Costa RicaTax Obligations Detailed

In Costa Rica, employers face various tax obligations, including income tax, social security contributions, and value-added tax (VAT).

Income Tax

• Corporate Income Tax: For companies exceeding CRC 120,582,000 in annual gross income, the tax rate is 30%. Smaller companies with annual gross income up to CRC 120,582,000 are subject to rates between 5% and 20%.
• Employee Income Tax Withholding: Employers withhold income tax from employee salaries at progressive rates ranging from 0% to 25%, based on updated brackets for 2025.

Social Security Contributions

• Both employers and employees contribute to the Social Security Fund (CCSS).
• Employee Contributions (as of December 31, 2025): 10.66% of total remuneration.
• Employer Contributions (as of December 31, 2025): 26.67% of the employee's gross salary. This includes contributions towards health and maternity leave (9.25%), pension (5.25%), the Labor Capitalization Fund (3%), and family support (5%).

Value-Added Tax (VAT)

• A 13% VAT applies to most goods and services sold or consumed within Costa Rica.
• Reduced rates of 4%, 2%, and 1% apply to specific goods and services, including health services, education, and basic consumer goods.

Other Taxes

• Selective Consumption Tax: Levied on non-essential goods at rates up to 100%.
• Property Tax: An annual tax of 0.25% of the property's appraised value, managed by local municipalities.

Important Considerations

• Tax Year: The fiscal year in Costa Rica aligns with the calendar year, running from January 1 to December 31.
• Tax Deadlines: Vary depending on the specific tax. Corporate income tax returns and final payments are typically due on March 15. VAT returns and payments have monthly deadlines.
• Monthly Tax Credits: For dependents, including CRC 1,720 per child and CRC 2,600 per spouse.

It is important for employers to stay updated on current regulations and implement necessary adjustments to payroll systems for compliance. As tax laws and regulations can change, consulting with a tax professional or legal advisor is recommended for the most accurate and up-to-date information.

In Costa Rica, employers deduct taxes from employee salaries, including income tax and social security contributions.

Income Tax

As of January 1, 2025, the income tax brackets for salaried employees, pensioners, and those receiving retirement payments are as follows:

• 0% for monthly income up to CRC 922,000.00
• 10% for monthly income between CRC 922,000.01 and CRC 1,352,000.00
• 15% for monthly income between CRC 1,352,000.01 and CRC 2,373,000.00
• 20% for monthly income between CRC 2,373,000.01 and CRC 4,745,000.00
• 25% for monthly income exceeding CRC 4,745,000.00

Tax credits are available for dependents: CRC 1,720 per child and CRC 2,600 per spouse. These are subtracted directly from the tax due. For example, an employee earning CRC 1,500,000 monthly falls into the 15% bracket, and if they have one child and a spouse, their tax credits total CRC 4,320.

Social Security Contributions

Employees contribute 10.67% of their total remuneration to social security. This is deducted directly from their payroll. This percentage is set to gradually increase to 12.16% by 2029. The contribution is distributed as follows (until December 31, 2025):

• Employers: 5.42%
• Employees: 4.17%
• State: 1.57%

Other Taxes and Deductions

While no other deductions are granted for employment income specifically, those with income from sources other than employment may have additional considerations. For example, self-employed individuals can deduct up to 25% of their gross income or itemize expenses.

Additional Employer Obligations

Employers are responsible for withholding income tax and social security contributions and remitting them to the tax authorities. They also contribute 26.33% of the employee's gross wages for social security. Other employer obligations include the mandatory 13th-month salary (aguinaldo), paid by December 20th each year. Employers also handle the filing of employee taxes and ensure compliance with employment laws and regulations.

Please note that this information is current as of February 5, 2025, and may be subject to change.

In Costa Rica, the Value Added Tax (VAT), locally known as Impuesto al Valor Agregado (IVA), is a consumption tax applied to most goods and some services.

VAT Rates

• Standard Rate: 13% (Applies to most goods and services not specifically listed under reduced or exempt categories)
• Reduced Rates: Vary depending on the specific goods or services. Common examples of reduced rates are 4% on private health services and domestic flights; 2% on medicines and private education; and 1% on basic food items.
• Zero Rate (0%): Applies to certain goods and services, such as exports, goods and services sold to Free Trade Zone Regime beneficiaries, and certain educational and cultural services.
• Exempt: Some goods and services are entirely exempt from VAT, such as certain basic necessities, books, and some medical and veterinary supplies. Note that exempt goods and services might have restricted rights to deduct the input VAT.

