Costa Rica Tax Regime

Costa Rica taxes on a strict territoriality principle: only income from a Costa Rican source — services rendered, goods located, capital invested and rights used in the country — is subject to tax, so genuinely foreign-source income is generally outside the net. The corporate income tax rate is 30%, with a reduced progressive scale (5%–20%) for small companies below a gross-income threshold and tax holidays for registered micro and small businesses. Since a 2023 reform tied to the EU's tax-transparency review, certain foreign-source passive income of multinational-group entities that lack adequate local substance can be brought into charge — a significant qualification of pure territoriality.

Individuals are taxed under schedular rules — employment income on a monthly progressive scale to 25%, business income on an annual progressive scale, and capital income and gains at a flat 15%. Indirect taxation runs through a 13% value-added tax. A company is resident if incorporated or managed in Costa Rica, but residence matters less than source.

1.1 Sources of law and treaties

The Income Tax Law, the Value-Added Tax Law and the Tax Code (Código de Normas y Procedimientos Tributarios) govern the system, administered by the Directorate-General of Taxation (DGT). Costa Rica — an OECD member since 2021 — has a small but growing treaty network and applies international transparency standards; mandatory electronic invoicing supports compliance.

1.2 Recent developments

The most consequential recent and pending changes are:

The 2023 reform on foreign-source passive income, enacted to exit the EU list of non-cooperative jurisdictions: dividends, interest, royalties, capital gains, rental and other passive income of an in-scope multinational-group entity can be taxed in Costa Rica where the entity lacks adequate economic substance.

Continued operation of the Free Trade Zone regime, the principal incentive for export manufacturing and services, offering multi-year corporate-tax and import-duty exemptions.

Strengthened transfer-pricing, beneficial-ownership and electronic-invoicing requirements; Costa Rica has not, at the time of writing, adopted the OECD Pillar Two minimum tax.

Headline statutory corporate income tax rate for a resident company. Where sub-national (state, provincial, cantonal or municipal) corporate taxes apply, the combined rate reported by the OECD is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Top marginal statutory personal income tax rate on employment income for a resident individual. Where sub-national (state, provincial, cantonal or municipal) income taxes are a standard part of the system, the combined top rate is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

2.1 Territoriality and scope

Tax is charged only on Costa Rican-source income — income generated from activity, assets, capital or rights within the national territory. A non-resident operating through a permanent establishment is taxed as a local taxpayer on its local-source income; a non-resident without a permanent establishment is taxed by withholding on Costa Rican-source payments, at rates ranging from about 5% to 50% by type of income (a 30% general rate applies to unclassified income).

2.2 Rates

The corporate income tax rate is 30% on net income (gross income less deductible expenses). Small companies whose gross income does not exceed the statutory threshold (about CRC 119.6 million) instead pay on a reduced progressive scale — 5%, 10%, 15% and 20% by band of net income — and micro and small businesses registered with the relevant ministries enjoy a graduated holiday (0% for the first three years, 25% of the tax in years four and five, and 50% in year six).

2.3 Foreign-source passive income and substance

Although passive income from abroad is in principle outside the territorial base, the 2023 reform deems foreign-source dividends, interest, royalties, capital gains, rental and other passive income to be taxable where it is obtained by an entity that is part of a multinational group and does not meet substance requirements (adequate employees, premises and decision-making in Costa Rica) for the relevant income. Qualifying, substantive holding and licensing activity remains untaxed on its foreign passive income.

2.4 Income determination and deductions

Net income is computed from accounting records adjusted for tax, with deductions allowed for expenses that are necessary to produce taxable (Costa Rican-source) income and are properly documented through electronic invoices. Depreciation follows official rates, and specific limits apply to interest, related-party charges and expenses linked to exempt or foreign-source income.

2.5 Interest limitation

Net interest expense is, broadly, deductible only up to 20% of earnings before interest, taxes, depreciation and amortisation (a tax-EBITDA measure), with carryforward of disallowed interest, alongside the general arm's-length requirement for related-party financing. Specific anti-abuse provisions address back-to-back and low-substance financing arrangements.

2.6 Losses

Tax losses may be carried forward for three years (extended to five years for agricultural and certain industrial activities), with no carryback. Losses are personal to the taxpayer, and there is no group-consolidation or loss-transfer regime, so each company is assessed on a stand-alone basis.

2.7 Transfer pricing

Costa Rica applies the arm's-length principle and the OECD Guidelines to related-party transactions, with a transfer-pricing informative return, local-file and master-file documentation for larger taxpayers, and country-by-country reporting for multinational groups above the threshold. Advance pricing agreements are available, and Free Trade Zone entities are within the rules.

2.8 Free Trade Zone regime and incentives

The Free Trade Zone (Zona Franca) regime is Costa Rica's flagship incentive, granting qualifying export-manufacturing, services and strategic companies a multi-year exemption from corporate income tax (commonly 100% for an initial period, then a reduced rate), and exemptions from import duties, VAT on inputs and certain other taxes, in exchange for investment, employment and — increasingly — substance commitments. The regime underpins Costa Rica's medical-device, electronics and shared-services export sectors.

3.1 Employment and business income

Costa Rica taxes individuals schedularly on Costa Rican-source income. Employment income is taxed monthly on a progressive scale rising to a top rate of 25% above a tax-free threshold, collected by employer withholding; income from a trade, profession or business is taxed on an annual progressive scale (also to 25%) after deductible expenses. Foreign-source employment and business income of residents is generally outside the charge.

Indicative; thresholds are updated periodically. As-of June 2026.

