Wednesday 23 June 2021

Short Term Rentals Must Pay Sales Tax


In the past several years the trend of many tourists, both national and foreign, has been to rent a private home, condo or apartment instead of staying at a hotel.

One of the reasons is the no payment of the sales tax on the private rental. However, that will soon come to an end, with the clarification by the Ministry of Finance (Ministerio de Hacienda) that the rental on a home, condo or apartment to tourists is subject to the 13% sales tax.

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Short term rentals (less than one month) like this condo project in Heredia are subject to sales tax says the taxman | Photo:
Short term rentals (less than one month) like this condo project in Heredia are subject to sales tax says the taxman | Photo:

The Director General of Taxation, Carlos Vargas, explained that all rentals of residential properties for periods of less than one month are required to charge the sales tax.  Few do. The provision has always been part of the Sales Tax Act (Ley General del Impuesto de Ventas), though seldom applied.

“The idea is to prevent fraud and unfair competition with the proliferation of rental properties that do charge taxes, against hotels and hostels that do,” said Vargas.

“If we don’t fight the informality of this sector, the Treasury will continue to lose resources to the extent that informals absorb the tourism market,” added Vargas.

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The move by Hacienda is welcomed by the Cámara de Turismo (Chamber of Commerce) that groups hotel operators in the country. CANATUR president Heiberto Pablo Abarca said that the clarification by Hacienda is a step in combating the informal market, taking business from hotels that charge the tax and have the additional burden of Social Securituy (CAJA) contributions.

Director Vargas adds that the situation is difficult to control, but Hacienda is looking at several ways to verify the collection of the tax. The Director did not provide details.

The application of the tax will probably increase the price of rentals. Who will pay it?  Will the rentee be forced to pay the tax or the rentor absorb it or include it as part of the rental price? In Costa Rica, consumers are used to prices including the sales tax or I.V.I  (Impuesto de Venta Incluido, in Spanish).

For Vargas, the application of the tax does not necessarily mean an increase in consumer prices. “This is a very competitive sector,” said Vargas.

Sources: La Nacion; Canatur; Ministerio de Hacienda; Propertiesincostarica

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