Costa Rica

Foreign tax credit

Costa Rica’s tax system does not allow for the possibility of foreign tax credits.

As an exception, taxpayers considered as non-qualified entities that obtain foreign-source passive income may credit the analogous tax withheld or paid abroad against the Costa Rican applicable tax regarding the same income.

Free zones

Entities covered by the Free Trade Zone Law may enjoy exemption from import duties on goods, income tax, VAT, export tax, selective consumption tax, real estate transfer tax, and WHT on payments abroad, as well as the discretionary use of foreign currency generated abroad. However, due to rules established by the World Trade Organisation (WTO) in force from year 2015, the manufacturing companies can apply to the Free Trade Zone Regime whether the sale of their products is in Costa Rica or outside Costa Rica as long as they comply with the requisites established in the Law. This same rule was extended by means of the Law 9689/2019 to the service companies, under which they can sell their services internally or abroad without any cap or restrictions. Right now, there are proposed regulations under discussion to implement the new rules brought by the Law 9689/2019.  

The Free Trade Zone Regime in Costa Rica is a special system designed to attract investment and promote exports through tax and customs benefits. Companies located in these zones receive exemptions from taxes such as income tax, VAT, and tariffs, allowing them to import inputs and export products at lower costs. Due to these exemptions, companies in Free Trade Zone Regime do not generate or charge VAT on their main operations, so the use of VAT tax credits is limited or does not apply, although they may have tax credits if they conduct activities subject to tax outside the regime. In summary, the regime provides a favourable environment for investment through significant tax incentives and customs simplification.

Drawback industries

Special benefits exist for industries that import semi-manufactured materials for assembly in Costa Rica and export finished products. Benefits consist of duty-free imports of raw materials for subsequent export as manufactured products. Machinery for these industries may also be imported duty-free.