Income Taxes in Costa Rica: A Guide for Canadian Expats

Moving to Costa Rica is an exciting opportunity, but understanding your tax obligations is crucial, especially for Canadians. Costa Rica has a territorial tax system, meaning only income earned within the country is taxed, whereas foreign-sourced income remains tax-free. However, Canada does not have a tax treaty with Costa Rica, which means Canadian expats need to be aware of potential double taxation. This guide will help you navigate Costa Rican and Canadian tax regulations to ensure compliance.

Costa Rica's Tax System Explained

Costa Rica follows a territorial tax system, meaning:

• Only income generated within Costa Rica is taxed.

• Income earned from outside the country is not subject to Costa Rican taxes.

• There is no global taxation, making it an attractive location for remote workers and retirees.

  
  

Tax Rates for Residents and Non-Residents in Costa Rica

Costa Rican income tax rates are progressive for residents and fixed for non-residents. Below are the applicable tax rates for 2025, along with their conversion into Canadian dollars (CAD) using the exchange rate 1 CAD = 352.482 CRC.

Tax Rates for Residents (Costa Rican-Sourced Income Only)

Annual Income (CRC)	Annual Income (CAD)	Tax Rate (%)
Up to ₡4,094,000	Up to $11,614.78	0%
₡4,094,000 – ₡6,115,000	$11,614.78 – $17,348.40	10%
₡6,115,000 – ₡10,200,000	$17,348.40 – $28,937.65	15%
₡10,200,000 – ₡20,442,000	$28,937.65 – $57,994.45	20%
Over ₡20,442,000	Over $57,994.45	25%

Tax Rates for Non-Residents

Non-residents working in Costa Rica are subject to fixed withholding tax rates:

• Personal services (employment or self-employment): 10% - 25%

• Dividends: 5% or 15%

• Interest on loans from foreign banks: 5.5% to 15%

• Technical services, royalties, and management fees: 25%
  

Mandatory Social Security Contributions (CCSS)

In addition to income taxes, workers and business owners in Costa Rica must contribute to the Caja Costarricense de Seguro Social (CCSS):

• Employees: Deduct 10.5% of their salary for social security.

• Self-Employed Individuals: Pay around 18-20% of declared income.

  
  

How Taxes Work for Canadians in Costa Rica

Since Canada and Costa Rica do not have a tax treaty, Canadians need to be aware of potential double taxation:

1. Temporary Residents

• Taxable in Costa Rica: Only income sourced within Costa Rica.

• Foreign income (such as remote work) is not taxed in Costa Rica.

• May still be considered a Canadian tax resident, meaning global income must be declared in Canada.
  

2. Permanent Residents

• Taxable in Costa Rica: Only Costa Rican income.

• Foreign income is tax-free in Costa Rica.

• If Canadian tax residency is revoked, worldwide income is not subject to Canadian taxes.
  

Canadian Tax Implications

Canadian expats should consider their residency status carefully. Canada applies a worldwide income tax system, meaning:

• If you maintain strong ties to Canada (property, bank accounts, family, health insurance), you may still be considered a Canadian tax resident and required to pay Canadian taxes on all income.

• If you cut ties with Canada and become a non-resident, you only pay tax on Canadian-sourced income (e.g., CPP, OAS, rental income).
  

Withholding Taxes on Canadian Income

• Canadian pensions and RRSP withdrawals are subject to a 25% withholding tax.

• Expats can apply to reduce this rate by filing the appropriate forms with the Canada Revenue Agency (CRA).
  

Key Takeaways for Canadians in Costa Rica

• Costa Rica follows a territorial tax system, meaning only locally earned income is taxed.

• Progressive tax rates apply to residents, while fixed withholding tax rates apply to non-residents.

• Social security contributions are mandatory for employees and self-employed individuals.

• No tax treaty exists between Canada and Costa Rica, so double taxation risks should be considered.

• Canadian expats should evaluate their tax residency status to minimize their tax burden.

  
  

Final Advice

Navigating taxes as a Canadian expat in Costa Rica can be complex. To avoid unexpected tax liabilities, it’s recommended to:

• Consult with a tax professional in both Canada and Costa Rica.

• Plan ahead if you are considering cutting ties with Canada to become a non-resident for tax purposes.

• Keep detailed records of income sources and tax payments in both countries.

By understanding Costa Rica’s tax system and its impact on Canadian expats, you can make informed financial decisions and fully enjoy the Pura Vida lifestyle!

If you need help with finding more information about Costa Rican taxes, consider joining our community at Arcadia Costa Rica Real Estate. Our members have access to the most current information and support for your needs.

Disclaimer: The information provided in this article is for general informational purposes only and should not be considered professional medical advice. Always consult with a qualified healthcare provider for personalized advice tailored to your specific situation.

Enjoy your time in Costa Rica, and stay healthy!