Costa Rica

Individual - Income determination

Last reviewed - 27 February 2024

Employment income

Individuals domiciled in Costa Rica are taxed on salaries, commissions, fees, royalties, and other forms of remuneration for services rendered. Any income earned abroad while tax resident in Costa Rica is not taxable if not related to the economic structure of the country. Salary income operates exclusively on a withholding basis. In this regard, according to the Income Tax Law, all elements paid to the employee related to the labour relationship are considered taxable. All elements considered ‘salary in kind’ must be included in the salary reported in the payroll, and that amount will be the taxable base for both the salary income tax and the social security contributions, with certain exceptions.

Under Costa Rican law, salaried employees have the right to a mandatory Christmas bonus. The amount of mandatory year-end bonus (Christmas bonus) that does not exceed one-twelfth of net salary (which is one-thirteenth of gross salary) is exempt from income tax and is deductible for income tax purposes for the employer.

The reimbursement of personal living expenses and travel expenses for individuals not formally domiciled may be subject to taxes. This would include the reimbursement of similar expenses for the taxpayer’s family. Certain expense allowances at the discretion of the tax authorities are not subject to taxation, nor are they deductible for the taxpayer.

Capital gains

With the new law, capital gains are subject to a 15% tax, which will be paid either through withholding at source or, when the tax cannot be withheld, declaration by the taxpayer. There is a possibility to opt for a 2.25% tax rate under certain conditions for the first sale of each asset based on the PL# 9635 enforced after 1 July 2019. In addition, a global system is established that allows taxes that were withheld to be applied as payments on account of income tax when said profits come from goods or rights that are used in the lucrative activity of the taxpayer.

Interest income

In the new law, interest is taxed as income from movable capital at a rate of 15%, unless it is considered as part of the regular activity of the taxpayer, in which case it would become part of the global income with a maximum ordinary rate of 30%.

Foreign-domiciled individuals are subject to WHT. For applicable WHT rate, see Withholding tax rates in the Taxes on personal income section.

Rental income

Since rental income denotes a permanent physical establishment in Costa Rica, the landlord must file a regular tax return indicating total income, without deduction of expenses.

It will be declared through the real estate capital income return, and subject to a 15% tax rate, with a predetermined 15% of deductible expenses (20% for real estate funds).