Law for Strengthening of Public Finances
Last Tuesday, December 4th, 2018, a new bill was published in the Official Journal La Gaceta, No. 202 N ° 9635 STRENGTHENING OF PUBLIC FINANCES, which introduces several amendments to the Income Tax Law and creates a Value Added Tax in Costa Rica.
Please find below a summary of the main changes included in this bill:
- The ordinary fiscal year changes to a year calendar: from January 1st to December 31st.
Value added tax
- Changes the Sales Tax (levied on the sale and import of merchandise and the rendering of certain services) to a Value Added Tax (levied to the sale of goods and the provision of all services).
- New VAT applies to all the goods and services (with some minor exceptions), including the online purchase of tangible and intangible goods and services.
- VAT on online purchased services, enjoyed in the country, will be collected by the credit / debit cards issuers.
- Standard rate: 13%
- Special rates:
- Flight tickets and private health services: 4%
- Medicines, private education and personal insurance prime: 2%
- Sales and imports of some agricultural products: 1%
- VAT will enter in force six months after the above mention publication of the bill.
Tax on capital gains or losses
- The bill introduces a new tax on capital gains, including the capital gains or losses received by the taxpayer.
- This tax includes a tax on capital gains generated by exchange rate differentials.
Additional brackets to the income tax on salaries (salary tax)
- The salary paid to the employees is subject to progressive tax rates of 0%, 10% and 15%. The Bill creates two more brackets of 20% and 25%.
- Salaries over US$3655 approx. up to US$7315 approx. will be taxed at 20%, while salaries over US$7315 approx. will be taxed at 25%.
Withholding tax on remittances abroad
- The rate applicable for the withholding tax on remittances abroad of fees, commissions, Board of Directors payments and other independent personal services changes to a 25%.
Thin capitalization rules
- The bill includes a limitation on the deduction of non-bank interests, by establishing a maximum of 20% of EBITA (profit before interest, taxes, depreciation and amortization).
Tax on Income and Profits
- Title II on Income and Profit Tax will enter in force on July 2019, that is, six months after the publication of the bill.
- Transitory VI of the bill establishes a Tax Amnesty for tax debts accrued before October 1st, 2017.
- For a three month period, since the publication of this bill, taxpayers administered by the DGT, DGA, INDER, IDA IFAM and IMAS, can pay such tax debts with a full exemption on the interests generated.
- The penalties derived from such taxes, paid during the first month from the publication of the bill, can be reduced a 80%. The payments made during the second month, can apply a 70'% reduction; while the payments made in the third month, can apply a 60% reduction.
- In case of fractioned payments agreed during the first three months, the bill established a reduction to the penalty of a 40% if the debt is cancelled within 6 months from the bill's, and considering the taxpayer grants a guarantee of the payment.