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If you own a vacation rental, Costa Rica’s taxmen have a message for you

pool-view

August 7th, 2014 (InsideCostaRica.com) If you own a home, condo or apartment that you rent to tourists, the taxmen at Costa Rica’s Ministry of Finance want 13%.

 

The message comes as reminder after a bill was presented to the Legislative Assembly on July 31st, aimed at cracking down on tax evaders, which specifically mentions those who own property used as vacation rentals must pay the standard 13% sales tax (IVI).

 

While the new bill is yet to be approved, the Director General of Taxation, Carlos Vargas is reminding property owners that the provision already exists in the existing General Sales Tax Act, and that tougher enforcement of the law is coming soon.

 

In the bill sent to the Legislative Assembly, a vacation rental is considered any accommodation rented for a period of less than one month.

 

“The idea is to prevent tax evasion and unfair competition by the proliferation of vacation rental properties that pay no taxes, against formal hotels and lodges that do pay taxes,” Vargas said.

 

“If we do not fight informality in this sector, the Treasury will continue to lose resources as the [informal accommodations] absorb the tourism market.”

 

Vargas said that vacation rental owners – most of which do not charge for or pay the sales tax – unfairly compete against hotels, which must pay sales taxes and social security contributions.

 

The Ministry of Finance said it is planning several new tactics to enforce compliance and detect evasion of the tax.

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  • Upset with goverment of CR

    Now anyone that was thinking of buying condo´s or a house in Costa Rica will go somewhere else. Clearly now US and Canadian citizens will avoid investing in Costa Rica. Now you see the policy of New goverment kill any type of investment in Costa Rica. If i was retiring i would go somewhere else not CR. What´s next tax on barbeque´s?

  • USMCNamVet1969

    They dont want Gringos to come to CR and invest they want them to come to CR to spend a few weeks dropping hundreds of dollars in the economy and then leave. They are courting the chinese to become the new gringos for CR

    • Upset with goverment of CR

      Your right on the Chinese. Push the US and Canadian out and bring in Chinese. The deal was made years ago by PLN and PAC goverment.

  • Lisa

    In the US you must pay taxes on ANY rental income, why not here in Costa Rica?

    • Upset with goverment of CR

      That what Costa Rica needs to be like US broke system.

  • expatin paradise

    THIS IS NOT ANYTHING NEW. People in CR have had to pay sales tax on short-term rentals for years. The government is just clamping down on tax cheats. The new law apparently deals with penalties for violating the law and/or enforcement provisions. Unless investors were coming to CR with the intent of defrauding the government, .this should have no effect on investment.

    Lisa Marie, this is about sales tax. Income tax is a separate issue. In the US, at least in my home state, sales tax is paid on all short-term rentals, even on those of several months, to the State. This is above and beyond the income tax, a Federal tax, or property tax.

    Costa Rica is still a good tax deal. The sales tax is high, but property taxes are extremely low. Unfortunately, too many expats came here to enjoy the benefits of the tax anarchy that existed here for too long. I own properties here, but believe that it is only fair to increase property and income taxes while lowering taxes on sales, including gasoline. The current tax structure favors the wealthy at the expense of those less fortunate, and is unlikely to change. Those who can afford rental properties should consider themselves fortunate and pay all taxes due. Otherwise, they should shut the f**k up about the crumbling infrastructure.

    • http://insidecostarica.com/ Timothy Williams

      Correct. The 13% IVI on vacation rentals was already in place. The new bill is aimed at actually implementing methods to enforce it. Perhaps we weren’t clear enough on that in the article.

    • Derryl Hermanutz

      I agree. People complain about bad roads and poor services, then they complain about paying taxes that the government uses to provide the roads and services. Sure, there’s a lot of overpaid bureaucrats in government, but compare that to the CEOs of US HMOs who are sucking up $100 million + per year, and if you don’t pay your HMO you don’t get any medical care, period. Public sector or private sector, when managers and administrators are paying themselves with other people’s money, there’s going to be corruption. But failing to pay your fair share of the taxes is no solution. Too many people buy a house or condo in CR and suddenly feel they are an “investor” who deserves special privileges, whereas at home they’re just a homeowner paying heavy property taxes to their municipal government; and they pay income taxes on all rental income. EVERY bureaucracy that’s managing a large operation, public and private sector, no matter where they are, pay themselves salaries, benefits and pensions far richer than small businesspeople can afford to pay themselves; because monopoly or oligopoly control of the necessity they provide enables them to pass on the costs to consumers or taxpayers. It’s not fair. But it’s certainly not exclusive to CR.

