Closing Costs in Costa Rica

What are Closing Costs?

Closing costs are paid for by the Buyer, and the Seller is responsible for the commission to be paid the Real Estate agents.

 

Standard Closing Costs for a Real Estate Purchase and Sale in Costa Rica

It is common for the Buyer to pay for all the costs and the Seller paying the real estate agents commissions.

 

There are two scenarios when selling a property.

 

  1. Share Transfer Agreement: This scenario occurs when the corporation that owns the property is sold or transferred to the Buyer. The corporation, therefore, remains the owner of the property, and at the Closing, the board of directors will be updated, and they will remove the Seller and include the Buyer. Additionally, new shares of stock will be issued that reflect the Buyer’s interest in the property. Since the owner does not change, you avoid significant fees associated with recording a new owner with the Costa Rican National Registry.

 

Typical Closing Costs for a Share Transfer Agreement:

Legal Fees                         1.25% + 13% tax on legal fees

Transfer Tax                       1.50%

Escrow Service                  $678 includes IVA and assumes a transaction under $500,000

Recording Costs                $200

 

Example on a Purchase/Sale of $200,000

Legal Fees + tax                $2,825

Transfer Tax                       $3,000

Escrow Service                     $678

Recording Costs                   $200
TOTAL                               $6,703

 

  1. Property Transfer: ​This scenario occurs when the property is sold, and a new owner is registered with the Costa Rican National Registry. For example, if a property is owned in a corporation but is sold and put into another corporation or the personal name of the Buyer, then you have a property transfer. The attorney will draft a Transfer Deed, and the new owner will be recorded in the Costa Rican National Registry.


Typical Closing Costs for a Property Transfer

Legal Fees                         1.25% + 13% tax on legal fees

Transfer Tax                       1.5%

Escrow Service                  $678 includes IVA and assumes a transaction under $500,000

Recording Costs                0.85% approximately as they may vary depending on the value of the transfer and type of property

 

Example on a Purchase/Sale of $200,000

Legal Fees + tax                 $2,825

Transfer Tax                       $3,000

Escrow Service                     $678

Recording Costs                $1,700
TOTAL                               $8,203

 

Notes:

  • The difference in cost between the Share Transfer Agreement and the Property Transfer is due to the higher cost to record a new owner.

  • Often the Buyer will be responsible for paying the entire amount of the Escrow Service. 

  • If you own your property in a corporation and you are not able to be present at the Closing, then you can easily grant a power of attorney to anyone you choose for somewhere around the price of $200.

  • In the past, the Share Transfer Agreement was popular because the transfer tax was avoided by transferring thea corporation. However, recent changes in the law now require the transfer tax to be paid whenever  property is sold. Therefore, it is more common today for an attorney to recommend a property transfer over the share transfer due to the possibility of inheriting any unforeseen liabilities attached to the corporation that owns the property.

 

Capital Gains Tax

As of July 1, 2019, Costa Rica initiated a capital gains tax that applies to any property that is not your personal residence. If you can show that you lived in the property for a minimum of 183 days per year, then this tax does not apply. The tax is 15% on the gain from the sales price less documented improvements from what you reported with the National Registry that you paid for the property. If you purchased the property before July 1, 2019, then you have the one-time option to sell the property and pay a 2.25% tax on the total sales price instead of 15% on the gain or whichever amount is lower.

 

Tax for Non-Domiciled Sellers  

This tax only applies if you own your property in your name with a foreign passport and is 2.5% of the sales price. If you own your property via a Costa Rican corporation or with a Costa Rican ID (cedula), then this tax does not apply. Furthermore, this tax does not apply if you occupy the property for 183 days or more per year. This tax is to ensure that a foreign seller will pay the capital gains tax, so the 2.5% tax must be held back in place of the capital gains tax for the property title to be transferred. 

 

Real Estate Commission and Sales Tax

The Seller is responsible for paying the customary 6% real estate commission and 13% sales tax (described below) that totals 6.78%. The real estate commission is shared 50/50 between the Seller's agent and the Buyer’s agent. 

 

Sales Tax

Costa Rica Law (Ley de Impuesto General sobre las Ventas: 6826 Articles: 1.n – 2.d – 3.c)  states that:

 

 “The real estate broker is responsible for collecting the sales tax by law and must charge the owner 13% on the commission for the sale of the property.”

 

Most people in Costa Rica are only aware of this taxon other goods, and not usually on services. As an example, let’s say you go into a Costa Rican restaurant and order a $10 pizza. You will be taxed an additional 13% bringing the cost of the pizza to $11.30. (There is also a 10% service fee or mandatory “tip,” but that is outside the scope of this conversation, and not applicable to real estate commissions). The client pays for the pizza; the client pays the tax, the seller collects the tax and then pays it to the government every month. In Costa Rica, there is a 13% tax when you hire a realtor to sell your property, and the same rule applies to their commission.

 

 

 

 

 

 

 

 

Copyright © Lisa Farrell ~ Costa Rica Licensed Realtor

Email: lisa@papagayorealestate.com 

Cell: 506-8398-8129 | Office: 2672-4100 | USA & Canada: 561-372-8370