Does Costa Rica Tax Worldwide Income? Expert Answers

Costa Rica has become a popular destination for expatriates, retirees, and digital nomads, drawn by its high quality of life and “pura vida” lifestyle. For those considering relocation, understanding the country’s tax system is crucial.

Costa Rica operates under a territorial tax system, meaning that only income earned within the country’s borders is subject to taxation. This principle has significant implications for individuals with foreign income sources, such as US Social Security benefits or rental properties abroad.

Costa Rica Immigration Experts (CRIE), with over 20 years of experience in assisting clients with residency, provides valuable insights into the tax implications for foreign nationals. This guide will explore the specifics of Costa Rica’s tax system, including tax residency requirements and strategies to avoid double taxation.

Understanding Costa Rica’s Tax System

Understanding the intricacies of Costa Rica’s tax system is crucial for both individuals and businesses operating within the country. Costa Rica’s tax system includes various forms of taxation, each with its own set of rules and Costa Rica tax rates.

Overview of the Costa Rican Tax Framework

The tax year in Costa Rica is based on the calendar year, running from January 1 to December 31. Tax returns must be filed by March 15 of the following year, a deadline that applies to both individuals and corporations. Costa Rica has modernized its tax administration system, implementing digital solutions that make compliance more accessible for taxpayers.

The fiscal year in Costa Rica follows the calendar year, and tax returns must be filed electronically using the digital platform provided by the Costa Rican tax administration. Failure to comply with tax regulations can result in penalties, including fines calculated as a percentage of unpaid taxes plus accruing interest.

Key Tax Authorities and Administration

The Dirección General de Tributación (DGT) is Costa Rica’s primary tax authority, responsible for administering and enforcing tax laws throughout the country. The DGT plays a crucial role in ensuring that taxpayers comply with the tax regulations, and it provides the necessary digital platforms for electronic tax filing.

Key aspects of Costa Rica’s tax administration include the requirement for electronic tax filing and the imposition of penalties for non-compliance. The DGT’s efforts to modernize the tax system have made it easier for taxpayers to meet their obligations.

Does Costa Rica Tax Worldwide Income?

For individuals considering relocation to Costa Rica, understanding the country’s tax implications is crucial. Costa Rica has become a popular destination for expatriates due to its favorable climate, lower cost of living, and vibrant expat communities.

The Territorial Taxation Principle Explained

Costa Rica operates under a territorial taxation system. This means that the country only taxes income that is generated within its borders.

• The territorial system creates significant tax advantages for individuals with international income sources.
• Income earned outside of Costa Rica is not subject to Costa Rican income tax.
• This system is particularly beneficial for expatriates who have income from multiple countries.

Comparing Territorial vs. Worldwide Taxation

In contrast to Costa Rica’s territorial taxation, countries like the United States implement a worldwide taxation system. This fundamental difference has significant implications for expatriates.

• Under worldwide taxation, residents are required to report and pay taxes on all income, regardless of where it was earned.
• US citizens, for example, must continue filing US tax returns and reporting worldwide income, even while living in Costa Rica.
• Understanding the interplay between different taxation systems is essential for proper international tax planning.

Expatriates from countries with worldwide taxation systems may still have tax obligations to their home country, even while residing in Costa Rica. This highlights the importance of seeking professional advice to navigate these complex tax laws and avoid potential compliance issues.

Tax Residency in Costa Rica

Understanding tax residency in Costa Rica is crucial for individuals planning to live or invest in the country. Tax residency status determines how an individual’s income is taxed, making it a critical consideration for both residents and non-residents.

The 183-Day Rule

Costa Rica determines tax residency based on the 183-day rule. An individual is considered a tax resident if they stay in the country for more than 183 days within a calendar year. This rule is straightforward, providing clarity for individuals assessing their tax status.

The 183-day rule applies to both nationals and foreigners, ensuring a uniform criterion for tax residency. Individuals need to track their stay to determine their tax obligations accurately.

Resident vs. Non-Resident Tax Obligations

Residency status has a significant impact on tax obligations in Costa Rica. Generally, residents are taxed on their worldwide income, meaning income from both Costa Rican and international sources is taxable in Costa Rica. In contrast, non-residents are taxed only on their Costa Rican source income, including income earned from employment or business activities conducted within the country.

• Residents and non-residents are taxed on income generated within Costa Rica, in accordance with the principle of territorial taxation.
• The primary difference between residents and non-residents lies in the treatment of certain types of income and applicable tax rates.
• Non-residents often face withholding taxes on specific types of Costa Rican income, such as dividends, interest, and royalties, typically at higher rates than residents.
• Understanding residency status is vital for determining the appropriate tax forms to file and potential tax benefits.

