What are the most common taxes applicable in Costa Rica to corporations and individuals?
by Quatro Legal Corporate Team | Jan. 8, 2024 | Article, Corporate
No one likes taxes and in a world where we could do whatever we wanted, we probably would not choose to pay taxes. However, since it is not the case, it is essential for buyers, sellers, investors and businessmen to know the basic Costa Rican taxes applicable to them.
CORPORATE TAX: One of the most common taxes is the corporate tax. The corporate tax is applicable to all commercial corporations, subsidiaries or their representatives, and limited liability individual companies already registered in the Public Registry of Costa Rica (PRCR) or to be registered in the future. The corporate tax must be paid yearly between January 1st and January 31st. For new corporations, the corporate tax is prorated based on the amount of time remaining until the conclusion of the fiscal year. The payable amount varies based on the company’s income and its purpose is to finance projects for the Ministry of Public Security.
Failure to pay the corporate tax is a violation of tax regulations. Some of the sanctions applicable for non-payment are the following: a) payment of interest on overdue amounts; b) the PRCR will not issue corporate certifications; c) the PRCR will not register new documents; d) the debtor will not be able to contract with the State of Costa Rica or other autonomous or semi-autonomous public entities; and e) if payment is not made for three consecutive fiscal periods, the PRCR could order the company’s dissolution, cancel its registration entry and establish preferential liens on its registered assets. The representatives of the company will be individually liable for these debts.
Other taxes applicable to corporations with economic activities or investors looking to sell assets include income tax, value added tax, dividend tax and capital gains tax.
INCOME TAX: In Costa Rica, income tax is applicable to all individuals, legal entities and collective entities domiciled in Costa Rica who conduct profitable activities from a Costa Rican source. Income tax is applicable to any form of income, both cash or assets, professional or occasional, resulting from lucrative activities or any source of income generated in Costa Rican territory for services, assets or capital utilized in the country during a fiscal period, as well as any capital gains or income.
The tax base is determined by subtracting from gross income all useful, necessary and pertinent costs and expenses to produce profits or benefits, duly supported by invoices and recorded in the books.
This tax must be paid within two months and fifteen calendar days following fiscal year end. The fiscal period in Costa Rica runs from January 1st to December 31st.
The Tax Administration updates the tax percentages based on income on a yearly basis.
For legal entities:
Up to 5,761,000.00 colons. 5%
From 5,761,000.01 colons to 8,643,000.00 colons. 10%
From 8,643,000.00 colons to 11,524,000.00 colons. 15%
In excess of 11,524,000.00 colons. 20%
When gross income is more than 122,145,000.00 colons. 30%
For physical persons:
Up to 4,181,000.00 colons. 5%
From 4,181,000.00 colons colons to 6,244,000.00 colons. 10%
From 6,244,000.00 colons to 10,414,000.00 colons. 15%
From 10,414,000.00 colons to 20,872,000.00 colons. 20%
In excess of 20,872,000.00 colons 30%
ADDED VALUE TAX: Costa Rica has a value added tax (VAT) system. Value added tax is the tax applicable to the consumption of goods, services and assets. This means that when a person makes a purchase, he or she must pay an additional 13% (standard rate) or 4%, 2% or 1% (reduced rates).
Taxpayers declare the value added tax collected on the sale of goods, services and assets via Form D-104, which must be submitted in the first 15 days calendar days of the month following collection. The tax can be paid through an online banking platform or at other authorized locations. The taxpayer is required to submit Form D-104 even if there were no sales or purchases during the previous month.
The value added tax amount is calculated by adding all fiscal debits (collected VAT) and subtracting all fiscal credits (paid VAT) on Form D-104. Prior to paying the tax, taxpayers may choose to apply any fiscal credits in their favor. The resulting amount is the value added tax to be paid to the Tax Administration.
CAPITAL GAINS TAX: The capital gains tax was created by Law 9365 “Law for the Strengthening of Public Finances”, which levies a capital gains tax on movable and immovable property.
A capital gain arises where there is a positive difference between the value of an asset at the time of purchase and the value of the asset at the time of sale. When this value is positive, it is subject to a 15% tax. To calculate the amount of the capital gain, the purchase value of the asset, the value of any investments and improvements made to it and its sales value are taken into consideration. The 15% tax rate is applied to any difference.
The law provides for two exceptions to the 15% capital gains tax related to real estate:
A) “Home exception”: If the property being sold is the seller’s primary residence, the seller may apply for this exception and be exempt from paying capital gains tax. For these purposes, Law 9365 and its regulations define “primary residence” as the property where the seller resides. The “home exception” does not apply to commercial real estate and is questionable for homes or residences that are leased to third parties.
If the property is owned by a “non-domiciled” person, whether a physical person or legal entity, such as a foreign corporation, trust or any legal entity not duly and legally domiciled in Costa Rica, the buyer must retain 2.5% of the sales price to cover any capital gains tax and must file and pay property taxes to the Tax Administration. Public notaries are required to confirm this prior to registering any property transfer deed in the National Registry.
Law 9365 considers a domiciled person to be any foreign person that spends more than 183 days a year in Costa Rica. These do not need to be consecutive.
Costa Rican corporations duly registered in the National Registry and that are represented or owned by foreign nationals are considered domiciled in Costa Rica.
B) “One-time exemption”: Another option is for sellers who owned property prior to the entry into force of the law on July 1, 2019, to elect to use a one-time exemption. In this case the seller pays 2.25% on the sales price. He or she must file the property tax return and make the corresponding payment to the Tax Administration.
SOLIDARITY TAX OR LUXURY TAX: The “Solidarity Tax for the Strengthening of Housing Programs” or simply “solidarity tax” or the “tax on luxury homes” was enacted by Law 8683. It is an annual tax applicable to residential properties that are used habitually, occasionally or recreationally. The tax’s purpose is to finance dignified housing for the population living in extreme poverty.
Owners of residential properties, including concessionaires, permit holders and occupants of the shoreline and of any other real estate granted by the State or its institutions, are considered taxpayers.
To calculate the solidarity tax owed, taxpayers must know the value of the main construction and any accessories (ranches, pools, sports fields, walls, interior streets, etc.). Taxpayers must add the value of the construction and of the land.
Law 8683 establishes different tax percentages over fixed amounts, which are updated periodically by Executive Decree. In 2021, all homes with a value under ¢133,000,000.00 colons were exempt.
From ¢148,000,000.01 colons to ¢371,000,000.00 colons. 0.25%
From ¢371,000,000.01 colons to ¢744,000,000.00 colons. 0.30%
From ¢744,000,000.01 colons to ¢1,116,000,000.00 colons. 0.35%
From ¢1,116,000,000.01 colons to ¢1,490,000,000.00 colons. 0.40%
From ¢1,490,000,000.01 colons to ¢1.859.000.000,00 colons. 0.45%
From ¢1.859.000.000,01 colons to ¢2,233,000,000.00 colons. 0.50%
In excess of ¢2,233,000,000.01 colons. 0.55%
Taxpayers must register with the Tax Administration by filing Form D-179 “Formulario Único de Inscripción, Declaración y Pago Impuesto Solidario para el Fortalecimiento de Programas de Vivienda, Ley 8683” via the Virtual Tax Administration website (ATV). Form D-179 must be filed every three years to update the property value no later than January 15th. The tax is due annually and can be paid via your bank’s online payment platform or directly through authorized collection agencies.
Law 8683 establishes that taxpayers who fail to comply with their solidarity tax obligations will be subject to fines and payment of interest.
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