Luxury Tax Deadline Extended to January
Owners of luxury homes in Costa Rica will have until mid-January 2010 to pay the “solidarity tax,” thanks to a determination by tax officials that the process is “extremely complicated.”
Numbers released this week show that, to date, the owners of only 600 of the estimated 10,000 luxury homes in the country had paid the tax. In addition, meeting the fast-approaching Dec. 31 deadline was complicated by the fact many offices are closing for the holidays.
“We recognize the process is complex. We accept that,” said Finance Minister Jenny Phillips, explaining the decision to delay the deadline. “And we want to be respectful of the rights of the taxpayer, as this is the first time (this tax will be paid).”
Even with the new deadline of Jan. 15, fines will be levied on delinquents, Phillips said. Those who miss the January deadline could face fines of up to 10 times the original tax (upwards of $5,375), plus interest on the days gone unpaid.
The solidarity tax went into effect on Oct. 1 of this year as a way to raise money for slum eradication. According to the legislators who drafted the law, the tax will put an estimated ¢10 billion (around $17.5 million) toward housing projects under the National Housing Mortgage Bank (BANHVI).
Every homeowner with a residence valued at $172,000 or more, must pay the tax at a rate commensurate with what their home is worth (see box).
Though they call the process “complicated” and “confusing,” top officials at the Finance Ministry stopped short of saying there are any errors in the system.
But people like Bob Klenz know better. He and dozens of other foreigners had tried for months to pay the tax but, despite multiple trips to the banks and the Finance Ministry, their taxes remained unpaid.
“I am not against the tax. It’s just that they make it impossible to comply with it,” said Klenz. The 13-year resident of Playa Dominical, on the southern Pacific coast, has been a point-person in the expat community in trying to understand the process.
“What they make you go through is absolutely ridiculous,” he insisted in a telephone conversation with The Tico Times this week. Chris Cobb, who lives south of Quepos, on the central Pacific coast, said he also has faced roadblocks. Though he’s collected a wealth of information about the new tax (which can be found on his Web site www.ccobb.net/hacienda), he hasn’t been able to meet the guidelines of the Finance Ministry.
“I have been trying to understand the process, the requirements and how to comply.
I’ve realized it won’t be possible,” Cobb said. “Maybe it is as of today (Wednesday), with the possibility of wiring money, but before it wasn’t.”
In the end, Klenz also threw up his hands in frustration and said he would sit tight.
“I am going to wait. I am not going to file,” he said. Asked whether he was concerned about the looming fine, he said, “No. There is going to be too much noncompliance.
Too many foreigners cannot complete the process.”
On Wednesday of this week things changed. The Finance Ministry published a small note in the government newspaper La Gaceta to announce it will extend the deadline for payment. It also changed the payment process so that foreigners may wire money into a local account.
“It definitely helps,” said Klenz on Thursday. “I’m still not sure if it will work, but I’ll try it later (today).”
The process remains extremely complex, Klenz said. And the immense fines still hang in the air for those who miss the mark on Jan. 15.
The first challenge for a homeowner is assessing the value of the person’s own home. It is an in-depth process that entails strict measurements of everything from wall heights to lawn space. And it’s further complicated by technical language that is difficult for even a person fluent in Spanish to understand, according to Klenz.
“For a foreigner who cannot read Spanish, it’s virtually impossible to do it on your own,” he said.
If you undervalue your home by more than 10 percent, the new law threatens a fine of up to five times the original tax. And Tax Administration Director Francisco Fonseca said he will enforce the fine against undervalued homes.
“First we will look at what the homeowner declared,” he said. “We will consult with the municipality and, if we still have questions, we will send someone to look at the home.”
According to the original rules, the homeowner must have a local bank account in colones linked (or domiciled) with the Finance Ministry. Many people undertaking the process met obstacles in Costa Rica because most banks had not been instructed in how to domicile an account with the Finance Ministry.
“The bank manager learned alongside me,” said Jacques Bergeron, a foreigner with a home in the Central Valley, who – after much patience – was able to domicile an account.
Cobb, who said this step made him uncomfortable, said that he would “never allow a government to transfer out of (my) account.”
As of this past Wednesday, however, foreigners have the option of wiring money into an account at the Banco de Costa Rica (BCR) (see sidebox). This eliminates the need to domicile an account.
Even so, there’s one more hurdle, and it’s the one that has put the most foreigners in limbo.
In order to access the online portal to pay the tax, a homeowner needed a cédula (official Costa Rica personal identification) number. Foreigners like Klenz and Bergeron were rejected each time they tried to enter a passport number or some other combination.
Now, however, with the ability to wire funds to a BCR account, this step has been eliminated, finance officials say.
Homeowners cringing at the prospect of spending you’re the holiday season trying to figure out this tax can look to law firms like San José-based Facio Cañas for help. But that help will come at a price.
According to a document posted online, such tax lawyers charge between $500 and $1,400 for everything from home valuation to filing paperwork.
Asked what the Finance Ministry is doing to inform foreigners of the new tax (many of whom live outside the country the better part of the year), Fonseca said, “Most foreigners have people here to look after the home, renters, maintenance people. …We expect them to know about the tax.”
Where to Wire Money
Banco de Costa Rica, Tel 506-2287-9044
Account number: 10010242477-0
Client account number (dollars):
Swift number: BCRICRSJ
Beneficiary: Ministerio de Hacienda, Av. 2, Ca. 1/3,
San José, Costa Rica
Detail: “Pago impuesto solidarios CR” YOUR NAME and IDENTIFACTION NUMBER (passport number) Confused on where to start if you are filing on your own? Check out your local tax office: San José (2547-0000), Alajuela (2442-5313), Cartago (2551-5710),Heredia (2260-5533), Guanacaste (2666-1063), Puntarenas (2661-0509), Limón (2798-4003), Zona Norte (2460-4296), Zona Sur (2771-3480)
The payment on Jan.15 requires a prorated deposit for the last three months of 2009, but also full payment for the calendar year of 2010.
Luxury Home Tax
Residences valued between ¢100 millon ($172,000) to ¢250 millon pay .25 percent of property value
Homes valued greater than ¢250 millon and to ¢500 millon pay .30 percent
Homes valued greater than ¢500 millon and to ¢750 millon pay .35 percent
Homes valued greater than ¢1,000 millon and to ¢1,250 millones pay .45 percent
Homes valued greater than ¢1,250 millon and to ¢1,500 millon pay .50 percent
Homes valued greater than ¢500 millon and to ¢750 millon pay .35 percent
Homes valued greater than ¢750 millon and to ¢1 billion pay .40 percent
Homes valued greater than ¢1 billion and to ¢1.25 billon pay .45 percent
Homes valued greater than ¢1.25 billon and to ¢1.5 billon pay .45 percent
Homes valued greater than ¢1.5 billon pay .55 percent
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