Saturday 18 September 2021

Is Costa Rica an Effective Tax Shelter?

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Dollars and Euros are easily accepted in Costa Rica.

The New Year tends to bring a shift in taxation provisions for many countries in the world. In Costa Rica, personal income tax brackets were raised for those who make more than US$1,500 a month, but comprehensive tax reform is at a standstill. With new exorbitant taxation schemes in France and fresh updates in the United States, the idea of using Costa Rica as a tax shelter is emerging.

President Francois Hollande has made good on his wealth redistribution campaign promise, which is deeply worrying the ultra-wealthy in France. As recently reported by BBC News:

France’s highest court has approved a 75% tax on high earners that is one of President […] Hollande’s signature policies.

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As expected, this new levy on income has brought about strong reaction. Actor Gerard Depardieu made Russia his new home for the purpose of avoiding French taxes, and some football teams that have signed major stars such as Swedish striker Zlatan Ibrahimovic are warning that they could stop playing since their top players are likely to leave and play in jurisdictions where taxation on the rich is not so stringent.

Public opinion shows that French taxpayers are supportive of this policy, which only affects about one percent of income earners. For the next two years, employers in France will be responsible for withholding three quarters of the income earned by workers who are paid more than one million euros. Striker Joel Campbell from Costa Rica has played in the FC Florient in France, but his contract was not quite so lucrative.

In the United States, the Affordable Care Act, also known as “Obamacare,” is creating new taxes for families whose annual incomes are $250K or less. Not all the taxes, however, are on income; indoor tanning salon patrons were hit with a new 10 percent tax a few years ago.

Could high income individuals from France and the U.S. benefit from Costa Rica’s much simpler tax code, at least before reform arrives? Perhaps. The most burdensome tax in Costa Rica is on used vehicles, but when it comes to personal and investment income, even the wealthiest individuals will not pay more than 25 percent. Other assessments such as the Value-Added Tax (VAT), property transfers and luxury homeownership are very manageable.

Only income earned in Costa Rica is subject to taxation, which means that an investor who lives in Costa Rica but makes money abroad can repatriate his or her income without having to pay taxes. This tax provision has attracted many sportsbook operators to our country, and some of the wealthiest families in Costa Rica make their money elsewhere.

Still, Costa Rica is far from being an offshore tax haven. Investors will probably be better off in the Cayman Islands, and comprehensive tax reform is looming. Under the current tax code, the vast majority of workers in Costa Rica do not pay income tax because they make less than $1,500 per month. Legislators are considering various schemes to excise more revenue, and the wealthy are on their sights.

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Article by Costa Rica Star

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"Rico" is the crazy mind behind the Q media websites, a series of online magazines where everything is Q! In these times of new normal, stay at home. Stay safe. Stay healthy.

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