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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.
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.
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:
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.
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.)
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.
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.
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.
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.
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:
The annual property tax in Costa Rica is assessed at a fixed rate of 0.25% of the property’s value per year.
When 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.
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.
For companies whose income exceeds 112,170,000 CRC, the Costa Rican corporate tax rate is a flat 30%.
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.
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.
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.
At Greenback Expat Tax Services, we specialize in assisting expats as they manage their tax obligations. Contact us, and we can give you all the information you need. In fact, we can even prepare and file your expat taxes on your behalf.
Just let us know how we can help you, and we’ll be happy to lend a hand!
Click here to get started on your expat taxes today.