Big changes are coming to Costa Rica’s tax system in 2025. At Osa Property Management, we’ve been closely monitoring these developments to keep our clients informed.

The proposed tax reform bill will affect property owners, investors, and the real estate market as a whole. This post will break down the key Costa Rica taxes 2025 changes and help you prepare for what’s ahead.

What Tax Changes Are Coming to Costa Rica in 2025?

Costa Rica’s tax system will undergo a major transformation in 2025. The proposed tax reform bill aims to address fiscal challenges and align the country’s tax system with international standards. This chapter outlines the key changes and their potential impacts.

Income Tax Revisions

The reform targets several areas of taxation. Income tax brackets will change, potentially affecting high earners. This change will impact property owners, especially those who earn substantial rental income. Lower-income earners might pay less tax under the new progressive structure.

Value Added Tax (VAT) Increase

The VAT rate is expected to increase, aligning with regional standards. This increase will affect various goods and services, including those related to property management and real estate transactions. Businesses and consumers should prepare for this change in their financial planning.

Property Tax Modifications

Property owners should prepare for changes in property-related taxation. The income tax overhaul, VAT expansion, and property tax reforms will affect take-home pay, consumer spending, and real estate investments.

Implementation Timeline

The Costa Rican government plans to introduce these changes gradually starting in 2025. The Legislative Assembly will review the legislation in early 2025, with the new tax regime expected to take effect by mid-year. This phased approach gives taxpayers and businesses time to adjust to the new system.

Preparing for the Changes

Property owners and investors should stay informed about these impending changes. We recommend consulting with tax professionals to understand how these changes will specifically impact your property investments and financial strategies in Costa Rica. (It’s essential to review your current tax planning and make necessary adjustments before the new laws take effect.)

Fact - How will Costa Rica's 2025 tax reform impact taxpayers?

As we move towards 2025, the impact of these tax changes on Costa Rica’s real estate market and overall economy will become clearer. In the next section, we’ll explore how these changes might specifically affect property owners and investors in Costa Rica.

How Will Property Owners Be Affected by Costa Rica’s 2025 Tax Changes?

The upcoming tax reforms in Costa Rica will significantly impact property owners and investors. These changes will reshape the financial landscape for those involved in real estate, affecting everything from property tax rates to rental income regulations and capital gains taxes.

Property Tax Rate Adjustments

Property owners should prepare for potential changes in their tax bills. The Costa Rican government plans to implement updates to the Value Added Tax (VAT) system in 2025. The current VAT rate stands at 13%. However, officials are considering adjustments that could affect property-related taxes.

Fact - How will Costa Rica's 2025 tax changes affect property owners?

A proposed tiered tax rate system may impose different rates on various types of properties. This change could particularly affect owners of high-end real estate or multiple properties.

New Regulations for Rental Income

Landlords and those earning income from short-term rentals will need to adapt to new regulations. The government will likely tighten rules around reporting rental income and may introduce stricter enforcement measures to ensure compliance.

Furthermore, any changes to the VAT rate could potentially apply to short-term rentals, affecting the competitiveness of vacation rentals in tourist areas. Property owners who rely on rental income should factor potential tax changes into their pricing strategies and financial projections for 2025 and beyond.

Capital Gains Tax on Property Sales

The reform may introduce changes to how capital gains from property sales are taxed. Property owners considering selling in the near future should be aware that they might face new tax considerations on their profits.

While the exact details have not been finalized, it’s important to note that tax policy changes in 2025 will likely be shaped by the outcomes of the 2024 elections. This could significantly impact the return on investment for property sellers.

Impact on Foreign Investors

Foreign investors in Costa Rican real estate should pay close attention to these changes. The new tax regime may affect the attractiveness of Costa Rica as an investment destination.

As the implementation of these tax changes approaches, property owners and investors should start planning their strategies. The next section will explore practical steps to prepare for these impending changes and minimize their potential negative impacts.

How Can Property Owners Prepare for Costa Rica’s 2025 Tax Changes?

The upcoming tax reforms in Costa Rica require property owners to take proactive steps to protect their investments and ensure compliance. With the implementation date approaching, it’s important to start preparations now to avoid potential issues and maximize benefits under the new system.

Review and Update Financial Records

Property owners should thoroughly review and update their financial records. This includes documenting all income from rentals, expenses related to property maintenance, and any capital improvements made to the property. Accurate and up-to-date records will prove essential for navigating the new tax landscape and ensuring compliance with revised reporting requirements.

Fact - How will Costa Rica's 2025 tax changes affect property owners?

Property owners should consider digitizing their financial records (if they haven’t already done so). Digital records are easier to maintain, update, and share with tax professionals when needed. Many accounting software options can streamline this process and help track income and expenses more efficiently.

Conduct a Property Value Assessment

With potential changes to property tax rates on the horizon, property owners should conduct a current property value assessment. This will help them understand how their tax obligations might change under the new system. Professional appraisals can provide an accurate valuation (which may prove useful in case of disputes over property tax assessments in the future).

It’s worth noting that in Costa Rica, property tax applies to homes valued over approximately 145 million Colones (about US$279,000) and ranges from 0.25% to 0.55% of the home’s value.

Consult with Local Tax Experts

The complexity of the upcoming tax changes makes professional guidance invaluable. Property owners should seek advice from local tax experts who understand Costa Rican tax law and the proposed reforms. These professionals can offer personalized strategies to minimize tax liabilities and ensure compliance with new regulations.

When selecting a tax advisor, look for someone with specific experience in Costa Rican real estate taxation. They should provide insights on how the new laws will affect different types of properties and investment strategies.

Plan for Potential Cash Flow Changes

The new tax regime may impact cash flow for property owners, particularly those who rely on rental income. It’s important to create financial projections that account for potential increases in tax rates or changes in deductible expenses. This may involve adjusting rental prices, reassessing investment strategies, or setting aside additional funds to cover higher tax obligations.

Property owners should also consider the timing of major expenses or property improvements. Depending on the specifics of the new tax laws, it may be advantageous to accelerate or defer certain expenditures to optimize tax benefits.

The income tax overhaul, VAT expansion, and property tax reforms will affect take-home pay, consumer spending, and real estate investments. Property owners need to be prepared for these changes to effectively manage their assets in Costa Rica’s evolving tax landscape.

It’s important to note that despite these changes, Costa Rica remains an upper middle-income country with a history of steady economic growth, which may continue to make it an attractive location for property investment.

Final Thoughts

Costa Rica’s tax landscape will change significantly in 2025. These reforms will reshape the financial environment for property owners and investors. The upcoming changes aim to align the country’s tax system with international standards while addressing fiscal challenges.

Fact - How to Prepare for Costa Rica's New Property Tax Laws?

The Costa Rica taxes 2025 reforms will impact real estate investments and rental markets. Property owners must stay informed and prepared to adapt their strategies. Some investors might reassess their approaches, potentially leading to shifts in property values.

At Osa Property Management, we help our clients navigate these transitions. We offer services that cover marketing, renter relationships, and tax compliance. Our team stays up-to-date with regulatory changes to ensure our clients’ properties remain compliant and profitable.