Worldwide Individual Taxes Summaries——Costa Rica(2001-2002)

Worldwide Individual Taxes Summaries——Costa Rica(2001-2002)

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There have been no significant tax or regulatory developments regarding individual taxation in the past year.  The information in this entry is current as of January 2001.

Income taxes on individuals in Costa Rica are levied on local income, irrespective of nationality and resident status.  For individuals domiciled in Costa Rica, any income obtained within the boundaries of Costa Rica is considered local income.  For nonresidents, any income derived from business, goods sold, or services rendered within Costa Rica is considered local-source income and is therefore taxable.  However, nonresidents are
liable only for the applicable withholding taxes, depending on the nature of their local income.Independent of nationality, an individual who is self-employed and has been living in Costa Rica for more than six months in a taxable year is considered "resident" and must file a regular income tax return.  Although foreign employees are considered "nonresident aliens" during the first six months of working in Costa Rica, their salary will be taxed from the beginning of their work period.  However, during the first six months, this salary will be subject to withholding tax of 10%; after the end of
this period, the employee will be considered resident, and all the ordinary rules for residents will be applied.  The employee does not have to file an income tax return.  The employer must file a monthly return for the payment of salary withholdings.  This payment is made directly to the tax authority within the first 10 days of the following month the withholdings are made.

Employee gross income/ Individuals domiciled in Costa Rica are taxed on salaries, commissions, fees, royalties, and any other form of remuneration for services rendered, plus any interest and rental income received from local sources.  Any income earned abroad while in residence in Costa Rica is not taxable, as indicated above.As of October 2000, individuals with a monthly salary of less than CRC241,500 and self-employed individuals with an annual income of less than CRC1,073,000 are exempt from income taxes.For individuals not domiciled in Costa Rica, the reimbursement of personal living expenses and travel expenses is not subject to tax.  This would include the reimbursement of similar expenses for the taxpayer's family.  
Certain other expense allowances are also not taxable, although they are then not deductible for the payer.Capital gains and investment income/At present, there is no capital gains
tax on the sale of real estate or securities.Real estate transferred is taxed at 1.51%.Domiciled individuals are subject to a 15% tax on interest on bearer documents, except for bearer documents registered with the local stock exchange, which are taxed at 8% . This tax s withheld at source.  Income on investments from a foreign source is not taxable.
Foreign-domiciled individuals are subject to withholding taxes at the rates shown below.
Interest                                                                 15
Dividends                                                                15
Directors' fees, etc.                                                    15  
Salaries                                                                10-15
Fees                                                                     15
Because rental income denotes a permanent physical establishment in Costa Rica, a foreign-domiciled individual receiving rental income must file a regular tax return indicating total income less permitted expenses; the net
income is subject to tax at regular individual graduated rates.

Business deductions/ A domiciled individual, whether or not a national, whose only source of income is a salary for personal services cannot deduct business expenses, even if they are not reimbursed.  However, self-employed individuals and those whose source of income is from commissions (sales), fees, and so on, may either treat up to 25% of gross income as a deduction
without itemizing the expenses or elect to itemize the expenses incurred in producing the gross income.  Itemized deductions must be substantiated for the authorities upon request.
Nonbusiness expenses/The amount of the legal annual bonus (Christmas bonus) that does not exceed one-twelfth of net salary (which is one-thirteenth of gross salary) is exempt from income taxes.Personal allowances/ Individuals are permitted the tax credits shown below.
                                                          Monthly     Annual
                                                           CRC         CRC
Spouse                                                     200         2,400
Child (each)*                                              150         1,800
*The child allowance is permissible only if the child is a minor (under 18
years old), is unable to work, or is a university student under 25 years
of age.

