US Expat Taxes in Costa Rica

Tax Treaty Information

FBAR & FATCA Requirements

US citizens and green card holders in Costa Rica must file FinCEN Form 114 (FBAR) electronically through BSA E-Filing if the aggregate value of all foreign financial accounts exceeds $10,000 at any point during the calendar year. This includes Costa Rican bank accounts at Banco Nacional, BAC Credomatic, Scotiabank, or any other local bank; brokerage or investment accounts; mandatory CCSS pension fund balances; insurance policies with cash surrender value (e.g., INS policies); and any account where you have signature authority, even if it belongs to a business. The FBAR deadline is April 15 with an automatic extension to October 15 — no form needed for the extension. Penalties for willful failure to file are the greater of $100,000 or 50% of the account balance per violation. For FATCA (Form 8938), the thresholds for expats living abroad are $200,000 on the last day of the year or $300,000 at any time during the year (single filers) and $400,000/$600,000 for married filing jointly. Form 8938 is attached to your Form 1040 and filed with the IRS — it is separate from and in addition to the FBAR. Costa Rica signed a Model 1 IGA (intergovernmental agreement) with the US, so Costa Rican financial institutions report US person accounts directly to the Direccion General de Tributacion, which then transmits the data to the IRS. Failure to report is easily detected through this automatic exchange.

Foreign Earned Income Exclusion (FEIE)

US expats in Costa Rica can exclude up to $132,900 of foreign earned income (2026 limit) using Form 2555 if they meet either the Bona Fide Residence Test (established residence in Costa Rica for an entire tax year with no definite plans to return) or the Physical Presence Test (present in a foreign country for 330 full days in any 12-month period). The housing exclusion can add another $15,000-$37,000 depending on location, though Costa Rica's lower cost of living areas like the Central Valley often fall below the base housing amount of $18,928 (2026), making the housing exclusion less valuable here than in high-cost countries. Because Costa Rica's top marginal rate is 25% while the US top rate is 37%, the FEIE is typically better than the FTC for most expats earning under $132,900 from Costa Rican sources. For higher earners or those with significant Costa Rican tax liability, the FTC (Form 1116) lets you credit Costa Rican income taxes paid dollar-for-dollar against your US liability — but only for taxes on the same category of income (general limitation basket). You cannot use FEIE and FTC on the same dollar of income, but you can use FEIE on your first $132,900 of earned income and FTC on the excess. Self-employed expats face a critical limitation: the FEIE does not reduce self-employment tax (15.3% on the first $168,600 of net self-employment income for 2026). If you also pay CCSS contributions as an independent worker in Costa Rica, you are paying social security in both countries with no offset — the absence of a totalization agreement makes this unavoidable. For retirees living on US-source pension or Social Security income, neither FEIE nor FTC typically applies because that income is not foreign-earned and Costa Rica does not tax it, so there is no foreign tax to credit. US filing thresholds for 2026: Single filers must file if gross income exceeds $14,600; married filing jointly, $29,200; self-employed, $400 net. Note that these thresholds apply to worldwide income regardless of where you live. US expats who have not filed in prior years may qualify for the IRS Streamlined Foreign Offshore Procedures — requiring 3 years of delinquent tax returns and 6 years of delinquent FBARs to be filed, with no penalties assessed if the failure was non-willful. This is the primary amnesty program for US expats in Costa Rica who have fallen behind on filing obligations. The Streamlined program requires a certification of non-willfulness (Form 14653) and is not available to taxpayers under IRS examination or investigation.

