Talking Expat Taxes #14
Costa Rica Real Estate Tax Setup: Why Your Property Management Contract Controls Everything
Most Americans investing in Costa Rica real estate focus heavily on U.S. tax implications while underestimating the complexity of local compliance requirements. The result is a familiar pattern: investors who handle the American tax planning correctly but find themselves scrambling with monthly VAT declarations, banking documentation requirements, and property management contracts that shift their entire tax burden. The stakes are higher than many realize - Costa Rica's tax authority can audit businesses up to four years retroactively, and poorly structured investments often require expensive corrections that could have been avoided with proper planning from the start.
Show Notes
“Do you think that compliance is expensive? Try not to be compliant.”
Takeaways
Your Property Management Contract Determines Your Tax Structure
The single most important document for your Costa Rica investment isn't the purchase agreement - it's your property management contract. This contract dictates whether you handle monthly VAT filings yourself or your property manager takes care of everything. A well-structured contract can shift the compliance burden to your manager, leaving you with simple annual income tax filing.
2025 Brings Automatic Withholding Changes
Starting in 2025, Airbnb and other platforms will begin providing rental information directly to Costa Rica's tax authority. By 2026, these platforms will automatically withhold approximately 13% in taxes. This fundamental shift means current tax strategies may need immediate revision, and proper planning now can position you advantageously.
Early Professional Guidance Prevents Costly Corrections
Costa Rica's tax authority can audit businesses up to four years retroactively. Investors who attempt DIY setups often face expensive unwinding processes later. The interconnected nature of legal registration, tax compliance, and property management contracts means mistakes in one area create problems across the entire investment structure.
“The tip that we are going to give you is the contract, because according to the contract is the compliance with the taxes.”
Today's Guest
Catherine Palacios
Nadia Rodriguez Nadia Rodriguez is a Certified Public Accountant with over 25 years of experience in multinational companies, specializing in international tax compliance, finance operations, and business management. Her expertise spans Latin America and the Caribbean, with deep knowledge in transfer pricing, SOX controls, and regional tax compliance. She brings extensive experience in budget forecasting, consolidation reporting, and leading multicultural teams across complex international regulatory environments. Catherine Palacios Catherine Palacios is Executive Director of Done Deal Costa Rica, bringing over 20 years of banking and finance experience to international real estate investment. She rose through nine positions at major banks including Scotiabank, where she headed the Real Estate Credit Division, and later led market expansion into Guanacaste at Banco BCT. Her expertise focuses on helping international investors navigate Costa Rican real estate markets, providing integrated financial advisory services including mortgage structuring, asset protection, and investment strategy for clients seeking second homes or business ventures in Costa Rica. instagram.comEmail Catherine
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Welcome to another episode of Talking Expat Taxes. , If this is your first time here, my name's Alex McGowan and I'm the owner of McGowan Tax LLC, where we help individuals in small businesses with international tax issues. Uh, today I'm very fortunate to have on Kathy and Nadia who are gonna help me understand some of the rules and navigating.
Really, for the most part, we're gonna focus on rental properties in Costa Rica specifically purchasing and, you know, owning property in Costa Rica. But our company does a lot more than just that. I guess that's a good place to start. Kathy, I'll let you kind of take it from here and tell us a little bit about, a little bit about your company, , how you got there, what your background is, and what you do to help people.
Done Deal: The Family Office Concept in Costa Rica
Thank you, Alex, and welcome me. Thank you so much for having us today. We're very excited. All the way from Costa Rica to Alabama. So we send a warm hello to everybody who's watching. And thank you Alex again for giving us the opportunity and trust in our services. So Done Deal was born almost a year ago.
We're gonna be, our first official birthday is going, coming on October 3rd. And, what backs up our experiences, my 20 years of, as a former banker in Costa Rica? So I like to offer my services as a banking products specialist, financial planning, advisor, decision making support analysis. Sometimes, most of the times, when foreigners are investing in Costa Rica, they need a little, guide to be encouraged to do the right investment and to have everything compliance and be empowered.
So from my end, that's my expertise. And I can tell you that the inspiration and the purpose of Done Deal is that. Throughout my career in banking, Alex, I have learned the importance of providing personalized service, with empathy and professionalism as we are passionate to, be able to personalize the service and provide education, with a deeply respect, to people's time and money.
And here we have Media Rodriguez, who is also a partner in collaboration of Done Deal. Recently incorporated like around six months ago. Nydia brings to the table more than 30 years in experience of, tax and accounting as a tax and accounting specialist. , She also does consolidate reporting and she used to be, finance, accounting management.
