An important point for the companies within their tax planning is the tax regime that affects them due to optimum taxation with a correct choice thereof, simplifying the fulfillment of their tax obligations with the Tax Administration.
Types of Tax Regimes in Costa Rica
Taxpayers may opt for two types of tax regimes: the “Simplified Tax Regime” and the “Traditional Regime”.
The choice and incorporation therein by the taxpayers will depend on their level of income, the number of employees, type of activity, among other factors.
This article briefly develops the main aspects of each of these regimes.
Simplified Taxation Regime
The Simplified Taxation Regime is aimed at small taxpayers to simplify their tax obligations. Access to this regime is voluntary as long as they comply with the requirements.
Among the main requirements to be met by the taxpayer to access this regime, we have the following:
- Level of annual purchases less than 150 base salaries. The Value Added Tax levied on these purchases will be included to determine this.
- The number of people helping the company’s operation must not be more than 5.
- The activity of the taxpayer must not be related to the exploitation of a franchise, brand, commercial name nor be an exclusive distributor of another company.
- If the activity is a cab service, it must be only one unit.
- The value of its fixed assets must not exceed 350 base salaries.
Taxpayers engaged in the following activities may access this regime:
- Premises for the consumption of alcoholic beverages (bars, canteens, taverns, among others).
- Retail traders.
- Photographic studios.
- Handcrafted manufacture of footwear.
- Manufacture of furniture and its accessories.
- Manufacture of objects of mud, earthenware, ceramics, and porcelain.
- Manufacture of structural metal products.
- Restaurants, cafes, sodas, and other establishments providing food, beverages, or both.
- Small-scale artisanal fishermen.
- Medium Artisanal Fishermen.
- Small agricultural producers.
- Paid land transportation of people in cab modality.
The main benefits of the incorporation to this regime are referred to as the tax payment simplification, which is calculated based on a factor on the amount of the purchases, the simplicity in the tax returns filing, and the no requirement of formal accounting.
Tax Calculation: Income Tax and VAT
The taxpayer’s activity, the number of its purchases in the quarter, and the factor to be used are necessary to determine the tax.
Regarding this point, the following factors have been established depending on the taxpayer’s activity:
Type of Activity
|Premises for the consumption of alcoholic beverages (bars, canteens, taverns, among others)||0,02||
Handcrafted manufacture of footwear
|Manufacture of furniture and its accessories||0,01||
Manufacture of objects of mud, earthenware, ceramics, and porcelain.
|Manufacture of structural metal products||0,01||
Restaurants, cafes, sodas, and other establishments providing food, beverages, or both
|Small-scale artisanal fishermen.||0,025||
Medium Artisanal Fishermen
|Small agricultural producers||0,010||
Paid land transportation of people in cab modality
Traditional Taxation Regime
Under this regime, all taxpayers may be included regardless of the type of activity they engage in.
Unlike the simplified regime, this one is taxed based on income and not on purchases, allowing deductions and tax credits. Likewise, taxpayers subject to this regime must keep the corresponding books and records.
Determination of Income Tax
As indicated above, the calculation of this tax is related to the net income of the legal entity, being multiplied by a rate or fee, which in turn will depend on the gross income of the company.
Thus, if the gross income is up to ¢54,303,000.00, the fee to be applied on net income will be 10%, if it exceeds this amount but is less than ¢109,228,000.00, the fee will be 20%, and if it exceeds this amount, the fee will be 30%.
Determination of Value Added Tax
Unlike the simplified tax regime, VAT for taxpayers under the traditional regime is not taken into consideration as a factor on purchases but determined at a rate of 13%.
Tax regimes in Costa Rica objectively differentiate tax obligations, which will depend on factors such as type of activity, income level, number of employees, among others.
Small taxpayers may opt for the Tax Simplification Regime if the requirements are met, which seeks to simplify the tax obligations of this type of taxpayer.