Taxes for expats in Costa Rica

U.S. citizens pay U.S. income tax to the IRS worldwide regardless of the source of their taxable income. (If there is a local income tax that's applied, it can be offset on one's U.S. federal income tax return so that there is no double taxation.) There is no Costa Rican tax on foreign income, so Social Security, pension payments from outside the country, transfers of funds from outside sources, and income from work done online for foreign employers is not taxed.

In Costa Rica, we pay the 13% retail sales tax on almost everything at the time of checkout. It's already included on the price of most items, in gasoline at the pump, etc.

In addition to the 13% retail sales tax, imported goods are taxed based upon their assessed value. Most travelers are not taxed on goods that enter the time that they arrive.

If you own a vehicle or real estate that's held in a legal corporation, there is an annual tax on the corporation. The benefits of holding assets in a corporation are disputed by attorneys. Some love and recommend them; others do not. (We dissolved our two corporations and are happy to having done so.)

If you own a licensed vehicle (including a motorcycle and maybe a boat or airplane) there is the annual marchamo which must be paid in December. The marchamo assessment is a combination of road tax, based on the vehicle's value, plus some other small fees. The marchamo includes the legally mandated public liability insurance premium. The amount of coverage is laughably small. To be protected if you you do harm to someone or something, see a licensed insurance agent about extended coverage.

Like vehicles, real estate is taxed annually by the local government. The rate is impressively low. In addition, there is the Luxury Residence(?) Tax on the most valuable homes. It starts out low but rises for homes home is appraised at higher values.

Homeowners are required to self-appraise the values of their properties and to report those findings on a form to the local government every five years. If you make the effort to report your property's value, the local official is almost certain never to check, so be reasonable but err on the side of a lower number.

@daveandmarcia

Thanks Dave.   I wasn't fully aware of your final point about the self-appraised property value thing...  I will have to ask around as to how the locals do it and if they 'don't' (which would not surprise me at all)... I will go to the municipal office to get it straight from the horse's mouth so that I do it properly.  I think that some municipalities have websites that 'state' a general amount per square meter for houses in that particular area.  I live in a Tico house, so I'm not afraid to keep it low.

One thing I will add is that paying your property taxes (I am not a corporation either) For The Full Year during the first quarter will 'win' you a 5% discount... instead of paying Quarterly; and, you won't have to go back and pay 3 more times for each of the last three quarters.  One trip between Jan 1st and March 31st is easier than 4 trips.

Also, Keep the receipt from paying your property taxes and READ it carefully.  They are 'known' for changing your property information without notifying you.   Ask a Tico to help if you aren't sure what you're looking at... the receipts are full of abbreviations.

Example: my house is on 3 'connected' lots.  I intentionally haven't had them 'officially' joined together into ONE, single Property, because I may decide to sell one of the Lots or even build a smaller house on one of them when I actually do retire... and then sell the existing house which sits on a big lot.  Less House+Less Garden = Happy Retiree.

However, when I bought the property, 'somebody' at the local Municipality office decided to add a 2nd 'HOUSE' to my account, and they were taxing me on it and charging me for trash collection on a 2nd house that didn't exist (trash collection is the largest single item on your property taxes)  It was impossible to get it removed.  The woman at the local office said that she couldn't make an appointment (after she told me to make an appointment with her to come!!) to come and see if there was a second house there or not because... wait for it... she was AFRAID that she wouldn't be able to honor the appointment.   ???????    I later found out that it was her that randomly added the second house to my account.   The nice gentleman at the main office told me to let it go... people like her will have the job for LIFE regardless of her performance.   Pura Vida for her.

Finally, I find it less of a 'gamble' to travel to the 'county seat' of my Canton (San Ramon) to pay my taxes at the main 'Municipal' office of the Canton than using the small 'local' municipal office because it is truly a one horse operation and the person that works there is useless.  Anything more complicated than unlocking the door of the office is generally 'referred' to the main office anyway.   Luckily I can take the bus.

Two brilliant posts by the best bloggers on this site, in my estimation.