Costa Rica: Proposed tax legislative changes, would affect individual taxpayers

Costa Rica: Proposed tax legislative changes

A bill submitted to the legislative assembly, under legislative file number 22393, would amend the income tax treatment of individuals.


Initially, the bill was presented under legislative file number 22383 which had a broader scope, but that bill was withdrawn because of the need for political support. The new bill has a reduced scope.

The new version essentially proposes the following changes:

  • The tax regime for individuals would be modified, so that wages, salaries, allowances, pensions, income in-kind and other labor benefits, income from independent professional activities, and income and earnings of capital derived from assets linked to the lucrative activities of the taxpayer would be subject to individual income tax.
  • There would be a progressive rate of individual income tax—10%, 15%, 20%, 25% and 27.5%. Taxpayers would be allowed a minimum deduction and also certain family deductions.
  • The concept of “tax residence” of individuals would be modified to include those who have their “core interests” in Costa Rica.
  • Income from and capital gains related to movable property and real estate if not related to the habitual trade or business activity of the taxpayer would be subject to tax in a separate category, and subject to a 15% rate of tax—except for capital gains derived from the sale of goods or rights obtained prior to 1 July 2019, which would be subject to tax at a reduced rate of 2.25% of the total amount.
  • Some exemptions would be available for certain income types (e.g., amounts distributed by pension systems, inheritance, gifts, holiday-related bonus payments, benefits and scholarships granted by the government and its institutions and other international organizations, and alimony).
  • “De facto” companies, condominiums, collective entities without legal personality, individual companies with limited liability, joint accounts, testamentary trusts, securitization and guarantee trusts or other similar entities, trust orders and undivided successions would be treated as flow-through entities.
  • Employers would continue to act as withholding agents for payments derived from work or employment relationships; however, many of the aspects related to the application of withholdings of individual income tax would be defined by regulations.
  • There would be a presumption for a distribution of deemed dividends if six years have elapsed after the date when the income related to the deemed dividends and the retained earnings have not been distributed or capitalized.

Additionally, the bill would temporarily increase the tax rate on income and capital gains of individuals by 1.5% for a period of two years, and would provide a permanent increase of 5% to the rate of the withholding tax on remittances made abroad (thereby increasing the withholding obligations for those taxpayers who hire suppliers from abroad).

Read a February 2021 report (Spanish and English) [PDF 184 KB] prepared by the KPMG member firm in Costa Rica


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