Tax Guide for Americans Living in Costa Rica

Tax Guide for Americans Living in Costa Rica

Living as an Expat in Costa Rica

Costa Rica’s beautiful scenery, warm climate, and friendly locals have made it one of the most popular destinations for US expats to build a new home. But what are taxes like for Americans living in Costa Rica? Let’s take a look.

Costa Rican Taxes at a Glance

  • Tax Year: October 1–September 30
  • Tax Deadline: February 15
  • Currency: Costa Rican Colón (CRC)
  • Population: ~5.1 million
  • Number of US Expats in Costa Rica: Estimated 50,000
  • Capital City: San José
  • Primary Language: Spanish
  • Tax Treaty: No
  • Totalization Agreement: No

What Are Expat Taxes like for Americans Living in Costa Rica?

All US citizens are required to file a US tax return regardless of where they live in the world. On top of this, Americans living in Costa Rica may also be subject to Costa Rican taxation. Fortunately, Costa Rica is known for its simple tax system and relatively low income tax rates.

Who Has to File Taxes in Costa Rica? 

All Americans living in Costa Rica are required to pay taxes on any income they receive from a Costa Rican source. This applies to both residents and non-residents. However, neither category will be taxed on income from a non-Costa Rican source, such as US-source income.

If an expat’s only source of Costa Rican income is employment income, they will generally not have to file a tax return. This is because all their taxes are already withheld by their employer. In most cases, Americans living in Costa Rica will only need to file a tax return if they receive income from a source other than traditional employment, such as:

  • Self-employment income
  • Rental income
  • Fees
  • Commissions
  • Royalties
  • Interest

Costa Rica does not allow joint filing for married couples. If both spouses earn non-employment income, each will have to file an individual return.

What Is the Income Tax Rate in Costa Rica? 

The Costa Rican income tax rate varies based on what type of income you receive. Dividend and interest income are generally taxed at 15%, while most capital gains are exempt from taxation. For residents of Costa Rica, salaries and self-employment are taxed at progressive rates, shown below. (All amounts are given in CRC.)

Costa Rica Income Tax Rates for Residents

Earnings in CRCRate Applicable to Income Level (%)
0 – 842,000Exempt
842,000 – 1,236,00010%
1,236,000 – 2,169,00015%
2,169,000 – 4,337,00020%
4,337,000 and over25%

Non-residents’ salaries or self-employment income is taxed at a flat rate of 10%, 15%, or 25%, depending on the type of income they receive.

Who Qualifies as a Tax Resident in Costa Rica?

If you spend more than 183 days in Costa Rica within a given tax year, you will be considered a resident for tax purposes. If you do not meet this standard, you will be considered a non-resident.

The IRS tax code is 7,000 pages. Want the cliff notes version for expats? Let us help.

Is Foreign Income Taxed Within Costa Rica?

Only revenue earned within Costa Rica is subject to Costa Rican tax. The country’s government operates on the tax principle of territoriality, which means that any personal income earned outside of Costa Rica is exempt from Costa Rican tax.

What Is the Deadline for Tax Returns in Costa Rica?

Unlike in the US, the Costa Rican tax year does not align with the calendar year. Instead, Costa Rica’s tax year runs from October 1 to September 30. Annual tax returns are due on February 15.

What Other Types of Taxation Does Costa Rica Have?

Costa Rica imposes fewer forms of taxation than most countries. In addition to the income tax, the only taxes Americans living in Costa Rica are likely to encounter are:

  • Property tax
  • Property transfer tax
  • Value-added tax
  • Corporate tax

1. Property Tax

The annual property tax in Costa Rica is assessed at a fixed rate of 0.25% of the property’s value per year.

2. Property Transfer Tax

When a property is purchased in Costa Rica, it must be transferred into the buyer’s name. This involves a property transfer tax of 1.5% of the property value. The responsibility for paying this tax is typically split 50/50 between the seller and buyer.

3. Value-Added Tax

Costa Rica imposes a value-added tax on certain goods and services. The rate for this tax is 13%. Some goods are excluded from this tax, such as medical supplies, food, and other items considered essential or nontaxable.

4. Corporate Tax

For companies whose income exceeds 112,170,000 CRC, the Costa Rican corporate tax rate is a flat 30%.

Does the US Have a Tax Treaty with Costa Rica? 

No. There is currently no US-Costa Rica tax treaty. This could leave Americans living in Costa Rica open to double taxation on their Costa Rica-source income. Fortunately, the IRS tax credits listed above can help reduce the risk of double taxation for most US expats, such as:

Using these tax benefits, most expats are able to erase their US tax bill entirely, removing the risk of double taxation.

Does the US Have a Totalization Agreement with Costa Rica?

No. The US and Costa Rica do not currently have a totalization agreement in place. This means that Americans who live and work in Costa Rica may be required to contribute to both nations’ social security systems.

Costa Rica’s social security tax is 37% of employee wages, with the employee contributing 10.5% and the employer contributing the remaining 26.5%. This tax applies regardless of whether you qualify as a resident or non-resident of Costa Rica.

Get Expert Help from an Expat Tax Professional

We hope this guide has given you a better understanding of what taxes are like for Americans living in Costa Rica. However, if you still have questions, we have answers.

Knowledge is power. Get personalized advice from one of our expat expert accountants.

Whether you need tax advice to prepare for a move abroad, to buy property or even retire, Greenback can help. Consults upfront can help avoid costly mistakes and stress later.

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