Costa Rica 15% Tax Could Hit US Expats Twice
COSTA RICA · TAX · EXPATS
Key Facts
- —The country Costa Rica is a stable Central American democracy without an army and a long-standing home for American retirees, investors and remote workers.
- —The question Costa Rica taxes mainly income earned inside the country, and bill 25.796 would add a flat 15% on residents’ foreign interest, dividends, royalties, rents and capital gains.
- —The answer The bill’s own text rules out a full worldwide system, and wages, pensions and active business income from abroad stay outside it. The result is a hybrid of source-based and residence-based taxation.
- —The US angle The United States taxes its citizens on worldwide income, has no income tax treaty with Costa Rica, and its foreign tax credit cannot cut US tax on US-source income.
- —The catch Costa Rica would deduct foreign tax from the income instead of crediting it, so US$100 already taxed 15% abroad would owe another US$12.75.
- —Power Index Costa Rica ranks 9th of 14 in The Rio Times Latin America Power Index, with 36.5 points (October 2026 edition).
- —Still open The bill sits in a legislative committee with no votes recorded since 22 September, and it would take effect on publication if passed.
Costa Rica is not adopting a worldwide income tax, but a bill before its Legislative Assembly would tax residents 15% on investment income earned abroad, and Americans living there would feel it in a particular way. A column in the San José daily La Nación on Sunday 18 October reopened the question, calling the plan a step toward a “hybrid” system that keeps the country’s territorial principle.
The reason Americans stand apart is the US rule that taxes citizens wherever they live. A US citizen in Costa Rica with US dividends or interest could owe tax in both countries, because Washington has no income tax treaty with Costa Rica and its foreign tax credit cannot reduce US tax on US-source income.
The filing of the bill on 22 September and its main terms were covered in Costa Rica Income Tax Bill Would Charge Residents 15% on Five Kinds of Foreign Investment Income. No vote on it has been recorded since, and the debate has moved to what it would mean in practice.
What the Bill Would Tax
Bill 25.796 was signed by President Laura Fernández Delgado and by Finance Minister Rodrigo Chaves Robles, her predecessor as president. It would make every resident person, company, trust and investment fund liable for tax on passive income from assets held or used outside Costa Rica.
Passive income here means rents, royalties, interest, dividends and capital gains, all taxed at a flat 15%. Capital losses on foreign assets could not be set against those gains.
Today Costa Rica taxes mainly income from Costa Rican sources, a so-called territorial system. A 2023 law, Law 10.381, reaches foreign passive income only when it flows to companies in multinational groups that lack real economic substance in the country.
Is This Worldwide Taxation?
Not according to the bill itself, whose explanatory text says it does not mean a full move from a territorial system to a worldwide one. Only some foreign passive income is added, it says, while the general territorial rule for Costa Rica’s income tax stays unchanged.
Writing in La Nación, Randall Oquendo, who leads the tax and legal practice at the accounting firm PwC in Costa Rica, described the result as a hybrid that brings in elements of worldwide taxation without abandoning territoriality. He said the change starts to weigh the taxpayer’s residence and not only the source of income, and urged clear rules against double taxation.
Salaries earned abroad, foreign pensions and profits from active business abroad are not among the five categories. Under the text as filed, the new tax would not reach a retiree’s Social Security or a remote worker’s salary, since neither is passive income.
Why Americans Are a Special Case
The Internal Revenue Service (IRS) says US citizens are “subject to tax on worldwide income from all sources” wherever they live. Most other countries tax by residence rather than citizenship, so Americans abroad already deal with two systems at once.
Relief usually comes through the foreign tax credit, but IRS Publication 514 says the credit “cannot reduce U.S. taxes on U.S. source income.” A Costa Rican tax on dividends from US companies or interest from a US bank would therefore generally not lower an American’s US bill.
There is also no US income tax treaty with Costa Rica to divide taxing rights, since the country is missing from the IRS list of treaty partners. Without one, each country applies its own rules to the same dollar.
Deduction Versus Credit
The bill taxes the gross amount received minus any similar tax “withheld or paid abroad,” a deduction rather than a credit. Melania Calderón Hernández, a tax lawyer at the firm Consortium Legal, showed the effect in an example published by Delfino.cr on 6 October.
On US$100 of foreign income that already paid US$15 abroad, the bill would tax the remaining US$85 at 15%, adding US$12.75 for a total of US$27.75. A credit would instead set the US$15 paid abroad against the US$15 owed in Costa Rica, leaving nothing more to pay.
She also warned that income received through a Costa Rican company could be taxed a third time when paid out as dividends. Her conclusion was that the deduction eases double taxation but does not remove it.
What It Means for You
For a US retiree in Costa Rica living on Social Security, a pension or a remote salary, the bill as filed would change little. For one with a brokerage account, a rental home in the United States or bank interest, it could add a 15% Costa Rican layer on top of US tax, softened only by the deduction.
Nothing is due yet, because the bill is not law and its text can change in committee. Anyone affected should take advice from a tax adviser who knows both systems before moving assets or changing residence.
What Is Not Known
It is not known whether US income tax paid on an annual return would count as tax paid abroad for the deduction, or how Costa Rica would track residents’ foreign accounts. The bill sets no minimum amount, and it would apply from publication, with rules due within six months.
No date has been set for a vote in the Assembly’s fiscal affairs committee, where the bill has sat since it was filed. It is also not known how many residents hold enough foreign assets to be affected.
Frequently Asked Questions
Is Costa Rica adopting a worldwide income tax?
No, bill 25.796 would tax residents 15% only on certain foreign investment income. Its text says the territorial system stays the general rule.
What income would the bill tax?
It covers rents, royalties, interest, dividends and capital gains from assets held or used outside Costa Rica. Salaries and pensions from abroad are not among those categories.
Would US citizens in Costa Rica pay tax twice?
They could on US-source investment income, because the US taxes citizens worldwide and its foreign tax credit cannot reduce US tax on US-source income. Costa Rica would only deduct foreign tax from the income, not credit it.
Is the bill already law?
No, it was filed on 22 September and sits in the Legislative Assembly’s fiscal affairs committee. No votes on it have been recorded.
Sources: Bill 25.796, text as filed with the Legislative Assembly, 22 September 2026, Delfino.cr legislative tracker, bill 25.796 status, IRS, US citizens and resident aliens abroad, IRS Publication 514, Foreign Tax Credit for Individuals, IRS, United States income tax treaties A to Z, La Nación, Randall Oquendo column, 18 October 2026, Delfino.cr, Melania Calderón Hernández on double taxation, 6 October 2026. All retrieved 19 October 2026.
Editorial responsibility: Matthias Camenzind, Editor-in-Chief · Editorial standards · Report an error