Costa Rica: Personal Taxation
Residence and Liability for Taxation
In Costa Rica the taxation of individuals is based on the principle of territoriality, meaning that all personal income which has a foreign source is tax exempt. Only that proportion of revenue earned by an individual within Costa Rica is subject to an assessment by the tax authorities. However, this may change if the Costa Rican legislature manages to pass the long awaited fiscal reform package.
The principle of territoriality is perhaps the most significant aspect of the country's fiscal regime. Costa Rica does not discriminate between the taxes payable by residents and non residents The main taxes affecting an individual are income tax, employee social insurance, withholding taxes, capital transfer tax and selective consumption tax. There are relatively minor municipal taxes, and there is a tax on vehicles.
Income tax is levied on both employment source income and non-employment source income. While residents and non-residents pay the same income tax on employment source income there is a slight distinction between how a resident and a non-resident are assessed on their non-employment source income but the distinction is driven by pragmatic considerations and is not discriminatory.
The selective consumption tax, equivalent to a VAT, and levied at 13% has a major impact on the standard of living.
One of the key components of the Fiscal Reform Bill would be a switch from the sales tax to a Value Added Tax system; taxes payable by Free Zone companies would also be increased over a period of time, and it's possible that the territorial basis of personal taxation would be abandoned in favour of world-wide income taxation.
There is no capital gains tax in Costa Rica. Whilst gains made by businesses on the sale of capital assets may be subject to business income tax, capital gains made by a resident or non-resident individual on the sale of a capital asset are exempt from any form of income tax.
No credits are granted in Costa Rica for taxes paid in a foreign country.