Costa Rica

Inventory valuation

Inventories are generally stated at cost and can be valued using the compound average-cost method, first in first out (FIFO), retailer method, or specific identification method. Since all entities must keep legal records, any adjustment resulting from different methods of inventory valuation for tax and financial purposes should be recorded.

Capital gains

Capital gains are taxed at 15%, which will be paid either through withholding at source or, when the tax cannot be withheld, it must be declared by the taxpayer. In addition, a global system is established that allows taxes that were withheld to be applied as payments on account of the tax on profits when said profits come from goods or rights that are used in the lucrative activity of the taxpayer.

Special rules apply for the 'first sale', and there are certain exemptions listed in the law (e.g. corporate reorganisation).

Dividend income

In the Income Tax Law, Law number 7092, dividends are taxed as income from movable capital at 15%. The distribution of dividends is exempt when the parent company is another capital company domiciled in Costa Rica, when the latter develops an economic activity subject to income tax, or in the case of a controlling company of a group or regulated financial conglomerate.

Stock dividends

Dividends paid in the form of stock of the distributing company are allowed and are exempt from taxes.

Interest income

As a result of the Law No. 9635, interest is taxed as income from movable capital at a rate of 15%, unless considered the result of the usual economic activity, in which case it would become part of the global income with a maximum ordinary rate of 30% applicable to local source income.

It must also be considered that, as an exception established by Law No. 10.381, offshore source income can be considered as taxable income for entities that belong to a multinational group if deemed as non-qualified entities, such income would be deemed as taxable with a 15% rate.  

Income generated from interest abroad prior to the enforceability of Law No. 10.381 was considered as taxable by the authorities due to the wider interpretation that was validated by judicial authorities and even by the Constitutional Chamber. 

Royalty income

Royalty income coming from sources related to normal business activities is taxable.

In the Income Tax Law, Law number 7092, royalty is taxed as income from movable capital at a rate of 15%, unless considered the result of the usual economic activity, in which case it would become part of the global income with a maximum ordinary rate of 30% for non-qualified entities as an exception of territoriality, which is a tax applicable to foreign source income.

Foreign income

Foreign-source income is not taxable in Costa Rica.

As an exception, passive incomes from foreign sources are subject to taxation, when they are generated from assets located or rights used economically outside the national territory, in cases of entities belonging to a multinational group which obtains them, also it must be considered as a non-qualified entity in accordance with the provisions of article 1 of this Income Tax Law. In those cases, this exception is applicable for the following:

a) dividends;

b) interest;

c) royalties;

d) capital gains;

e) real estate capital income;

f) other personal capital income.

Additionally, from a VAT perspective, cross-border digital services will be subject to a 13% tax rate.