From different international companies in Costa Rica. So Nydia, it's been, like amazing, to have you in the team so far with Done Deal Costa Rica. And we are very happy to learn more about, what comes to, specific real estate tax in Costa Rica Media. We are all yours. All yours. Thank you, Alex.
Yeah, so I mean, done deal. I guess more generally, you know, you're, you can help people from start to finish, right? Like if I'm, if I'm in the US and I'm looking to buy a property in Costa Rica, like if I don't even know what I wanna do, I just know I want to invest somewhere in Costa Rica because I think it's a good market.
You can help me find the right place that fits, that fits, I guess my style, my what I'm looking for, you know? And then through the whole process from finding the place to doing the taxes to. To helping set up management companies and things like that for reporting purposes. Right. It's kind of a, you can do everything or a little bit of it.
Right.
Exactly. Alex, basically you illustrated pretty well. We like to call it, we are developing a family office concept in Costa Rica. If you look at the family office concept abroad is more like managing, wealth. From people, from clients, but in Costa Rica, since the industry related to foreigners, specifically real estate and hospitality, what we do is we triangle the goals of our clients for the investment in Costa Rica, and we provide the, with our expertise, the guide and the service with the consulting, basically on financial advice, accounting, decision making.
And all the tax as well. And then we work together with many, recognized, legal firms in Costa Rica. So that's basically what we're putting together here. And then ongoing, we also do all the basic and more formal, bookkeeping, accounting and reporting. If our clients, most of them have like a holding, abroad, you know, like a holding company, for which they, and this will, be a bridge.
, Between your work and our work because we can also support them how to bring this equity back once they get on rolling with the, pool of rentals as they wa as they want, the investment to be settled in Costa Rica. So basically we want to be this end-to-end process and as well support them with all the market study involved.
You know, the relocation, if it's the case as a grown community in Pacifica.
Yeah. And that's why I'm fortunate to have been put in touch with you. 'cause I, I work with a lot of realtors and, attorneys in Costa Rica for Americans, investing and living down in Costa Rica, but. That's the biggest problem I see with people is just, I mean, and this isn't specific to Costa Rica, it's if you are investing in real estate or doing something in a country that's not yours or somewhere you, you don't live, you need trusted people that can walk you through the process.
Otherwise, things can get bad very quickly if you make, wrong decisions. And I've, heard a lot of horror stories with people that kind of. Go about it on their own. You know, be some, you know, an American from Minnesota that decides they're just gonna purchase a property in Costa Rica and, and figure it out on their own.
Um, some of them do and some of them don't, you know, so, um, anyway, so yeah, it's a great service you're providing and, I would definitely recommend it , and hopefully we'll be able to pick your brand on more. Of the specific areas of the service you're providing in the future. But I think today what we're gonna focus on is the tax side, which is what NAIA specializes in.
And Kathy, I appreciate given the background, but maybe Nadia you could start just giving us a little bit more background into, I guess your experience with tax on accounting in Costa Rica in general and what you're doing now. Like, what is the typical client you're servicing? And then we can jump into it from there.
Hi. Yes, hello. Good afternoon. My experience is, more than 25 years, but I've worked in multinational companies and more focused on, on local compliance. And not only for Costa Rica, but local compliance for all countries in Latin America, even in the Caribbean. So I know it kind of boring, um, you know, because you have to be compliant, but,
I remember in one of the companies that I worked that it said, do you think that compliance is expensive? Try not to be compliant. So we use that for customers. It's kind of boring, but it is something that I like and I'm passionate about. And, what is that? Because our main purpose is to cover your back to, to the investor is to,
keep them, aware of the changes of the things that they need to do in Costa Rica because, in our experience, we have had customers that come directly to the bank. For example, if they, they want to open a bank account and they want to transfer, $1 million or 100,000 and. It is not like in the States.
It's not like, just like that. Of course, they're going to have a roadblock because. You know, Costa Rica is part of the OECD uh, structure. So we need to be compliant with several regulations that we have, for mo for anti laundry laws. So, if you want to invest in Costa Rica and you want to bring money here to the country, you need to,
to reveal where is it coming from? And, for that you need someone to certify that. So this is where we come to the investor and not, the service is not only there, not only to comply to, to bring money. Here, it is, a companionship to be, right by your side, if you're an investor, we are right by your side.
