Quick answer: Costa Rica operates a territorial, source-based tax system. Both residents and non-residents are taxed only on Costa Rican-source income. Foreign employment income, foreign pensions and foreign investment income are exempt regardless of residency status. Local income is taxed on a progressive scale running to 25%.
This is the single most attractive feature of the Costa Rican system for most foreign residents, and also the one most often overstated. It is worth being precise about what it does and does not do.
How tax residency is determined
You are a Costa Rican tax resident if you spend more than 183 days — continuous or not — in the country within a single fiscal year. Short trips out do not reset the count. If you are sporadically absent you generally remain a tax resident unless you can prove residency elsewhere with an official tax certificate.
Note that immigration residency and tax residency are different things. You can hold a residency card and not be a tax resident, or be a tax resident without immigration status.
What is and is not taxed
Not taxed by Costa Rica: foreign pensions, US Social Security, dividends and interest from foreign accounts, capital gains on foreign assets, salary earned from foreign employment for work performed for a foreign entity.
Taxed by Costa Rica: income from Costa Rican employment, profits from a Costa Rican business, rental income from Costa Rican property, and gains on Costa Rican assets.
The 2026 progressive rates run from 0% up to roughly ₡6,244,000 annually, then 10%, 15%, 20% and 25% above approximately ₡20,828,000. Residents file an annual D-101 return; non-residents Costa Rican-source income is generally taxed by withholding at flat rates.
Rental income deserves its own note
Because it is the most common way foreign residents generate genuinely local income. Rental income is taxed at 15% on net, with a flat 15% expense allowance available — producing an effective 12.75% of gross. Platforms including Airbnb, Vrbo and Booking are required to withhold that 12.75% by the end of 2026, which changes the practical mechanics for many owners.
The caveat that matters most
If you are a US citizen, the United States taxes you on worldwide income regardless of where you live. Costa Rica territorial system does not change that. What it removes is a second national layer — you are not being taxed twice on the same foreign income — but your US filing obligation continues in full.
It is also worth knowing that Costa Rica does not have a comprehensive income tax treaty with the United States of the kind that exists with many European countries, so double-tax relief generally runs through foreign tax credits rather than treaty provisions. Canadians face a different analysis, since Canada taxes on residency and severing residential ties is possible — but the CRA examines substance rather than paperwork.
Reporting still applies
Territorial taxation is not opacity. Costa Rican financial institutions report non-resident account information to the DGT, which exchanges it with home jurisdictions under CRS. US persons have FBAR and FATCA obligations on foreign accounts, and interests in foreign corporations — including Costa Rican companies holding property — can trigger additional information returns with significant penalties for non-filing even where no tax is owed.
Where the source question gets genuinely difficult
Territorial taxation sounds simple until you test it against real arrangements, and three situations produce most of the uncertainty.
Remote work performed physically in Costa Rica for a foreign employer. The general treatment of foreign employment income is exemption, but the analysis of income arising from work physically performed inside the country is genuinely contested territory. Do not assume the favourable reading. This is the single most common question we see answered confidently and wrongly online.
A business with Costa Rican operations and foreign customers. Where value is created locally but revenue comes from abroad, the sourcing analysis turns on facts — where the work happens, where the entity is, where the contracts sit.
Gains on assets held through Costa Rican structures. Holding a foreign asset through a Costa Rican company can change the character of what you hold, which is a different question from where the underlying asset sits.
In each case the honest answer is that it depends on facts a blog cannot see. What we would say firmly is that the cost of getting a sourcing question wrong is considerably higher than the cost of an hour with a cross-border adviser.
The 183-day test and its edges
The rule is more than 183 days in a fiscal year, continuous or discontinuous, and short trips out do not reset the count. Two consequences follow that people misunderstand.
First, sporadic absences generally do not break tax residency unless you can prove residency elsewhere with an official tax certificate. The idea that leaving periodically protects you is not how the test works.
Second, immigration residency and tax residency are independent. You can hold a residency card and spend four months a year in Costa Rica without being a tax resident; you can be a tax resident with no residency card at all. Confusing the two leads to both unnecessary filings and missed ones.
What this means for a typical retiree
Concretely: a US couple living in Costa Rica on Social Security, a corporate pension and dividends from a US brokerage account will generally owe no Costa Rican income tax on any of it, because all of it is foreign-sourced. They will file and pay in the United States exactly as before.
What changes is what does not get added: no second national income tax layer, no state income tax once state residency is properly severed, and a healthcare cost that shifts from a US private premium to Caja contributions at roughly 7–11% of declared income. That is a real and substantial improvement, and it is also considerably less dramatic than the tax-free framing that circulates.
The moment it changes is when they buy a rental property, start a local business, or take local employment — at which point they have Costa Rican-source income and a local filing obligation.
Common questions
Does the digital nomad visa change this?
Income earned abroad is exempt under the nomad visa, consistent with the territorial system generally.
Is remote work for a foreign employer Costa Rican-source income?
The general treatment of foreign employment income is exemption, but the source analysis for work physically performed in Costa Rica for a foreign entity is a genuinely technical area. Do not assume — confirm with a cross-border tax adviser for your facts.
How are Caja contributions calculated?
Contributions are assessed on income declared during the residency process, commonly landing around 7–11%, with published income bands updated periodically. The declared basis matters and is worth understanding at application.
Is there a wealth or inheritance tax?
Costa Rica does not impose inheritance tax. There is a luxury-home tax on residential property above roughly $214,000, sliding to about 0.55%, alongside standard property tax at 0.25%.
Do I need to file a Costa Rican return if all my income is foreign?
Filing obligations attach to Costa Rican-source income. Whether your circumstances trigger a return is worth confirming with a local accountant rather than assuming, particularly if you hold local structures.
How is a Costa Rican company taxed?
Both S.A. and S.R.L. entities are subject to the same territorial principle — only locally sourced income is taxed — alongside corporate filing obligations and annual company taxes.
Does the luxury-home tax apply to all property?
It applies to residential construction above roughly $214,000 on a sliding scale to about 0.55%, separately from the standard 0.25% property tax. Valuation methodology matters and is worth confirming for your specific property.
Talk it through with someone who has done it
MOFU decisions like these turn on details that vary by property, by family and by the month you file. Our team at Golden Visa Costa Rica works alongside Costa Rican counsel every week on exactly these questions, and we will tell you plainly where your situation is straightforward and where it is not. Book a private consultation to get specifics for your circumstances.
This article is general information, not legal, immigration, tax or investment advice. Costa Rican rules change and are applied to individual facts; figures cited were accurate at the time of writing and should be confirmed. Engage a qualified Costa Rican attorney and your own tax adviser before acting.