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Costa Rica: Personal Taxation |
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COSTA RICA INFORMATION: BUSINESS, TAXATION AND OFFSHORE |
Costa
Rica Residence and Liability for Taxation
In Costa Rica the taxation of individuals is
based on the principle of territoriality, meaning
that all personal income which has a foreign
source is tax exempt. Only that proportion of
revenue earned by an individual within Costa
Rica is subject to an assessment by the tax
authorities. However, this may change if the
Costa Rican legislature manages to pass the
long awaited fiscal reform package.
The
principle of territoriality is perhaps the most
significant aspect of the country's fiscal regime.
Costa Rica does not discriminate between the
taxes payable by residents and non residents
The main taxes affecting an individual are income
tax, employee social insurance, withholding
taxes, capital transfer tax and selective consumption
tax. There are relatively minor municipal taxes,
and there is a tax on vehicles.
Income tax is levied on both employment source
income and non-employment source income. While
residents and non-residents pay the same income
tax on employment source income there is a slight
distinction between how a resident and a non-resident
are assessed on their non-employment source
income but the distinction is driven by pragmatic
considerations and is not discriminatory.
The
selective consumption tax, equivalent to a VAT,
and levied at 13% has a major impact on the
standard of living.
One
of the key components of the Fiscal Reform Bill
would be a switch from the sales tax to a Value
Added Tax system; taxes payable by Free Zone
companies would also be increased over a period
of time, and it's possible that the territorial
basis of personal taxation would be abandoned
in favour of world-wide income taxation.
There
is no capital gains tax in Costa Rica. Whilst
gains made by businesses on the sale of capital
assets may be subject to business income tax,
capital gains made by a resident or non-resident
individual on the sale of a capital asset are
exempt from any form of income tax.
No
credits are granted in Costa Rica for taxes
paid in a foreign country.
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Costa
Rica Income Tax
Income tax payable by individuals is set out
in the Income Tax Law; the rates are in article
15. The fiscal year runs from 1st October to
the following 30th September. Employment income
includes the gross value of a salary, wage,
pension, commissions, bonuses, expense allowances
and any benefits in kind. No expenses can be
deducted in assessing employment income. However
in respect of non-employment source income (e.g.
dividends on shareholdings, rental from a property
letting, etc) there is a difference in how residents
and non-residents are taxed. Thus there are
3 distinct manners of assessing income tax payable
by residents and non residents namely:
Personal
Income Taxes:
This
group includes two categories:
a.
- Persons whose income consists of a fixed salary
Any individual employed in Costa Rica pays a
monthly withholding tax rate based on his salary.
From October 1, 2008, employment income (on
a monthly basis) of individuals is subject to
a progressive tax of 15% as follows:
-
Income
up to 586,000 colons, exempt.
-
In
excess of 586,000 up to 879,000 colons, 10%.
-
In
excess of 879,000 colons, 15%.
There
is a monthly tax credit applicable to each dependent
meeting the following criteria:
-
A
minor (under 18 years)
-
Handicapped
(physically or mentally), and therefore unable
to make his own living.
-
A
high school or college student, not older
than 25 years.
-
A
monthly tax credit applicable to the spouse
only if there is no legal separation between
them. In case that both spouses are tax payers,
the tax credit can only be deducted by one
of them.
The
amount of the monthly tax credit is 1,110 colons,
and 1,640 colons for the spouse.
b.
- Individuals with profit generating activities
The
following rates are applied to taxable annual
profits for the 2008/2009 tax year:
-
Profits
up to 2,599,000 colons exempt
-
In
excess of 2,599,000 up to 3,880,000 colons
10%
-
In
excess of 3,880,000 up to 6,473,000 colons
15%
-
In
excess of 6,473,000 up to 12,972,000 colons
20%
-
In
excess of 12,972,000 colons 25%
An
annual tax credit per dependent can be applied
by taxpayers, once income tax has been calculated.
Conditions to apply to this tax credit are the
same as stated previously. In case that both
spouses are tax payers, the tax credit can only
be deducted by one of them. The tax credit is
13,320 colons oer child and 19,680 colons for
the spouse.
Income
tax payable by residents on non-employment
source income:
-
Non-employment
source income includes payments related
to bonuses, profit share schemes, dividends
on shares, interest on loan deposits,
and rental income.
-
A
number of non-employment sources of income
are exempt from tax. They include Christmas
bonuses (mandatory after 12 months service
with the same employer), gains achieved
on the sale of capital assets (e.g. the
sale of a house at a profit), gifts, inheritances
and income from securities designated
either as tax exempt or subject to a withholding
tax in place of income tax.
-
There
are a number of allowances which can be
deducted from non-employment source income
by residents so as to reduce the taxable
charge namely: an annual tax credit in
respect of a spouse; an annual tax credit
in respect of a dependant under 25 years
of age;
-
Under law 7293 of 1992 (the Incentives
to Tourist Development Law) any individual
who purchases shares in a corporation
involved in hotel services, air transportation,
water transportation or car rental can
annually deduct up to 50% of the value
of his shareholding from his income for
the purposes of income tax so long as
the deduction does not exceed 25% of his
annual tax payment.
-
A
husband and wife are treated separately
for the purposes of assessing income tax
on the non employment source income of
residents.
Income
received by non-residents from a non-employment
source is usually taxed at source (e.g. withholding
tax on dividends) and if not taxed at source is
not taxed at all.
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Costa Rica
Social Security Taxes
The employer pays a contribution of up to
26% of gross salary and the employee pays
a contribution of up to 9% of his gross salary.
Self employed persons are also required to
contribute to this fund.
Foreigners
temporarily working in Costa Rica are not
exempted from the requirement to pay this
tax even though it is evident they can never
benefit from it .
Employers
are required to insure their employees against
accidents at work and depending on the monthly
salary and the nature of the risk, premiums
can vary from 0.5% to 22% of the employees
salary.
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Costa
Rica Capital Transfer Tax
A capital transfer tax of between 1% and 2%
(dependent on value) is payable by the purchaser
on the value of real estate purchased, plus
about 1% stamp duty. For the purposes of capital
transfer tax "value" means the higher of either
the purchase price recorded by the parties
or the value ascribed to the transaction by
the relevant Government department using a
prescribed formula. The law on capital transfer
taxes payable is set out in the Income Tax
Law.
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Costa
Rica Sales Tax
Sales Tax stands at 13% and is levied both
at the point of importation and at the point
of sale (unless the sale is by way of export).
It is levied on all goods with the exception
of foodstuffs, real estate, medicinal products
and certain other items. A 10% rate applies
to the sale of wood and a 5% rate to the consumption
electric energy for residential purposes.
Sales tax is not generally levied on services.
Sales tax is charged after the imposition
of selective consumption tax.
The selective consumption tax varies from
0% to 60% and is levied either at the point
of importation or for domestic production
at the point of sale.
In
assessing the value of the goods for the purposes
of selective consumption tax domestic goods
are valued at the price that the manufacturer
sells the same to the distributor whereas
imported goods are assessed on CIF.
The
Government raises about half of its revenue
from these two taxes.
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Costa Rica Property Tax
Houses
with a value greater than USD18,600 are charged
a levy of 0.25% annually. Under legislation
approved in August, 2008, and coming into
effect from January, 2009, a scale of increased
rates between 0.25% and 0.55% will apply to
houses with a value of USD200,000 or more.
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