Anything you need, we fill out the forms at the bank. We provide connections because we do have the connections. We can help you out because we speak English as well. We are familiar with the local, regulations and local requests from the bank and from different, entities,
Hey, that's a good point though, with the signing off. So if I wanna transfer a hundred thousand dollars into a Costa Rica bank from the us I have a, I've had several clients of mine that come to me and say, I don't know who it is, whether it's their banker or their accountant, and they say, Hey, I need you to sign a letter.
They need me, a, us CPA to assign a letter. Certifying that they have a certain amount of money in the US to back this. Is that, are those two things related? I've never really understood, like I know what I'm signing, like I'm signing off, like to say I confirm this person makes this amount of money or whatever it is, but I don't really know what they're doing with that, to be honest.
Is that the banking part you're talking about?
Yes. Yes, that's it, because the bank doesn't know who you are,
Right.
so they need to have, your background, your financial background to create a profile
Is that something a Costa Rica accountant like you can do or do I like, why do they, I, was curious why do they come to me, a US CPA for that? Or like could they go to somebody like you for that as well?
I have worked with customers that brings their CPA from their local country. For example, I have one from Germany. And documents were in German, so I needed to translate it because that is not valid in Costa Rica. As same as a lawyer you are, you can certify in your country because you're backed up by your, you know, public account and chambers or, or something like that.
In Costa Rica, I'm backed up as a CPA by the. The, the license. Yeah. You don't have license for in Costa Rica. So, um, your information is not valid for the bank, but it's val valid for me because that give, gives me more credibility on, on what I'm certifying. Yeah.
So it's like a multi-step process. You are the one that certifies it in Costa Rica 'cause you're licensed in Costa Rica, but you need me or someone in Germany or whatever the situation is to certify it in the local country so that you are comfortable certifying it in Costa
fact that works. It's, uh, I feel more comfortable, but it's, it is not, necessary to bring a CPA from the, from the local country you're coming from. Um, you need to present documents, so I can see them, to see if, if they are valid, so I can certify, where your, your funds are coming from.
Yeah, that's what's confused me because it seems inconsistent. Like I have as many clients as I work with in Costa Rica. I can count on, I mean, maybe 10 people have had me sign this letter, but a lot of them have moved. A lot of money into Costa Rica, so either somebody else is signing it or maybe it's somebody like you in Costa Rica that's reviewing the US documents themselves, you know, and, and maybe so.
So maybe some people, some accountants or whoever want the US or other or local country accountant to certify the documents, whereas other accountants are comfortable doing it themselves. Is that a way to say it?
I have had cases, Alex, where I see the 10 forties. You know, these forms are very complete, so it, consolidates all your income. So it's very easy to read through it. I mean, they are large documents, so you need to understand them. And of course you need to have the language to understand.
I'm speaking. For the CPAs in Costa Rica and to understand where the businesses are coming from. And this is a good, start point to see where your funds are coming from. So basically what this is, need this certification to create a profile that Alex McGowan is an entrepreneur, and he does, $1, $1 million a, a year.
So he could be. Transferring money Costa Rica. I mean, it, it is not, every time that you are transferring funds, it is to create your profile so the bank will know that you will be transferring funds. Yes. If you are a developer or depending on your, economical activity.
They call that, the common reporting standard, is that the standard OECD standard that Costa Rica's under?
Mm-hmm.
And if, if you let me, to bring, an additional comment to this is to align with the banking structure because, there is, it is a, in Costa Rica we are very street regulated in terms of source of funds. And people think usually that a source of funds will be proof by your bank statement.
And the bank of statement, Alex is only showing that you have the money, which is good. Right? Or a bank of statement proving like many, some of our clients do. The structure of their income is based on RSUs or, quarterly distributions from their companies that they work for. And what they do in the US is sometimes they get paid in one corporation and they transfer the money to personal basis.
But then when the bank is trying to track. The personal income or to understand more about the source of funds is not, is uncertain because, Costa Rica system is very straightforward. If you're a salary, you get paid in a, savings personal account. If you have your own business, then you are the owner of the whole operation and you shall have.
Also declare personal income basis to, to prove the bank personal. I'm, I'm thinking out loud in two different products already. One is mortgages that we also assessed and the other one is a bank account. So regarding to Nadia's, point, I also wanted to bring, to the topic the difference between, setting up a source of funds certification, consolidate certification to set up.
The transactional profile for a Costa Rican bank account, they're like a, a little different, it's a little different, but that's all I just wanted to add to this
Alex, that, that is the first step for our
Right. Right. This, this, this is just getting money there.
