If you’re considering an investment property in Costa Rica and are interested in offering it as a vacation rental – one that you operate independently, or add to a community rental pool, or entrust to a property management company, or add to third-party booking platforms – then you need to understand the Costa Rica IVA tax for vacation rentals. Only, it’s not an IVA tax (that’s a misconception).
Here’s the truth: While Costa Rica has long enforced a 13% sales tax on goods (ex. shoes) and some services (including vacation rentals), on July 1, 2019, the country introduced a value-added tax to services. Known as IVA (pronounced ee-vah), or the Impuesto sobre el Valor Agregado (Value-Added Tax), IVA is the Spanish-language equivalent of the VAT tax you may already be familiar with.
This is where the misconceptions come into play: Because they’re both taxes and because their acronyms are similar (IVI and IVA) and because they’re taxed at typically the same 13% rate, many people confuse IVI and IVA in everyday speech. And, in everyday speech, that’s not much of a problem, because the end result is the same (an additional 13% tax on top of your rental fees). That said, as a vacation rental owner and savvy investor, you’ll want to be clear on the terminology.
Note that we could end this post here, because vacation rentals were subject to the 13% IVI tax prior to the IVA tax implementation of 2019, which means that vacation rentals do not pay IVA tax, but rather pay 13% IVI tax, or the Impuesto de Ventas Incluido, aka the Included Sales Tax. That said, the Costa Rica IVA tax for vacation rentals may still apply to other aspects of your vacation rental business. So, read on!
Before you do, please note that this post is for basic informational purposes only and does not constitute legal advice. Please consult with your Costa Rican attorney and/or accountant on all IVA details.
Vacation Rental IVA Tax: What Renters Need to Know
As of 2023, the Costa Rica IVA tax for vacation rentals does not apply – but that probably doesn’t mean what you think it does.
Because vacation rentals have long been subject to a 13% IVI sales tax, they do not pay the 13% IVA tax. That said, it’s all semantics: whether it’s an included sales tax or a value-added tax, vacation rentals are subject to a 13% tax on their rental fee.
Note that technically speaking, all vacation rentals in Costa Rica are subject to the 13% sales tax. We say technically speaking because not all vacation homes are properly registered in Costa Rica, which makes them somewhat “invisible” to tax authorities. (Note that this is strictly and clearly illegal and carries strong penalties, including of the financial variety. We do not advise renting under the table.)
Long story short, all legal vacation rentals will include a 13% IVI tax in your rental fee. You need only pay it; the homeowner will be responsible for remitting this tax to the corresponding authorities.
Costa Rica IVI Tax for Vacation Rentals: What Owners Need to Know
The great news: As taxes go, this is one of the less painful ones because you don’t pay for the IVI or IVA tax; your renters do.
As described previously, the IVI tax is a sales tax on certain goods, including vacation rentals, while the IVA tax is a value-added tax paid by anyone consuming specific goods and services produced in Costa Rica. Most goods and services are taxed at a rate of 13%; tourism and accommodations are one of them.
And that’s where the Costa Rica IVA tax for vacation rentals comes into play: If you offer additional services to your renters – say, area tours, private chefs, in-house spa services, concierge services, etc., those services will likely be subject to the IVA tax, as will any fees you collect for your booking and/or reservation services.
All that said, you are not responsible for paying these fees out of your own income. Instead, your renter pays the additional 13% (sales tax and value-added tax) and you are only responsible for remitting this tax monthly (more on that, in a moment). To put this to numbers, this means that for every $1,000 rental fee, you’ll actually collect $1,130 – and in the next fiscal month, you’ll remit the $130 (13%) IVI to Hacienda, the Costa Rican tax authority.
Here’s how it works:
Step 1: Collect IVI and/or IVA
Whether you work with a third-party booking platform (Airbnb, Vrbo, etc.), a property management company, or completely independently, you’ll need to equip your payment system to add the 13% IVI charge. You will also need to equip your accounting to collect the 13% IVA tax on additional offered services.
In most cases, your accountant or property management company will emit a factura electrónica, or digital invoice, for each reservation; these invoices provide a virtual tax record and accounting continuity for the Costa Rica IVA tax for vacation rentals.
