With the substantial number of rental properties in Costa Rica, it is important for property owners who rent their properties out to be aware of, and be reminded of, the changes that were effective in 2018 - and additional changes with the 'Ley de Fortalecimiento de las Finanzas Públicas' (Law #9635) which came into effect in 2019.
Per the resolution N° DGT-R-012-2018, the CR Tax Authorities established the mandatory use of the electronic invoice system for all taxpayers, including real estate rentals, starting September 1st 2018, otherwise will be subject to a penalty and fines.
Before the approval of the Law #9635, the income tax was calculated on the annual profit of the company. The profit was calculated on income, less expenses, within the fiscal year. The income taxes were filed annually through a D-101 form and long-term rentals were not taxed with VAT (Value Added Tax).
With approval of the Law #9635, this indicates that income tax on rental properties will now be filed monthly through a D-125 form. The law allows that:
A 15% cap of expenses from the rental income, can be without proof
This creates a tax base of 85% from the rental income
The tax rate is 15% of the tax base (85% of rental income)
Residential rentals will be taxed with 13% VAT if the rent amount exceeds 1.5 the average Costa Rica base salary income, (around USD $1,085). Any commercial leases are subject to the VAT regardless the amount of the monthly rent.
If you have any questions about rental properties formal duties in Costa Rica or any other legal subject please don't hesitate to contact us by email on firstname.lastname@example.org