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Tax Office Cracking Down on Rental Income

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By Catherine Keogan
Thursday, April 03, 2008

Tax authorities are to begin door-to-door inspections of rental properties along the Guanacaste coast in coming months in an effort to crack down on tax evaders.

Roxana González, chief of the Guanacaste Tax Authority, confirmed this week four agents will be performing on site-inspections over the next two months.

“We are doing inspections all along the coast,” said Ms González. “We are trying to do field work to collect data on who is registered, who is hiding the income, and if the properties match the data in the registry.”

She said although there are currently about 18,000 properties registered with her office, they suspect many more units are being rented out without paying taxes on the rental income.

The inspections come as demand for residential units is peaking along the Costa Rican Pacific coasts. A booming tourism sector is driving up demand for skilled labor, and many Costa Ricans are migrating from the Central Valley to fill the posts.

Housing has failed to keep pace with commercial growth, however, and many are forced to pay the exorbitant prices offered to vacationers or else travel from cheaper inland towns to work in the popular coastal centers.

“There is a big concern about the lack of available housing for the local market,” said Mauricio Céspedes of the Guanacaste Chamber of Tourism. “Many people are moving to Guanacaste to fill the labor demand, but there are no residential units to house them.

“There are many projects being developed that create commercial spaces, but without corresponding residential units — where are the people who will work there going to live?”

He worries what effect the cost of living will have on the much-needed labor force.

“People find Guanacaste very expensive, in basic living costs such as food, housing, services — much more expensive than in other parts of Costa Rica,” he points out.

While most agree vacation rental prices have stayed relatively stable over the last few years, long-term rentals are spiking in tourism hotspots like Tamarindo and Jacó.

A two-bedroom unit will command anywhere from $500 to $1000 a month in the Jacó area, says Gabriel Rocha, owner of Rock Property Management, and even then, supply is scarce.

“For long-term rentals there is a shortage of affordable, quality property,” he says. “We get a lot of calls but we just don’t have anything available.”

“People come here and expect to get a big house for $1000 and that’s not going to happen,” he adds. “They have to lower their expectations — even $500 is hard to get.”

On the northwest Pacific coast, similar units will run even higher, from $1000 to $1500 a month, says Elizabeth Cole of Lent Eckhart Rentals and Property Management in Potrero.

“There are not enough units to meet the demand,” she agrees, “definitely not enough to meet the needs of the people who live and work here.”

In Tamarindo, basic studio apartments with no ocean view can run more than $1000 a month, and larger ocean-view houses and condominiums command up to $5000 a month.

Such prices are not unreasonable to some of the North Americans who settle here from major urban centers where the same prices will get you only modest accommodations.

But in a country where salaries are counted in the hundreds, not thousands, of dollars, living costs are threatening to quash the burgeoning labor force that has sprung up along the once-isolated coasts.

Many are choosing long commutes from inland villages, where a small ‘tipico’ house can be rented for less than $300 a month. Small construction sites are rife in once-quiet villages as local landowners start to capitalize on the new trend.

Mr Céspedes believes coastal developers will pick up the slack eventually however, and start realizing the dire need for affordable living quarters.

“I believe companies are starting to realize there is a lack, and in a year to 18 months’ time it could be that developers will start building residential units along with the commercial,” he said.

Rapid price increases are not necessarily legal in long-term rental cases, said Eduardo Zuñiga, a lawyer with the law firm of Arias & Muñoz.

For example, a lease set in foreign currencies such as US dollars cannot be increased at all for a period of three years, and even those set in colones are regulated — the allowable increase rate is tied to inflation, but averages 15 per cent each year.

Even if the lease stipulates an annual increase, if it does not meet legal requirements, it cannot be enforced.

“I’ve seen a lot of lease contracts with clauses that are not legal,” he said. “People sign them because they need a place to live. There is a lot of demand, but not that much on offer.”

If a tenant is faced with an illegal rent increase, he can take his case before a judge to fight the issue.

“But then they face a two-year legal process, and problems with the owner,” points out Mr Zuñiga. “In practice, you won’t be happy in a place where the owner wants to kick you out.

