American Expats in Costa Rica

Updated on August 15, 2025.

Costa Rica & U.S. Tax Timeline: Critical Dates for Dual Filers

Managing tax obligations between Costa Rica and the United States requires understanding two fundamentally different tax systems. While Costa Rica's territorial taxation simplifies matters for many expats, U.S. citizens must still navigate their worldwide tax obligations to the IRS.

The Costa Rican tax system operates on a unique fiscal year from October 1 to September 30 for income tax purposes, though many deadlines follow the calendar year. For individuals with Costa Rican-sourced income, the system requires three advance payments throughout the year: 25% of the prior year's tax by June 30, another 25% by September 30, and 25% by December 31, with the final 25% due by March 31. This advance payment system creates a continuous cycle that must be coordinated with U.S. quarterly estimated tax payments.

Strategic Payment Planning to Avoid U.S. Penalties

The most critical aspect of tax compliance for U.S. expats in Costa Rica is understanding that the June 15 automatic extension applies only to filing, not to payment obligations. This distinction becomes particularly important given Costa Rica's territorial tax system, where many expats have no local tax obligations but significant U.S. tax liabilities.

To effectively manage this payment timing challenge, expats should implement a multi-pronged approach. First, conduct a preliminary tax calculation by early March using your worldwide income documentation. Since many expats in Costa Rica have no local tax obligations due to the territorial system, focus on accurately projecting your U.S. tax liability. Consider working with a tax professional familiar with expat situations to ensure accuracy in this crucial calculation. As an expat CPA firm, we can help you with these items.

Second, establish a tax reserve account specifically for U.S. obligations. Since Costa Rica doesn't tax foreign-source income, you'll need to self-manage your U.S. tax reserves entirely. Many expats find it helpful to set aside funds monthly, treating U.S. tax reserves as a fixed expense in their budget. This approach prevents the April 15 payment deadline from creating a cash flow crisis, especially important for retirees living on fixed incomes.

Third, leverage safe harbor provisions to minimize penalties. If you're unable to calculate your exact tax liability by April 15, you can avoid penalties by paying either 100% of your prior year's tax liability (110% if your prior year AGI exceeded $150,000) or 90% of the current year's tax. This safe harbor payment strategy provides protection while you finalize your actual tax calculations. As an expat CPA firm, we can help you with this.

For those with irregular income or significant investment income, consider making quarterly estimated tax payments to the IRS. These payments are due April 15, June 15, September 15, and January 15, and help spread the tax burden throughout the year rather than facing a large payment in April. This is particularly important for retirees with substantial IRA distributions or investment income.

Currency fluctuations between the colón and dollar add another layer of complexity to payment planning. While Costa Rica uses the dollar extensively, official transactions often require colón conversions. Monitor exchange rates when planning your April payment to optimize the conversion timing, and consider using the yearly average exchange rate for income reporting (as permitted by the IRS) to smooth out volatility. As an expat CPA firm, we can help you with these items.

Costa Rica vs. U.S. Tax Systems: Direct Comparison

Understanding the fundamental differences between Costa Rican and U.S. tax systems is essential for effective tax planning as an American expat. The most significant distinction is Costa Rica's territorial taxation versus the U.S. citizenship-based system, creating unique planning opportunities for expats.

The Costa Rican progressive tax system applies only to Costa Rican-sourced income, with rates ranging from 0% on income up to ₡4,832,000 (approximately $8,900) to 25% on income exceeding ₡23,536,000 (approximately $43,300). This territorial approach means that foreign pensions, Social Security, investment income, and remote work income for non-Costa Rican companies remain completely tax-free in Costa Rica, creating significant advantages for U.S. expats.

One crucial difference lies in the treatment of investment income. Costa Rica doesn't tax foreign investment income at all, while the U.S. taxes worldwide investment income. This creates a situation where U.S. expats in Costa Rica may have zero local tax obligations but substantial U.S. tax liabilities on their investment portfolios, requiring careful planning to utilize foreign tax credits from other sources or the Foreign Earned Income Exclusion where applicable.

The Costa Rican Tax System Explained in Detail

The Costa Rican tax system's territorial nature presents unique advantages for American expats accustomed to worldwide taxation. Understanding how Costa Rica classifies and taxes different income types, and more importantly, what it doesn't tax, is crucial for optimizing your tax position.

Understanding U.S. Income Classifications

Before diving into the Costa Rican system, it's essential to understand how the United States classifies and taxes different types of income, as this provides the framework for comparison and planning strategies.

