properties acquired before 2019—offer flexibility for sellers. On the other hand, those who regularly trade properties must pay under the income tax system, which requires proper tax planning.

Ultimately, understanding how this tax applies is essential for making informed decisions and optimizing results in any real estate transaction in Costa Rica.