This is dumb move by Costa Rica and will certainly kill foreign relocation there.

Currently in Costa Rica a territorial income system is applied, which consists of taxing profits produced exclusively at the local level. If the Income Tax Law is modified, the situation could change.

On August 24th, the project called “Law for the inclusion of worldwide income in the Costa Rican tax system” was presented to the Assembly. The proposal seeks to amend Articles 1, 6 and 27 bis of the Income Tax Law (7.092).

The plan is to migrate to a world-wide income system, which consists of the taxpayer having to pay taxes on all of its income, regardless of the country or jurisdiction where the profits are generated.

Check out the “System for monitoring markets and economic situation in Central American countries“, developed by CentralAmericaData.

The new text proposed for Article 1 specifies that the “... Tax comprising the law, generating fact and taxable matter. A tax is established on the profits of individuals, legal entities and collective entities without legal personality, domiciled in the country, that develop profitable activities of Costa Rican source and in other jurisdictions.”

Carla Coghi, Managing Partner of Deloitte, explained to Elfinancierocr.com that “... ‘those words extraterritorial and other jurisdictions are what would modify article 10, if we read the current article 10 of the law (7,092) only talks about income from Costa Rican sources and does not say anything about other jurisdictions.”

According to Welmer Ramos, congressman who proposed the bill “… it is ‘urgent’ to close the door on companies that report profits abroad but escape national taxes. There are many types of tax engineering to avoid paying taxes.”

For Congresswoman María Inés Solis, the “… text is populist and could impact national productivity and drive away foreign investment, a situation that could cause impoverishment for Costa Ricans.”

See full bill (in Spanish).

Stay Safe!!