The Costa Rican Income Tax Categories

Costa Rica's territorial tax system categorizes income based on its source, with only Costa Rican-sourced income subject to taxation. This fundamental principle creates substantial tax advantages for expats with foreign income sources.

1. Salarios (Employment Income)

Employment income from Costa Rican employers faces progressive taxation with automatic withholding. The tax rates for 2024-2025 are structured as follows: 0% on monthly income up to ₡929,000, 10% on income from ₡929,001 to ₡1,363,000, 15% on income from ₡1,363,001 to ₡2,392,000, 20% on income from ₡2,392,001 to ₡4,783,000, and 25% on income exceeding ₡4,783,000. These thresholds are adjusted annually for inflation.

Importantly, employment income from foreign employers for work performed outside Costa Rica is not taxable in Costa Rica. This means digital nomads and remote workers employed by U.S. companies can work from Costa Rica without local tax obligations, though they must ensure they don't create permanent establishment issues for their employers.

Social Security (CCSS) Contributions: Employees of Costa Rican companies contribute 10.67% of gross wages to the Caja Costarricense de Seguro Social (CCSS), which provides healthcare, disability, and pension benefits. Employers contribute an additional 26.5%. The U.S.-Costa Rica totalization agreement prevents double social security taxation for qualifying workers.

2. Rentas de Capital (Investment Income)

Costa Rica only taxes investment income from Costa Rican sources. Interest from Costa Rican banks faces a 15% withholding tax (8% for accounts in colones), while dividends from Costa Rican companies are generally tax-exempt to avoid double taxation. Capital gains on Costa Rican securities and real estate are taxed at 15%.

Foreign investment income remains completely untaxed in Costa Rica. This includes interest from U.S. bank accounts, dividends from U.S. stocks, capital gains from foreign securities, and distributions from U.S. mutual funds or ETFs. This territorial approach creates a tax-efficient environment for retirees and investors living on portfolio income, though U.S. tax obligations remain unchanged.

3. Actividades Lucrativas (Business Income)

Business income from Costa Rican operations faces corporate tax rates of 10% on income up to ₡5,153,000, 20% on income from ₡5,153,001 to ₡7,729,000, and 30% on income exceeding ₡7,729,000. Small businesses and professionals can opt for simplified regimes with reduced compliance requirements.

Businesses serving exclusively foreign clients without Costa Rican operations may structure to avoid local taxation entirely. Export services, including software development, consulting, and digital services for foreign clients, can qualify for exemptions. However, careful structuring is required to avoid creating permanent establishment or local source income.

4. Rentas Inmobiliarias (Rental Income)

Rental income from Costa Rican properties is taxable, with owners choosing between the standard regime (progressive rates with expense deductions) or simplified regime (15% on gross rental income without deductions). Short-term vacation rentals through platforms like Airbnb face the same taxation, with additional VAT requirements for rentals under 30 days.

Property owners can deduct mortgage interest, property taxes, maintenance, management fees, depreciation, and insurance under the standard regime. The simplified 15% regime often proves more favorable for properties with limited expenses or when seeking simplicity in compliance.

5. Ganancias de Capital (Capital Gains)

Capital gains on Costa Rican assets face a flat 15% tax rate. This includes gains from selling Costa Rican real estate (with no primary residence exemption), stocks in Costa Rican companies, and Costa Rican business assets. The tax applies to net gains after deducting acquisition costs and improvements.

Foreign capital gains remain untaxed in Costa Rica. Americans selling U.S. real estate, stocks, or other foreign assets while residing in Costa Rica face no local tax obligations on these gains, though U.S. tax obligations continue. This creates planning opportunities for timing asset sales after establishing Costa Rican residence.

6. Pensiones y Jubilaciones (Pensions and Retirement Income)

Foreign pensions and retirement income are not taxable in Costa Rica under the territorial system. This includes U.S. Social Security benefits, 401(k) distributions, IRA withdrawals, private pensions, and annuities. Costa Rican pensions from the CCSS or local employers are taxable following standard progressive rates.

This complete exemption for foreign retirement income makes Costa Rica exceptionally attractive for U.S. retirees, as they can live tax-free locally while managing only their U.S. tax obligations. Combined with the lower cost of living and quality healthcare system, this creates significant financial advantages for retirees.