Common Tax Issues in Costa Rica

• 1No totalization agreement: Self-employed US expats in Costa Rica pay both US self-employment tax (15.3% up to $168,600) and CCSS contributions (roughly 10.83% employee share), with no credit or offset between the two systems — total social security burden can exceed 26%
• 2Territorial tax trap for remote workers: If you work remotely from Costa Rica for a US employer, the IRS considers the income US-source (employer is US-based), but Costa Rica may also claim the income is locally sourced if you perform the work on Costa Rican soil — this dual-source claim is unresolvable without a tax treaty
• 3CCSS mandatory enrollment and 2026 rate increase: All legal residents (including pensionado and rentista visa holders) must enroll in the CCSS system. Monthly contributions are based on declared income, and failure to pay can result in denial of residency renewal. For 2026, employer total contributions are 26.83% of gross salary and the employee share is 10.83% — these are NEW 2026 rates, increased from 26.67% employer / 10.67% employee in 2025. The increase stems from the IVM (Invalidez, Vejez y Muerte) pension component rising from 4.17% to 4.33% for employees and 5.42% to 5.58% for employers. Self-employed workers pay the combined rate on their declared income. These contributions are NOT creditable as income taxes on your US return, though they may be deductible as a business expense if self-employed.
• 4PFIC reporting for Costa Rican investment funds: Any pooled investment vehicle organized in Costa Rica (e.g., fondos de inversion) is almost certainly a PFIC, requiring Form 8621 filing. The default Section 1291 regime imposes punitive tax rates — mark-to-market or QEF elections should be considered but require the fund to provide annual PFIC statements, which Costa Rican funds rarely do
• 5Property tax on Costa Rican real estate must still be reported on US returns: Rental income from Costa Rican property is US-taxable (Schedule E), and the 0.25% annual property tax plus any luxury home tax paid is creditable via Form 1116. The capital gains exclusion under IRC Section 121 ($250k/$500k) applies to a Costa Rican principal residence if you meet the 2-of-5-year test
• 6Costa Rica tax year runs January 1 to December 31 with the D-101 annual return due March 16 in 2026 (March 15 falls on a Sunday, so the deadline shifts to the next business day). The US return is due April 15 (June 15 automatic extension for expats, October 15 with Form 4868). These mismatched deadlines mean you may need to estimate your Costa Rican tax liability before the D-101 is filed when completing your US return
• 7Currency conversion: All Costa Rican income and deductions reported on US returns must be converted to USD. The IRS accepts the yearly average exchange rate or the actual rate on the transaction date. For 2025, the average rate was approximately 505 CRC per USD. Using an inconsistent method across years can trigger IRS scrutiny
• 8No reduced withholding on investment income: Without a tax treaty, Costa Rica withholds 15% on dividends and interest paid to non-residents, and there is no treaty-based reduction available. These withheld amounts are creditable on Form 1116 but only against US tax on passive category income
• 9Corporacion structure (SA/SRL): Many expats hold Costa Rican real estate or businesses through a Sociedad Anonima (SA) or Sociedad de Responsabilidad Limitada (SRL). These are foreign corporations for US tax purposes, potentially triggering Form 5471 (if you own more than 10%), GILTI inclusion, and Subpart F income rules. The annual Costa Rican corporate tax on inactive SAs is approximately $120
• 10Exit tax for departing Costa Rica: Costa Rica does not impose an exit tax on individuals, but selling appreciated Costa Rican assets before departing triggers the 15% capital gains tax. For US purposes, the gain is also reportable and the Costa Rican tax paid is creditable
• 11Bill No. 23.760 — Proposed Worldwide Taxation: The Executive Branch of Costa Rica has filed Bill No. 23.760, which proposes replacing the territorial tax system with worldwide taxation. Under this bill, Costa Rican tax residents would face progressive rates up to 30% on global income, including foreign-source passive income such as US dividends, interest, rental income, and capital gains. Bills 23.759 through 23.762 form a comprehensive tax reform package. IMPORTANT: As of early 2026, this bill has been filed but NOT enacted — the territorial system remains fully in effect. However, this is the single most significant pending tax risk for US expats in Costa Rica. If passed, it would fundamentally change the tax calculus for retirees and remote workers who currently pay zero Costa Rican tax on foreign income. Monitor this legislation closely and consider how your tax planning would change under a worldwide regime.
• 12Law 10667 — 25% Deduction for Independent Workers (2026): Effective January 1, 2026, Law 10667 allows independent workers (trabajadores independientes) to deduct 25% of gross income as a flat-rate expense deduction WITHOUT providing receipts or supporting documentation. This is the most significant 2026 tax change for freelancers and self-employed individuals in Costa Rica. Previously, independent workers had to substantiate every deduction with electronic invoices (facturas electronicas). Under Law 10667, you can choose between the 25% flat deduction or itemizing actual expenses — whichever produces the lower tax liability. This is particularly beneficial for remote workers and consultants whose actual business expenses are minimal.
• 13Tax ID Requirements — DIMEX, Cedula Juridica, and NITE: To register with Hacienda (Costa Rica's tax authority) and file tax returns, foreigners need a tax identification number. Resident foreigners use their DIMEX (Documento de Identidad Migratorio para Extranjeros), an 11-12 digit ID issued by the Direccion General de Migracion upon obtaining legal residency. Corporate entities (Sociedad Anonima or SRL) use a cedula juridica. Non-residents without a DIMEX who have Costa Rican tax obligations (such as rental income from CR property) can obtain a NITE (Numero de Identificacion Tributaria Especial), a 10-digit tax ID issued by the Direccion General de Tributacion. Without one of these IDs, you cannot register in the TRIBU-CR tax portal, file D-101 returns, or issue electronic invoices. Obtaining a DIMEX requires legal residency status — tourists and visa-run expats cannot get one.
