More Taxes, Again the Easy Way

In order to access the $1.75 billion credit requested from the IMF, the Costa Rican government proposes to tax financial transactions, increase the tax on the profits of companies and individuals, and increase the tax on real estate.

Friday, September 18, 2020

On the afternoon of September 17, and in the context of a severe economic crisis that had been going on since before the beginning of the pandemic, the Alvarado administration presented the plan with which it intends to mitigate the fiscal impact of the Covid-19 crisis, a proposal to negotiate an agreement with the International Monetary Fund (IMF) to obtain a credit of $1.75 billion.

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From the Ministry of Finance's statement:

The tax on electronic transactions and checks is part of the 9 temporary fiscal measures on income, expenditure and assets.

According to this, a small fee will be charged for all banking and securities transactions for four years. The first two years will be 0.3%; that is, ¢30 will be paid on a ¢10,000 transaction and ¢300 on a ¢100,000 transaction. In the following two years, the charge will be reduced to 0.2%; that is, ¢20 would be paid on a ¢10,000 transaction and ¢200 on a ¢100,000 transaction.

This tax is projected to finance what will no longer be received from social charges and the reduction of the public debt.

Another temporary measure is the extraordinary income tax on salaries (and pensions), profits and remittances abroad.

In the case of salaries, this extraordinary tax will not affect salaries under ¢840,000. An additional 2.5% will be charged on incomes over ¢840,000, an extra 5% on incomes over ¢1,233,000 and an additional 10% on incomes over ¢4,325,000.

As for profits, it does not apply to those persons or companies that do not receive profits. In the case of individuals with lucrative activities those with net incomes over ¢3,638,000 will be charged an additional fee that will progressively increase from 2.5 percentage points to 10 percentage points in the last stretch.  Legal entities with a gross income over ¢109,228,000 will be charged an additional fee of 6 percentage points over their net income.  For those legal entities with a gross income lower than ¢ 109,228,000, for the first ¢5,143,000 of net profit an additional fee will be charged, which will progressively increase from 2.5 percentage points in the first tranche, to 10 additional percentage points in the last tranche.

In addition, 5% will be charged for remittances abroad to all Costa Rican source income of individuals and companies not domiciled in Costa Rica.

Also, it is proposed to increase the property tax on real estate by 0.50 percentage points and to remove exemptions for cooperatives, school salaries, capital income and SUTEL, among others.



More on this topic

Costa Rica and the New Tax Plans

March 2017

Under study in the Legislature are 26 bills involving new taxes, increases of some existing ones and redistribution of others.

An analysis piece by Nacion.com notes that the Legislative Assembly is currently considering 26 bills introduced during the current administration which in some way involve the issue of taxes.  "... Of the total projects, 50% are attempts to raise them or create a new type of tax or fees. "

Nicaragua: Tax Increase for Non-resident Investors

December 2014

With the reform to the law on Tax Concentration non-resident investors in the country will have to pay 15% instead of 10% on income earned from capital.

According to Juan Sebastian Chamorro, executive director of the Nicaraguan Foundation for Economic and Social Development, the new reform "...

Panama: Increased Penalties for Tax Arrears

November 2014

At the end of the December 31, deadline to qualify for the current moratorium, a 10% surcharge will be incurred by those behind in the payment of taxes on income or property.

According to some taxpayers this measure represents a "... Disguised tax increase, which contradicts the promise made by President Juan Carlos Varela not to raise taxes, despite the existing fiscal deficit.

Honduras: Legal Action Over 1.5% Sales Tax

June 2014

The private sector has filed a constitutional complaint against Article 22-A of the Tax Act on income tax arguing that it distorts fundamental tax principles.

From a statement issued by the Honduran Council of Private Enterprise:

As entrepreneurs we have supported the planning processes of public finances to improve tax revenues and the controlling of public expenditure, which allow for the signing an agreement with the International Monetary Fund (IMF). Tax burdens should be clear and simple, non-discriminatory, fair and universal, as established by our constitutional system.

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