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| Tax System |
Taxes are applicable to all residents and non-residents that maintain commercial activities in Costa Rica.
The fiscal year in Costa Rica begins on October 1 and ends on September 30 every year. Tax returns are due by December 17 every year.
Requirements to apply for taxation
Foreigners
- Filled out form from the Costa Rican Tax Collection Office (Oficina de Tributacion Directa)
- Copy and original passport
Anonymous or Limited Liability Corporations
- Filled out form from the Costa Rican Tax Collection Office (Oficina de Tributacion Directa)
- Copy and original identification document
- Corporation bylaws and certificate of legal capacity
INCOME TAXES
The Costa Rican income tax system is based on the Territorial Law which states that any income generated within the physical territory of Costa Rica is subject to income tax.
Article 1 in the Costa Rican Income Tax Law (ITL) states that taxes apply to occasional or consistent revenues received by individuals or entities located within domestic territory, regardless of their nationality or domicile.
Article 1 also states that in order for revenues, income or benefits generated from a Costa Rican source to be taxable, they should derive from services rendered, goods located or capital invested within Costa Rican borders during a specific tax period, regardless of the business owner's nationality, domicile or residency status.
Nevertheless, there is a difference between taxes applied to people residing in Costa Rica and people living abroad.
- A net Income Tax applies to any profit generated by businesses of foreigners who reside in Costa Rica.
- A Withholding Tax on International Remittances applies to the gross income remitted from other countries.
Corporate Income Tax
A corporation's net profits are taxed according to their annual gross income as follows:
Income Tax Rates applicable to companies
2003
Gross Income Amount |
Ordinary Rate 2003 |
Extraordinary Rate
from 01/01/03 to 12/31/03 |
2004
Gross Income Amount |
Tax Year Rate 2004 |
| Up to 19.695.000 |
10% |
2% |
21.468.000 |
10% |
| Up to 39.617.000 |
20% |
4% |
43.183.000 |
20% |
| Excess of 39.617.000 |
30% |
6% |
43.183.000 |
30% |
Amounts entered in Colones (local currency). Consult current exchange rate at www.bccr.fi.cr
Gross income includes earnings, benefits and rent, whether they are paid in cash or in kind. Partnerships are taxed in the same way corporations are, independently from their partners, and are liable for corporate taxing on net profits.
In order to protect their investments, companies may deduct all the necessary costs and expenses from their gross income, which will reduce the tax amount to be paid.
Applicable deductions from Gross Income:
- Duly recorded expenses that produce taxable income.
- Severe debt that demonstrates legal collective action to the company.
- Payments of rent, royalties, technical or financial assistance, trademark franchises, among other instances, to residents or non-residents.
- Payment of other taxes, such as sales and consumption taxes or similar obligations.
- Payment of business loans including interest.
- Asset and casualty loss excluded from insurance coverage.
- Contributions to cultural or charitable organizations.
- Insurance premiums.
- International trade or exchange losses, except when acquiring fixed assets.
Professional Services Income Tax
This tax applies to individuals who offer their professional services privately and independently from governmental health insurance regulation, which deducts a fixed percentage monthly from people that work in the public and governmental workforce.
The following chart shows the corresponding percentages taxed from different income amounts.
Income Tax Rates applicable to individuals
| |
2003
Net Income Amount |
Ordinary Rate Year 2003 |
Extraordinary Rate
from 01/01/03 to 12/31/03 |
2004
Net Income Amount |
Tax Rate Year 2004 |
| Exempt |
1.316.000 |
Exempt |
Exempt |
1.434.000 |
Exempt |
| Between |
1.316.000 and 1.965.000 |
10% |
2% |
1.434.000 to 2.142.000 |
10% |
| Between |
1.965.000 and 3.278.000 |
15% |
3% |
2.142.000 to 3.573.000 |
15% |
| Between |
3.278.000 and 6.5269.000 |
20% |
4% |
3.573.000 to 7.160.000 |
20% |
| In excess of |
6.569.000 |
25% |
5% |
7.160.000 |
25% |
Annual Taxes
| |
Year 2001 |
Year 2002 |
Year 2003 |
Year 2004 |
Rate |
| Up to |
241.500 |
270.000 |
296.000 |
323.000 |
Exempt |
| Between |
241.500 and 363.000 |
270.000 and 405.800 |
296.000 and 445.000 |
323.000 and 485.000 |
10% |
| More than |
363.000 |
405.800 |
445.000 |
485.000 |
15% |
Amounts in both charts are entered in Colones (local currency).
Consult current exchange rate at http://www.bccr.fi.cr
MUNICIPAL, LICENSE AND STAMP TAXES
Costa Rica lacks state or city income taxes. Minor municipal taxes, operation permit fees and stamp taxes are applied instead. Stamp taxes are levied on most legal documents.
Municipal Tax
- Territorial tax = 0.25% of the value of the property
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- from $0.50 to $2.45 for every meter of garbage collection
- from $0.75 to $1.87 for street cleaning and maintaining
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Operation License or warrant tax
- 0.035% from the company's gross income, due every trimester.
Education and Culture Stamp tax
- From $2 to $24 imposed annually, based on the company's Stock Capital.
SALES TAX
The Sales Tax is a percentage added to the sale and import of goods and the rendering of certain services. This tax is charged only once on the total of the goods in question. The common sales tax has a percentage of 13%.
Since 2003, the Costa Rican government has added a 0.1% tax on the commercial patrimony of the corporation. Few exceptions apply.
MUNICIPAL LICENSE TAX
Any lucrative activity in Costa Rica requires a documented license that should be placed on a visible area in the business establishment. This license imposes an additional tax that must be paid only during the time such business operates.
CAPITAL GAINS TAX
The Costa Rican Tax System does not tax capital gains except when real estate sales are conducted as an ongoing business activity, whether it is privately or publicly.
If an individual or company sells two parcels within a tax period, this will be considered an ongoing business and taxes are applicable.
The possibility of introducing the capital gains tax is being discussed in Congress, and it may be applied in the future. A separate tax applicable to Costa Rican business activities performed outside the country is being discussed as well.
The concept of ongoing business activity is defined by the Income Tax Law as "the activity a business or individual is primarily committed to, which is performed in a public and periodic manner, and to which most of the taxpayer's time is devoted." However, this concept does not have a specific definition or application to all cases, since they vary in nature.
DIVIDEND PAYMENTS FROM DOMESTIC REAL ESTATE COMPANIES TO FOREIGN SHAREHOLDERS
Dividends that are paid from a Costa Rican company to a foreign partner company are taxed with a 15% withholding tax.
The following chart shows the tax rates applied to different transactions made with foreign associates or providers.
Tax Rates Applicable to Transactions made by Domestic Companies with Foreign Company Partners
| ACTIVITY |
RATE |
| Transporation and Communications |
8.50% |
| Retirement and Pension, Salaries and similar remuneration |
10% |
| Fees, Comissions, Diets and similar personal income |
15% |
| Refinancing and Insurance Premiums |
5.50% |
| The use of Films for television, Recordings and any other means of Public Broadcasting, as well as International News Footage |
20% |
| Radio and TV Soap Operas |
50% |
| Income ensuing from entities related to Stock Markets and other official Insitutions |
5% |
| Dividends from entities not related with Stock Markets or other Official Insitiutions |
15% |
| Commercial Leases |
15% |
| Interests, commisions and other financial expenses |
15% |
| Technical or Financial Support related to Patents, Formula Supply, Trademarks, Privileges, Franchises or Royalties |
25% |
| Other payments not contemplated in previous secitons |
30% |
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