Tax guide for Americans in Costa Rica
Many Americans move to Costa Rica for the warm weather, lower cost of living, and tight-knit expat communities. But when it comes to taxes? Things can get a little tricky, especially if you have multiple sources of income.
Overview of Costa Rica
| Primary tax form for residents | D-101 (for self-employed individuals) |
| Tax year | January 1 – December 31 |
| Tax due date | March 15 (self-employed); employers withhold tax for employees |
| Criteria for tax residency | 183+ days in Costa Rica within a year |
| US tax filing requirements | US citizens must file a tax return and report worldwide income |
| Eligibility for FEIE | Expats may exclude up to $130,000 (2025) in foreign-earned income if they qualify |
| Methods of double tax relief | US expats can claim Foreign Tax Credit (FTC) or FEIE to avoid double taxation. |
| Tax residency for dual citizens | Costa Rica only taxes local income, but US citizens must still report global income |
| Estate and inheritance tax | No estate tax in Costa Rica; US estate tax laws apply |
| Overview of local tax rates | Income tax up to 25%, property tax at 0.25%, VAT at 13% |
Resident vs. non-resident of Costa Rica
Understanding the distinction between resident and non-resident status in Costa Rica is fundamental for tax purposes, especially when navigating Costa Rican taxes. This classification significantly affects your tax liability and the nature of your tax obligations.
Generally, residents are taxed on their worldwide income. This means that as a resident, your income from both Costa Rican and international sources is taxable in Costa Rica.
In contrast, non-residents are taxed only on their Costa Rican source income. This includes income earned in the country, such as income from employment or business activities conducted in Costa Rica.
The Costa Rican tax system is independent of immigration status. Therefore, even if you haven't obtained permanent residency in the immigration sense, you may still be considered a tax resident based on your presence in the country.
Who can be considered a resident of Costa Rica?
The criteria for being considered a tax resident in Costa Rica are quite specific:
- You are considered a tax resident if you spend more than 183 days, continuous or discontinuous, in Costa Rica during a single fiscal year (one year, but not necessarily beginning at the beginning of the calendar year.). This period includes all arrivals and departures, meaning that short trips outside of Costa Rica do not reset the count.
- If you are sporadically absent from Costa Rica, you are still considered a resident unless you can prove tax residency in another country. This proof usually requires a residency tax certificate from the other country.
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Does Costa Rica tax foreign-earned income?
The short answer? No. Costa Rica has a territorial tax system, which means that only income earned within the country is taxed.
So if your money comes from US Social Security, foreign rental properties, or investments, you won't owe Costa Rican taxes on it.
Types of taxes in Costa Rica
Costa Rica's tax system includes various forms of taxation, each with its own set of rules and Costa Rica tax rates. Understanding these is crucial for anyone earning income in the country, especially for Americans who are either considering relocating or already living there.
The primary focus here is on personal income tax, which applies to both self-employed and employed individuals.
Personal income tax rates
In Costa Rica, personal income tax is levied based on the source and amount of income. The system is progressive, meaning higher income brackets are subject to higher tax rates.
Self-employed (2025 update)
In Costa Rica, income tax is progressive, meaning the more you earn, the higher the tax rate. These rates only apply to income earned in Costa Rica - foreign income isn't taxed.
Here's the 2025 tax breakdown for the self-employed:
| Taxable income (CRC*) | Tax rate (%) |
|---|---|
| 0-4,094,000 | 0 |
| 4,094,000-6,115,000 | 10 |
| 6,115,000-10,200,000 | 15 |
| 10,200,000-20,442,000 | 20 |
| 20,442,000 and above | 25 |
* Costa Rican colones
These rates apply to net income, which is gross income less allowable deductions.
Employed individuals (2025 update)
For individuals employed by others, the tax rates are applied differently, focusing on monthly taxable income:
| Taxable income (CRC*) | Tax rate (%) |
|---|---|
| 0-922,000 | 0 |
| 922,000-1,352,000 | 10 |
| 1,352,000-2,373,000 | 15 |
| 2,373,000-4,745,000 | 20 |
| 4,745,000 and above | 25 |
For employees, the employer is usually responsible for withholding the correct amount of tax from the monthly paycheck and remitting it to the tax authorities.
This system simplifies the process for employees by eliminating the need for them to make these calculations or payments.
Rate of withholding tax
In Costa Rica, the WHT is a critical component of the tax system, especially for non-residents and in certain transactions involving residents.
This tax is generally withheld at source from various types of income, such as interest, dividends, royalties, and service fees.
The payer of the income is responsible for withholding and remitting the tax to the tax authorities.
WHT rates vary depending on the type of income (2024):
| Type of income | WHT (%) |
|---|---|
| Interest | 15 |
| Dividends | 15 |
| Royalties, patents, trademarks, franchises, and formulas | 25 |
| Services for transportation and communication | 8.5 |
| Personalized Costa Rica services | 25 |
| Other | 30 |
Value Added Tax
VAT is a consumption tax levied on selling goods and services in Costa Rica. As of the latest updates, the standard VAT rate is 13%.
This tax applies to most transactions, including the importation of goods, the provision of services, and the transfer of tangible and intangible goods within the country.
However, there are certain exemptions and reduced rates for certain categories:
- Some essential goods and services, such as certain food items, health services, and educational materials, are subject to lower VAT rates, ranging from 1% to 4%.
- Certain transactions are exempt from VAT. These include exports, some types of insurance, and certain financial services.
