Costa Rica closing costs: How much you’ll pay for house in the closing
In Costa Rica, buying a house always involves some outlays over and above the purchase price. As a foreigner, it’s important to understand what these closing costs are and how much you can expect to pay. This article will give you an overview of the most common closing costs in Costa Rica. Keep in mind that each situation is different, so please consult with a legal professional to get specific information about your own purchase.
Closing Costs in Costa Rica:
Costa Rica has a reputation for being an expensive place to buy real estate, and closing costs are often cited as one of the main reasons why. While it’s true that closing costs can add up, it’s important to remember that they vary depending on the type of property you’re buying and the location. In general, you can expect to pay between 2% and 5% of the purchase price in closing costs.
The largest expense you’ll encounter is the stamp tax, which is levied at a rate of 1.5% on all property purchases. This tax is paid by the buyer and is due at the time of closing. In addition, you’ll also be responsible for paying the real estate agent’s commission, which is typically 3% of the purchase price.
Other common expenses include title insurance, legal fees, and appraisal fees. These costs can vary widely depending on the property and the services you use. In most cases, you can expect to pay between $500 and $1,000 for these services.
Finally, you’ll also need to pay transfer taxes, which are levied at a rate of 1.5% of the purchase price. These taxes are paid by the buyer and are due at the time of closing.
How Closing Costs Are Calculated:
Closing costs in Costa Rica are calculated as a total of four sub-categories:
- Transfer Taxes
- National Registry
- Documentary Stamps
- Legal Fees
Transfer taxes are paid to the municipality in which the property is located and are based on the sale price of the property. Transfer Taxes (1.5%) are calculated on the value of the property being purchased and are paid by the buyer at closing. The tax rate is 1.5% for properties worth up to $200,000 and 2% for properties above that amount. For example: If you purchase a home for $250,000, your transfer taxes would be $3,750 ($250,000 x 1.5%).
2. National Registry:
National Registry & Documentary Stamps are paid to the National Registry and are also based on the sale price of the property. They are government fees that are paid at the time of closing. The National Registry fee is a one-time fee, while the Documentary Stamp is an annual fee. The National Registry fee is 0.5% of the purchase price, while the Documentary Stamp is 0.6% of the purchase price. For example, on a $200,000 purchase price, the National Registry fee would be $500 and the Documentary Stamp would be $1,200. These fees are paid by the buyer in most cases, although it’s negotiable between buyer and seller who pays which fees. Closing costs are typically 3-5% of the purchase price, so these fees would be included in that percentage
3. Legal Fees:
Legal fees are paid to the attorneys representing both the buyer and the seller in the transaction and are typically a flat fee. When it comes to real estate transactions, the role of the lawyer is essential. In Costa Rica, buyers and sellers each typically hire their own lawyer to represent them during the purchase process. The lawyers’ role is to protect their clients’ interests and make sure the sale is carried out legally and without any problems.
The legal fees charged by lawyers can vary greatly, so it’s important to get quotes from a few different lawyers before choosing one. Generally, the legal fees for a real estate purchase in Costa Rica will be around 1-2% of the total purchase price. So, for a property that costs $100,000, you can expect to pay $1,000-$2,000 in legal fees.
Side Note: It is important to have a lawyer represent you in a real estate transaction in Costa Rica, as the process can be complex and there are many potential pitfalls. For example, if you are not a resident of Costa Rica, you will need to set up a company in order to purchase property. A lawyer can help you with this process and make sure everything is done correctly
4. VAT / IVA:
VAT/IVA is a value-added tax that is applied to most goods and services in Costa Rica, including real estate transactions. The VAT/IVA rate for real estate transactions is 13%.
VAT/IVA (13% Value-Added Tax) is one of the closing costs that you will need to factor into your budget when buying property in Costa Rica. Unlike many other countries, there is no real estate transfer tax in Costa Rica; instead, the VAT/IVA is applied to the purchase price of the property. The current rate of VAT/IVA is 13%, which means that on a $200,000 property, you would owe $26,000 in VAT/IVA. This tax is typically paid by the buyer, although in some cases it may be split between the buyer and seller.
Closing costs are typically paid by the buyer in Costa Rica, but can be negotiated as part of the sale agreement. If you are considering purchasing property in Costa Rica, it is important to factor in the closing costs in order to get a true understanding of the total cost of the purchase.