Short Term Rental (eg Airbnb) Start-Up Permits and Registration

• Are you planning on purchasing a property in Costa Rica to operate a short-term rentals` business?
• Are you already a property owner in Costa Rica and want to start operating a short-term rentals` business?

Please read below to learn about the permits and registration needed to legally operate in Costa Rica. At Invicta Legal we can assist you with this process so you focus on your business while we take care of the legal and compliance procedures.

MUNICIPAL PATENT:

The process to request a patent for short term rentals from the Municipality is a one-time process which will then have to get renewed following a simplified process on a yearly basis. It is not technically complex but does include several steps and requirements that shall be complied with to obtain positive results. This process can be carried out by the owner directly, its property manager, accountant or attorney. The person in charge of the process will need some information corresponding to the specific property of interest throughout the process as mentioned below. Please take note that certain requirements or process steps may slightly vary from one Municipality to another one but the following general information should be a good guide to understand the process.

REQUIREMENTS FOR FIRST STEP OF THE PROCESS:

1. TAX OFFICE:

a. The company or individual registered as property owner shall be registered as active at the Tax Office under the activity of rentals of real estate property. (either under the traditional Corporate Income Tax System, or the Passive Income from Real Estate default tax system)
b. The company or individual registered as property owner shall be up to date on all its tax payments.

2. CCSS (Social Security Office and System):

a. The company or individual registered as property owner shall be registered as an employer at the Social Security Office and System with at least one part time employee. Please take note that the CCSS will accept registration of part time employees but will charge the CCSS fees and contributions based on the highest of:
i. Full time minimum wage for the corresponding employee according to its role and in accordance with Costa Rican labor laws, or
ii. Salary reported as being paid to said employee

b. The company or individual registered as property owner shall be up to date on CCSS payments.

c. As an alternative, if the owner doesn’t have any employee due to the fact that the owner had subcontracted full property management services through a third party, the owner may obtain the approval of an exception for this requirement. The most common way to back this up would be by providing full copies of the duly signed property management contract where it is expressly stated that the property manager will provide all these services through its own employees. ***As a separate but still related matter, please keep in mind that any property owner doing short term rentals should explore the possibility of applying for the traditional “Corporate Income Tax system” which does allow the property owner to deduct all its operating expenses, depreciation, financial expenses, etc and pay income tax over its net income. This option will be more attractive and efficient from a financial standpoint if the owner has a relevant amount of deductible expenses to write off from its total income/top line. All owners already working under this “Corporate Income Tax system” will already have an employee registered at CCSS as that is one requirement to be accepted under this income tax system. Please talk to your Costa Rican accountant about the benefits of applying for the “Corporate Income Tax system” for your rentals’ business if you have a relevant amount of deductible operating expenses, depreciation of assets and financial expenses. There are only some time windows during which an owner can apply for this income tax system before the Costa Rican tax office.

3. ACAM (National Association of Artists, Musicians and Composers of Costa Rica):

a. The company or individual registered as property owner shall be registered as an owner paying fees to the ACAM which is the National Association of Artists, Musicians and Composers of Costa Rica. Even though this sounds like an unexpected/non-related requirement, the Municipality will demand proof of this registration where the property owner shall report to the ACAM the number of TVs installed and in use on the property of interest, as well as number of people that can stay on the property. The ACAM payment needs to be made every year depending on number of TVs on the property and number of people that can stay on it. Said yearly payment could be for around $250 but
again, the amount will vary depending on number of TVs. Claiming that the TVs won´t get connected to a local antenna or TV channels but only used as smart TVs will not be accepted by ACAM as an exception.
b. The company or individual registered as property owner shall be up to date on the yearly ACAM payment.
c. The ACAM payment will only be considered as “non-applicable” if the owner declares that no TVs, no music, no videos, etc will be used or played on the property. An inspection visit may be carried out by ACAM at any time to verify this and fines will be applied if any TVs are installed or music is being played, even on portable devices like tablets or smart phones.

4. INS (National Insurance Institute):

a. Any employees registered at CCSS under the name of the company or individual that owns the property, shall also be covered by the National Insurance Institute, INS workers´ risk insurance policy. This insurance policy is very important to have as it would be needed if
any employee suffers any accident or injury while at work or while traveling from his/her home to work or back.
b. The company or individual registered as property owner shall be up to date on INS insurance payment.

