Costa Rica Extends Benefits to Electric Vehicles Until 2035 (Including Used Cars)

Costa Rica has reformed its 2018 law to encourage the importation of electric vehicles. Benefits to car importers and owners will now be extended until at least 2035 (the incentives under the original law were to end in 2023), and they can also be applied to used vehicles, which is a novelty.

The Costa Rican Association of Electric Mobility (Asomove) celebrated the news and said that it represents “another big step for electric mobility in Costa Rica.” Asomove was among the groups that pressured the government of now former President Carlos Alvarado in order to extend the incentives for electric vehicles.

“We are at the door of a great transformation, this is the best inheritance that we can leave our boys and girls. We must move forward against all odds on this matter. Costa Rica is one of the few countries that advances and invests in green transport, because not everyone is making this transformation,” said Alvarado.

This reform was among the last laws signed by Alvarado before the transfer of power to the new government of Rodrigo Chaves. During the solemn act in the Legislative Assembly on May 8, 2022, Chaves and his cabinet used an electric bus to move from place to place, sending a message regarding the country’s bet on sustainable transport.

Temporary tax incentives for EVs in Costa Rica

The reform establishes and confirms temporary tax incentives for electric vehicles beyond 2023, as originally established by the law. These incentives also apply to used cars not older than five years, spare parts, and charging stations.

Three taxes will be reduced for electric vehicle users:

• VAT: Value-added tax (VAT or, in Spanish, IVA) will have a fixed rate of 1% during the first year following the publication of this reform. It will increase by 1% annually until reaching 13% in 2035. The VAT for most products in Costa Rica is 13%.

• Consumption and customs tax: The so-called selective taxes on consumption and customs value will be exempted for three years after the publication of the reform. After Between 2025 and 2027, they will have a 75% reduction; between 2028 and 2030, said reduction will be 50%; and between 2031 and 2033, it will be 25%. Starting in 2034, these taxes will be fully charged.

• Vehicle property tax: Electric vehicles will be exempt from payment of the vehicle property tax during the year following the publication of the reform. In 2024, it will have an 80% reduction; in 2025, it will be 60%; in 2026, it will drop to 40%; in 2027, the reduction will be 20%; and from 2028 onwards this tax will be fully charged.

Use of electric vehicles in Costa Rica

The last government said that the new incentives are a way for the country to seek to “further motivate the use of electric transport,” because this sector can contribute “significantly to the reactivation of the economy and decarbonization.” However, the goal to have 100,000 EVs in the country in 2023 is far from possible.

The most recent data from the Ministry of Environment and Energy (Minae) shows that at the end of 2021 there were only 2,529 electric vehicles inscribed in the country. That’s less than 3% of the goal of 100,000 by 2023. The law to encourage electric transport was first passed in 2018, so that’s an average of just 633 cars per year.

Nevertheless, 2021 was the year with most new electric cars in circulation in the country. During last year, 1,045 new electric vehicles for daily use with license plates were registered, a significant jump of 40% compared to the 627 recorded in 2020. Now that the law gives incentives to used electric cars, numbers might improve.

Back in January 2022, Asomove celebrated that more than 1,000 electric cars were registered in 2021 and asked the government to extend benefits further than 2023, as it did. “A cleaner Costa Rica is indeed possible and Asomove continues to work to promote it,” the association said.