Transfer Taxes for the Purchase of Real Estate in Costa Rica

I am consistently surprised by the lack of knowledge surrounding real estate transactions in Costa Rica, particularly among the professionals who should know better. While buyers and sellers reasonably rely on attorneys and real estate agents to guide them correctly, the problem lies in the ignorance of these very professionals. Throughout my career handling real estate closings, I have been called ignorant, stupid, difficult, and inexperienced when I insist on following the law. The most common responses I hear are “I have never heard that before” and “This is the way we have always done it.”

I recall a real estate agent in Atenas who told me, “I have been a real estate agent for over ten years and this is the way we have always done it.” My response was simple: longevity does not equal correctness.

This article explains Costa Rica’s transfer tax laws, the fees involved in property transfers, and why certain common practices constitute tax evasion under Costa Rican law.

Understanding Costa Rica’s Real Estate Transfer Tax

In 1985, the Costa Rican Congress enacted a law imposing a tax on the transfer of real estate. The transfer tax rate is 1.5% of either the purchase price or the registered tax value (valor fiscal), whichever amount is greater. This tax goes directly to the Costa Rican Treasury (Hacienda).

Beyond the transfer tax itself, several additional government fees apply to property transactions:

• Bar Association Fee (Colegio de Abogados)
• National Registry Fee (Registro Nacional)
• National Archives Fee (Archivo Nacional)
• Municipal Fee (Municipalidad)
• Farm Institute Fee (Instituto de Desarrollo Agrario)
• Treasury Fee (Timbre de Hacienda)

These fees and taxes were established through various laws and regulations supporting the institutions they fund. The Bar Association fee was created by Decree 32493-J issued by the Department of Justice. The National Registry fee stems from the law regulating the registry. The Treasury fee comes from the Treasury Code. The Municipal Fee was established by the Municipal Code (Law 7794). The Archives fee was created by Law 7202 regulating the National Archive System. The Farming Tax originated from the Farm Development Law 6735. The transfer tax itself was created by Law 6999. Finally, notary public fees are determined by the Bar Association and published by decree from the Department of Justice, with the most recent fee schedule issued in 2015 under Decree 39708-JP.

The Corporation Transfer Tax Evasion Scheme

When the real estate transfer tax was created in 1985, attorneys immediately began searching for ways to avoid payment. The method they devised was registering property in a corporation (sociedad anónima). Under this scheme, when someone wanted to buy or sell real estate, they would not transfer the property directly. Instead, they would transfer the corporation holding the property.

This practice is illegal, though most attorneys will insist otherwise. The legitimate purpose of a corporation is conducting business, not evading property taxes. Using corporations for property transfers constitutes fraud. The Criminal Code establishes sentences of up to ten years for individuals who engage in false acts for purposes of committing fraud. In these cases, the false act is pretending to sell a corporation when the actual purpose is transferring real estate.

A fundamental problem in Costa Rica is the government’s limited capacity to enforce laws. As of 2013, only 4.4% of reported crimes resulted in criminal convictions. However, low conviction rates do not validate the remaining 95.5% of crimes. Lack of law enforcement does not make theft legal, and similarly, it does not make tax evasion legal.

The government historically lacked the means to enforce transfer tax compliance and identify who was evading taxes through corporation transfers. This led them to create new legislation specifically addressing this practice.

Law 9069: Closing the Corporation Transfer Loophole

In 2012, Congress enacted Law 9069 to improve tax collection. This law redefined “transfer of property” to include indirect transfers through corporations, creating a clear obligation to pay transfer taxes when transferring property through a corporation.

Despite this law being in effect for over a decade, I have rarely encountered real estate transactions where the other attorney or real estate agent knew about this requirement. The prevailing belief remains that transferring property through a corporation avoids taxes entirely, which is false.

The enforcement problem persists. Thousands of transactions are completed without appropriate tax payment. With minimal chances of being audited or prosecuted, attorneys are not deterred from tax evasion, and no meaningful incentive exists to comply with the mandatory tax.

Instead, attorneys use the tactic of offering lower fees to attract clients eager to hire the lowest-cost option for closing expenses. When clients—whether real estate agents, sellers, or buyers—search for attorneys to provide closing services, they face two options: the more expensive attorney who follows the law with correct closing costs, or an attorney who offers significant discounts by evading taxes while claiming the practice is perfectly legal.

The Reality of Attorney and Client Liability

We encounter this problem constantly in our practice. We regularly watch prospective clients choose attorneys who do not comply with the law. My standard advice is to be wary of any attorney willing to break the law to get your business.

What troubles me most about this tax evasion is not the lost clients. Fortunately, we maintain a healthy practice and can sustain ourselves. What bothers me is that Costa Rica faces a fiscal crisis, this is a poor country, and attorneys have the option to be part of the solution by collecting taxes according to the law. I am also troubled by people’s willingness to break the law.

According to Section 6 of Law 6999, both parties to the transaction—buyer and seller—are equally liable for payment of the taxes. The tax amount must be divided equally between the parties, typically 50% for the buyer and 50% for the seller. Funds for tax payment should be transferred to the attorney recording the transfer, who is then responsible for paying the government.

To pay the taxes, the attorney must complete Form D-120 from the Revenue Service (Tributación Directa) and file it with Banco de Costa Rica, which collects the funds. Both seller and buyer share liability for paying the taxes, as well as criminal liability if the taxes are not paid.

Under-Reporting Property Values: Another Form of Tax Fraud

Another practice we encounter regularly is under-reporting the property value to pay less taxes. This is common practice, but it is illegal. Attorneys report a lower purchase price to reduce taxes. Ironically, they still charge their fees based on the actual purchase price. They are willing to help clients “save” taxes by reporting a lower purchase price but unwilling to help clients save money by basing attorney fees on that same lower amount.

Recommendations for Buyers and Sellers

My recommendation is straightforward: report the correct purchase price and pay your taxes. Avoid any attorneys or real estate agents who suggest otherwise.

While the penalty for tax fraud is between five and ten years in prison—and I am certain you do not want to spend any time in a Costa Rican jail—the chances of prosecution for this type of fraud remain very small. Nevertheless, you can do the right thing and be part of the solution.

Feel free to reach us with your questions or comments.