Costa Rica’s VAT system may be heading toward its most significant change since VAT was extended to cross-border digital services in 2020. A bill currently before the Legislative Assembly would reduce the standard VAT rate from 13% to 10%, but only if the benefit is demonstrably passed through to consumers. At the same time, the proposal would make electronic invoicing mandatory as part of the mechanism used to verify compliance.
The bill remains under consideration, but it arrives against a backdrop of broader administrative changes that have continued to strengthen digital reporting and VAT compliance through late 2025 and the first half of 2026.
A Proposed VAT Rate Cut Linked to Consumer Pass-Through
Bill No. 25239, accepted for consideration by the Legislative Assembly in October 2025, would progressively reduce the standard VAT rate on specified goods and services from 13% to 10%.
What makes the proposal unusual is that the reduction is explicitly tied to consumer outcomes. Suppliers would be required to pass the benefit of the lower rate through to end consumers rather than retaining it through higher margins. The legislation would establish penalties for non-compliance and require authorities to evaluate whether at least 70% of the tax reduction is reaching consumers in practice. If that threshold is not met, the VAT rate could revert to its current level.
The bill would also introduce mandatory electronic invoicing, including detailed transaction-level information and automated data exchange with tax authorities. Implementation would be phased, beginning with large taxpayers before extending to smaller businesses.
As of mid-2026, the proposal remains under legislative review and has not been enacted.
Reform of the Simplified Tax Regime Remains Under Review
A separate initiative has focused on taxpayers operating under Costa Rica’s simplified taxation regime.
In May 2025, the Ministry of Finance opened a public consultation on a draft executive decree that would substantially revise how the regime operates. Among the proposed changes are new eligibility criteria, VAT and income-tax calculations based on quarterly purchase activity, revised registration requirements, and restrictions on tax-credit claims when taxpayers move from the simplified regime into the general system.
Public consultation closed in June 2025. Based on publicly available information, it remains unclear whether the decree has since been finalized.
Digital Compliance Requirements Continue to Expand
While the larger policy debate centers on the proposed VAT rate reduction, several administrative measures have already taken effect.
Costa Rica updated its electronic invoicing framework to version 4.4, introducing revised validation requirements and additional reference fields covering rejected invoices and payment tracking. Mandatory adoption is scheduled for 1 November.
A new monthly filing requirement for Form D-270 also took effect in March 2026. The form covers transactions that are not captured through the electronic invoicing system and is intended to improve visibility over activity that would otherwise sit outside the country’s increasingly digital reporting environment.
Tax authorities also spent part of late 2025 resolving data inconsistencies created by contingency reporting measures introduced earlier that year. Two resolutions issued in December established mechanisms allowing affected taxpayers to correct distortions in reported sales without creating longer-term VAT discrepancies.
Additional adjustments included clarification of existing VAT exemptions for electricity purchases, updates to proportionality calculations used by certain taxpayers, and an increase in the interest rate applicable to overdue tax and customs liabilities from 8.35% to 8.52% effective January 2026.
What the Developments Indicate
Taken together, the developments point toward a VAT system that is becoming increasingly dependent on digital reporting infrastructure.
The administrative changes themselves are largely technical. Updated invoice specifications, new reporting requirements, and corrections to prior data issues are the sort of adjustments that typically accompany a maturing electronic compliance framework.
The more significant question is whether Bill No. 25239 ultimately becomes law. If enacted, Costa Rica would be attempting something relatively unusual: using mandatory electronic invoicing not simply as a reporting tool, but as part of the enforcement mechanism for a VAT rate reduction. The proposal effectively links tax policy and compliance infrastructure into a single framework, with the continuation of the lower rate dependent on demonstrable consumer benefit.
Practical Takeaway
For businesses operating in Costa Rica, the immediate focus remains on compliance with measures already in force or approaching implementation, including the version 4.4 electronic invoicing requirements, the monthly D-270 reporting obligation, and the revised interest rate for late tax payments.
Looking ahead, Bill No. 25239 is the development most likely to reshape the VAT landscape. If enacted, businesses would need to prepare not only for a lower VAT rate but also for more detailed invoicing and reporting obligations designed to demonstrate that the benefit of the reduction is being passed through to consumers.
