Understanding Capital Income Tax on Real Estate in Costa Rica

In December 2018, Costa Rica introduced a major tax reform through Law No. 9635, known as the Law for Strengthening Public Finances.
This reform amended the Income Tax Act (Law No. 7092) and introduced a new concept to the Costa Rican tax system — the Capital Income Tax (Impuesto a las Rentas de Capital).

For anyone earning income from property or real estate in Costa Rica — whether through leasing, rights assignments, or selling property — understanding how this tax works is essential.

Let’s break down what it means and how it applies in practice.

What Is Capital Income Tax in Costa Rica?

The Capital Income Tax applies to earnings generated by investments or property — specifically:

1. Real estate-related income, such as rent or subleases.
2. Movable assets, like dividends or interest.
3. Capital gains or losses, such as profit from selling property.

For this article, we’ll focus on real estate income, which includes:

• Leasing or subleasing a property.
• Transferring or assigning rights over real estate.
• Charging for the use or enjoyment of property (in money or in kind).

This tax is paid monthly, based on the income received during the period.

Learn about selling real estate in Costa Rica

How the Tax Is Calculated

The taxable event occurs when you receive income (or become entitled to receive it) from real estate activities.

The taxable base — the amount you pay tax on — is the difference between your total income and deductible expenses.

You can deduct:

• Up to 15% of total income automatically, without needing proof (a legal presumption allowed under the law).
• Or, actual documented expenses, if higher and properly supported.

Once you determine your taxable income, a flat rate of 15% is applied.

Example

Suppose you own a property in Desamparados, San José, and lease it for USD $500 per month.

• Deduct 15% for expenses → $500 × 0.85 = $425 taxable income
• Apply the 15% tax rate → $425 × 0.15 = $63.75

You would owe $63.75 in Capital Income Tax for that month.

Important: This tax is separate from the Value Added Tax (VAT), which also applies to housing leases above ₡675,300 (around USD $1,165) per month.

How to File the Capital Income Tax (D-125 Form)

The Ministerio de Hacienda (Costa Rica’s Tax Authority) manages tax filings online through its ATV system (Administración Tributaria Virtual).

To file your monthly return, you must first create an ATV account and complete Form D-125 – Declaración Jurada del Impuesto de Rentas de Capital Inmobiliario.

Steps to Complete the D-125 Form:

1. Identify the Taxpayer:
   Enter your corporate ID or personal ID registered with the Tax Administration.
2. Declare Revenue:
   Report total income from real estate (rental or rights-based).
   You’ll also include details about your tenants and specify whether the lease is residential or commercial.
   Note that the tax applies to all income, regardless of whether VAT is charged.
3. Deduct Expenses:
   Apply the automatic 15% expense deduction or input actual expenses.

The system then automatically calculates the tax due. Payments can be made through authorized banks or financial institutions.

Deadlines:

The return must be filed within the first 15 days of the following month. Late filings accrue interest and penalties.

What If You Have No Income for a Month?

Even if you earn no income during a given period, you’re still required to file a zero-income return for that month.
Failure to do so may result in fines from Hacienda.

Tax Obligations for Nonresidents

If you’re a foreign national without residency or a permanent establishment in Costa Rica, the tax rules differ.

According to Section 28 ter of the Income Tax Law:

• The buyer (acquirer) must withhold 2.5% of the total transaction amount as a tax guarantee.
• The buyer is then responsible for filing the tax return and paying the 15% Capital Gains Tax on behalf of the seller.

In other words, when buying property from a foreign seller, the buyer must withhold and report part of the payment as tax.

This rule ensures the Costa Rican government collects tax on profits made by nonresidents.

When You Sell Your Home

Not every property sale is taxable.
The law provides an exemption when you sell your primary residence — your usual home.

This also applies if the property is held under a corporation, provided the shareholders can prove the property was used as their personal residence.

However, the Tax Administration may require documentation to verify that the home qualifies as your habitual residence before granting the exemption.

Can You Choose a Different Tax Regime?

Yes. Under Section 28 of the Income Tax Law and Article 3 ter of its regulation (Executive Order No. 18445-H), you can switch to the general income tax regime instead of paying under the real estate capital income system.

To qualify, you must:

• Be registered as an employer with the Caja Costarricense del Seguro Social (CCSS).
• Employ at least one worker.
• Commit to this regime for at least five years.

Once approved, your rental or real estate income will be taxed under the Income Tax regime, not the Capital Income Tax.

COVID-19 Tax Relief and Exceptions

During the COVID-19 pandemic, Costa Rica enacted Law No. 9830 – Tax Relief before COVID-19, which granted temporary extensions for some taxes (like VAT, corporate income tax, and import duties).

However, this relief did not apply to the Capital Income Tax, since it’s due monthly and explicitly excluded in the law’s text.

Therefore, property owners and investors must continue filing and paying the D-125 on time, even during exceptional periods.

The Take

The Capital Income Tax represents a key part of Costa Rica’s reformed tax framework. Whether you’re renting property, assigning rights, or selling real estate, this tax ensures transparency and accountability in the country’s real estate market.

If you own or manage property in Costa Rica, understanding your obligations — especially under the D-125 system — can help you stay compliant and avoid unnecessary penalties.

Still, tax law can be complex. We strongly recommend consulting a qualified accountant or attorney familiar with Costa Rican tax law to ensure your filings are accurate and your deductions valid.

Feel free to reach us with your questions or comments.