VAT Registration

• Threshold: There is no registration threshold. Any business selling goods or providing taxable services in Costa Rica, whether habitually or incidentally, must register for VAT. This includes non-resident businesses with a permanent establishment or providing digital services in Costa Rica.
• Process: Businesses register with the Registro Único Tributario (RUT), the central tax registry. While there's no single Tax Identification Number, businesses are identified within the RUT system based on their legal structure.

VAT Filing and Payment

• Frequency: VAT returns are filed and payments are made monthly.
• Deadline: Returns and payments are due by the 15th day of the following month.
• E-invoicing: Costa Rica mandates electronic invoicing for VAT-registered taxpayers. E-invoices must be submitted through the government's electronic system.

Selective Consumption Tax

In addition to VAT, Costa Rica levies a Selective Consumption Tax on specific goods deemed non-essential. This tax can be up to 100% and is applied at only one stage of the sales process. The tax base is the cost, insurance, and freight (CIF) value plus import duties for imported goods, or the sales value for goods produced in Costa Rica. Payment is due at the time of import or within 15 days of the month of sale for domestically produced goods.

Other Relevant Information

• Reverse Charge Mechanism: When a non-resident business provides services or intangible goods to a Costa Rican business, the Costa Rican business is responsible for paying the VAT through the reverse charge mechanism. This means that the Costa Rican company will issue a self-invoice and pay the VAT to the tax authorities. This tax can generally be offset as a credit against any VAT the business is due to pay on its own sales.

• Input VAT Credit: Businesses can generally deduct the VAT they paid on purchases (input VAT) from the VAT they collected on sales (output VAT). However, restrictions may apply to the deduction of input VAT relating to exempt goods and services, overhead expenses, or if the goods or services are not physically incorporated in the manufacturing process or directly used to provide the services being taxed.

• Penalties: Late filing and late payment of VAT can incur penalties.

This information is current as of February 5, 2025, and might change in the future. It's essential to consult with a tax advisor for specific guidance regarding your situation.

Costa Rica offers several tax incentives designed to attract foreign investment and individuals seeking residency.

Tax Incentives for Investors

• Free Trade Zone Regime: Companies established in designated free trade zones enjoy exemptions from import duties, sales tax (VAT), and income tax for a specific period. This regime is designed to stimulate export-oriented businesses and generate employment. Specific benefits and requirements vary depending on the activity and location within the free trade zone.

Tax Incentives for Residents

• Pensionado Program: Designed for retirees, this program grants qualified individuals several tax benefits, including exemptions from import duties on household goods and vehicles. Applicants must demonstrate a stable monthly income from a pension or retirement fund.
• Rentista Program: Similar to the Pensionado program, the Rentista program offers comparable tax advantages, such as import duty exemptions on personal belongings, to individuals with consistent income from investments or other non-salary sources. A guaranteed minimum monthly income is required to qualify.

Law No. 9996 (Attracting Foreign Investors, Rentiers, and Retirees)

This law provides additional incentives for eligible individuals:

• Partial Exemption from Real Estate Transfer Tax: A 20% exemption on the total transfer tax applies to properties purchased while the law is in force.
• Import Tax Exemption for Professional Materials: Materials required for professional or scientific work are exempt from import duties.
• Income Tax Exemption for Declared Capital Investment: Invested capital is exempt from income tax; however, any income generated within Costa Rica from these investments is taxable. Specific requirements and application procedures are detailed in Executive Decree No. 43926-MGP-H-TUR. Note: As of February 5, 2025, Law No. 9996 and its associated regulations are in effect.

General Tax Information

• Territorial Tax System: Costa Rica's tax system is primarily territorial, meaning that residents are typically taxed only on income earned within the country. Foreign-sourced income is generally not subject to taxation.
• Income Tax Rates: Income tax rates are progressive, ranging from 10% to 25% for employed individuals and 0 to 25% for self-employed, depending on income level, for the 2025 tax year. Specific income thresholds for each bracket are available from official sources.
• Value Added Tax (VAT): A 13% VAT is applied to most goods and services.
• Property Tax: Property tax is comparatively low, generally 0.25% of the property's assessed value determined by the municipality. Some properties, such as agricultural land, may be eligible for exemptions or reductions.

Double Taxation Treaties

• Costa Rica has double taxation treaties with several countries, including Germany, Spain, Mexico, and the United Arab Emirates, to mitigate or eliminate double taxation for individuals and businesses with income in both countries. It is important to verify the specific provisions of each treaty. Note: Currently, there is no double taxation treaty between Costa Rica and the United States.
• Tax incentives, laws, and regulations can change, and it's advisable to consult with a tax professional for the latest information.