Costa Rica: Domestic Corporate Taxation
Calculation of Taxable Base
Business income tax is assessed on the difference between gross income and allowable deductions.
Although there is no capital gains tax in Costa Rica profits made on the sale of a capital asset are taxed as business income, and losses made on the sale of an asset may be set off against trading profits. The sale of land, shares and patent rights are excepted from this rule unless the seller's business revolves around their habitual sale.
There are a number of allowances which can be deducted from gross income for the purposes of an assessment:
- Depreciation is permitted at prescribed rates, which are fairly normal; accelerated depreciation is available on certain types of asset;
- Depreciation rates cannot be higher than those prescribed by the Regulations to the Income Tax Law. A company can choose either the straight line or the sum-of-the-year-digits methods of depreciation;
- Annual depletion allowance is granted to companies that use natural and depletable resources;
- Organizational and pre-operational expenses can be amortized in five years;
- Operational losses can only be carried forward up to three years by companies engaged in industrial operations and five years for agricultural operations. The amount to be carried forward or used as a deduction is up to the discretion of the taxpayer.
- Inventories are usually valued by the weighted-average method; LIFO is also permitted;
- Interest payments are an allowable deduction. However under Article 10 of the Income Tax Law the allowable rate for tax deduction purposes is the interest rate prescribed by the Central Bank. Interest paid on shares because of special rights attaching thereto is treated as a dividend and is therefore not deductible;
- Dividends received by resident corporations from other resident corporations are not taxable; interest income on marketable securities is also tax-exempt.
Group and consortium relief is not available.
No credits are granted in Costa Rica for taxes paid in a foreign country.