Costa Rica
San José GMT -6
EY
Centro Corporativo Epic, Piso 6
San Rafael Escazú, San José Costa Rica
Indirect tax contacts
Rafael Sayagués +506 2208-9880
New York: +1 (212) 773 4761 rafael.sayagues@cr.ey.com
Guillermo Leandro +506 2208 9887
guillermo.leandro@cr.ey.com
Juan Carlos Chavarría +506 2208 9844 juan-carlos.chavarria@cr.ey.com
Antonio Ruiz +506 2208 9822 antonio.ruiz@cr.ey.com
A. At a glance
Name of the tax
Value-added tax (VAT)
Local name Value-added tax (VAT)
Date introduced1 July 2019
Trading bloc membership Central American Integration System
Administered by Ministry of Finance (http://www.hacienda.go.cr/)
VAT rates
Standard 13%
Reduced 1%, 2%, 4%
Other Zero-rated (0%) and exempt
VAT number format
Corporate (start with 3-101 or 3-102 followed by six more numbers) or individual identification number (nine numbers)
VAT return periods Monthly
Thresholds
Registration None
Recovery of VAT by non-established businesses No
B. Scope of the tax
VAT applies to the following transactions:
• All types of transfers of goods and the rendering of services in Costa Rica by taxable persons, unless a specific exemption is provided
• Self-consumption
• The importation of goods and services into Costa Rica, regardless of the status of the importer
• Lease of goods with purchase option
Effective use and enjoyment. To avoid instances of non-taxation or double taxation, jurisdictions can apply “use and enjoyment” rules that allow a service that is “used and enjoyed” in the jurisdiction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a non-established supplier of the service may be required to register for VAT in every jurisdiction where it has customers that are not taxable persons. In Costa Rica, no services are subject to the “use and enjoyment” provisions.
Transfer of a going concern. Normally the sale of the assets of a VAT-registered or VAT-registrable business will be subject to VAT at the appropriate rate. However, a transfer of a business as a going concern (TOGC) may be outside the scope of the tax under certain conditions. A TOGC is the sale of a business or part of a business capable of separate operation including assets. Where the sale meets the conditions, the supply is treated as outside the scope of VAT. In Costa Rica, a TOGC is treated as outside the scope of VAT where the transfer is of the entire business or of one or several lines of business of the taxable person, in the cases of business reorganization by different means, such as the acquisition of shares, quotas or parts of interest, noncash contributions or in assets, mergers, acquisition of the mercantile establishment, total or partial purchase of assets and/or liabilities and others, when the acquirer continues in the exercise of the same activities of the transferor.
Transactions between related parties. In Costa Rica, there are no specific rules that indicate the value for VAT purposes for transactions between related parties. However, the terms and conditions of intercompany transactions should be set in accordance with the terms and conditions that would have been agreed to by independent parties, considering the relative functions, assets and risks of the parties. The relevant aspects of the transfer pricing regulation that applies for VAT are as follows:
• The regulation applies to any transaction carried out between related persons or companies in relation to goods, services or intangible assets.
• The regulation applies to transactions carried out by taxable persons with related entities domiciled abroad and in Costa Rica.
• This regulation mainly defines the arm’s-length principle. It includes a definition of related parties, regulates the criteria to be met by taxable persons for the comparability analysis and establishes the applicable pricing methods, based on the arm’s-length principle.
• The transfer pricing information return is an annual obligation for taxable persons that: i) carry out cross-border and local related party transactions and ii) are classified as “Large Taxpayers” or persons or entities in free zone regime. However, at the time of preparing this chapter, a formal date or template for filing this return has not been established. Additionally, there´s no differentiation between supplies of goods and services.
C. Who is liable
A VAT taxable person is any business entity or individual that sells taxable goods (including imports and exports of goods) or that provides taxable services on a regular basis. A permanent establishment of a foreign business in Costa Rica may be a VAT taxable person.
No turnover threshold applies to VAT registration. As soon as a taxable person begins a taxable activity, it must notify the VAT authorities of its obligation to register. A taxable person that does not notify the VAT authorities of its obligation to register may be automatically included in the registry of VAT taxable persons.
Exemption from registration. The VAT law in Costa Rica does not contain any provision for exemption from registration.
