In 2007, I made the final decision to make the move to Costa Rica full time. One of the many reasons was the high taxes I was paying in the US. Between federal, state, and local income tax, and then property tax on top of that, over 47% of my salary at the time was going to taxes. Now, I am not a tax evader and I believe in paying taxes, but nearly 50% of my salary sounded insane to me. Here in Costa Rica, between my corporate tax, personal income tax and property tax, I’m paying only 17% of my income – Not too bad, huh? That leaves more in my budget to enjoy a better lifestyle, so overall, living in Costa Rica has given me the freedom to achieve my goals.
With that said, let’s take a look at the different types of taxes you can expect to pay while living in Costa Rica.
A Guide to Costa Rican Tax Laws
The assorted taxes listed below make up a pretty comprehensive list, so keep in mind that not everybody has to pay all these taxes – It all depends on your personal and professional situation. So let’s start with one of the most important ones – the money you have to pay on the money you make while living in Costa Rica.
Income Taxes
The income tax rate for individuals in Costa Rica ranges from 10% to 25% regardless of whether you’re a citizen, resident and or making money online. If you’re living and making money in Costa Rica, you are required to pay the income tax. Of course, there are some forms of deductions that can be taken to lower the tax liability. I recommend consulting a licensed Costa Rica CPA for more details. The corporate tax rate ranges from 10% to 30%.
Please keep in mind that if you are receiving a pension from outside of Costa Rica, like Social Security benefits for US citizens, or an RSP from Canada, and are living here full time, those funds are tax free here in Costa Rica, as of this writing.
Below are breakdowns of the income tax rates. Keep in mind that the amount of income changes every year, but the rate stays the same.
Personal Income Tax Scale:
- From 0.00 Up To ¢4.127.000 colones ($8,092.00 USD) is exempt from paying income tax.
- Up to ¢6.164.000 colones ($12,086.00 USD) the tax rate is 10%.
- Up to ¢10.281.000 colones ($20,158.00 USD) the tax rate is 15%
- Up to ¢20.605.000 colones ($40,618.00 USD) the tax rate is 20%
- Any Income above ¢20.605.000 colones ($40,618.00 USD) the tax rate is 25%
For corporate Income, the tax rate is based on net income after expenses, however the percentage of tax charged is based on gross income. Below is a breakdown of the corporate income tax rates.
Corporate Income Tax Scale:
- Gross income up to ¢5.687.000 colones ($11,150.00 USD) the tax rate is 5%
- Gross income up to ¢8.532.000 colones ($16,729.00 USD) the tax rate is 10%
- Gross income up to ¢11.376.000 colones ($22,305.00 USD) the tax rate is 15%
- Gross income of More Than ¢11.376.000 colones ($22,305.00 USD) the tax rate is 20%
Property & Corporation Taxes
All property owners in Costa Rica are required to pay an annual property tax, which is quite low, especially when compared to places like the United States. Known in Spanish as “impuesto de propiedad”, the property tax in Costa Rica is a quarter of 1% (.25%) and is based on the registered value of the property.
The Costa Rica corporation tax (as I call it – the government calls it a “fee”) is for active and inactive corporations (not to be confused with corporate income tax covered in the previous section). The amount is based on 50% of the annual salary of a judicial administrator. In Costa Rica, a judicial administrator is a judge’s secretary.
An “active” corporation is one that is running a business and is actually making income. The fee for 2024 was 231,100.00 colones or roughly $430.00 USD, depending on currency exchange rates. If a corporation is registered as “inactive”, it means it’s used to hold assets like homes and cars, and the annual fee is 99,850 colones or roughly $199.00 USD depending on currency exchange rates.
The fee for corporations goes up every year as the salary of a judicial administrator is increased. Also note that this tax was found to be unconstitutional by the Costa Rica Supreme Court and was done away with in 2016. However, the legislature is trying to reinstate it by simply rewriting the law so it can pass the courts. As of 2024, the Costa Rica corporation tax is still required to be paid.
For more information, check out our guide to property taxes in Costa Rica.
Sales Tax in Costa Rica
There is a 13% sales tax in Costa Rica, and it’s levied on almost everything. Even the National Food Basket (basic foods for all families) consisting of 235 items is taxed at 2%. To make a list would be a completely different topic and a long item to read. In July 2019, the Government of Costa Rica passed a new law replacing the 13% sales tax with VAT (Value Added Tax). This replaced the standard tax and included the services of accountants, lawyers and other professionals. Presently, it is required for realtors to charge this tax to sellers based on the commissions earned on the sale of a property, and then transfer it to the tax administration on a monthly basis.
