Costa Rica Offers Tax Advantages

In Costa Rica, the taxation of individuals is based on the principle of territoriality, meaning that all personal income that has a foreign source is tax exempt. Only revenue earned by an individual within Costa Rica is subject to an assessment by the tax authorities. You do not have to pay tax on your Social Security income, pension, investment income, etc. And if you telecommute to a job abroad, have a business or rental property in your home country, online business, or are a freelancer, you do not have to pay income tax in Costa Rica. You are still on the hook to the IRS or your home country’s tax authority however. For U.S. citizens, be sure to ask your tax professional about the Foreign Earned Income Exclusion, which exempts you from paying taxes from an overseas job or business if you qualify.

Income tax

Income tax (Impuesto de Renta) will only concern you if you have a job or business (including a vacation rental) in Costa Rica. The tax is levied on both employment source income and non-employment source income. Every individual employed in Costa Rica must pay a monthly withholding tax that is based on his/her salary. Employment income (on a monthly basis) of individuals is subject to a tax of up to 15%.

For the self-employed, the rates range from 10% to 25%.

Property transfer tax in Costa Rica

A property transfer tax of 1.5% is payable by the purchaser on the value of real estate purchased. This tax is triggered with the transfer of the property.

Sales tax in Costa Rica

Sales tax (the equivalent to VAT) stands at 13% and is levied both at the point of importation and at the point of sale (unless the sale is by way of export). It is levied on all goods with the exception of foodstuffs, medicinal products, and certain other items. If you own a business you must collect the sales tax from your customers and pass it to the government.