Implications of Capital Gains for Non-Residents

July 28, 2021

Due to capital gains are subject to Income Tax, taxpayers non-domiciled in Costa Rica are owners of assets or rights in the country, despite their status condition regarding the approval of Law No. 9635 – Law for the Strengthening of Public Finances, becoming into a taxation matter to resolve.

Article 1 of the Income Tax Law states that assets located, or capital used within the territory generate income, revenue, or benefits of the Costa Rican source.

In accordance with Article 28 ter of the aforementioned regulation, it is established that in the case of real estate transfer located in national territory owned by a non-domiciled person, the acquirer will be obliged to withhold and pay two-point-five percent (2.5%) of the total consideration agreed upon, as withholding on account of the tax corresponding to the capital gain.

In this sense, when a non-resident person generates a capital gain through the sale of an asset he owns, the buyer must withhold 2.5% of the sale price established or agreed for the property.

Article 31 ter of the Income Tax Law states that the rate for capital gains is, initially, 15%. However, in the case of goods and rights acquired prior to the entry into force of this chapter, the taxpayer may choose to pay the capital gains tax in the first sale, applying a tax rate of two-point twenty-five percent (2.25%) to the sale price.

There are two taxation options that depend on the acquisition date of the asset and not on the condition of the taxpayer, applying the regulation to both domiciled and non-domiciled taxpayers, according to the aforementioned.

Considering the aforementioned, the correctly implementation of the capital gains self-liquidation tax return form for non-residents by the Costa Rican Tax Administration is expected. However, the tax payment must be made through the official payment receipt (Form D-110) due to the absence of this.

With these premises, it is expected that taxpayers will have a better understanding of the assumptions of income generation in capital gains cases.