Special Considerations for Digital Nomads and Remote Workers

Costa Rica's territorial tax system creates unique opportunities for digital nomads and remote workers. Since foreign-source income isn't taxed, Americans working remotely for U.S. companies or international clients can live in Costa Rica without local tax obligations, provided they structure their affairs correctly.

The Digital Nomad Visa

Costa Rica launched its Digital Nomad Visa (Rentista Digital) in 2022, requiring proof of $3,000 monthly income from a foreign source or $60,000 in savings. The visa grants one-year residence (renewable for an additional year) and allows visa holders to open bank accounts and obtain a driver's license. Importantly, it explicitly confirms that foreign-source income remains untaxed, providing legal certainty for remote workers.

Tax Planning for Remote Workers

Remote workers must carefully structure their arrangements to avoid creating Costa Rican source income. Key considerations include: ensuring employment contracts specify work for foreign entities, avoiding service to Costa Rican clients or customers, maintaining clear documentation of foreign-source income, and not creating permanent establishment for foreign employers through local activities.

While Costa Rica doesn't tax foreign employment income, U.S. citizens must still report worldwide income to the IRS. The Foreign Earned Income Exclusion can eliminate U.S. tax on up to $126,500 (2024) of earned income for qualifying expats, making the combined tax burden potentially zero for moderate earners.

Banking and Financial Services

Digital nomads and remote workers can access Costa Rica's banking system with proper residence documentation. Major banks include Banco Nacional, Banco de Costa Rica, and private banks like BAC San José and Scotiabank. U.S. dollar accounts are widely available, simplifying financial management for Americans. However, FATCA reporting requirements mean banks report U.S. citizen accounts to the IRS, requiring careful FBAR and Form 8938 compliance.

Costa Rican Visa Options and Their Tax Implications

Costa Rica offers various visa categories for American citizens, each with distinct requirements, benefits, and tax implications. Understanding these options is crucial for optimizing your tax position while ensuring legal residence status.

Pensionado (Retiree) Visa

The Pensionado visa is designed for retirees with guaranteed lifetime income of at least $1,000 monthly from a pension or retirement source. This includes Social Security, government pensions, private pensions, or combination thereof. The visa requires proof of income through official documentation apostilled in the U.S., and grants temporary residence for two years, renewable indefinitely. After three years, holders can apply for permanent residence.

Tax implications are highly favorable: pension income from foreign sources remains completely untaxed in Costa Rica under the territorial system. U.S. Social Security and pension income face only U.S. taxation, with potential partial taxation depending on total income levels. This creates an extremely tax-efficient retirement scenario, especially for those with moderate pension income that falls below or partially within U.S. standard deductions and lower tax brackets.

Rentista (Fixed Income) Visa

The Rentista visa suits individuals with guaranteed monthly income of $2,500 from investments, rentals, or other stable sources for at least two years, or proof of $60,000 in a Costa Rican bank. This visa appeals to younger retirees, investors living on portfolio income, and those with rental property income. Like the Pensionado, it provides two-year temporary residence, renewable indefinitely, with permanent residence eligibility after three years.

Foreign investment and rental income remains untaxed in Costa Rica, creating significant tax advantages. U.S. citizens must still report and pay U.S. tax on worldwide investment income, but the absence of Costa Rican tax eliminates double taxation concerns. The higher income requirement compared to Pensionado reflects that applicants typically haven't reached traditional retirement age.

Inversionista (Investor) Visa

The Investor visa requires a minimum $150,000 investment in Costa Rican business, real estate, or approved projects. Investments must be registered and maintained, with options including purchasing commercial or residential real estate, starting or purchasing a Costa Rican business, or investing in approved forestry or tourism projects. This visa provides immediate temporary residence with faster path to permanent residence.

Investment structure significantly impacts taxation. Rental income from Costa Rican properties faces local taxation (15% simplified or progressive rates with deductions), while business income is taxed at corporate rates (10-30%). However, foreign-source income remains untaxed, allowing investors to maintain U.S. investment portfolios tax-free locally. Capital gains on eventual sale of Costa Rican investments face 15% local tax.

Digital Nomad Visa

Launched in 2022, the Digital Nomad visa requires proof of $3,000 monthly income from foreign sources or $60,000 in savings. Applicants must work remotely for non-Costa Rican companies and maintain health insurance. The visa provides one-year residence, renewable once, with family inclusion options. It offers legal clarity for remote workers and access to banking and services.

