Costa Rica is the tax haven in Central America
Costa Rica – the tax haven in Central America
In principle, companies and private individuals only pay taxes on income generated domestically, meaning foreign income is “free”. As far as the taxation of capital is concerned, the rates are far below what has to be paid to the tax authorities in Europe or the USA. Yes, Costa Rica is a tax haven and is suitable for retirees, dropouts and also for entrepreneurs and investors. Yes, Costa Rica is even looking for and courting investors, especially in the areas of agriculture and tourism.
Tax system
Although Costa Rica has never officially been considered an absolute tax haven, the tax burden has been kept relatively low for a long time. Today the tax rates are still quite moderate, but taxes are collected more consistently, but it is still commonplace that income from self-employment in particular is revised downwards significantly. The legal accounting regulations gave the taxpayer a lot of leeway, which was also used for recreational purposes and as a result the Costa Rican tax authorities repeatedly suffered large losses of income.
Only after public finances got into dire straits did the government take action and enact new tax laws in 1995. In particular, this meant that the accounting regulations were tightened and the impending sanctions in the event of a violation of tax laws were significantly increased. In addition to higher fines, there is now also a risk of criminal prosecution and, for example, even the forced dissolution of a company. In practice, however, only the number of tax returns submitted has increased since then. Hardly anyone in Costa Rica still takes taxes seriously.
Income tax
All individuals and legal entities pay taxes on the portion of their income earned in Costa Rica. Income generated abroad is not taxed in Costa Rica, regardless of the source. Due to this limited tax liability, the problem of double taxation does not arise from a Costa Rican perspective. A double taxation agreement between Costa Rica and Germany, for example, has already been agreed, but has not yet been ratified by both sides.
The taxable income is determined by deducting legally stipulated items (exemptions for children and spouses, insurance contributions, operating costs and other business expenses, etc.) from a comprehensive gross income.
Gross income includes all income and profits earned in Costa Rica in a tax year. This also includes income from investments, real estate transactions and other income-generating activities. However, inheritances, donations and lottery winnings are tax-free!
The tax year in Costa Rica begins on October 1st and ends on September 30th. The income tax return (declaración de la renta) must be submitted to the tax office, the tax office (Tributación Directa) of the Ministry of Finance (Ministerio de Hacienda) no later than November 30th of each year. If taxes due are not paid by December 30th, additional interest and fees will apply.
Individuals and companies are subject to different tax rates on their income. In addition, Costa Rican tax law distinguishes between income from dependent employment and that from self-employment for natural persons. Different tax rates with a progressive tariff progression apply to the two income categories. The corresponding income limits and allowances are regularly adjusted to the central bank's price index.
Sales and use taxes
In Costa Rica a sales tax (Impuesto de Ventas) is levied on goods and services; it currently amounts to 13%.
The following goods are exempt from taxation:
• Daily necessities.
• Medicines included in a list of the Costa Rican Social Security Fund.
• agricultural semi-finished and finished goods.
• Hand tools and equipment for use in agriculture.
• veterinary products.
• Green and roasted coffee.
Sales tax revenue is extremely important for the Costa Rican treasury. Together with import tariffs, they make up around two thirds of government revenue.
Transfer taxes
When transferring property, a transfer tax (Impuesto de Traspaso) of 3% is due when the purchase contract is submitted to the register for registration.
When transferring a vehicle, a tax of 5% of the purchase price is charged.
Property taxes
The relevant municipal administration levies an annual property tax on real estate, which usually also includes waste disposal fees for the tax year if there is a house on the property. Collection by local administrations is not yet working smoothly, and collection periods vary from one municipality to another. In some municipalities the tax is paid annually, in others semi-annually or even quarterly. The respective municipalities set the tariff at their own discretion, but up to a maximum of 1% of the purchase price. The assets are reassessed at regular intervals and the taxes are therefore adjusted.
