Corporate Income Tax in Costa Rica

For Corporate entities the following tax table prevails:

Any industrial corporation is allowed to make deductions from their annual gross income according to the list of deductible items listed on page 2 of this document.

The tax administration can deem a deduction invalid under the following criteria: belonging to another taxes period; non-income generating; excessive or unreasonable.

Depreciation and Other Allowances
Depreciation rates can not be higher than those prescribed by law, unless so authorized by the tax administration. Companies can choose either the straight-line or the sum-of-digits methods of depreciation, though, once chosen, the method must be used consistently. Accelerated depreciation is allowed in certain cases Other allowances are: organizational and pre-operational expenses that can be paid from one to five years; operational losses can be carried forward up to three years for industry and five years for agricultural operations.

Tax on Corporate Assets
The Tax Adjustment Law introduced a 10% tax on the assets of corporations whose assets exceed ¢30,000,000.00. The law has several exemptions. An accountant should be consulted as to the application of this law on your particular situation.

Tax on Capital
This tax is also known as the "Education and Culture Tax". Every legal entity (corporation) as well as its subsidiaries, or agencies of a foreign company, which are duly recorded in the Costa Rican Mercantile Registry, must pay an annual tax based on its net capital or equity (assets less liabilities), according to the following table:

Annual Property Taxes
Starting November 30, 1995, the law states that the administration and collection functions for property taxes to the Local Governments (Municipalidades) where the property is located.
Under the new law, it will be these entities’ responsibility to conduct property appraisals and collect the corresponding property tax.

The property tax is established on an annual basis and may be paid annually, by semester or by quarter depending on the procedures established by each Local Government. For the next five years, the property tax payment will be 60% of the appraised value of the property. Starting on year six, the municipality may set its own rate not to exceed 1%.

Transfer Taxes
There is a 3% property transfer tax. This tax is based upon the registered value placed on the property transfer deed at the time of sale.

Tax on Distributed Profits / Dividends
Whenever a corporation distributes its profits as dividends, the following tax is applied:
When the profits are distributed to corporation partners, the corporation, for payment to fiscal authorities must withhold a 15% tax.

When dividends are distributed by a corporation whose shares are registered in an officially recognized stock exchange, a 5% tax must be withheld only if the shares were acquired through a stock exchange.

If the partner is another corporation also subject to this withholding tax and with its capital duly registered in Costa Rica, the tax is not applicable.

Sales Tax
The tax Adjustment Law increased the sales tax from 10% to 15%. Starting on November 18, 1995 this new sales tax will be in effect for the next 18 months. After this period of time, the rate drops to 13%