San José GMT -6
EY +506 2208-9800
Centro Corporativo EPIC, Piso 6 Fax: +506 2208-9999 San Rafael de Escazu
San José
Costa Rica
Principal Tax Contact
Rafael Sayagués +506 2208-9880
New York: +1 (212) 773-4761
Costa Rica Mobile: +506 8830-5043 US Mobile: +1 (646) 283-3979 Efax: +1 (866) 366-7167 Email: rafael.sayagues@cr.ey.com
Business Tax Services
Lisa María Gattulli
+506 2208-9861
Mobile: +506 8844-6778 Email: lisa.gattulli@cr.ey.com
International Tax and Transaction Services – International Corporate Tax Advisory
Juan Carlos Chavarría +506 2208-9844 Mobile: +506 8913-6686 International Mobile: +1 (239) 961-5947 Email: juan-carlos.chavarria@cr.ey.com Rafael Sayagués +506 2208-9880
New York: +1 (212) 773-4761
Costa Rica Mobile: +506 8830-5043 US Mobile: +1 (646) 283-3979 Efax: +1 (866) 366-7167 Email: rafael.sayagues@cr.ey.com
International Tax and Transaction Services – Transfer Pricing
Luis Eduardo Ocando B. +507 208-0144 (resident in Panama)
Panama Mobile: +507 6747-1221 US Mobile: +1 (305) 924-2115 Fax: +507 214-4300 Email: luis.ocando@pa.ey.com
Paul de Haan +506 2208-9800 Email: paul.dehaan@cr.ey.com
Business Tax Advisory
Juan Carlos Chavarría
+506 2208-9844 Mobile: +506 8913-6686 International Mobile: +1 (239) 961-5947 Email: juan-carlos.chavarria@cr.ey.com
Tax Policy and Controversy
Antonio Ruiz
Global Compliance and Reporting
Lisa María Gattulli
+506 2208-9822 Mobile: +506 8890-9391 International Mobile: +1 (239) 298-6372-5043 Email: antonio.ruiz@cr.ey.com
+506 2208-9861
Mobile: +506 8844-6778 Email: lisa.gattulli@cr.ey.com
International Tax and Transaction Services – Transaction Tax Advisory
Antonio Ruiz
Rafael Sayagués
People Advisory Services
Lisa María Gattulli
A. At a glance
+506 2208-9822
Mobile: +506 8890-9391
International Mobile: +1 (239) 298-6372 Email: antonio.ruiz@cr.ey.com
+506 2208-9880
New York: +1 (212) 773-4761
Costa Rica Mobile: +506 8830-5043
US Mobile: +1 (646) 283-3979 Efax: +1 (866) 366-7167 Email: rafael.sayagues@cr.ey.com
+506 2208-9861
Mobile: +506 8844-6778 Email: lisa.gattulli@cr.ey.com
Corporate Income Tax Rate (%) 30 (a)
Capital Gains Tax Rate (%) 2.25/15/30 (a)(b)
Branch Tax Rate (%) 30 (a)
Capital Income Tax Rate (%) 15/30 (a)(c)
Withholding Tax (%)
Dividends 15 (d)
Interest 15 (e)(f)
Royalties from Know-how and Technical Services 25 (e)
Transportation and Telecommunications 8.5 (e)(g) Salaries and Pensions 10 (e) Fees and Commissions 25 (e)(f)
Reinsurance 5.5 (e)(g)
News Services, Videos and Films 20 (e)(g)
Advance Payments
Credit and Debit Card Payments 2 (h)
Payments for Professional Services Made by Insurance Companies 2 (i) Other 30 (e)
Branch Remittance Tax 15
Net Operating Losses (Years) Carryback 0 Carryforward 3/5 (j)
(a) The 30% rate is reduced to 20%, 15%, 10% or 5% for companies whose annual gross income does not exceed specified amounts (for further details, see Section B).
(b) The ordinary Capital Gains Tax rate is 15%. For the first sale of goods and rights acquired before 1 July 2019, an alternative rate of 2.25%, assessed on the gross transaction value, is available. However, capital gains are subject to corporate income tax if they are derived from depreciable assets, goods or rights that are part of the taxpayer’s activities or if the transaction is part of the ordinary trade or business of the company (for further details, see Section B).
(c) The ordinary Capital Income Tax rate is 15%. However, capital income is subject to corporate income tax if it derives from goods or rights that are part of the taxpayer’s activities, or if the transaction is part of the ordinary trade or business of the company (for further details, see Section B).
