Taxes for Americans Moving to Costa Rica
When you move to Costa Rica — or any foreign country — your tax situation involves two parallel sets of obligations: what you still owe the U.S. government, and what you owe Costa Rica. Understanding both is essential before you make the move.
Costa Rica’s Territorial Tax System
The single most important concept for Americans moving to Costa Rica is that Costa Rica taxes income on a territorial basis. A territorial tax system means that Costa Rica only taxes income generated within its geographical borders. Any income you earn from sources outside of Costa Rica — such as pensions, investments, remote work for a foreign company, or rental income from a property in another country — is not subject to Costa Rican income tax.
This is a major advantage for most American expats. Social Security income, U.S.-based investment returns, foreign pensions, and remote work done for non-Costa Rican employers are all generally untaxed in Costa Rica.
You become a Costa Rican tax resident if you spend more than 183 days in Costa Rica within a given tax year. Tax Services Note that the tax year ordinarily runs from January 1 through December 31, and taxpayers must file their income tax return within two months and fifteen days following the end of the fiscal year.
Income Tax in Costa Rica
Costa Rica’s income tax rates are progressive, ranging from 0% to 25%, and apply to any money earned within Costa Rica, whether from employment, self-employment, or business activities.
For employees, income tax is withheld from payroll by employers. If your only Costa Rican income is employment income, you generally do not need to file a tax return — your employer handles it. The salary tax only applies if the individual meets the annual thresholds established by the Tax Administration, and the employer is responsible for withholding, reporting, and remitting this tax.
For self-employed and independent workers, 2026 brings a notable improvement: starting January 1, 2026, independent workers can deduct 25% of their gross income without needing receipts or other documentation. This option applies to professionals like lawyers, accountants, and consultants, as well as technicians, personal service providers, sales agents, and commission agents who operate without an employer-employee relationship. Workers can choose between this flat 25% deduction or listing actual expenses with supporting documents, whichever lowers their tax bill more.
The 2026 tax-exempt income threshold for independent workers has also been raised — annual earnings below ₡6,244,000 (up from ₡4,094,000 in 2025) face no income tax at all. For those above it, rates start at 10% and scale up based on brackets.
Dividend and interest income are generally taxed at 15%. Greenback Expat Tax Services Note that new withholding taxes on interest income are being phased in, starting at 5.5% in the first year and rising gradually to 15% by the fourth year.
Rental income is taxed at 15% on 85% of gross income (after a standard expense deduction). A new 12.75% tax on short-term rental income — Airbnb-style rentals — took effect in 2026, impacting expat property owners. BrightTax Short-term rentals under 30 days also incur a 13% VAT that must be reported monthly.
Sales Tax (VAT / IVA)
The general sales tax rate in Costa Rica is 13%, applied to most goods and services. Live and Invest Overseas Basic necessities including fruits, vegetables, some grains, meat, and medicine are taxed at a reduced rate or exempt. Professional services such as lawyers, doctors, and dentists are generally exempt from VAT.
Property Tax
Costa Rica charges an annual property tax of 0.25% of the property’s assessed value. This is paid quarterly to your local municipality and is one of the lowest property tax rates in the Americas.
In addition to the standard property tax, high-value residential properties are subject to the Solidarity Tax (Impuesto Solidario), commonly called the luxury home tax. This tax applies to homes used for living, occasional stays, or recreation if their construction value — including fixed installations — exceeds ₡143 million colones (the 2026 threshold, roughly $290,000 USD). Tico Times Rates start at 0.25% on values up to ₡359 million and rise progressively, climbing to 0.55% for amounts over ₡2.162 billion. This tax is paid annually in January and must be filed using Form D-174.
Expats who hold properties through corporations must ensure the corporation files the declaration, as the tax remains due on the property itself.
Inheritance and Gift Tax
Costa Rica does not have an inheritance or gift tax. Expats can inherit property or assets from partners or parents without a tax liability on the inheritance itself. However, a transfer tax does apply when property changes hands — consult a local attorney for the current rates, as they depend on the declared value of the property being transferred.
