Income tax in Costa Rica is not new, though for many filing and paying for income tax is. And the deadline before late charges and interest starts to accumulate was yesterday.

However, due to an overburdened system and last minute filings, the Dirección General de Tributación decided to extend the deadline to today, one day extra to pay the “declaración de renta”, income tax in Spanish.

The director of Tributación, Carlos Vargas, made the announcement Tuesday given that some 25.000 taxpayers had yet to file and the taxation offices were completely saturered.

Under the Costa Rica tax system, residents and corporations are taxed only income earned in Costa Rica. The tax year begins in October 1 and ends September 30, both for individuals and corporations. Companies may request filing returns on a different tax year, subject to the approval of the Ministry of Finance.

Unless proof to the contrary exists, for certain professionals as well as corporations, presumptive net income is established by the Ministerio de Hacienda (Ministry of Finance), and constitutes a minimum taxable base.

Income Tax is applied to individuals as well as legal entities, i.e., corporations for income originated from a Costa Rican source. Costa Rican Laws do not tax income derived from a foreign source.

According to the Law all of the following are subject to income taxation:

  •     Legal entities, the facto corporation, professional companies, and state enterprises which operate in the country;
  •     Branch offices, subsidiaries, or agencies of any non-resident which operates in the country;
  •     Trusts;
  •     Inheritances (as long as remaining indivisible);
  •     Individuals residing in Costa Rica regardless of nationality;
  •     Individuals hired in a professional occupation;
  •     Physical and legal entities not specifically mentioned and engaged in profit making activities in Costa Rica.

The following are tax exempt:

  •     Government, local governments and autonomous and semi-autonomous organizations excluded by specific laws;
  •     Religious institutions regardless of creed;
  •     Associations, foundations, chambers, unions, political parties and other non-profit organizations;
  •     Employer -Sponsored Workers Associations (Asociaciones Solidaristas);
  •     Worker’s Cooperatives;
  •     Companies under Free Zone status.

Taxable income is based upon net income, thus becoming necessary to establish the corresponding gross income of the tax paying entity.

Costa Rican Laws defines gross income as the total income and profits earned in the country during the taxable year. This includes earnings from real property, investment of capital and other business activities. It also contemplates any increase in net worth during the taxable year, which cannot be justified by declared or registered income.

Excluded from the gross income are the following:

  •    Donations in cash or kind;
  •     Revaluation of fixed assets (except depreciable fixed assets, though, depreciation allowances may be considered if approved by the tax administration);
  •     Profits, dividends, participation and any other form of distribution of benefits credited to the taxpayer;
  •     Income derived as a result of contracts or agreements made on goods or capital located abroad, even for contracts negotiated in C.R.;
  •     Capital gains obtained form the transfer of real or personal property so long as this income does not constitute a habitual transaction;
  •     Inheritances, legacies, community properties;
  •     Prizes from national lotteries;
  •     Approved charitable donations.

The following rates are applied:

  •    No income tax is paid on Net Income (or  Profits) up to ¢1,434,000 (US$3.000)
  •    10% income tax  for Net Income in excess of ¢1,434,000 up to ¢2,142,000
  •     15% income tax  for Net Income in excess of ¢2,142,000 up to ¢3,573,000
  •     20% income tax  for Net Income in excess of ¢3,573,000 up to ¢7,160,000
  •     25% income tax  for Net Income in excess of ¢7,160,000

The information contained in this article is only for information purposes and not to be constituted as tax advice.
For specific conditions you should consult a tax expert.

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