Understanding Taxes in Costa Rica: What Every Expat Needs to Know
- Lic. Oscar Andrés López Hernández Attorney-at-Law
- 4 days ago
- 6 min read
Living the Pura Vida lifestyle in Costa Rica comes with many perks, but it's important for expats to understand their tax obligations. Costa Rica's tax system is quite unique. It follows a territorial tax principle, meaning only income earned within Costa Rica is subject to taxation. Below we break down the key aspects of Costa Rican taxes for individuals and businesses, annual filing duties, and tips to stay compliant while enjoying paradise.
Costa Rica's Territorial Tax System
Costa Rica operates on a territorial tax system, which taxes only income from Costa Rican sources. In other words, foreign-sourced income is not taxed in Costa Rica. This principle is established by Costa Rican law: Article 1 of the Income Tax Law (Law No. 7092 - Ley del Impuesto sobre la Renta) defines Costa Rican-source income as income generated exclusively within Costa Rican territory (from services provided, goods located, capital invested, or rights used in Costa Rica). Therefore, if you're an expat earning income from abroad (such as overseas investments, pensions, or remote work for a foreign employer), this income will not be taxed.
It's important to note that recent tax reforms have reinforced this territorial principle. Costa Rica's Congress reaffirmed in 2023, through law 10381, that only income generated "exclusively in the national territory" is considered Costa Rican source. An exception was introduced for certain foreign passive incomes of multinational companies without local substance, to comply with international standards, but for most individual expats the rule is simple: foreign income is out of Costa Rica's tax scope.
Annual Tax Declarations and Filing Obligations
Even though foreign income isn't taxed, expats must still comply with local filing rules for any Costa Rican income. The fundamental premise is clear: Anyone earning Costa Rican-source income is required to file annual tax returns reporting that local income. If you have no Costa Rican income at all, you generally wouldn't need to file a return; however, once you start a local business, earn rental income from a property, or work in Costa Rica, you enter the tax system.
Tax Year and Deadlines: A few years back, Costa Rica's fiscal year ran from October 1 to September 30, but today the standard tax year aligns with the calendar year (Jan 1 – Dec 31). Annual income tax returns (declaración de renta) are due 2.5 months after the fiscal year ends. In practice, for a calendar fiscal year, the deadline is usually March 15 of the following year (e.g., the 2025 tax return for income earned in 2024 is due by March 15, 2025). Corporate entities and self-employed individuals must file by this date. Missing the deadline can trigger penalties and interest, as per the Tax Code.
Tax Rates for Individuals: Costa Rica imposes progressive tax rates on personal local income. For instance, individual employment or self-employment income is taxed in brackets: lower incomes are exempt, and higher incomes are taxed up to a top rate of 25%. As of 2025, the top 25% rate kicks in for annual income over roughly ₡20.4 million colones (around $34,000 USD, though this threshold can adjust yearly). Here's a simplified breakdown of annual individual income tax rates:
₡0 - ₡4,094,000: 0% (tax-exempt)
₡4,094,000 - ₡6,115,000: 10%
₡6,115,000 - ₡10,200,000: 15%
₡10,200,000 - ₡20,442,000: 20%
Over ₡20,442,000: 25%
These rates apply only to your Costa Rican-sourced earnings. A U.S. expat with solely U.S. income would not pay these, but if you also earn a salary in San José, or have a Costa Rican rental property, that local income falls into these brackets.
Corporate Taxes: If you start a business or incorporate a company in Costa Rica, you'll encounter corporate income tax, known as Impuesto sobre las Utilidades. The standard corporate income tax rate is 30% of net profits. Net profit is calculated as gross income from Costa Rican activities minus deductible expenses. Costa Rica's territorial principle applies to companies too: a corporation is taxed on profits from activities in Costa Rica, while income earned abroad is outside the tax base.
Reduced Rates for Small Businesses: Costa Rican law provides progressive corporate tax rates for small companies to promote entrepreneurship. If a company's gross income is below certain thresholds (approximately ₡119 million CRC per year, which is about $200k USD), lower tax rates apply on the first slices of net income:
5% on the first ₡5.64 million of net income
10% on net income from ₡5.64 million up to ₡8.46 million
15% on net income from ₡8.46 million up to ₡11.29 million
30% on any net income beyond ₡11.29 million (or for larger companies over the threshold).
Annual Corporate Tax (Sociedades): In addition to income tax on profits, Costa Rica imposes an annual corporate entity tax on all registered companies, even if they have no income. This tax created a yearly fee that every corporation must pay to remain in good standing (the amount ranges from around US$120 to $380 per year, depending on whether the company is active or inactive). This is essentially a flat registration tax and is due every January. This is important to consider since expats often set up corporations to hold property or vehicles; if you do, remember to pay this annual legal entities tax to avoid penalties or dissolution of the corporation.
Costa Rica's tax system is straightforward once you understand its territorial nature. For most expats, the main takeaway is simple: foreign income isn't taxed, but local earnings are.
At Expat Legal Advisors, we help expats and international investors stay compliant with Costa Rican tax laws, from personal filings to corporate structuring. Our goal is to make sure you can enjoy Pura Vida living without tax worries or complications.
Oscar Andrés López Hernández
Legal Manager
(506) 7241 7949
Ready to Make Costa Rica Your Home?
Now that you understand the tax landscape, the next step is determining your residency path. Did you know there are over 10 types of residency options in Costa Rica? Each has different requirements, benefits, and tax implications.
Take Oscar's Free Residency Quiz to discover which residency option is best for your situation—whether you're retiring, starting a business, or relocating your family.
The quiz takes just a few minutes and will help Oscar's team at Expat Legal Advisors create a personalized roadmap for your Costa Rica journey—from temporary residency through to permanent status.
Your Complete Expat Support Team in Costa Rica
Understanding taxes is just one piece of the puzzle when it comes to living well in Costa Rica. That's why I work closely with Oscar and his team at Expat Legal Advisors to give you the complete support you need.
While Oscar handles the legal side—taxes, residency, corporate structuring, and compliance—I'm here for everything else that makes your daily life run smoothly. Through Expat Senior Concierge Costa Rica, I provide Ambassador-level property management for luxury estates (non-Airbnb properties only), senior medical advocacy, and the kind of personal, dignity-centered support that comes from managing British Embassy diplomatic residences.
I'm your cultural bridge. I navigate the Costa Rican healthcare system with you, coordinate with your property staff, handle those crucial details that keep your home running beautifully, and provide your family back home with peace-of-mind reports about your wellbeing. My approach is personal, never platform-based, because every senior deserves individualized care that honors their dignity.
Together, Oscar and I form your complete expat support team: he keeps you legally compliant and protected, while I ensure your daily life reflects the quality and ease you came to Costa Rica to enjoy. Stay Informed with Our Expat Resources
Subscribe to our newsletter to receive practical guides, insider tips, and expert insights about expat life in Costa Rica—from tax updates and legal changes to healthcare navigation and property management best practices.
Subscribe here or email info@expatseniorcr.com with "Newsletter" in the subject line.
Did This Article Help You?
If this tax guide or any of our other content has been helpful in your Costa Rica journey, I'd be truly grateful if you'd share your experience. Your review helps other expats find the reliable information and support they need.
Your feedback means everything to us and helps build a stronger expat community here in Costa Rica.
Expat Senior Concierge Costa RicaTere - Founder & Principal
ConciergeWhatsApp: +506 7075-5307
Email: info@expatseniorcr.com
Website: expatseniorcr.com
Ambassador-level property management • Senior medical advocacy • Cultural bridge services