YOU Can Escape, But You Can't Escape Property Taxes
Living out your retirement or vacation time in a tropical paradise is fun, exciting and refreshing. Especially when you have a place to call your own… sipping a margarita on your patio, watching the golden sun melt into the horizon as the monkeys and birds provide the background music. Sounds like pure bliss.
Somehow though, property taxes don’t really mesh with the bliss of enjoying your much-deserved vacation or retirement. But they are a reality, and although you’ve been able to escape to a tropical paradise, if you own your home in that paradise, property taxes are unavoidable.
Many people don’t consider property taxes when they’re looking to purchase a vacation or retirement home. This can be a big mistake, especially if you’re on a tight budget. It’s worth looking into what your property taxes will be before falling too in love with a location or if you’re deciding between a couple of different properties, as the taxes can be a large part of your living expenses.
There are some misinterpretations out there that property taxes in Latin America aren’t as important as in North America. This is a fallacy… they are absolutely as important, perhaps cheaper, but still important. Also, be wary of locals who may tell you that you either don’t need to pay the property tax, or ways to cut the costs.
Property Tax Prices
Amounts vary across Latin America. In Honduras you’ll pay 0.25% of the purchase price, Belize is between 1% and 1.5% and Costa Rica is 0.25% (although there is an additional luxury tax for homes valued at more then $200,000).
Most country’s property tax is based on municipal values commonly lower then the price you originally paid for your property. Of course, your local attorney will advise you what you can expect to pay.
Depending on where you choose to settle, the municipality will set the value of your property for tax purposes or it will be based on the value recorded in the public registry.
If you’re in a country where your property taxes are based on the value that you record with the public registry, tread lightly. You’ll hear from locals that registering for a lower price will yield lower property taxes. Of course, this is true, but it’s not legal.
There are penalties to consider, including fines and even jail time. And you, as the homeowner, aren’t the only one to suffer these penalties. Pretty much everyone included in the transaction (buyer, seller, attorney, real estate agent) can potentially face penalties.
Not only would you be faced with tax evasion if you undervalue your property, but what happens if something disastrous happens? If your home or property is ruined or damaged, not only will you have a hard time explaining that your property is worth much more then you’re receiving compensation for, but it’ll be much to late to try and turn the tables at that point. You won’t receive any more reimbursement and it’ll open a whole new can of worms, including serious fraud charges.
Not to mention, if you’re living in a country that charges capital gains taxes, you’re going to subsequently pay more and any extra money you saved on property taxes will become redundant.
In addition, depending on the country, you may not be able to repatriate the money if you fail to report the full value of your property. You need to report the full price in order to prove where the money came from.
You should always check to see if your property is eligible for any exemptions. For example, if you own agricultural land in Costa Rica you can save 40% on your property taxes. In other countries there are exemptions available up to certain amounts and in a small amount of countries there is no property tax at all (the Cayman Islands and Malta for example).
Locals may tell you not to worry about paying your property taxes. We don’t recommend this for obvious reasons – if you fail to pay your property taxes you will likely receive penalties that could be more then the property taxes would have been in the first place. In addition, if you choose to neglect payment for an extended period, the government may eventually wish to foreclose and sell your property to pay off the property taxes owing, in addition to any added administration fees.
If you’ve been swayed into believing you can hold off on paying your property taxes until you sell, be careful. This was something that flew in the past, but today it’s much more difficult to pull off.
Paying your property taxes has an added benefit besides the obvious legal ramifications. If you are paying in a timely and accurate manner, you are the proven, established owner of your property. Failing to pay your taxes opens the door to scammers who may pay your taxes on your behalf and later claim that they’re the actual owner.
Keep in mind, many countries will not mail you a tax bill and you cannot simply mail them payment. You are required to know the amount your property tax is and when it’s due and pay them in person. It’s not uncommon to receive a discount if you pay on time, but you may also receive penalties if you’re late.
Overall, it’s in your best interest to be on the right side of the law in a foreign country. On the plus side, it’s not extremely expensive to do so. Compared to North American property taxes, Latin America is incredibly affordable and you’ll have covered yourself legitimately.