Global Income Law Proposal

Global Income Law taxes the taxpayer based on their residence and not on the place where the income-producing business is located. This allows the system to tax profits obtained in a more or less comprehensive way. It should be noted that this law has been under study in Congress for two years: it was proposed in 2018 and it has not been pushed further, so that it is still a law in development.

The Global Income proposal consists of taxing passive income using a 15% tax rate. This passive income is defined as the income that a taxpayer receives from rent or from interest payments by financial entities that is then brought or invested in Costa Rica. Interest, dividends, rents, royalties, and capital gains are subject to the payment of this tax, as long as they are passive income. Income is considered passive when it does not derive from assets that are in use as part of business activity abroad. In addition, the taxpayer must deposit this 15% tax into a bank account in Costa Rica.

The Global Income Law was proposed at the same time as the Law to Strengthen Public Finances through the Ministry of Finance, and was enacted by charging NATURAL AND LEGAL PERSONS a percentage of their lucrative activity. This type of charge is applied to income gradually and proportionally based on the amount of money that the taxpayer receives each month for economic or work activities, regardless of the source, provided they are LOCAL. According to the proposal, the income that would be included would be that received from work, income from movable or real estate capital, income from one’s economic activities, as well as equity variations from eventual capital gains. This initiative also affects the lucrative activities of banking entities and financial companies subject to the surveillance and inspection of SUGEF.

According to the proposed tax scheme, income that is subject to a single and definitive form of tax withholding will count as payment of this tax, and will be included in the gross income.

The population at large may not see the effects of this law directly, however, the law does expressly mention wages in Article 1: “In no case shall the income contained and regulated in title II be integrated into the taxable income, in accordance with the provisions of title I of this law, income tax.” Title II of the Income Tax Law refers to the single tax on income received by dependent workers or through retirement or pension funds or other remuneration in exchange for personal services, interest or dividends which may not be integrated either, taking into account that in almost no cases will they be able to migrate to pay the corresponding tax as dictated by chapter I and as established in the new article 1 Bis, section 3c of the Income Tax law, which states the following in relation to interest and dividends: “Not to be affected: c. Assets representing an entity’s participation in its own funds and the transfer of capital to third parties, provided that the latter are publicly offered, or issued by entities supervised by the bodies attached to the National Council for the Supervision of the Financial System, or participations in investment funds, unless the taxpayer can prove a link to lucrative activity through the established procedure.