Income Tax

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Income Tax

 

BUSINESS TAXES

Personal Income Tax on Salary

No tax to ¢787,000 colons per month.

¢787,001 to ¢1,188,000 per month is taxed at 10%.

Over ¢1,188,001 per month the tax is 15%

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

 

Self Employed- Taxable income after all deductions

0 to ¢3,517,000 No tax
¢3,517,001 to ¢5,251,000 10% tax
¢5,251,001 to ¢8,760,000 15% tax
¢8,760,001 to ¢17,556,000 20% tax
¢17,556,001 and over 25% tax

 

Corporate Income Tax

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

ANNUAL REVENUE (colones)

0 to ¢52,634,000 10% of net profit
¢52,634,001 to ¢105,872,000 20% of net profit
¢105,872,001 and upward 30% of net profit

All year-ends are September 30. Tax reports must be filed and paid by December 15. In special cases permission may be obtained to change the date of the year-end. No tax is payable in Costa Rica on profits earned outside the country and then brought in. There are no capital gains taxes in Costa Rica.

Loss Carry Forward

Industrial companies can use a loss in one year against profits over the next 3 years and agricultural companies can carry a loss forward for 5 years. After that 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 deducted over 5 years.

Minimum Capital

If the accumulated losses of a company exceed 50% of its paid up capital it can be placed into bankruptcy by a past due creditor by application to the court. Minimum capital for incorporation is ¢1,000 (approximately $2.00).

Depreciation is 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%

 

Corporate Borrowing

Interest Free Loans

If an interest free loan is made to a company, either from inside or outside 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 who is 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

Shareholder’s loans to a company are permitted with no presumed interest.

Mortgage or other Loans

If the lender is a corporation or individual not resident in 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, so for an investor it is usually better to incorporate a company where the tax would likely be 10% on income after deductions instead of 15% before deductions. The borrower is responsible to ensure that the 15% withholding tax is paid – if the lender does not pay the borrower must pay. In the case of large external loans the contract will generally require that the borrower pay the withholding tax.

Payment of Shareholders by Business

Directors fees of up to $US 1,000 per meeting are deductible by the company, but a 12.5% withholding tax is payable 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.

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.

Tax Year

In Costa Rica the personal and corporate tax year ends September 30. Other tax year-ends can be used for corporations, but only with special permission.Forms must be filed and tax paid by December 15 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 1 regardless of the date of incorporation. Corporations that commenced active business May 31 or before would be required to file on September 30 of their first year.