Examples of goods and services taxable at 4%
• Private health services
• Local flight tickets
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Domestic monthly consumption of electricity not exceeding 280 kilowatts per hour
• Books
• Exported goods
• Re-importation of national goods within three years of their export
• Private education services, preschool, elementary, middle school, high school, university and technical education
• Sale or importation of wheelchairs, orthopedic equipment, prostheses in general, equipment used by persons with hearing problems, equipment used in rehabilitation and special education programs
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Costa Rica.
E. Time of supply
The time when the taxable event is considered to have taken place and VAT becomes due is called the “tax point.”
For the sale of goods, the tax point is the earlier of the delivery of the goods or the issuance of an invoice. For services, the tax point is the earlier of when the services are performed, or an invoice is issued.
Deposits and prepayments. There are no special time of supply rules in Costa Rica for deposits and prepayments. As such, the general time of supply rules apply, and the tax point is the earlier of the invoicing or delivery/performance.
Continuous supplies of services. There are no special time of supply rules in Costa Rica for continuous supplies. As such, the general time of supply rules apply, and the tax point is the earlier of invoicing or delivery/performance.
Goods sent on approval for sale or return. If goods are sent on “approval” or for “sale or return” conditions, the tax is due when the goods are delivered. If the goods are ultimately returned, a credit note should be issued and VAT reversed.
Reverse-charge services. There are no special time of supply rules in Costa Rica for supplies of reverse-charge services. As such, the general time of supply rules apply (as outlined above).
Leased assets. The lease of goods with or without an option to purchase are subject to VAT. The tax point is the earlier of the delivery of the goods or the issuance of an invoice.
Imported goods. The time of supply for imported goods is when the bill of lading or the customs form for the goods is accepted.
F. Recovery of VAT by taxable persons
A taxable person may offset input tax, which is VAT paid on the purchase of goods and services used to generate other goods and services subject to tax. Input tax is generally credited against output tax, which is VAT charged or collected on the sale of goods or the rendering of services. An input tax credit may be taken in the month of the import or the acquisition of goods and
services. Taxable persons can receive a tax credit or deduction for tax paid with respect to the following:
• The purchase or importation of goods and services used in the production, trade and distribution of taxable merchandise or services, as long as such services are directly and exclusively linked to the taxable person activity
• The payment of insurance premiums for the protection of merchandise used or incorporated physically in the production of taxable merchandise or services, as long as such premiums are directly and exclusively linked to the taxable person activity
• The purchase of merchandise used during the production, trade and distribution of exempt merchandise or of goods for exportation (while these are exempt goods, when they are exported, recovery is allowed)
The time limit for a taxable person to reclaim input tax in Costa Rica is four years.
A valid tax invoice or customs document must generally accompany a claim for an input tax credit.
Nondeductible input tax. Input tax may not be recovered on purchases of goods and services that are not used in the production, trade and distribution of the final goods and services supplied by the taxable person.
Examples of items for which input tax is nondeductible
• Overhead expenses of a business, generally
Examples of items for which input tax is deductible (if related to a taxable business use)
• Insurance premiums
• Wrapping, packaging, etc.
Partial exemption. Exempt activities do not give rise to a right of input tax recovery. The purchase of goods and services that are used for both exempt activities and taxable activities may give rise to the right of input tax proportionally based on the percentage of taxable activities in relation to the taxable person’s total activities.
Approval from the tax authorities is not required to use the partial exemption standard method in Costa Rica. Special methods are not allowed in Costa Rica.
Capital goods. Capital goods are defined as the goods used in the production and manufacture of other products and their purchase should exceed 15 base salaries (approx. USD11,500). When a taxable person purchases a capital good that is used exclusively on taxable activities, the tax paid should give rise to the right of tax credit in the same month of acquisition.
When a taxable person purchases a capital good used for exempt and taxable activities, it should give rise to the right of input tax proportionally on the percentage of taxable activities in relation to the total activities of the taxable person. However, for the following four years from the first December the capital goods were acquired, the proportionality should be adjusted considering the real figures that represented in each year the percentage of the exempted activities and taxable activities of the taxable person.
Refunds. If the amount of input tax recoverable in a month exceeds the amount of output tax payable, the taxable person obtains an input tax credit. The input tax credit may be carried forward to offset output tax in the following months. Under special circumstances, if the taxable person foresees that VAT credits will not be used within the following three months, the taxable person may request to use the credits to offset other tax liabilities.
