What are the income tax laws in Costa Rica?
The fiscal year - for the purpose of calculation of taxes - runs from October 1 to September 30 in Costa Rica. The income of individuals includes gross salary, wages, pension, commissions, various bonuses, allowances, and any other benefits in kind. All expenses have to be included in the assessment of employment income.
The taxes differ for residents and non-residents when income is included from non-employment sources - for example, shares and dividends, rental income, etc. Here is an outline of how the Income Tax law works in Costa Rica.
Personal Income Tax
The personal income tax is calculated for those who earn a fixed salary or remuneration and those who earn out of other profit-generating activities like a business, etc.
Persons with Fixed Salary
A withholding tax rate depending upon the monthly salary of the individual is levied. This is a progressive tax of 15% and is levied according to various slabs as announced by the Costa Rica Government every year.
A monthly credit for the tax would be applicable for each dependent according to the following categories:
A minor (less than 18 years)
Physically or mentally handicapped dependent unable to earn their own living
High school or college student less than 25 years old
The credit is applicable to the spouse of the income-tax payer if legal separation has not taken place. The tax credit applies to only one partner if both the individuals of a married couple are tax payers
Individuals with Profit-Generating Activities
The income tax for individuals engaged in profit-generating activities like business, etc. is calculated according to the various slabs announced by the Costa Rica Government every year. For example, business owners are exempted from tax for net income up to 2,890,000 colons in 2011. There is a progressive 10% increase in tax as income increases.
Income Tax for Income from Non-Employment Sources
Individuals can earn income from sources that do not fall in the employment category. For example, income may accrue from bonuses, dividends on shares, profit share schemes, interest on loan deposits, and rent, etc. Several non-employment sources of income are exempted fro the tax rules. These include gains from capital assets like selling of a house, plot, etc, Christmas bonus (that is one month's salary to be given by an employer after every year of service on a mandatory basis), gifts, income from securities that are exempted, inheritances, etc.
The Costa Rica Government offers a special incentive for tourism development so purchases of shares in an entity that is involved in the hotel business, airlines, water transportation, or car rentals can deduct up to 50% of the shareholding value from the income for the calculation of the income tax. The deduction must not be more than 25% of the individual's annual tax payment.
Spouses are treated as individuals in the calculation of income tax for income from non-employment sources.
The non-employment source income of non-residents is taxed at source or totally exempted depending upon the category.