VAT, GST and Sales Tax in Costa Rica

Summary

Name of the tax Value-added tax (VAT)
Local name Impuesto General sobre las Ventas
Date introduced 8-Nov-82
Trading bloc membership Central American Integration System (no differentiated VAT treatment)
Administered by Ministry of Finance (http://www.hacienda.go.cr/)
VAT rates
Standard 13%
Reduced 5%, 10%
Other Exempt and zero-rated
VAT number format Corporate or individual identification number
VAT return period Monthly
Thresholds
Registration None (a simplified VAT regime applies to small taxpayers; see below article)
Recovery of VAT by non-established businesses No

Scope of the tax

VAT applies to the following transactions:

  • All types of transfers of goods and the rendering of certain ser­vices in Costa Rica by taxable persons
  • Self-consumption
  • The importation of goods into Costa Rica, regardless of the status of the importer

Who is liable

A VAT taxpayer 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 taxpayer.

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 taxpayers.

Small taxpayers. A simplified VAT regime applies to small tax­payers. The simplified regime applies to individuals who carry out a limited range of activities, such as small retail activities, including operating a grocery store or mini-market. To qualify as a small taxpayer, the entrepreneur’s annual purchases may not exceed CRC63,630,000 (approximately USD114,032), and the entrepreneur may not have more than five employees. Under the simplified regime, presumed taxable turnover is calculated by applying an estimated profitability factor that is determined based on the taxpayer’s business sector. The VAT rate is applied to the presumed taxable turnover and the small taxpayer pays VAT on that base.

Group registration. VAT grouping is not allowed under the Costa Rican VAT law. Legal entities that are closely connected must register for VAT individually.

Non-established businesses. A “non-established business” is a business that has no fixed establishment in Costa Rica. In prin­ciple, a non-established business must register for VAT if it sup­plies goods or services in Costa Rica.

Late-registration penalties. A taxpayer 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.

Tax representatives. At the moment of registering an entity as VAT taxpayer, a tax representative must be appointed. The tax representative must be the legal representative of the entity.

Reverse charge. Not applicable.

Digital economy. There are no specific rules or regulations regard­ing e-commerce. However, the tax administration has ruled that certain forms of e-commerce may be subject to VAT.

Registration procedures. Taxpayers must register at the time they start selling goods or providing services subject to VAT, either in person at the offices of the tax administration by filing form D-140 or online if the tax representative is a Costa Rican indi­vidual or has a tax identification number.

Deregistration. In order to deregister, the taxpayer has to file Form D-140 in person at the offices of the tax administration or online, and the last VAT return must be filed within 10 days after deregistering.

VAT rates

In Costa Rica, the standard rate of VAT is 13%. The standard rate applies to the supply of all goods and to taxable services, unless a specific measure provides for an exemption. Supplies of wood are subject to a 10% rate, and the residential supply of electricity is subject to a 5% rate.

In addition, some activities are exempt or zero-rated. In both cases, no VAT is charged. However, unlike zero-rated activities, exempt activities do not give rise to a right of input tax.

Examples of exempt supplies of goods and services

  • Goods that form part of the “average weekly shopping” (a list of items considered essential for the traditional household)
  • Veterinarian and agricultural products including livestock
  • Coffins
  • Domestic monthly consumption of electricity not exceeding 250 kilowatts per hour
  • Tires for farm machinery
  • Medicines
  • Books, musical compositions and paintings created in Costa Rica
  • Exported goods
  • Reimportation of national goods within three years of their export

Option to tax for exempt supplies. Not applicable.

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.

Imported goods. The time of supply for imported goods is when the bill of lading or the customs form for the goods is accepted.

Recovery of VAT by taxable persons

A taxpayer 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. Taxpayers 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
  • The payment of insurance premiums for the protection of mer­chandise used or incorporated physically in the production of taxable merchandise or services
  • The purchase of merchandise used during the production, trade and distribution of exempt merchandise or of goods for expor­tation

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 taxpayer.

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.

Preregistration costs. Taxpayers are not permitted to recover input VAT paid on purchases made prior to VAT registration.

Refunds. If the amount of input VAT recoverable in a month exceeds the amount of output VAT payable, the taxpayer obtains an input VAT credit. The input VAT credit may be carried forward to offset output tax in the following months. Under special cir­cumstances, if the taxpayer foresees that VAT credits will not be used within the following three months, the taxpayer may request to use the credits to offset other tax liabilities.

Recovery of VAT by non-established businesses

Costa Rica does not refund VAT incurred by foreign or non-established businesses unless they are registered for VAT in Costa Rica.

Invoicing

VAT invoices and credit notes. A VAT taxpayer must generally provide a VAT invoice for all taxable supplies made. Invoices must be authorized by the tax authorities. The tax authorities may authorize the use of cash registers and other computerized systems to issue invoices. Invoices must include an official invoice num­ber and the taxpayer’s identification number, and it must also show the VAT amount separately, among other requirements.

A VAT invoice is generally necessary to support a claim for input tax credit.

A VAT credit note may be used to reduce the VAT charged and reclaimed on the supply of goods and services.

Exports. Costa Rican VAT is not imposed on the supply of exported goods. However, to qualify as VAT-free, exports must be supported by customs documents that prove the goods have left Costa Rica. Suitable evidence includes export invoices and bills of lading.

Foreign-currency invoices. In general, VAT invoices must be issued in colons (CRC). However, invoices may be issued in US dollars (USD) if the amount in colons is also stated. The applicable exchange rate is the exchange rate on the date of issuance of the invoice, as established by the Costa Rican Central Bank.

VAT returns and payment

VAT returns. VAT returns are submitted monthly. Returns must be submitted by the 15th day of the month following the end of the return period. Payment in full is due on the same date. A return must be filed even if no VAT is due for the period.

Tax due must be paid in Costa Rican colons.

Special schemes. VAT returns for small taxpayers must be sub­mitted quarterly by the 15th day of the month following the end of the return period. The relevant months are October, 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.

Electronic filing and archiving. VAT returns must be filed online at https://www.hacienda.go.cr/ATV/Login.aspx. Filing requires a Tax ID (Nite or Dimex) issued by the tax authorities. Archiving tax returns may also be done electronically.

Annual returns. It is not permitted to file VAT returns annually in Costa Rica.

Penalties

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 CRC424,200, which is approximately USD760). 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.
  • Inaccuracies in the return: a penalty of 50% of the unpaid amount (as determined by the tax authorities). 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.

Violation of formal duties. 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

Tax fraud. Tax fraud occurs when the taxpayer 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.