Costa Rica Tax System Overview in 2025

Costa Rica's tax framework continues to evolve in 2025, offering a transparent and investor-friendly environment. The country operates under a territorial taxation model, meaning only income generated within Costa Rican borders is subject to corporate income tax. Foreign-sourced profits repatriated to Costa Rica are generally exempt from taxation, making it an attractive destination for international businesses. The fiscal year aligns with the calendar year, running from January 1 to December 31, as established by the Public Finance Strengthening Act (Law No. 9635). For authoritative updates, visit the official website of the Ministry of Finance: https://www.hacienda.go.cr/contenido/13036-subsitio-dgt.

Key Taxes and Rates in Costa Rica

Corporate Income Tax

Under the territorial system, companies pay tax only on domestic earnings. Capital gains are not taxed separately. The corporate income tax structure is progressive for smaller firms and flat for larger ones, based on annual gross revenue and net income.

Personal Income Tax

Employers withhold personal income tax directly from wages. Individuals earning up to CRC 842,000 per month are exempt. No tax return is required for salaried or hourly workers below the threshold. The progressive tax brackets apply as follows:

Value Added Tax (VAT)

VAT was introduced in July 2019, replacing the previous sales tax system that had been in place since 1982. The standard VAT rate is 13%, applied to most goods and services. Certain items such as basic foodstuffs, medical supplies, and educational materials qualify for reduced rates or full exemptions. This shift has improved tax transparency and broadened the revenue base.

Capital Gains Tax

There is no separate capital gains tax in Costa Rica. Profits from asset sales are treated as ordinary income and taxed accordingly under corporate or personal income tax rules. Detailed guidelines can be found at: https://www.hacienda.go.cr/docs/5cdc7d553d65d_borchoure RENTAS DE CAPITAL.pdf.

Selective Consumption Tax

This tax applies to specific imported goods or domestically manufactured products involving unskilled labor. Governed by the Selective Consumption Tax Enhancement Act (Law No. 4961), it is calculated as the product of the sale value and the applicable tariff rate. It targets luxury items, tobacco, alcohol, and certain non-essential consumer goods.

Stamp Duty

Stamp duty varies depending on the type of legal document involved, such as contracts, deeds, or powers of attorney. Rates are set by law and detailed information is available at: http://www.pgrweb.go.cr/scij/.../nrm_texto_completo.aspx.

Other Taxes

Additional levies include:

• Property tax: 0.25% annually
• Real estate transfer tax: 1.5%
• Municipal tax: 0.3%
• Interest income tax: 8%–15%, depending on source
• Dividend withholding tax: Up to 25% for foreign recipients

Interest-free loans are deemed to generate imputed interest at 13.7%, which may trigger tax obligations unless formally waived by the lender. If the lender is abroad and does not waive interest, the borrower must withhold 15% tax on the imputed amount.

For mortgage loans involving foreign lenders—or local individuals not registered with the tax authority—a 15% withholding tax applies to interest payments. Domestic corporate lenders are exempt.

Board members receive up to USD 1,000 per meeting as deductible compensation, subject to a 12.5% withholding tax. Only actual board attendance qualifies.

Domestic companies receiving dividends are fully exempt. However, foreign entities receiving dividends face a 16.5% withholding tax.

Special Economic Zones in Costa Rica

Free Zone Regime

To boost foreign direct investment, trade, and employment, Costa Rica established its free zone regime in 1990 under Law No. 7210 and subsequent amendments. These zones provide comprehensive incentives for export-oriented businesses. Legal texts are accessible via the Free Zone Operators Association: www.azofras.com/regimen-de-zf/leyes-y-reglamentos/.

Overview of Free Zone Benefits

As of mid-2022, over 760 companies operated within 20 major free zone industrial parks. Key sectors include electronics, medical devices, precision instruments, software development, and business process outsourcing.

Companies registered in free zones enjoy extensive tax advantages:

• Exemption from import duties on raw materials, components, packaging, machinery, spare parts, and fuels
• Exemption from export or re-export taxes
• Exemption from asset, capital, and property taxes
• Exemption from VAT and other sales-related taxes on purchases
• No taxation on profits or dividends
• Waiver of municipal and business operation taxes
• Income tax relief: 30% reduction for first 8 years, followed by 50% reduction for next 4 years

These incentives have attracted global leaders in technology and healthcare, including Intel, HP, and Baxter International, reinforcing Costa Rica’s position as a high-value manufacturing and services hub in Latin America.

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