Okay. You haven't bought the property yet. But that's only the, very first step and, once, uh, you are here, what we provide is that companionship to give you an advice and to support you on all, the steps that you need to go through.
And, yes, we recognize it is not as fast as, or as expedite as the United States, but if we do it one step at a time. You'll get your, mortgage approved, you'll get your, financing or whatever you need, from us. You know, we are the liaisons between, the financial institutions and the customer.
Yeah. So, and that's really important to have that liaison. Otherwise, I mean, I, I've talked to many people that have done it on their own and taken a lot longer than it probably would have otherwise or not happened at all. Yes, yes. But, uh, okay, so we get the money to Costa Rica and there's procedures we have to follow, right?
So we, and then let's say we get the money there. And let's skip a few steps. We purchase a property and we've decided to put it in a company. So a company has been set up. And what we do like from a US tax perspective, generally it makes sense to set up, you know, the LLC version of a Costa Rican company, the SRL or Lumata.
Mm-hmm.
that way we can treat it as a flow through in the us. That way it's gonna, the income and expenses, if we're talking about a rental property, are gonna flow up. If it's not a rental property, then it's still treated as your personal property. So if you sell it later, you can get a better tax rate at the end of the day than you would if it was held by a foreign corporation from a US perspective.
But, so that's where I get with clients. You know, a client will call me and I had, I had a call this morning with somebody that's, they're in the process of setting up a Costa Rican company to buy this, property. And so I talked them through the US side. And the process there, which, is its own thing, but then the, question always comes up and, you know, I, I literally got an email right before this call and I'll read it actually, he said, quick question, can you help me out with the monthly, that tax declaration needed for Airbnb? I'm getting all sorts of advice from neighbors, but I'm not sure how to proceed. So that is just one piece of it. But I think that's a good example of what happens is I help people get set up correctly to help them in the us I don't do Costa Rica taxes.
I understand broadly, and that's what we're gonna talk about. I think it'd be helpful, for someone listening to understand, I guess we'll talk about it at a high level, but if you do set, 'cause typically people will set up, say an SRL and let's say they're going to rent it out through Airbnb or whatever.
What is the setup process that they need to be aware of and the ongoing compliance process. Maybe we can talk about it from a high level at first just to like. To see it at a airplane level view, and then let's dig into a few pieces. We'll dig into it from there,
Each case is different depending on how many properties you have. But let's speak, about a single one. Okay? You buy a property and you want to know what type of, taxes you need to comply with. You have the VAT and you have the income tax basically, and. It depends on how you want to work.
You can do it by yourself, you can rent it by yourself, or you want to hire a property management company.
Mm-hmm.
This is the, the first question, and the other one is, are you going to, rent it out for long term or short term? So that changes the game it, it the unique.
go down, let's go down the short term route, because I think that's least where a lot of my clients are, are landing is in the short term rental route. You know, basically the standard situation is, somebody lives in Minnesota and they wanna spend two months a year in Costa Rica and rent the place out the rest of the year, which should probably mean, nightly rentals is what they're looking at through this XRL.
Um, the easiest way this person hires, a property management company. The tip that we are going to give you is the contract, because according to the contract is the compliance with the, with the taxes. Because your property manager can do all the filings on your behalf, can act as the person or, or the company in between withholding the taxes.
We'll rent it out for short term and then we'll file the taxes and then it will give you, in the end on a monthly basis or every two months or quarterly, as you wish, they will give you a, balance account and you will receive only the net with the deductions of the, with withheld taxes and other costs.
Okay, so in that scenario, you're saying it's not your company that's registered with the, with Costa Rica, it's the management company, and they're doing all the filings and paying the taxes and you are just receiving the net. Is that right? You don't?
That's, that's, that's not, uh, a scenario that I'm giving you. There can be several scenarios, but that's the easiest one because the property manager will do everything for you.
Is that, is that standard for pro? Because I, I guess I've seen it where some property managers do that and other property managers only do like the Airbnb listing piece. They don't do the filings.
That's why, I am telling you, uh, that need to be addressed in the contract. And there, you know, that there is, a new regulation with Airbnb, booking.com and others, that the fiscal administration in Costa Rica, um. Has signed an agreement with Airbnb and some others that they are going to provide starting in 2025.
They are going to provide all information regarding the renters. Okay? And, after 2000, late in 2026, it's Airbnb and booking.com and others. That, that are in an agreement with the fiscal administration in Costa Rica. They will with withhold you the 50, uh, the 15,
15%.
