Will Costa Rica Tax My Foreign Income? What the 2026 Passive Income Bill Would Change

Last updated: October 01 2026· Gonzalo Rojas Benavides, Founding Partner, Colegio de Abogados de Costa Rica No. 17310

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A bill before the Legislative Assembly would tax foreign-source passive income such as rents, dividends, interest, royalties and capital gains from assets located outside Costa Ricafor every tax resident, at 15%, with a credit for equivalent tax already paid abroad. It is a bill, not law. It has been submitted, not approved.

If it passes in its current form, the position most foreign residents rely on changes. Today, foreign passive income is taxable only for non-qualified entities belonging to multinational groups. Under the bill, residence rather than group membership determines who pays.

This article sets out what the bill says, who it would reach, what it would not change, and what the open questions are.

What exactly would change?

What counts as foreign-source passive income?

Income from immovable capital, income from movable capital and capital gains, where the underlying goods, capital or rights are situated or used outside national territory.

In practice that reaches the arrangements foreign residents most commonly hold:

1. Rent from property owned in another country
2. Dividends from foreign companies
3. Interest on foreign accounts, bonds and loans
4. Royalties, which the law defines to include payments for patents, trademarks, copyright over literary, artistic, scientific or digital works, films, designs, formulas, industrial equipment and technology transfer
5. Gains on the sale of foreign assets

Technical assistance payments are expressly excluded from the definition of royalties.

The bill also provides that foreign passive income may not be voluntarily brought within the profits tax, closing an election that would otherwise allow a different treatment.

Who would be a taxpayer?

Any person or structure resident in national territory that holds title to assets, capital or rights situated or used abroad generating this income regardless of whether that person carries out any economic activity.

The drafting is deliberately broad. It names individuals, legal entities whether or not they conduct an activity, trusts, collective entities without legal personality, investment funds regulated under the Securities Market Law, and any similar legal figure or commercial structure.

The practical consequence for a foreign resident is direct. A retiree holding rental property abroad, an investor receiving dividends from a company in their home country, and a person living on interest from a foreign account would each fall within the charge, where today none of them does.

How much would the tax be and how is it calculated?

The rate applicable to capital income and capital gains is 15%. The taxable base is the gross amount received, less equivalent tax withheld or paid in the foreign jurisdiction, with the rate applied to that result.

The bill defines equivalent tax as the tax applied to the foreign passive income under the rules of the territory where it originated. The credit operates without requiring a double taxation treaty, which matters because Costa Rica has few of them in force.

Why does the treatment of losses matter?

Capital losses arising from goods, capital or rights situated or used outside national territory are not computable.

The charge is therefore asymmetric. A gain on a foreign asset would be taxed; a loss on a foreign asset would not reduce the base. For anyone holding a portfolio of foreign assets, that is a planning point rather than a detail, because it means the tax is calculated on gross gains rather than on net portfolio performance.

What would not change?

The territorial basis of the profits tax. The bill states expressly that income, revenue or benefits of Costa Rican source are those generated exclusively in national territory independent of the origin of the goods or capital, the place where they were negotiated, or their link to the economic structure in national territory.

That language is significant. It addresses a long-running dispute about whether income earned abroad using Costa Rican capital is taxable under the profits tax because of an economic connection to the country. The explanatory statement describes the measure as a specific and delimited policy decision rather than a general move to worldwide taxation, and says the general territoriality criterion governing the profits tax remains unaltered.

The bill also clarifies that the geographic territoriality criterion introduced by Law 10.381 applies only to the profits tax and not to the other taxes regulated in the Income Tax Law.

What has been the courts' position on income earned abroad?

Costa Rican courts have held that territoriality is not purely geographic. The administrative courts have applied an economic connection test, finding that where a company domiciled in Costa Rica places investments abroad and the resulting income is brought in and recorded here, that income is linked to the Costa Rican productive source and is taxable under the profits tax.

In 2022 the Constitutional Chamber rejected a challenge to that line of case law, reasoning that the legislator had expressly made taxable any income or benefit of Costa Rican source not excepted by law, and that the economic connection criterion therefore derived from the law itself rather than from judicial interpretation.

Anyone researching this point should be careful with one frequently cited resolution. Constitutional Chamber resolution 2703-2021 did not decide the merits of the territoriality question: it suspended the proceedings pending resolution of an earlier action against the same case law.

Why is this bill being proposed now?

It traces back to Costa Rica's inclusion on the European Union's list of non-cooperative jurisdictions for tax purposes, and to the view that the 2023 reform addressing it reached too few taxpayers to be meaningful.

Law 10.381, enacted on 2 October 2023, introduced taxation of certain foreign-source passive income for the first time, but limited it to non-qualified entities within multinational groups. To fall within it, a taxpayer had to lack sufficient economic substance measured by adequate qualified and remunerated human resources, strategic decisions taken by a board or equivalent body, and investment through costs and expenses including the acquisition of goods or services in national territory for not less than three base salaries and additionally had to belong to a multinational group.

The explanatory statement argues that this produced an asymmetry: two residents receiving identical dividends, interest, royalties or capital gains from abroad could be taxed differently depending solely on whether they belonged to a multinational group or on how the entity receiving the income was classified. The stated purpose of the bill is to remove that distinction and link the charge to economic capacity actually demonstrated by the taxpayer.

What did the Attorney General say about the earlier reform?

When the predecessor bill was under discussion in 2023, the Procuraduría General de la República gave a non-binding opinion that is worth knowing because the current bill responds to much of it.

The Procuraduría observed that the European Union had asked Costa Rica to legislate expressly to tax foreign-source passive income, and that framing the matter as a non-subjection would not technically satisfy that request. It described the qualifications used to define which entities would be caught as contradictory and complicated to apply, both for the tax administration and for taxpayers making their own assessments. It also warned that one of the transitional provisions could face a constitutional challenge for giving retroactive effect to a more burdensome regime.

The current bill repeals the articles containing those qualifications, moves the charge into the capital income chapter, and contains a single transitional provision requiring the Executive to issue regulations within six months. Whether that resolves the concerns raised in 2023 is a question for the legislative process.

Where does the bill stand and when would it apply?

It was submitted by the Executive Branch and received by the Legislative Assembly on 22 September 2026, under file number 25.796. It has not been approved, and bills change substantially during legislative discussion.

As drafted, the law would enter into force upon publication, with the Executive required to issue regulations within six months of that date. The bill contains no transitional regime for income accrued before entry into force and no deferred effective date.

That combination deserves attention. A law in force on publication, with implementing regulations arriving up to six months later, would leave a window in which the obligation exists and the detail of how to comply does not. Anyone whose position depends on the answer should follow the file rather than assume the final text matches the one submitted.

What should I do now?

Nothing that assumes the bill has passed, and nothing that assumes it will not. The useful step is to establish what you would owe if it did, because that calculation depends on facts you can confirm today.

Four questions determine your exposure:

Restructuring in anticipation of a bill that has not been approved carries its own risk. Costa Rican tax law applies a principle of economic reality under which the tax administration may look past the legal form adopted by a taxpayer where that form conceals the underlying substance, and the Supreme Court has applied it repeatedly. A structure built to avoid a charge that does not yet exist may be examined on that basis if the charge arrives.

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This article describes a bill before the Costa Rican Legislative Assembly as submitted and does not constitute legal or tax advice. The bill has not been approved and its text may change during the legislative process. Confirm the current status and the applicable rules before making any decision based on it.