Resident taxpayers are subject to Income tax, which as mentioned before is structured based on the territoriality principle. Therefore, only income derived from Costa Rican source income would be subject to tax. Costa Rican source income is defined as any income derived from cervices rendered, real estate or movable assets located or capitals invested in Costa Rica, during the statutory tax period. Taxpayers should analyze each situation on a case-by-case basis when cross border issues may affect a specific transaction or activity.
The reason for such analysis is that the Tax Administration has extended Costa Rican source income criterion come times beyond the law. This situation, even though may affect the rule of law, has lead the tax-payers to time consuming and costly administrative procedures that could be avoided if the situations are analyzed in advance in order to take necessary actions in a timely manner if it is concluded that the tax impact could be significant.
Corporate income tax rate is 30% on net income but individuals carrying out independent business activities are subject to a lower tax rate of 25% on net income. Resident taxpayers may benefit from the possibility to enjoy specific tax exemptions granted for companies under specific systems (i.e. companies under the Free Trade Zone System).
In relation to non-resident taxpayers doing business in Costa Rica without having a secondary establishment herein, they are subject to the remittances abroad tax, which includes different tax rates for different types of income (i.e. technical advisory services – 15%; interests – 15%; professional services – 15%, technical advisory services – 25%, among others).This tax collected through withholding made by the domicile individual or entity paying Costa Rican source income to the non-resident.
Non-resident taxpayers may enjoy a tax waive when receiving Costa Rican source income from interests, commissions, dividends, royalties, among others. In order to enjoy such tax advantage, specific requirements established in the Law must be met.
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