“Owners get away with it because of the system — you have to hire an attorney, go to the judge, and start legal proceedings,” he added. “It costs more than paying the increase.

“In practice, it’s just easier to pay the increase.”

He says another common abuse is the term of the lease: all leases (verbal or written), excluding those designated tourism rentals by the Costa Rican Tourism Institute, are considered to be for a minimum of three years.

“Even if the contract says the lease is for one year, all leases are automatically for three years,” affirms Mr Zuñiga.

“Now if an American is coming to just spend the summer here, it doesn’t matter, but for those people who live and work here they have a right to three years.”

Government Law Would Make Recycling Mandatory
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By Leland Baxter-Neal
Friday, March 14, 2008

All 81 Cantons Would Have To Separate Recyclables

Costa Rica’s central government has presented legislation which would make recycling mandatory in all 81 municipalities throughout the country.

The bill would require municipalities to develop waste management plans that include mandatory recycling programs with fines for those who don’t separate recyclable materials — such as paper, plastic and metal — from their regular garbage.

The regulations would apply to both residents and businesses.

“It cannot be voluntary, it must be by law,” said Fabio Molina, director of the Instituto de Fomento y Asesoría Municipal (Institute for Municipal Development, or IFAM).

“It must be across the entire country, and there must be standards, procedures and sanctions for noncompliance,” he said. “You cannot have a canton like Garabito that recycles, and then one next door that doesn’t.”

Currently, only a handful of Costa Rica’s municipalities have launched limited, disparate recycling programs.

According to Mr Molina, all those municipal recycling programs are “pilot programs,” and cover only a few routes or districts, and not entire cantons.

Under the proposed legislation, which is being studied in the Environment Commission of the Legislative Assembly, recycling would be mandatory for all districts in all cantons across the country.

“ Costa Rica is one of the ten most important eco-tourism destinations in the world,” said Mr Molina. “It has to be a model in its policies for the conservation of the environment.”

The law has been thrashed out by the Ministry of Public Health, the Ministry of the Environment and Energy (MINAE), IFAM and the German international cooperation organization GTZ.

Alongside the legislation, a “services platform” is also to be created that would provide assistance, training and funding to the municipalities in getting the programs off the ground.

“We are going to be giving them technical support so that we get this project started,” Mr Molina said.

Garabito, the Central Pacific canton that encompasses Playa Hermosa, Jacó, Herradura, Tárcoles and surrounding communities, is set to launch a municipal recycling program March 24 (see page 15). Initially, that program will be limited just to Jacó.

It is understood this would make Garabito the only municipality on the Pacific coast to have a government-run recycling program. In other areas, however, members of the community and local organizations have attempted to fill the gap.

In neighboring Playa Hermosa, local residents have been trying for more than a year without much success to get a voluntary program off the ground.

In Tamarindo, organizers are planning a recycling day for March 29. A flyer distributed online this week urged local residents, families and businesses to bring paper, plastic, magazines, glass, aluminum, newspapers and magazines, used batteries (including car batteries), plastic shopping bags, and items made of iron, bronze and copper.

The event is an experiment, organizers say, to see if there is enough support to begin a permanent recycling program in town. The event is being organized by Tony Pavelko at recycletamrindo@gmail.com.

Escazú, the municipality at the southwest edge of San José that is home both to traditional ox-drawn carts and luxury high-rise condominiums, was the first local government to implement a recycling program in Costa Rica.

Currently, the municipality has one truck — though it is in the process of purchasing a second — running a few routes throughout the canton, collecting presorted recyclables at no cost to the businesses or residents.

The recyclables are then delivered to a sorting center, where an association that was founded by a group of Escazú women separates and prepares the materials for sale to a variety of businesses, such as Kimberly Clark and Coca-Cola, that use them for producing new products.

According to Nuria Vargas, who has been working on the program for the municipality since 2003, the recycling program is back by TAMU-Costa Rica, a non-governmental organization created by Costa Rican alumni of the US university Texas A&M. That organization helped set up the program and owns the property for the sorting center.

“We collect 50 tonnes of recyclables a month, and collected 600 tonnes last year,” Ms Vargas said, an increase from the approximately 160 tonnes collected in 2002, the program’s first year.

