Authorities to vacation rental property owners: You must pay sales taxes

With a new clarification on the books, the Costa Rican Tourism Board (ICT) and the Finance Ministry have redoubled efforts to enforce tax and licensing requirements for vacation rental properties throughout the country.

“We are not trying to discourage renters,” said Herman Navarro, a tourism manager with the ICT. “We are trying to level the playing field.”

Vacation rentals emerged on the Costa Rica tourism scene after the market crash in 2008. A number of people who owned vacation homes stopped coming and either began renting out the houses or sold them off to rental companies. This, combined with a drop in the number of tourists traveling to Costa Rica, has led to significantly lower hotel occupancy rates.

Hotel owners say it is not the competition for customers that causes problems, but a discrepancy in regulations and taxes. In addition to fees for business licenses and health inspections, hotels pay a 13 percent sales tax, higher industrial utility rates and social security for their employees. Vacation rentals are rarely asked to pay these fees, meaning they can undercut the prices of most hotels.

“A company that owns 20 or 30 of these places is the same as owning a huge hotel, but they don’t pay fees like a huge hotel,” said Boris Marchegiani, an owner of Gaia Hotel and Resort in Manuel Antonio and president of the tourism chamber in the Quepos and Manuel Antonio area, on the central Pacific coast. “They are just getting pure income that isn’t reproducing itself in the local economy.”

According to Navarro, vacation homes have always been subject to the same rules as hotels, but they were rarely enforced. Last week President Laura Chinchilla signed a decree clarifying this law, and it will be published in the official government newspaper La Gaceta in the next few weeks.

To begin enforcing the law, the ICT just concluded a year-long investigation in which it identified hundreds of vacation rentals through posted Internet ads and information from municipal governments. The ICT has now passed this information to the Finance Ministry.

Of some of the tourist hot spots investigated, the ICT found 23 rentals in Jacó (central Pacific), 36 in Manuel Antonio and 38 on the Caribbean coast.

“There are plenty of tourists around, but they’re not at hotels and restaurants. They’re at the supermarket,” said Mike Witte, owner of Roca Verde Hotel in Dominical.

Although the ICT has primarily targeted rental companies in this sweep, the law applies to any lodgings rented for less than 15 days. This includes renting a room or guesthouse in the home where you reside.

“It doesn’t matter if you rent it out five times a year or one time,” Navarro said. “These laws apply to anyone renting to tourists.”

Though the Finance Ministry has not yet released results, Navarro said a significant percentage of the rentals investigated have not paid the required taxes. This not only leads to unfair competition against hotels, but also less money in municipality coffers.

“I don’t have a problem with the rentals as long as they are carrying their own load,” Witte said, “but they can’t expect us to keep the roads paved when they are the ones earning all of the money.” 

Vacation rentals do contribute less to an area’s economy. According to data from the Central Bank and the ICT, every dollar spent at a hotel is spent again three to five times within Costa Rica. For vacation rentals, a dollar is only re-spent 1-1.3 times.

This is partly because most vacation homeowners don’t invest in tourism infrastructure or service staff. In Dominical, for instance, hotels help pay for lifeguards to watch the beach. Though vacation rental owners don’t pay for things like that, their guests still reap the benefits.

Even if vacation rental owners do end up paying taxes and raising prices, hotels may still face stiff competition and low occupancy rates. But hotel owners say they can handle that.

“It will never go back to how it was, and it shouldn’t,” Marchegiani said. “We don’t mind the competition as long as we are all on an even playing field.”