Sales Tax on Real Estate Commission in Costa Rica
- November 15, 2013
An Explanation of the 13% Sales Tax in Costa Rica – And its application and requirements for real estate commissions.
RE/MAX First Choice Realty in Nosara, Costa Rica has always operated on the philosophy of an unwavering commitment to honesty and integrity in its quest to best serve all its clients. On occasion, an office policy has come into question by a small number of sellers. The following is our attempt to set the record straight and put this matter to rest.
The matter is this: Ley de Impuesto General sobre las Ventas : 6826 Articles: 1.n – 2.d – 3.c
This law 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 tax on other goods, and not usually on services. As an example, lets say you go into a Costa Rican restaurant and order a $10 Burger. You will be charged an additional 13% bringing the cost of the Burger 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 burger, the client pays the tax, the seller collects the tax, and then pays it to the government every month. As with the purchase of anything in Costa Rica there is a 13% tax, and when you hire a realtor to sell your property the same rule applies.
Costa Rican law clearly stipulates that 13% must be charged in accordance with any realtor commission. If a property is sold for 100k with an agreed realtor commission of 5% commision, the commision is 5k, and the tax is $650. Both the commission and the tax being paid are the responsibility of the seller. The responsibility of the broker / vendor is to collect the tax and pay it to the government every month. Despite the Costa Rican landscape unfortunately being rife with realtors who are happy to incorporate this tax into their commission (which in some cases never goes to the government) this practice, although part of some murky legal terrain is essentially against the law. The law clearly states that the commission and the 13% tax have to be separate. Despite a sellers commission being negotiable, any realtor who tells a client that this tax will be subtracted from the commission is operating outside the law. In fairness this policy is common practice among otherwise ethical realtors, so why is it that these agencies who often genuinely wish to operate within the confines of the law end up paying the tax themselves?
Imagine the following scenario:
A homeowner wishes to sell their property and goes about listing it with a variety of realtors. During a visit to realtor A the price is set, the listing agreement signed and the seller agrees to the established realtor commission. The seller then visits realtor B. Whilst reading the listing agreement the seller notices a clause that requires them to pay a 13% commission. This clause was not mentioned by realtor A and the seller senses something is afoot and retracts their listing with realtor B. The problem is that the sellers listing is essential to the prosperity of the business of both realtors. However realtor B has decided that instead of taking the chance of losing the listing they will either absorb the losses incurred by paying the 13% from their own commission, or, (and this may unfortunately be the case in the overwhelming majority of these situations) not pay the tax to the government at all. One often used loop-hole has been for people to represent themselves as mere “ex-pat” advisors and thereby try to circumvent a job title which would force them to adhere to the rules that apply to that profession, since the tax specifically applies to “services rendered for acting as real estate broker“.
However in the eyes of the law, receiving money to execute any real estate transaction incurs the same 13% sales tax.
There is little gone unwritten regarding the wealth of unique attributes that Nosara and Guiones boasts. Playa Guiones is one of longest established ex-pat communities in Costa Rica and the fact that the Nosara pioneers were an eclectic mix of yogis, surfers and eco-warriors has been fundamental in its pattern of development. They have worked relentlessly to try to ensure that the unparalleled beauty that attracted people in the first place has remained unchanged.
After circling the globe many a seasoned perma-traveller has landed in Nosara and immediately become aware that unlike so many other utopias that have fallen victim to corporate encroachment Nosara has somehow evaded the pitfalls of “progress” and that the philosophy on which it was founded still rings true. The old adage “paradise lost” doesn’t apply here. Nosara is paradise found, and in spite of relentless opportunities to sell out, it is paradise retained, due in large part to the fact that it has managed to remain off the radar. Whilst this has been a huge draw for those wishing to visit and in many cases call it home, it has also proven a double edged sword, the flip side being that it has also remained “off the radar” to the authorities. Those days are coming to a close and the business people who have long enjoyed operating in an entrepeneurial Wild West know it is time to clean up their act and start playing by the rules.
The implementation of swimming pool codes at hotels, increasingly regular visits by caja to ensure social security payments and the implementation of wheelchair access provisions in hotels all serve to highlight the plain fact that the spotlight has been shone on Nosara by the authorities. It is increasingly being held to the same standards of law as the rest of the country. VAT tax enforcement for all businesses is rapidly approaching. It has already happened in other parts of the country a little further ahead on the development scale, especially in the areas closest to the Liberia Airport. The future is up on us and RE/MAX First Choice feels that we should be leading the way in making sure our business is following the correct codes. We also feel that in an area as complex as the buying and selling of real estate we do our best to keep it simple and we can’t state it more simply than this: None of our agreed commissions include the 13% sales tax that all realtors, agents, intermediaries and brokers are legally required to pay to the government. RE/MAX First Choice Realty places itself in a situation where we risk losing listings and thereby making less money BECAUSE IT IS THE LAW. We will never apologize for following the law; these words may sound overly straightforward but we feel it is high time to set the record straight on this matter, and know there are others in Nosara who also agree. We thank you for your understanding and hope that these words help people to understand that RE/MAX First Choice will always go above and beyond to instill confidence in those with which it has business dealings. Honesty, fairness and transparency are traits that we know to be essential in maintaining the reputation that we have established as ethical practitioners in an often unethical industry.