Real Estate Video Series: Rental Income Tax

by Quatro Legal Real Estate Team | May. 15, 2024 | Article, Real Estate

Renting out your property in Costa Rica can be a profitable decision—but understanding how your rental income is taxed is critical to ensuring long-term compliance and peace of mind. In this installment of our Real Estate Video Series, we explain the two tax regimes available to landlords in Costa Rica: the Traditional Income Tax System and the Special 85/15 Regime.

Two Tax Systems for Rental Income

As explained in the video:

“Rental income can be taxed under two systems: the traditional income tax or the special 85/15 regime.”

Each system carries its own requirements and benefits depending on the nature of your rental activity and expenses.

Traditional Income Tax System

The Traditional Income Tax System applies to individuals or companies “engaged in economic activity,” such as renting property long-term or managing multiple units.

Key characteristics include:

• Tax on net income

  “It calculates tax on net income—income minus deductible expenses—annually.”

• Deductible expenses allowed
  Examples include maintenance, repairs, administration, utilities, and property management costs.

• Both realized and unrealized exchange rate gains are taxable

  “Both realized and unrealized exchange rate gains are taxable.”

• Best suited for landlords with high operating costs

  “If your rental expenses exceed 15%, this system may be more beneficial.”

This regime can reduce your tax burden significantly if you maintain proper records and operate with substantial legitimate expenses.

Special 85/15 Regime

For landlords with fewer deductible expenses—or those looking for simplicity—the 85/15 regime provides a streamlined flat-rate tax structure.

“You automatically deduct 15% of your income as expenses and pay a flat 15% tax on the remaining 85.”

Key characteristics include:

• Flat 15% tax on 85% of gross rental income

• Only realized exchange rate gains are taxed

  “Only realized currency gains are taxed here.”

• Must commit to the regime for at least 5 years

  “You must remain in this regime for at least 5 years.”

• Requires hiring at least one employee and reporting their salary

• Monthly tax filing is mandatory

This regime is commonly chosen by landlords who manage short-term rentals or properties with limited operational complexity.

Which Regime Is Right for You?

Choosing the right approach depends on your structure, goals, and expenses:

Let Quatro Legal Guide You

“If you’re renting your property in Costa Rica and want to ensure you’re in the right tax system, our team at Quatro Legal can guide you.”

At Quatro Legal, we specialize in helping property owners evaluate their tax situation, register under the correct regime, and fulfill all necessary obligations—from employee registration to monthly filings.

We can help you:

• Assess your eligibility for each regime

• Comply with employment and reporting rules

• Align your tax structure with your long-term rental goals

Contact Us

For personalized guidance or to schedule a consultation, please contact us:

📧 Email: info@quatro.legal
📞 Phone: +506 2103-7294
🌐 Website: www.quatro.legal