Home » Costa Rica. Information on Residency for tax purposes

Costa Rica. Information on Residency for tax purposes

Costa Rica, the Republic of Costa Rica, is one of the smallest countries in Central America, which ranks second in terms of living standards, and this perfectly fits its name. In Spanish, “Costa Rica” means the rich coast. It is a country with an upper-middle-income, with a GDP per capita of $12,690, and a population of about 5,048 million people. The main sources of income of the country are exports of agricultural products and medical equipment. In addition, foreign investment and tourism make a significant profit for Costa Rica.

  1. Ease of Doing Business in Costa Rica

In terms of political, financial, and economic stability, Costa Rica is one of the most stable countries in the world and refers to the least corrupt country in Central and Latin America. In fact, the global economic crisis has barely affected Costa Rica’s economy. According to the World Bank report on political stability in the world, Costa Rica is among the top 30 (out of 186) countries and ranks first in Latin America. Moreover, Costa Rica has an international reputation as a country with convenient tax and corporate management systems.

Among the main advantages of launching a business in the Republic of Costa Rica are loyal taxation, a high level of privacy, quick registration, no financial reporting requirements, the growing reputation of the country, etc. It is also known that the so-called Internet casinos are completely legal in Costa Rica, so the country attracts entrepreneurs from all over the world who want to open an online gambling business. 

According to the Doing Business 2020 report, ease of doing business ranking in Costa Rica is: 

  • Rank: 74
  • DB score: 69.2

The ease of doing business score (DB score) serves as the basis for ranking economies on their business environment and shows an economy’s absolute position relative to the best regulatory performance, while the ease of doing business ranking is an indication of an economy’s position relative to that of other countries’ economies. 

  1. Business Taxes in Costa Rica

Income in Costa Rica is taxed on a territorial principle, thus any income received outside of Costa Rica is exempt from being taxed. This feature of Costa Rica especially attracts non-resident entrepreneurs who want to register an offshore company in Costa Rica and conduct business outside of it.

There are so-called “tax vacations” that are widely used in Costa Rica, which is the possibility of not paying taxes for a certain period after the business registration. Industrial or processing companies, as well as companies providing services established in free zones in Costa Rica, can count on a number of tax benefits. “Tax vacations” for companies in free zones are provided in the form of 100% exemption from paying corporate income taxes for 8 years after registration of the company and 50% exemption during the next 4 years.

There are tax payments, also known as the total number of taxes, paid by businesses (plus electronic filing). This tax is counted as paid once a year even if payments are more often. The World Bank research shows that in Costa Rica, the tax payments number is 10.

  1. Income tax

An income tax is a tax imposed on individuals or business entities (taxpayers) in respect of their income or profits earned. Income tax rates may vary by the types or characteristics of the taxpayer and the type of income.

As for Costa Rica Personal Income Tax Rate, it is 25%.

  1. Corporate tax

A corporate tax (also called corporation tax or company tax) is a direct tax imposed on the profits of a corporation. The corporate income tax (CIT) rate in Costa Rica is 30%, the standard capital gains tax rate is 15%, and the dividend tax rate is 15%.

When dividends come from foreign sources, they are tax-free. At the same time, the transaction may be done within the country, and the offshore income is exempt from tax. The same applies to capital gains and inheritance. Moreover, Costa Rica has an agreement with the United States to avoid double taxation.