With the addition of a new vehicle, Ms Vargas said, the municipality hopes to expand the program to eventually cover the entire canton — putting it ahead of other municipalities should recycling become law.

The bill that would mandate the recycling programs, called the Ley para la Gestion Integral de Residuos (Law for the Integral Management of Waste), goes beyond those programs, however.

For example, Mr Molino said, it would allow the government to tax businesses importing products which cannot be recycled, as well as Costa Rican companies that create non-recyclable products.

“He who pollutes, pays. If someone imports cars or computers or appliances, they have to know how that will be recycled at the end of its life, or if it isn’t recycled, disposed of without damaging the environment,” Mr Molina said.

“And the Costa Rican producer, just as the Costa Rican importer, has to assume the costs of pollution. It isn’t right that they privatize the business and socialize the environmental damage.”

The initiative also looks to support the creation of businesses around waste management, Mr Molino said, whether it is the formation of associations or cooperatives that handle the sorting and selling of recyclables or the sale of energy created by capturing of the dump’s gasses in a process called “biogas.”

“A balanced policy is going to make the economy more dynamic,” he said. “We are going to take advantage of tonnes of waste, and we are going to generate a lot of work for Costa Rica.”

 

Government Studies $20 Million Reservoir Plan

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By Marisol Arias
Friday, March 14, 2008

The government is to undertake studies for a $20-million reservoir which would supply water to residents, farmers and the tourism industry in Guanacaste.

The reservoir, which would be built on the Rio Piedras River, in Bagaces, Guanacaste, would have a capacity of 85 million square meters (22 billion gallons), cover 800 hectares (1980 acres) and take three years to fill.

The project aims to capture and store the excess water sent through the turbines of the Arenal hydroelectric plant.

The Servicio Nacional de Aguas Subterráneas, Riego y Avenamiento (SENARA), a government agency that oversees water resources, irrigation and storage, will begin feasibility studies for the project in April.

A loan of $400,000 has been made available by the Central American Bank of Economic Integration (CABEI) for the study. The bank will also finance the design of the project.

“With the construction of this reservoir in Bagaces, we are attending to the serious problem in the province of Guanacaste of a lack of water, which could get worse in the future because of climate change and the growing demand in the area from the impressive tourism development,” said the Minister of Production, Javier Flores Galarza.

Mr Flores’ comments came during a joint press conference with the Director of CABEI, Alfredo Ortuño, and the Manager of SENARA, Bernal Soto.

According to Mr Soto, the project’s plans are already finished.

Currently, the average flow of water used to turn the turbines that generate the power at the Arenal is 45 cubic meters a second. That water is then channeled through the Arenal Tempisque Irrigation District, and used to water some 27,000 hectares (about 67,000 acres) of melons, sugar cane, grass and rice crops, as well as tilapia and shrimp farms.

“When ICE turbines the water from the Arenal reservoir for hydroelectric energy production, often during high production seasons of December to May, SENARA cannot store all the excess water that is used,” Mr Soto said.

An estimated 25 cubic meters per second of water ends up lost, according to SENARA.

“As water is such a valuable element for development, we don’t believe it is logical to not take advantage of it, and that is why we thought of this project,” Mr Soto added.

“It is as much to reinforce and strengthen our irrigation system as it is for the communities to also take advantage of some of the water.”

With the Rio Piedras River project, the water would go toward solving the water problems in the cantons of Nicoya, Hojancha and Nandayure, as well as some 70 ASADAS (rural, community-operated aqueducts) on the Nicoya Peninsula.

In addition, the water would go towards tourism development from Ocotal in Carrillo, to Pinilla in Santa Cruz, where conflicts have arisen in recent years over water usage and the tremendous pressure the growth is putting on the region’s coastal aquifers.

“If we take that we can manage some 85 million cubic meters, this represents an enormous amount that could be used by the irrigation district,” Mr Soto said.

Mr Soto said SENARA has already carried out pre-feasibility studies that found that the Rio Piedras has the adequate conditions for the reservoir.

