Do you want to get benefits from the Costa Rica zero-tax system and incentives?
Are you interested in immigrating to Costa Rica?
Costa Rica, known for its stunning landscapes and vibrant culture, offers a welcoming environment for expatriates and digital nomads.
Its well-defined low taxation system and diverse visa options make it an attractive destination for living, working, and investing.
This makes Costa Rica an authentic tax haven in the Caribbean due to its territorial tax system.
This article covers the key aspects of Costa Rica’s tax regime and visa types, including the territorial tax system.
The experts at TaxMove help you get benefits from the tax regulations in Costa Rica and apply for your desired visa type.
Costa Rica Tax System
Costa Rica uses a territorial tax system meaning only income earned within the country is subject to taxation.
In contrast, foreign-sourced income remains exempted from tax, which benefits companies, expats, and digital nomads by exempting this kind of income from local taxes.
Recently, Costa Rica enacted Law No. 10.381, which imposes limitations on the principle of territorial taxation. Under this law, companies that are part of a multinational group will be taxed on passive income unless they demonstrate economic substance within the country. This means having a physical presence, such as an office, employees, and ensuring that key strategic decisions are made in Costa Rica.
As a result of Law No. 10.381, Costa Rica has been removed from the European Union’s blacklist of non-cooperative tax jurisdictions. The country has improved its standing in the global market by adhering to stricter international tax standards and enforcing transparency.
Below is the summary of taxes in Costa Rica:
Costa Rica Personal Income Tax Rates
Income tax rates in Costa Rica are progressive, with rates ranging from 10% to 25% for individuals.
Self-employed individuals
Self-employed individuals in Costa Rica are taxed based on annual taxable income: 0% for income up to CRC 4,181,000 (circa USD 8,000), increasing progressively to 25% for income over CRC 20,872,000 (circa USD 40,000).
Employed individuals
Employed individuals in Costa Rica are taxed based on monthly salary: 0% for income up to CRC 941,000 (circa USD 2,000), increasing progressively to 25% for income over CRC 4,845,000 (circa USD 9,000).
Taxes for Expats
Expats residents living in Costa Rica are taxed at the same rates as citizens. However, they can take advantage of the territorial tax system if their main income comes from outside the country.
Expats must ensure they comply with tax requirements in both Costa Rica and their home country.
Tax on Foreign Income
Foreign income is not subject to income taxation because of the territorial tax system. This is an edge for digital nomads and retirees living off foreign pensions.
Capital Gains Tax
Costa Rica imposes a capital gains tax on the sale of real estate and certain other assets located in Costa Rica.
The general rate is 15%, but there are specific rules and exemptions depending on the nature of the transaction.
Applicability and Rates
- Real Estate Sales: 15% on the profit from the sale.
- Shares and Securities: Typically, subject to a 15% tax unless specific exemptions apply.
Corporate Income Tax
Businesses in Costa Rica are required to pay corporate income tax on their earnings at a standard rate of 30%, with reduced rates for lower income levels.
The tax rates depend on the company’s annual gross income.
However, due to its territorial tax system foreign income (except for companies affected by Law No.10.381) is not subject to Corporate Income Tax making it an attractive destination to incorporate an entity.
Property Tax
Property owners in Costa Rica are required to pay an annual property tax, which amounts to 0.25% of the property’s registered value.
This tax is paid to the local municipality.
VAT
Costa Rica levies a VAT of 13% on most goods and services. Certain items, such as basic foodstuffs and medical supplies, may be exempt or subject to lower rates.
Costa Rica’s Agreements and Other Rules
Double Tax Treaties (DTTs)
Costa Rica has Double Taxation Treaties (DTTs) with Germany, Mexico, and Spain.
These treaties do not apply to foreign income earned by residents of Costa Rica, as such income is not taxed in Costa Rica due to its territorial tax system.
Foreign Investment Protection
Costa Rica has investment protection agreements with several jurisdictions, ensuring international arbitration in cases of nationalization or expropriation.