Capital Gains Tax
Capital gains from assets are subject to a general tax rate of 15% on the taxable base, calculated as any change in value due to an alteration in the composition of a taxpayer’s assets. Grant Thornton There are favorable provisions for properties purchased before July 1, 2019, and potential exemptions for primary residences held for more than two years — a Costa Rican tax advisor can help you structure ownership accordingly.
U.S. Tax Obligations for Americans Living in Costa Rica
No matter where you live in the world, the U.S. requires all citizens and green card holders to file an annual federal tax return. However, several provisions can significantly reduce — or eliminate — your U.S. tax bill on income earned abroad.
Important: There is no tax treaty between the United States and Costa Rica, which makes it especially important to understand and correctly apply the exclusions and credits below.
Foreign Earned Income Exclusion (FEIE)
For tax year 2025 (filed in 2026), the maximum Foreign Earned Income Exclusion is $130,000 per qualifying person. For tax year 2026 (filed in 2027), the maximum exclusion rises to $132,900. Internal Revenue Service Married couples where both spouses qualify can each claim their own exclusion.
To qualify, you must meet one of two tests:
- Physical Presence Test: You must be physically present in a foreign country for at least 330 full days during any 12-month period. Greenback Expat Tax Services
- Bona Fide Residence Test: You must establish bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year. Greenback Expat Tax Services
The FEIE covers only earned income — wages, salaries, and self-employment income. Passive income such as dividends, interest, capital gains, and Social Security does not qualify and remains subject to U.S. tax.
Claim the FEIE by filing Form 2555 with your Form 1040.
Foreign Tax Credit (FTC)
The Foreign Tax Credit allows you to offset U.S. tax liability dollar-for-dollar with income taxes you’ve already paid to Costa Rica on Costa Rican-source income. This is particularly useful for expats who earn income locally and have already paid Costa Rican taxes on it. You cannot apply the Foreign Tax Credit to income that has already been excluded under the FEIE, but the two can be used strategically together.
Claim the FTC using Form 1116.
Foreign Housing Exclusion or Deduction
If you claim the FEIE and your foreign income exceeds the FEIE threshold, you may also be able to exclude or deduct eligible housing costs — rent, utilities, parking, furniture rental, and similar expenses. For 2025, the housing amount limitation is $39,000; for 2026, it rises to $39,870. Internal Revenue Service The specific amount you can exclude varies based on your location and the number of qualifying days in the year.
Foreign Bank Account & Asset Reporting for Americans in Costa Rica
Living in Costa Rica means you’ll likely have local bank accounts, and the U.S. has strict reporting requirements for Americans with foreign financial assets.
FBAR (FinCEN Form 114): If you have foreign financial accounts with a combined value exceeding $10,000 at any point during the calendar year, you must file an FBAR. This is filed separately from your tax return, through FinCEN, and is due April 15 (with an automatic extension to October 15).
FATCA (Form 8938): If you hold foreign financial assets — accounts, stocks, bonds, interests in foreign entities, insurance with cash value, and more — above certain thresholds, you must also file Form 8938 with your tax return. The thresholds are:
- Single filers: $200,000 at year-end, or $300,000 at any point during the year
- Married filing jointly: $400,000 at year-end, or $600,000 at any point during the year
These are separate requirements — meeting the FBAR threshold does not exempt you from FATCA, and vice versa.
Working with a Tax Professional
Although many expats will not need to pay taxes to Costa Rica, navigating the change in tax reporting in your home country can be complex. For US clients, we recommend reaching out to Taxes for Expats here.
Frequently Asked Questions: Taxes for Americans in Costa Rica
Do Americans living in Costa Rica still have to file U.S. taxes?
Yes. U.S. citizens must file an annual federal tax return no matter where they live, and that includes Costa Rica. Worldwide income is reportable. That said, provisions like the Foreign Earned Income Exclusion and Foreign Tax Credit mean that most Americans living abroad legally owe little to nothing in U.S. federal income tax.
Will I be taxed on my U.S. income — Social Security, pension, or investments — in Costa Rica?
No. Costa Rica taxes only local-source income; foreign income like U.S. Social Security and pensions remains exempt. The same applies to income from U.S.-based investments, rental properties in the U.S., and remote work done for non-Costa Rican employers. Costa Rica’s territorial tax system is one of its biggest financial advantages for American expats.
Is there a tax treaty between the U.S. and Costa Rica?
