Let’s breakdown the specific provisions of the tax reform in Costa Rica so that you can determine how the changes will impact your life.
The Value Added Tax (V.A.T.)
There is a 13% sales tax that only applies to a limited amount of products. The goal of the tax reform law is to change the sales tax into a Value Added Tax (VAT) that will be broader in scope by covering products and services. The following tax rates will apply:
- 13% is the general tax rate.
- 4% for airline tickets and private healthcare services.
- 2% for medical products, raw materials and machinery used for production, insurance premiums, purchase and sale of university issued products.
- 1% the list of food consumption products that make up the basic necessities foodstuff list (canasta basica).
The V.A.T. would also apply to all service providers such as doctors, architects, engineers, lawyers, dentists, accountants etc.
Exemptions to Tax Reform in Costa Rica
The tax reform law includes several exemptions that will not be subject to the 13% tax rate as follows:
- Exports of goods.
- Sales of goods or services for free trade zones.
- Interest and fees for loans and credits.
- Financial and operating leases.
- The guarantees and guarantees of compliance.
- Commissions paid to complementary pension operators.
- Rental of housing where the rental amount is less then the equivalent of 1.5 base salaries (646,000 Colones).
- The electricity consumption of less than 280 kW / h.
- Water consumption less than 30 cubic meters.
- Orthopedic equipment, rehabilitation and wheelchairs.
- Goods and services provided or acquired by the Red Cross.
- Goods and services provided or acquired by the Costa Rican Fire Department.
- Enrollment in public universities.
- Goods and services provided or acquired by the Association Works of the Holy Spirit.
- Acquisition of goods and services from the Earth University.
- Internal advertising space of radio and television programs.
- Self generating of electricity.
- Books in any of their formats.
- The fees and monthly payments of professional associations.
- Premiums for labor, agricultural and social interest housing.
- The services of livestock auctions.
- Care and elderly care networks.
- Goods and services acquired by the Boards of Education.
- Goods and services acquired by the Community Development Associations.
- Goods and services acquired by the Asadas.
- Private education (preschool, primary, secondary, university, para-university and technical).
Income Tax Reform
The Tax Reform Law in Costa Rica would modify certain provisions of the existing income tax law as follows:
The Tax Year
Currently the Costa Rican tax year ends on September 30th. This would change to a calendar based tax year so that it would run from January to December.
For Corporate Entities
According to tax reform, the corporate tax rates would be as follows:
- Corporate Tax rate is 30%.
If Gross Income is less than 106 million colones during the fiscal year then the following rates apply:
- 5% on the first ¢ 5 million annual net income.
- 10% on the excess of ¢ 5 million and ¢ 7.5 million of annual net income.
- 15% on the excess of ¢ 7.5 million and up to 10 million annual net income.
- 20% on the excess of ¢ 10 million colones of annual net income.
Small businesses which are registered before the Ministry of Economy, Industry and Commerce, or before the Ministry of Agriculture, may apply the following scales:
- 0% of the tax on the profit tax in the first year of commercial activities.
- 25% of the tax on the profit tax in the second year of commercial activities.
- 50% tax on the profit tax in the third year of commercial activities.
- Income of up to ¢ 3,339,000 per year, will not be subject to tax.
- ¢ 3,339,000 per year and up to ¢ 4,986,000 per year is 10%.
- ¢ 4,986,000 per year and up to ¢ 8,317,000 per year is 15%.
- ¢ 8,317,000 per year and up to ¢ 16,667,000 per year is 20%.
- ¢ 16,667,000 annually is 25%.
Once the tax has been calculated, the individuals who carry out lucrative activities will be entitled to the following tax credits.
- For each child the tax credit will be ¢ 16,920 per year.
- For the spouse the tax credit will be ¢ 25,320 per year.
For Salaried Employees
- Income of up to ¢ 752,000 per month will not be subject to tax.
- ¢ 752,000 monthly and up to ¢ 1,128,000 is 10%.
- ¢ 1,199,000 monthly and up to ¢ 2,103,000 is 15%.
- ¢ 2,103,000 monthly and up to ¢ 4,205,000 is 20.
- ¢ 4,205,000 monthly is 25%.
Implementation of a Capital Gains in Costa Rica
Tax Reform in Costa Rica will create a Capital Gains Tax of 15% which will apply to investment income and real estate. For real estate, the law provides a one-time exemption for property owners that own property before the law comes into effect. They will pay 2.25%. Also, the primary residence is exempt from capital gains.
For more information on the Guanacaste area of Costa Rica, please visit our FAQs page.
For specific questions, please feel free to Contact Us.