- Businesses registered for VAT in Costa Rica are responsible for charging, collecting, and remitting this tax to the government. They can also claim credits for the VAT paid on their business-related purchases, which effectively makes the tax neutral for registered businesses.
Costa Rica property tax
If you own property in Costa Rica, you'll have to pay an annual property tax of 0.25% of the declared value.
Own a high-end home? If your property is worth more than 137 million CRC (about $250,000 USD), you may also owe a luxury tax of between 0.25% and 0.55%.
Transfer tax on real estate
The real estate transfer tax is levied on the transfer of ownership of real estate in Costa Rica. This tax is an important consideration in the purchase and sale of real estate and affects both the buyer and the seller.
The real estate transfer tax is levied at a rate of 1.5% of the sale price of the property or its registered value, whichever is higher.
The responsibility for paying this tax usually falls on the buyer, but it may be subject to negotiation between the buyer and seller.
Payment of the transfer tax is required to legally record the change of ownership in the Public Registry.
Pro Tip. Participants in real estate transactions in Costa Rica need to consider this tax in their financial planning and ensure timely payment to facilitate a smooth transfer process.
Corporate tax
Corporate income tax in Costa Rica is levied on the profits of corporations and other legal entities. This tax is an important part of the country's tax system and is relevant for companies operating within its jurisdiction, particularly in terms of corporate tax rates.
The standard corporate income tax rate is 30%. However, there are lower rates for smaller companies and certain types of income.
Corporate income tax is applied to a corporation's net income, which is defined as gross income less allowable deductions such as operating expenses, depreciation, and interest.
Corporations are required to file annual corporate income tax returns detailing their income, expenses, and resulting taxable profit.
Costa Rica offers special tax regimes for certain sectors, such as free trade zones, where companies can benefit from reduced tax rates or exemptions.
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Costa Rica income tax filing
When to file tax returns
In Costa Rica, the tax year is based on the calendar year and runs from January 1 to December 31.
Tax returns must be filed by March 15 of the following year. This deadline applies to both individuals and corporations.
For certain taxpayers, such as the self-employed, provisional payments may be required throughout the year based on the previous year's income.
How to file a tax return
Costa Rica has adopted digital solutions for tax filing. Taxpayers are required to file their returns electronically using the digital platform provided by the Costa Rican tax administration.
When filing your tax return, you will be required to submit various documents, including proof of income, deductible expenses, and any applicable tax credits.
Due to the complexity of the tax laws, many expatriates and businesses choose to hire professional tax services or accountants to ensure accurate filing.
Penalties for late or incorrect filing
Failure to file your tax return by the due date may result in penalties. The penalty is usually calculated as a percentage of the unpaid tax, with interest accruing over time.
Filing an incorrect or incomplete tax return can also result in penalties. These can include fines and additional interest.
In serious cases, especially where tax evasion is suspected, there may be more serious legal consequences, including criminal charges.
Social Security in Costa Rica
Social Security in Costa Rica plays a vital role in providing financial security and health benefits to its residents. The system is comprehensive, covering a range of services from healthcare to retirement benefits, and is mandatory for all employees and self-employed individuals.
Both employers and employees contribute to the social security system. The contribution is a percentage of the employee's salary, with the employer paying a higher percentage than the employee.
Costa Rica's social security system, administered by the Caja Costarricense de Seguro Social (CCSS), provides extensive health care benefits. This includes access to hospitals, clinics, and prescription drugs.
In addition to health care, the system provides disability and maternity benefits.
The self-employed are also required to contribute to the Social Security system, which ensures that they have access to the same benefits as employees.
Pension system in Costa Rica
The pension system in Costa Rica is a key component of the broader social security framework designed to provide income security for individuals in their retirement years, making it an important consideration for Costa Rica retirement planning.
Costa Rica's pension system includes both a mandatory public pension system and voluntary private pension plans. The public pension is administered by the CCSS and is funded by contributions from employees, employers, and the government.
The standard retirement age in Costa Rica is 65 for both men and women. However, early retirement is possible under certain conditions.
To qualify for a full pension, individuals must contribute to the system for a minimum number of years. The amount of the pension depends on the individual's average salary and the total number of years contributed.
In addition to the mandatory state pension, individuals may choose to contribute to voluntary private pension plans, which offer the potential for higher returns and additional savings for retirement.
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The tax treaty between the USA and Costa Rica
There is currently no comprehensive tax treaty between the United States and Costa Rica.
Most popular tax forms for US expats
Even while living abroad, US citizens must file a US tax return and report worldwide income. However, the US offers several tax benefits for expats:
- Foreign Earned Income Exclusion (FEIE) – Allows exclusion of up to $130,000 (for 2025) in foreign-earned income.
- Foreign Tax Credit (FTC) – Credits taxes paid to Costa Rica against US tax obligations.
- Foreign Bank Account Reporting (FBAR) – Required for expats with foreign accounts exceeding $10,000.
Costa Rica tax forms for US expats
In Costa Rica, US expatriates must also comply with local tax laws, which involve filing specific Costa Rican tax forms. Some of the most important forms include:
- D-101 (Income tax return for Individuals): Expats with sources of income in Costa Rica, such as rental income or business income, must file this form annually.
- D-104 (General sales tax return): For expats running a business in Costa Rica, this form is used to report and pay the sales tax collected from customers.
- D-151 (Summary of payments and withholdings): This form is used to report certain transactions, including payments for services and rent, and the tax withheld on these payments.
- D-140 (Registration or update of taxpayer information): Expats starting a business or becoming tax residents in Costa Rica must file this form to register or update their information with the tax authorities.