Costa Rica only taxes income earned inside the country, so whether you pay taxes in Costa Rica depends on where your money comes from, not on your passport or how long you plan to stay. A U.S. retiree living in San José on Social Security owes nothing to the Costa Rican treasury. A landlord renting out a condo in Guanacaste owes tax on every colón of that rent, even if the landlord has never set foot in the country. This single distinction, called the territorial system, drives almost every tax question expats and investors run into.
What Counts as Costa Rican Income
Costa Rica’s Income Tax Law, Ley del Impuesto sobre la Renta No. 7092, taxes profits and income tied to economic activity happening inside the country.1Asamblea Legislativa de la República de Costa Rica. Costa Rica Code 7092 – Ley Del Impuesto Sobre La Renta If you provide services on Costa Rican soil, rent out property here, or run a business generating local revenue, that income is Costa Rican-sourced and taxable. If your income comes from a job, investment, or business entirely outside the country, the government has no claim on it.
The test is geographic. Where did the work happen, where does the tenant pay rent, where is the client sitting? That’s what decides whether a payment is Costa Rican-source. Foreign pensions, dividends from overseas brokerages, and salaries paid by foreign employers for work performed abroad fall outside the system entirely.
When You Become a Tax Resident
You become a tax resident if you spend 183 days or more in Costa Rica during a calendar year. The days don’t have to be consecutive; the tax authority adds up every day you are physically present. The rule comes from Article 5 of the Regulations to the Income Tax Law.2Sistema Costarricense de Información Jurídica. Costa Rica Code 7092 – Ley Del Impuesto Sobre La Renta
Here is the point that surprises many newcomers: even non-residents owe Costa Rican tax on Costa Rican-source income. Crossing the 183-day line mostly changes how you file and what rates apply, not whether you owe anything at all. A short-stay owner earning rental income here is on the hook regardless of days spent in country. A long-stay resident with only foreign-source income still owes nothing.
Rates on Income Earned Inside Costa Rica
Salaried Employees
If you work for a Costa Rican employer, income tax is withheld from your paycheck on a progressive monthly scale. For 2026:
- Up to ₡918,000: exempt
- ₡918,000 to ₡1,347,000: 10% on the amount above ₡918,000
- ₡1,347,000 to ₡2,364,000: 15% on the amount above ₡1,347,000
- ₡2,364,000 to ₡4,727,000: 20% on the amount above ₡2,364,000
- Over ₡4,727,000: 25% on the excess
Brackets are adjusted annually. The employer handles withholding, so most salaried workers don’t file a separate return unless they have other Costa Rican income.
Self-Employed and Freelancers
If you consult, freelance, or work as an independent professional earning Costa Rican-source income, you file against a separate annual scale. For 2026:
- Up to ₡4,094,000: 0%
- ₡4,094,000 to ₡6,115,000: 10%
- ₡6,115,000 to ₡10,200,000: 15%
- ₡10,200,000 to ₡20,442,000: 20%
- Over ₡20,442,000: 25%
The top rate kicks in at roughly $38,000 USD equivalent per year, which catches many expats off guard. Deductible business expenses reduce your taxable base, so records matter.
Companies
Costa Rica does not run a flat corporate rate. Companies with annual gross income above roughly ₡119,174,000 (about 280 base salaries) pay 30% on net profits. Smaller companies pay graduated rates on net income: 5% up to ₡5,621,000; 10% up to ₡8,433,000; 15% up to ₡11,243,000; and 20% above that. Once gross income crosses the threshold, the full 30% rate applies to all net profits. The current structure came out of the 2019 tax reform, Ley 9635.3Sistema Costarricense de Información Jurídica. Ley 9635 – Fortalecimiento de las Finanzas Publicas
If You Own Property or Sell an Asset
Rental income from Costa Rican property is taxed at 15%, with a standard 15% deduction for expenses built into the calculation. Both residents and non-residents owe this tax; only the filing mechanics differ.
Capital gains on the sale of assets located in the country are taxed at a flat 15% since the 2019 reform. For properties purchased before July 1, 2019, sellers can choose an alternative: pay 2.25% of the total sale price instead of calculating actual gain. When a resident sells property, the buyer withholds 2% of the price as an advance against the seller’s capital gains liability. When a non-resident sells, the buyer withholds 2.5%, and that withholding is the final tax; the non-resident seller has no further filing obligation.