    • Lisa

      I know this is about sales tax but taxes are taxes imho. Life is so affordable here, beautiful weather, great food, great healthcare, great beaches and wonderful people. In the 11 years I have been here I have watched new paved roads be built that were once more like artillery ranges with 4ft deep potholes. Yeah, things aren’t perfect but what is?

      • expatin paradise

        I think we agree, Lisa; but apparently several here object to the sales tax on short-term rentals. Actually, there is a faction here that appears to be opposed to all taxes.

  • Upset with goverment of CR

    TIM

    Are you going to cover this story about the Consultant in the presidents office that was paid 110 million colons and has an office free of charge next to New Prez. Channel 7 covered it last night. Everyone in Costa Rica is looking for more info on this Consultant.

    • http://insidecostarica.com/ Timothy Williams

      It almost made it into today’s edition but we didn’t have quite enough time to wrap it up. Look for it tomorrow.

      • Upset with goverment of CR

        Thank you

    • roberto

      Ivan Barrantes works at the Presidential Palace and is one of the closest advisors of President Luis Guillermo Solis. No shame in his game.

      • Upset with goverment of CR

        Did you watch channel 7 last night? The comments made by channel 7 commentor where honest and to the point. Ivan Barrantes seems like another entitled man that is doing what for Costa Rican? Last night channel 7 asked him who he consults for and he said its private. He has an office in Presidential palace free of charge. The truth is coming out very fast about this man and its not good. Even Otton Solis PAC founder wants to truth. New Prez is losing all honesty and finally news and media are calling this Ivan Barrantes out on what he is about?

    • http://insidecostarica.com/ Timothy Williams

      Just FYI, we had to bump this until Monday as we were unable to reach key people for quotes and DD.

  • disgusted

    Costa Rica has dug a deep hole in their budget borrowing nearly 56% of their budget. They pay huge salaries and pensions, like the ex ambassador getting 30K a month! Doctors/surgeons making overtime and huge salaries as well.

    So they look at the ” tourist” and see a cash cow. My attorney, dentist and doctor all want cash when doing business. Give you a receipt that says nothing to say what for. Just a way they pocket all no taxes.

    Cut salaries, pensions and lay off all the dead wood in government , How about that Pres. Solis??

    • Upset with goverment of CR

      Costa Rica goverment is a mess they should layoff everyone. There is lots of young people that need jobs. Hire them. Let these lazy people in Costa Rican goverment try to find a job in the private sector.

  • Karen Mata

    Tax policy should be to maximize revenue, and their policy (not surprisingly) is having the opposite effect as big business and expat alike depart.

  • Lisa

    Wow, a lot of hate here. I’m an ex-pat living here and I love it. I have been ripped off by more ex-pat gringos than Ticos. I have been here for 11 years, treated for cancer at 1/10 the cost in the US. Maybe some people need to adjust their attitude.

  • Ken Morris

    I fail to understand the outrage. Why should the owners of vacation rental property not have to pay the same tax that hotels pay? Heck, gringos own hotels too, so it’s not anti-gringo. It’s just a matter of taxing everyone in the same business at the same rate, a matter of fairness.

    Perhaps if someone with vacation rental property has made investments based upon tax avoidance, there could be some grandfather provision to phase in the taxes on these people, also for the sake of fairness. Even though this tax isn’t a rule change, it does change the application of the rules on investors, so maybe some temporary leeway is warranted. But big picture the aim is tax fairness.

    And it’s completely irrelevant that others (like doctors and lawyers) cheat on their taxes, as well as that lots of government bureaucrats are overpaid. The first argument amounts to saying that because someone else steals $10,000 it’s OK for me to steal $1000. The second amounts to saying that because my tax dollars pay the salaries of some idiots in congress I shouldn’t have to pay any taxes at all for anything else.

    Mostly, getting CR on solid fiscal footing requires a multi-pronged approach, and I for one am happy that Solís is focusing on enforcing tax collections before he considers raising taxes. Also, Solís is tackling the problem of huge pensions for government employees, as well as the bloated government bureaucracy (via a hiring freeze) and corruption. Taxes may ultimately need to be raised too, but everyone knows that there is widespread tax evasion, and addressing this is a better first step than just raising taxes (Chinchilla’s proposal). Addressing tax evasion effectively means addressing it everywhere it is found, including among those renting vacation property.

  • El Torito

    The government wants 13%? So raise your rent 13%.

  • Michael Clarkson

    The CR want more tax money so the politicians can steal more money is that simple.