Update to the income tax brackets and tax credits for the 2020 fiscal period

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Update to the income tax brackets and tax credits for the 2020 fiscal period

Update to the income tax brackets and tax credits for the 2020 fiscal period

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October 3, 2019

Updated income tax brackets for the 2020 fiscal year were published in the edition No. 182 of the Official Gazette on September 26. Executive Decree No. 41320-H updates income tax brackets on salary and profits and their tax credits beginning on October 1, 2019.

Due to the Tax Reform that entered into force in July of this year, the fiscal period underwent a significant change, so this tax bracket update will be in effect for a 15 month transitional period, which covers from October 1, 2019, until December 31, 2020.

It is necessary that individuals and legal entities with activities subject to income tax are aware of these modifications to file the tax returns for the corresponding tax period and thus avoid possible penalties.

These income tax brackets are updated yearly to be aligned with market values. For the 2020 fiscal year, there is a 2.86% adjustment.

The updated Salary Tax* brackets are as follows:

Costa Rican colones	*US$ (exchange rate 585,43)**	Rate
Up to ₡ 840,000	Up to US$1,435	0%
In excess of ₡ 840,000 up to ₡ 1,233,000	In excess of US$1,435 up to US$2,107	10%
In excess of ₡ 1,233,000 up to ₡ 2,163,000	In excess of US$2,017 up to US$3,695	15%
In excess of ₡ 2,163,000 up to ₡4,325,000	In excess of US$3,695 up to US$7,388	20%
In excess of ₡4,325,000	In excess of US$7,388	25%

*With the entry into force of the Tax Reform, two new brackets of 20% and 25% rates were added, applicable starting July 1.

For individuals subject to income tax, the updated yearly taxable base brackets are as follows:

Costa Rican colones	*US$ (exchange rate 585,43)**	Rate
Up to ₡3,732,000	Up to US$6,375	0%
In excess of ₡3,732,0000 and up to ₡5,573,000	In excess of US$6,375 and up to US$9,520	10%
In excess of ₡5,573,000 and up to ₡9,296,000	In excess of US$9,520 and up to US$15,879	15%
In excess of ₡9,296,000 and up to ₡18,631,000	In excess of US$15,879 and up to US$31,825	20%
In excess of ₡18,631,000	In excess of US$31,825	25%

On the modifications to the tax credits:

Once the tax has been calculated, taxpayers have the right to credit the following items:

For each child, ₡1,570 (US$2.67) per month or ₡18,840 (US$32.2) per year.
For a spouse, ₡2,360 (US$4) per month or ₡28,320 (US$48.4) per year.

For legal entities, the updated taxable base brackets will be the following, as long as their yearly gross income does not exceed ₡109,032,000 (US$186,243) during the fiscal year:

Costa Rican colones	*US$ (exchange rate 585,43)**	Rate
Over the first ₡5,143,000	In excess of US$8,785	0%
In excess of ₡5,143,000 and up to ₡7,715,000	In excess of US$8,785 and up to US$13,179	10%
In excess of ₡7,715,000 and up to ₡10,286,000	In excess of US$13,179 and up to US$17,570	15%
In excess of ₡10,286,000	In excess of US$17,570	20%

Dentons Muñoz has expert professionals in the field who can advise and give you the necessary legal support to comply with your tax obligations. Do not hesitate to contact our Tax Department to obtain more information about the scope and implications of this new regulation.