Road Usage Tax & Mandatory Insurance (aka “Marchamo”)
The costs associated with owning a vehicle in Costa Rica are much like the rest of the world. This basically includes annual vehicle registration and mandatory insurance that must be paid every year. You’re also required to get the technical annual inspection first, which costs around $18 USD before you pay the Marchamo.
There are a lot of categories under Marchamo. Owners of cars, motorcycles, ATVs, mopeds, and any other vehicle driven on public roads (even golf carts) are required to pay this type of road tax, which is charged by INS, Instituto Nacional de Seguros or National Insurance Institute in English. This is the local insurance company owned by the government. The annual registration is based on the value of the vehicle, and the tax goes down each year as the vehicle gets older.
For more information, here’s a link to the INS website – the site is in Spanish but has a Google translate option to help.
Cultural Tax (or Stamps) & Educational Tax
This tax has been in effect since 1976, and is levied on every corporation every year. The funds are used to support the arts and cultural activities. The tax is based upon the amount of the capital stock of your corporation. There is also an Educational Tax, which is the same as the Cultural Tax and is structured the same way.
Here’s is a breakdown of the different amounts:
- For capital stock up to 250,0000 colones, the tax is 750 colones or $1.50 USD.
- For capital stock from 250,000 colones to 1,000,000 colones, the tax is 3,000 colones or $6.00 USD.
- For capital stock above 2,000,000 colones, the tax is 9,000 colones or $18.00 USD.
Costa Rica Social Security Tax
If living in Costa Rica or not and you have an employee working for you, whether you have a company or not, meaning a housekeeper or a landscaper, legally you are required to pay their Social Security benefits which are 26.67% of gross salary. Now that seems really high but a housekeeper’s, or unskilled laborer’s legal daily minimum wage is 10,300 colones per day, or $20 USD. So do not get freaked out by the percentage as wages are low in Costa Rica.
Costa Rican Department of Social Insurance
Universal healthcare is offered to Costa Rica’s citizens and residents, whether temporary or permanent. If you plan on becoming a full-time resident, one of the requirements is joining the Costa Rican Department of Social Insurance, known as CAJA, which is short form for “Caja Costarricense de Seguro Social”.
The fee is based on the income you produce, whether it’s retirement income or from a company you own that is bringing in income and paying you a salary. The rates also differ from category to category of retirement. As an example, if someone obtains residency as a retiree and is receiving a monthly income from a pension of say $5,000 per month, that person would be paying approximately $120 per month for the free universal health care.
Capital Gains Tax
As of July 19, 2019, there is a capital gains tax in Costa Rica. While gains made by businesses on the sale of assets may be subject to business income tax, capital gains made by a resident or non-resident individual on the sale of a capital asset (as in a second home or an investment property) are now subject to a 15% tax on any gain.
With the passage of the Capital gains tax, the Government allows a seller to either choose from the 15% capital gains tax or a one-time tax of 2.25% of the selling price, so long as the property was purchased before January 2019. Sometimes it’s better to pay the 15%. There is one exception to this new law: If the home, condo, farm or other property type is your primary residence, there is NO tax. When in this situation of having to pay capital gains tax, it’s highly recommended to consult a licenced Costa Rican certified public account to help ensure you’re in proper compliance.
1031 Exchange and U.S. Taxes
Wait, what is a 1031 exchange? We’ll try to make this simple. It’s a provision made by the United States Internal Revenue Service that allows an American citizen or permanent resident investor to sell a property that is used for business or held as an investment, and then reinvest the proceeds in a new property without immediately paying capital gain taxes.
This means the taxes are deferred or avoided altogether. The rules are outlined in section 1031 of the IRS code, hence the name “1031 exchange”. For those interested in buying property in Costa Rica, it’s noteworthy that 1031 exchanges are not limited to U.S. property. However, according to subsection H of the IRS 1031 code, very strict rules and regulations must be followed in order to obtain the benefits of the 1031 exchange in a foreign country. What are the rules, and how can you make them work for you in Costa Rica? It’s highly recommended you check with your U.S. accountant to have all the correct information and guidance.
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