Corporate tax in Costa Rica

Summary

Corporate Income Tax Rate (%) 30 (a)
Capital Gains Tax Rate (%) 0 / 30 (a) (b)
Branch Tax Rate (%) 30 (a)
Withholding Tax (%)
Dividends 15 (c)
Interest 15 (d) (e)
Royalties from Know-how and Technical Services 25 (d)
Transportation and Telecommunications 8.5 (d) (f)
Salaries and Pensions 10 (d)
Fees and Commissions 15 (d)
Reinsurance 5.5 (d) (f)
News Services, Videos and Films 20 (d) (f)
Advance Payments
Credit and Debit Card Payments 2 (g)
Payments for Professional Services Used During the Formalization Process for Financial Products 2 (h)
Other 30 (d)
Branch Remittance Tax 15
Net Operating Losses (years)
Carryback 0
Carryforward 3 / 5 (.i)

a) The 30% rate is reduced to 10% or 20% for companies whose annual gross income does not exceed specified amounts (see Section B).

b) See Section B.

c) This withholding tax applies to dividends paid to non-domiciled business entities and to domiciled and non-domiciled individuals (see Section B). The withholding tax is considered a final tax.

d) This is a final withholding tax that is imposed on non-domiciled companies and non-domiciled individuals.

e) For detail regarding interest withholding tax, see Section B.

f) Non-domiciled companies engaged in these types of activities through a per­manent establishment in Costa Rica that do not comply with requirements to report income or to file an income tax return may be subject to an imputed amount of taxable income equivalent to 15% of their total gross income de­rived in Costa Rica. Imputed taxable income is subject to the ordinary corpo­rate income tax rate. For further details, see Section C.

g) Resolution DGT-R-036-2014 established a 2% withholding requirement for debit or credit card payments processed by financial institutions in Costa Rica, effective from 1 December 2014. The amounts withheld by the financial in­stitutions are treated as advance payments of the recipient’s final income tax liability. The 2% withholding requirement applies only to 88% of the amount of the transaction made with a debit or credit card. The following persons are exempted from this withholding requirement:

  • Entities not subject to income tax
  • Companies under the simplified tax regime
  • Transporters of persons or goods
  • Gas stations
  • Taxpayers engaged in agricultural activities that do not have an obligation to make partial income tax payments
  • Taxpayers that generally do not have an obligation to make partial income tax payments

h) Resolution DGT-R-35-2014 established that financial entities must withhold 2% on payments made for “professional services” used during the formaliza­tion process for financial products, effective from 1 December 2014.

i) Industrial companies may carry forward net operating losses incurred in the
first five years of operations for five years. They may carry forward net oper­ating losses incurred in subsequent years for three years. Agricultural compa­nies may carry forward net operating losses for five years.

Taxes on corporate income and gains

Corporate income tax. The Costa Rican tax system is a territorial regime; consequently, income derived from Costa Rican sources is subject to tax.

Corporate income tax rates. The corporate tax rate for the 2016 fiscal year is 30% for resident and nonresident companies. How­ever, companies with annual gross income of up to CRC52,320,000 (approximately USD96,781) are subject to an income tax rate of 10%. CompanieswithannualgrossincomebetweenCRC52,320,001 and CRC105,241,000 (approximately USD194,674) are subject to an income tax rate of 20%. These tax brackets are adjusted annually.

Companies operating under the Free Trade Zone Regime that are located in the Great Extended Metropolitan Area (GEMA) benefit from an income tax exemption of 100% for the first eight years and of 50% for the next four years. Companies located outside the GEMA benefit from an income tax exemption of 100% for the first 12 years and of 50% for the next 6 years. The Ministry of National Planning and Economic Policy specifies which areas are considered part of the GEMA.

On 13 July 2007, the World Trade Organization Committee on Sub sidies and Countervailing Measures agreed to adopt the text of a draft decision of the General Council to continue procedures for the extension until 2015 of the transition period for the elimi­nation of the export subsidy programs of 19 developing countries, including Costa Rica. Based on the above action and to comply with Costa Rica’s commitments as a member of the World Trade Organization, on 22 January 2010, the executive branch of the Costa Rican government published Law 8794 which amends and adds certain sections to the Free Trade Zone Regime Law No. 7210. This law created a new category of companies that can apply for the Free Trade Zone Regime. This category is for companies that produce or process goods, regardless of whether the goods are for exportation. Companies in this category are sub ject to income tax at reduced rates (0%, 5%, 6% or 15%) for a specified number of years depending on whether the company is located inside or outside the GEMA or depending on the amount of the investment. For companies in any of the other categories listed in the law, the benefits remain the same until 31 December 2015.

Capital gains. Capital gains are taxable and capital losses are de­ductible if they result from the transfer of depreciable assets or from the transfer of non -depreciable assets in the ordinary course of a trade or business. Taxable capital gains are treated as ordinary income and are subject to tax at the normal corporate income tax rate.

