Does Costa Rica have income tax? Yes, and the system affects both residents and foreign property owners significantly.
We at Osa Property Management see many investors struggle with Costa Rica’s complex tax requirements. Understanding these obligations protects your investment and prevents costly penalties.
This guide covers everything you need to know about Costa Rican income tax laws and compliance requirements.
How Does Costa Rica’s Tax System Work
Costa Rica operates a territorial tax system that taxes only income earned within the country’s borders. This system applies progressive tax rates based on income levels, with the first bracket at zero percent for earnings up to CRC 4,094,000 annually. The Costa Rican tax authority publishes these brackets annually, with current rates established through Executive Decree No. 43852-H from December 2022. Non-residents pay withholding taxes of 10%, 15%, or 25% depending on income type, while residents face the full progressive scale on all local income.
Tax Obligations Based on Residency Status
Tax residents spend more than 183 days in Costa Rica within a single year and must pay taxes on all income earned within the country. Non-residents only face taxation on Costa Rican-sourced income through withholding taxes. The system treats employed individuals differently from self-employed people, with employers automatically withholding taxes from monthly paychecks for employees. Self-employed individuals must file Form D-101 by March 15 each year and handle their own tax calculations.
Current Income Tax Brackets and Rates
The 2025 tax brackets show clear progression across income levels. Income between CRC 4,094,000 and CRC 6,115,000 faces a 10% rate, while the CRC 6,115,000 to CRC 10,200,000 bracket pays 15%. Higher earners with income from CRC 10,200,000 to CRC 20,442,000 pay 20%, and those who exceed CRC 20,442,000 face the maximum 25% rate. Corporate income follows similar progressive principles, with companies that earn up to CRC 122,145,000 starting at 5% and jumping to 30% above that threshold.
Property Tax Structure
Property owners pay 0.25% annually on assessed property values (calculated on the declared value of the property). The government also imposes a 1.5% transfer tax during property sales, typically shared between buyer and seller. These taxes apply to all property owners regardless of residency status and represent additional obligations beyond income tax requirements for foreign investors who own real estate in Costa Rica.
What Tax Obligations Do Foreign Property Owners Face?
Foreign property owners face strict rental income tax obligations in Costa Rica that demand immediate attention. The territorial tax system subjects all rental income from Costa Rican properties to local taxation, regardless of where you live.
Rental Income Tax Requirements
Non-resident property owners must comply with Costa Rica’s territorial tax system for rental income, while tax residents follow the progressive scale from 10% to 25% based on total income levels. Property management companies must withhold these taxes at source and remit them monthly to the Costa Rican tax authority.
The government requires all rental agreements to include tax identification numbers. Failure to comply triggers automatic penalties that start at 50% of unpaid taxes. Property owners cannot avoid these obligations through offshore structures or foreign bank accounts.
Capital Gains Tax on Property Sales
Capital gains from property sales face a 2.5% tax for non-residents (calculated on the difference between purchase and sale prices). However, properties held for more than three years qualify for significant exemptions that can reduce or eliminate this tax burden entirely.
The 1.5% property transfer tax applies to all sales and typically gets split equally between buyer and seller at closing. Foreign sellers must obtain a tax clearance certificate before they complete any property transaction, a process that takes 15-30 business days through the Costa Rican tax authority.
Properties purchased before 2019 often benefit from grandfathered tax rules that provide additional savings opportunities for long-term investors.
Annual Tax Filing Deadlines and Procedures
Tax returns must be filed electronically by March 15 each year with Form D-101 for self-employed individuals or rental property owners. The Costa Rican tax year runs from January 1 to December 31, which requires all income documentation in Spanish with official translations for foreign documents.
Monthly rental income reports are due by the 15th of the following month, and quarterly estimated tax payments help avoid year-end penalties. Missing the March deadline triggers immediate penalties of 1% per month on unpaid taxes, plus interest charges that compound monthly.
Property owners should maintain detailed records of all property expenses, repairs, and improvements, as these deductions can significantly reduce overall tax liability when properly documented and filed. Many foreign investors struggle with these complex requirements and face unexpected compliance challenges.
What Compliance Challenges Do Foreign Property Owners Face
Foreign property owners encounter three major compliance hurdles that create costly mistakes and legal complications. The Spanish-only tax requirement presents the biggest obstacle, as Form D-101 and all documentation must appear in Spanish with certified translations that cost $200-500 per document. Costa Rica’s tax authority rejects English documents automatically, which forces property owners to restart the entire process and face late penalties. The electronic system requires a Costa Rican tax identification number and digital certificate, which takes 30-45 days to obtain and demands in-person visits to government offices.
Language Barriers Create Expensive Delays
Property owners must translate all financial records, rental agreements, and expense receipts into Spanish before submission. The tax authority accepts only certified translations from approved translators, not online translation services or bilingual friends. Each document translation adds weeks to the compliance timeline and hundreds of dollars to the total cost. Property owners who submit incomplete translations face automatic rejection and must restart the entire process from the beginning.
Documentation Requirements That Trip Up Foreign Investors
Property owners must maintain receipts for all expenses in Costa Rican colones with official exchange rates from the Central Bank for the transaction date. A single missing receipt can disqualify entire expense categories, which costs thousands in lost deductions. The tax authority requires property value declarations every five years, plus quarterly estimated payments calculated on projected annual income. Property owners who fail to file required reports trigger automatic penalties of 1% per month on unpaid taxes, plus compound interest that can double the original tax debt within two years.
Penalties That Devastate Investment Returns
Non-compliance can lead to fines, back taxes, legal action, with 15% tax rates on gross income and additional interest charges that compound continuously. Property owners who fail to withhold rental income taxes face criminal charges after six months of non-compliance, which results in asset seizure and deportation proceedings. The tax authority audits foreign property owners at rates 400% higher than local residents, with audits that last 6-18 months and freeze all property transactions. Investors lose 20-30% of their annual rental income to penalties and interest charges when they attempt tax compliance without professional guidance.
Final Thoughts
Does Costa Rica have income tax? Yes, and the system creates substantial obligations for property owners through territorial taxation, progressive rates up to 25%, and strict compliance requirements. Foreign investors face rental income taxes, capital gains obligations, and complex procedures that demand Spanish documentation and certified translations. The compliance challenges overwhelm most property owners who attempt self-management.
Language barriers, documentation requirements, and severe penalties for non-compliance create risks that devastate investment returns. Property owners who attempt self-compliance lose 20-30% of rental income to penalties and interest charges. Professional tax management protects your investment from these costly mistakes. Local tax experts navigate the Spanish-only requirements, maintain proper documentation, and handle quarterly reports that prevent penalties (while maximizing available deductions).
We at Osa Property Management provide comprehensive tax compliance services alongside our property management expertise. Our team handles accounting, tax compliance, and all administrative requirements for properties across Costa Rica’s Pacific coast. We offer customized service packages that protect your investment and maximize returns through proper tax management.