The taxation system in Costa Rica

Income tax in Costa Rica is based on your local earnings, irrespective of your nationality and residency, but tax rates are low compared with many western nations. The main taxes that will affect you while living in the country are income tax, employee social insurance, withholding taxes, capital transfer tax, selective consumption tax, as well as some relatively small municipal taxes and vehicle tax.

All things considered, living in Costa Rica does come with tax advantages and is considered by many as being a relative tax haven. Especially as foreign retirees are not required to pay taxes on any income they earn abroad, and real estate investors don't need to pay any capital gains tax on property. It is also possible to save money in a high-interest bank account in Costa Rica without paying any tax.

Although the system can work in your favour, it is important to be aware that the government has cracked down on tax evasion, and the offence can be punishable with a big fine or prison sentence.

Income tax

If you work remotely in Costa Rica or earn an income abroad ' from a property, for example ' you'll be pleased to know that this income will be tax exempt, as it has a foreign source. Taxation in Costa Rica is based on territoriality, which means that only a Costa Rican-source income that is linked to the country's economic infrastructure is taxed. If you earn a revenue in Costa Rica, be that from a job, a business or a holiday rental, then it will need to be assessed by the tax authorities. Generally speaking, salaries, commissions and bonuses are all subject to income tax (impuesto de renta), although there are certain things that are exempt from taxation, such as a 13th-month cheque or relocation costs.

If you are employed in Costa Rica, you should be prepared to pay a monthly tax based on your salary. However, you shouldn't need to file any tax returns, as your income tax and social security contributions will be paid monthly by your employer. You will only have to file an income tax declaration if you are self-employed.

Tax rates

All income made in Costa Rica must be reported, as it is subject to taxes. Residents and non-residents pay the same income tax on employment-source income. You will be considered a tax resident if you are physically in Costa Rica for more than six months in a tax year (1st October to 30th September). However, if you are employed by a Costa Rican employer, or have just arrived in the country but will be working on an assignment that will last longer than six months, the authorities may treat you as a resident for tax purposes, even if you have been in the country for less than this timeframe.

As a non-resident, you will be taxed at a flat rate of 10% of the gross income that you earn in Costa Rica. And, as a self-employed non-resident, you will be required to either pay 15% tax on the gross income you receive in Costa Rica (for professional services) or a 25% tariff (for technical advice).

Taxes for residents are based on a progressive rate structure. For the tax year 2018, if you earn anything under â¡799,000 per month (âUSD1,378), you will not need to pay any tax. However, if you earn a monthly salary of between â¡799,000 (âUSD1,378) and â¡1.199 million (âUSD2,068), you will need to pay 10% tax, and this increases to 15% if you earn anything above â¡1.199 million (âUSD2,068) per month.

Current tax rates for self-employed individuals are based on their annual taxable income, and there is no tax for annual earnings of under â¡3.549 million (âUSD6,123). You can expect a 10% tax deduction if you earn between â¡3.549 million (âUSD6,123) and â¡5.299 million (âUSD9,142), and this increases to 15% if you earn between â¡5.299 million (âUSD9,142) and â¡8.84 million (âUSD15,250) in a year. Annual earnings between â¡8.84 million (âUSD15,250) and â¡17.716 million (âUSD30,563) are subject to 20% tax, and the maximum tax rate is 25% if you earn over â¡17.716 million (âUSD30,563) in one tax year.

Useful links:

KPMG
PWC
Tax in Costa Rica Forum
Ministerio de Hacienda
Frequently asked questions about taxes