QCOSTARICA – Under pressure to raise revenue and reduce deficits, the Government of Costa Rica is preparing to collect income tax not only on earnings by persons or corporations within the country, but also on income generated abroad, a global income tax (renta mundial in Spanish).
Currently, in Costa Rica the taxation is based on the principle of territoriality, meaning that all personal income which has a foreign source is tax exempt.
If the proposal announced on Monday is adopted, the tax law would be amended to include A “tax resident” designation that would apply to any person who spends more than 183 days of a calendar year in Costa Rica.
The designation would equally apply to “perpetual tourists” (persons who live in Costa Rica and leave every 90 days to renew their tourist visa).
That is the word from Deputy Minister of Revenue at the Ministry of Finance, Fernando Rodriguez, speaking to legislators of the Commission of Inquiry on the Panama Papers, during the first hearing of the legislative forum.
To avoid double tax collection, Rodriguez explained of the possibility that a person does not have to pay the tax to the Costa Rican government if it has proof that they have paid income tax in the country where it was generated.
In addition, the Ministry of Finance is insisting on the need to create a database of shareholders and final beneficiaries of corporations, to improve its fight against tax fraud.
Earlier this year, a presidential decree, required the state bank, the Banco de Costa Rica (BCR) to open bank accounts to foreigners, allowing the government to identify and tax all foreigners living – legally or illegally in the country.
In an article by Daniel Woodall (www.usexpatcostarica.com) of June 7, 2016, he writes, “the proposed tax law would snare expats who work virtually from Costa Rica for U.S. companies and may claim the Foreign Earned Income Credit, applied on up to $100,800 annually for 2015. Since this income is exempt from federal income tax in the United States, it would be taxed fully in Costa Rica.”
The global income tax proposal is part of the Government’s tax reform package (Reforma Fiscal in Spanish) it is trying to get through the legislative process.