13% bad, uh, app portion.
point. Uh, it's a portion.
Okay.
Oh, right, because you get a de, an automatic deduction off the
Exactly, but that doesn't mean that you will complying, comply with the taxes. That's a withholding part of the business. You know, you need to do a liquidation on a yearly basis and it depends on how is it going to be structured. That's why I am telling you the contract.
How do you define the contract where your property manage manager is key in this type of things? Our tip is to take care of these, these minor things. If we can say it like that. Is who gonna do to do what? Okay. Well, for example, in my own experience, I have a property manager. I have a condo in the beach.
I have a property manager and his slogan is stress free. He'll do everything for me. Okay. But it's in the contract.
Right.
It is very nice to hear him saying that, but need to be in the contract because, that's the support you need to present in front of the tax authority.
Right. I think that's what a lot of people are looking for that invest out in Costa Rica. Especially if they don't live in Costa Rica,
Exactly.
it's unlikely that they're gonna wanna learn Costa Rica and tax law and, you know, file things themselves there.
Correct.
I think that's what most people are looking for.
But in my experience, I have a lot of clients that kind of fall into. Doing things on their own, like registering, needing maybe not on their own, but needing to hire an accountant to register their company with, the NDA in Costa Rica and then having to file the reports. So maybe could you talk through that scenario and then we can compare that to the better case scenario where you did your contract correctly,
Yes. Okay, Alex. Our company is based on three pillars. Okay. Which is the financial structure, the tax and accounting and the legal part. We have two experts here, Catherine, that it's, on the financial me on the tax and accounting. And we have another, a friend that, that she does the legal part.
I don't want to do legal because I don't have that expertise. So what is my advice for those who want to do everything themselves is, uh, , go to the basics and it's better, uh, to avoid headaches. Just use the person who knows about it. Okay? So, , if you have an SRL here and the, this is a heads up. There is a way to register, at the fiscal administration, the D one 40. It's the first step that you are going to the fiscal administration and saying, Hey. I'm going to start doing business in Costa Rica, but there is a way to set it up. This is the very first step I'm speaking in front of the fiscal administration.
You need to be very careful on the businesses that you are saying that in, in the, in that form, in the D one 40 because, that will give you the list of the taxes that you will need to, comply with. Um, Kathy, do you want to add something?
I want to compliment that, just because I was thinking, when you were explaining and illustrating the two examples. So we have someone who is hiring a property manager. To take care of all the VIT on monthly basis because, what Ian mentioned, Alex, at the beginning, of this podcast was we have basically two different tax, obligations.
One is the VIT, which now will be withhold within the Asda procedure for Airbnb and booking, and then short term rentals. And the other one is the revenue, the annual re, uh, net, the annual in rent. Ah, the
The income tax.
Income tax? The annual, the annual one. Okay, so people get confused. Why two? Right? Why, why am I, having two?
If in, sometimes in the US we only have one, right? Only once a year. So the main difference is DIT applies to the final consumer. If I were going, if I was going to book my vacation to go to the beach, Airbnb, I will be paying the 13% and the tax authority in Costa Rica withheld. The 12.75, I think percent out of this VAT.
And so that's why our advice is if your property manager will do it for you based on contracts, he only had it, it doesn't, he still has to do monthly VAT for his business on ongoing anyways. But if he takes care of, because he has the platform with many multiple units, not only yours. So if he's the one retaining this.
He will file it monthly basis while you getting the net income. Only have to do it once a year. But if it's the case, I think that response to the, I'm sorry, to, to illustrate the two options, but I think gives the example of what maybe Alex was trying to point out. But if you do it on your own, which we also have clients who wants to do it, they will,
we can activate, them their, uh, tax identification with nda. They will go to the platform and take care of the VAT on monthly basis and they will actually, if they have to also, do their own property manager hiring others. It's a whole culture of charging what is right and request people the invoices that I think that before having this regulation, nobody honestly, or maybe just a few people were doing it because they were not used to ask for the invoices, because those invoices are key factor to be able to file your deductions at the end of the year and on monthly basis for the VIT.
When I'm in Costa Rica and I go to the pharmacy or wherever, they always ask me, do you want your facta or whatever, you know, forget how they.
Yeah,
Right. And, you know, and I'm like, oh, you know, as a tax person, I'm like, huh, I wonder what that is. But that's what that is, right?
That, that's my, like if I went to the, supermarket and bought some things from my rental property and I got the invoice, I could apply that, that I purchased as an input through the rental property. That could then, in my monthly filing, if I'm doing it myself, would be credited against the vat.