Pre-registration costs. Taxable persons are not permitted to recover input tax paid on purchases made prior to VAT registration. Nevertheless, the VAT law provides that taxable persons may
January, April and July. Payment in full is due on the same date, and a return must be filed even if no VAT is due for the period.
The special tax regime is a voluntary regime set for small taxable persons to facilitate the control and compliance of these taxable persons. The tax authorities fix the parameters for which taxable persons can opt for this regime, based on the type of activity, annual sales, annual profits and number of employees, among others.
Taxable persons that voluntarily access this special tax regime are not required to issue electronic invoices and due to the nature of this regime should not be entitled for tax credits.
VAT is calculated based on a variable that would be assigned according to the taxable person’s activity.
Annual returns. Annual returns are not required in Costa Rica. However, tax credits generated from the acquisition of goods and services used indistinctly for operations subject to tax credits and operations not subject to tax credits, must be offset proportionally. In this sense, in every December return, taxable persons should calculate the proportion of their annual operations subject to tax credits to determine the percentage of their tax credits to be offset.
Supplementary filings. No supplementary filings are required in Costa Rica.
Correcting errors in previous returns. A taxable person should correct any errors or omissions from prior periodic filings by filing a rectification of the tax return that should be corrected. This filing can be submitted online or personally at the offices of the tax authorities.
Digital tax administration. There are no transactional reporting requirements in Costa Rica.
J. Penalties
Penalties for late registration. A taxable person that fails to register for VAT on a timely basis cannot offset VAT credits generated from purchases that at the time of registration are included in inventory. Penalties and interest are also assessed for late registration for VAT.
Penalties for late payment and filings. Penalties apply to a range of VAT offenses in the following amounts:
• Late filing of a VAT return: a penalty of 50% of the average monthly Costa Rican wage (“base salary” as established by law is CRC462,200, approx. USD885). The amount of the penalty may be reduced up to 80%, depending on the time of payment.
• Late payment of VAT: a penalty of 1% of the unpaid amount for every month or fraction of a month. The maximum penalty is 20% of the unpaid amount.
Penalties for errors. A penalty of 50% of the unpaid amount (as determined by the tax authorities) is due for inaccuracies in the return. Such penalties may be increased to 100% or 150% if the inaccuracies qualify as severe or very severe. For this purpose, the unpaid amount must be higher than 500 times the value of the base salary and meet certain other requirements, such as deriving from the concealment of information or use of fraudulent means. These penalties may be reduced up to 80% depending on the time of payment.
In addition, interest applies to underpayments of VAT at the average interest rate charged by commercial banks to the commercial sector for the tax period.
The late notification or failure to notify the tax authorities of changes to a taxable person’s VAT registration details may be subject to penalties. For further details, see the subsection Changes to VAT registration details above
Penalties for fraud. Tax fraud occurs when the taxable person by any action or omission commits fraud against the tax authorities by incorrectly computing the amount of tax due. VAT fraud that
results in an underpayment of VAT greater than 500 times the base salary is punishable by a term of imprisonment of 5 to 10 years.
A failure to file and satisfy reporting obligations in Costa Rica is subject to penalties ranging from half a base salary to two base salaries as follows:
• Not registering with the relevant tax authorities – penalty of half a base salary
• Failure to maintain accounting books or records required by law – penalty of one base salary
• Failure to maintain shareholder registry book – penalty of one base salary
• Failure to issue invoices as required by law – two base salaries
Personal liability for company officers. The directors of a company shall have no liability for any errors or omissions in the submitted VAT returns. They can only be liable where the local institutions consider that there was tax fraud carried out by the company.
Statute of limitations. The statute of limitations in Costa Rica is four years. The tax authorities have a four-year term to review the returns and identify errors to impose penalties for those who are duly registered with the tax administration, which corresponds to the statute of limitations.
The statute of limitations may be extended to 10 years in the event that a taxable entity or individual is not duly registered before the tax authorities or in the case they are registered, they file tax returns that should be qualified as fraudulent, or they had the omission of filing the tax return.
Finally, the taxable person has a four-year period to voluntarily correct errors in previous VAT returns by means of a rectification.