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COSTA RICAN TAX LAW SUMMARY



PERSONAL INCOME TAX ON SALARY

No taxes are required on wages less than 419,000 colones per month.
From 419,000 to 629,000 colones per month, wages are taxed at 10%.
Over 629,000 colones per month, wages are taxed at 15%.

Personal income tax forms are not filed for salaried or hourly employees. Tax is withheld from the employee and remitted by the company.

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SELF EMPLOYED - Taxable income after all deductions

0 to 1,858,000 colones

No tax

1,858,001 to 2,775,000

10% tax

2,775,001 to 4,629,000 15% tax
4,629,001 to 9,276,000 20% tax
9,276,001 and over 25% tax

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CORPORATE INCOME TAX

In Costa Rica, it is the amount of total revenues that determines the tax rate and not the amount of net profit. The figures displayed below are the total amount of revenues that a company takes in. The tax amount is then applied to the net profit in the percentage shown.

ANNUAL REVENUE (colones)

0 to 27,811,000

10% of net profit

27,811,001 to 55,943,000

20% of net profit

55,943,001 and above 30% of net profit

All year-ends are as of September 30th. Tax reports must be filed and paid by December 15th. In special cases permission may be obtained to change the date of the year-end of the company.

No tax is payable in Costa Rica on profits earned outside the country and then brought in. Only profits earned within Costa Rica are taxable. There are no capital gains taxes in Costa Rica.

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LOSS CARRY FORWARD

Industrial companies can use a loss in one year against profits over the next 3 year period and agricultural companies can carry a loss forward for 5 years. After this time, if the loss has not been used it is lost. For all other companies, if there is a loss in one year it cannot be used later. Pre-operational expenses can be used over a 5 year period.

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MINIMUM CAPITAL

If the accumulated losses of a company exceed 50% of its paid in capital it can be placed into bankruptcy by a past due creditor by application to the court. Minimum capital for incorporation is ¢1,000. It is therefore suggested that possible losses be carried forward as an asset in prepaid expenses until used in a future year.

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DEPRECIATION - Permitted at the following rates:

Furniture & Fixtures

  10%

Concrete Buildings

  2%

Vehicles
  10%
Goodwill - write off over 3 years
  33 1/3%
Computers
  20%
Computer Software
100%

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CORPORATE BORROWING

Interest Free Loans

If an interest free loan is made to a company, either from inside or outside of Costa Rica, 13.7% interest is deemed to have been paid to the lender who must then pay tax on this amount.  A contract can be written between the lender and the company receiving the loan in which the lender renounces the interest. For a lender resident outside of Costa Rica, the company would be liable for 15% withholding tax on the deemed interest amount if the interest were not formally renounced.

Shareholder's Loans

Previously shareholder’s loans were assumed to bear 12% interest. However the law has been changed to allow shareholder’s loans to a company with no presumed interest.

Mortgage and Other Loans

If the lender is a corporation or individual not a resident of Costa Rica, or an individual not registered with the income tax department in Costa Rica, there will be a withholding tax of 15% of the amount of the interest. This tax does not have to be paid if the lender is a corporation in Costa Rica. For an investor it is usually better to incorporate a company where the tax would likely be 12% on income after deductions instead of 15% before deductions. The borrower is responsible to ensure that the 15% withholding tax is paid to the government. If the lender does not pay then the borrower must pay.  In the case of large external loans the contract will generally require that the borrower pay the withholding tax.

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PAYMENT of SHAREOLDERS by a COMPANY

Director’s fees of up to US$1,000 per meeting are deductible by the company, but a 12.5% withholding tax must be paid by the director attending the meeting. Only directors attending meetings may be paid fees. Meetings may be held as often as desired however minutes of each meeting must be kept in Spanish.

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DIVIDENDS

Dividends between Costa Rican corporations are not taxable. There is a withholding tax of 16.5% on dividends payable by a company in Costa Rica if the shareholder receiving the dividends is not a Costa Rican corporation. Costa Rican corporations receive dividends from other Costa Rican corporations tax free.

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TAX YEAR

In Costa Rica the personal and corporate tax year ends September 30th. Other tax year-ends can be used for corporations but only with special permission.

Tax forms must be filed and taxes must be paid by December 15th for any tax year.

Tax forms do not have to be filed for inactive corporations or for corporations that did not commence activities prior to June 1st regardless of the date of incorporation. Corporations that commenced active business on or before May 31st would be required to file on September 30th of their first year.

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EDUCATIONAL STAMP TAX

This tax is determined by the shareholders’ equity. All amounts are shown in colones.

  FROM T0 TAX AMOUNT
 

0

250.000

750

 

250.001

1,000,000

3.000

  1,000,001 2,000,000
6,000`
  2,000,00 Upward
9.000

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