Tax Bulletin

October 2016

Tax Information

Current Base Salary


Current Interest Rate
(Since October 1st, 2016)


Late payment penalty rate
(month or part month)


Reference Exchange rate BCCR
(October 1st, 2016)





The Costa Rican Tax Authorities changed its criteria regarding the withholding tax rate applicable to utilities obtained from certain securities owned by persons or legal entities with no fiscal domicile in Costa Rica

The Tax Administration was consulted according to the provisions of section 119 of the Costa Rican Tax Law if the 8% withholding tax rate contained in section 23 subsection c) of the Income Tax Law (ITL) specifically if this tax rate corresponded in the cases where the returns of the certain securities where paid to individuals or legal entities not domiciled in Costa Rica.

Last November 17, 2015, the Tax Administration responded to this inquiry in the opinion No DGT-1119-2015 issued on October 15 2015, in which concluded:

"In this regard, the criteria issued by the Tax Administration, in its opinion No DGT-1065-2012 issued December 17 2012, considered that an eight percent (8%) retention should be applied, regardless of the domicile of the investor, because it is an objective benefit….

However because of the Amendment made to the System Development Banking Law No. 9274 issued on November 12, 2014, that made change to Section 59 of the ITL specifically subsection h) in respect to the withholding rate applicable to interests paid to foreign entities or individuals.

For this reason and according to your inquiry, withholding on income tax established in section 23 subsection c) 1 of the ITL applies only to income generated from securities paid to (individualsl or legal entities) that meet the conditions to be considered as Costa Rican fiscal residents." -The outstanding does not belong to original.-

Note that the Tax Administration in a contradicting manner states that though it acknowledge that the Amendment to the Law of Banking System Development did not repeal or alter the content of section 23, subsection c) 1 of the ITL, concludes that when the returns are paid to a non-resident individual or legal entity, the applicable tax rate will be 15%, recognizing the variation form their own judgment issued in 2012.

This position to apply a 15% withholding tax rate in this type of scenarios was also confirmed in the opinions No DGT-694-2016, DGT-695-2016 and DGT-696-2016 all issued on July 1, 2016, in which the Tax Administration responded to queries presented by the various custodians and issuers of securities.

In addition to the applicable tax rate the Tax Administration assigned the role of withholding agent of the 15% rate to the issuer of the security. The Tax Administration prevents the issuer  to obtain the information regarding the beneficiary of the securities form the custodians, this according to what is contained in the should be addressed to the content of the Law to Discourage External Income Capital ( No. 9227), a law that we consider alienated to this matter which follows that the custodian of the securities should provide the information of the beneficiary, since the issuer, when placing their securities through the mechanisms established by the stock market, does not have information of who holds the property of the security.

Finally, it is worth noting that the Constitutional Supreme Court itself in response to the consultation of constitutionality held regarding transitional clause No V of the Amendment of the System Development Banking Law concluding that section 23 of the ITL was not modified in all by such Law, therefore we consider this as another reason why the recent position maintained by the Tax Administration is questionable.

This new applicable withholding tax rate mandated by the Tax Administration has serious consequences since the increased tax burden may discourage foreign source investment to participate in the Costa Rican stock market, this could generate a negative impact on the stock market and in the economy as well.

Nathalie Woodbridge
Tax & Legal

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