The Pros and Cons of Importing a Car into Costa Rica
originally published in Costa Rica Star
Car culture is becoming a widespread phenomenon in Costa Rica that shows no signs of abatement. Buying an automobile is expensive enough due to high import taxes; adding the price of fuel, maintenance, repairs, insurance, tolls, downtown traffic restrictions, and registration fees makes it seem prohibitive and out of reach for most Ticos. Still, the number of cars transiting in our poorly kept highways keeps growing, and buying a car has become a financial goal that is as popular as buying a home.
The high cost of purchasing and maintaining a vehicle in Costa Rica is the biggest incentive for Tico car shoppers to look into importing a car, particularly from the United States. At the peak of the Great Recession months ago, a quick scan of online classified website Craigslist would have returned several listings for cars being sold at incredibly cheap prices. To some people it seemed like a fire sale of used cars, but behind many of those listings there were stories of heartbreak and despair. Many financially distressed car owners turned to Craigslist to sell their most liquid asset in a hurry, usually to make a mortgage or rent payment, or to put food on the table.
Although the situation has improved a bit in the United States, some great deals can be found, particularly when compared to local listings. For example, a current listing on Craigslist in Orlando, Florida features a four-door 1994 Toyota Corolla selling for $1,100. A similar listing in Alajuela goes for 1,450,000 colones, approximately $2,800. For a motivated buyer looking for used cars in Costa Rica, the Craigslist listing may seem very enticing. After all, how much more can shipping and import taxes add to the final cost? In many cases, a lot.
Vehicle Import Taxes
The current taxes for importing vehicles into Costa Rica are 52.29% for models that rolled out of the assembly line in the last three years. For import tax purposes, a car is considered brand-new in Costa Rica for up to three years after it was placed on the lot, regardless of mileage or condition. This did not used to be the case a few years ago, when Ticos could import clunkers and declared them as salvaged automobiles that would never circulate on our highways and narrow streets.
The Ministerio de Hacienda (Treasury) now sets the value of import vehicles in a manner similar to that of the Kelley Blue Book with regard to the cars’ make, chassis, engine, and accessories. Mileage and mechanical condition are no longer taken into consideration. In fact, legislation that will restrict the importation of cars that are 6 or 7 years old regularly emerges in our National Assembly, and environmental groups concerned over emission standards are in support. Import taxes for cars that are between 4 and 5 years old are assessed at 63.91%, and cars older than 5 years must pay 79.03%. Such exorbitant taxes are ostensibly set to curb the circulation of even more cars in our country and to avoid a situation in which Costa Rica is overrun with clunkers, something that is already happening in Guatemala. This makes it a lot more appealing for import car shoppers to purchase new cars in excellent conditions, or to surrender to buying a car from a local dealer -in some cases.
For drivers interested in purchasing a car overseas or even shipping their own vehicle here, the Treasury offers an online calculator that is very complicated to use. An easier way to estimate taxes and consider whether it makes financial sense to import a car is to use the Kelley Blue Book web calculator and accept the typical mileage suggested. We will take the 1994 Corolla from Craigslist cited above: 165,000 miles, 4-door sedan running on gasoline on a 105 horsepower engine without added options and in excellent condition. According to Kelley, the suggested retail price for that Corolla is $2,853. The Treasury would apply 79.03% to that price and will only release the car from the customs warehouse until approximately $2254.72 are paid. As a result, our customs warehouses regularly have cars that arrived on ships to the Moin docks in Limon but were never claimed by owners who could not come up with the import taxes.
Other examples, presented by Teletica:
A 2006 BMW X5 arrives in Moin with a sales receipt of $600. The Treasury puts the value at $15,714, thus the taxes to be paid come up to about $10,400. That car goes for $36,000 at a dealership in San Jose.
A 1998 Mitsubishi Montero Sport is allegedly purchased for $400 in Florida, but the Treasury states the value at almost $4,000, and thus taxes in excess of $3,000 must be paid. That car can be found at one of the many used car lots in Grecia for about $8,500.
