Costa Rica’s rental regulations underwent significant changes in 2024, reshaping the landscape for property owners and investors. These new rules strengthen tenant protections while imposing stricter compliance requirements on landlords.
We at Osa Property Management have analyzed these regulatory shifts to help property owners navigate the complex legal terrain. Understanding these changes is essential for maintaining profitable rental operations while avoiding costly legal issues.
What Changed in Costa Rica’s Rental Laws
Costa Rica’s rental regulations now require all property owners to register with the Costa Rican Tourism Institute. The registration process demands detailed property information including amenities, rental history, and proof of ownership. Short-term rental properties face additional requirements with special operating permits from the ICT, while all rental income must be reported regardless of platform usage.
Tax Structure Overhaul Affects All Owners
The new 15% tax applies to 85% of rental income, replacing previous tax structures entirely. Property owners who earn over 3.8 million colones annually (approximately $7,600 USD) now face progressive tax rates from 10% to 25%. The first 3.8 million colones remain tax-exempt, providing relief for smaller property owners. This change significantly impacts how owners calculate their net rental returns.
Stronger Tenant Protections Take Effect
Tenants now receive a mandatory 7-day grace period for rent payments, providing flexibility during financial difficulties. The minimum lease duration extends to 3 years for long-term residential rentals, offering greater housing security. Rent increases for colón-denominated leases can only occur when inflation exceeds 10%, as measured by the National Institute of Statistics and Census. Landlords must address urgent repairs within 10 business days, or tenants can deduct repair costs directly from rent payments.
New Owner Obligations Demand Immediate Action
Property owners must file monthly declarations using Form D-125, even if they received no income, maintaining systematic records of all rental transactions. Short-term rentals now face a 13% Value Added Tax, directly impacting vacation rental profitability. The phased implementation allows owners until July 1, 2025, or January 1, 2026, to comply based on annual revenue thresholds. Non-compliance triggers substantial fines, rental license suspension, and potential legal action.
These regulatory changes create both challenges and opportunities for property owners who adapt quickly to the new requirements.
How New Regulations Impact Your Rental Returns
The regulatory changes directly slash profit margins for property owners across Costa Rica. Short-term rental operators face the harshest impact with the new 12.75% tax that reduces net income by approximately 11-13% after the system calculates tax on gross revenue. Long-term rental owners experience less dramatic but still significant changes, with the progressive tax structure that affects properties that generate over $7,600 annually. Properties that earn $20,000 yearly now pay roughly $2,400 more in taxes under the new system compared to previous regulations.
Administrative Burdens Transform Daily Operations
Monthly Form D-125 filings create substantial administrative burdens for property owners, who must track detailed income regardless of rental activity. Property owners who spend 8-12 hours monthly on compliance tasks often struggle with accuracy and deadlines. Professional management becomes essential for owners who want to maintain systematic records of all transactions, guest communications, and expense documentation. The ICT registration process demands comprehensive property details that include amenities, square footage, and rental history that spans multiple years. Short-term rental permits require additional documentation that includes safety certifications, insurance proof, and municipal business licenses that vary significantly between provinces.
Maintenance Standards Face Stricter Enforcement
Costa Rica rental laws establish repair obligations for landlords that force immediate response systems for property maintenance issues. Tenants now deduct repair costs directly from rent payments when landlords fail to address urgent problems within the mandated timeframe. This regulation particularly impacts remote property owners who previously relied on slower response times. Properties must maintain higher standards to avoid tenant-initiated repairs that often cost 20-30% more than landlord-arranged services (compared to direct contractor arrangements). Regular preventive maintenance schedules become mandatory rather than optional, with quarterly inspections that help identify issues before tenants report them.
Pricing Strategy Adjustments Become Necessary
Property owners must recalculate their rental rates to account for the new tax structure and compliance costs. Short-term rental properties need to factor in the 12.75% tax when they set nightly rates to maintain profit margins. Long-term rental properties face restrictions on rent increases for colón-denominated leases, which can only occur when inflation exceeds 10% (as measured by INEC). These constraints force owners to optimize their properties through value-added amenities rather than simple price increases. Understanding rental property tax implications and maximizing available tax benefits becomes crucial for maintaining profitability under the new regulatory framework.
How Do You Stay Compliant Without Breaking the Bank
Property owners must start with ICT registration immediately, as all vacation rental properties must now register with the Costa Rican Institute of Tourism for rentals between 24 hours and one year. Complete the online registration at the Tourism Institute website with detailed property specifications that include square footage, amenities, and three years of rental history documentation. Short-term rental owners need additional permits that require safety certifications, comprehensive insurance proof, and municipal business licenses that cost between $200-500 annually (depending on location). Schedule monthly Form D-125 filings in your calendar system, as property owners must file monthly declarations using Form D-125, even if they received no income.
Professional Support Becomes Non-Negotiable
Local property management companies handle the complex compliance requirements while they maintain your profit margins through expert tax planning and operational efficiency. Costa Rican attorneys who specialize in rental law charge $150-250 per hour but prevent costly mistakes that often exceed $5,000 in penalties and legal fees. Certified public accountants with rental property expertise cost $100-150 monthly but save property owners an average of $2,400 annually through proper deduction strategies and tax optimization. Choose professionals who demonstrate current knowledge of the 2024 regulatory changes and maintain relationships with local municipalities for permit processing.
Documentation Systems Determine Success or Failure
Implement cloud-based accounting software that automatically categorizes rental income, maintenance expenses, and tax obligations with real-time reports. Maintain separate bank accounts for each property to simplify income tracking and expense allocation for tax purposes. Photograph all maintenance work with timestamps and store receipts digitally with property-specific folders that include contractor information and warranty details (this prevents disputes later). Create monthly reconciliation reports that match bank statements with rental platform deposits, as discrepancies trigger tax authority audits that cost property owners an average of $3,000 in professional fees and lost time.
Record Maintenance Prevents Costly Penalties
Property owners must track every rental transaction with detailed records that include guest information, payment dates, and expense documentation. Store all receipts for maintenance, utilities, and property improvements in organized digital files that tax authorities can access during audits. Document tenant communications and repair requests with timestamps to prove compliance with the 10-day repair requirement. Keep insurance policies, permits, and registration certificates in easily accessible formats that municipal inspectors can review during property visits.
Final Thoughts
Costa Rica’s rental regulations have fundamentally transformed property ownership requirements and created new compliance obligations that affect every aspect of rental operations. The mandatory ICT registration, monthly Form D-125 filings, and progressive tax structure represent the most significant changes property owners face in decades. Short-term rental properties now operate under a 12.75% tax burden while long-term rentals benefit from the 3.8 million colones tax exemption threshold.
These regulatory shifts will reshape Costa Rica’s property investment landscape over the next five years. Properties that generate consistent rental income above $7,600 annually face substantially higher tax obligations, while owners who maintain meticulous records and professional compliance support will outperform competitors who struggle with administrative requirements. The strengthened tenant protections and repair obligations create operational challenges that favor professionally managed properties (especially in high-demand tourist areas).
Property owners who partner with experienced management companies gain significant advantages through expert tax compliance, systematic record maintenance, and established relationships with local authorities. We at Osa Property Management recommend immediate action on ICT registration, implementation of cloud-based documentation systems, and quarterly compliance reviews to maintain profitability while meeting all legal requirements. Professional property management becomes essential for owners who want to navigate these complex rental regulations successfully.