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

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

Last updated on August 21st, 2021 at 10:01 am EST

Do to the Covid-19/coronavirus pandemic, the rollout of the VAT tax was delayed by one year. The information below has been updated to reflect this change.

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 (post-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 and the multiyear tax rollout period

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 followed by a three-year tax rate rollout period (4% VAT the first year, 8% VAT the second year, and the full 13% VAT the third year).

Most Costa Rican tourism organizations jumped on the government’s offer. They used the exemption period (July 1st, 2019 to June 30th, 2020) to enjoy one final year of not collecting/paying tax. Had the Covid-19/coronavirus pandemic not happened, they would have begun collecting/paying tax at the lowest possible rate (4%) on July 1st, 2020, then increased that rate each year over the next two years to 8% and 13% respectively.

A few tourism organizations began collecting/paying tax from the very first year (2019). They argued there was no benefit to not charging tax from the start since they’d need to do so starting in 2020 anyway. To each their own. The takeaway here is that until the end of the tax rate roll-out period, tax on tourism services in Costa Rica will be charged at varying rates. Specifically, you could pay as little as 0% tax or as much as 13% tax on your Costa Rica vacation items.

How the Covid-19/coronavirus pandemic changed the implementation of the VAT tax in Costa Rica

As described above, when the VAT system was established in Costa Rica in 2019, the government created a multiyear rollout plan that had four phases:

  • Phase 1 (July 1st 2019 to June 30th 2020): Exempt from charging/paying tax
  • Phase 2 (July 1st 2020 to June 30th 2021): Minimum VAT rate is 4%
  • Phase 3 (July 1st 2021 to June 30th 2022): Minimum VAT rate is 8%
  • Phase 4 (July 1st 2022 onward): Minimum VAT rate is 13%

When the Covid-19/coronavirus pandemic hit in 2020, the government opted to delay Phase 2, Phase 3, and Phase 4 of the rollout plan by one year, essentially lengthening the exemption period (Phase 1) and changing the remainder of the rollout schedule to the following:

  • Phase 1 (July 1st 2019 to June 30th 2021): Exempt from charging/paying tax
  • Phase 2 (July 1st 2021 to June 30th 2022): Minimum VAT rate is 4%
  • Phase 3 (July 1st 2022 to June 30th 2023): Minimum VAT rate is 8%
  • Phase 4 (July 1st 2023 onward): Minimum VAT rate is 13%

How much tax will I pay in Costa Rica?

The dates below have been updated to reflect the new tax rollout phases, which were enacted in response to the Covid-19/coronavirus pandemic.

If you plan to travel before the end of June 2021…

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 (extended by one year due to the Covid-19/coronavirus pandemic), you won’t be charged the 13% VAT.

If you plan to travel after the end of June 2021…

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, 2021, 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 (extended by one year due to the Covid-19/coronavirus pandemic), you’ll be charged 4% VAT if you travel between July 1st, 2021 and June 30th, 2022, or else 8% VAT if you travel between July 1st, 2022 and June 30th, 2023. If you travel on or after July 1st, 2023, 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, 2021; updated due to the Covid-19/coronavirus pandemic), or later during the tax rate roll-out period (between July 1st, 2021 and June 30th, 2023), 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 its 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, you should never see 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 although being asked to pay taxes on top of vacation items isn’t a crime, the practice of applying tax to a Costa Rica vacation package that is partly or fully comprised of items that already include tax is wrong. 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 being overtaxed 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 more tax than necessary. 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, 2023 (updated due to the Covid-19/coronavirus pandemic), 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, while 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:

Tour Operator NameVAT Rate and Application Date
Amigos del Rio4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward
Arenal Mundo Aventura4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward
Canoa Aventura4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward
Desafio Adventure Company4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward
Exploradores Outdoors4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward
H2O Adventures13% applied from July 1st 2019 onward
Hacienda Guachipelin4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward
La Roca Canyoning4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward
Manuel Antonio ExpeditionsTBD
MidWorld Costa RicaTBD
Mistico Arenal Hanging Bridges Park4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward
Paco’s Horses4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward
Planet Dolphin4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward
Pure Trek4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward
Sky Adventures4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward
Springs Resort / Club Rio13% applied from July 1st 2019 onward
Vandara Hot Springs & Adventures4% applied July 1st 2021 to June 30th 2022
8% applied July 1st 2022 to June 30th 2023
13% applied from July 1st 2023 onward

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

Pura vida!