Shipping and Customs Fees
A few Tico families have set up vehicle shipping and importing operations in the United States. These import-export agents offer a range of services, from vehicle purchase to transportation to the ports and embarking. They are usually located near maritime shipping cities such as Fort Lauderdale, Miami, Delaware, New York, Houston, Los Angeles, Seattle, etc. Cars are typically loaded on a transport ship that sails between the United States and Costa Rica carrying fruit and vegetables. Ships at the service of Del Monte and Dole that would otherwise return to Costa Rica empty are commonly used. Current shipping fees range between $600 and $800, and they include shipping insurance, which is paramount since a number of things can go wrong in transit from one port to another.
If a car must be transported far away from the American port, the vehicle owner can expect to pay additional transport fees. Upon arrival to Moin, if the car need to be transported to another customs warehouse -in San Jose, for example, there will be additional fees. Fiscal stamps and fumigation run about $600. The shipping fees and point-of-origin emission testing is paid overseas. The import taxes and custom fees are paid in Costa Rica. Once all that has been accomplished, it is time to make the car street-legal.
Emissions and Mechanical Standards
Imported vehicles must meet certain standards of emissions upon their entry. All imported cars must bear an emissions certificate from the country of origin; this certificate would be ratified by auto technicians when the vehicle arrives on the ship or car carrier. This certificate must be presented to the Transportation Ministry (MOPT) instead of to the Treasury. The only exception to this requirement would be for personal or competition vehicles that are expected to transit only for a short period of tourism.
All imported cars will be subject to inspection by RITEVE, the controversial Spanish-owned auto inspection company that is currently embroiled in arbitration against the MOPT. The multiple-point inspection covers emissions, brakes, signal lights, windshield wipers, and other mechanical and safety features. Upon the initial inspection, used vehicles will be subject to annual inspections, while new vehicles will be inspected every two years.
Registration and License Plates
Getting the coveted marchamo is a topic of much anxiety among Tico vehicle owners. This must be accomplished between November 1 and December 31.
Every January 1, transit police are only too happy to set up roadblocks to issue tickets to drivers who have not paid insurance and registration fees. At first sight, these roadblocks can be seen as highly unfair, particularly when our Constitution allows free movement across our land. The catch is that driving in Costa Rica is a privilege that comes with some responsibilities. When an individual is issued a driver’s license, he or she agrees to be put at the pleasure of transit authorities in the absence of reasonable suspicion. The only constitutional way to avoid such roadblocks is to cross them on foot.
Owners of luxury vehicles (those that cost $15,000 or more), can expect to pay even more on marchamo fees than those who choose to import the 1994 Corolla mentioned before. The registration costs are higher for newer cars and special vehicles such as convertibles, sports cars, luxury SUVs, etc. Initial license plates tend to be of the paper variety, and often have to be extended until the metal plates arrive. The vehicle is eventually placed in a National Registry for the benefit of the owners, but getting this accomplished may require considerable time and numerous bureaucratic maneuvers.
Drivers who import cars often go a step further and retain an attorney to help them with the process from beginning to end. This will add a couple of thousand dollars to the transaction, but brings a lot of peace of mind.
The Future of Car Importation
Going back to the example above, a 1994 Toyota Corolla on Craigslist could end up costing $4,000 or more. Importing that Corolla does not make too much sense, yet we can reasonably expect that importation of vehicles will continue, or that Ticos will eschew importation in favor of local auto dealers and private sellers.
Ticos are hungry for more cars, and there is some speculation that no amount of taxation will curb that hunger. Parking is scarce and congestion is now quotidian. Tolls keep rising in sync with traffic fines. Older cars will more than likely be phased out in favor of newer cars, thus pushing junkyards to their capacities. Tax rates are unlikely to change. A proposed exemption of import and sales taxes for hybrid and electric vehicles fell through in the National Assembly, and President Laura Chinchilla expressed to La Nacion that tax breaks for 100% electric vehicles, such as the brand-new Mitsubishi i-miev, are not in the horizon. Our President made this declaration just as she was test-driving the i-miev last year, which she liked. She added that, in the past, an abundance of tax breaks only contributed to a greater deficit and more cars on the road.
Proposals calling for even higher import taxes have been talked about outside of the sessions at the National Assembly. Special tolls and fines such as the London Congestion Charge ($20 to transit in the city, up to $360 for non-compliance) have also been rumored, as well as higher taxes on fossil fuels. Some measures could pass, some will not, but the overall Tico hunger for cars is not expected to change.