The Legal Side of Costa Rica
Featuring Articles Written by Oscar Hernandez, Attorney
Oscar Hernandez is an Immigration Attorney
Located in San Jose, Costa Rica. He & His Team at
Expat Legal Advisors understand the needs
of the Expat who has begun a NEW LIFE in Costa Rica.
They know that the best way to enjoy the Pura Vida Lifestyle is to
have complete knowledge of the Laws of the Land. .
Understanding the Law & Living the Dream. .
Living the Pura Vida lifestyle in Costa Rica means more than enjoying its beaches, jungles and peaceful rhythm.
It means embracing a new way of life built on respect, knowledge and connection.
At Expat Legal Advisors, we believe that the more you understand the laws of the land,
the more fully and confidently you can enjoy the beauty of your new home.
These insightful articles, written by Attorney Oscar Hernández, who practices law in San José,
are designed to guide you through the legal landscape of Costa Rica with clarity and purpose.
From legal residency & real estate to healthcare & daily living, Oscar’s experience and dedication help demystify complex legal topics, empowering expats to make informed decisions
and live freely within the framework of Costa Rican law.
Knowledge is Peace of Mind. . and Peace of Mind is Pura Vida. .
Here, you’ll find practical wisdom, trusted guidance and the tools to help you thrive
as a well-informed member of Costa Rica’s expat community.
Enjoy this Article
Written Especially
for You. .
Costa Rica Tax System 101:
The Basics Every Expat Should Know. .
Costa Rica’s tax system is often seen as refreshingly simple, especially once one key principle is understood: the country operates primarily under a territorial tax system. This means taxes are based on where income is generated, not on nationality, passport or immigration status. Costa Rica taxes only Costa Rican–source income, which generally includes income from services performed within the country, assets located in Costa Rica or capital used locally. As a result, income earned entirely outside Costa Rica is typically not subject to Costa Rican income tax, even if the recipient lives there. This feature makes the country especially attractive to retirees, investors and many remote workers, since foreign pensions, overseas salaries for work performed abroad, foreign dividends and investment income from assets outside Costa Rica are usually exempt. However, the facts always matter—if work is actually performed in Costa Rica or the income is tied to local economic activity, it may still be considered Costa Rican–source regardless of where payment originates.
Immigration status and tax residency are separate issues, and holding temporary or permanent residency does not automatically make someone a tax resident for all purposes. Tax authorities focus instead on concepts such as tax domicile and habitual presence, commonly referencing a threshold of around 183 days per year, though determinations are made case by case. This distinction affects whether a person files under the regular income tax regime or is taxed through withholding as a non-domiciled taxpayer. Salaried employees working in Costa Rica are subject to payroll withholding under progressive tax brackets, while individuals operating businesses or providing independent services are also taxed progressively after an exempt threshold. The fiscal year runs from January 1 to December 31, with most filings and payments due around mid-March, though those whose employment income is fully withheld generally do not need to file an annual return.
For non-domiciled foreigners earning Costa Rican–source income, taxation often occurs through withholding at the source, with the local payer deducting a definitive tax before payment. Rates vary depending on the type of income, making proper contract structure especially important. Capital income and capital gains are usually taxed at a flat 15%, though assets acquired before July 1, 2019 may qualify for a one-time option to pay 2.25% of the gross sale price instead, a choice that can be particularly relevant for long-held real estate. Beyond income tax, expatriates regularly encounter the 13% value added tax on most goods and services, and those running businesses must comply with VAT registration, invoicing, and filings. Other common taxes include municipal property tax, annual corporate taxes for Costa Rican companies, and vehicle-related charges known as marchamo. Costa Rica also offers incentive regimes, such as benefits for pensionados, rentistas, investors, and digital nomads, which can provide meaningful savings when handled correctly. Overall, the territorial system often results in a light and predictable tax burden for expatriates with truly foreign-source income, making careful planning, accurate income mapping, and proper guidance the key to enjoying the advantages it offers.
Lic. Oscar Andrés López Hernández
Attorney-at-Law
Expat Legal Advisors
When You're in Need of Legal Advice in Costa Rica,
Contact
Oscar Hernandez at
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506-8543-7650
Email:
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