If you, are really meticulous about it, you could get to a point where you could try to offset your monthly vet with your purchases. I guess that's a benefit of doing it yourself versus if you had a property manager, your probably not, I guess you could still do that, but probably aren't doing that it for themselves.
don't want to, to pay to your property manager to do that because, you know, property managers are, their business are the pool of renting, not access. So here we are. This is where, we are, part of the chain of, of the supply chain. Okay. In this case. You know, you have to be meticulous to, to do the credits, to your VAT and to optimize your tax payment.
So, um, this is where we are.
How do you advise your clients in these scenarios? Like, if, if I came to you and had an SRL and I didn't wanna manage my property, like with the rental Airbnb, I want a property manager, but I also want the best tax answer. Like, what do you suggest? Do you suggest doing, having an accountant do the tax?
The property manager do the property managing, is that the way to do it or,
We create scenarios for each customer. It depends, um, based on our experience, we have, a large customer and, and is setting up his, a pool of rentals,
Hmm.
but his business is to, mm. Manage the pool of renters doing the bookings and, administrating the, the condos or the hotel or the, or the houses that you have.
So, we provide that companionship, in the taxes. You want to do it with us? Great. Or we can create scenario to set you up. And then you just, keep going. So, uh, it depends on each case. Alex.
Right. So you'd say it's really, it goes back to the contract, right? It's the contract that you set up with the property manager and you. That's a negotiation on the front end, whether you wanna have an accountant, then you and you do your taxes yourself. Through that accountant. I wouldn't suggest anybody do the Costa Rican taxes actually themselves, if they're not, if they're not familiar with it.
Uh,
Not, not even, not even Costa Rican people.
of, right. Yeah. If you're not,
why we, we live for it. I, I mean, this is why we are accountants,
there's no turbo tax version of Costa Rican tax fillings, if you
Exactly. That's why we have or lawyer. I, I don't do law. I don't prepare the, you know, the large documents. I don't do that. I hire my lawyer this is why we are, accountants and we do, or, or business if someone else wants to do it by themselves.
Great. But you know, the expertise and the tips and the heads up and being aware of what is going on the market, what can you optimize? Because it is not only that you know how to do it, how can you optimize your investment? How can you, this is why we are a family office, because it is not only keeping you compliant in Costa Rica, but what do you want to do with your money here?
You want to buy another property, you want to buy, certificates of deposit or, what do you want to do? So this is why we are here and this is why we compliment to each other in between, uh, Catherine and me. We have worked with customers that, for example, nothing about accounting.
Okay. But we have created, cash flows. For investments. So we have done, benchmarks. We have done, research, across the, markets and financial institutions or other, source of data to create the cash flow and to support the numbers because we both have, as well financial education, Catherine and myself.
So we know how to create a p and l.
And to break and to break down Nadia, and also to break down the, to compliment, uh, to, I'm sorry, but I'm very passionate about the topic too.
yes,
We love to break down ROIs, you know, like sometimes, the most common word is invest in Costa Rica because of the ROI. The ROI and the hotspot of tamarindo will be X percent, right?
So what we do is to accompany our clients from an, totally impartial point of view to support them to break down the ROI and then to cash flow and to really understand what are the effective days on the high season. Like, are we talking high season? How many months? How many days? What is the percentage of the occupancy expected?
In the first three months of the year, what can I expect in the later rainy season, months of the year? Depending on the area of what you're purchasing, sometimes the entire area of the, specific beach is shut down for the rainy season. It's not gonna be open like
just 'cause it's a pretty house and a nice area,
decide to
mean, yeah.
And also the financing part, just to just a little commercial. If you're purchasing a house in Costa Rica, do operational average. Don't use your money, use local Costa Rican bank's money. We're here to also advise you on that too. Uh, but yeah, what Nadia was approaching is, the example of the service that we want also to send to all of your clients to invite them to, uh, talk to us.
We have, an introductory, free consulting call to understand different instructors, and sometimes it takes more, diving more deep into, market studies to bring the right answer. But all the answers are gonna be back up. With a compliance, law in Costa Rica, so yeah.
Yeah. ' I mean, I have, I talked to a lot of people that get into the rental property business anywhere, but Costa Rica in particular with a certain expectation of cash flow that wasn't realistic. You know, just because you're in Indo and it's a nice property. There's so many factors to think about, but you really need someone that understands that market to, to factor those things in or, you know, it's not that simple, I guess.
