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Every country has their own tax code by which individuals and corporations must abide. The tax policy of individual countries is one of the main determining factors for whether a business relocating to a given country is a viable option. Let’s take a look at taxation in Costa Rica in three main categories: Personal Taxes, Corporate Taxes, and VATes.
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Costa Rica Personal Taxes
Here’s everything you need to know about personal taxes in Costa Rica:
Who is Taxed?
All people regardless of their residency status are taxed at the same rate in Costa Rica. Residents pay a “profit tax” (on all profit generating activities),, while non-residents pay a “withholding tax” (withheld by their employer). People are considered permanent residents of Costa Rica if they’ve been in the country for at least six months in any tax year.
What is the Tax Rate?
Costa Rica has a progressive tax rate for individuals that ranges from 0% to 25%. Compared to the region, this puts the country on the lower end of individual tax rates. In 2021, the tax rate for individuals in Latin America averaged 31.89%.
The income tax on wages is separated from income tax on what’s called profit-generating activities. The tax on wages goes up to 15%. Self-employed individuals, as well as lawyers and doctors, pay a tax for “lucrative activities” that goes up to 25%.
National vs International Income
One nice part about Costa Rica’s tax system is that it only taxes residents and non-residents on income they generate within the country.
Capital Gains, Exemptions & Other Considerations
In Costa Rica, individuals can take a deduction for children. There are no capital duty taxes on the formation of companies, issuance of shares, etc., and there are no or capital acquisitions taxes on inheritances or gifts. However, there is a 1.5% transfer tax on real property.
Costa Rica Corporate Taxes
Here’s everything you need to know about corporate taxes in Costa Rica:
Who is Taxed?
Both resident and non-resident corporations are subject to taxes in Costa Rica. Corporations are considered a resident if they have a fixed business place within the country.
What is the Tax Rate?
Costa Rica’s corporate tax rate ranges between 10% and 30%. This puts most companies in the lower range of corporate taxes for the region. In 2020, the average corporate tax rate for South America was 27.54%.
What is Taxable Income?
Costa Rica only taxes income that’s generated within the country. Income generated from a foreign source is not taxed. Net income from companies is taxed by the country. This is the profit a company realizes after deductions are taken out.
Tax Incentives & Deductions
Costa Rica offers tax incentives to certain companies that operate in free zones. Companies in the service, processing, and industrial sectors can get a full exemption from any tax in their first eight years in operation, then 50% exemption for the four years after that.
Costa Rica VAT
Value-added taxes, better known as VAT, are a common form of consumption tax. Here’s what you need to know about VAT in Costa Rica:
Who is Taxed?
Costa Rica taxes the sale of any merchandise in their country as well as the import of any merchandise into the country. The country does exclude services from all VATes.
What is the Tax Rate?
Costa Rica charges a 13% VAT on goods. This puts the country on par with other countries in the region. They do offer reduced VAT rates on certain goods. Wood, for instance, is subject to a 10% VAT rate. Residential electricity is subject to a 5% VAT rate. Groceries, basic goods, and all exports are completely exempt from the VAT.
Is Costa Rica Right for Your Business?
SERVIAP is a leading Professional Employer Organization (PEO) ready to help your business expand operations throughout the Western Hemisphere. PEO is a model of co-employment, where we assume total responsibility for your talent, allowing you to focus on the strategic activities of your organization. Contact us today to learn more about how you can expand your business in Costa Rica.
