Tax laws Costa Rica
Costa Rica has a well-established tax system that is designed to generate revenue for government services while encouraging both local and international investment. Here’s an overview of the key tax laws and principles in Costa Rica:
1. Income Tax
Costa Rica applies an income tax system that includes taxes on both individuals and businesses. The country uses a progressive tax rate for personal income, while businesses are generally subject to corporate income tax.
Personal Income Tax
Progressive Tax Rates: Costa Rica taxes individual income based on a progressive scale. For 2025, the tax rates are as follows:
- Up to CRC 3,763,000 (~USD 6,500): 0% tax rate.
- CRC 3,763,001 to CRC 7,526,000 (~USD 6,500 to USD 13,000): 10% tax rate.
- CRC 7,526,001 to CRC 11,289,000 (~USD 13,000 to USD 19,400): 15% tax rate.
- CRC 11,289,001 to CRC 15,051,000 (~USD 19,400 to USD 25,700): 20% tax rate.
- Above CRC 15,051,000 (~USD 25,700): 25% tax rate.
Tax on Foreign Income: Costa Rican residents are taxed on their worldwide income. Non-residents are only taxed on their Costa Rican-source income.
Corporate Income Tax
- Corporate Tax Rates: The corporate income tax rate is 30% for companies that generate income within Costa Rica.
- Small Business Tax: Small and medium-sized businesses (SMEs) can benefit from reduced tax rates based on their annual revenue.
Tax on Dividends
- Dividends Tax: A 15% tax is applied to dividends paid by corporations to individuals or foreign entities, unless a tax treaty provides for a reduced rate.
2. Sales Tax (VAT)
Costa Rica applies a Value Added Tax (VAT) on most goods and services, replacing the previous sales tax system.
- Standard VAT Rate: The standard VAT rate is 13%.
- Exemptions: Some goods and services are exempt from VAT, such as basic food items, certain medical services, and educational services.
3. Capital Gains Tax
- Capital Gains Tax: Costa Rica imposes a 15% capital gains tax on profits from the sale of real estate or other assets, such as stocks or bonds, if the sale is deemed to be part of an individual’s or company’s normal business activities.
- Exemptions: The sale of a primary residence may be exempt from capital gains tax if certain conditions are met.
4. Property Taxes
Costa Rica imposes a property tax on real estate properties.
- Real Estate Property Tax: The annual property tax rate is 0.25% of the property’s registered value, as assessed by the national property registry.
- Land Value: The tax is based on the registered value of the property, and municipalities collect this tax.
5. Inheritance and Estate Taxes
Costa Rica does not have an inheritance or estate tax. However, estate property may be subject to capital gains tax if assets are sold after inheritance.
6. Social Security Contributions (Caja Costarricense de Seguro Social - CCSS)
- Employee Contributions: Employees are required to contribute a percentage of their income to the social security system (CCSS). This includes contributions for health insurance, pensions, and other social benefits.
- General Rate: Employees contribute around 10.5% of their gross income.
- Employer Contributions: Employers also contribute a similar amount to the social security system.
- General Rate: Employers contribute around 26.5% of an employee’s salary to social security, covering health insurance, pensions, and other benefits.
7. Social Security for Self-Employed Individuals
Self-employed individuals are also required to make contributions to the social security system. The rates vary depending on the income level and professional category but are generally in line with employee contributions.
8. Withholding Tax
Costa Rica imposes withholding taxes on certain payments made to non-residents.
- Interest Payments: Interest paid to non-residents is subject to a 15% withholding tax.
- Royalty Payments: Payments for royalties and technical services to non-residents are also subject to 15% withholding tax.
9. Excise Taxes
Costa Rica applies excise taxes on certain goods such as:
- Tobacco Products: Subject to high excise taxes.
- Alcohol: Alcoholic beverages are subject to excise taxes.
- Fuel: Gasoline and diesel fuel are also taxed, with the tax rate varying depending on the fuel type.
10. Tax Treaties
Costa Rica has signed a number of double tax treaties with other countries to avoid double taxation and encourage international trade and investment. These treaties generally provide for reduced withholding tax rates on dividends, interest, and royalties between Costa Rica and other treaty partners.
11. Transfer Pricing
Costa Rica follows OECD guidelines on transfer pricing, requiring multinational companies operating in Costa Rica to maintain documentation proving that their transactions with related parties are conducted at arm’s length prices (i.e., at fair market value).
12. Tax Filing and Compliance
- Tax Year: The tax year in Costa Rica typically runs from January 1 to December 31.
- Tax Returns: Corporate taxpayers must file an annual tax return with the Ministry of Finance by March 31 of the following year. Individuals must also file their annual tax returns by this date.
- Advance Tax Payments: Companies are required to make quarterly tax payments based on their estimated income, and the government requires certain taxpayers to prepay taxes.
13. Tax Incentives
Costa Rica offers several tax incentives to attract investment, particularly in certain sectors:
- Free Trade Zones: Companies operating in Costa Rica's Free Trade Zones are exempt from most taxes for an initial period (often up to 8 years), including corporate income taxes and customs duties.
- Tourism and Renewable Energy: There are various tax exemptions and credits for companies involved in tourism, renewable energy, and technology sectors.
Conclusion
Costa Rica’s tax system is designed to provide for the country’s development while encouraging foreign investment, particularly in high-value sectors like technology and tourism. The progressive income tax system, corporate tax rate, VAT, capital gains tax, and property tax are the main taxes imposed. Costa Rica also provides attractive tax incentives for businesses operating in the Free Trade Zones, and there are no inheritance or estate taxes. However, the country’s relatively high social security contributions and tax rates on businesses and individuals may be a consideration for potential investors.
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