Costa Rica Tax structure
Operating a vacation rental in Costa Rica is now considered running a business!
We will try to guide you and help you understand everything related to rental property taxes, because even though many aspects of the tax system may look familiar, the working process of each tax is unique, making the Costa Rican tax system unlike any other in the world.
In Costa Rica the tax system is administrated by the Ministry of Finance (Ministerio de Hacienda) and the General Direction of Taxation (Dirección General de Tributación).
The country operates on a territorial tax system, which means that only income earned within Costa Rica is subject to taxation, it also operates on a progressive income tax system, meaning that the tax rate increases as income rises.
According to Law 9635 the activity of renting a house is automatically taxed and Costa Rica has been increasing enforcement on rental income, so it is essential for property owners to stay compliant.
Non-compliance with Costa Rica's rental tax laws can result in severe financial penalties and legal issues. Tax authorities have intensified their scrutiny specially in popular tourist areas, so taxpayers have to be careful because the government can request an audit anytime.
"Make sure that you are compliant with the government regulations, an audit can be very stressful and the fines very high"
New Regulations For Online Rental Platforms
Airbnb & other platforms are required to assist the government by collecting and remitting detailed financial information
In order to improve tax compliance and prevent tax evasion, the government now requires the use of a digital reporting system. All property owners must submit rental income and expenses report electronically to the Ministry of Finance. The property owner is also required to produce one invoice per rental.
We highly recommend to not be tempted to hide income, specially from Airbnb, the Ministry of Finance has access to every property online and every reservation in the calendar, with the new law online rental platforms are now connected to Ministry of Finance databases.
If you are operating a vacation rental in Costa Rica, knowing the corporate and individual tax system is essential.
You should ensure that you are compliant and understanding each of the following taxes:
Tax Filing & Compliance
For property owners in Costa Rica, knowing about property laws is key. The tax system in Costa Rica is complex, so owners have to keep up with their obligations
Property Taxes
Property tax in Costa Rica is relatively low compared to many other countries. The local government (municipality) requests every 5 years an appraisal of your property to determine its value for property tax purposes and non compliance can result in penalties up to ten times the tax owed. Property taxes are due by January 15th each year.
The general rate of property tax is 0,25% of the registered value of the property. If your home is worth more than $200 000, you should be paying annual Luxury Tax.
Cultural Tax
Costa Rican government has implemented the Cultural Tax in 1976. This initiative aims to support various artistic endeavors, preserve historical sites, and foster the development of cultural programs that benefit all citizens.
The tax is based upon the amount of the capital stock of your corporation and the payments are due by march 31st of each year.
Sales Tax (VAT)
The Value Added Tax or IVA as it is known in Costa Rica has a significant impact on vacation rentals since it adds more costs to guests and owners. For any short term rentals the rate is 13%. The property owner is responsible for including the Value Added Tax in the accommodation price and reporting the amounts to the Costa Rican authorities.
It is also the responsibility of the property owner to issue electronic invoices to each guest including the 13%, to file the monthly Value Added Tax return and pay the taxes to the Ministry of Finance.
Luxury Tax
Since 2009 the Costa Rican government introduced the Luxury Tax on high value properties, this tax is called the Solidarity Tax for Housing and helps fund public housing projects for people in need. The Luxury Tax on houses is paid in addition to the other existing property tax.
The Luxury tax is based on the market value of the house, it is not calculated on the basis of the land on which the house is constructed. Depending on the declared value of the property the tax rate can be between o,25% and o,55% and must be paid yearly within the first 15 days of January.
Income Tax
You are required to pay income tax if you generate income in Costa Rica regardless whether you live in the country or not. Costa Rica uses a graduated tax bracket system where higher income levels are taxed more heavily. There are 2 regimes to pay this tax depending on the structure of your business:
Real Estate Capital Income Tax
In this regime every property owner is required to file form D-125 at the end of each month, declaring gross income and liquidating the calculated income tax. The tax is a simplified flat tax that allows limited deductions. We can refer to it as the 15/15 rental tax. From the total rental income you can automatically apply a single deduction of 15% of expenses without the need for receipts and on the remaining 85% pay 15% tax.
The filing of the return and payment of the tax must be made whiting the first 15 days of the following month in which the income was generated. The tax return should be filed only for the month in which you receive income.
Income Tax on Profits
In you have at least one employee registered with the CCSS (social security), you can request authorization to the tax authorities to be part of this regime. The Income Tax on Profits requires to file the income tax annually by summing up the gross income and adding up your expenses as deductions and paying tax on the net income. Under this regime the income tax return filing deadline is March 15th. Additionally you will have to comply with quarterly partial payments of the income tax which must be paid by the last day of June, September and December of each year.
Corporate Taxes
Costa Rica requires annual corporation fees to keep a company running. If you use a corporate structure for your property, you must pay this fee on a yearly basis.
Properties that are active pay different fees based on their earnings and the type of corporation. The fee of the tax ranges from $210 to $425 approximately depending on the income generated in the previous fiscal year (January 1st to December 31st).
This tax should be paid through the month of January.
Difference between inactive and active companies:
Property owners need to know the difference between inactive and active companies. An active corporation is a business that is legally registered and generating revenue. An inactive corporation, on the other hand, is also legally registered but does not currently conduct business or generate income.
