By the A.M. Costa Rica staff
Expats can be forgiven if they are confused by the new luxury tax on homes. Even some Costa Ricans who participated in drawing up the law are confused, too.
The biggest issue appears to be if land should be included in the valuation to determine the amount on which tax is to be assessed. Some say yes and some say no.
Well, the law says yes, but that appears to be a late change by the legislative staff without the knowledge of some of the key legislative players. Some lawmakers were concerned that if the value of land were included in the tax base that poor people with a shack on a lot of land would be hit with a big tax.
That is what is going to happen.
Article 10 of the law explains what is to be taxed and adds "the value of the land where it is located." That's about the only mention on land in the law, but most of a decree implementing the law contains detailed regulations and formulas for determining land value. Only land that contains a dwelling is subject to the tax.
So, as one real estate broker pointed out, highly valuable vacant lots in some upscale subdivisions will not be subject to the tax until a dwelling is constructed.
Another question being asked is does everyone who owns a dwelling have to register it with Dirección General de Tributación. That question gets yes and no responses. The final paragraph in Article 7 of the law says that only owners of property that will be taxed have the obligation to declare a value. It refers to the preceding article that has a number of exceptions, like public property and property used for religious purposes. The key element is homes worth more than 100 million colons. These are subject to tax. So based on this paragraph only persons with homes worth more than 100 million colons would have to file.
A paragraph tacked on to the end of the law as a
transitory adjustment contradicts this. This says everyone is obligated to present a declaration of value.
An addition problem for Costa Ricans and expats trying to comply with the law is that Tributación has not been helpful in explaining the measure. The law and the decrees implementing it are hidden on the Tributación Web site. There is no link or even mention on the law on the parent site of the Ministerio de Hacienda.
There has not even been a press release. The last press release posted on the Hacienda site is from Jan. 25, 2007. No informational advertisements have been seen even in the Spanish publications.
And there certainly is no official explanation in English.
As a result even some competent Costa Rica real estate brokers have been putting out incorrect information on their Web pages and via e-mails. One sent out an update with corrections Monday.
Some accountants and legal advisers are telling clients to hold off on filing the required forms until at least the end of November. They expect constitutional court cases that would suspend the effective date of the tax payments, which now is Dec. 31 for the last quarter of 2009.
One lawyer said he was going to file a case because the law did not give Tributación the power to tax land. Then the lawyer noticed the tiny phrase in the law that did just that.
Throughout the entire time that the law was being discussed land value was not being considered for the tax base. Any legal action will have to delve down into the actions of the legislative clerks to see exactly when the phrase taxing land was added to the bill and if it was in the bill when lawmakers approved the tax last year.
The purpose of the law is to raise money to provide homes for those individuals in extreme poverty. Any constitutional court magistrate is sure to weigh the intentions of the law against possible technical irregularities.