Legislation has been submitted to Congress from the Costa Rican government that will bring about a fundamental reform on the tax system.
The measures are contained in two bills, one of which is to replace the existing income tax law and the other to introduce a value-added tax law in place of the existing sales tax law and they are expected to be approved before the end of this year. The effect will be to increase taxes for many taxpayers, both by introducing new types of income tax and by imposing VAT on many services that are not currently taxed.
The new income tax system will impose a general 15% tax on capital income and capital gains of Costa Rican source. A 15% withholding tax will be levied on payments made to foreign recipients, or 20% for payments made for intellectual property or personal services. Gains from corporate assets will be taxed at 30%. Expenses paid to bodies resident in designated tax havens or non-cooperating jurisdictions would not be tax-deductible.
Income tax on employment will be raised from 15% to 20% or 25% on higher paid employees respectively.
Passive income generated abroad and repatriated to Costa Rica will be taxed at 15%. The explanatory notes to the bill describe this as a ‘reinforced territoriality’ concept, and may be the first step towards worldwide income taxation.