Build a Home in Costa Rica, Save on Taxes

Are you thinking of building your dream home in Costa Rica? I have done it 2 times already. It can be a very fulfilling experience; it can also be a nightmare if you don’t choose the right builder. Fortunately, I got lucky with both contractors I selected. They were great.

New home being built in Costa Rica
A Lot of people are intimidated by the idea of building a home in Costa Rica, even if they have visited the country many times. Also, the thought of building a home when you may not be here to watch every step of the construction can be scary as well, there are just too many unknowns. However, if you choose the right contractor, it is not as bad as you may think.

When building a home, it is important to know that in 2019 the Costa Rican government passed a law stating that all services used in the construction of a home are required to pay the mandatory 13% VAT, or value added tax. The good news is, the Costa Rican government has rolled back that law due to the Covid-19 pandemic in order to help re-activate the building sector.

What does this mean for you? If you decide to build that dream home in Costa Rica it will cost you less provided you start construction before August 31, 2020.

Here is a breakdown and timeline for paying less taxes:

Law 9887 adds a new transitory V bis to law N. 9635, Strengthening Law Public Finance, to Promote Economic Reactivation, and its reforms, establishing reduced rates for engineering, architecture, topography services and civil works construction when such services are provided to projects that are duly registered before the Costa Rican Engineers and Architects Association (CFIA).

1. From September 16, 2020 to August 31, 2021 (inclusive) will be fully exempt from the VAT.
2. From September 1, 2021 to August 31, 2022 (inclusive) a reduced rate of 4% VAT.
3. From September 1, 2022 to August 31, 2023 (inclusive) a reduced rate of 8% VAT.
4. From September 1, 2023 forward, these services will be taxed at the standard rate of 13% VAT.

What does this mean in real dollars? Well, that all depends on what you are building and how big the property is. Some engineers and architects charge a percentage of the size of the and scope of the work. Others charge a flat fee.
If you are considering building your dream home make sure you save this article and confirm with your builder, engineer, architect and surveyor to make sure you are not charged extra.

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