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Tax requirements and compliance for Vacation Rentals in Costa Rica

Operating a Vacation Rental in Costa Rica is now considered running a business. It’s going to take more than simply posting the listing and receiving renters. Here is what you need to know to comply with the tax regulations.

For years the issue of “if” and “when” a vacation rental property in Costa Rica should pay income and / or sales tax has been on people’s minds and conveniently it has been a gray area. Attorneys and accountants have had different interpretations of what exactly is a vacation rental and if they were required to collect & pay taxes.

As of December 2016, the answer became a clear: YES – vacation rentals, defined as short term rentals under 30 days must collect a 13% sales tax and pay it to the tax department every month. Another update to the tax law was passed December 2018 and will go into effect summer of 2019, raising the tax to 15%. All rentals, short and long term, must also file an annual income tax and pay that tax.

Today, still a majority of vacation rentals are not registered with the tax department and the tax department is beginning to aggressively come after every one.

Here is the actual law that was passed in December 2016:

Ley #9416 Ley para Mejorar la Lucha contra el Fraude Fiscal

Article 3 of the Law Against Fiscal Fraud was specifically written to define what is a vacation rental and its absolute requirement to collect the sales tax. It is no longer a gray area, but clearly defined. All vacation rentals must invoice every client and collect and pay the 13% sales tax on each and every reservation under 30 days.

How do I get started?

The tax registration declaration that must be visibly posted in front of your property / business.

The first step is to register yourself and/or your corporation with the tax department. You do NOT need to be a citizen or resident to do so. Foreigners can register. You must go to the tax department in your province and obtain a personal tax ID or NITE – for foreigners – and in case of a corporation, link your personal tax ID with the corporation.

Then from your computer, visit the tax department website:

https://www.hacienda.go.cr/ATV/Login.aspx

Once you register online with your tax ID, you must declare your economic activity (code 551001) and method of invoicing, which is now Factura Electronica for everyone. You then need to set up your Factura Electronica settings, which can be slightly complicated and covered in this article. We recommend asking your accountant or professional manager for help. Once this is done, you are ready to start invoicing your clients.

How do I collect the sales tax from my renters?

factua
Factura Electronica digital signed by the tax department

As of November 2018, for every tenant that stays in your property, the property owner is obligated to create and provide (even if not requested) an electronic invoice (factura electronica) to the tenant or online booking engine. The invoice must be approved by the department of tax revenue (Hacienda) and digitally signed. The invoice will include the 13% sales tax which is then collected by the property owner / manager.

How to I pay the sales tax?

Monthly Tax Declaration

At the end of every month (or prior to the 15th of the following month) the property owner / manager is required to file a report, form D104, of all income produced and all taxes collected. This is done online via the tax department’s ATV website. Once the report has been filed, the property owner / manager can pay the tax online via his/ her Costa Rican back account.

Congratulations, your sales tax responsibilities are now complete! But, you are still responsible for a few more taxes:

  • The annual income tax (Renta) which is a net balance between your income and your expenses. The tax rate for most properties is 10% of the net profit. We highly recommend that a certified Costa Rican accountant prepares this for you. Most vacation rentals will end up paying little or no tax, as most properties have enough expenses to offset the income.
  • The local Municipal Property Tax, which represents 0.25% of the declared value of your property. Most property owners are almost certainly already paying this.
  • If you have a corporation, the annual corporate tax, paid annually online to the Minestrio de Hacienda.

What if the income stays in my home country?

Many property owners “operate” their vacation rental from outside of Costa Rica and get paid in an account outside of Costa Rica, meaning the income never goes through the Costa Rican bank system. This is fine, but the law is also clear: the vacation rental is located in Costa Rica and therefore the sales tax must be collected and paid. You are permitted to run your finances wherever you want, but this does not neglect your obligation to collect and pay the sales tax.

Airbnb does not collect tax. Do I have to report anything?

Airbnb is slightly complicated as they are one of the few booking engines that does not actually have an option to add a sales tax to the listed price. They also handle all the finances between the renter and them.

We have consulted directly with the tax department, Ministerio de Hacienda and clarified the following:

  1. Airbnb and Hacienda are in current negotiations to incorporate the sales tax or report the sales tax directly to Hacienda.
  2. Currently, a $100 rental on Airbnb includes the sales tax. $100 represents Rent of $88.50 and Sales tax of $11.50.
  3. The factura Electronica (invoice) should be made out to the payee, in this case Airbnb. Even though Airbnb may not receive / require the invoice, the property owner is required to produce one for each rental. A renter cannot be invoiced twice. Airbnb has invoiced the renter and collected the rent. Airbnb then pays the property owner, therefore the property owner mustthen invoice Airbnb directly.

We highly recommend to not be tempted to hide Airbnb income. Hacienda has access to every property online and every reservation calendar. Don’t get caught! An audit can be very stressful and fines very high.

My property manager handles all my reservations. What are his / her responsibilities?

Many vacation rentals are professionally managed and this can make managing your house guests and taxes much easier. Make absolutely sure that your manager collects the tax on your behalf for every reservation and pays that tax every month. Failure to do so is both the property owner and manager’s responsibility. We recommend that your property manager provides you a copy of the invoice(s) provided to your house guests and proof that the 13% tax is charged, declared and paid every month to the tax department, otherwise you might both be implicated.

I want to rent my house, but don’t want to be bothered with invoicing and taxes. What are my options?

Unregistered vacation homes are still a majority, but the tax department (Ministerio de Hacienda) has recently taken an aggressive approach at finding and fining properties that don’t comply. You do not want to be next! Your easiest option is to work with a reputable property management service that can help with the invoicing and charging of all of your clients. Your manager should also file the monthly Sales Tax declaration and pay it for you. You can also hire an accountant. Yes, this seems like more expenses and a lot more work. It is, but it’s the law and everyone must comply.

The tax department is looking at vacation rental websites. They have access to your property location on Google maps. They have access to reservation calendars. They basically know who is renting, for how much and how often. They also know that most properties are currently unregistered and are going after every one.

Don’t take a risk and get caught. It’s simply not worth the stress.

Property Management

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