What You Need To Know About The 13% VAT Tax In Costa Rica
Nikki Solano
Last updated on July 8th, 2024 at 10:19 am
Written by Nikki Solano
Nikki is the CEO of Pura Vida! eh? Inc. (Costa Rica Discounts), and the author of the guidebooks Moon Costa Rica (2019, 2021, 2023, and 2025 editions) and Moon Best of Costa Rica (2022 edition) from Moon Travel Guides. Together with her Costa Rican husband, Ricky, she operates the Costa Rica Travel Blog, created the online community DIY Costa Rica, built the Costa Rica Destination Tool, oversees the brand-new (summer 2023) Costa Rica Travel Shop, and designed the Costa Rica Trip Planning 101 E-Course. Also, Nikki wrote the Costa Rica cover feature for Wanderlust Magazine's sustainability-focused Travel Green List issue, showcased Costa Rica destinations and experiences on Rick Steves' Monday Night Travel show and podcast/radio show, and served as the Costa Rica Destination Editor for Essentialist, a luxury travel brand. Want to show your appreciation for her free article below? Thank Nikki here. ❤️️
The tax rate rollout program described below ended on June 30th, 2023. As of July 1st, 2023, tourism providers in Costa Rica are required to charge the full 13% VAT tax on tourism services.
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Do I need to pay tax during my vacation 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.” A 13% value-added tax (VAT) is charged on top of most tourism services in Costa Rica.
During the first decade that we operated our business (Pura Vida! eh? Inc.), tax, often referred to as the Impuesto de Valor Agregado (IVA) in Spanish, wasn’t something most travelers needed to concern themselves with. It didn’t apply to several types of tourism services, including adventure and nature tours, shuttle services, and car rentals. But in 2019, the VAT tax replaced Costa Rica’s 13% sales tax (what was sometimes referred to as the Impuesto de Ventas Incluido in English, or the IVI for short). This change made tourism services eligible for taxation in Costa Rica, making guided tours, entrance fees to private attractions, private transportation services, and other vacation services taxable 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 yearlong 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 the tax in 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 the following year (2020) anyway. To each their own. The takeaway here is that until the end of the tax rate rollout period, tax on tourism services in Costa Rica was charged at varying rates. Specifically, travelers could pay as little as 0% tax or as much as 13% tax on their 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%
When the Covid-19/coronavirus pandemic hit in 2020, the government chose to delay Phase 2, Phase 3, and Phase 4 of the rollout plan by one year, essentially lengthening the exemption period (Phase 1) by one year 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%
Because June 30th, 2023 (the end of the tax rate rollout period), has now passed, the full 13% VAT tax applies to tourism services in Costa Rica. This means that you’ll pay 13% on the tourism-related services that you purchase for your trip. Note that it’s up to the tourism service provider to decide whether they want to include the 13% tax in the cost of their services, so be sure to confirm whether any price quotes you receive include or exclude the mandatory tax.
Important tax considerations
It will take some time for VAT notices to replace IVA notices
Though the VAT officially replaced Costa Rica’s sales tax on July 1st, 2019, it could be several years before all Costa Rican tourism companies officially update their text. You may continue to see several references to the sales tax or IVA on business websites, brochures, menus, and signs, or you may just see the tax cited as 13%. If you’re dealing with a tourism organization that advertises the old IVA tax or that simply cites the tax as 13%, that isn’t a red flag that signifies wrongdoing. It’s most likely the case that the tourism organization hasn’t updated its resources yet, or they’ve decided to cite the tax generally as 13% to avoid overwhelming travelers with confusing tax acronyms, like IVA and VAT. If in doubt, ask the tourism organization about the tax. They’ll probably explain that it’s the VAT that 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 a VAT tax and a sales tax applied to a 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
Now that we’re living in a post-July-1st-2023 world, all Costa Rican tourism organizations are equally charging the same tax rate (13%), so tax discussions are fairly straightforward. But it’s important to understand that up until July 1st, 2023, tourism businesses were (confusingly to some travelers) permitted to charge different tax rates under the rollout program, so there’s bound to be some lingering talk of that chaos among travelers for some time. (During the rollout program, travelers would encounter some companies that weren’t charging tax at all, some companies that were charging the full 13% tax, and other companies that were charging amounts in between, which I’m sure you can appreciate would be quite baffling.) 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, especially if you rely on past travelers’ testimonials (or their reports/reviews in online forums) for guidance. On behalf of all of Costa Rica, please be patient while everyone wraps their heads around the new tax reality (that 13% VAT applies to all tourism services) and beware of outdated tax information/advice. Of course, if you ever have questions or doubt, feel free to post a comment below and we’ll do our best to help. 🙂
Pura vida!
Do you have questions about the tourism tax in Costa Rica, or want to know exactly when and where it will apply to your vacation? No problem! When you’re ready, make an appointment here to communicate with me (Nikki) privately and we can discuss these and other topics to get your questions answered fast and your Costa Rica trip poised for success. Pura vida, amigos! 🙂
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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.
