(g) Non-domiciled companies engaged in these types of activities through a permanent 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 withholding 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 withhold 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 operates on the territoriality principle. Therefore, corporations are taxed on local-source income, defined as income derived from services rendered, goods located or investments used within Costa Rica. Significant modifications were introduced through Law No. 10.381 and Executive Decree No. 44262-H. Although these measures included a reinforcement of the territorial principle, which stated that only income from within the Costa Rica’s geographical limits is taxable, they also provided exceptionally that foreign-source income will be taxed if it is earned by a nonqualified entity within a multinational group. To be considered a qualified entity, a company must have adequate economic substance in Costa Rica and comply with specific substance requirements.
Corporate income tax rates. The corporate income tax rate is 30%. However, for companies with annual gross income of up to CRC120,582,000 (approximately USD236,509.49), the following progressive rates are applicable:
• 5% for annual net income (taxable income) up to CRC5,687,000 (approximately USD11,154.47)
• 10% for annual net income between CRC5,687,000 and CRC8,532,000 (approximately USD16,734.66)
• 15% for annual net income between CRC8,532,000 and CRC11,376,000 (approximately USD22,312.88)
• 20% on the amount of annual net income exceeding CRC11,376,000 (approximately USD22,312.88)
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 incentive system offered by the Costa Rican government to companies that invest in the country and meet the requirements and
obligations set forth in the Free Trade Zone Law and its regulations. 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 derived 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, taxpayers 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 property, intangible assets and other rights such as intellectual property
• 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 corresponding election must be notified to tax authorities before the beginning of the fiscal year and remains mandatory for a minimum 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 taxpayer’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 two 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 circumstances.
The current year tax liability must be paid in quarterly installments, 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 authorities may determine the quarterly tax payments based on an imputed income amount.
Companies defined by the tax authorities as National Large Taxpayers must file audited financial statements on request from the tax authorities. The audited 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. National Large Taxpayers who declare losses or zero tax liability (cuota tributaria cero in Spanish) must submit their audited financial statements within three months following the close of the corporate income tax fiscal year. An extension of this deadline may be granted for an additional 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 status 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 expenses 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 exemption 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 expenses 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.
Nature
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 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 CRC145 million (approximately USD284,402.94); 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 CRC145 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 2022, the tax is due by 15 January 2023); 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 2024, the base salary is CRC462,200 (approximately USD906.55); 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%
Nature of tax Rate
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 1 March 2024, the exchange rate of the colón against the US dollar was CRC509.84 = 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, Spain and the United Arab Emirates.
The following are the withholding tax rates under Costa Rica’s tax treaties.
Germany
5/15 (a) 5 (b) 10
Mexico 5/12 (a) 10 (d) 10
Spain 5/12 (a) 5/10 (c) 10
United Arab Emirates 5/12 (a) 5/10 (e) 12
Non-treaty jurisdictions (f) 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 interest 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 subdivisions 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) Under the treaty, a 5% rate applies if the loan maturity is at least five years. A 10% rate applies if the maturity of the loan is less than five years.
(f) For further details, see Section A.