Personal income tax is one of the most common tax systems in the world, taking money directly out of a person’s salary before it ever touches their wallet. In Costa Rica, personal income taxes have very different minimum payment limits than other countries. Those that earn $800 or less working for a corporation in Costa Rica are not required to income taxes at all.
Freelancers also see substantial benefits as they can earn up to $3,000 working independently without having to file a personal income tax return. That level is well above the minimum level in the United States and can create some opportunities for Costa Rican citizens through a less restrictive tax structure.
Of course, those that are citizens of the United States have to file a tax return no matter where they are living but current tax laws allow for a $78,000 credit on overseas income for individuals earning money outside of the United States. For couples, that credit scales up to $144,000 and for many individuals, that means that they can retain their United States citizenship and still avoid personal income tax collected by the U.S.
For Costa Rican personal income taxes, only income generated in Costa Rica is subject to taxation, a significant distinction between Costa Rica and other countries. There are also some exemptions in Costa Rican tax law that are important to keep in mind as you are evaluating your own tax return.
As discussed in the capital gains section of this web site, capital gains are not taxable and represent a great investment opportunity. Additionally, any income derived from assets not within Costa Rica is not eligible to be taxed. Inheritances and proceeds from any kind of lottery also avoid taxation in Costa Rica, a large difference from countries like the United States.
Generally speaking, Costa Rican taxes run anywhere from 10 percent to 15 percent of annual income after all of the exemptions and deductions are factored into the equation. The Costa Rican system uses a graduated tax bracket system where higher income levels are taxed more heavily, but on the whole it is more forgiving than the United States system and only takes into account Costa Rican proceeds, two aspects that can make Costa Rican tax law attractive to individuals wishing to conduct business in a foreign country.
Employers generally withhold the entirety of the income tax, just as they do in the United States, and operate similarly in that regard. As you file your income tax in Costa Rica, Meléndez & Bonilla is an excellent resource to make sure that you are filing your return in the correct manner and have taken advantage of all of the local Costa Rican tax provisions that could benefit you. While amassing information on the Costa Rican tax structure is a great idea if you are either earning money in Costa Rica presently or hope to the in the future, having a trusted voice on your side well versed in local tax legislation is even better.
Meléndez & Bonilla can be that voice and we welcome you to contact us if you have any interest in having your income tax situation looked over by our expert team of lawyers with over 15 years serving clients just like you.