(2021) What You Need To Know About The 13% VAT Tax In Costa Rica

Last updated on September 27th, 2019 at 08:02 pm EST

Do I need to pay tax in Costa Rica?

If you’re planning a trip to Costa Rica from a country that regularly charges tax on products and services, like Canada or the US, you’re probably wondering whether vacation reservations are subject to tax in Costa Rica. The short answer is: “Yes.” As of July 1st 2019, tax applies to most Costa Rican tourism services.

During the first decade that we operated our business (Pura Vida! eh? Inc.), tax in Costa Rica wasn’t something most travelers needed to concern themselves with. Tax didn’t apply to several types of tourism services, including adventure and nature tours, shuttle services, and car rentals. Fast forward to today (2019) and tax in Costa Rica seems to be the topic on everyone’s lips.

Currently, a 13% value added tax (VAT) is charged on professional services in Costa Rica. The tax, which is known as the Impuesto de Valor Agregado (IVA) in Spanish, replaced the country’s 13% sales tax (sometimes referred to as the IVI; Impuesto de Ventas Incluido, or “Sales Tax Included” in English).

Costa Rica’s VAT claims within its grasp several service types that weren’t taxed under the old sales tax regime, including tourism services. This means that many of the items you’ll pay for during (or before) your Costa Rica vacation, such as guided tours, entrance fees to private attractions, and private transportation services, will be taxed unless they qualify for an exemption.

Costa Rica VAT exemptions

We bet you can imagine the uproar that spread across Costa Rican businesses when the news broke that the government would be scooping up 13% of their income. Fortunately, the government offered a slight break to tourism organizations registered with the national tourism board: a yearlong exemption period followed by a three-year tax rate roll-out (4% VAT the first year, 8% VAT the second year, and the full 13% VAT the third year).

Most Costa Rican tourism organizations have jumped on the government’s offer. They’re using the exemption period (July 1st 2019 to June 30th 2020) to enjoy one final year of not collecting/paying tax. Once that period elapses, they’ll begin collecting/paying tax at the lowest possible rate (4%), then increase that rate each year over the next two years (to 8% and 13% respectively).

A few tourism organizations have begun collecting/paying tax this year (2019). They argue there’s no benefit to not charging tax at this time because they’ll need to do so starting in 2020 anyway. To each their own. The takeaway here is that, until July 1st 2022 (the end of the tax rate roll-out period), tax on tourism services in Costa Rica will be charged at varying rates. Specifically, between July 1st 2019 and July 1st 2022, you could pay as little as 0% tax or as much as 13% tax on your Costa Rica vacation items.

How much tax will I pay in Costa Rica?

If you plan to travel before the end of June 2020…

You may not need to pay Costa Rica’s VAT tax. If you reserve vacation items through tourism organizations that opted to begin collecting/paying tax starting on July 1st 2019, you’ll be charged the 13% VAT. However, if you reserve vacation items through tourism providers that chose to take advantage of the government’s yearlong exemption, you won’t be charged the 13% VAT.

If you plan to travel after the end of June 2020…

You’ll need to pay Costa Rica’s VAT tax, though you may only be charged 4% or 8% as opposed to the full 13%. Beginning July 1st 2020, Costa Rica tourism companies must collect/pay tax in Costa Rica. If you reserve vacation items through tourism organizations that opted to begin collecting/paying tax starting on July 1st 2019, you’ll be charged the full 13% VAT. However, if you reserve vacation items through tourism providers that chose to take advantage of the government’s yearlong exemption, you’ll be charged 4% VAT if you travel between July 1st 2020 and June 30th 2021, or else 8% VAT if you travel between July 1st 2021 and June 30th 2022. If you travel on or after July 1st 2022, you’ll be charged the 13% VAT.

Important tax considerations

It will take some time for VAT notices to replace IVA notices

Though the VAT officially replaced IVA on July 1st 2019, it will be a while (probably years) before all Costa Rican companies officially update their text. Especially if you plan to travel to Costa Rica during the exemption period (between July 1st 2019 and June 30th 2020), or later during the tax rate roll-out period (between July 1st 2020 and June 30th 2022), you’ll likely continue to see several references to IVA on business websites, brochures, and signs. If you’re dealing with a tourism organization that advertises the old IVA tax, don’t treat that as a red flag that signifies wrongdoing. It’s more likely the case that the tourism organization hasn’t updated their resources. If in doubt, ask the tourism organization about it. They’ll probably explain that it’s the VAT they collect and pay.

Watch out for double taxation

As explained in the paragraph above, it will take a while before all Costa Rican tourism organizations officially update their resources to advertise the new VAT. Though you may see tax noted as “VAT” or “IVA” over the next few years while the country adjusts to the new tax regime, what you shouldn’t see are both taxes applied to any tourism service. If you encounter this in Costa Rica, take your business elsewhere. It means the company is charging too much tax.

Be careful booking full Costa Rica vacation packages

As we touch on in our related blog post Costa Rica Vacation Package Scams and Red Flags, there’s some funny business you should watch out for when purchasing a Costa Rica vacation package. In that article we suggest that though being asked to pay taxes on top of vacation items isn’t a crime, what is shameful is the practice of applying tax to a Costa Rica vacation package that is partly or fully comprised of items that already include tax. In this situation, you’ll find yourself paying tax twice: once on the taxed items that constitute the Costa Rica vacation package, and again on the vacation package itself.

The best way to avoid this is to ask your chosen Costa Rica vacation package provider for a complete price breakdown of each item included in the package. We’ve had several travelers ask us, “What if the company won’t provide me with a price breakdown?” to which we answer, “What do you think they’re trying to hide?” In our professional opinion, if a Costa Rican company isn’t willing to be transparent about their charges, they don’t deserve your business. Without a price breakdown, you cannot confirm whether you’re paying double tax. Without proof that you’re not being overcharged, it’s difficult to establish a seller-consumer relationship built on trust that’s worth pursuing.

Anticipate some confusion and frustration

Come July 1st 2022, when all Costa Rican tourism organizations are equally charging 13% VAT, the application and talk of tax in Costa Rica will be much simpler. But until that time, as the dust of Costa Rica’s new tax regime continues to settle, it’s smart to anticipate some tax-related confusion and frustration while you plan your vacation. You’ll likely encounter some companies that aren’t charging tax, some companies that are charging the full 13% tax, and other companies that are charging amounts in between, which we can appreciate can be disappointing and rather baffling. On behalf of all of Costa Rica, please be patient as we try to wrap our heads around the new tax reality. If you have questions, don’t hesitate to seek answers. Tourism organizations in Costa Rica are able to confirm what they are or are not currently charging in the way of tax. We’re happy to address additional questions in the comments section at the bottom of this article.

Specific information about tax in Costa Rica for Pura Vida! eh? Inc. clients

If you were directed to this article via our business website (Pura Vida! eh? Inc.), the following chart outlines which tax rate applies (and when it applies) according to each of our tour operator partners:

QUESTION TO COMMENT ON: What has your experience been so far with Costa Rica’s new 13% VAT tax?

Pura vida!

Summary

Article Name

What You Need To Know About The 13% VAT Tax In Costa Rica

Description

Must-know info about the 13% VAT tax in Costa Rica, including whether you need to pay the tax, tax exemptions, and things to watch out for.

Author

Nikki Solano

Publisher Name

The Official Costa Rica Travel Blog

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