Taxes for Americans living in Costa Rica

Moving to Costa Rica doesn’t end your US tax obligations, and it adds a second tax system that works differently from the one you know. The US taxes its citizens on worldwide income. Costa Rica taxes income earned in Costa Rica.

What changes on the US side

• You still file a US return on your worldwide income.
• Foreign accounts must be reported. If your non-US accounts total more than $10,000 at any point in the year, you file a foreign account report (FBAR). Larger balances trigger a second form with your tax return. A rentista’s $60,000 deposit puts you over the threshold on day one.
• There are ways to avoid being taxed twice. Earned income from work may qualify for the foreign earned income exclusion, and tax paid to Costa Rica can usually be credited against US tax. Pensions, Social Security and investment income follow different rules from wages.
• Owning a Costa Rican corporation adds US forms. Many foreigners hold a house or car in a Costa Rican company. For a US person that can mean extra annual reporting with large penalties for missing it. Ask before you set one up.
• Your state may still want a return. Some states keep treating you as a resident until you clearly cut ties.

The US and Costa Rica don’t have an income tax treaty, so the usual treaty rules that Americans rely on in some other countries don’t apply here.

Costa Rica’s side

• Territorial income tax. Costa Rica taxes income from Costa Rican sources: a local salary, a local business, rent from property in Costa Rica, and gains on selling Costa Rican assets. Foreign pensions and investment income are generally outside it.
• Remote work. Holders of the digital nomad visa are explicitly exempt on their foreign remote income. For residents who work remotely from Costa Rica for foreign clients, the position is less clear-cut, so take advice from a Costa Rican accountant.
• Rental income. If you rent out a property in Costa Rica, including on short-term rental platforms, you register with the tax authority, charge sales tax where it applies, and file returns.
• Sales tax (IVA). 13 percent on most goods and services.
• Property taxes. An annual municipal property tax of 0.25 percent of registered value, and a separate national tax on higher-value homes. See buying property in Costa Rica.
• Corporations. A Costa Rican company pays an annual corporation tax and must file certain declarations every year, even if it only holds a house.

Becoming a Costa Rican tax resident, which generally follows from spending more than half the year there, doesn’t change the territorial rule. It is separate from your immigration status.

When to bring one in

Before the end of the year you move, so you can plan the move date, account transfers and any property sale. At the latest, before your first US filing deadline abroad. If you plan to buy property through a corporation or to earn income in Costa Rica, talk to someone before you do it.

What to ask a preparer

• How many clients do you have who live in Costa Rica?
• Do you handle the Costa Rican side, or work with a Costa Rican accountant who does?
• Is the fee fixed, and does it include foreign account reporting, corporation forms and a state return?
• Are you an enrolled agent or CPA, and will you represent me if the IRS writes to me?

Common questions

Do I still pay US taxes if I live in Costa Rica?

US citizens and green card holders must file a US federal return every year wherever they live. Exclusions and credits often reduce or remove double taxation, but the filing requirement stays.

Does Costa Rica tax foreign income?

Generally no. Costa Rica taxes on a territorial basis, which means it taxes income from Costa Rican sources. A US pension, Social Security and income from US investments are generally not taxed by Costa Rica. Income from work done or a business run in Costa Rica is.

Do I have to report a Costa Rican bank account to the US?

Yes, if your non-US accounts together exceed $10,000 at any point in the year. That is the foreign account report known as the FBAR, and larger balances require a second form with your tax return.