Tax Guide for Americans Living in Costa Rica

Living as an Expat in Costa Rica

Living as an expat in Costa Rica can be a wonderful experience for those seeking a slower pace of life and a warmer climate. Costa Rica is known for its natural beauty, lush rainforests, stunning beaches, and abundant wildlife. 

The cost of living in Costa Rica is generally lower than in the US and other developed countries, although prices can vary depending on the location. Housing, transportation, and food are usually affordable, and plenty of entertainment and recreation options exist. 

Costa Rica is also known for its excellent healthcare system, which is both high-quality and affordable. Many expats take advantage of private healthcare options, which offer even greater access to top-quality care. 

While Costa Rica is generally safe, expats need to be aware of their surroundings and take necessary precautions to stay safe. Learning basic Spanish is also helpful, as it will make day-to-day life much more accessible and allow you to better connect with locals. 

What are taxes like for Americans living in Costa Rica? Let’s take a look.

Costa Rica at a Glance

• Primary Tax Form for Residents: “Declaración de Impuesto sobre la Renta” or Income Tax Return
• 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

Expat Taxes for Americans Living in Costa Rica

All US citizens must 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. In addition to US taxes, expats in Costa Rica may also need to file Costa Rican tax returns.

Costa Rican residents are generally required to pay taxes on their worldwide income, including income earned within Costa Rica and from foreign sources. 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 must 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 must file an individual return.

What Is the Income Tax Rate in Costa Rica? 

The Costa Rican income tax rate varies based on your income type. 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

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

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 regarded as a non-resident.

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 tax responsibility 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, such as medical supplies, food, and other essential or nontaxable items, are excluded from this tax.

4. Corporate Tax

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

Essential Tax Forms for US Expats in Costa Rica 

As a US expat living in Costa Rica, there are several necessary tax forms that you may need to file to comply with both US and Costa Rican tax laws. 

One of the most important forms is the US tax return, which all US citizens and permanent residents must file regardless of where they live. This form reports your worldwide income and allows you to claim any foreign tax credits or exemptions that may be available. 

In Costa Rica, residents must file an income tax return annually, which reports all income earned within Costa Rica and from foreign sources. This form is called the “Declaración de Impuesto sobre la Renta.” 

Depending on your individual circumstances, you may also need to file additional forms, such as the FBAR (Foreign Bank Account Report) or Form 8938. 

Navigating the tax laws of both the US and Costa Rica can be complex, and it’s recommended that expats consult with qualified tax professionals like Greenback, who can help ensure compliance and minimize tax liability. 

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 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:

• Foreign Earned Income Exclusion
• Foreign Tax Credit
• Foreign Housing Exclusion or Deduction

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

Does the US Have a Totalization Agreement with Costa Rica?

No. The US and Costa Rica do not have a totalization agreement. 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.

Navigating Tax Compliance for US Expats in Costa Rica

We trust that this guide has given you a more comprehensive understanding of the tax situation for Americans living in Costa Rica. Nevertheless, our team is always available to answer any questions if you require further clarification.

Contact us, and one of our customer champions will gladly help. If you need precise advice on your tax situation, you can also click below to get a consultation with one of our expat tax experts.