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Comments on Costa Rica Real Estate Ownership (U.S. Taxpayers)
March 15, 2006
After considerable research, the developer believes the optimum ownership structure is for a U.S. LLC* formed by the buyer to purchase a Costa Rican corporation called an SRL** that owns the condominium unit.
By purchasing the stock of an SRL it avoids the real estate transfer tax which is charged to the buyer and seller. If subsequent sales are made using SRL stock, the same applies.
At the current time, Costa Rica has a territorial tax system compared to the U.S. worldwide tax system. In Costa Rica, only income received and expenses incurred in Costa Rica are taxed in Costa Rica. The goal for the SRL is to have zero Costa Rican taxable income or a small loss. Then, no Costa Rican taxes are due.
The SRL is treated as a floe-through entity for U.S. tax purposes (like a U.S. LLC). If the SRL does pay Costa Rican taxes they flow through to the U.S. and are eligible for a foreign tax credit.
The gain on the sale of SRL stock is not taxable in Costa Rica. The gain is taxable in the U.S., but may qualify for favored long-term capital gains treatment if held for more than one year.
SRL Requirements in Costa Rica
All SRL’s have a September 30 year-end and a tax return must be filed. The developer will file these tax returns as part of the buyer’s association fees, if the developer has all the information in its records.
If there is a positive taxable income, income tax will be due. (see below for details) The income or loss and taxes paid will follow through to the U.S.
Real Estate taxes are minimal in Costa Rica. The rate is .25% of the stated value. For example, if the stated value is $400,000 the real estate tax will be $1,000.
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| Big Blue Marble Properties, P.O. Box 14245, Chicago IL 60614-0245, Phone:773 572 6522 Fax:773 572 6572 Email:bbmp@bigbluemarbleproperties.com | ||
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