Thursday 23 September 2021

2% Retention On Card Transactions Now In Force in Costa Rica

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QCOSTARICA – The Tribunal Contencioso Administrativo (Administrative Court) gave the green light to the Ministerio de Hacienda (Ministry of Finance) to apply to business the 2% retention on all credit and debit card transactions.

Hacienda reported Friday that on January 13 the Court overturned the November 27 injunction filed by the Unión Costarricense de Cámaras y Asociaciones de la Empresa Privada (Uccaep) – Costa Rican Union of Chambers and Associations of Private Enterprise.

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Thus, theDirección General de Tributación del Ministerio de Hacienda (Directorate General of Taxation) announced the immediate implementation of the measure. The retention amount of 2% is applied to the amount of the sale, less the 13% sales tax.

Fernando Rodriguez, Deputy Minister of Revenue, explained at the point of  sale if a person uses their card (debit or credit) to pays ¢100,000, for retention purposes the amount is first reduced by the 13% of the sales tax because it is not income for the business, leaving ¢88,495 applicable to the retention.

Thus the 2% applied on the ¢88495. In this case the retention amount is ¢1.770.  The calculation explanation has generated some confusion on some websites, where 1.78% is applied to overall transaction, netting out the same retention amount.

The Ministro de Hacienda, Helio Fallas, insists that the retention is a measure to improve tax collection. He added that the move will allow Hacienda greater control of taxation and combating tax evasion.

The retention, intended as advance payment of income tax by businesses, was announced last August with deductions going into effect on October 1.   However, complaints by some sectors, mainly gasoline retailers and taxi drivers, caused Hacienda to delay the enactment of the measure.

In September last year, Hacienda announced that some businesses, such as taxis, grocery stores, restaurants and gasoline stations would be excluded from the retention measure.

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Editor’s note: Important to note the measure does not affect consumer pricing in any way, the retention amount is not a tax applied to a sale, rather the business accepting plastic will have the retention amount automatically deducted from their payment to them by the card processor.  The measure does not apply to cash transactions.

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