3.2 Capital income and gains

Under the schedular capital-income and capital-gains regime, income from movable and immovable capital (interest, rents, dividends and the like) and capital gains are generally taxed at a flat 15%, with reduced rates for certain instruments and a one-off option for gains on assets held before the 2019 reform. Dividends paid to residents bear a 15% tax (reduced to 5% for shares listed on a recognised exchange).

3.3 Wealth, property and what is not taxed

Costa Rica levies no net wealth tax and no general inheritance or estate tax. An annual municipal real-estate tax (broadly 0.25% of the registered value) applies to property, and a separate solidarity tax on high-value residential property funds social housing. A property-transfer tax applies on real-estate transfers, and an annual flat tax applies to registered companies.

Payments of Costa Rican-source income to non-residents without a permanent establishment bear withholding tax at rates that vary by type of income: dividends 15%, interest 15% (with a reduced rate for certain foreign banks), royalties and technical-service fees 25%, with a 30% general rate for unclassified income and lower rates for specified items (such as reinsurance and international transport). Costa Rica's treaty network is limited, so domestic rates apply to most cross-border payments. Representative outcomes:

5.1 Source, substance and pricing

Costa Rica's international framework rests on the territorial source rules, the foreign-passive-income substance rule (Section 2.3) and the transfer-pricing regime (Section 2.7), rather than on a CFC or interest-barrier-plus-CFC combination. The substance requirement conditions the non-taxation of foreign passive income on genuine activity in Costa Rica, aligning the country with international transparency expectations as an OECD member.

5.2 General anti-avoidance and disclosure

The Tax Code contains an economic-reality (substance-over-form) and anti-simulation doctrine allowing the DGT to disregard artificial arrangements, supported by beneficial-ownership registration, mandatory electronic invoicing and the exchange of financial-account information. Specific anti-abuse provisions address payments to low-tax jurisdictions and related-party structures.

5.3 Foreign tax relief

Because the system is territorial, foreign business income of residents is generally not taxed and double taxation is correspondingly limited; where income is taxed both in Costa Rica and a treaty partner, relief is given under the relevant treaty. The mutual-agreement procedure addresses cross-border disputes, and advance pricing agreements provide transfer-pricing certainty.

6.1 Value-added tax

VAT (impuesto sobre el valor agregado, IVA) — which replaced the former sales tax in 2019 — is charged at a standard rate of 13%, with reduced rates of 4%, 2% and 1% for specified goods and services (including certain health services, the basic food basket and air tickets), and exemptions for defined supplies. VAT now applies broadly to services as well as goods, and foreign suppliers of cross-border digital services to Costa Rican consumers are within the collection rules.

6.2 Property, transfer and company taxes

An annual municipal property tax (broadly 0.25% of registered value) and a solidarity tax on luxury homes apply to real estate, and a property-transfer tax applies on transfers of immovable property (with a separate duty on vehicle and certain other transfers). An annual flat tax on legal entities (impuesto a las personas jurídicas) applies to registered companies, and an education-and-culture stamp applies to entities.

6.3 Social security and other

Employer and employee social-security (CCSS) contributions are substantial and fund health and pensions, making the total cost of employment significant. A selective consumption tax applies to specified goods, and customs duties apply on imports subject to Central American and free-trade-agreement relief and the Free Trade Zone exemptions. There is no net wealth tax.

7.1 Filing, payment and e-invoicing

Tax is self-assessed and administered by the DGT on a calendar-year basis (the tax year now ends 31 December). The annual corporate income-tax return is filed within two and a half months of the year-end (by mid-March), with partial advance payments during the year, and VAT returns are filed monthly. Mandatory electronic invoicing and electronic registers give the DGT extensive transactional data.

7.2 Audit, rulings and limitation

The DGT conducts desk and field audits and offers binding consultations on the application of the law. The general statute of limitation is four years (extended for unregistered taxpayers or fraud). Interest and penalties apply to underpayment and late filing, and a self-correction mechanism reduces penalties for voluntary regularisation.

7.3 Disputes

A taxpayer may challenge an assessment through an administrative appeal to the DGT and the Tax Administrative Tribunal, and then before the administrative-litigation courts. The mutual-agreement procedure under treaties addresses cross-border double taxation, and advance pricing agreements are available for transfer-pricing matters.

Indicative deadlines. As-of June 2026.

9.1 Entity choice and presence

Foreign investors typically operate through a sociedad anónima (S.A.) or the limited-liability S.R.L., or through a branch; all are taxed at 30% on Costa Rican-source income. Because the system is territorial, the central questions are whether income is Costa Rican-source and — for non-residents — whether activity rises to a permanent establishment, which converts withholding-tax treatment into assessment as a local taxpayer.

9.2 Free Trade Zones and structuring

Export manufacturers and qualifying service and shared-services operations almost always locate in a Free Trade Zone to access the multi-year corporate-tax and import-duty exemptions, in exchange for investment, employment and substance commitments. Holding and licensing structures must now meet the foreign-passive-income substance test to keep that income outside the territorial base, and related-party pricing is tested under the transfer-pricing rules.

9.3 A worked illustration

A standard company with CRC 100 million of Costa Rican-source net income (above the small-company threshold) pays corporate tax at 30% — CRC 30 million. A qualifying Free Trade Zone company performing the same activity may pay 0% during its initial exemption period, while a small company below the threshold is taxed on the reduced 5%–20% progressive scale. Genuinely foreign-source income remains outside the charge, subject to the passive-income substance rule.

9.4 Compliance and practical points

Mandatory electronic invoicing, monthly VAT returns and partial income-tax payments drive a steady compliance calendar, and the DGT audits source characterisation, the deductibility conditions, transfer pricing and Free Trade Zone substance. High social-security charges are a material employment cost, and beneficial-ownership and transfer-pricing documentation are required for larger taxpayers.