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What You Need To Know About The 13% VAT Tax In Costa Rica
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.
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The Official Costa Rica Travel Blog
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2 thoughts on “What You Need To Know About The 13% VAT Tax In Costa Rica”

  • Hi there…could you answer me the following…

    Booked a room $264 + 13% tax this booking stayed meals and 1 free beverage with each was included.i

    Now, I’m wanting to book the whole resort and have all inclusive for my clients.
    The hotel came back with the following taxes. Bear in mi d the above quote which included food and drinks..

    13 % tax accomodations
    4% tax for various tours.
    23% tax on all food and beverage.

    Total 40 % tax !!!!

    This is ludicrous !!

    Are they double charging?

    • Be –

      This is a great question. Thanks so much for checking in about it because you’re right, upon first glance the breakdown of tax seems strange. I’d need to know more information to accurately answer your question (specifically, which date you placed the reservation and which dates you intend to travel), but for now, the breakdown looks correct. Here’s why:

      There are a few different taxes that apply in Costa Rica. For one, there’s the original 13% sales tax, which companies previously charged for some services before the new VAT tax was established. Then there’s the new 13% VAT tax (described in our article above), which applies to previously untaxed tourism services, such as tours. There’s also an optional 10% service tax, which is essentially a mandatory gratuity, which some restaurants choose to apply to food/beverage services. Double taxation (a.k.a. double charging) happens when a company applies two different taxes to one item that are collected for the same purpose. I don’t believe the company in question here is doing that, because they’re applying different taxes to accommodations, tours, and food/beverages for unique purposes. Specifically, they’re charging the following:

      – 13% tax on accommodations. The tax they are charging here is likely the age-old 13% sales tax. The accommodation has probably been charging this sales tax for years, which is legal. The tax shouldn’t have anything to do with the new VAT tax that was introduced.
      – 4% tax for tours. The tax they are charging here is likely the new mandatory VAT tax (described in our article above), which is legal and being rolled out over several years. The exact tax rate applied (which would be either 4%, 8%, or 13%) would have been determined by your travel dates.
      – 23% tax for food/beverages. The tax they are charging here is actually comprised of two parts: the old 13% sales tax plus the 10% automatic gratuity. Both of these charges are legal charges that have nothing to do with the new VAT tax; they have applied to food and beverage sales for years.

      In my opinion, though it looks a bit funny to have different tax rates apply to different services, the charges look correct. You’ll pay 13% tax on accommodations and food/drink charges (regardless of whether it is recorded on paper as the “sales tax” or the “VAT tax”), you’ll pay 4% VAT tax on tour charges, and you’ll pay a 10% gratuity on your food/drink charges. To confirm, though the individual tax figures add up to 40%, you won’t pay a tax equivalent of 40% overall (i.e., across all accommodation, tour, and food/beverage charges).

      Where I can appreciate things seem extra strange is where the accommodation originally quoted you a price for one room (including food and a drink) plus only 13% tax. When they came back to you with the breakdown of other taxes when you asked to book the whole hotel, it probably seemed like they were adding in extra taxes all of a sudden. Though I don’t know the specifics of the quote you received, my best guess is that the original quote ($264 + 13% tax) was correct for your accommodation (taxed at 13%) and your food/drink (also taxed at 13%). The only difference between that quote and the quote you received for booking the entire hotel (apart from the full-hotel quote including a request for tours) is that the full-hotel booking quote included the 10% gratuity charge. Technically, the original room quote you received could have been $264 + 13% tax and an extra 10% gratuity charge on food/drink sales, but for whatever reason, the hotel didn’t charge you the gratuity. Applying (and not applying) the gratuity charge is common practice in Costa Rica; some hotels/restaurants opt to apply it only to large-group bookings (others do not), so perhaps this is why the company you were in contact with didn’t apply the legal charge when you initially requested a quote for only one room. Though the application of the sales tax and the VAT tax (one or the other, not both, per item) are required by law, the application of the automatic gratuity is not. So, if you’re looking for a way to reduce the overall price of your visit, your best bet would be to negotiate the application of the gratuity. I know many hotels won’t budge on this in order to stick to their internal policies, but it is one area where costs could legally be reduced.

      Wishing you safe and enjoyable travels! Pura vida! 🙂

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