Possibility of Migrating to a “Global Income” Raise Doubts about Taxes in Costa Rica

Will salary earning people pay more taxes with the application of a global income in Costa Rica? Will it make the country less attractive to attract Foreign Direct Investment? Will it affect or not the level of household consumption? These are some of the doubts that arise around the Global Income Law project that is currently being discussed in the Legislative Assembly, an initiative that is part of the nine vital commitments that the country assumed in order to have access to a loan for US$ 1,750 million with the International Monetary Fund (IMF).

Financiers and lawyers explain to us the real impact that the application of said tax reform would have on individuals and legal entities, in order to settle the uncertainty surrounding it at its roots.

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Myths and realities about the global income project

Myth. It will result in wage earners paying more for income.

Reality. In certain cases, wage earners would have to pay more taxes because the exempt amount per year is ¢ 8,200,000 (US$ 13,312), less than the current base (equivalent to about US$ 16,360). The project proposes that people who earn more than ¢ 684,000 per month pay rent; currently those who earn more than ¢ 840,000 pay. However, there is the

possibility of crediting certain expenses as deductibles, which could reduce said base considerably.

Myth. It will make freelancers pay less in rent.

Reality. They are benefited given that the amount currently exempted is ¢ 3,742,000 a year (US$ 6,075) and with the bill it would go to ¢ 8,200,000 (US$ 13,312). Additionally, they will have the right to apply tax credits for spouse and children with amounts greater than the current ones.

Myth. It will make Costa Rica less attractive to invest.

Reality. On the contrary, the annual income makes it much easier to pay taxes. The problem is that many people fear the figure of world income and there the country could lose ground to other nations.

Myth. It will affect businesses.

Reality. There would be no major impact, although there is an important change: today, companies with an annual income greater than ¢ 109,337,000 (US $ 178,000) are subject to a 30% withholding; with this bill they would be subject to a 27.5% withholding.

The experience of other countries with global income

The Nordic countries, in Europe, and Uruguay, in Latin America, have established global income in their tax system. These have been some of the results:

– The global regime avoids the artificial manipulation of the tax bases, gives similar treatment to all the manifestations of wealth that are added and taxed together; generates greater tax equity, facilitates the customization of the tax, and increases collection.

– The global income tax is a percentage charge that is made to natural and legal persons with lucrative activity. It is applied to income gradually and proportionally with respect to the amount of money received each month for the economic or work activities of the taxpayer.

It is important to take into account that all of the above occurs regardless of the generating source, as long as it is local.

Resonance Costa Rica

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