I clearly remember that one of those experts on everything, argued that I was wrong when I stated in a previous article Rental Properties and Sales Taxes In Costa Rica – When this tax should be collected? about how Rental Properties must collect the 13% sales tax (Impuesto de Venta)…
This was because he attended a seminar sponsored by one of those accounting firms with a “pricey” name and the speakers said that rental properties are not subject to sales tax, well, I hate to say… or I don’t: “I told you so!”
What Is Happening?
Well, the new assistant to the Tax Guy, Fernando Rodriguez, announced last week that they are going to start tracking down all the rental properties within the borders of Costa Rica, by “looking at web sites and other media tools” (printed magazines and newspaper’s ad I assume) to find those properties which are being rented and are not collecting the sales tax.
It seems that some hospitality related business owners also put some pressure on the Tax Guy, because they think is not fair that they are charging the sales tax and the rental properties weren’t.
How It Works?
Now, let’s review real quick how the sales tax works when it comes to Rental Properties: The 13% sales tax must be added to the rack rate, this is why there is a misconception about the owner paying this tax, where actually the owner collects the tax on behalf the Government.
Then you can deduct from the total of the collected sales tax, the sales tax that you paid for items and services related to rentals, but be careful, not all the sales tax paid can be considered as a credit; so at the end you must “reimburse” the Government with what is left (collected sales tax paid sales tax=payable sales tax).
By the end, I mean that within the first 10 working days, the sales tax return must be filed for the previous month.
Let’s put some rental numbers into this picture for you:
If you rent a property out for $300 per week, then you either have to add $39 to that rate or if you are concern about competitiveness, make your rack rate $265.49 and the sales tax will be then $34.51 (there’s a good word of advice). Now say that your occupancy for July is 50% (2 weeks), that means that your payable sales tax will be $78 (39*2) or $69.02 (34.51*2).
From the bills that you pay on a monthly basis, you need to filter which ones qualify in order to use the sales tax paid, if any, as a credit, i.e. power bill, so if the sales tax paid on the power bill was $50, then you need to do: 7850= 28 or 69.0250=19.02 so $28 or $19.02 is what you need to give back to the Government, before the 15 D104 Form and paying the balance.
That being said, if you are a Rental Property owner in Costa Rica, I strongly recommend you to double check with your property manager what your tax situation is and if is not a healthy one, try to catch up and get back to right path. Oh! By the way, a lot of property managers said that I was wrong about this too…