Costa Rica has amazing beaches, year-round warm weather, a large expat community, is within easy reach of both North and South America by air and best of all, is a territorial taxation country. All this coupled with a very accessible residency program makes it an excellent option for those living a location independent lifestyle. This guide covers how to acquire Costa Rican residency, the tax implications and how to open a bank account.
Residency options
Costa Rica has long been a popular destination for tourists and retirees thanks in large part to its lush forests, idyllic beaches, friendly culture and relatively low cost of living. It is also becoming increasingly popular amongst the location independent community due to its very accessible residency program and it being a territorial taxation country. For those who are not familiar with international tax law, a territorial taxation country is one in which there is a distinction between locally-sourced and foreign-sourced income. Locally-sourced income is taxed locally (in this case, in Costa Rica) while foreign-sourced income is usually exempt from local taxation (income generated outside Costa Rica). In practical terms, this means that it is entirely possible to live in Costa Rica tax-free, assuming no income is generated locally.
There are over ten different ways to qualify for residency in Costa Rica. The two that are of interest to us are the Rentista and the Pensionado options. The Rentista option applies to those still working while the Pensionado option applies to those who have retired. To qualify for the Rentista option, you need to prove that you will receive 2500 USD in passive income for the first 24 months of your residency. Alternatively, you can qualify by virtue of having at least 60000 USD available in a bank account (2500 USD X 24). To qualify for the Pensionado option, you need to have a pension plan or investments paying at least 1000 USD per month. In both cases, the Costa Rican government expects you to remit the full amount every month so plan accordingly.
You can apply for residency in your home country (50 USD fee) or directly in Costa Rica (250 USD fee). Regardless of where you apply from, you will need to provide apostilled copies of your documents. If your country is not a member of the Hague convention (for example, Canada), you will need to have your documents notarized by a Costa Rican diplomatic mission (in the country where they were issued). To apply, you will need a birth certificate, a marriage certificate (if applicable), a police certificate and some proof of income. You will also need to have your fingerprints taken (to run an Interpol background check), provide passport photos and copies of your entire passport. Please note that your documents must be in Spanish. If they are not, a Spanish translation will need to be provided. You will also need to submit the Hoja de Filiacion form and a certificate of registration from your local Costa Rican embassy (this document can usually be obtained online).
Once you have gathered all the documents mentioned above, the application process becomes fairly straightforward. You simply have to show up with all your documents at a local Direccion General de Migracion y Extranjeria office. Once there, you will be asked to fill out an identification form. You will then be able to submit your application and a receipt will be given to you to prove that you have an application pending (it is important not to lose this receipt). Please note that the documents you submit will not be returned to you, not even the originals. Once approved, you will be asked to show up in person to pick up your residency papers. You will then have to register for the Costa Rican social security scheme and apply for an identity card (cedula). Cost-wise, plan 300 USD if you apply on your own and 1500-2500 if you apply with the help of a local lawyer (excluding the 50 USD or 250 USD fee mentioned above).
Your temporary residency permit will be valid for two years. It can be extended for a third year at which point you will become eligible to apply for permanent residency. Applying is fairly easy, as long as you can prove that you lived in-country during your three years of temporary residency and that you received the minimum amount of money for your residency type (2500 USD per month or 1000 USD per month). Once you become a permanent resident, you will have the right to work without any restrictions. To keep the permanent residency active, you will simply need to step foot in the country at least once a year. After seven years spent in-country, you will become eligible to apply for citizenship. If married to a local, the waiting period for citizenship decreases to two years.
Taxation
Costa Rica is a territorial taxation country. As such, residents and non-residents alike are only liable to tax on their locally-sourced income. In practice, this means that it is possible to live in Costa Rica tax-free assuming that no income is generated locally. Do note that income generated locally includes income generated from remote work performed while in Costa Rica, even if for foreign clients / via a foreign legal entity.
Compliance
A tax resident of Costa Rica is an individual who has spent over six months in the country in a given tax year. Tax residents must file an annual tax return. The fiscal year is the twelve months period from the 1st of October to the 30th of September (a different period can be requested). The income tax applies to employment income only and is progressive up to 25%. Business, trade and professional income are taxed using the same rates as corporate income. Investment income in the form of dividends is subject to a 5% withholding tax. Occasional capital gains are exempt. Property owners may be subject to a 0.25% real property tax and a luxury house tax (depending on the value of said property).
All Costa Rican residents must register for social security. The rate you will pay is based on your monthly income and range from 5.35% to 18.5%. Income remitted from abroad under the Rentista and Pensionado options are usually liable to social security contributions.
Powerful tax strategies
You can find powerful tax strategies in The Freedom Surfer course, especially in module two and three.
Banking
Costa Rica is not a financial center in the way neighboring Panama is. The choice of banks is more limited and so are the services on offer. There are, nonetheless, some pretty decent banks. The best bank in the country, by far, is Scotiabank (a very solid Canadian bank). That said, if you used one of the two residency options mentioned above (Rentista and Pensionado), I recommend banking with Banco de Costa Rica. The reason is simple, it is a state-owned bank and it collaborates with the government to expedite residency extension requests (it is even possible to extend your residency at a bank branch).
Opening an account
While all banks offer accounts in CRC (the local currency), many also offer accounts in USD. As is typical of Latin American countries, opening an account is an overly complicated, bureaucratic process. A piece of identification is required (a Costa Rican cedula or a foreign passport) and so is a proof of residency (utility bill with your residential address on it, no need to be an address in Costa Rica) and a proof of income (a copy of the proof of income used to apply for the residency can be used). US citizens will also have to fill an IRS form. Please note that some limits may be applied to non-resident accounts. Accounts will usually be opened on the spot and a debit card will be issued to you. Most banks have an online banking facility and some have mobile banking apps.
International transfers
Transferring money to Costa Rica has become easier in recent years thanks to the rise of services like Wise and Revolut. Their rates usually beat the banks’ and they are far more secure than carrying large sums of cash.