Under Costa Rican legislation, no tax credits are allowed to individuals for taxes paid to foreign governments.  However, an exception contained in the Costa Rican income Tax Law establishes that the Tax Administration will
allow a total or partial tax credit for the foreign tax paid when the taxpayer fulfills the following requirements.
1. That the income obtained by the foreign individual is going to be remitted abroad.
2. That the taxes paid apply to the following: profit taxes, dividends, profit sharing, interests fees, finanCIAl expenses, patents, reinsurance, refinancing, and insurance premiums of any kind.
3. The individual's country of residence does not recognize the taxes paid to the Costa Rican Tax Administration.
Additionally, to apply this credit, the foreign individual must prove to the Tax Administration that no credit or any deduction of the tax paid in Costa Rica (total exemption) will be granted in his or her country of residence , or that the credit granted is lower than the tax that would be paid in Costa Rica, in which case the taxpayer will be granted partial exemption for the amount not recognized in the foreign country.However, no exemption will be allowed when the income taxed is not subject to tax in the taxpayer's country of residence where that country has an income tax scheme analogous to that established in the Costa Rican income Tax Law.Personal allowances take the form of tax credits (see above)

Social security taxes/ An individual's share of social security taxes is 9% on total remuneration, which n the case of salary is deducted from the individual's payroll remuneration.  Additionally, the employer pays an extra 25% of the total remuneration paid to the employee as soCIAl security
tax.  This amount will be for the benefit of the employee.
The amount of contributions of self-employed individuals who participate in the social security system is defined by the Costa Rican Security institute (Caja Costarricense deI Seguro soCIAl) in accordance with the activity, amount, and source of income.  This contribution is currently set at 13.75% of monthly income.Other taxes on income/ None of the provinces or municipalities imposes any income taxes on individuals within its jurisdiction.  However, an individual who establishes a lucrative business in a specific township pays patent tax
to the municipality, which could tax the income.  The patent tax is usually a percentage of both gross income and net income; in some cases, it only affects one of these incomes.  The percentages may range from 0.25 to 2.0% for both types of income.  Each one of the 81 local governments in Costa
Rica has its own patent tax law; therefore, in each case, regulations will be different.

Returns/Only self-employed individuals who receive commissions, fees, royalties, or other forms of remuneration for services rendered and those who receive interest or rental income from local sources must file a tax return.  The return corresponds to a 12-month period ended on September 30.  If both spouses earn income, they must submit individual returns, in which
case the personal child credit can be taken by only one of the spouses.  The present legislation does not contemplated joint filling.Payment of tax/ Employees who receive salaries and other similar or complementary remunerations or benefits must pay a monthly income tax that is withheld by the employer from the monthly payroll.  Individuals need not file an annual tax return for this type of income.Self-employed individuals are required to make quarterly payments of estimated taxes, which are computed on the average of the last three fiscal
years or on the prior year's income, as stated in the respective income tax returns.  The taxpayer will apply the higher value.

Self-employed / Tax rates for self-employed individuals, based on annual taxable income, are as follows.
           Taxable income                          Tax on      Percentage
        Over         Not over                     Column 1     on excess
              0    CRC1,073,000                         -          -
  CRC 1,073,000       1,603,000                         -          10
      1,603,000       2,674,000                  CRC  53,000       15
      2,674,000       5,359,000                      213,650       20  
      5,359,000                                      750,650       25
Tax rates for employed individuals, based on monthly salary, are shown in
the table below.
            Taxable income                         Tax on     Percentage
       Over          Not over                     on excess    on excess
      Column 1
             0      CRC 241,500                       -            -
   CRC 241,500          363,000                       -            10
       363,100                                  CRC 12,150         15
Income year 2000
Gross income:
  Salary                                                      CRC  12,220,000
  Interest                                                            300,000
  Long-term capital gain                                              400,000
Total gross income                                                 12,920,000
  100% of interest on which 8% is withheld at source    300,000  
  Capital gain                                          400,000  
  Legal annual bonus (Christmas bonus)                  940,000     1,640,000
Taxable income                                                 CRC 11,280,000
Monthly taxable salary                                          CRC   940,000  
Monthly income tax                                              CRC    98,700    
Less-Personal credits:           

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