Short Term Rental Income in Costa Rica to Face New Tax Rules

By Robin J Lambrecht, Realtor

Introduction

Property owners in Costa Rica who rent out their accommodations through popular platforms such as Airbnb or Booking.com will soon encounter a significant change regarding their tax responsibilities. The General Directorate of Taxation (DGT) has officially announced that a tax rate of 12.75% will be levied on rental income generated through these digital platforms, with this regulation set to take effect at the end of 2026. This new tax framework aims to bring short-term rental operations under formal regulation and ensure that property owners contribute to the national revenue. As the rental market continues to grow, the government is taking steps to ensure fairness in tax contributions among all property owners. Therefore, it is crucial for those involved in this sector to stay informed about these upcoming changes.

Data Collection and Tax Traceability

By the commencement of this new tax obligation, tax authorities anticipate receiving comprehensive data from these rental platforms concerning users renting out properties in Costa Rica. This influx of information will significantly enhance the traceability of rental transactions and enable the government to implement more effective tax collection strategies. The move is a strategic part of the government’s broader initiative to integrate short-term rentals into the formal tax system, which has historically operated outside of conventional taxation frameworks. With this enhanced data collection, authorities hope to identify and address any tax evasion practices prevalent in the sector. This effort reflects a commitment to ensuring that all rental income is reported and taxed appropriately

Call for Compliance from the DGT

Mario Ramos, the director of the DGT, has issued a strong message urging all individuals involved in the rental business to register as taxpayers as soon as possible. This proactive approach is essential to avoid any potential fines or sanctions that may arise once the new tax enforcement begins. Ramos has emphasized the critical nature of early compliance, noting that it will help prevent legal complications down the line. By taking the initiative to register, property owners can ensure they are operating within the law and safeguarding their financial interests. This call for compliance highlights the importance of understanding the new tax landscape that is unfolding in Costa Rica.

Government’s Stance on Tax Justice

Finance Minister Nogui Acosta has articulated that the primary goal of this new policy is to promote tax justice rather than impose excessive taxation on property owners. This perspective aims to create a fairer taxation system that holds all individuals accountable for their earnings. Acosta has also voiced his criticism of a bill currently under consideration in the Legislative Assembly, which proposes reforms to the Code of Tax Norms and Procedures. He describes this bill as disproportionate and unnecessary, suggesting that it may complicate the tax environment rather than clarify it. The emphasis on tax justice reflects the government’s commitment to creating an equitable tax framework that benefits all citizens.

International Cooperation and Digital Tax Framework

The DGT’s ability to collect user information from digital platforms is bolstered by an agreement established with the Organization for Economic Cooperation and Development (OECD). This agreement enhances international cooperation in tax matters, enabling Costa Rica to align its practices with global standards and improve its tax revenue collection efficiency. By participating in this international framework, Costa Rica is taking significant steps toward modernizing its tax system and ensuring that all income, especially from digital services, is accurately reported and taxed. The collaboration with the OECD signifies a commitment to transparency and accountability in tax matters. This initiative is crucial for adapting to the evolving landscape of global digital commerce.

Existing Tax Frameworks and New Regulations.

Airbnb has already implemented a 13% Value Added Tax (VAT) on service fees in Costa Rica since 2022, following its designation as a taxable lodging platform on the official list. This initiative is part of a broader digital tax framework that was introduced in October 2020 under the Law for the Strengthening of Public Finances. This law established VAT on a range of cross-border digital services, including streaming platforms, software applications, gaming, and transportation services. By creating a comprehensive tax structure for digital services, the government aims to ensure that all providers contribute fairly to public finances. The integration of these taxes reflects a growing recognition of the importance of taxing digital transactions in a rapidly changing economy.

Advisory for Rental Hosts

Authorities are strongly advising rental hosts to regularize their tax status well in advance of the enforcement date to ensure full compliance with the new regulations. Taking this step will help ensure that property owners avoid any potential penalties associated with non-compliance. It is vital for rental hosts to understand their obligations and take the necessary actions to meet them before the deadline. This proactive approach not only safeguards individual financial interests but also contributes to the overall integrity of the tax system in Costa Rica. By adhering to these guidelines, hosts can operate their rental businesses with confidence and security.