FILLING REQUIREMENTS AT THE MUNICIPALITY AND HEALTH DEPARTMENT LOCAL OFFICE:

1. Once the owner has all the requirements mentioned above (except the ACAM which can be obtained in parallel), the owner can fill out the form provided by the Municipality to request for the official “certification of property location”, in Spanish the Resolución de Ubicación. The owner also needs to provide a copy of the registered cadastral plan for the property of interest when this request is filed at the Municipality. For properties located within a Condominium project not yet having an individual registered cadastral plan, some municipalities will accept for the property owner to present the corresponding Condominium`s registered master plan. The purpose of this first step is for the Municipality to verify that, based on the zoning, the property of interest is suitable for the short-term rentals´ activities. If the property of interest is located within a Condominium project, the owner shall also provide to the Municipality evidence of the property being allowed to carry out short term rentals. Please bear in mind that according to the 2019 “Non-Traditional Lodging and Digital Booking Platforms Law” article 16, short term rentals are considered allowed on municipality declared residential zonings as long as the activity doesn’t affect the peace and tranquility of its neighbors.

2. Once the certification of property location is issued by the Municipality with a positive answer, the owner will need to request the “health operating permit” in Spanish the Permiso Sanitario de Funcionamiento or PSF, to the local office of the Health Ministry. Together with the certification of property location approved by the Municipality, the owner shall present:
a. Proof of INS workers` insurance policy. (unless the above referred exception of full services property manager applied, on which case a copy of the property management contract needs to be presented)
b. Proof of being up to date with CCSS payments (unless the above referred exception of full services property manager applied, on which case a copy of the property management contract needs to be presented)
c. Proof of registration and being up to date with the Tax Office.
d. If the property is registered under the name of a company, a legal representation certificate shall be filed as well. If the process is filed through a third party, the corresponding special power of attorney granted on a public deed to said third party shall be presented.
e. Copies of the passports and or Costa Rican ID of the registered legal representatives and of the special power of attorney holder.

3. Once the PSF is approved by the Health Ministry, the Owner needs to present to the Municipality said PSF and the ACAM registration and payment, for the final step of the formal request of the Municipal Patent for short term rentals.

PAYMENTS AND REPORTING REGULARITY:

MUNICIPAL PATENT: Please bear in mind that even though the patent request is a one-time process, each owner shall then report and update on a yearly basis the amount of gross income and pay each year`s Municipal Patent based on it. The determination of the gross income shall be made based on the previous tax year reported gross income to the Tax Office for the rentals on the property of interest. The Quepos Municipality for example, is charging 1,5 colones for every 1,000 colones of gross income of the activity of rentals carried out by the owner and requires for the owner to present the yearly declaration (based on previous year numbers) before the end of the month of March every year to avoid fines.

ACAM: The ACAM payment needs to be made on a yearly basis, depending on number of TVs as mentioned above.

INS: The INS workers` risk insurance policy can be paid yearly to INS to avoid monthly or quarterly payments. It shall always be kept updated based on workers employed by the owner at each time.

CCSS: The CCSS payments need to be made on a monthly basis based on each worker`s salary and list of workers at each time.

TAXES:

• The VAT charged to the renters needs to be reported and delivered by the property owner to theTax office on a monthly basis on or before  the 15th day of the following month.
• The income tax to be paid by the owner of the property will have to be paid to the Tax Office in the following way:
o On a yearly basis in March of each year (payment corresponding to the previous calendar/fiscal year) if the property owner is registered under the traditional Corporate Income Tax system. Quarterly partial payments are made by the owner throughout the year towards said year`s corporate income tax.
o On a monthly basis if the property owner is registered under the Passive Income from Real Estate default tax system for property rentals.

LOCAL HEALTH DEPARTMENT: The PSF needs to be paid for and renewed every 5 years.

ICT REGISTRATION: Once the owner has obtained the above referred Municipal patent for short term rentals, in accordance with the “Non-Traditional Lodging and Digital Booking Platforms Law”, the owner also needs to complete a registration at the Costa Rican Tourism Institute ICT. A username needs to be created for the corresponding owner of the property of interest on the ICT online system. With this username, a digital form needs to be filled out reporting the owner and the property carrying out short term rentals` activities. The ICT and the Costa Rican Tax Office share information amongst them to verify payment of taxes versus ICT registration.

All companies providing booking services for third party owners shall also register at ICT and report the properties they are renting through their platforms so there is a “cross-check” tool for the ICT to verify if all the properties reported by the booking companies are also individually reported by the owners. Please bear in mind that the above detailed requirements could slightly vary from Municipality to Municipality across the Country, as well as from one local Health Department office to another one. Also, please take into consideration that the activity of short-term rentals has been quickly evolving during the last few years and continues to evolve hence the regulations, requirements, procedures, taxes, costs, etc could be subject to changes.

Contact us for more information and detailed guidance on your particular case.

Best regards,
Alberto Sáenz & the Invicta Legal team.
Founding Partner
Contact me at: Alberto.Saenz@invicta.legal
Read about our Law Firm at: www.Invicta.legal