These agreements include countries such as Canada, the Netherlands, Panama, Spain, Singapore, and Switzerland.
OECD Multilateral Convention
Costa Rica is a signatory to the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
As part of this convention, signatories are obligated to exchange information upon request.
The MCAA serves as the fundamental instrument for this exchange of information.
Anti-Avoidance Rules
Costa Rica employs a General Anti-Avoidance Rule (GAAR) to prevent aggressive tax strategies that lack a legitimate business purpose.
Its Transfer Pricing regulations follow OECD guidelines, mandating that transactions between related parties be conducted at arm’s length.
The country does not have specific thin capitalization rules, Controlled Foreign Corporation (CFC) regulations or Exit Tax rules.
Tax Rates in Costa Rica
The following is a table that includes various taxes applicable in Costa Rica, along with their respective tax rates and descriptions.
| Tax Type | Tax Rate | Description |
|---|---|---|
|
Corporate Income Tax |
0% - 30% |
A progressive tax on the net income of companies operating in Costa Rica. The rate starts at 0%, then 5%, 15%, and 20%, and increases to 30% with gross income exceeding CRC 120,582,000 (increased from CRC 112,070,000 effective 1 January 2024). |
|
Personal Income Tax |
0% - 25% |
A progressive tax on the income earned by individuals. The rate starts at 0% for incomes up to CRC 4,181,000 and goes up to 25% for incomes above CRC 20,872,000. |
|
Value Added Tax (VAT) |
13% |
A tax levied on the sale of most goods and services in Costa Rica. It is applied at a standard rate of 13%.
|
|
Capital Gains Tax |
15% |
A tax on the profits made from the sale of assets, such as property or shares. The rate is 15%. |
|
Withholding Tax |
15% - 25% |
Tax withheld at the source on various types of payments. Dividends and interest payments are taxed at 15%, while royalties are taxed at 25%. |
|
Real Property Tax |
0.25% |
An annual tax on the value of real estate property in Costa Rica, set at 0.25% of the property's value. |
|
Social Security Tax |
Employee: 9.34%, Employer: 6.33% |
Contributions to Costa Rica's social security system, with rates of 9.34% for employees and 26.33% for employers. |
|
Transfer Tax |
1.5% |
A tax on the transfer of real estate property, calculated as 1.5% of the property's value. |
|
Inheritance Tax |
None |
There is no inheritance tax in Costa Rica. |
Visa Types in Costa Rica
Costa Rica provides various visa options for tourists, retirees, investors, and digital nomads. Understanding the requirements and benefits of each visa type is significant when planning your stay in Costa Rica.
Entry Requirements for Costa Rica
Before going to specific visa types, it is important to know the general entry requirements for Costa Rica.
Most visitors need a valid passport and may require a visa depending on their country of origin.
For your specific entry requirements, you can consult with an international tax firm such as TaxMove.
Digital Nomad Visa
Requirements and Benefits
The Digital Nomad Visa is designed for remote workers who want to live and work in Costa Rica. Applicants must prove a stable income from foreign sources and meet other criteria, such as health insurance coverage.
Application Process
Applying for the Digital Nomad Visa involves submitting proof of income, insurance, and a detailed application form to the Costa Rican consulate or immigration office.
Golden Visa
Investment Requirements
The Golden Visa program offers residency to individuals who invest in Costa Rican real estate, businesses, or government bonds. The minimum investment amount is around $200,000.
Path to Residency
Successful Golden Visa applicants can obtain temporary residency, which can potentially lead to permanent residency after a few years of continuous residence.
Retirement Visa
Elegibility Criteria
The Retirement Visa, also referred to as the Pensionado Visa, is perfect for retirees with a steady pension. Applicants need to show a monthly income of at least $1,000 from an approved pension or retirement fund.
Benefits for Retirees
Retirees with the Pensionado Visa enjoy various benefits, including tax exemptions on their foreign pension income and access to Costa Rica’s healthcare system.
