Costa Rica's Legislative Assembly is considering Bill 23760, which provides for the introduction of a new Income Tax Law, replacing the current Income Tax Law, Law No. 7092 of 1988. The new Income Tax Law includes three main taxes: i) the Personal Income Tax (IRPF), ii) the Corporate Income Tax (IRPJ), and iii) the Non-Resident Income Tax.

Personal Income Tax (IRPF)

The Personal Income Tax (IRPF) is levied on income from a Costa Rican source derived from dependent personal work, retirement, and pensions, and from the exercise of economic activities, both of a business or professional nature, as well as passive income generated in Costa Rica and abroad, including capital income and capital gains. The taxpayers of the IRPF are natural persons who have their tax residence in Costa Rica. This is generally determined by an individual's presence in Costa Rica for a period of at least 183 days during the tax year, regardless of their nationality. The tax period will correspond to the calendar year, from 1 January to 31 December.

The IRPF tax base is divided into two categories:

• A general base, including income from dependent personal work, retirement, and pensions, income derived from the development of an economic activity, and income from real estate capital; and
• A special base, including income from movable capital and capital gains.

The general base will be subject to progressive tax rates of 10% to 30% after deductions for allowed costs and expenses, including a basic deduction of CRC 10,104,000 per year (a "vital minimum"), which will be adjusted based on variations in the consumer price index. The special base will be subject to a flat tax rate of 15%, after deductions for certain expenses. A simplified tax regime will also be provided as an alternative.

Corporate Income Tax (IRPJ)

The Corporate Income Tax (IRPJ) is levied on the income obtained by legal entities and other entities, with or without legal personality, that are residents for tax purposes in Costa Rica. The IRPJ is levied on Costa Rican source income received, including income derived from the exercise of an economic activity, as well as capital income and capital gains (passive income). IRPJ is also levied on passive income received from foreign sources and on income from exchange differences originating from operations in foreign currency. The tax period will correspond to the calendar year.

The IRPJ will have a single tax base tax subject to a single tax rate of 30% after deductions for costs and expenses, as long as they are useful, necessary, and pertinent for the generation of the taxable income. Deductions will also be allowed for advance partial tax payments and withholdings, as well as tax paid abroad, where appropriate. Progressive rates for smaller companies will no longer be provided. The special regime for qualifying micro and small companies will be maintained, which includes a 100% tax reduction in the first year, a 75% reduction in the second year, and a 50% reduction in the third year.

Lastly, provisions are included to regulate certain aspects of international taxation that have been incorporated into national regulations, such as the provisions on transfer pricing, the non-deductibility of expenses incurred in operations with non-cooperative jurisdictions and hybrid mismatches, and interest deduction limitations.

Non-Resident Income Tax

The Non-Resident Income Tax will replace the current tax system for remittances abroad. The tax will be levied on Costa Rican source income derived by non-residents, whether natural persons or legal entities. Costa Rican source income includes income derived from dependent personal work and pensions, income derived from the exercise of economic activities, with or without a permanent establishment, and capital income and capital gains.

If the Costa Rican source income is generated through a permanent establishment, it will be taxed under the IRPF or IRPJ rules, as appropriate. If the Costa Rican source income is not generated through a permanent establishment, it will be subject to a single tax rate of 15% on the gross amount, which eliminates the varying rates under the current system. The 15% tax will generally be withheld at source, although if withholding is not possible, a declaration and payment requirement is established.

Click the following link for the current list of bills, including Bill 23760.