The Costa Rican tax system is based on the principle of territoriality, according to which any business activity in Costa Rica is subject to income taxation on local income in the same way as a registered business, irrespective of the place of incorporation. Such corporations doing business in Costa Rica are subject to the permanent establishment (PE) rules.
Under the Costa Rican Income Tax Law, income from transactions carried out abroad may be regarded as non-Costa Rican-source income and then not subject to income taxes.
It is important to bear in mind that Costa Rican income tax applies to those incomes considered as directly related to the economic structure of the country. This does not strictly relate to economic activity inside Costa Rica, but provides a wider concept of territoriality.
Corporate income is taxed at a 30% rate. However, the law establishes special regulations for small companies whose gross income does not exceed 109,032,000 Costa Rican colones (CRC). For this category, the following rates apply:
- 30% for companies with gross income over CRC 109,337,000.
Please note that these corporate income tax (CIT) brackets are annually updated, to coincide with the fiscal year. However, one must consider that under the tax reform approved in December 2018, the tax authorities changed the fiscal year so it matches the calendar year.
In the new Law enforceable as of 1 July 2019, a new tariff scale was established for legal persons whose gross income does not exceed the sum of CRC 109,337,000 during the fiscal period:
- 5% on the first CRC 5,157,000 of annual net income.
- 10% on the excess of CRC 5,157,000 and up to CRC 7,737,000 of annual net income.
- 15% on the excess of CRC 7,737,000 and up to CRC 10,315,000 of annual net income.
- 20% on the excess of CRC 10,315,000 of annual net income.
In addition, the following exemptions are established for micro and small businesses registered with the Ministry of Economy, Industry, and Commerce (MEIC) or with the Ministry of Agriculture and Livestock (MAG):
- 0% of the tax on profits in the first year of commercial activities.
- 25% of the tax on profits in the second year of commercial activities.
- 50% of the tax on profits in the third year of commercial activities.
Local income taxes
There are no provincial income taxes in Costa Rica; however, there is a municipal tax. The rate depends on the municipality in which the company is located, but the most regular method of calculation is to apply a percentage over net income or sales.