• 14Non-Resident Withholding Tax Rates (Impuesto sobre Remesas al Exterior): Costa Rica imposes the following withholding taxes on payments to non-residents: Dividends — 15%; Interest — 15%; Royalties, patents, and trademarks — 25%; Technical services and management fees — 25%; Transportation and communications services — 8.5%; All other payments — 30%. These rates apply regardless of the recipient's country of residence since Costa Rica has no tax treaties that reduce withholding. For US persons receiving these payments, the withheld amounts are creditable on Form 1116 (Foreign Tax Credit) against US tax on the corresponding category of income.
• 15Mandatory Electronic Invoicing (Factura Electronica): All taxpayers engaged in self-employed or business activity in Costa Rica must issue electronic invoices (facturas electronicas) for every transaction. Invoices are XML documents transmitted in real time to the Direccion General de Tributacion's validation system. You need a digital signature (firma digital) from the Banco Central de Costa Rica or an authorized provider to sign invoices. Free invoicing tools are available through the TRIBU-CR portal, but most taxpayers use third-party invoicing software. Failure to issue electronic invoices can result in fines and inability to deduct expenses. This applies to independent workers, landlords, and any entity with Costa Rican-source income — including US expats with local clients or rental properties.
• 16Provisional Advance Payments (Pagos Parciales): Self-employed taxpayers and businesses in Costa Rica must make three provisional advance income tax payments during the fiscal year, due on the last business day of June, September, and December. Each payment equals 25% of the previous year's tax liability (75% total across three payments), with the remaining 25% settled when the D-101 annual return is filed. Failure to make provisional payments results in interest charges and potential penalties. New taxpayers in their first year may estimate payments based on projected income. These payments can create cash flow challenges for self-employed US expats who also make US estimated tax payments (Form 1040-ES) on April 15, June 15, September 15, and January 15.
• 17Key Tax Forms Beyond the D-101: D-104 (Declaracion Jurada del Impuesto General sobre las Ventas) — monthly IVA/sales tax return due by the 15th of the following month; required for all taxpayers registered for IVA. D-151 (Declaracion Anual Resumen de Retenciones y Otros) — annual summary of payments made and withholdings applied, due by the last business day of February; this is Costa Rica's equivalent of the US 1099/W-2 information return system. D-140 (Declaracion de Inscripcion, Modificacion de Datos, y Desinscripcion) — taxpayer registration and update form used to register with Hacienda, change your tax regime, add or remove economic activities, or deregister. All forms are filed electronically through the TRIBU-CR portal.
• 18Digital Nomad Visa (Law 9996 / Law 10008): Costa Rica's digital nomad visa, established by Law 9996 and updated by Law 10008, allows remote workers to live in Costa Rica for up to two years (renewable) while working for employers or clients outside the country. Requirements: minimum income of $3,000/month ($4,000/month with dependents), health insurance covering Costa Rica, and proof of remote employment or freelance income. The visa includes a statutory exemption from Costa Rican income tax on foreign-source remote work income — this is codified in the law, not merely a byproduct of the territorial system. Digital nomad visa holders are also exempt from CCSS enrollment, unlike pensionado/rentista residents. However, you still have full US tax filing obligations and can use the FEIE to exclude up to $132,900 of earned income. This visa is distinct from the pensionado ($1,000/month pension), rentista ($2,500/month passive income), and inversionista ($150,000 investment) residency categories.
• 19Residency Visa Categories and Tax Implications: Beyond the pensionado visa ($1,000/month pension), Costa Rica offers several residency paths for US expats: Rentista — requires proof of $2,500/month in stable passive income (investment returns, rental income, annuities) for at least two years, OR a $60,000 bank deposit in a Costa Rican bank; valid for two years, renewable. Inversionista — requires a minimum $150,000 investment in Costa Rican real estate, business, or government-approved projects; valid for two years, renewable. All residency visa holders must enroll in CCSS and pay social security contributions. None of these visa categories create additional Costa Rican tax liability on foreign-source income under the current territorial system — only Costa Rican-source income is taxed regardless of visa type.
• 20Real Estate Transfer Tax (Impuesto de Traspaso): Costa Rica imposes a 1.5% real estate transfer tax on the sale or transfer of real property, calculated on the sale price or the registered fiscal value (valor fiscal), whichever is higher. This tax is typically split 50/50 between buyer and seller by custom, though the allocation is negotiable. The transfer must be recorded in the Registro Nacional (National Registry) by a Costa Rican notary public. This is separate from the 15% capital gains tax on any profit from the sale. For US tax purposes, the transfer tax paid is not creditable as a foreign income tax but may be added to your cost basis (if you are the buyer) or reduce your amount realized (if you are the seller) when calculating gain or loss on the property.
• 21Property Tax (Impuesto de Bienes Inmuebles) Payment Schedule: Annual property tax in Costa Rica is 0.25% of the registered fiscal value, paid quarterly to the local municipality: March 31, June 30, September 30, and December 31. Late payment penalty is 1% per month. The luxury home tax (Impuesto Solidario para el Fortalecimiento de Programas de Vivienda) applies to residential properties with a construction value exceeding CRC 137,000,000 (~$274,000) at progressive rates from 0.25% to 0.55%. Both taxes are deductible as property taxes on Schedule A of your US return if you itemize. For rental properties, they are deductible on Schedule E as operating expenses.

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Frequently Asked Questions: US Taxes in Costa Rica

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