Costa Rica

The Costa Rican tax system is based on the principle of territoriality, as a result of which only income considered to be of Costa Rican source should be subject to taxation. These are defined as income generated exclusively in the national territory from services rendered, goods located, capital invested, and rights used in Costa Rica.

In the year 2023, Costa Rica passed a reform aimed at excluding Costa Rica from the “gray list” of the European Union and within the changes proposed, the taxation of foreign source passive income was incorporated under exceptional conditions. That said, if an entity belonging to a multinational group does not comply with the appropriate substance requirements in the country for the generation of its passive income, income from dividends, interest, royalties, capital gains, real estate income and other passive income could be subject to taxation in Costa Rica.

The CIT is calculated on the corporation's net income, which equals gross income minus deductible expenses. Gross income includes all income derived from any economic activity carried out in Costa Rica.

Corporate income is taxed at a 30% rate. However, the law establishes special rates for small companies whose gross income does not exceed ¢119,629,000 Costa Rican colones (CRC). For this category, the following rates apply:

• 5% on the first CRC 5,642,000 of annual net income.
• 10% on the excess of CRC 5,642,000 and up to CRC 8,465,000 of annual net income.
• 15% on the excess of CRC 8,465,000 and up to CRC 11,286,000 of annual net income.
• 20% on the excess of CRC 11,286,000 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 three years of commercial activities.
• 25% of the tax on profits in the fourth and fifth year of commercial activities.
• 50% of the tax on profits in the sixth year of commercial activities.

Non-residents are also subject to the principle of territorial source income; however, the method of taxation will depend on the presence of the non-resident in Costa Rica:

• Permanent Establishments (PE): Non-resident entities that operate in Costa Rica through a PE must be taxed on income from local sources as if they were a local taxpayer.

Entities without permanent establishment: Non-residents that do not constitute a permanent establishment are subject to withholding taxes on Costa Rican source income. Withholding rates vary according to the type of income but range from 5% to 30%.

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.