Costa Rica: Personal Taxation
Income tax payable by individuals is set out in the Income Tax Law; the rates are in article 15. The fiscal year runs from 1st October to the following 30th September. Employment income includes the gross value of a salary, wage, pension, commissions, bonuses, expense allowances and any benefits in kind. No expenses can be deducted in assessing employment income. However in respect of non-employment source income (e.g. dividends on shareholdings, rental from a property letting, etc) there is a difference in how residents and non-residents are taxed. Thus there are 3 distinct manners of assessing income tax payable by residents and non residents namely:
Personal Income Taxes:
This group includes two categories:
- persons whose income consist of a fixed salary or other remuneration and
- persons with profit generating activities
a. - Persons whose income consists of a fixed salary
Any individual employed in Costa Rica pays a monthly withholding tax rate based on his salary. From October 1, 2012, employment income (on a monthly basis) of individuals is subject to a progressive tax of 15% as follows:
- Income up to 714,000 colons, exempt.
- In excess of 714,000 up to 1,071,000 colons, 10%.
- In excess of 1,071,000 colons, 15%.
There is a monthly tax credit applicable to each dependent meeting the following criteria:
- A minor (under 18 years)
- Handicapped (physically or mentally), and therefore unable to make his own living.
- A high school or college student, not older than 25 years.
- A monthly tax credit applicable to the spouse only if there is no legal separation between them. In case that both spouses are tax payers, the tax credit can only be deducted by one of them.
The amount of the monthly tax credit is 1,340 colons, and 2,000 colons for the spouse.
b. - Individuals with profit generating activities
The following rates are applied to taxable annual profits for the 2012/2013 tax year:
- Profits up to 3,042,000 colons exempt
- In excess of 3,042,000 up to 4,543,000 colons 10%
- In excess of 4,543,000 up to 7,577,000 colons 15%
- In excess of 7,577,000 up to 15,185,000 colons 20%
- In excess of 15,185,000 colons 25%
An annual tax credit per dependent can be applied by taxpayers, once income tax has been calculated. Conditions to apply to this tax credit are the same as stated previously. In case that both spouses are tax payers, the tax credit can only be deducted by one of them. The tax credit is 14,040 colons per child and 20,760 colons for the spouse.
Income tax payable by residents on non-employment source income:
- Non-employment source income includes payments related to bonuses, profit share schemes, dividends on shares, interest on loan deposits, and rental income.
- A number of non-employment sources of income are exempt from tax. They include Christmas bonuses (mandatory after 12 months service with the same employer), gains achieved on the sale of capital assets (e.g. the sale of a house at a profit), gifts, inheritances and income from securities designated either as tax exempt or subject to a withholding tax in place of income tax.
- There are a number of allowances which can be deducted from non-employment source income by residents so as to reduce the taxable charge namely: an annual tax credit in respect of a spouse; an annual tax credit in respect of a dependant under 25 years of age;
- Under law 7293 of 1992 (the Incentives to Tourist Development Law) any individual who purchases shares in a corporation involved in hotel services, air transportation, water transportation or car rental can annually deduct up to 50% of the value of his shareholding from his income for the purposes of income tax so long as the deduction does not exceed 25% of his annual tax payment.
- A husband and wife are treated separately for the purposes of assessing income tax on the non employment source income of residents.
Income received by non-residents from a non-employment source is usually taxed at source (e.g. withholding tax on dividends) and if not taxed at source is not taxed at all.