(d) Dividends may be exempt if the recipient is a local entity that carries out an economic activity and is subject to income tax (for further details, see Section B). The withholding tax is considered a final tax.
(e) This is a final withholding tax that is imposed on non-domiciled companies and non-domiciled individuals.
(f) For further details regarding withholding tax on interest, fees and commis sions, see Section B.
(g) Non-domiciled companies engaged in these types of activities through a per manent establishment in Costa Rica that do not comply with requirements to report income or to file an income tax return may be subject to an imputed amount of taxable income equivalent to 10.5%, 15% or 30% of their total gross income derived from Costa Rica. Imputed taxable income is subject to the ordinary corporate income tax rate. For further details, see Section C.
(h) Resolution DGT-R-036-2014 established a 2% withholding requirement for debit or credit card payments processed by financial institutions in Costa Rica. The amounts withheld by the financial institutions are treated as advance payments of the recipient’s final income tax liability. The 2% withholding requirement applies only to 88% of the amount of the transaction made with a debit or credit card. The following persons are exempted from this withhold ing requirement:
• Entities not subject to income tax
• Companies under the simplified tax regime
• Transporters of persons or goods
• Gas stations
• Taxpayers engaged in agricultural activities that do not have an obligation to make partial income tax payments
• Taxpayers that generally do not have an obligation to make partial income tax payments
(i) Resolution DGT-R-55-2017 established that insurance companies must with hold 2% on payments made for “professional services” paid to individuals or companies selling their services through direct contracting or public bid.
(j) Net operating losses may be carried forward for three years. Agricultural companies may carry forward net operating losses for five years. Initial costs (pre-operational expenses) incurred by a local entity may be deducted for corporate income tax purposes within the first five fiscal years from the date the company becomes operational.
B. Taxes on corporate income and gains
Corporate income tax. The Costa Rican tax system is a territorial regime; consequently, income derived from Costa Rican sources is subject to tax.
Corporate income tax rates. The corporate income tax rate is 30%. However, for companies with annual gross income of up to CRC109,337,000 (approximately USD178,395.79), the follow ing progressive rates are applicable:
• 5% for annual net income (taxable income) up to CRC5,157,000 (approximately USD8,414.23)
• 10% for annual net income between CRC5,157,000 and CRC7,737,000 (approximately USD12,623.79)
• 15% for annual net income between CRC7,737,000 and CRC10,315,000 (approximately USD16,830.10)
• 20% on the amount of annual net income exceeding CRC10,315,000
The amount of the applicable annual gross income is adjusted on a yearly basis.
Free Trade Zone Regime. The Free Trade Zone Regime is an in centive system offered by the Costa Rican government to compa nies that invest in the country and meet the requirements and obligations set forth in the Free Trade Zone Law and its regula tions. The regime is granted discretionally by the government, mainly based on the proposed investment value for the country’s economic development.
Companies operating under the Free Trade Zone Regime that are in the Great Metropolitan Area (GMA) benefit from an income tax exemption of 100% for the first eight years and of 50% for the next four years. Companies located outside the GMA benefit from an income tax exemption of 100% for the first 12 years and
of 50% for the next 6 years. The Ministry of National Planning and Economic Policy specifies which areas are considered part of the GMA.
On 22 January 2010, the executive branch of the Costa Rican government published Law No. 8794, which amends and adds certain sections to the Free Trade Zone Regime Law No. 7210. This law created a new category of companies that can apply for the Free Trade Zone Regime. This category is for companies that produce or process goods, regardless of whether the goods are for exportation. Companies in this category are subject to income tax at reduced rates (0%, 5%, 6% or 15%) for a specified number of years depending on whether the company is located inside or outside the GMA or depending on the amount of the investment.
To comply with the international standard of Base Erosion and Profit Shifting (BEPS) Action 5, the Free Trade Zone Regime Law was modified to include the Strategic Eligibility Index for Service Companies as a condition of entry and permanence with respect to the Free Trade Zone Regime for service companies. Therefore, services companies do not have any limitations on the selling of their services to the local market, and the income de rived from these sales should be covered by the income tax and dividend tax incentives.
Capital gains. Capital gains are subject to the Capital Gains Tax at a 15% rate that is levied on the sale of tangible or intangible assets. 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% to the gross purchase price.
Capital losses should be deductible against gains subject to Capital Gains Tax if requirements under the Capital Gains Tax rules are met.
The gains are subject to corporate income tax at a general 30% rate if any of the following circumstances exist:
• The sale of the assets is considered to be part of the company’s ordinary trade or business.
