Costa Rica: Proposed introduction of global income tax system

The Executive Branch submitted to the Legislative Assembly five tax bills as part of the initiative called “Charting Fiscal Prosperity” (Trazando la Prosperidad Fiscal).

One of the bills—Bill No. 23.760 Income Tax Law, which consists of 139 articles and five transitory provisions—proposes to repeal the current income tax law and replace it with a global income tax system. Under the proposed new tax system, taxes withheld abroad would be creditable up to the amount of the tax that would have been applicable in Costa Rica. The extension of the territoriality principle would apply to both individuals and legal entities.

Passive income derived from capital and capital gains on assets or rights invested abroad would also be taxed—a proposed change aimed at Costa Rica being removed from the EU list of non-cooperating jurisdictions.

The bill would create three categories of taxes:

• Individual income tax
• Corporate income tax on legal entities
• Income tax for nonresidents

The individual (personal) income tax would tax Costa Rican source income derived from personal work, pensions, and the exercise of economic activities, and passive income derived from capital income and capital gains generated outside Costa Rican territory. Individuals would integrate their income into a single taxable base, called the “general base,” except for income from movable capital and capital gains, which would be integrated into a special taxable base. Income tax rates would be calculated progressively up to 30%. The general tax rate applicable to movable capital income and capital gains would be 15%. In general terms, new formal obligations would be established for resident individuals, who must file their income tax return. The tax period would be from January to December.

The corporate income tax on legal persons would integrate into a single taxable base all Costa Rican source income derived from economic activities, as well as capital income and capital gains obtained by the taxpayer. Capital income and capital gains on offshore income would also be taxed, and taxes withheld abroad may be credited. Relevant modifications would be introduced regarding deductible expenses in respect of losses from previous periods, uncollectible accounts, amortization of intangibles, among others. In general terms, the income tax rate would be 30%, establishing progressive exemptions for small and medium-sized companies that meet certain requirements within a certain period.

Finally, with respect to the tax on remittances abroad, substantial changes would be introduced with respect to the taxable event and rates. A single rate of 15% would be introduced and the tax would be triggered at the time the remittance is registered as payable. Changes for the treatment of income generated by permanent establishments operating in the country would also be introduced.

Read a May 2023 report [PDF 387 KB] prepared by the KPMG member firm in Costa Rica