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General
Provisions
Under the Costa Rica tax system, residents and corporations
are taxed only income earned in Costa Rica.
The
tax year begins in October 1 and ends September 30,
both for individuals and corporations. Companies may
request filing returns on a different tax year, subject
to the approval of the Ministry of Finance.
Unless
proof to the contrary exists, for certain professionals
as well as corporations, presumptive net income is
established by the Ministry of Finance, and constitutes
a minimum taxable base.
Tax
& Tax Adjustment Laws
On September 1995 a main set of reforms to the prevailing
tax structure was issued. These are the tax law (Ley
de Justicia Tributaria) and Tax Adjustment Law (Ley
de Ajuste Tributario).
Both these Laws impose severe administrative fines,
administrative penalties and criminal prosecution
for failing to comply with the income reporting requirements
established by law.
Income
Tax
Applied to individuals as well as legal entities,
i.e., corporations for income originated from a Costa
Rican source. Costa Rican Laws do not tax income derived
from a foreign source.
According to the Law all of the following are subject
to income taxation:
Legal entities, the facto corporation, professional
companies, and state enterprises which operate in
the country; Branch offices, subsidiaries, or agencies
of any non-resident which operates in the country;
Trusts; Inheritances (as long as remaining indivisible);
taxpayer must prove that they were necessary to produce
taxable income.
The
following are deductible from income:
Costs:
Any costs incurred, which are necessary to produce
the income, may be deducted (i.e. raw materials, parts,
components, or services needed to produce the goods
or services);
Salaries: Wages, bonuses, gifts, benefits actually
paid out are deductible as long as the income tax
of the recipient has been withheld and paid to the
Treasury;
Taxes:
Any taxes levied against the goods or services or
transactions carried out in the ordinary course of
business;
Insurance
Premiums: Insurance Premiums for policies, which cover
fire, theft, earthquake, or similar risks;
Interest:
No reduction allowed for interest payable to shareholders
of limited liability companies;
Bad
Debts: If related to the transactions in the ordinary
course of business of the taxpayer and all legal efforts
have been exhausted to collect the debt;
Depreciation:
Apply to the exhaustion, wear and tear, or obsolescence
of property, which is used in the trade or business.
The Tax Law specifies the maximum depreciation amounts
allowed;
Business
Losses: Deductions are allowed for business losses.
Losses incurred in one taxable year may be carried
over for 3 years (5 years for agricultural enterprises);
Social
Security Contributions: Contributions established
by law and paid to the employees are deductible;
Board
of Directors' Remuneration: Deductions are allowed
for remuneration, wages, commissions, honoraria, paid
to members of the board of directors located abroad;
Payments to entities not domiciled in C.R..: Payments
for technical support, financial, as well as for the
use of patents, trademarks, franchise fees, or royalties
are deductible. If payments are made to an agent or
subsidiary of a firm which is permanently established
in C.R. then the deduction cannot exceed 10% of the
annual gross sales of that company;
Travel
Expenses: These may not exceed 1% of the gross income
declared;
Start
up Expenses: Deductions are allowed for expenses necessary
to initiate production of taxable income;
Advertising:
Advertising and sales promotion expenses inside C.R.
or abroad are deductible;
Casualty losses: Casualty and theft losses, which
are not covered by insurance;
Gifts
made to the state.
Personal
Income Taxes
This group includes two categories:
persons
whose income consist of a fixed salary or other remuneration
and
persons with profit generating activities
a.
- Persons whose income consists of a fixed salary
Any
individual employed in Costa Rica pays a monthly withholding
tax rate based on his salary. Employment income (on
a monthly basis) of individuals is subject to a progressive
tax of 15% as follows:
Income
up to ¢323,000 exempt.
In excess of ¢323,000 up to ¢485,000 10%.
In excess of ¢485,000 15%.
The
following tax credits can be applied by tax payers,
once income tax has been calculated:
There
is ¢560 monthly tax credit applicable to each
dependent meeting the following criteria:
A
minor (under 18 years)
Handicapped (physically or mentally), and therefore
unable to make his own living.
A high school or college student, not older than 25
years.
A
¢830 monthly tax credit applicable to the spouse
only if there is no legal separation between them.
In case that both spouses are tax payers, the tax
credit can only be deducted by one of them.
b.
- Individuals with profit generating activities
The following rates are applied to taxable annual
profits:
Profits
up to ¢1,434,000 Exempt
In excess of ¢1,434,000 up to ¢2,142,000
10%
In excess of ¢2,142,000 up to ¢3,573,000
15%
In excess of ¢3,573,000 up to ¢7,160,000
20%
In excess of ¢7,160,000 25%
The
following tax credit can be applied by tax payers,
once income tax has been calculated:
A ¢1,800 annual tax credit for each dependent.
Conditions to apply to this tax credit are the same
as stated previously. In case that both spouses are
tax payers, the tax credit can only be deducted by
one of them.
Imputed
Income
An individual taxpayer who does not file a tax return
will be presumed to have earned income pursuant to
the income schedule established by law. The imputed
income is based on a base salary of a mid-level government
employee as published in the annual budget.
The
following professions: Doctors, Dentists, Architects,
Engineers, Lawyers, Accountants, Economists and Realtors,
are presumed to have earned 335 times the base salary
if they do not file an income tax returns. For Appraisers,
Private Accountants, Technicians, and in general all
other professionals and technicians the imputed salary
is 250 times the base salary.
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