Understanding international taxes in Costa Rica is important to any foreign executive or company considering launching a product onto the local market or establishing a commercial presence in the country. By engaging with an experienced tax advisory service provider, you will have access to extensive knowledge of international taxes and accounting requirements in Costa Rica that will help you mitigate the risks and maintain your commercial operations in good standing with local authorities.
Costa Rica has experienced consistent growth in gross domestic product (GDP) over the last three decades, with it reaching $61.77 billion (all figures in USD unless otherwise stated) in 2019. It has also witnessed an exponential rise in gross national income (GNI) — a good indicator of general prosperity — which has more than tripled since 2000 and reached $11,700 in 2019.
This nation of just over 5 million people — who are known as Ticos — has a low inflation rate of 2.3%, according to the Index of Economic Freedom 2020, and enjoys greater economic freedom than its regional partners. Costa Rica maintains a pro-business and investment-friendly environment, and is party to a number of free trade agreements, both bilateral treaties and wider associations. The country is the most prosperous member of the Central American Common Market (CACM) — which also includes El Salvador, Guatemala, Honduras, and Nicaragua.
Costa Rica’s main export commodities include coffee, bananas, and sugar. Costa Rica’s main export destinations are Belgium, Guatemala, Luxembourg, and the Netherlands.
The country has some of the lowest crime rates in Latin America and the Caribbean, and has had no standing army since 1948 — factors that have contributed to Costa Rica becoming a prime destination for tourists, investors, and expats, with its massive tourism industry accounting for roughly five percent of GDP.
If you are thinking of doing business in Costa Rica or have established a company in the country, read on to learn more about international taxes in Costa Rica, or go ahead and reach out to us now to find out how we can support your business venture.
International taxes in Costa Rica: double taxation agreements
Understanding international taxes in Costa Rica means getting to grips with double taxation agreements, which prevent investors being taxed twice on the same income, while also curtailing tax evasion.
To date, Costa Rica has reached four international conventions to avoid double taxation, of which three are in force and one is in the process of legislative ratification:
- Double taxation agreement with Germany: In force since August 10, 2016, under Law No. 9345.
- Double taxation agreement with Spain: In force since January 1, 2011, under Law No. 8888.
- Double taxation agreement with Mexico: In force since April 21, 2019, under Law No. 9644.
- Double taxation agreement with the United Arab Emirates: In the process of being ratified by the Costa Rican Legislative Assembly.
Note that Costa Rica regulates its double taxation agreements based on the Model Tax Convention established by the Organization for Economic Cooperation and Development (OECD), as well as the United Nations Model Convention on Double Taxation.
Tax information exchange agreements
Tax information exchange agreements (TIEAs) aim to promote international cooperation and trade through the effective exchange of tax information, guaranteeing compliance with international tax regulations within Costa Rica and international standards of tax transparency. These agreements may involve a civil or criminal tax investigation of the parties involved. To date, Costa Rica has signed 19 bilateral TIEAs with countries located in the Americas, Africa, Asia, and Europe, of which 17 are in force and two are in the process of exchanging notes:
Tax information exchange agreements in force:
- Argentina, under Law No. 9007
- Australia, under Law. No. 9075
- Canada, under Law No. 9045
- Denmark, under Law No. 9202
- Ecuador, under Law No. 9360
- Finland, under Law No. 9197
- France, under Law No. 9012
- Greenland, under Law No. 9200
- Guernsey, under Law. No. 9551
- Italy, under Law No. 9664
- Mexico, Law No. 9033
- Norway, under Law No. 9201
- South Korea, under Law No. 9611
- South Africa, under Law No. 9413
- Sweden, under Law No. 9203
- The Netherlands, under Law No. 9040
- The United States, under Law No. 9749
Tax information exchange agreements in the process of exchanging notes:
- Island, under Law No. 9196
- The Faroe Islands, under Law No. 9198
International taxes in Costa Rica and transfer pricing regulations
As established by international transfer pricing standards, in Costa Rica every taxpayer must set a price for a product or service involved in commercial operations carried out with a company operating in the country. Likewise, taxpayers must also demonstrate that the fixed prices were declared at market value through a study of transfer prices, as established in article 81 of Costa Rica’s Income Tax Law and articles 65 to 74 of the Book of regulations to the Income Tax Law.
Taxpayers are required to document the procedures performed to determine transfer pricing values. Note that Resolution No. DGT-R-16-2017 of March 30, 2017, issued by the General Tax Office, establishes the minimum documentation required to carry out a transfer pricing study. Both the transfer pricing study and the supporting documentation must be kept by the taxpayer and must be presented to the local tax authority when requested.
Furthermore, according to Resolution No. DGT-R-001-2018, of January 11, 2018, foreign companies operating in the country and reporting global revenues of more than 750 million euros (approximately $917 million at time of publication), must present no later than December 31 of each year the information corresponding to their commercial transactions made during the previous period. That is, as of December 31, 2020, the information corresponding to the year 2019 should have been presented.
Costa Rica withholding tax
According to articles 54 and 55 of the Income Tax Law, every individual or company that pays or transfers economic resources to a Costa Rican individual or company not domiciled in the country is obliged to withhold the tax on the remittances sent abroad. Note that the withholding will be made taking into account the rate established in article 59 of the Income Tax Law.
According to regulations governing international taxes in Costa Rica, the type of income and the tax rate to be applied for each activity developed are:
- For transport and communications services: 8.5%
- For pensions, retirements, salaries, and any other remuneration paid for personal work performed under an employment relationship: 10%
- For fees, commissions, bonuses, and other benefits of personal services without being an employment relationship: 25%
- For reinsurance, re-guarantees, and insurance premiums of any kind: 5.5%
- For the use of cinematographic films, television films, recordings, phonograph records, comics, and in general any similar means of disseminating images or sounds: 20%
- By radio soap operas and telenovelas – 50%
- For profits, dividends, or social shares referred to in articles 18 and 19 of the Income Tax Law: 15% or 5%, as appropriate
- For interests, commissions or economic transactions carried out by individuals or companies domiciled in Costa Rica before a foreign bank: 15%
- For interests, commissions, and other financial expenses that are paid or credited by entities subject to the supervision and inspection of the General Superintendency of Financial Institutions: 5.5%
- For any other payment based on interest, commissions, and other financial expenses not included in the previous statements: 15%
- For technical – financial or other advice, as well as for payments related to the use of patents, the supply of formulas, trademarks, privileges, franchises, and royalties: 25%
- For payments made to people not domiciled in Costa Rica due to public shows held in the country: 15%
- For payments of any other service: 30%
Biz Latin Hub can help with international taxes in Costa Rica
Understanding and complying with international taxes in Costa Rica can be a challenging task for anyone unfamiliar with the market. At Biz Latin Hub, our multilingual tax advisory team has deep knowledge of local tax regulations and is equipped to help your company meet all corporate requirements to remain in good standing with local authorities. With our full suite of legal, accounting, commercial representation, and back-office services, we can be your single point of contact to incorporate your business in Costa Rica and other 15 countries across Latin America and the Caribbean.
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