As in most countries, Costa Rican Income Taxes are based on the economic wealth and profit of taxpayers, which means income tax is a direct tax applied both to persons and companies and is calculated on the profit obtained through commercial activities of people and business.

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The Taxpayers:

For Costa Rican tributary law any person or company with business in Costa Rica becomes a taxpayer. The nationality or residence of persons or place of constitution of a company is not important, they qualify as taxpayers if they have commercial activities or a profitable business in the country.

Income Tax:

Costa Rica income tax is calculated from the total net income amount of the taxpayer in a fiscal period. The income tax in Costa Rica is an obligation of any person or company with a profitable business in the country.

The base for the calculation of the income tax is given by the difference between the total profit in a fiscal period and the necessary expenses made in order to achieve that profit. In other words the taxable income base is the outcome of total profit less total deductible expenses.

Taxable Profit:

The total income or economic benefits perceived for professional or commercial activities in a fiscal period, as well as any Equity increase with no income justification properly declared and registered are considered as taxable profits.

Profits items like: Capital Stock contribution, fixed asset reevaluations, earned dividends, inheritance and lottery prices are not considered as taxable.

Deductible Expenses:

The most typical deductible expenses are: cost of good sold, like raw material and supplies, salaries and fringes, insurance expenses, interest and financial expenses, un-collectable accounts receivable, fixed assets depreciation, representation expenses, publicity, freight, professional fees, authorized donations, building, installation and furniture maintenance, etc.

All expenses must be supported by invoices or documents authorized by the Tributary Administration, otherwise they could be not considered as deductible expenses.

Tributary Administration Bureau obligates all commercial agents to issue authorized invoices as an effort to control taxpayers income.

The Income Tax Law of Costa Rica establishes that is an obligation to issue and give those authorized invoices with any commercial transaction, as it is an obligation for the person or company who pays for that transaction to demand that kind of document.

Non Deductible Expenses:

Expenses that did not arise from the commercial activity which produces the profit are not deductible.

Entities where the Income Tax Laws do not apply:

  1. Political parties and religious institutions
  2. Free Zone Companies
  3. Solidarity Associations (Unions)
  4. Non-Profit Associations

Tributary obligations in Costa Rica. Formal Inscription in the Tributary Administration Registry:

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The first step all taxpayers must do is to present a special document, form D-140, before the Tributary Administration. This document must be used for initial inscriptions or registrations, for any legal or commercial status modification, addresses or to get unsubscriptions.

An individual taxpayer (a person), must present their identity card or cédula as well as the D-140 form. When it is a company, it must commission a legal representative who must then take the ID document number of the company, and some other legal documents of the company constitution extended by an Attorney within less than three months of issued. The legal representative of a company is responsible for all commercial acts, for all legal and tax obligation for the firm.

Formal tributary obligations in Costa Rica:

All companies registered before the Tributary Administration must have authorized and stamped legal books for accounting and legal purposes. Those books are basically: Journal, General Ledger, Inventory and Balances, Book of Acts and Shareholder Registry.

All companies must have monthly Financial Statements, at least Income Statements and Balance Sheets, where information has to be written in the accounting books: Journal, General Ledger and Inventory and Balances. Those books must be always updated with no more than three months of delay in the records.

Fiscal period in Costa Rica:

The normal fiscal period in Costa Rica lasts one year, from October 1st to September 30th of the following year. Nevertheless the Tributary Administration can approve different special periods when there is an important justification for the company needs.

Tax declaration presentation:

Income Tax Declaration: Income tax declaration must be presented in the D-101 formulary. There is a two and a half months period after year-end closing to present this declaration. So, since the normal year-end accounting closing in Costa Rica is September the 30th, the last available day to present the Income Tax declaration is December 15th.

Forms can be bought at most of the Public Banks and presented at any bank. It is important to mention that Income Tax Declarations must be presented even if there were no tax to pay, either because the company has an exemption, had net losses in the period or it didn’t had commercial activities during the fiscal year.

A typical income tax rate in Costa Rica is 30%, but there are other lower rates depending in the income. For example, for 2003 fiscal period if the income for a company was less than ¢39,000,000 ($100K) but more than ¢19,000,000 ($46K) the rate decreased to 20% and if total income was less than ¢19,000,000 the rate falls to 10%. So, rates depend on the amount of income gained in the period.

The sales tax in Costa Rica is 13% of the goods sales price. There is a special tax form for the sales tax, the D-104 and it has to be presented to the ban every month, in any of the first 15 days of the month after the tax was collected.

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There is another kind of declaration required by the Tributary Administration, which is for information purposes only with no payment due. The form is the D-151 and in this form all companies with commercial activities give a detailed report of payments done to all clients or suppliers, professional services paid, rentals, interests, etc. done by the company in period that goes from October the 1st to September 30th of the next year.

The Ministry of Finance modified the income tax rates for employed individuals, companies and individuals with business activities every year. The following became force since October 1st, 2003.

Salary tax rates:

Income & Rates.

Up to ¢232,000 ($532) = Exempt

From ¢232,000 to ¢485,000 ($1,177) = 10%
Over ¢485,000 =

(We have used the current exchange rate in November 2003 of 412 Colones:$1)

Furthermore, tax credits are also modified, taxpayers may now take a monthly credit of ¢610 per child and ¢905 for their spouse.

Corporate Income Tax:

Small companies: legal entities having a gross income not exceeding ¢43,183,000 ($104,813)

Income (Gross Income) & Rates.
Up to ¢21,468,000 ($52,106) = 10%
Up to ¢43,183,000 ($104,813) = 20%
Over ¢43,183,000 = 30%

Self-employed individuals:

Income & Rates.

Up to ¢1,434,000 = Exempt
From ¢1,434,000 to ¢2,142,000 = 10%
From ¢2,142,000 to ¢3,573,000 = 15%
From ¢3,573,000 to ¢7,160,000 = 20%
Over ¢7,160,000 ($17,378) = 25%

Tax credits in this area are also modified, taxpayers may now take an annual credit of ¢7.320 per child and ¢10.860 for spouse…

Rocio Fernández Quesada has an MBA and became a Private Accountant in 2000. She is the General Accountant and Financial Consultant for a Free Zone Company with headquarters in NC in the US.

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