Costa Rica belongs to the European Union’s blacklist of non-cooperative countries in tax matters, following a vote by the finance ministers of the EU member countries.
This decision comes after the EU Code of Conduct Group recommended the country’s inclusion in the list due to its failure to comply with the commitment made by the previous administration to reform the tax system to tax passive offshore income before December 31, 2022.
According to European Union guidelines, passive income generated by a person or company abroad should be taxed in Costa Rica to avoid “unfair competition” between the countries’ tax regimes and ensure tax-free income.
As explained by President Chaves’ administration, the facts that led to Costa Rica’s inclusion on this list date back to Carlos Alvarado’s government.
“When Sergio Alfaro Salas assumed the representation of Costa Rica before the European Union during the government of Carlos Alvarado (2018-2022), the Ministry of Foreign Trade and the Ministry of Foreign Affairs were excluded from the talks between our country and the EU Code of Conduct,” detailed the current administration in a press release.
Alfaro and the former Minister of Finance, Elian Villegas Valverde, discussed the tax reforms with the Costa Rican tax authority.
Then, in April 2022, Minister Villegas Valverde promised to present a bill establishing the taxation of extraterritorial passive income by August 30, 2022, and to have it approved by the Legislative Assembly before December 31, 2022.
“Although this decision involves consultations with all interested parties, neither the business sector nor the Legislative Assembly was aware of what was going on,” stressed the government.
Given the situation, the authorities requested renegotiation and extension of compliance deadlines in August 2022. However, all requests have been rejected, stating that the previous government obligated the country.
As long as the offshore passive income regime is not amended by law, Costa Rica will remain on the blacklist.
The current ministers of Finance, COMEX, and the Presidency met with Congress representatives to inform them about this situation.
“While there is no assurance that sanctions by all EU member states will be avoided, the Chaves Robles government is coordinating to minimize the impact on investment,” assured the President.