Tipping Now Taxed In Costa Rica’s Restaurants and Bars

El Presidente is a great place to people watch - but that may change since they shut down their popular News Cafe.

A tip (also called a gratuity) has always been a special thanks to a server for good service. Such payments and their size are a matter of social custom and etiquette and usually are around 10%  plus of the total bill. Tipping varies among cultures and by service industry.

In Costa Rica, those that provide services in restaurants and bars or unskilled labor make less than $2/hr (more like $1/hr if not less) – so tipping becomes a major source of income. Restaurants and bars are allowed, by law, to add 10% to the check as a “propina” (tip). The 10% is then suppose to be divided between the restaurant waiters and bar staff, and in some cases, bus boys and kitchen workers, which in many cases that money is much greater than the base salary.

Like Mexico and other countries, Costa Rica’s restaurant and bars owners have always added a 10% on top of the bill.  Unfortunately,  this money has always had scrutiny because it somehow is not divided equal among the workers – the owners are the ones that retain the largest percentage.

And in Costa Rica money that never had to be taxed, until now.

Last week the Costa Rica’s when  Constitutional Court ruled  the 10% tip is NOW a part of the salaries of waiters and bartenders, with said, it will increase the employer contributions to items like the social security (Caja).

In otherwords, for every $10 USD the establishment “Charges Extra” in tips, and if the employee makes that full $10, she or she will have to pay around $1 in tax and the employer will have to pay around $1.30 or around 23%.

Okay, that seems logical, like the US, tipping now becomes taxable income.

So where does this get us?

Well,  one business is claiming this law will put them in the poor house. The first to do is was the closing of the “News Café” in the popular downtown restaurant and bar at the Hotel Presidente. The owners decided that the added “taxable income of 10%” is going to make their operating costs to high.

Humm … interesting!

For those that are unfamiliar with the News Café it  was one of the most popular hang outs for tourists, Costa Ricans, those with business dealings, and expats living in Costa Rica. It was no doubt the best place to people watch as one could sit at a table that was right on Avenida Central.

A police cars cruises the pedestrian mall of Av. Central in front of the El Presidente Bar.

Avenida Central is in the center of downtown San Jose. It is a paved pedestrian mall for about six blocks where you will find a ton of restaurants, banks, gift, clothing, and department type stores. Toward the east end is the popular Mercado Central. In the street there are locals, street performers, hawkers of all sorts of useless things and many sitting at small tables selling lotto tickets. It is a huge income draw for locals and I would think a huge income draw for the El Presidente who customers are tourists and locals alike that stop in for a cool refreshment or  meal.

Personally, I’m disappointed in El Presidente and I hope that others do not follow in their footsteps.

El Presidente a few years back did a great remodeling when they opened up the bar to the street, added a management of a Canadian, who brought many popular North American dishes to the menu, and had one of the best exclusive breakfasts in town for their guests. For a while the place was jumping with popularity and action.

But it appears they seem to be going into the wrong direction – a year a go they downsized the smorgasbord of their exclusive breakfasts, then a few months ago they got rid of the free breakfasts altogether for their guests, closed their popular bar down at 9 or 10pm, raised their drink prices, and now closed the News Café.

All this because they – let me get this right – now have to pay a mire (that’s not out of their pocket) $1.30 per $10 that they can legally already charge extra for. And this is not counting the Costa Ricans who now do not have a job.

Calypso Cruises