Both residents and non-residents must comply with Costa Rica’s tax regulations, but the scope and nature of their tax obligations differ based on their residency status.

Types of Income Taxed in Costa Rica

Costa Rica’s tax system is designed to tax various types of income earned within its borders. Understanding the different categories of taxable income is essential for individuals and businesses operating in the country.

Employment Income

Employment income in Costa Rica includes salaries, wages, and other forms of compensation received by employees. This type of income is subject to income tax, and employers are required to withhold tax at the source. The tax rates applicable to employment income vary based on the individual’s tax residency status and income level.

Business and Self-Employment Income

Business and self-employment income earned in Costa Rica is also subject to taxation. This includes income from sole proprietorships, partnerships, and corporations. The tax rate for business income can vary, and businesses are required to file tax returns and pay tax on their profits. Deductions are allowed for business expenses, reducing the taxable income.

Investment and Passive Income

Investment and passive income generated within Costa Rica, such as interest from bank accounts, dividends from Costa Rican companies, and rental income from properties, is taxable. Most investment income is subject to a 15% withholding tax at the source. Rental income is also taxable, with deductions allowed for expenses related to property maintenance and management. Notably, foreign-sourced investment and passive income are not taxable under Costa Rica’s territorial tax principle.

Costa Rican Income Tax Rates and Brackets

To navigate Costa Rica’s tax landscape effectively, it’s essential to comprehend the income tax rates and brackets. Costa Rica’s tax system is designed to be progressive, with different rates applicable to various types of income. For more detailed information on taxes in Costa Rica, particularly for expats, refer to this comprehensive guide.

Personal Income Tax Rates (2025)

Personal income tax rates in Costa Rica are progressive, meaning that higher income levels are taxed at a higher rate. As of 2025, the tax rates range from 0% to 25% for residents, depending on their income level. Residents are taxed on their worldwide income, but only income generated within Costa Rica is subject to tax due to the territorial taxation principle.

The tax brackets are structured to accommodate different income levels, ensuring that lower-income individuals are taxed at a lower rate or may even be exempt from income tax. For instance, individuals with lower annual incomes may fall into a lower tax bracket, potentially reducing their tax liability to 0% or a minimal percentage.

Corporate Income Tax Rates

Corporate income tax in Costa Rica is levied on the profits of corporations and other legal entities. The standard corporate income tax rate is 30%. However, there are provisions for smaller companies and certain types of income that may qualify for lower rates. Corporate income tax is calculated on a corporation’s net income, which is gross income less allowable deductions such as operating expenses, depreciation, and interest.

• Costa Rica’s corporate tax system includes progressive rates for small and medium-sized businesses.
• Special tax regimes apply to certain sectors, such as free trade zones, where companies can benefit from reduced tax rates or exemptions.
• The territorial principle applies to corporate taxation, meaning only income generated from business activities within Costa Rica is subject to corporate income tax.

Other Important Taxes in Costa Rica

Beyond income tax, Costa Rica has a range of other taxes that individuals and businesses must consider. Understanding these taxes is crucial for navigating the country’s tax landscape effectively.

Value Added Tax (VAT)

Costa Rica imposes a Value Added Tax (VAT) on the sale of goods and services. The standard VAT rate is 13%, although certain essential goods and services may be exempt or subject to a reduced rate. Businesses registered for VAT must charge the tax on their sales and can reclaim VAT paid on their purchases.

Property Taxes

Property taxes in Costa Rica are levied on real estate ownership. The tax rate varies depending on the location and value of the property. Generally, property taxes are considered relatively low, but they can vary, and property owners need to understand their obligations.

Capital Gains Tax

Costa Rica implemented a comprehensive capital gains tax in 2019, ending the previous exemption for most capital gains. Residential property sales are subject to a 15% tax on the profit, while commercial properties face a 30% tax rate. An important exemption exists for primary residences, provided the owner can demonstrate they lived in the property for at least 183 days per year. For properties purchased before July 1, 2019, owners have a one-time option to pay a flat 2.25% tax on the total sale price instead of the capital gain.

These taxes highlight the complexity of Costa Rica’s tax system and the need for careful planning. Whether you’re an individual or a business, understanding these taxes can help you make informed decisions about your financial obligations in Costa Rica.