• The goods or rights are used to generate taxable income.
• The asset being transferred is a depreciable asset.
Capital Income Tax. For purposes of the Capital Income Tax, capital income is classified as “Movable Capital Income” or “Immovable Capital Income.”
“Immovable Capital Income” includes income derived from real estate, such as leases, subleases and the creation or assignment of any right of use and enjoyment of immovable property.
“Movable Capital Income” includes, among others, the following types of income:
• Income derived from the transfer of funds to third parties, including repurchases of securities, such as interest derived from financing and loans
• Income derived from leases, subleases and the creation or assignment of any right of use and enjoyment of movable prop erty, intangible assets and other rights such as intellectual prop erty
• Dividends received and other income similar to dividends
As a general rule, income characterized as Immovable Capital Income is subject to a 15% tax rate, which is assessed on 85% of the gross income received by the taxpayer without the possibility of additional expense deductions.
For Movable Capital Income, the applicable tax rate is 15% assessed on the gross income received by the taxpayer, with no deductions allowed.
Alternatively, taxpayers that generate capital income and that have at least one employee engaged in this business activity may elect to characterize this type of income as ordinary taxable income and, accordingly such income is subject to corporate income tax that is assessed on the net taxable income. The cor responding election must be notified to tax authorities before the beginning of the fiscal year and remains mandatory for a mini mum of five years.
Capital income is subject to corporate income tax at a general 30% rate if either of the following circumstances exist:
• The capital income is considered to be part of the company’s ordinary trade or business
• The assets generating the capital income are part of the tax payer’s activities (that is they are used to generate ordinary income)
Administration. The statutory tax year runs from 1 January through 31 December. Companies must file annual corporate income tax returns and pay any tax due within 2 months and 15 days after the end of the tax year. Taxpayers that report under the statutory tax year have a filing deadline of 15 March. On request, tax authorities may authorize a different tax year in special cir cumstances.
The current year tax liability must be paid in quarterly install ments, which are based on the preceding year’s income tax paid or the average of the last three years’ tax liability, whichever is higher. If a company did not file a return for the last three years, the installment payments are calculated based on the tax liability from the last year a return was filed. New companies must make quarterly payments based on their first-year projected income, which must be reported to the tax authorities on or before the last day of January. If no projected income is reported, the tax author ities may determine the quarterly tax payments based on an imputed income amount.
Companies defined by the tax authorities as National Large Taxpayers or Large Territorial Companies must file audited fi nancial statements on request from the tax authorities. The au dited financial statements must be submitted within three months after the request of the tax authorities. The period to respond may be extended by three months if approved by the tax authorities.
In addition, Resolution No. DGT-R-30-2014 requires National Large Taxpayers to update their relevant tax information using a web-based platform called AMPO within one month from the end of their fiscal year. Taxpayers that become classified as National Large Taxpayers must submit the tax information within two
months after being notified of their National Large Taxpayer sta tus by the tax authorities. The relevant tax information to be provided includes, among other items, the following:
• Agencies
• Branches or commercial premises
• Mergers
• Royalty payments for the use of intangible assets
• Equity participation in other entities
• Participations in economic groups
Dividends. 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.
Domiciled companies include companies incorporated in Costa Rica and companies that have a permanent establishment in Costa Rica.
Interest withholding tax. Interest, commissions, financial ex penses and lease payments for capital assets paid to non-domiciled individuals or legal entities are subject to a 15% withholding tax. Interest, commissions and financial expenses paid by entities regulated by the Superintendence of Financial Entities (Superintendencia General de Entidades Financieras, or SUGEF) to foreign entities that are also regulated and supervised in their jurisdictions are subject to a 5.5% withholding tax rate. An ex emption applies to interest, commissions and financial expenses paid to multilateral development banks and other institutions of multilateral or bilateral development, as well to other nonprofit entities that are not subject to tax.
The Income Tax Law limits the deductibility of financial ex penses from debts with nonbanking entities (for details, see Limitations on the deductibility of financial expenses in Section E).
Foreign tax relief. The current position of the tax authorities is that Costa Rican taxpayers cannot deduct foreign taxes paid abroad in calculating their taxable income.
C. Determination of trading income
General. Income tax is determined in accordance with International Accounting Standards (IAS), subject to adjustments required under the Costa Rican Income Tax Law and general resolutions issued by the tax authorities. Taxable income includes all income derived from Costa Rican sources, such as income from indus trial, agricultural and trade activities in Costa Rica, income from services rendered in Costa Rica and income derived from real estate transactions, assets, capital, goods and rights invested or used in Costa Rica.
