First of all it is very important to highlight the simple reason why the Costa Rica Tax Bill did not pass…

The Costa Rican Congress did not follow the proper process to approve this law and because of that, the Supreme Court rejected the bill.

For a tax law like this to be approved, it needs 2/3 of votes, and needs feedback from the institutions intrinsically involved like banks and other government offices. The bottom line is the bill did not become law because of a technicality.

The newly elected President, Dr. Oscar Arias, based a big portion of his Government Plan on this law, so it would be foolish to think that this next administration is not going to start the process to get the same bill or something very similar approved.

Costa Rica Tax Myths:

So many comments have been made regarding this law like double taxation, disclosure and taxation of personal investments, that it’s the end of the real estate boom in Costa Rica and other “Urban Myths”.

Of course, most of these people have not even read this bill and because of this, most of them have come to some very strange and totally inaccurate conclusions.

We can however use this delay to take advantage of the extra time that we have now. To do our homework and prepare. Arrange to sit down with your advisors and review all possible angles and stop guessing about what might happen…

There Is No Double Taxation:

For instance, Article 54 of this bill is about the Double International Taxation Deduction and specifies how you can allocate the taxes paid abroad in Costa Rica as credits against any local taxes due, so there is no reason to say that you are going to pay taxes in Costa Rica and also in the USA for the same investment. You do not have to worry about double taxation! As it stands at the moment there is no double taxation:

You Pay Taxes On Income Only:

Another inaccurate statement I’ve seen is that when you bring money into Costa Rica and buy a Certificate of Deposit (CD) here, you have to pay taxes on the actual investment as well as taxes on the interest – this is not correct! Remember that in declaring your investments, local and foreign, you pay taxes only on the interest received, local or foreign.

Mr. Smith Plans To Retire In Costa Rica:

Let’s take a look at a real life example: Mr. Smith is planning to retire in Costa Rica, he has some investments in USA and the interest he receives on these investments will be his main source of income.

He would simply declare this source of income to the Government of Costa Rica, otherwise, the Government of Costa Rica might think that Mr. Smith is making money out there and is not willing to pay his taxes?

So if Mr. Smith declares his investments, the Costa Rican Government will know that Mr. Smith is paying taxes in the United States, therefore, he can allocate those taxes paid in USA as a credit here in Costa Rica, and if those taxes are higher in the USA (which is more than likely) than what he should pay if this interest income was earned locally, Mr. Smith won’t have to pay local taxes. If they are lower, then Mr. Smith only pays the difference.

The maximun taxes that would be withheld on Costa Rica sourced interest income would be 8% of the income due so, if you were earning 10% per annum on your US$100K CD – Out of that US$10,000 per year in interest income, you would pay US$800 in taxes to Costa Rica which would bring down your overall interest income to 9.2% instead of 10%. But again, you pay taxes only on the interest received, local or foreign and not both.

Now, if Mr. Smith decides to bring the money to Costa Rica and buy a Certificate of Deposit (CD) here all he has to do is to keep the document that proves that the money was invested in a Costa Rican CD, the bank will automatically withhold the taxes on this interest income. Since Mr. Smith is a permanent legal resident of Costa Rica he doesn’t have to worry about US taxes, he simply has to keep accurate records.

Play By The Rules:

We must expect to play by the rules and pay our fair share if we wish to live, retire or do business in Costa Rica.

I assure you that if you are retired in Costa Rica or conducting legitimate business activities, as long as you have all your paperwork in order and you have the proper advisors, there’s really nothing to worry about.

The people that will probably be most affected by the changes that are currently on the books are real estate speculators and we will know more about that when the the new plan is announced.

It is my personal opinion that when the new fiscal plan returns, they will make some changes to make it easier to understand, but I would think that the same tax rates will apply.

With the new adninistration coming in, they will start discussing the new version of the tax plan in about six month and it will probably take a year before anything is officially implemented. This ayear in which you can get all your affairs in order so that you too can play by the rules and enjoy living in Costa Rica.

Randall Zamora, President and CEO of Costa Rica ABC, a former CFO of multinational companies like Health Care Merger Inc and Four Seasons Resort Costa Rica, with twelve years of experience in accounting, management and tax advisory. Randall is fluent in English and is our Preferred Professional for Costa Rican tax matters.

Written by Randall Zamora who is the President and CEO of CostaRicaABC.com, former CFO and Head of Accounting Department of multinational companies like Four Seasons Resort Costa Rica, active member of the Interamerican Accounting Association, Pro Bono Local Partner of The World Bank and contributor to their yearly publication “Doing Business Report.”

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Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.