1. Legal Framework
1.1. How are income and wealth taxed in your country?
If the taxpayer performs a lucrative activity in accordance with the definitions of the Income Tax Law (ITL), should be declare a tax return including its income and expenses to calculate the taxable base.
If the activity is not lucrative, the tax provision applicable would be the capital gains rules.
1.2. What is the range of the applicable tax rates for individuals on income and wealth?
Over the wealth there is no taxation, the rules are related to salary in dependency relationship or if it also performs a lucrative activity or receive non-lucrative income (specific rents defined by the law or capital gains).
Ranges if the person performs profit-making activity:
Individuals (net income rules)
→ Income up to $5.606 per year will not be subject to tax.
→ On the excess of $5.606 per year and up to $8.372 per year, ten percent (10%).
→ On the excess of $8.372 per year and up to $13.965 per year fifteen percent (15%).
→ On the excess of $13.965 per year and up to $27.986 per year twenty percent (20%).
→ On the excess of $27.986 per year, twenty-five percent (25%).
1.3. How are profit and net equity taxed in your country?
Refer to question 1.1 in relation to profit. In regards to the net equity, there is no taxation.
1.4. What is the range of the applicable tax rates for legal entities on profit and capital?
Corporate income tax:
Small business (those legal entities whose gross income in the fiscal period does not exceed $168.776 approx.)
Thirty percent (30%)
→ Up to $83.905 of gross income: 10%
→ Up to $168.776: 20%
Capital gains: tax rate 2.25% over the sale price if the assets were bought before July 1st, 2019; if not the taxable rate would be 15% by the difference of sale price and acquisition cost.
1.5. What kind of valuation is generally accepted in respect of certain assets (such as art) by the tax authorities?
There are no rules, but can we say that an assessment prepared by a professional or appraiser should be reviewed by the Tax Administration.
2. Taxation of Art
Is there an obligation of declaring | disclosing private artworks to the tax or other authorities (list of inventories or alike)?
As per the current income tax law, if the taxpayer performs a habitual economic activity selling artworks, there is an obligation to register this activity with the Tax Administration and he must disclose assets, liabilities, equity, income and expenses. There is also an obligation to keep annual accounts.
According to the new charter regarding capital gains, any sale of artworks (even if the taxpayer does not perform a habitual activity) should be declared in a tax return regarding the sale of the assets.
There is no obligation to disclosing / filing private artworks if the taxpayer is an individual and does not perform an economic activity selling artworks.
2.1.1. Income taxes
Is income generated from the sale of artworks taxed in your country? If yes, please indicate how (i.e. capital gains tax | income from self-employment).
Before July 1st, 2019 the income is taxable based on self-employment under the principle of habituality. The income received would be subject to the corporate income tax (CIT), tax rate 30%, taxable base: Income minus deductible costs and expenses.
After July 1st, 2019, the sale of artworks would be subject to CIT (assets used in a business activity) or capital gains (assets not used in a business activity).
2.1.2. Wealth taxes
Does your country envisage any specific categories of classification of artworks (e.g. tax-exempt personal belongings/household)?
There is no wealth tax in Costa Rica. Only CIT or capital gains tax on the sale of works of art might be applicable as from July 1st, 2019.
The mere buying of artworks does not trigger any tax, as we mentioned above, only if the taxpayer performs an economic activity or sells them in a non-business context, capital gains should be deemed taxable.
There are no specific categories for classification of artworks. The Tax Administration can ask about the origin of the artworks, how they were bought, in order to review if the funds used to buy them were subject to tax.
Is there an obligation to declare works of art in the tax return? Please indicate how this is done resp. if there is any other obligation of declaration.
If the taxpayer performs a business activity, he should disclose the works of art in his tax re-turn.
After July 1st, 2019, there would be an obligation to declare the sales of the artworks as well.
If the taxpayer is an inactive entity (corporation or Ltd) and owns artworks, there is an obligation to file the value of the asset. The value to use is the original cost, but if there is a lack of in-formation about this it is likely that an appraisal would be used, which can be challenged by the tax administration.
How are works of art valued for tax purposes in your country? Are there any common and accepted valuation methods, i.e. at cost, insured value, market price?
The value to use is the original cost, but if there is a lack of information about this an appraisal could be used, this can be challenged by the tax administration.
The re-valuation of the assets is not allowed for tax purposes. After July 1st, 2019, and under the capital gains chapter, the original cost of the assets would be adjusted using price ratios issued by the Tax Administration.
2.1.3. Inheritance | gift taxes
In case of an inheritance or gift will there be any tax levied?
After July 1st, 2019, under the new capital gains chapter, an inheritance and donations would be exempt.
3. Taxation of legal entities (as owner of the artworks)
3.1. Corporate income taxes
How are profits deriving from the sale of artworks taxed?
According to the Income Tax Law, if the individual or entity performs an economic activity on a habitual basis, the income received would be subject to corporate income tax (CIT), tax rate 30%, taxable base being income minus deductible costs and expenses.
Are there any general advantages of a legal entity as owner of artworks instead of a private ownership?
In case of self-employment the tax brackets would be 10-15-20-25% based on the net income (gross income minus deductible expenses).
A legal entity has to file a tax return with respect to certain artworks (see above). If an individual holds the works of art, there is no such obligation. There is thus no general advantage for a legal entity to hold works of arts instead of private ownership.
4. VAT | Customs
When selling or dealing with works of art within your country what VAT implications have to be considered?
Under the current VAT Law the artworks would be subject to VAT, if the taxpayer sells the as-sets in the framework of a habitual economic activity.
After July 1st, 2019 the taxable event is based on the same criteria mentioned above. The tax rate is 13%.
When works of art cross the border of your country what needs to be considered regarding VAT | customs?
The export of artworks is not subject to customs taxes or VAT. In case of imports, and de-pending on the type of the artworks, customs taxes will amount to between 1% and 9%, plus VAT at 13%.
5. Voluntarily disclosure program
What is the procedure in a voluntary disclosure of previously not properly declared art works and what are the expected consequences?
There is no voluntary disclosure program in place. If there were obligations to file an income tax return for the sale of artworks, there is a reduction of the fines if the Tax Administration issued an adjustment of the income tax.
Does your country have a non-punishable voluntary disclosure programme?
There is no a non -punishable voluntary programme.
6. Special provisions re taxation of arts
There are no special tax provisions.
Writer: Erik Ramírez, from Facio & Cañas
Original file: WTSGlobal_TaxationOfArtworks-Guide