Income Tax - Informational guide for calculation of the 2024 period

General Information:

• Taxable event: The taxable event for the Income Tax is the receipt or accrual of income, in cash or in kind, whether continuous or occasional, derived from profit-making activities within Costa Rica. This income includes all revenues generated by services rendered, assets located, or capital used within the national territory. In addition, any increase in wealth not justified by duly recorded income may also be subject to this tax.
• Taxpayers: All individuals and legal entities legally established in Costa Rica are required to pay Income Tax, regardless of whether they actively carry out profit-making activities or not. This includes partnerships, professional corporations, state-owned companies, collective entities without legal personality, and joint accounts within the country. It is important to note that even if an entity does not actively conduct business, the obligation to declare and pay the tax remains.
• Tax period: The fiscal period for the Income Tax corresponds to a calendar year, running from January 1 to December 31. However, the Tax Administration has the authority to establish different fiscal periods, in exceptional cases, if duly justified.
• Deadline for filing and payment: The deadline for filing the declaration and paying the Income Tax is two months and fifteen calendar days after the end of the fiscal year, that is, until mid-March of the following year. This deadline is crucial to avoid penalties and late payment surcharges. Payments can be made online, through authorized financial institutions, or via the Tax Administration’s portal.
• Declaration form: The main form used for declaring this tax is D-101-1 “Income Tax Return – Traditional Regime.” In this form, the taxpayer must detail all income and expenses, apply the corresponding deductions, and calculate the taxable base on which the tax rate will be applied. It is essential that the information provided is accurate to avoid penalties and audits.

Tax calculation:

• The calculation of the tax is based on the net income (taxable base) of each taxpayer, that is, on the sum of the income earned during the fiscal period minus deductible costs and expenses directly related to the economic activity carried out. The applicable tax rates vary depending on whether the taxpayer is an individual or a legal entity. The applicable tax brackets for 2024 are as follows:
• Structure of taxable and non-taxable income: Gross income is comprised of the total revenue earned from economic activity, both in cash and in kind. However, some income elements are not subject to tax, such as exempt income not derived from profit-making activities or income not duly recorded and justified. Also excluded from the taxable base are revenues generated outside Costa Rica, unless they are specifically linked to profit-making activities within the country.
• Asset elements: It is important to consider assets in calculating the Income Tax. When personal assets are assigned to the business activity, their updated acquisition value at the time of the operation will be used. Similarly, when assets are removed from the business activity and transferred back to personal assets, their book value or recorded value will be applied.
• Tax payable calculation: The calculation is performed on the net income (taxable base) of each taxpayer: the total income earned during the fiscal year minus deductible costs and expenses. The applicable tax rates differ for individuals and legal entities.

Tax brackets for individuals (2024)

Tax credits for individuals (2024)

• Child tax credit: Applicable to individuals engaged in profit-making activities who have dependent children. It can be used to reduce the tax burden during the Income Tax return, with a fixed amount per registered dependent child.
• Spouse tax credit: Applicable to individuals engaged in profit-making activities who have a dependent spouse, allowing them to reduce their tax burden when filing their Income Tax return.

Tax brackets for legal entities (2024)

Non-deductible expenses:

In the context of Income Tax in Costa Rica, there are non-deductible expenses, meaning those that cannot be used to reduce the taxable base. These expenses are not allowed to be deducted from gross income when calculating net income.

Some examples include:

1. Personal expenses not related to economic activity
   • Entertainment expenses or personal recreation of the taxpayer or their family.
   • Personal clothing expenses not strictly necessary for the economic activity.
   • Personal travel expenses not directly related to profit-making activities.
2. Unrecorded expenses
   • Any expense not recorded in accounting books or official records. Unless proven otherwise, these expenses are not deductible.
3. Dividends and unjustified income
   • Dividends or equity participations, as well as loans to third parties, unless issued by entities supervised by the National Financial System Supervisory Council or investment funds.
   • Any income or increase in wealth not justified through duly recorded and declared income (e.g., unexplained capital gains).
4. Expenses not directly related to income generation
   • Unnecessary financial expenses: such as interest generated by debts not used for productive activities directly related to the business.
   • Expenses on assets unrelated to economic activity: e.g., assets acquired for personal use and not for business development.
5. Expenses in assets not linked to profit-making activity
   • Personal assets used for non-business purposes, e.g., a vehicle used exclusively for personal use and not for the company’s activities.
   • Expenses in goods or rights disconnected from business activity when not proven to generate income from Costa Rican sources.
6. Illegal or prohibited expenses
   • Expenses related to illegal activities or that violate Costa Rican law. These will not be accepted as deductible by the Tax Administration.