“This project is the future of Guanacaste,” he added. “If we want to strengthen tourism and the development of the local economies, we must lobby for a project like this one to contain the pressure on the coastal aquifers, which are vulnerable.

“This is going help the government’s ban on well perforations as well.”

In February, SENARA called for a ban on all new wells in some coastal area out of concern that aquifers are being over-used.

SENARA and CABEI expect to award the tender for the feasibility study in April. From that date, the chosen company will have 12 months to present the study. The construction of the reservoir would cost $20 million and could be financed as well by CABEI.

In what is being touted as another alternative to ease water problems in the region, the Instituto Costarricense de Acueductos y Alcantarillados (Costa Rican Instituteo of Waters and Sewers, or AyA) signed an agreement for a feasibility study for a water project called TRASVASE Arenal-Corobicí.

That project includes improvements to pumping stations that bring water to coastal towns in Guanacaste, among other sweeping improvements to the region’s water infrastructure.

The contract for the feasibility study is to be awarded in the coming months and could possibly include the use of water coming from the proposed Rio Piedras reservoir.

Ricardo Sancho, the executive president of AyA, said during a special meeting of the president’s cabinet in Liberia, that, “with this project (TRASVASE) we could bring one thousand liters of water per second to the coastal areas of Guanacaste and supply this precious liquid to the coastal communities that are in need of it.”

According to AyA once the contract is awarded, the study will last ten months. If it is deemed environmentally and technically feasible, the project would take about 14 months to build.

Developers To Pave Key Guanacaste Road
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By Ralph Nicholson
Friday, April 25, 2008

A consortium of developers is to pave a critical 15-kilometers (9.5 miles) of dirt road from Sardinal through to the Zapotal Valley and neighboring Guanacaste beaches.

The $10 million project is likely to start in November when rains have finished and would be completed in about 18 months.

The idea is to bring a handful of high-end hotel projects on the beaches which front the Zapotal Valley within an easy drive of Daniel Oduber International Airport.

Developers behind the Ritz Carlton Hotel on Playa Guacamaya, the Rosewood Hotel on Playa Guachipelin, an RIU Resort near Playa Matapalo and an as-yet-unnamed hotel on Las Catalinas above Sugar Beach are all involved in the consortium to build the road.

The development came to light when investors went to the Municipality of Carrillo looking for help with requests for permits.

“The investors told me they had received little support from the Consejo Nacional de Vialidad (the National Roads Commission, or CONAVI), given they had requested the necessary permits and information regarding the technical specifications but had not received an answer,” the Mayor of Carrillo, Carlos Gerardo Cantillo, told the council this week.

Mayor Cantillo said he had spoken with the Minister of Public Works and Transport, Karla González.

“She designated Vice Minister, Pedro Castro, to work with the investors,” Mayor Cantillo said.

The government is understood to be appointing an engineer who would oversee the private work.

“We have already built all the bridges involved to get down to the Zapotal Valley,” confirmed Larry Silverstein, one of the investors behind the Ritz Carlton Hotel development.

The sealed road is likely to become an integral part of the key tourist road, known as the Ruta del Sol.

That 460-kilometer (288 miles) road will eventually track the Northern Pacific Coast from La Cruz on the border with Nicaragua south to Santa Teresa, on the southern tip of the Nicoya Peninsula, north again to the Tempisque Bridge and inland back to La Cruz.

There’s been great debate over the past five years about the 15-kilometer section which would join the northern Guanacaste beaches with those farther south, like Potrero, Flamingo, Brasilito, Grande and Tamarindo.

Not only would it shave up to 40 minutes off the drive to Liberia’s airport, but it would also join Guanacaste’s northern golf courses with those farther south.

In fact, in August last year Minister González urged private companies to get involved in helping complete the Ruta del Sol.

“I would be delighted for any help we can get from the private sector,” Ms González said at the time. “We have no plans for the northern section of the Ruta del Sol and the survey and design phase is always much easier for the private sector.”

The design phase of major roads is a 12-month process for the government, involving a lengthy bidding process. Appeals can make the process even longer, whereas the private sector has no legal requirement to put the process out to tender.

 
 
   
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