Costa Rica Individual Tax Guide

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Worldwide Personal Tax and Immigration Guide 2021–22

Costa Rica

ey.com/globaltaxguides

San José GMT -6

EY Street address:

Mail address: Oficentro Fórum 2 P.O. Box 10903 Building A

Santa Ana, San José Floor 4 Costa Rica Santa Ana, San José Costa Rica

Executive and immigration contacts

Luis Ocando +507 208-0100 (resident in Panama City, Panama) Email: luis.ocando@pa.ey.com

Rafael Sayagués +506 2208-9880

Fax: +506 2208-9999 Email: rafael.sayagues@cr.ey.com

Immigration contacts

Fernando Vargas +506 2505-0900

Fax: +506 2208-9999 Email: fernando.vargas.winiker@cr.ey.com

Natalia Brenes +506 2505-0900

Fax: +506 2208-9999 Email: natalia.brenes.alvarez@cr.ey.com

A. Income tax

Who is liable. Resident and nonresident individuals, regardless of their nationality, are taxed on their income earned in Costa Rica. Foreign-source income is not taxed.

Individuals are considered resident if they have lived in Costa Rica for more than six consecutive months (that is, 183 days) during a tax year. However, the tax authorities may apply a shorter term for employed individuals.

Income subject to tax. The taxation of various types of income is described below.

Employment income. Monthly income in excess of CRC842,000 is taxable, including salary, pensions, bonuses, premiums, com missions and allowances (for example, housing and educational allowances). Payments made to board members, other executives and counselors not included in the payroll are subject to a 15% withholding tax.

Self-employment and business income. Income derived from selfemployment or from a trade or business is subject to taxation.

Investment income. In general, dividends paid or credited by corporations to individuals or entities are subject to a 15% withholding tax. Dividend distributions paid to another entity domiciled in Costa Rica are exempt, provided that the recipient is an entity that carries out an economic activity and is subject to income tax or is the holding company of a financial conglomerate or group duly supervised in Costa Rica. Dividend distributions by companies of their own shares are also exempt. In addition, interest paid to multilateral development banks and other

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institutions of multilateral or bilateral development and to other not-for-profit entities that are not subject to tax is exempt from the withholding tax. Royalties from franchises, technical advice payments and similar payments are subject to a 25% withholding tax.

Directors’ fees Directors’ fees paid to resident and nonresident individuals are subject to a 15% withholding tax.

Capital gains. Capital gains on the sale of tangible or intangible assets are subject to the capital gains tax at a 15% rate. For the first sale of goods and rights acquired before 1 July 2019, taxpay ers are allowed to apply a capital gains tax of 2.25% over the gross purchase price.

The gain is subject to corporate income tax if any of the follow ing circumstances exist:

• The sale of assets is considered to be part of the taxpayer’s ordinary trade or business.

• The goods or rights are used to generate other taxable income.

The asset being transferred is a depreciable asset.

Deductions

Personal deductions and allowances. Annual tax credits are allowed in the amounts of CRC18,840 for each dependent child and CRC28,440 for a spouse. The spouse tax credit may be taken by either the husband or the wife, but not by both.

Business deductions. All costs and expenses that are necessary to generate taxable income and protect investments are deductible for self-employment and business income.

Employment income is taxable at the following monthly tax rates, which are applicable from 1 January 2021 to 31 December 2021.

Monthly taxable income

to a

taxable at the follow ing monthly tax rates, which

2021.

business income

applicable from 1 January 2021

Monthly taxable income

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Rates.
Exceeding Not exceeding Tax rate CRC CRC % 0 842,000 0 842,000 1,236,000 10 1,236,000 2,169,000 15 2,169,000 4,337,000 20 4,337,000 25 Fringe benefits and salary in kind are subject
15% withhold ing tax. Self-employment and
are
are
to 31 December
Exceeding Not exceeding Tax rate CRC CRC % 0 3,742,000 0 3,742,000 5,589,000 10 5,589,000 9,322,000 15 9,322,000 18,683,000 20 18,683,000 25

Withholding tax is levied on nonresidents at a rate of 10% on salaries, other remuneration, pensions, commissions and directors’ fees. A 25% rate applies to payments for professional ser vices rendered by nonresidents in Costa Rica.

Relief for losses. Self-employed individuals may carry their losses forward for a period of three years.

B. Estate and gift taxes

Costa Rica does not impose estate or gift taxes. However, estates may be taxed as ordinary taxpayers if they derive income before the distribution of assets to beneficiaries.

C. Social security

Social security contributions are levied on salaries, at a rate of 26.5% for the employer and 10.5% for the employee. Contri butions are computed based on an employee’s gross compensa tion, with no deductions allowed.

D. Tax filing and payment procedures

Employers are responsible for withholding income taxes and social security contributions from employees’ salaries on a monthly basis. Employees are not required to file an annual income tax return if their only source of income is employment compensation. Nonresidents are not required to file tax returns if they are only subject to income tax withholding at source.