Every property owner also pays an annual municipal property tax of 0.25% of the registered fiscal value under Ley 7509, collected by the local municipality. Homes with construction values above ₡143 million (roughly $260,000 USD) trigger an additional annual luxury home tax, the Impuesto Solidario, at progressive rates from 0.25% up to 0.55%, due January 15 each year.4ICS Consultores, Costa Rica. Luxury Home Tax: What to Check Before January 15, 2026
One quiet trap for expats: any Costa Rican corporation you set up to hold property owes an annual corporation tax (Impuesto a las Personas Jurídicas) whether or not it does business. Inactive companies pay ₡69,330 for 2026; active companies pay between ₡115,550 and ₡231,100 depending on gross income.5Ministerio de Hacienda. Aviso Informativo Vencimiento Impuesto a Personas Juridicas 2026 Missing it can lead to penalties and, for inactive entities, administrative dissolution.
VAT on What You Buy and Sell
Costa Rica’s value added tax, the Impuesto al Valor Agregado (IVA), applies to most goods and services at 13%.3Sistema Costarricense de Información Jurídica. Ley 9635 – Fortalecimiento de las Finanzas Publicas Reduced rates apply in specific categories: 4% on private healthcare and airline tickets, 2% on medicines, private education, and insurance premiums, 1% on essential foods and agricultural goods, and 0.5% on certain agricultural equipment. Items in the government-approved basic food basket are exempt. If you run a business, you charge the correct rate and report it monthly.
Social Security Is Separate and Mandatory
Anyone working in Costa Rica must contribute to the Caja Costarricense de Seguro Social (CCSS), which funds healthcare and pensions. Employees contribute 9.83% of salary as of January 2026, with employers adding 14.83%.
Foreign residents holding pensionado or rentista status must also enroll in CCSS as independent contributors, and this catches retirees by surprise because it is not income tax. The monthly payment is calculated from the income you declared in your residency application. Pensionados declaring the $1,000 minimum pay roughly $120 to $140 per month. Rentistas declaring $2,500 pay about $300 to $350 per month. Enrollment is not optional. Tourists and non-residents cannot enroll and must carry private insurance or pay out of pocket.
The Digital Nomad Exemption
Costa Rica’s digital nomad visa, created by Law 10008 in 2021, exempts qualifying holders from Costa Rican income tax for the length of their stay. The law treats digital nomad visa holders as non-residents for tax purposes, and income received from abroad is not considered Costa Rican-source income.6EY. Costa Rica’s Government Publishes Regulations to Implement the Digital Nomads Law Holders also get an import tax exemption on personal computing and telecommunications equipment used for work.
The condition is strict: all income must come from foreign sources. Selling to Costa Rican customers, taking local clients, or working for a Costa Rican employer voids the arrangement, and if immigration revokes the visa the tax benefits end immediately, including the equipment import exemption. Qualification requires stable net income of at least $3,000 per month, or $5,000 for families.7Costa Rica Tourism Board. Digital Nomads: Live and Work The visa runs one year and can be renewed once.
What Americans Still Owe the IRS
Moving to Costa Rica does not end your U.S. tax obligations. The United States taxes citizens and permanent residents on worldwide income wherever they live, and Costa Rica and the United States have no bilateral income tax treaty, so there is no automatic mechanism to prevent double taxation.8United States Department of State. 2025 Investment Climate Statements: Costa Rica
Two tools reduce the overlap. The Foreign Earned Income Exclusion lets you exclude up to $132,900 of foreign earned income from U.S. federal tax for 2026.9Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The Foreign Tax Credit lets you offset U.S. liability with Costa Rican taxes already paid. Costa Rican rates are generally lower than U.S. rates, so most expats still owe something to the IRS after applying credits.
Two reporting requirements trip up Americans in Costa Rica repeatedly. FBAR (FinCEN Form 114) is required if your combined foreign financial accounts exceed $10,000 at any point in the year, including Costa Rican bank accounts and accounts you only sign on. It’s due April 15 with an automatic extension to October 15.10Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) FATCA (Form 8938) is required for expats abroad when foreign financial assets exceed $200,000 on the last day of the year or $300,000 at any point during the year for single filers, with joint thresholds of $400,000 and $600,000.11Internal Revenue Service. Summary of FATCA Reporting for U.S. Taxpayers FBAR penalties for non-willful violations reach $10,000 per account per year; willful violations carry penalties up to the greater of $100,000 or 50% of the account balance. Those are the mistakes that turn a comfortable retirement into a legal problem.