Costa Rica’s Tax System, A Main Player For Expats
Taxes in Costa Rica are one of the aspects that make the country a top retiring spot for expats. The main draw of Costa Rica’s tax system is the principle of territoriality. This means that only personal income earned within the country is taxable. All foreign sources are tax exempt.
Also, social security and pension income don’t generate taxes. This is why Costa Rica is a popular destination for foreign retirees. Still, you’ll have to pay your dues back in the US to the IRS, since America charges taxes on all your international income.
However, you can mitigate most of that debt by alluding to the Foreign Earned Income Extension, or FEIE. This exclusion mitigates up to $102,100 in incomes received out of the country if you can prove you’ve lived outside the US for more than 330 days a year. That means, if you earned less than the previously mentioned amount in a 12 month period, you pay no taxes. You can live tax-free.
It’s also a good idea to be familiarized with the tax system of Costa Rica if you are planning a move there. Here are the types of taxes that you have to look out for as an expat:
Sales Tax (Impuesto al Valor Agregado)
The Impuesto al Valor Agregado, or IVA, is the official name of the sales tax is Costa Rica. The basic products list (Canasta básica), include items like fruits, vegetables, some grains, meat, medicine, some educational products, between other items, are exempt from this tax. Everything else is subject to a 13 percent sales tax. recently. the Costa Rican government is in the talks to increase this tax up to 15%.
Income Tax (Impuesto Sobre La Renta)
Generating income inside Costa Rican soil, in person or through a corporation, will result in income tax. The tax return must be filed before December 15 of every year. The tax years goes from October 1 to September 30. Here’s a table of Costa Rican tax rates for individuals and corporations:
|Income Tax Rates In Costa Rica|
|Gross income up to||¢52.634.000||10%|
|Gross income up to||¢105.872.000||20%|
|Gross income up to||¢105.872.000||30%|
Property Tax (Impuesto Sobre Bienes Inmuebles)
Holding property in Costa Rica makes you accountable for an annual property tax, which is payable quarterly. If you pay all year in one go, you can get a discount from the local municipality.
This tax is not that expensive depending on where and how you live. You pay around 0.25% of the value of your property in the municipality. So an apartment that is valued for $150.000, would generate around $375 in debt yearly.
Import Tax (Impuesto de Importación)
More than a decade ago, the Costa Rica’s former pensionado program allowed retirees to forget about import taxes. They could bring in most household items and even their cars almost duty-free. That’s not the case anymore.
Now, most imported items get taxed. Rates can go from 40% to 90% of the value of the article, and that doesn’t include actual shipping. If you are planning to live in Costa Rica, the best way to go is to sell what you can’t bring with you and buy it once you are in the country. This especially holds true for cars, as costs of importing can go as up as the original cost of the car itself. Also, if it’s not a common model, finding spare parts can make the situation even hairier.
Corporation Tax (Impuesto a las Sociedades Anónimas)
Every constituted corporation in Costa Rica must pay a corporation tax, active or non-active.
Corporation Tax Rates in Costa Rica
- Non-active corporations have to pay 15% of minimum wage yearly (¢63.750).
- Active corporations that earn up to ¢51 million have to pay 25% of minimum wage yearly (¢106.250).
- Corporations that earn between ¢51 million and ¢119 million have to pay 30% of minimum wage yearly (¢127.500).
- Corporations that earn more than ¢119 million have to pay 50% of minimum wage yearly (¢212.500).
Luxury home tax (Impuesto Solidario)
This tax applies to homes that surpass the 126 million Colones in estimated value (approximately $225,000).
Basically, Luxury property tax in Costa Rica is calculated like so (this applies for a home is no older than 5 years, with regular finishings):
Take total developed land (in m2) and multiply by $800. For every year of a property’s age, you can deduct 2% from the estimated value. This is only for quick rating purposes, as you need to hire a licensed appraiser to get a final appraisal. If your developed land applies for the tax, then your whole property is taken into consideration for final taxing purposes.
Luxury home rates in Costa Rica apply as follows:
|Luxury Home Tax Rates In Costa Rica|
|Value up to||¢315.000.000,00||0,25%|
|Value up to||¢315.000.000,00 to ¢632.000.000,00||0,30%|
|Value up to||¢632.000.000,00 to ¢946.000.000,00||0,35%|
|Value up to||¢946.000.000,00 to ¢1.263.000.000,00||0,40%|
|Value up to||¢1.263.000.000,00 to ¢1.578.000.000,00||0,45%|
|Value up to||¢1.578.000.000,00 to ¢1.896.000.000,00||0,50%|
|Value up to||¢1.896.000.000,00||0,55%|
Road Tax (Marchamo)
After the second half of November and before the 31st of December, Marchamo’s payment takes place. known as a vehicle circulation permit. The rates depend on the number and types of vehicles you own. You can consult here what your rate would be if you own a car in Costa Rica.