Social Security and Pension Contributions

Costa Rica’s social security system is a cornerstone of the country’s welfare, providing comprehensive benefits to its residents. The system is mandatory for all employees and self-employed individuals, ensuring that everyone contributes to and benefits from the social security framework.

Mandatory Contributions for Employees and Employers

In Costa Rica, both employees and employers are required to contribute to the social security system. The Caja Costarricense de Seguro Social (CCSS) administers these contributions, which fund a wide range of benefits, including healthcare, disability, and retirement pensions. For more information on the tax implications of these contributions, you can visit this resource.

The contribution rates are determined based on the employee’s income, with both the employee and employer contributing a percentage of the salary. This collective contribution ensures that the system remains sustainable and able to provide benefits to those in need.

Benefits and Coverage

The social security system in Costa Rica provides extensive benefits, including comprehensive healthcare coverage, disability benefits, maternity and paternity leave, retirement pensions, and survivor benefits. The CCSS ensures that residents have access to quality healthcare services, including public hospitals, clinics, and prescription medications.

• Comprehensive healthcare coverage, including access to public hospitals and clinics
• Disability benefits for those unable to work due to illness or injury
• Maternity and paternity leave, ensuring support for new parents
• Retirement pensions, providing financial security in old age

The system’s comprehensive nature enables residents to rely on it for a wide range of needs, from healthcare to financial support during retirement.

Tax Obligations for US Citizens Living in Costa Rica

US citizens living in Costa Rica are subject to US taxation on their worldwide income, regardless of where it’s earned. This means that income from Costa Rican sources, as well as from other countries, must be reported to the US Internal Revenue Service (IRS).

US Worldwide Taxation Requirements

The United States has a system of worldwide taxation, meaning that U.S. citizens are taxed on their global income, not just income earned within the United States. This applies to all US citizens, including those residing in Costa Rica. To comply, expatriates must file a U.S. tax return annually, typically by April 15 or October 15 if an extension is filed.

Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion (FEIE) is a valuable tax benefit for US expatriates. For the tax year 2023, up to $108,700 of foreign earned income can be excluded from US taxation. To qualify, individuals must meet either the Physical Presence Test or the Bona Fide Residence Test. For more information on expat tax filing, you can visit https://crie.cr/expat-tax-filing-in-costa-rica-essential-tips-and-insights/.

Foreign Tax Credits

The Foreign Tax Credit (FTC) allows US citizens in Costa Rica to offset their US tax liability with taxes paid to the Costa Rican government. Key points about the FTC include:
– The FTC helps prevent double taxation on income that is taxed by both countries.
– It’s particularly valuable for income that doesn’t qualify for the FEIE or exceeds the FEIE limit.
– To claim the FTC, expatriates must file IRS Form 1116 with their US tax return, providing documentation of taxes paid to Costa Rica.
– Strategic tax planning may involve choosing between the FTC and the FEIE, as these benefits cannot be applied to the same income.

Residency Options in Costa Rica

Costa Rica’s residency options cater to a diverse range of applicants, from retirees to digital nomads. The country offers various programs designed to attract foreign investment and talent.

Pensionado (Retiree) Program

The Pensionado program is designed for retirees who receive a pension from a qualified source. Applicants must demonstrate a minimum monthly income of $1,000 from a pension, plus $250 for each dependent.

Rentista Program

The Rentista program is ideal for individuals who have a stable income from investments or other sources not derived from Costa Rican employment. Applicants must show a minimum monthly income of $2,500 for a period of two years.

Investor Program

The Investor Program is geared towards those who wish to invest in Costa Rica. This can be through real estate, businesses, or other investment vehicles that contribute to the country’s economic development.

Digital Nomad Visa

Introduced in 2022, the Digital Nomad Visa allows remote workers to reside in Costa Rica for one year, with the possibility of renewal for an additional year. Applicants must demonstrate a stable monthly income of at least $3,000.

Each of these residency options has its unique requirements and benefits, making Costa Rica an attractive destination for individuals from various walks of life.

Start your residency process with us today, and you’ll never have to leave Costa Rica again. We know you have many questions, and we would like to schedule a call with our immigration expert to answer them.

Conclusion: Making the Most of Costa Rica’s Tax Advantages

By understanding Costa Rica’s territorial tax system, individuals can optimize their global tax situation. Costa Rica’s tax advantages make it an attractive destination for expatriates, retirees, digital nomads, and investors. To maximize benefits, careful planning is essential, especially for US citizens subject to worldwide taxation. For personalized guidance, consider consulting with Costa Rica Immigration Experts (CRIE). Contact them at +(506)-8373-2085 or info@crie.cr.