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Costa Rica

Country Name: Costa Rica
Currency: Costa Rican Colón (CRC)
Primary Tax Authority: Ministerio de Hacienda – Ministry of Finance
Key Legislation:

  • Income Tax Law (Ley del Impuesto sobre la Renta)
  • General Sales Tax Law (Ley del Impuesto sobre las Ventas – IVA)
  • Corporate Tax Law
  • Tax Reform Law (Ley de Fortalecimiento de las Finanzas Públicas)

Fiscal Authority Allocation

Centralized Fiscal System:
Costa Rica operates a centralized tax system, with the Ministry of Finance overseeing tax collection through the Dirección General de Tributación (DGT), which administers corporate income tax (CIT), personal income tax (PIT), and VAT. Local governments collect property taxes and other municipal fees, but most tax revenues are collected centrally.

Corporate Income Tax (CIT)

Standard Rate: Progressive tax rates apply based on annual gross income:

  • Gross income up to CRC 5,154,000: 0%
  • Gross income from CRC 5,154,001 to CRC 8,225,000: 10%
  • Gross income from CRC 8,225,001 to CRC 10,285,000: 20%
  • Gross income above CRC 10,285,001: 30%

Corporate Forms and Taxation:

  1. Corporation (Sociedad Anónima – SA): The most common corporate form in Costa Rica, subject to the progressive CIT rates, with larger companies paying up to 30%.
  2. Limited Liability Company (Sociedad de Responsabilidad Limitada – SRL): Smaller businesses generally use this form, taxed at the same CIT rates.
  3. Branches of Foreign Companies: Subject to the same CIT rates on Costa Rican-sourced income.

Exemptions and Incentives:

  • Free Trade Zones: Companies operating in Costa Rica’s free trade zones are exempt from CIT, VAT, and customs duties for a specified period. These zones encourage investment in manufacturing, logistics, and services for export.
  • Incentives for Renewable Energy: Costa Rica offers tax incentives for companies investing in renewable energy projects, including CIT exemptions and VAT reductions.

Goods and Services Tax (GST) / Value-Added Tax (VAT)

Standard Rate: 13%
Costa Rica applies a VAT rate of 13% on most goods and services, including imports. VAT is levied on the sale of goods, services, and imports.

Exemptions:
Basic food items, educational services, healthcare services, and certain financial services are exempt from VAT. Exports are zero-rated, allowing companies to reclaim VAT on input costs related to exported goods.

Personal Income Tax (PIT)

Progressive Rates:
Costa Rica applies progressive personal income tax rates, which are as follows:

  • Income up to CRC 3,742,000: 0%
  • Income from CRC 3,742,001 to CRC 5,580,000: 10%
  • Income from CRC 5,580,001 to CRC 8,363,000: 15%
  • Income from CRC 8,363,001 to CRC 16,715,000: 20%
  • Income above CRC 16,715,001: 25%

Dividends:
Dividends paid to residents and non-residents are subject to a withholding tax of 15%.

Additional Mandatory Contributions

Social Security Contributions:
Employers and employees must contribute to Costa Rica’s social security system, which funds pensions, healthcare, and unemployment benefits.

  • Employer Contribution: 26.33% of gross salary.
  • Employee Contribution: 9.34% of gross salary.

Withholding Taxes

  • Dividends: 15%
  • Interest: 15%
  • Royalties: 25%
    Withholding tax rates can be reduced under Costa Rica’s double taxation agreements (DTAs).

Transfer Pricing Rules

Costa Rica adheres to OECD transfer pricing guidelines. Related-party transactions must comply with the arm’s-length principle, and companies must maintain documentation to justify pricing between related entities.

Special Tax Regimes

  • Free Trade Zones: Companies in Costa Rica’s free trade zones benefit from CIT, VAT, and import/export duty exemptions. This regime is particularly beneficial for manufacturing, logistics, and service-oriented businesses focused on exports.
  • Tourism and Green Energy: Companies investing in eco-tourism or renewable energy projects enjoy tax incentives, such as exemptions from VAT and customs duties and accelerated depreciation.

Other Taxes

  • Real Estate Tax: Property taxes are levied by local municipalities and generally range from 0.25% to 0.55% of the property’s assessed value.
  • Capital Gains Tax: Capital gains are taxed at a flat rate of 15%, except for sales of primary residences, which are generally exempt.
  • Excise Duties: Costa Rica imposes excise duties on alcohol, tobacco, and fuel.

Double Taxation Agreements (DTAs)

Costa Rica has signed a limited number of double taxation agreements, primarily with Latin American countries and Spain. These agreements help reduce withholding taxes on dividends, interest, and royalties and prevent double taxation on cross-border income.

Local Taxes

Local municipalities in Costa Rica are responsible for collecting property taxes and certain fees. The national government, through the DGT, collects income tax, VAT, and other major taxes.

Compliance and Reporting

Annual Filing:
Corporate tax returns must be filed by March 15th of the following tax year. Personal income tax returns are due by the same date. The tax year in Costa Rica follows the calendar year.

Penalties for Late Filing:
Penalties for non-compliance or late filing include interest on overdue taxes and fines. The interest rate on unpaid taxes is typically 1.2% per month, with additional penalties for delays.

Recent Developments

Tax Reform:
Costa Rica implemented a comprehensive tax reform aimed at modernizing its tax system and improving fiscal transparency. This includes new VAT regulations, enhanced transfer pricing rules, and efforts to combat tax evasion.

Digital Services Tax:
Costa Rica recently introduced a digital services tax, which applies to foreign digital service providers (e.g., streaming platforms, online advertising, and e-commerce) providing services to Costa Rican consumers. This is part of a broader effort to tax the growing digital economy.

Environmental and Renewable Energy Incentives:
Costa Rica is promoting investment in renewable energy projects and green technologies by offering tax incentives and exemptions to businesses operating in these sectors, in line with the country’s goal of achieving carbon neutrality.

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