Step 2: Declare IVA
In Costa Rica, the fiscal month runs from the 1st through the end of the month. Tax remittance is due the following month, between the 1st and the 15th of the month.
In other words, if you collect the 13% IVI or IVA from a renter in May, you will declare and remit that tax the following month, between June 1 and June 15. To declare IVI and/or IVA, you must be registered as an IVI and/or IVA taxpayer, either as a company or as an individual. Your Costa Rican attorney and/or qualified accountant can help you in this process.
Once you are registered as a VAT taxpayer, the IVA declaration process is fairly simple: Every month, you’ll log into Hacienda’s virtual portal to declare all IVA income and expenses for the month. There are several steps, which you’ll have to complete for every good or service you provide and are duly registered for with Hacienda, and two pages (mostly yes/no questions) to complete, but they’re fairly simple and you’ll get the hang of it quickly.
Once you have added all your income and expenses, the system will auto-calculate how much IVA tax is due; as you collected these fees from your renters during the previous month, you pay nothing out of pocket, beyond your time and possible accounting fees, if you hire a professional to handle this process for you.
Be sure to always save a copy of these declarations for your records.
Step 3: Remit the IVA Tax
Once you have declared your monthly income and calculated IVA owed, you can visit your business banking portal; there, you’ll navigate to the online bill pay section (naming conventions vary) and choose Impuestos (Taxes).
Under the Impuestos category, choose the option for Impuesto del Valor Agregado; as soon as you have made your declaration (Step 2), its corresponding IVA tax will appear here. Simply pay online, save a copy of this payment for your records, and you are finished.
Remember, you will need to repeat this process every month. Yes, every month. Even if you have no rentals during a given month (say, you were staying at your home personally), you will still need to declare $0/¢0 income and $0/¢0 IVI or IVA for that month.
Other Vacation Rental Taxes: What Owners Need to Know
As a vacation rental investor in Costa Rica, you’re also a business owner. And that means that you will have the standard tax obligations.
Costa Rica Property Taxes
At a minimum, you will owe annual property taxes on your investment home. This property tax is assessed on a sliding scale, calculated at 0.25% (one-quarter of one percent, or 0.0025 mathematically), plus an additional 0% to 0.55% of your taxable or declared property value. The 0.25% tax rate applies to all homes: a home worth $100,000 will pay $250 in annual taxes and a $500,000 home will pay $1,250 annually.
The extra percentages come into play for what Costa Rica often refers to as “luxury homes.” In reality and by law, this is actually the solidarity tax for social housing. Click through for full details on how to determine and calculate your Costa Rica property tax.
Costa Rica Income Tax
As an investor in Costa Rica, you will likely be required to remit income tax, either as an individual or as a business, per Law 7092 (Spanish), the Income Tax Law.
Income taxes are always a complicated subject best left for a discussion with your tax lawyer or accountant.
That said, to understand the basics, Costa Rica’s income tax is also determined on a sliding scale, with different scales for different types of income (ex. salaried workers are taxed differently than independent workers/freelancers, who are taxed differently from businesses).
It is important and financially savvy to discuss the best schema with your tax attorney, prior to operating your vacation rental, in order to legally minimize your income tax obligations. Please also discuss any other taxes, expenses, or fees you might incur as a business owner.
Dreaming of an Investment Home in Costa Rica?
We know about a lot more than just the IVI and Costa Rica IVA tax for vacation rentals! At Blue Water Properties, our team is multilingual (English, Spanish, and French), bicultural, and seriously experienced. And we put you first.
So, whether you want a little bit of help figuring out your investment property tax obligations or are looking a little broader – from identifying the right vacation home investment to purchasing a business, we’re here to help.
Go ahead. Imagine building your dream home, condo, vacation home, or investment property – what is most important to you? Are you a part-time or full-time owner? What’s your timeframe? Where does your budget fall?
Please, get in touch. We’re sticklers for responding within 24 hours. Yes, even if you’re reading this post into the wee hours; we’ll have more information to you on that dream, within the day! And we look forward to it!
At Blue Water Properties of Costa Rica, we’re proud to offer some of the best Costa Rica real estate. We have both condos and homes, land, and businesses for sale.