It has been widely argued whether the vacations rentals are subject to the sales tax, in some cases by some Realtors or property managers who seem to be more interested in getting the money and running rather than disclose the full check list of scenarios to be considered so investors don’t buy a Pandora Box.
With the new tax bill passed on December 12, 2016 it is now confirmed which Vacations Rentals are subject to sales tax.
As explained on my previous article Rental Properties and Sales Taxes In Costa Rica – When this tax should be collected? It was not very clear what the Law mean by ‘transitory stay’, but the new Tax Bill makes it perfectly clear: It means less than 1 month.
Now, the bill has been passed but there still some pressure from some Congressmen such as Otto Guevara in order to stop the bill to become and actual Law and he is going to Supreme Court, and you never know with those fellows, but if you keep in mind the announcement made by the Tax Administration, also mentioned in one of my previous articles Costa Rica Rental Property Owners – Beware!
They’ve been after this tax for a good while now, so it would be silly to keep listening to those uninformed fools who tell you: “Don’t worry! You can buy this beautiful condo, we’ll promote it and rent it out for you and there are no taxes are involved!”
Property owners in Costa Rica must pay sales taxes on vacation rentals of one month or less.
So what should you do?
If you want to be in full compliance, then you need to register with the local Tax Administration and work out with your Property Manager the details how to properly handle the sales tax, if you do it by yourself then you need good accounting advice, check with a recommended local accountant and always hire the best if possible.
What is the best tax strategy for vacation rentals in Costa Rica?
Well, when it comes to Sales Tax you must keep good records of the sales tax you collect and the sales taxes you have paid, keep in mind that you are not paying the sales tax, the renters are.
You will be collecting the sales taxes and forwarding the money to the Government so that they can then build some magnificent roads in front of your property in the future – just kidding.
The good news is that you keep easily track of your expenses and when you make purchases you will notice charges for the sales tax that you have previously paid, so that means that you can credit the sales tax you have paid against the taxes you are collecting and then forwarding the balance on to the government.
You may be pleasantly surprised that some of the time you only have to file and you rarely have to actually pay the Government.
That being said, you don’t really have to wait for the new Law to be reinforced, the sales tax on rentals is and has been there for some time, the difference is that now we are all totally clear that a ‘transitory stay’ means less than one month.
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