Administration. The statutory tax year runs from 1 October through 30 September. Companies must file annual corporate income tax returns and pay any tax due within 2 months and 15 days after the end of the tax year. Subsidiaries of foreign companies may request permission to use the parent company’s fiscal year in filing their returns. In addition, certain agricultural companies may use the calendar year or other fiscal year.

The current year tax liability must be paid in quarterly installment payments, which are based on the preceding year’s income tax paid or the average of the last three years’ tax liability, whichever is higher. If a company did not file a return for the last three years, the installment payments are calculated based on the tax liability from the last year a return was filed. New companies must make quarterly payments based on their first-year projected income, which must be reported to the tax authorities on or before the last day of January. If no projected income is reported, the tax author­ities determine the quarterly tax payments based on an imputed income amount.

Companies defined by tax authorities as National Large Taxpayers or Large Territorial Companies must file audited financial state­ments within six months following the end of the company’s fis­cal year.

In addition, Resolution No. DGT-R-30-2014 requires National Large Taxpayers to update their relevant tax information using a web-based platform called AMPO within 10 business days after information changes. Taxpayers that become classified as National Large Taxpayers must submit the tax information within 15 days after being notified of their National Large Taxpayer status by the tax authorities. The relevant tax information to be provided in­cludes, among other items, the following:

  • Agencies
  • Branches or commercial premises
  • Mergers
  • Royalty payments for the use of intangible assets
  • Equity participation in other entities
  • Participations in economic groups

Dividends. Dividends paid between resident corporations, limited liability companies and partnerships with stock are not taxable. A 15% withholding tax is imposed on dividends paid to domiciled and non-domiciled individuals or to non-domiciled business enti­ties. If the shares on which dividends are paid were purchased through a local stock exchange, the withholding tax rate is reduc­ed to 5%. Distributions by companies of their own shares are not taxable. Under the Income Tax Law, domiciled companies include companies incorporated in Costa Rica and companies that have a permanent establishment in Costa Rica.

Interest. Interest, commissions, financial expenses and lease pay­ments of capital assets paid to non-domiciled individuals or legal entities are subject to a 15% withholding tax rate. Interest, com­missions, financial expenses and lease payments for capital assets paid to foreign banks that are part of a Costa Rican financial group or conglomerate regulated by the Costa Rican Financial System (Consejo Nacional de Supervisión del Sistema Financiero, or CONASIFF) are subject to a withholding tax rate of 5.5% dur­ing the first year of application of the new law, 9% during the second year, 13% during the third year and 15% beginning with the fourth year. Interest, commissions and financial expenses paid by entities regulated by the Superintendence of Financial Entities (Superintendencia General de Entidades Financieras, or SUGEF) to foreign entities that are also regulated and supervised in their jurisdictions are subject to a 5.5% withholding tax rate. An exemp­tion applies to interest, commissions and financial expenses paid to multilateral development banks and other institutions of multi­lateral or bilateral development, as well to other nonprofit entities that are not subject to tax.

Foreign tax relief. Costa Rican taxpayers may deduct foreign taxes paid abroad when calculating their taxable income if the taxes are levied on assets, services or activities that constitute that tax-payer’s usual trade or business and if those assets, services or activities produce income that can be taxed by the Costa Rican tax authorities.

Determination of trading income

General. Income tax is determined in accordance with Interna­tional Accounting Standards (IAS), subject to adjustments required under the Costa Rican Income Tax Law and general resolutions issued by the tax authorities. Taxable income includes all income derived from Costa Rican sources, such as income from indus­trial, agricultural and trade activities in Costa Rica, income from services rendered in Costa Rica and income derived from real estate transactions, assets, capital, goods and rights invested or used in Costa Rica.

Imputed income. The tax authorities may assess imputed income in the cases described below.

Non-domiciled companies that do not file tax returns. Non-domiciled companies engaged in certain types of activities in Costa Rica through a permanent establishment that do not comply with requirements to report income or file income tax returns are sub ject to an imputed income assessment equal to a specified percentage of their Costa Rican gross income, unless they provide evidence of a lower amount of actual income. For example, docu­mentation supporting an allocation of income between Costa Rica and other countries would prove that all income is not Costa Rican source. The amount of the imputed in come assessment is subject to tax at the normal income tax rate. An income tax percentage of 15% for determining imputed income applies to the following activities:

  • Transport and telecommunications
  • Reinsurance
  • Media, cinema and international news

Airlines, maritime shipping and transportation companies. Air­lines, maritime shipping and transportation companies may enter into an agreement with the tax authorities to compute Costa Rican taxable income using a special formula based on the company’s worldwide and local revenues.

