Despite a severe economic crisis, Costa Rican authorities have approved the imposition of a 1% VAT on several foodstuffs in the basic food basket, and 4% on certain tourist activities and construction services.
Before the emergence of the pandemic, the Costa Rican economy was already in a difficult state, and the impact of the covid-19 outbreak ended up hitting it in the worst way, which is evident in the performance of productive activity.
In Costa Rica, the Ministry of Finance proposes to apply VAT to services such as Netflix, Airbnb, Tinder, Skype, PlayStation Network and advertising on social networks, among others.
According to a resolution of the Ministry of Finance that should be in consultation in the coming days, credit card issuers would be required to receive the 13% tax.
The list of digital services objects of the collection of VAT amounts to 190, as some are repeated, as companies use different names at the time of billing their customers.
In Costa Rica, taxpayers interested in benefiting from exemptions or reduced rates of payment of Value Added Tax must register with the Directorate General of Taxation.
The changes were detailed on October 15, 2019, when the resolution of the General Directorate of Taxation (DGT) No. DGT-DGH-R-060-2019, entitled "Procedure for requesting registration, special orders for the authorization of exemption or reduced rate of Value Added Tax (VAT)", was published in the Official Newspaper La Gaceta."
Since October 1, Costa Rican producers and suppliers in the agricultural and fishing sector have a special regime for declaring and paying VAT, which provides that coffee producers, sugarcane and beekeepers will make an annual declaration.
The new Special Agricultural Regime (REA) does not change fiscal obligations, but it allows them to be adapted to the particularities of production processes, so as to facilitate compliance, informed the authorities.
The Legislative Assembly approved a moratorium of three non-extendable months, in sanctions, arrears, interests, fines or any other sanctioning disposition, related to the collection of the value added tax, which became effective last July 1.
Taxpayers qualified by the Tax Administration as large national taxpayers and large territorial companies are excluded from this moratorium, explains a statement from the Legislative Assembly.
In the context of a considerable fall in foreign investment in the sector in Costa Rica, the situation could be further complicated by the elimination of tax incentives that tax reform is bringing along.
Figures from the Central Bank of Costa Rica (BCCR) detail that after reporting $443 million in foreign direct investment in tourism in 2017, this figure decreased dramatically last year, registering only $23 million.
The VAT that will be gradually collected in Costa Rica over four years would put tourism businesses in a disadvantageous position, since they will have to increase product prices or reduce their profits.
The implementation of Value Added Tax (VAT) will be done gradually, from 0% in the first year, 4% in the second year, 8% in the third year and 13% from the fourth year, a situation that would make the operation of tourism companies more expensive.
Until April 2 will be in public consultation in Costa Rica the regulations of the Value Added Tax Law, which incorporates the changes of the first proposal disclosed on January 29.
This is the second consultation carried out, since on January 29, 2019, the proposal for "Regulation of Title I of Law No. 9635 of December 3, 2018, denominated "Value Added Tax Law" (VAT) was made available to the public.
Regulations of the Value Added Tax Law in Costa Rica are in public consultation until February 4.
From the Ministry of Finance press release:
January 29, 2019. With the aim of achieving the greatest possible citizen participation in the implementation process of the Law to Strengthen Public Finances, from today, Tuesday, January 29 and until next Monday, February 4, the Ministry of Finance will have available to the public the proposed "Regulation of Title 1 of Law No. 9635 of December 3, 2018, called "Value Added Tax Law" (VAT).
The business sector welcomes the progress achieved with the tax reform approval in the first debate, but notes that it does not fully solve the financial problems facing the government.
In the debate last Friday, the representatives approved the file number 20.580, known as the tax reform law. The approval was optimistically received by the Costa Rican Union of Chambers and Associations of Private Business Sector (Uccaep).
Entrepreneurs in Costa Rica are warning of the negative impact of not maintaining, in the new law of public finances, the VAT exemption on local purchases of goods and services carried out by free zone companies.
The Association of Free Trade Zone Companies of Costa Rica (Azofras) points out that in the bill to strengthen public finances that is being discussed in the Assembly, motion 302 was not revised, a motion which aims to keep the VAT exemption on the local purchases of goods and services carried out by free zone companies, both to be incorporated into export products and for their operations.Currently the sales tax exemption applies.
Food companies in Costa Rica say that eliminating VAT from the basic basket in the tax reform proposal would create an incentive for imported foods, over and above local production.
The Costa Rican Chamber of the Food Industry (Cacia) reacted to the decision of the deputies to exempt VAT of 1% and 2% on the products of the basic basket in the Bill of Strengthening of Public Finances, which is being discussed in the Assembly.
In Costa Rica, the new proposal from the Solis administration's imposes tax on a greater amount of goods and services, such as air tickets, books, packaging and bottling, but with differentiated rates.
As the government's initial idea to convert the sales tax into a value-added tax and raise it from 13% to 15% did not prosper, the Ministry of Finance decided to expand the range of goods and services to be taxed, in order to compensate part of the funds that could not be raised from raising the rate from 13% to 15%.
Among the new features are VAT refunds to those who pay for private medical practices with cards and the establishment of a new fiscal year, from January 1 to December 31.
From a statement issued by the Ministry of Finance:
Bill on value added tax (VAT):
New Features
- This project establishes a value added tax (VAT) levied on sales of goods and provision of services in Costa Rica.