Taxes: Adjustments to the Global Income Bill

By submitting to the Costa Rican Legislative Assembly a new text of the dual global income bill, the Alvarado administration intends to guarantee the tax exemptions that companies operating in the free trade zone regime already benefit from.

Friday, February 5, 2021

The dual global income bill that was sent last January 22 to the Assembly created confusion among the deputies. A press release from the Assembly dated February 2, states that legislators from different fractions expressed doubts and reservations about the bills that the government sent to the Legislative Assembly to improve public finances and as part of the agreements with the International Monetary Fund (IMF) to obtain a credit for $1,750 million.

The $1.75 billion requested before the IMF will be used by the Alvarado administration to mitigate the fiscal impact on public finances caused by the health crisis resulting from the covid-19 outbreak.

From a Finance Ministry press release:

February 5, 2020. In response to the concerns and proposals of different sectors regarding the dual global income bill sent to the Legislative Assembly at the end of January, and with the purpose of making its scope very clear before the discussion process that the deputies will hold on this bill, the Executive Branch presented this Friday a new text that modifies some articles and deletes others.

"After listening to the concerns of different social and business groups, we have reviewed and resized the scope of the bill, in order to facilitate the discussion process that will take place in the Legislative Assembly. Our main objective is for this new text to promote the necessary consensus for its prompt approval, especially considering the urgent deadlines we have for it", stated Elian Villegas, Minister of Finance.

The new text was submitted to the technical team of the International Monetary Fund (IMF) prior to its presentation, since it is part of the projects contemplated in the technical agreement with that organization, and it completely replaces the previously presented text (exp. 22383) in the legislative process.

As a result of this revision, the new bill:

Appends a subsection (5) to Article 8 on exemptions, to clarify and guarantee that the voluntary and complementary pension regimes will continue to be exempt from the payment of income tax, as indicated in the previous text and reaffirmed by the Executive Branch in the last few days. Guarantees that all tax benefits contained in the Law of the Free Zone Regime, Law No. 7210, of November 23, 1990, and its amendments, remain in full force and effect, under the terms and with the limits of the tax benefits contemplated in such Law and the provisions of the executive agreements for granting the regime, as well as those that may be signed in the future under the provisions of the aforementioned Law. Article 120 (Succession in the tax debt) of the draft is eliminated. In this respect, it should be recalled that the tax obligations of the successors of a deceased taxpayer are already regulated in Article 19 of the Code of Tax Rules and Procedures (Law 4755), in force since May 3, 1971. Eliminates clause 3 of article 2 of the previous text, thus eliminating any reference to the subjection of income from abroad, and guaranteeing that only income from Costa Rican sources, product of activities carried out in national territory, will be taxed. Subsection 9 (now 10) of the article is modified so that the income from the sale of the sole habitual residence of individuals remains exempt. Maintains exemptions for inheritances (clause 13 of article 8). Eliminates the generic derogation of income tax exemptions, by suppressing article 123 of the previous bill. It eliminates any reference to the modification or creation of a corporate tax and an income tax for non-residents, which would be subject to the tax on profits established in the current Income Tax Law (7092).

For the Treasury Minister, this project, in addition to generating fresh resources, allows for a better distribution of income, while injecting greater progressiveness to the Costa Rican tax system.

"90% of the yield would be contributed by the two highest income deciles, which allows improving the distribution of income, after applying the tax. For example, to measure economic inequality, the country uses the "Gini Coefficient", the higher the index, the greater the income inequality in the population. With the dual global income proposal, the Gini index decreases, this means that income inequality among households in the country will be lower", assured the Minister.

Finally, it is important to point out that the project was reviewed jointly with IMF technical teams, thus ensuring that it meets the goals set forth in the agreement reached with the IMF.

More on this topic

From Territorial Income to Global Income

September 2020

In order to tax the total amount of profits of individuals or corporations based in Costa Rica, regardless of where their profits are generated, a bill was submitted to the Assembly that seeks to amend the Income Tax Law.

Currently in Costa Rica a territorial income system is applied, which consists of taxing profits produced exclusively at the local level. If the Income Tax Law is modified, the situation could change.

Call to Veto Special Tax Regime for Agriculture

September 2019

The Guatemalan Chamber of Commerce opposes the special tax scheme for agricultural activity approved by Congress, arguing that it is unconstitutional and violates the principles of tax equity.

The new fiscal regime for agriculture, approved last September 24 by the deputies of the Congress of the Republic, has been surrounded by controversy, as from the beginning the chambers of industry and commerce expressed their opposition.

New Special Tax Regime for Agriculture

September 2019

The Guatemalan Congress approved a bill that contemplates the creation of a special tax regime for agricultural activity.

Although this bill was involved in controversy days ago, as the chambers of industry and commerce expressed their opposition, Congress decided to approve the bill. See full bill.

Tax Exemptions Bill Submited

May 2015

The bill presented to the Legislative Assembly of Costa Rica eliminates 219 tax exemptions and authorizes the Ministry of Finance to revoke them and impose sanctions for their abuse.

The Bill on arrangements for exemptions and those not subject to paying taxes, its award and control over their use and destination eliminates exemptions, which for the most part, were valid only once, and other technically criteria and updates.