In Costa Rica, according to the current Income Tax Law, Law No. 7092, corporations pay, as a general rule, 30% on its profits. Corporations must annually file tax returns, in which taxpayers state their taxable income and deductible expenses according to law; the result obtained is the yearly taxable income, to which 30% tax is applied.
There is a regime for “small companies”, which are those companies whose annual gross income is not above ¢53.113.000. Their tax rate is based on a progressive scale that for the 2018 period is the following:
|On the excess ¢106.835.000||30%|
If an individual decides to have a business of its own or in the case of independent professionals, such as lawyers, private accountants, certified public accountants, medical doctors, etc., tax on profits should be calculated based on the following table for tax on profits:
|Over the excess of||¢3.549.000 up to ¢5.299.000||10%|
|Over the excess of||¢5.299.000 up to ¢8.840.000||15%|
|Over the excess of||¢8.840.000 up to ¢17.716.000||20%|
(Taxpayer must file form D-101, Sworn Income Tax Return).
The payment of dividends is established in article 16, 17, 18 and 19 of Income Tax Law of our country, levying first all the dividends paid in money, in kind, or in non-nominative shares of the company, the individuals domiciled in Costa Rica and abroad, and the corporations domiciled abroad, at a general rate of 15%. A rate of 5% is applied to those dividends distributed by corporations whose stock is registered with the National Stock Exchange, and besides, such stock had been acquired through such Institution.
Payment of such tax must take place within the first ten working days of the month following the one in which the payment, withdrawal, or credit of dividends was made, and the paying company becomes the withholding agent.
Branches in Costa Rican pay taxes, just as corporations do, at a rate of up to 30% on profits.
Moreover, the profits remitted to the parent company are taxed at a 15%-rate, according to article 19 of the Costa Rican Income Tax Law. The Company that makes the payment acts as a withholding agent.
Since our Income Tax Law is based on an individual structure, it levies income from independent work, pensions, retirements, or other remunerations for personal services. Tax rates to such remunerations are the following (each tax period modifies the chart):
|2018 Period||2018 Period||Rate|
|Up to||¢ 799.000||Exempt|
|Over the excess of||¢ 799.000 up to ¢1.199.000||10%|
The employee does not have to file the tax return; therefore, the employer must monthly withhold such tax, report it and pay it to the tax authorities.
Non-customary capital profits are usually not taxed (understanding as “customary” the activity to which a person or company mainly and mostly dedicates, which is publicly and frequently performed, and to which most of the time is devoted). However, those profits originating from depreciable fixed assets are specifically taxed. In this case, for calculating tax on the companies´ profits, it is necessary to calculate what they declare at a rate of 30% when dealing with large companies and the corresponding rate when dealing with small companies.
Territorial tax in Costa Rica is called Tax on Real Estate, which levies land and facilities or fixed and permanent constructions existing in the municipal jurisdiction. Such tax is administered by the municipalities established in each county. Rate is 0.25%, which is applicable on the cost of the real estate registered with each municipality. It is an annual tax, and the tax period starts on January 1 and ends on December 31 of each year.
There is not a specific value-added tax.
Costa Rica establishes a general sales tax for merchandises sold in the local market, which is 13% on sales or transfers made, specifically on services stipulated by the Law, such as: restaurant, clubs, bars, and other similar ones, as well as motels, boarding houses and other temporary guesthouses; telephone service, electricity, car repair shops, customs agencies, advertising services, and others.
Sales tax operates under the concept of the difference between the tax paid in previous stages and the tax charged in the sales invoice; however, this system does not only operate for commercial companies as to resold merchandises, and for industrial companies, credit is only on those acquisitions incorporated on the production of merchandise, including taxed services. As to the companies offering taxed services, tax credit is only recognized when it is incorporated to the taxed credit. The tax credit is not recognized when rendering exempted services. In regards to exports, sales abroad are not taxed and tax credit is recognized to them that is to say, sales tax paid in equipment, industrial machinery, raw material, and consumables incorporated in the production of merchandises to be exported.
This tax is determined according to the monthly sworn return, which is determined by subtracting to the tax debit (tax charged to clients for taxed merchandise sales) the tax credit (tax paid in previous stages).
The most important local taxes are the following:
Any person who wishes to perform a profitable activity should have a municipal permit, which will be obtained by paying the municipal permit tax. This tax must be paid during all the time such profitable activity took place or during the time such permit has been granted. This tax is local; therefore, a specific rate applies for each county municipality.
Any division of a property for sale should have express permission from the municipality, as well as any work related to the construction performed, whether provisionally or permanently. Tax corresponds to 1% on the cost of constructions.
There are no international tax treaties in Costa Rica, only information exchange treaties with the United States of America.
In Costa Rica was published Transfer Pricing Regulations (Decree No. 37898- H Transfer Pricing Provisions, published in Gazette 176 on Friday, September 13, 2013); also, the Dirección General de Tributación (tax authority) declared that the transfer prices were fully applicable in Costa Rica through Directive No 20-2003 denominated “Tax Treatment of Transfer Prices according to the Normal Market Price”. To this end, it made an extension of the interpretation, according to the economic reality allowed by article 8 of the Tax Code. From fiscal year 2015, will be the first informational declaration for large taxpayers and large land companies, as well as for free zone companies; For the other companies are not obliged to make the informative declaration, but they are obliged to carry out the study of transfer prices.