Imputed income. The tax authorities may assess imputed income in the cases described below.
Non-domiciled companies that do not file tax returns. Nondomiciled companies engaged in certain types of activities in Costa Rica through a permanent establishment that do not comply with requirements to report income or file income tax returns are subject to an imputed income assessment equal to a specified percentage of their Costa Rican gross income, unless they provide evidence of a lower amount of actual income. For example, docu mentation supporting an allocation of income between Costa Rica and other countries would prove that all income is not Costa Rican source. The amount of the imputed income assessment is subject to tax at the normal income tax rate. The following are some of the presumed amounts of taxable income:
• Transport and telecommunications: 15% of gross income
• Reinsurance: 10.5% of the net value of the reinsurance under takings, guarantees and premiums of any type
• Media, cinema and international news: 30% of gross income
Airlines, maritime shipping, transportation and communication companies. Airlines, maritime shipping, transportation and com munication companies may enter into an agreement with the tax authorities to compute Costa Rican taxable income using a spe cial formula based on the company’s worldwide and local reve nues.
Loan and financing transactions. Unless the taxpayer provides evidence to the contrary, loan and financing transactions are deemed to derive a minimum amount of interest based on the highest active interest rate fixed by the Banco Central de Costa Rica (central bank) for lending and financial transactions or, if this rate is not available, on the average market rate being charged in the Costa Rican banking system. The tax authorities do not allow any exceptions to this rule unless the parties entered into a formal written loan or financing agreement.
Inventories. The Costa Rican Income Tax Regulations provide that acquisition cost must be used to record assets. The acquisition cost may be computed using several valuation methods, such as the first-in, first-out (FIFO) and weighted average cost methods. The tax authorities eliminated last-in, first-out (LIFO) as a valid in ventory valuation method for tax purposes as of 3 February 2015.
Provisions. In general, provisions, including provisions for contin gent liabilities such as doubtful accounts and severance pay, are not deductible expenses. However, actual payments of such liabil ities are considered to be deductible expenses.
Tax depreciation. Depreciation may be computed using the straightline or the sum-of-years’ digits method. The tax authorities may allow a special accelerated depreciation method in certain cases. The tax authorities may authorize other methods based on the type of asset or business activity. The method chosen must be applied consistently. Depreciation is computed based on the useful life of the asset as specified in the Income Tax Regulations. The follow ing are some of the straight-line rates.
Asset Rate (%)
Buildings 2/4/6
Plant and machinery 7/10/15 Vehicles 10/15/34
Furniture and office equipment 10 Tools 10
Relief for losses. Taxpayers may carry forward net operating losses for three years.
Agricultural companies may carry forward net operating losses for five years.
Initial costs (pre-operational expenses) incurred by a local entity may be deducted for corporate income tax purposes within the first five fiscal years from the date the company becomes opera tional.
Groups of companies. Costa Rican law does not allow the filing of consolidated income tax returns or provide any other tax relief to consolidated groups of companies.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax Rate
Value-added tax (reduced rates may be applicable) 13% Real estate transfer tax; the definition of “transfer” includes indirect transfers in addition to direct transfers of immovable property; indirect transfers are the transfer of control over the legal owner of immovable property 1.5%
Vehicle transfer tax 2.5% Customs duties
Agricultural products; average rate 12.5% Industrial products; average rate 3.9% Certain raw materials and machinery and equipment (Certain specified goods and merchandise are subject to higher rates of customs duty.) 0%
Real estate tax (assessed and collected by the municipalities) 0.25% Payroll taxes; withheld by employers; paid by employee; rate depends on compensation level 10%/15%/ 20%/25%
Social security contributions
Employer 26.5% Employee 10.5%
Municipal taxes (varies by municipality) Various Solidarity Tax for the Strengthening of Housing Programs; (Solidarity Tax) contained in Law No. 8683; purpose of the tax is to finance public housing programs; tax applicable to residential property that is used habitually or occasionally or for recreational purposes, that the taxpayer owns or has the right to use
Nature of tax Rate
