Yes, Costa Rica does have an income tax, but it applies only to income earned inside the country. That single rule — called territorial taxation — is what separates it from the U.S. system and what makes Costa Rica appealing to retirees, remote workers, and business owners whose money comes from abroad. A local salary, a Costa Rican rental, or profits from a business operating in the country are taxed. A U.S. pension, dividends from a foreign brokerage, or a paycheck from a company based elsewhere generally are not.
What Counts as Costa Rican Income
The law treats income as taxable when it comes from services performed, goods located, capital invested, or rights used within Costa Rica. Everything else sits outside the tax net, at least from Costa Rica’s point of view.
You become a tax resident once you spend more than 183 days in the country during a fiscal year, counting continuous and broken stays together. Absences still count toward the total unless you can produce an official tax residency certificate from another country. The fiscal year follows the calendar, January 1 through December 31.
The line between local and foreign income can blur when a business technically serves foreign clients but runs out of a Costa Rican office with local staff and local decision-making. The tax authority looks at economic substance, and the more infrastructure you build locally to generate the income, the harder it is to keep calling that income foreign-sourced.
Income Tax Rates for Employees
Employed workers pay a progressive salary tax that the employer withholds each month. For 2026, the monthly brackets are:
- 0% on gross wages up to ₡918,000
- 10% on the portion from ₡918,000 to ₡1,347,000
- 15% on the portion from ₡1,347,000 to ₡2,364,000
- 20% on the portion from ₡2,364,000 to ₡4,727,000
- 25% on everything above ₡4,727,000
Only the income falling within each band is taxed at that band’s rate. A worker earning ₡2,000,000 a month pays nothing on the first ₡918,000, 10% on the next ₡429,000, and 15% on the ₡653,000 above that. The effective rate lands well below the top bracket the salary reaches.
Residents can also claim small monthly tax credits of ₡2,600 per spouse and ₡1,710 per child. These reduce tax owed rather than taxable income, and the amounts are modest.
Rates for the Self-Employed and Businesses
Self-employed professionals and sole proprietors pay income tax on their net profits from Costa Rican-source work. For 2026, the annual exempt threshold is ₡4,094,000, with a 10% rate on the excess up to ₡6,115,000 and progressive rates climbing to 25% on annual net income above roughly ₡20,800,000. Annual credits of ₡31,080 per spouse and ₡20,520 per child are available.
Corporations and other legal entities pay a flat 30% on locally sourced net income. Small companies with gross revenue up to approximately ₡119,629,000 get a reduced progressive schedule that begins at 5% on the first ₡5,642,000 of net income and steps up through 10%, 15%, and 20%. This tiering gives genuine small businesses a much lighter load than the headline corporate rate suggests.
Annual returns are due two and a half months after the fiscal year closes, which for most taxpayers means mid-March. Businesses also make three partial advance payments during the year, due at the end of June, September, and December.
Foreign Income and the Digital Nomad Visa
Foreign-earned income is where the territorial system pays off. A remote salary from a foreign employer, dividends from an overseas brokerage, rental income on property abroad, and retirement distributions from another country all fall outside the Costa Rican tax net, even if you live there full-time.
The Digital Nomad Visa formalizes that exemption for qualifying remote workers. Holders remain fully exempt from Costa Rican income tax on foreign-earned income for the length of the visa, which lasts one year and can be renewed for a second. The visa also prohibits working for local companies, so the foreign-source requirement is built into eligibility. For someone earning a remote salary above the minimum income threshold, this route provides legal certainty that the territorial exemption applies.
Capital Gains on Costa Rican Assets
Gains on the sale of assets located in Costa Rica are taxed at a flat 15%. This covers real estate, business interests, and other Costa Rican-source capital assets. The buyer usually withholds the tax at the source; where withholding is not practical, the seller declares it.
Assets owned before Costa Rica’s capital gains tax took effect in July 2019 keep a transitional option. Sellers can elect a flat 2.25% tax on the gross sale price instead of 15% on the actual gain. For long-held property that has appreciated heavily, 2.25% of the full price often comes to far less than 15% of the gain. The election applies only to the first sale of each qualifying asset.
Withholding Tax for Non-Residents
Non-residents earning Costa Rican-source income do not file a local return. The payer withholds tax at a fixed rate and remits it to the government, and that withholding is the final tax obligation. Common rates:
- Dividends: 15% in most cases, with a reduced 5% rate for certain qualifying dividend payments
- Technical and management service fees, royalties, and franchise payments: 25%
- Personal services from a Costa Rican source: 25%
- Interest and financial charges: 15% standard, with a lower 5.5% rate for interest paid to foreign banks in a regulated Costa Rican financial group (phasing up to 15% over four years)
- Transportation and communication services: 8.5%
- Rental income: 15% applied to 85% of the gross, producing an effective 12.75%
Social Security Adds a Real Payroll Cost
Anyone employed in Costa Rica participates in the Caja Costarricense de Seguro Social (CCSS), which funds healthcare, pensions, and related programs. The contribution rates are high and often surprise newcomers.
As of January 2026, employers contribute 26.83% of each employee’s gross salary to CCSS. Employers with fewer than five workers pay 25.33% because the national training institute contribution does not apply. Employees themselves contribute 10.83% of gross salary through automatic payroll deductions. These are on top of income tax withholding, not instead of it.
What Americans in Costa Rica Still Owe the IRS
Moving to Costa Rica does not reduce your U.S. tax burden on its own. The United States taxes citizens and permanent residents on worldwide income regardless of where they live, and there is no income tax treaty between the U.S. and Costa Rica to coordinate the overlap.
Without a treaty, relief comes from unilateral U.S. provisions. The Foreign Earned Income Exclusion lets qualifying taxpayers exclude up to $132,900 of foreign earned income for the 2026 tax year, and you must pass either the bona fide residence test or the physical presence test (330 full days outside the U.S. in a 12-month period) to use it. A separate foreign housing exclusion can offset part of your overseas housing costs above a base amount.
Here is the catch built into the territorial system. Because Costa Rica taxes little or none of your foreign-source income, you generate few foreign tax credits to offset the U.S. bill on that same income. The taxes you avoid paying to Costa Rica cannot reduce what you owe the IRS.
Reporting rules add another layer. Any U.S. person whose foreign financial accounts exceed $10,000 in aggregate at any point during the year must file an FBAR (FinCEN Form 114). Form 8938 under FATCA kicks in at higher thresholds for those living abroad: $200,000 on the last day of the tax year or $300,000 at any point for single filers, and $400,000 or $600,000 for married couples filing jointly. Penalties for missing these filings are severe, and the IRS treats them separately from your income tax return.