Are There Tax Benefits in Costa Rica?

 

In Costa Rica, there are a number of tax benefits that go hand-in-hand when investing and/or living there while earning an income. For one thing, tax rates in Costa Rica are comparatively low, and there are no capital gains taxes. In addition, property taxes are just 0.25 percent of the appraised value of property. As far as the country’s revenue, a significant portion comes from sales tax.

The income tax rate in Costa Rica is actually progressive. For instance, corporations start at a rate of 10 percent and have a maximum rate of 30 percent. For individuals, the highest income tax rate is 25 percent, which applies to net income once all expenses incurred in generating this income have been are deducted. In the event that dividends are paid by a domestic company to another domestic company, there is no taxation. However, when dividends are paid to an individual resident or non-resident, a 15 percent withholding tax applies for shareholders.

No taxes are imposed on companies that are registered in Costa Rica or individual residents of the country that generate no revenue there. When compared to how taxes are in the United States, whereby worldwide income of any U.S. corporation or individual is taxed, you can see a distinct difference.

Something else to consider is the corporate anonymity in Costa Rica. The country does not require a disclosure of names of beneficial owners connected to registered companies. As mentioned, the U.S. has a worldwide taxation regime. In other words, your income will be taxed regardless of where it is generated. That means if you were to move to Costa Rica and establish a business, the income you make must be reported on an income tax return in the U.S.

There is a chance that you might qualify for the Foreign Earned Income Exclusion, which allows foreign earned income of roughly $100,000 for each taxpayer, or $200,000 if you are married and file jointly, to be excluded as U.S. income. Based on annual inflation, the exact amount of the exclusion is adjusted.

For you to qualify for this exclusion, you have to live in Costa Rica for a minimum of 330 days out of any period consisting of 12 consecutive months or you live in the country throughout the full tax year. Because there are complexities associated with exclusion and its application varies more than discussed here, you can always contact a tax expert to gain additional insight.

The bottom line is that as an expat in Costa Rica, you can own and operate a business. Just remember that you will probably be required to file a tax return in that country. Your net income will be taxed at a much lower rate than seen in the United States, and there is no capital gains tax. In addition, this income could be subject to tax laws in the U.S., unless you qualify for the Foreign Earned Income Exclusion.

As an expat, you are permitted to maintain bank accounts in either Costa Rica or United States currency, or both. However, for foreign-owned bank accounts, certain reporting requirements exist. One is the Foreign Bank Account Report (FBAR), which mandates that you keep a minimum of $10,000 in a foreign bank account during the tax year for the U.S. Another is the Foreign Account Tax Compliance Act (FATCA), mandating that foreign financial institutions provide a report on any accounts for American clients in an effort to uncover cheaters.

If you have foreign financial assets that go beyond specific thresholds, Form 8938 must be filed. With this, your regular tax return is sent to the Internal Revenue Service (IRS). As you can see, taxation is complex, even in Costa Rica. Therefore, it is in your best interest to speak to a professional tax advisor regarding any questions.

James Drews

James Drews

Vice President, Sales. Age 43 Prior to co-founding VESTA GROUP, James moved to Costa Rica in 1996 and began his real estate career here by co-founding Dominical Realty. In 2001, the company obtained a Coldwell Banker independent franchise, and three years later partnered with another Coldwell Banker franchise in Costa Rica to become Vesta Group, the Master-Franchise-holder for the entire country. As a member of the Global Association of Realtors and the U.S.-based National Association of Realtors, the Master Franchise has already grown to ten (10) offices throughout the country, with several more currently in process. James is married to a Costa Rican, and proud father of 3 daughters ages 7,10, and 20. James, is well respected among the local and foreign community, and carries high ethical standards, and a hard working family man that seeks to provide his customers with the best level of service possible. James goes out of his way to seek out new frontiers that are ahead of the wave, and specializes in rural and remote farmland, developing land and collecting legacy type of properties. Surfing big waves, fishing, hiking, and travel are favorite pastimes. Daily goal is a new discovery. Approaching 20 years of living in Costa Rica, James knows his territory well, and has much love for his new country and it's people, and will guide you well, and share his resources and local knowle​d​ge with you to make your new venture successful.​ ​