So yeah,
What Nidia was mentioning was so important because we have seen all kinds of structures, like people who, for example, Nadia's example is perfect example of optimization. Her property man, her property manager take cares of the VIT on monthly basis because he already does. He already has, in his business to do it.
He has his accountant to do it for him. So it's just, like gathering from all the listings of the short rentals to do it is nothing for him. He already does it. And, but if you are going it on your own, some of the questions that we have normally is Kati, shall I write down a lease contract to my manager?
Like how does it work? Do I have to set up a lease contract? If you do a lease contract on or long term for this operator or, property manager? Take ongoing of the pool of rentals, you'll be automatically having monthly income based on rental income, and then you will have to file that. So it's like a double work, not a double tax, a double work.
So if you want to, not the need to do the VAT, you can perfectly find the property manager who will also do it for you, because the whole point of this is to have a stress-free investment. Set up for you, to be able just to receive the return and do it once a year like you guys are used to, right?
Right. Yeah, that's a really good point. 'cause I do have a lot of clients that are doing that and income tax filings, like they even have property managers, but they're also, they are hiring accountants separately to do the vat and. And, uh, income tax filings, which may or may not be a great scenario for them.
For example, I have a client that I talked to this week, she's doing that. I don't really know her exact situation with property manager or not, but she has like a multi unit. Property that she's purchased. And so I think there's like 20 units here and she's gonna be renting each one out.
And she asked me whether it would be beneficial to set it up as a hotel in Costa Rica or a short term rental, you know, through Airbnb. And she was thinking at it from the perspective of the change in the tax law, which I'll try to describe it based on my understanding. Basically under the simplified system.
Of filing for income tax in Costa Rica, you can, you basically get, you pay tax on 85, you pay if there's a 15% income tax and you get a 15% automatic deduction. So, it's gonna be whatever that comes up, 12 point something percent is the tax, whereas you can opt to the corporate tax system, right, which has a 15% tax.
I might be saying this wrong. No, it's gonna be a higher tax. It's like 30%, but you can take your actual deductions. I think that there was the hotel versus Airbnb question, which I think is its own separate thing. But then the question I was curious from your perspective on first was corporate versus this simplified.
Method, like to me it is just a question of what you expect your expenses to be like if your expenses are gonna be high enough, you're probably better off under the corporate scenario, right, than the simplified. Did I explain those two options at all correctly?
Yes. Uh, Alex, can you, can I give you a tip, for example if you are planning to invest in Costa Rica and you plan to bring your money here?
Mm-hmm.
To buy property, and then you want to set it up as a hotel or, short term rental. In the end, the income tax will be, it's in brackets, but the highest is the 30%.
Mm-hmm.
And the deductions are the expenses that you have to operate. Okay.
Right.
However, if you want to have a mortgage here, if you want to finance your business here, the interests paid on this financing will be applied as a credit to your, income. So that will be beneficial.
You have to create the scenario. So as I told you, we have to see case by case, but, uh, it is beneficial because you can have a credit to your income, okay?
And Nidia, if the multiunit has over 10 units, it's already a hotel and it will be run, it has to be run like a business because all the expenses is this. Um, the structure will need to hire. Many type of hospitality service.
I see. So once you have an employee or somebody working for the business, then you're already out of that
Is a business it is a hotel. If it's more than 10 units, it's automatically a hotel.
I got you. It's not even an option. Whereas if you have, if you just have a single family home, you're renting out, I guess you could choose the corporate scenario.
But it probably wouldn't make sense in this case. It's probably more complicated,
It depends on the location. If it's more residential or if it's more commercial, if it's residential, we also have to start thinking about luxury tax. If it's commercial, it's different. So it, it all really depends because you can have, like one, really beautiful home, but it's a luxury, with like 10 rooms.
Because it's one house, but it's luxurious, so it really goes case by case.
Right. I see. Okay. So yeah, I guess what would you say if, like, if, uh, if somebody's coming to you and let's say. I guess let's do my example where usually people are coming to me and they've already started this process, which ideally they would come to y'all before they start the process, you know, as to help them get started.
But if they came to you and they've already set up a company and purchased a property and they need to know what they need to do, I guess the answer is it's going to depend on what kind of property it is, and I guess it could depend on a multitude of things, but. But generally their options are to go through a property manager or, or do it themselves through an accountant, right?
Yes, but, um, you would have to go one by one. If you go with us, we can give you some direction where to go because we have all the scenarios and the structure. And we can create, uh, tax structure even for, each business. And, we can support you and if we don't have the service, we have the networking.
