Costa Rica residents who earn interest, dividends, rent or capital gains outside the country would pay a 15% tax on that income under a bill the government has sent to the Legislative Assembly, a change tax specialists say would break with the country’s long-standing territorial tax system.
The bill, presented by the Finance Ministry on Sept. 22, would tax five types of passive income earned abroad by Costa Rican tax residents: interest, dividends, royalties, rent and capital gains. It would apply to individuals as well as companies, trusts, investment funds and other structures that are tax residents in Costa Rica.
The proposal sets no minimum threshold. Daniel Pelecano, director of tax and legal services at Grant Thornton, said that means small and large investors would be taxed on the same terms. Costa Rica has generally taxed income based on where it is generated rather than where the earner lives. A 2023 reform, Law 10.381, taxed some foreign passive income, but only for certain entities in multinational groups that failed to meet economic-substance requirements.
The new bill would repeal those limits and make tax residency the deciding factor for passive income. It keeps the territorial rule for active income, such as earnings from work or a business. In the bill’s statement of reasons, the Finance Ministry argues that the 2023 rules reached very few taxpayers. It also says residents receiving the same foreign dividends or interest are treated differently depending on whether they belong to a multinational group.
The ministry says the bill takes into account tax already paid or withheld abroad in order to avoid double taxation. Tax specialists say the mechanism works as a deduction rather than a direct credit, with the foreign tax subtracted from the income before Costa Rica applies its own rate.
Tax lawyer Gabriel Zamora Baudrit illustrated the effect with $100 in US dividends that have already had $30 withheld. Costa Rica would apply its 15% rate to the remaining $70, collecting $10.50 and bringing the combined tax burden to 40.5%. Under a direct credit capped at the Costa Rican amount, the $30 already paid would exceed Costa Rica’s $15 charge, leaving nothing more to pay. Zamora said the bill’s formula falls short of that standard and amounts to a new tax on residents’ foreign passive income, not simply a 15% rate.
Companies that already pay corporate income tax would follow a different route. Rather than paying the flat 15%, they would add the foreign passive income to their taxable profits, which are taxed at rates of up to 30%. Marianela MasÃs, director of tax and legal services at PwC Costa Rica, said the bill is not a full worldwide income tax because it is limited to certain passive income. She said those most affected would be tax residents who now receive passive income from abroad and fall outside the special regime for multinational groups.
Specialists said retirees who live on returns from investments abroad could fall within the bill’s scope. How pension funds would be treated remains one of several open questions, along with the double-taxation formula, the lack of a threshold and how far the exception to territoriality should reach.
Central Bank President Róger Madrigal said in October that the tax could discourage residents from investing abroad, depending on how foreign tax rates compare with local ones. He said dollars brought back into the country would only affect the exchange rate if they were converted into colones and that the local financial system was deep enough to absorb any inflow.
The bill has only begun its passage through the Assembly, and its text could change. Tax specialists say it would need 38 votes if lawmakers classify it as a new tax, or 29 if it is treated as a reform of existing law. The Finance Ministry has not published an estimate of how much the tax would raise. The proposal comes as the government confronts a revenue shortfall that has already forced cuts across the 2027 budget.