and that is located in Costa Rica; taxpayers are subject to the tax if the value of the infrastructure (permanent structures, such as houses, swimming pools and parking lots) exceeds CRC133 million (approximately USD217,004.68); the value of the infrastructure must be updated every three years starting from 2016 (for example, 2016, 2019 and so forth) and is due on 15 January of the corresponding year in accordance with the parameters established by the tax authorities; if the taxpayer is subject to the tax (that is, meets value threshold for the infrastructure) the tax base is computed as the total value of the infrastructure (not just the excess of CRC133 million) plus the value of the land as of 1 January, based on a specific zoning model determined by tax authorities; hotel businesses may be subject to the tax depending on their operating model and the type of infrastructure; the tax is paid annually and is due on 15 January of every year (for example, for a fiscal year-end of 31 December 2021, the tax is due by 15 January 2021); Solidarity Tax is independent from the other real estate taxes and is not deductible for income tax purposes; the tax rates are progressive 0.25% to 0.55%
Annual Tax on Legal Entities; applies to all business entities and branches that are registered in the Mercantile Registry; amount of tax depends on whether the entity is registered as a taxpayer and on its gross income in its last corporate income tax return if so registered; tax rate is applied to a base salary; base salary is a monetary point of reference updated each year by the Ministry of Finance and is typically used in certain laws as a reference for tax computations (for example, tax penalties); in 2021, the base salary is CRC462,200 (approximately USD754.13); payable by 30 January of each year
Entities not registered as taxpayers or inactive 15% Entities with gross income of less than 120 base salaries 25%
Entities with gross income between 120 and 279 base salaries 30% Entities with gross income equal to or in excess of 280 base salaries 50%
E. Miscellaneous matters
Foreign-exchange controls. The currency in Costa Rica is the colón (CRC). As of 20 January 2021, the exchange rate of the colón against the US dollar was CRC612.89 = USD1.
No restrictions are imposed on foreign-trade operations or foreign-currency transactions.
Limitations on the deductibility of financial expenses. The Income Tax Law will limit the deductibility of financial expenses from debts with nonbanking entities.
The annual interest deduction cannot exceed a certain percentage (see next paragraph) of the company’s earnings before interest, taxes, depreciation and amortization (EBITDA). Interest paid on loans with local financial institutions supervised by the SUGEF or foreign financial institutions supervised in their country are not subject to this limitation. The interest expense that exceeds this threshold will be considered to be non-deductible for income tax purposes and can be taken as a deducible expense in the following tax periods, provided that interest expenses in each year does not exceed the specified percentage of the company’s EBITDA.
This limitation will apply from the 2021 fiscal year with a 30% percentage for the first two years. The percentage will then be adjusted downward by 2% each year until reaching 20%.
F. Tax treaties
Costa Rica has income tax treaties in effect with Germany, Mexico and Spain.
The following are the withholding tax rates under Costa Rica’s tax treaties.
Dividends Interest Royalties
% % %
Germany 5/15 (a) 5 (b) 10 Mexico 5/12 (a) 10 (d) 10 Spain 5/12 (a) 5/10 (c) 10
Non-treaty jurisdictions (e) 15 15 25
(a) The 5% rate applies if the beneficial owner of the dividends is a company that owns directly at least 20% of the capital of the entity paying the dividends. (b) Interest paid from Germany to the Costa Rican government is exempt from German taxes. Interest paid from Costa Rica under a loan guaranteed by Germany for exportation or foreign direct investment or paid to the German government, the Deutsche Bundesbank, the Kreditanstalt für Wiederaufbau or the Deutsche Investitions-und Entwicklungsgesellschaft is exempt from Costa Rican taxes. Interest can only be taxed in the contracting state of which the recipient is a resident if the interest is paid in connection with any of the following:
• The sale of commercial or scientific equipment on credit
• The sale of goods by an enterprise to another enterprise on credit
• A loan of any type made by a bank resident in one of the contracting states (c) The 5% rate applies if the term of the loan agreement under which the inter est is derived is five years or longer.
(d) Interest derived from Costa Rica and paid to a resident of Mexico is exempt from withholding tax if the recipient of the interest is the beneficial owner and if one of the following circumstances exists:
• The beneficial owner is the Mexican state, one of its political subdivisions or one of its local entities, or the Central Bank of Mexico.
• The interest is paid by the Costa Rican state, one of its political subdivi sions or one of its local entities, or the Central Bank of a Costa Rica.
• The interest is derived from Costa Rica and is paid on a loan with at least a three-year term granted by the Banco Nacional de Comercio Exterior, S.N.C., Nacional Financiera, S.N.C., the Banco Nacional de Obras y Servicios Públicos, S.N.C. or by any other institution agreed upon by the competent authorities.
(e) For further details, see Section A.