Fiscal Residency: Are You Thinking Of Moving Your Fiscal Residency To Costa Rica? Spend 10 Minutes Reading Here What You Need To Know

This is a topic and question that we have been receiving a lot from our expat clients coming from United States or Canada as part of their tax planing, real estate investment and/or retirement plans. This is not one matter that is particularly fun to write or read about but we are happy to address it for our clients and readers. You asked, we responded!

Why is it important to know about Fiscal Residency? Fiscal residency and its verification is a key requirement for individuals or legal entities to apply tax international treaties to avoid double tax imposition or obtain benefits deriving from international treaties executed by Costa Rica and other countries. Also, demostrating fiscal residency may be required by certain States to comply with foreign legislation, obtain specific benefits and/or fullfil requirements. In some cases, expats are required to obtain a fiscal residency certification from our Costa Rican Tax Directorate to demostrate their fiscal residency for a specific term, year and tax.

What is fiscal residency? Fiscal residency is the criteria that connects and indiviudal or entity with the Costa Rican State and determines if taxes are or were applicable to the individual or entity according to our Income Tax Law. Fiscal residency is equivalent to a domicile person as described in article 5 of the Regulations to the Income Tax Law.

What are the elements to determine if a person or entity qualifies as a fiscal resident? Determining if a person or entity is a fiscal resident is determined by article 5 of the Regulations to the Income Tax Law. The cases defined by this article that confirm an individual or entity are fiscal residents in Costa Rica are:

Physical persons are considered fiscal residents when:

1. Spend in the country continously or discontinously more than 183 days including the days of entry or exiting during a fiscal period. The term shall include sporadic absenses, unless fiscal residency is demostrated in another country.
2. Perform, render or hold representations or official appointments in a foreign country paid by the Costa Rican government, its public entities or municipalities.

Entities are considered fiscal residents:

1. Juridical entities incorporated according to Costa Rican legislation and de facto juridical entities.
2. Branches, agencies and other permanent establishments of non-domiciled persons in Costa Rica that operate in Costa Rican territory.
3. Trusts and fiduciary orders incorporated according to Costa Rican legislation.
4. Probates regardless of the deceased nationality.
5. Individual enterprises of limited liability that operate in Costa Rican territory.

How is the 183 days term computed? The term to be considered a tax resident applies to all persons that continously or discontinously spend more than 183 days including the days of entry or exiting the country during a fiscal period. The term shall include sporadic absenses, unless fiscal residency is demostrated in another country. This sporadic absenses include brief and ocassional trips for reasons of labor, business, pleasure, health, etc. To determine which sporadic absenses are accounted for the permanency term, it shall be construed as a non-prolong absense all exits of Costa Rican territory that do not exceed 30 consecutive days. The length of the permanency in Costa Rican territory shall be verified by using the entry and exit migratory records from the Costa Rican Immigration Directorate.

What is the fiscal residency certificate? The fiscal residency certificate is the document by which the tax directorate certifies for tax purposes that a person or entity has been has been a fiscal resident in Costa Rica for the fiscal period indicated in the application request.

What are the general and specific requirements to request a fiscal residency certificate? All applications must be done using the TRAVI system (electronic platform used by the Tax Directorate) using the draft provided for said purpose. Only on exceptional cases it can be presented physically. The draft must be filled out in computer, printed and signed by the applicant or its representative.

The applicant must be registered as a tax contributor for income tax, capital gains and/or capital rents, or subject to tax retentions for employment, retirement, pension, capital gains and/or capital rents. Also the applicant must be up to date with all formal and material obligations with the Tax Directorate including the obligation to have updated information in the Universal Tax Registry. Also, the application must include a 5 colones archive stamp and pay the taxes through banking platform.

In cases were the applicant to avoid double taxation is requesting a fiscal residency certificate based on international treaties where Costa Rica is a signatory party, it is important to consider that the applicant must have been subject to the taxation, meaning payment of the tax. In all other cases, the certificate will confirm fiscal residency but not make the applicant authorized to apply for the benefits.

Additionally, applicants shall present documentation to prove their specific status, such as:

1. Physical persons that hold representations or positions in foreign territories paid by Costa Rican government shall present documents attesting to their role, position or appointment.
2. Physical persons that are subject to retentions to salaries, pensions or capital rent applying for a certificate shall present information on the retentions if the Tax Directorate can’t provide them.
3. Entities shall present information of good standing to credit their representation and existance.
4. If the request is based on demands of foreign legislation or requirements from foreign entities, the applicants shall provide a copy of the legislation or administrative provisions that require presentation of the fiscal residency certificate in Spanish language.
5. Any other information necessary to demonstrate the economic activity and any information included in the form.

How is the fiscal residency certificate withdrawn? The fiscal residency certificate shall be made available at the Tax Directorate Office that has jurisdiction over the filing. The certificate may be withdrawn by the applicant directly or a representative.

What is the validity of a fiscal residency certificate? Certificates that correspond to past fiscal periods have no expiration dates. On the other hand, certificates that correspond to a vigent fiscal period expire at the same time as the fiscal period.

For more information, please fill out the courtesy e-meeting form at the bottom. We will be glad to assist you!

Disclaimer: The information provided in this blog post is for general informational purposes only and is not intended to constitute legal advice. While we strive to ensure the accuracy and timeliness of the content, laws and regulations are subject to change. For the most accurate and up-to-date information, please contact our office directly. Some images may be AI generated.