Does Costa Rica Have an Income Tax System?

Costa Rica has an income tax system, and its structure is defined by the principle of territoriality. This means that the government’s authority to tax income is based on where the income is generated. Unlike countries that tax their citizens’ worldwide income, Costa Rica primarily focuses on economic activities occurring within its own borders.

The Territorial Tax System

Costa Rica’s tax system is based on a territorial principle, which means tax is levied almost exclusively on income derived from sources within the country. This approach is different from the worldwide income model used by the United States, where citizens and residents are taxed on their income regardless of where it is earned. In Costa Rica, the central question is whether the income-generating activity took place on Costa Rican soil.

Income considered to be from a Costa Rican source includes a wide range of activities. For example, a salary paid by a Costa Rican company to an employee working in the country is taxable. Similarly, profits earned by a local business, rental income from a property located in Costa Rica, and fees for professional services performed while physically present in the country all fall under this category.

Conversely, income from foreign sources is not subject to Costa Rican income tax. A pension received from a foreign government or previous employer abroad is an example of non-taxable income. Investment income, such as dividends or capital gains from foreign stock markets, also falls outside the scope of local taxation. A salary paid by a foreign company for services rendered to clients located outside of Costa Rica is another instance of non-taxed, foreign-sourced income.

Personal Income Tax

For individuals, income tax is applied to Costa Rican-sourced earnings, and the liability depends on residency status and the type of income received. A person is considered a tax resident if they are present in the country for 183 days or more during the tax period. Resident individuals are subject to a progressive tax scale, meaning that as a person’s income increases, the rate at which it is taxed also increases.

Salaried employees have their income tax withheld directly by their employer based on a progressive scale. For 2025, monthly income up to CRC 922,000 is exempt from tax. Earnings above this are taxed at increasing rates of 10%, 15%, and 20%, with the top rate of 25% applying to monthly income over CRC 4,745,000.

In addition to income tax, mandatory social security contributions are deducted from an employee’s salary. These payments, managed by the Caja Costarricense de Seguro Social (CCSS), fund the public healthcare and pension systems and amount to 10.67% for the employee.

Self-employed individuals and independent professionals are also subject to a progressive tax system on their annual net income. For 2025, annual income up to CRC 4,094,000 is exempt. Above that threshold, rates climb from 10% to a maximum of 25% on income exceeding CRC 20,442,000. They are responsible for calculating their own taxes and can deduct expenses necessary to generate their income. Taxpayers can reduce their final tax bill with monthly credits for dependents: CRC 1,720 for each child and CRC 2,600 for a spouse.

Corporate and Business Income Tax

Legal entities operating in Costa Rica are subject to corporate income tax on their locally sourced net income. The general tax rate is 30%, which applies to companies with annual gross income exceeding CRC 119,629,000 for the 2025 fiscal period. To support smaller businesses, Costa Rica uses a progressive system with rates of 5%, 10%, 15%, and 20% for businesses with lower revenues. Taxable corporate income is calculated by subtracting necessary expenses from the company’s gross income.

Beyond income tax, businesses may also face withholding taxes on certain payments made to individuals or companies abroad. Dividend payments to foreign shareholders are subject to a 15% withholding tax, as are interest payments on foreign loans. Payments for technical services or royalties for the use of trademarks may be subject to withholding rates as high as 25%.

Tax Filing and Payment Obligations

Before filing, individuals and businesses must have a Tax Identification Number. For Costa Rican citizens, this is their national ID number (Cédula), while foreign residents use their immigration ID (DIMEX). The primary document for filing is Form D-101.

The tax year in Costa Rica aligns with the calendar year, from January 1 to December 31. The deadline for filing the annual income tax return is two months and 15 days after the close of the tax year. All tax filings must be submitted electronically through the government’s online portal, known as the Administración Tributaria Virtual (ATV), which is the exclusive method for submitting declarations.

After Form D-101 is submitted through the ATV portal, the tax payment must be made as a separate action. The system generates a payment order that can be taken to an authorized bank to complete the transaction. Completing both the filing and payment by the deadlines is necessary to avoid penalties.