In Costa Rica, locals and foreigners alike are worrying about the future of the country’s tourism industry. What has, until now, been one of the most profitable sectors may be crippled by a government imposed tax hike — an increase in overall prices that will inevitably be passed on to visitors.
The introduction of a new 13% Value-Added Tax (VAT) will soon be applied to most nationwide sales and services, including the tourism sector. Under the existing tax structure, only a limited number of products are subject to a 13% sales tax such as restaurants and hotels. The Law to Strengthen the Public Finances, No 9635, commonly referred to as the “Reforma Fiscal,” goes into effect on July 1, 2019, and is intended to address the country’s fiscal debt by reducing the GNP deficit.
Companies such as Vamos Rent-A-Car, who are registered entities (Declaratoria Turisitca) with the Costa Rica Board of Tourism (ICT or Instituto Costarricense de Turismo), are entitled to a VAT tax exemption from July 2019 to July 2020. After which a gradual tax increase timeline will be imposed for the next three years until reaching the total 13% amount.
Despite the introduction of VAT-imposed costs, Vamos Rent-A-Car guarantees its customers some of the country’s most competitive vehicle rental rates. Each rental quote a customer receives is 100% transparent with no hidden taxes or fees.
What’s more, Vamos honors its clients with free perks whereas other companies charge extra. These include a cell phone, free additional driver, a cooler, and/or roof racks. They also offer seasonal promotions, special rates for long-term rentals, loyalty discounts for return clients, and price matching on comparable competitor quotes.
Vamos also boosts each visitor’s travel budget by offering free shuttle service to and from their offices and the Juan Santamaria International Airport (SJO) in San José or the Daniel Oduber Quirós International Airport (LIR) in Liberia. The Vamos fleet adds new models every two years and meticulously maintains all vehicles to ensure a safe and reliable vacation experience, as well as providing value and quality.
For companies like Vamos Rent-A-Car, the four-year gradual tax implementation will cushion the increased consumers’ rental car cost. Customer satisfaction is our company’s foremost mandate and we will continue to drive the market’s competition and pricing.
Conversely, companies that are not registered with the ICT must charge, and pay, the 13% VAT as of day-one of the law’s implementation on July 1, 2019. The ICT and Costa Rica’s Revenue Service (Ministerio de Hacienda) will work together to identify which companies are indeed registered and claiming the tax exemption.
The ICT-qualifying tourism service provider tax regimen will be implemented as follows:
- July 1, 2019, to June 30, 2020: 0%
- July 1, 2020, to June 30, 2021: 4%
- July 1, 2021, to June 30, 2022: 8%
- July 1, 2022, and onward: 13%
Numerous additional services that were traditionally tax-exempt will now pay a 6% VAT tax. Among the list are independent professional services, doctors, lawyers, engineers, etc., in addition to short and long-term housing rentals – costs that are assumed by the consumer.
The following is a preliminary list of tax regimens imposed under the VAT:
- 13% general tax rate for specified services
- 6% professional services and rents tax, among others
- 4% tax on airline tickets and private healthcare services, among others
- 2% tax for personal insurance premiums and medical products, among others
- 1% tax on basic or necessity foodstuffs (Costa Rica’s Canasta Basica)
On a positive note, certain reforms, including lowering the pension amounts of former Costa Rican presidents and a modification of income tax provisions for individuals with high salaries, will be enforced. Additional progressive criteria, or tax exemptions, will apply to specific vulnerable sectors under the new plan, including people living in poverty, people with disabilities, and the agricultural sector, among others.
Critics of the fiscal reform suspect that the new taxes will have a negative impact on the tourism industry by increasing costs for tourists visiting the country. Foreign investment may also lag in sectors previously thriving in the country, such as the construction and production industries. Whether associated with tourism or offering production and building services, businesses will have to increase their product prices or reduce their profits.
According to the ICT, 75% of people visiting Costa Rica do so for vacation, pleasure or leisure; while 10% visit for business or professional reasons, and the remaining 15% come for personal, health, and education purposes. Tourism is accountable for over 6% of the Nation’s GDP with over 2 million visits annually.
Diligent efforts on behalf of the ICT and Costa Rica’s Ministry of Tourism to attract international airline services have resulted in an increase in foreign tourists to the country. It is hoped that a thriving industry will aid tourism providers to recoup the VAT cost increase through increased sales rather than simply passing the bill on to future visitors.
In keeping with their “no hidden fee” motto, Vamos has opted to take the ICT’s exemption for the first year. As such, Vamos will not include any VAT charges until July of 2020. On a side note, it seems that most other rental agencies have announced the full implementation (13%) of the VAT starting this year; some have even started in June — a month ahead of the law… Vamos will save consumers money when it comes to the Value-Added Tax for the upcoming three years.