It is crucial that taxpayers keep detailed records and receipts of all expenses related to their economic activity, since any unrecorded or unjustified expense will not be accepted for tax purposes. Deductible expenses must be directly related to profit-making activities, and their justification is key to avoiding issues during a tax audit.

Partial payments of Income Tax:

• Purpose: The purpose of these payments is to advance part of the tax so that the taxpayer can cover their tax obligation before the final declaration. They must be calculated and paid according to income earned during the fiscal period.
• When they must be paid: Partial payments must be made on the following dates:
  1. First partial payment: March 15 of the year following the fiscal period.
  2. Second partial payment: June 15.
  3. Third partial payment: September 15.
  4. Fourth partial payment: December 15.
• How to calculate partial payments? To calculate partial payments for fiscal year 2025, gross taxes from the last three years (2022, 2023, and 2024) will be considered, applying the adjustment and calculation procedure.
  
  
  • Gross taxes for 2022, 2023, and 2024:
    • 2022: ¢7,500,000
    • 2023: ¢8,200,000
    • 2024: ¢7,800,000
  • Process:
    1. Sum the gross taxes: ¢7,500,000 + ¢8,200,000 + ¢7,800,000 = ¢23,500,000
    2. Calculate the average: ¢23,500,000 / 3 = ¢7,833,333.33
    3. Compare the average with the last year’s determined tax (2023): ¢7,800,000 vs ¢7,833,333.33 → take the higher: ¢7,833,333.33.
    4. Calculate the partial payment: 25% × ¢7,833,333.33 = ¢1,958,333.33
  • Result: The total amount to be paid in June, September, and December 2025 is ¢1,958,333.33 in three installments.
• How to pay partial payments? They must be kept up to date to avoid penalties or surcharges. It is advisable to seek the guidance of an accountant or tax specialist. Payments can be made:
  1. Through the Tax Administration’s website (ATV): via Real-Time Debit (DTR), directly from a bank account.
  2. At authorized financial entities: via the Ministry of Finance portal or directly at financial institutions, with taxpayer ID number.
  3. Through online banking: with authorized banks’ online platforms.

How can Asicon Consulting help you?

At Asicon Consulting, we have extensive experience in tax management, accounting, and compliance for companies in Costa Rica. We know that proper compliance with tax obligations, such as the Income Tax, is key for any organization’s success and stability. That’s why we offer specialized services to optimize your tax burden and ensure compliance with current regulations.

Services we offer:

• Advisory on Income Tax calculation: We help you correctly calculate Income Tax, applying the right tax brackets and identifying deductible and non-deductible expenses to optimize your taxable base.
• Tax planning: We design strategies to legally and effectively reduce your tax burden, maximize tax credits, and apply the most favorable deductions.
• Compliance with deadlines and filings: We ensure your company files on time, avoiding penalties and interest charges, and manage the whole process for peace of mind.
• Optimization of partial payments: We calculate and manage advance payments to maintain a healthy fiscal position and avoid liquidity issues at year-end.
• Comprehensive accounting support: Our team of experts helps keep your books in order, ensuring all income, expenses, and deductions are properly recorded and supported.
• Regulatory updates and compliance: Tax laws change often; we keep your company compliant and take advantage of annual tax bracket updates and other benefits.

Asicon Consulting is committed to providing tailored solutions for every company, maximizing efficiency and ensuring tax compliance. If you need help with Income Tax or any other accounting or tax matter, we are here to support you.

Contact us today to schedule a consultation and discover how we can optimize your company’s tax management.