See also:
http://www.costaricaweb.com/business/cindetaxes.htm
http://dgt.hacienda.go.cr/oficina/herramientas/Paginas/EDDIElaboracionDigitaldeDeclaracio
Costa Rica – the tax haven in Central America
In principle, companies and private individuals only pay taxes on income generated domestically, meaning foreign income is “free”. As far as the taxation of capital is concerned, the rates are far below what has to be paid to the tax authorities in Europe or the USA. Yes, Costa Rica is a tax haven and is suitable for retirees, dropouts and also for entrepreneurs and investors. Yes, Costa Rica is even looking for and courting investors, especially in the areas of agriculture and tourism.
Tax system
Although Costa Rica has never officially been considered an absolute tax haven, the tax burden has been kept relatively low for a long time. Today the tax rates are still quite moderate, but taxes are collected more consistently, but it is still commonplace that income from self-employment in particular is revised downwards significantly. The legal accounting regulations gave the taxpayer a lot of leeway, which was also used for recreational purposes and as a result the Costa Rican tax authorities repeatedly suffered large losses of income.
Only after public finances got into dire straits did the government take action and enact new tax laws in 1995. In particular, this meant that the accounting regulations were tightened and the impending sanctions in the event of a violation of tax laws were significantly increased. In addition to higher fines, there is now also a risk of criminal prosecution and, for example, even the forced dissolution of a company. In practice, however, only the number of tax returns submitted has increased since then. Hardly anyone in Costa Rica still takes taxes seriously.
Income tax
All individuals and legal entities pay taxes on the portion of their income earned in Costa Rica. Income generated abroad is not taxed in Costa Rica, regardless of the source. Due to this limited tax liability, the problem of double taxation does not arise from a Costa Rican perspective. A double taxation agreement between Costa Rica and Germany, for example, has already been agreed, but has not yet been ratified by both sides.
The taxable income is determined by deducting legally stipulated items (exemptions for children and spouses, insurance contributions, operating costs and other business expenses, etc.) from a comprehensive gross income.
Gross income includes all income and profits earned in Costa Rica in a tax year. This also includes income from investments, real estate transactions and other income-generating activities. However, inheritances, donations and lottery winnings are tax-free!
The tax year in Costa Rica begins on October 1st and ends on September 30th. The income tax return (declaración de la renta) must be submitted to the tax office, the tax office (Tributación Directa) of the Ministry of Finance (Ministerio de Hacienda) no later than November 30th of each year. If taxes due are not paid by December 30th, additional interest and fees will apply.
Individuals and companies are subject to different tax rates on their income. In addition, Costa Rican tax law distinguishes between income from dependent employment and that from self-employment for natural persons. Different tax rates with a progressive tariff progression apply to the two income categories. The corresponding income limits and allowances are regularly adjusted to the central bank's price index.
Sales and use taxes
In Costa Rica a sales tax (Impuesto de Ventas) is levied on goods and services; it currently amounts to 13%.
The following goods are exempt from taxation:
• Daily necessities.
• Medicines included in a list of the Costa Rican Social Security Fund.
• agricultural semi-finished and finished goods.
• Hand tools and equipment for use in agriculture.
• veterinary products.
• Green and roasted coffee.
Sales tax revenue is extremely important for the Costa Rican treasury. Together with import tariffs, they make up around two thirds of government revenue.
Transfer taxes
When transferring property, a transfer tax (Impuesto de Traspaso) of 3% is due when the purchase contract is submitted to the register for registration.
When transferring a vehicle, a tax of 5% of the purchase price is charged.
Property taxes
The relevant municipal administration levies an annual property tax on real estate, which usually also includes waste disposal fees for the tax year if there is a house on the property. Collection by local administrations is not yet working smoothly, and collection periods vary from one municipality to another. In some municipalities the tax is paid annually, in others semi-annually or even quarterly. The respective municipalities set the tariff at their own discretion, but up to a maximum of 1% of the purchase price. The assets are reassessed at regular intervals and the taxes are therefore adjusted.
See also:
http://www.costaricaweb.com/business/cindetaxes.htm
http://dgt.hacienda.go.cr/oficina/herramientas/Paginas/EDDIElaboracionDigitaldeDeclaracio