The fiscal year for self-employed individuals and individuals with a trade or business in Costa Rica is from 1 January to 31 December. Returns must be filed, and any tax liabilities due must be paid, no later than 15 March. However, in certain specific circumstances, taxpayers may elect to file using a different tax year. Self-employed individuals and individuals with a trade or business must make advance quarterly tax payments.

E. Double tax relief and tax treaties

Costa Rica has entered into double tax treaties with Spain (effec tive from 1 January 2010), Germany (effective from 1 January 2017) and Mexico (effective from 1 January 2019).

Costa Rica has entered into bilateral tax information exchange agreements with Argentina, Australia, Canada, France, Mexico, the Netherlands, Norway and the United States. Also, the Congress has approved such agreements with Denmark, Faroe Islands, Finland, Greenland, Iceland and Sweden. It is negotiating such agreements with Guernsey, India, Indonesia, Italy, Japan, Korea (South) and South Africa.

F. Temporary visas

Depending on their country of citizenship, individuals may be required to apply for and obtain an entry visa before traveling to Costa Rica. A Costa Rican consulate overseas grants the visa. The immigration authorities have established a list of countries for which an entry visa is required before entering Costa Rica. The requirements for obtaining a visa often vary. Therefore, it is necessary to check the entry visa requirements on a case-by-case basis.

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In addition, as a result of the COVID-19 pandemic, the Costa Rican government has introduced the rules described below for immigrants to enter the country as tourists:

The government does not request negative coronavirus detection tests and no longer issues sanitary confinement orders when individuals enter the country by air, land or sea.

As of 1 August 2021, adults must obtain travel insurance that covers medical expenses and isolation costs unless they are fully vaccinated with Moderna, Pfizer-BioNTech, AstraZeneca or Johnson & Johnson, which are the vaccines recognized by the Health Department, and have waited at least 14 days from the last dose of vaccination.

Vaccinated tourists must attach the vaccination certificate to the health form (see below) requested by the Health Department prior to boarding the plane. Every vaccination certificate and/or vaccination card needs to have the following information in order to be accepted by the health and immigration authorities:

• Complete name of the foreigner who received the vaccines

• Date on which each dose was applied

• Pharmaceutical house or brand of the vaccine

In the case of US travelers, the “COVID-19 vaccination record card” is accepted.

Unvaccinated tourists must obtain a national or international health insurance that meets the following requirements:

• It is valid during the entire stay in Costa Rica (coverage dates).

• It covers USD50,000 of medical expenses, including COVID19 disease.

• It covers USD2,000 for lodging expenses in case of COVID-19 quarantine.

Foreign tourists must complete a health form called a “Pase de Salud” within the 72 hours preceding their proposed entry.

Foreign tourists meeting the above conditions are not required to self-isolate on entry to Costa Rica.

G. Work visas (and/or permits)

The government of Costa Rica grants a work authorization to foreign employees who have special knowledge or experience in a certain field. The granting of a work authorization is subject to certain rules that must be checked on a case-by-case basis because the rules may vary. The main criterion applied by the Ministry of Labor is that persons in the local work force cannot be displaced by the hiring of foreigners. Consequently, it may not be possible to obtain a work permit for foreigners in certain occu pations unless the employer is a company registered and recog nized by the immigration authorities.

H. Residence visas (and/or permits)

The government of Costa Rica may grant migratory statuses that allow foreigners to reside in the country. These include the fol lowing:

• Science status

• Athletes

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The request must be submitted and processed by the immigration authorities in Costa Rica. The application requirements may vary. Therefore, they should be checked on a case-by-case basis.

I. Family and personal considerations

Family members. Spouses of foreigners who are granted work permits do not automatically receive the same treatment as the original permit holder and must apply for an independent visa or work permit. However, they can apply as a dependent of the main applicant.

Children of expatriates may use the granted migratory status of their parents to attend schools in Costa Rica.

Once residency is obtained, the spouse and children must be registered as insured before the Costa Rican social security sys tem so that they can be attended to in the medical centers.

Marital property regime. Assets obtained by any means, except by donation, after the commencement of the marriage are consid ered to be marital property.

Forced heirship. If an individual dies without leaving a will, the beneficiaries of his or her assets and patrimony according to the law are descendants, ascendants, spouse and collaterals (certain other relatives). The priority order is set by the Civil Code according to a series of different combinations. The amounts needed to satisfy maintenance and other obligations of the deceased are removed from the decedent’s estate before the estate is divided between the beneficiaries.

Driver’s permits. A foreigner may drive legally in Costa Rica using his or her home country driver’s license for the duration of his or her tourist visa. After the tourist visa expires and before obtaining a migratory status, the foreigner is not allowed to drive. After the migratory status is approved, the resident must obtain a Costa Rica driver’s license in order to drive.

324 c os T a r ica • Journalists • Workers • Businesspersons • Investors • Retired individuals • Religious status • Certain family relatives

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