Loan and financing transactions. Unless the taxpayer provides evidence to the contrary, loan and financing transactions are deem ed to derive a minimum amount of interest based on the highest active interest rate fixed by the Banco Central de Costa Rica (central bank) for lending and financial transactions or, if this rate is not available, on the average market rate being charged in the Costa Rican banking system. The tax authorities do not allow any exceptions to this rule unless the parties entered into a formal written loan or financing agreement.

Inventories. The Costa Rican Income Tax Regulations provide that acquisition cost must be used to record assets. The acquisition cost may be computed using several valuation methods, such as the first-in, first-out (FIFO) and weighted average cost methods. The tax authorities eliminated last-in, first-out (LIFO) as a valid in­ventory valuation method for tax purposes as of 3 February 2015.

Provisions. In general, provisions, including provisions for contin­gent liabilities such as doubtful accounts and severance pay, are not deductible expenses. However, actual payments of such liabil­ities are considered to be deductible expenses.

Tax depreciation. Depreciation may be computed using the straight-line or the sum-of-years’ digits method. The tax authorities may allow a special accelerated depreciation method in certain cases. The tax authorities may authorize other methods based on the type of asset or business activity. The method chosen must be applied consistently. Depreciation is computed based on the useful life of the asset as specified in the Income Tax Regulations. The follow­ing are some of the straight-line rates.

Asset Rate (%)
Buildings 2/4/6
Plant and machinery 7/10/15
Vehicles 10/15/34
Furniture and office equipment 10
Tools 10

Relief for losses. Industrial companies may carry forward net operating losses incurred in their first five years of operation for five years and they may carry forward net operating losses in­curred in subsequent years for three years. Agricultural companies may carry forward net operating losses for five years. Net operat­ing losses may not be carried back.

Groups of companies. Costa Rican law does not allow the filing of consolidated income tax returns or provide any other tax relief to consolidated groups of companies.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Sales tax 13.00%
Real estate transfer tax; the definition of “transfer” includes indirect transfers in addition to direct transfers of immovable property; indirect transfers are the transfer of control over the legal owner of immovable property 1.50%
Vehicle transfer tax 2.50%
Customs duties
Agricultural products; average rate 12.72%
Industrial products; average rate 4.69%
Certain raw materials and machinery and equipment (Certain specified goods and merchandise
Are subject to higher rates of customs duty.)
0
Real estate tax (assessed and collected by the municipalities) 0.25%
Payroll taxes; withheld by employers; paid by employee; rate depends on compensation level 0% / 10% / 15%
Social security contributions
Employer 26.17%
Employee 9.17%
Municipal taxes (varies by municipality) Various
Solidarity Tax for the Strengthening of Housing
Programs; (Solidarity Tax) contained in Law
No. 8683; effective from 1 October 2009
through 1 October 2019; purpose of the tax
is to finance public housing programs; tax
applicable to residential property that is used
habitually or occasionally or for recreational
purposes, that the taxpayer owns or has the
right to use and that is located in Costa Rica;
taxpayers are subject to the tax if the value
of the infrastructure (permanent structures,
such as houses, swimming pools and parking
lots) exceeds CRC128 million (approximately
USD236,774); the value of the infrastructure
must be updated every 3 years during the first
15 calendar days of the corresponding tax year
in accordance with the parameters established
by the tax authorities; if the taxpayer is subject
to the tax (that is, meets value threshold for the
infrastructure) the tax base is computed as the
total value of the infrastructure (not just the
excess of CRC128 million) plus the value of
the land as of 1 January, based on a specific
zoning model determined by tax authorities;
hotel businesses may be subject to the tax
depending on their operating model and the
type of infrastructure; the tax is paid annually
and is due on 15 January of the current tax
year (for example, for a fiscal year-end of
31 December 2015, the tax is due by
15 January 2016); Solidarity Tax is
independent from the other real estate
taxes and is not deductible for income
Tax purposes; the tax rates are progressive
0.25% to 0.55%

Foreign-exchange controls

The currency in Costa Rica is the colón (CRC). As of 26 October 2015, the exchange rate of the colón against the US dollar was CRC540.60 = USD1.

No restrictions are imposed on foreign-trade operations or foreign-currency transactions.

Tax treaties

Costa Rica has entered into an income tax treaty with Spain. Costa Rica has not entered into an income tax treaty with any other country.

The following are the withholding tax rates under Costa Rica’s tax treaty with Spain.

  Dividends Interest Royalties
  % % %
Spain 5/12 (a) 5/10 (b) 10
Non-treaty countries (c) 15 15 25
    a) The 5% rate applies if the beneficial owner of the dividends is a company that owns directly at least 20% of the capital of the entity paying the dividends.
    b) The 5% rate applies if the term of the loan agreement under which the inter­est is derived is five years or longer.
    c) For further details, see Section A.