No. There is currently no U.S.–Costa Rica tax treaty. This means there is no automatic bilateral mechanism to prevent double taxation — but in practice, the Foreign Tax Credit and Foreign Earned Income Exclusion together eliminate double taxation for most expats.
What income is taxable in Costa Rica?
Any income earned within Costa Rica is subject to Costa Rican tax. This includes salary from a Costa Rican employer, income from a local business, freelance work performed for Costa Rican clients, and rental income from Costa Rican property. Dividend and interest income are generally taxed at 15%. Foreign-source income of any kind is not taxable in Costa Rica.
What are the income tax rates in Costa Rica for 2026?
Costa Rica’s income tax rates are progressive, ranging from 0% to 25%. For self-employed individuals, annual earnings below ₡6,244,000 face no income tax at all. For those above it, rates start at 10% and scale up based on brackets. A key change for 2026: independent workers can now deduct 25% of their gross income without needing receipts or documentation, making it significantly easier to reduce taxable income.
Do I have to pay Costa Rican tax if I work remotely for a U.S. company?
No. If you work remotely for a U.S.-based employer or clients and your income originates outside of Costa Rica, that income is not subject to Costa Rican income tax. This makes Costa Rica particularly attractive for digital nomads and remote workers. You will still need to report this income on your U.S. tax return, where the Foreign Earned Income Exclusion may significantly reduce what you owe.
How does the Foreign Earned Income Exclusion (FEIE) work for Americans in Costa Rica?
For tax year 2025 (filed in 2026), the maximum Foreign Earned Income Exclusion is $130,000 per qualifying person. For tax year 2026, the maximum rises to $132,900. To qualify, you must pass either the Physical Presence Test (330 full days abroad in a 12-month period) or the Bona Fide Residence Test (genuine, established residence in a foreign country for a full tax year). The exclusion covers only earned income — wages and self-employment income — not passive income like dividends, interest, or Social Security. You claim it on IRS Form 2555.
Can I use both the Foreign Earned Income Exclusion and the Foreign Tax Credit?
Yes, in many cases. You can apply the FEIE to your first tranche of foreign earned income and then use the Foreign Tax Credit on any Costa Rican taxes paid on income that exceeds the exclusion or falls outside of it. You cannot apply the Foreign Tax Credit to income that has already been excluded by the FEIE — but used together strategically, most Americans living abroad owe zero U.S. federal income tax.
What is the sales tax rate in Costa Rica?
The general sales tax rate in Costa Rica is 13%, applied to most goods and services. Basic necessities like fresh produce, some grains, meat, and medicine are taxed at reduced rates or are exempt. Many professional services — including legal and medical services — are also generally exempt.
What property taxes will I pay in Costa Rica?
Costa Rica charges an annual property tax of 0.25% of the property’s assessed value, paid quarterly to the local municipality. Properties used for living, occasional stays, or recreation with a construction value exceeding ₡143 million colones (the 2026 threshold, roughly $290,000 USD) are also subject to the Solidarity Tax (luxury home tax), with rates starting at 0.25% and rising progressively to 0.55% for very high-value properties. This tax is paid in January each year.
I’m planning to rent out my Costa Rica property on Airbnb. What are the tax implications?
Rental income in Costa Rica is taxed at 15% on 85% of gross income (i.e., a 15% standard expense deduction is applied first). Short-term rentals also require you to collect and remit 13% VAT monthly. A new 12.75% tax on short-term rental income from platforms like Airbnb took effect in 2026, impacting expat property owners. If you own through a Costa Rican corporation — common for expats — corporate tax filings are also required. Given the complexity, a local accountant is strongly recommended.
Is inheritance taxed in Costa Rica?
No. Costa Rica does not impose an inheritance or gift tax. However, a transfer tax does apply when property changes hands as part of an inheritance or gift. Consult a Costa Rican attorney for the applicable rates based on your specific situation.
Do I have to report my Costa Rican bank account to the U.S. government?
Yes, if the balance warrants it. If the combined value of all your foreign financial accounts exceeds $10,000 at any point during the calendar year, you must file an FBAR (FinCEN Form 114). This is filed separately from your tax return and is due April 15, with an automatic extension to October 15. Failure to file can result in substantial penalties.