Um, this is why, because we are locals. Um, when I go to a different country, I like to, you know, not only go to the most touristic areas, I like to go to the locals because they know where to go. So, uh, this is the same with us. If we don't do it, we have, we can. Recommend, at least we can give you recommend on what to, on, where to go.
And for example, going back to, to your example about the hotel, there is another form or registration that you need to, uh, to do as a hotel in a government institution. So this is something else. It, is not a tax, but it's a registration that you need to comply with.
Right,
Know, uh, um, it depends on the case.
And Alex, keep in mind very important as a compliment to what is saying is because my mind is already thinking about banking all the time
Mm-hmm.
and the way people set up business in Costa Rica, we have seen it. Um, the way which company was registered, the activity really means a lot, but also the registration of the property because if you are, if you're register, if this person who owns the multi-unit for 20 units already registered as a residential, then we need to back up a little bit,
Hmm.
step back a little bit to redo, uh, because.
Maybe. But if it's like the first time and they're like the best way to do it is to get in contact with us from scratch. For us to be able to do an analysis on the whole operation. And if there are like other companies involved belonging to the same holding, for example, we will do a chart.
To explain our our clients and to illustrate the best tax, structure to be still compliant and to be legally and optimized. But if they already come with, we had this accountant before, we have this advice before and they already were set up in, in a way that need to be corrected, which normally happens, then we need to step back a little bit and find our attorneys to see how we can correct.
Uh, contracts because the most painful thing and people don't realize is in Costa Rica, the tax authority can go back even four years ago to start a legal process on your company if you don't do it. Yeah. And the, and the tax auditor in Costa Rica can always go back even four years ago and, and question and question and want to go. And the most sad part is like, normally people don't have the control of their information. They just trusted people in the past and they don't know where.
Persons are and who was responsible. And so that's basically, part of our job to support them and to become the main, uh, pillar of support for expats in Costa Rica.
It's not only expensive, which it is to have to unwind things and redo things, but it's also just time consuming and it takes forever and it takes a lot of time. So, yeah, I definitely recommend it. My takeaway from this really is that you know, everything, it's also interconnected.
You know, so you need it to be registered correctly legally, from an accounting perspective. You need to have the right contract with your management company. Yeah. So trying to fit those pieces together by yourself is gonna be hard to do, and you're probably gonna make a mistake. I definitely recommend, you know, getting someone that can walk you through the pieces.
That's why I think y'all are providing a great service, like from a family office perspective to help people with that and get them set up on the right foot. So you don't have to worry about it the next year, you're set up and you can, and then you can go on with your life. You don't have to worry about unwinding things.
'cause I do a lot of unwinding and it's a painful process.
Mm-hmm.
so yeah, I mean, look, I really appreciate this conversation. I think it's been very helpful and it's been, I've learned a lot just understanding a little bit more about getting set up correctly. The tax side, the banking side. So. I really appreciate it.
So if people want to find you and look you up and, and get help in Costa Rica, what's the best place for them to reach out?
We have, an Instagram, page ongoing. We normally, keep, loading some content and there are the straight contacts of Nadia and I, our phone numbers are our email. It's in the Instagram web webpage, and we can set up a free consulting, call to begin the process and we'll be more than happy to, to assist you and your clients.
Okay, perfect. I appreciate it. Hopefully we can have you back on to dig more into the banking and other sides of it 'cause things are constantly changing and there's always new things to talk about and Costa Rica real estate law for sure. But thanks for coming on and we'll talk to y'all later.
Thank you, Alex. Have a wonderful day. Mm-hmm.
yeah, so I mean, done deal. I guess more generally, you know, you're, you can help people from start to finish, right? Like if I'm, if I'm in the US and I'm looking to buy a property in Costa Rica, like if I don't even know what I wanna do, I just know I want to invest somewhere in Costa Rica because I think it's a good market.
Exactly. Alex, basically you illustrated pretty well. We are developing a family office concept in Costa Rica. If you look at the family office concept abroad is more like managing, wealth. From people, from clients, but in Costa Rica, since the industry related to foreigners, specifically real estate and hospitality, what we do is we triangle the goals of our clients for the investment in Costa Rica, and we provide the, with our expertise, the guide and the service with the consulting, basically on financial advice, accounting, decision making.
And all the tax as well. And then we work together with many, recognized, legal firms in Costa Rica. , We also do all the basic and more formal, bookkeeping, accounting and reporting.