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Value Added Tax (VAT)


 

Law 9635 introduced all Costa Ricans to a new way of paying taxes in the country, which we would have to get used to on very short notice, breaking current paradigms and creating a new tax-paying culture.

"... a way of accrediting the truth of the facts and legal acts and as an instrument of interpretation, and based on a serious, detailed, objective study and without exceeding its authority, it disregarded the form adopted by the audited company, and reached its underlying economic reality".


 


Since July 1, 2020, the country had a significant increase in consumer costs, compared to what was being paid with only the Sales Tax (which only affected the goods we consumed and not the services. This is the main difference between these two taxes). Similarly, your cash flow may be affected, and the reason is simple: Under the old sales tax law, many products and services were exempt, and companies did not have to pay taxes monthly. They only had to comply with paying their annual income tax.

The Value Tax will be applied at low rates on the consumption of the basic food basket and on education and health services.


Remember that most of the exempt products may be taxed as of July 1, which will increase their prices.


All of us will pay the 13% VAT on the purchase of several services currently not taxed by the Sales Tax, particularly the following:


1. Real estate

  • Residential rental on any amount above ¢670 000

  • Gardeners, plumbers, electricians, cleaners, and other craftsmen

  • Part of the rental fee relating to expenses such as maintenance and security

  • Part of the mortgage relating to legal and administrative expenses

2. Servicios generales

  • Beauty, personal care, gyms, spas, laundry, tailoring, veterinarians, etc

  • Maintenance and repair services, including vehicle repair shops

  • Parking


3. Leisure activities

  • Concerts, amusement parks, weddings, catering services, parties

  • Tours, sports activities


The following is the new design for the Value Added Tax:


13% General tax for goods and services.
1% Basic food basket, agricultural goods, machinery, equipment, and everything related to the production chain (as of July 2020).
2% Medications, personal insurance premiums, private education services (not subject to or related to the MEP or CONESUP, a higher education institution, or related to both), and the purchase and sale of goods and services from state institutions of higher education.
4% Purchase of airline tickets, private health services provided by authorized health centers and professionals (which is returned at the time of invoicing, that is, we only pay the base price of the consultation).


Some Exemptions


The following are some goods and services that will be exempt from this tax:


  • Leases of real estate for an amount equal to or less than 1.5 × base salary (approximately ¢670 000).

  • Leases used by micro and small companies registered by the Costa Rican Ministry of Economy, Industry, and Commerce (MEIC).

  • National lotteries, raffles, games, and other products marketed by the Social Protection Board (JPS, by its Spanish acronym).

  • Membership dues and monthly fees paid to professional associations, trade unions, and business organizations.

  • Books (it does not apply to electronic media).

  • Export of goods.

  • Goods and services sold in a free trade zone.

  • Goods and services sold among the beneficiaries of a free trade zone.

  • The credits for invoice discounts.

  • Survival insurance premiums with annuities and other types of income.


Remember that most of the exempt products may be taxed as of July 1, which will increase their prices.

Similarly, your cash flow may be affected if most of your revenue comes from credit sales. The reason is simple: Under the old sales tax law, many goods and services were exempt, and companies did not have to pay taxes monthly. They only had to comply with their obligation of paying their annual income tax.


In conclusion, the tax amendment will directly impact all Costa Ricans, whether they are direct or indirect taxpayers. Therefore, taking measures to save money, being critical of one's expenses, and planning for the future will help you avoid these impacts and prevent them from taking their toll on your pocket and your family economy for not having foreseen their impacts on your finances.


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