VAT for Hotels in Costa Rica

Understanding the Impact of Law 9635 on the Tourism Industry

The approval of the new Tax Package, Law No. 9635, by the Asamblea Legislativa introduced new taxes and expanded the application of existing ones with the purpose of increasing government revenue. As many readers are aware, the Costa Rican government has struggled to balance its fiscal obligations, prompting the enactment of a tax reform that affects virtually every sector of the economy. One of the industries most directly impacted is tourism, and in particular, hotels and lodging services.

This article focuses on how the Value Added Tax (VAT) applies to the hotel and tourism industry under the framework established by Law 9635, without altering or expanding upon the legal substance as originally enacted.

Transitory XI and the VAT Implementation Timeline

Law 9635 includes Transitory XI, a temporary legal provision designed to ease the transition into the new tax system. A transitory provision is, by definition, non-permanent and applies only for a defined period of time. Transitory XI provides moratoriums and extensions that allow individuals and companies to become compliant with their tax obligations while gradually implementing the Value Added Tax within the tourism sector.

This transitory section establishes a phased VAT structure for companies operating in tourism-related activities, including hotels, based on whether they are formally registered with the national tourism authority.

VAT Exemptions for ICT-Registered Tourism Companies

Under Transitory XI, tourism companies that are duly registered with the Instituto Costarricense de Turismo (ICT) benefit from a gradual VAT implementation schedule:

• First year: Full exemption from VAT

• Second year: 4% VAT

• Third year: 8% VAT

• Fourth year: Full 13% VAT

This phased approach was designed to allow the tourism industry time to adapt operationally and financially to the new tax burden, recognizing its importance to the national economy.

Immediate VAT Application for Non-Registered Companies

In contrast, tourism-related companies that are not registered with the ICT are not eligible for the transitional benefits. These businesses are required to charge and remit the full 13% VAT from the first day of the law’s implementation, which took effect on July 1st.

To enforce compliance, the Ministerio de Hacienda will cross-reference information with the ICT to verify whether companies claiming exemptions are properly registered. Businesses that serve tourists but lack ICT registration risk exposure to audits, penalties, and back taxes if they improperly apply reduced VAT rates.

For businesses operating within the tourism sector, timely registration with the ICT is therefore not merely advisable but strategically necessary under the legal framework established by Law 9635.

Economic Context and Industry Concerns

At the time of implementation, the tourism industry accounted for 6.3% of Costa Rica’s Gross Domestic Product (GDP). Analysts expressed concern that the introduction of VAT—even with phased implementation—could negatively affect the sector by increasing overall travel costs. Higher prices may reduce Costa Rica’s competitiveness compared to alternative destinations that offer lower-cost tourism options.

Whether these concerns materialize over time remains an open question, as the long-term effects of tax policy on tourism demand often depend on broader economic conditions and market responses.

Final Thoughts

The VAT regime for hotels and tourism services under Law 9635 reflects the government’s effort to balance fiscal responsibility with economic sensitivity. Registration with the ICT plays a central role in determining how and when VAT obligations apply, making regulatory compliance a critical issue for businesses in the sector.

Feel free to reach us with your questions or comments.