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CR: Law for Strengthening of Public Finances

December, 2018

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:

Fiscal Year

  • 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.

Tax Amnesty

  • 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.

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