Investment Visa
Investment Opportunities
The Investment Visa is available to individuals who invest in Costa Rican businesses or real estate. The minimum investment required is usually $200,000.
Visa Application Steps
Applicants must submit detailed investment plans, financial statements, and other documentation to the immigration authorities to qualify for this visa.
Residence Permits
Temporary and Permanent Residency
Costa Rica offers both temporary and permanent residency options. Temporary residency is typically granted for specific visa categories, while permanent residency can be pursued after several years of continuous residence.
Application Procedures
Applying for residency involves submitting various documents, including proof of income, investment, or family ties, to the immigration office.
Remote Work Visa
Ideal for Digital Nomads
The Remote Work Visa caters to digital nomads and freelancers who wish to work remotely from Costa Rica. Applicants must demonstrate a stable foreign income and meet other criteria.
Application Details
The application process for the Remote Work Visa is straightforward, requiring proof of income, health insurance, and a detailed application form.
Rentista Program
The Rentista program is a temporary residency visa program that allows foreigners to live in Costa Rica. The visa is initially issued for up to 2 years, but it can be extended for up to 10 years.
Eligibility
Applicants can obtain it in two ways: by showing a monthly income of at least $2,500 or by a lump sum of $60,000 deposited in a Costa Rican bank.
How to Apply
Applying for the Rentista Program involves submitting proof of income, bank statements, and other required documents to the immigration authorities.
Costa Rica Citizenship
Pathways to Citizenship
There are several pathways to obtaining Costa Rican citizenship, including naturalization after seven years of residency, marriage to a Costa Rican citizen, or birth in the country.
Benefits of Costa Rican Citizenship
Citizenship grants various benefits, such as the right to vote, access to social services, and the ability to travel visa-free to numerous countries.
How Can We Help You?
Costa Rica’s well-defined taxation system and diverse visa options make it an attractive destination for companies, expatriates, retirees, investors, and digital nomads.
Together with Panama, the Dominican Republic and Paraguay, Costa Rica is one of our favorite destinations in the region.
If you are considering either incorporating an entity or moving to Costa Rica and want to manage the tax implications efficiently while selecting the right visa for your needs, the experts at TaxMove assist.
Take the first step towards realizing your dreams of living, working, or investing in Costa Rica by consulting with us.
Submit the form to get tailored advice from our experts
What is the Costa Rica tax system based on?
What are the personal income tax rates in Costa Rica?
Personal income tax rates in Costa Rica are progressive, ranging from 10% to 25%. Self-employed individuals are taxed based on annual taxable income, while employed individuals are taxed based on their monthly salary.
How does Costa Rica tax expats?
Expats in Costa Rica are taxed at the same rates as citizens. However, they can benefit from the territorial tax system if their main income comes from outside the country.
Is foreign income subject to tax in Costa Rica?
No, foreign income is not subject to tax in Costa Rica due to its territorial tax system. This is advantageous for digital nomads and retirees living off foreign pensions.
What are the corporate income tax rates in Costa Rica?
Corporate income tax rates in Costa Rica are progressive, up to 30% for companies with higher earnings. Companies benefit from the territorial tax system as foreign income is not subject to corporate tax.
What is the cost of a company in Costa Rica?
Setting up a business in Costa Rica typically involves costs ranging from €2000 to €3,500.
This price range depends on the type of company being formed and any additional services needed for the incorporation process
What visa options are available in Costa Rica for expatriates?
Costa Rica offers various visa options including Digital Nomad Visa, Golden Visa, Retirement Visa, Investment Visa, Remote Work Visa, and Rentista Program, each with specific requirements and benefits.
How can one obtain Costa Rican citizenship?
Costa Rican citizenship can be obtained through naturalization after seven years of residency, marriage to a Costa Rican citizen, or by birth in the country. Citizenship grants benefits such as the right to vote, access to social services, and the ability to travel visa-free to numerous countries.