Tax treatment is exceptionally favorable: foreign employment income remains completely untaxed in Costa Rica. Remote workers for U.S. companies face only U.S. taxation, with potential Foreign Earned Income Exclusion up to $126,500 (2024). This can result in zero or minimal total tax burden for moderate earners. The visa explicitly confirms territorial taxation applies, providing certainty for tax planning.

Residencia Temporal (Work Visa)

Work visas require Costa Rican employer sponsorship and labor ministry approval. The process involves employer filing work permit applications, proof of specialized skills or labor shortage, and standard immigration documentation. These visas tie residence to specific employment and provide temporary residence renewable with continued employment.

Employment with Costa Rican companies triggers local taxation at progressive rates (0-25%) with automatic withholding. Social security contributions (10.67% employee) are mandatory but may be credited under the U.S.-Costa Rica totalization agreement. U.S. citizens can claim Foreign Earned Income Exclusion or Foreign Tax Credits to minimize double taxation. The combination typically results in moderate total tax burden.

Costa Rica's Digital Nomad Visa: Rates and Benefits

Costa Rica's Digital Nomad Visa program addresses the growing remote work trend, offering legal residence for location-independent professionals while maintaining the country's favorable territorial tax treatment.

Eligibility Requirements

The Digital Nomad Visa requires proof of stable monthly income of $3,000 from foreign sources or $60,000 in bank deposits. Applicants must demonstrate remote employment with non-Costa Rican companies or self-employment serving foreign clients. Comprehensive health insurance covering Costa Rica is mandatory, and applicants must provide criminal background checks from recent residence countries. Family members (spouse and children) can be included with additional income requirements ($1,000 per dependent).

Tax Treatment and Benefits

Digital nomads enjoy Costa Rica's territorial tax system, meaning zero taxation on foreign-source income. This includes remote employment income, foreign consulting fees, international client payments, and investment income from abroad. No tax filing requirements exist in Costa Rica for income exclusively from foreign sources, dramatically simplifying compliance.

For U.S. tax purposes, digital nomads can potentially qualify for the Foreign Earned Income Exclusion after establishing tax home in Costa Rica. This requires either 330 days outside the U.S. (Physical Presence Test) or bona fide residence establishment. The combination of Costa Rica's territorial system and U.S. FEIE can result in zero total tax burden for earnings under $126,500 (2024).

Practical Considerations

Banking access improves significantly with visa status versus tourist stays. Major banks accept digital nomad visa holders, though account opening requirements vary. U.S. dollar accounts are widely available, eliminating currency conversion concerns for many transactions. However, FATCA compliance means banks report accounts to IRS, requiring proper FBAR and Form 8938 filing.

Healthcare options include private insurance (required for visa) or optional CCSS enrollment after establishing residence. Private healthcare in Costa Rica offers excellent quality at fraction of U.S. costs. Many digital nomads maintain international health insurance for broader coverage. The visa doesn't provide work rights for Costa Rican employment, maintaining clear separation between local and remote work.

A Practical Filing Guide for U.S. Expats in Costa Rica

Successfully managing your tax obligations as a U.S. expat in Costa Rica requires understanding both systems, though Costa Rica's territorial taxation significantly simplifies the process for most Americans. This comprehensive guide walks through the practical steps for maintaining compliance.

Step 1: Determine Your Tax Obligations

Your tax obligations depend on your income sources and residence status. For Costa Rica, you're only taxed on Costa Rican-source income regardless of residence status. This means most U.S. expats with foreign pensions, investments, or remote work income have no Costa Rican tax filing requirements. You only need to file in Costa Rica if you have local employment income, Costa Rican rental property, local business operations, or Costa Rican investment income.

For U.S. taxes, all citizens must file regardless of where they live or earn income. Your worldwide income remains taxable, though various exclusions and credits may apply. The Foreign Earned Income Exclusion requires either 330 days outside the U.S. (Physical Presence Test) or bona fide residence in Costa Rica. Tax home must be in Costa Rica, and earned income must be from foreign sources (which can include U.S. companies if working abroad).

Step 2: Gather Required Documentation

Comprehensive documentation ensures accurate reporting and supports tax positions. Essential documents include:

Income Documentation: W-2s or 1099s from U.S. employers or clients, Costa Rican employment payment records if applicable, bank statements showing investment income, pension and Social Security statements, rental income records for any properties, and business income and expense records. Maintain records in both currencies where applicable, documenting exchange rates used.

Deduction Support: Health insurance premiums (especially if self-employed), mortgage interest statements for U.S. properties, charitable contribution receipts, business expense receipts and documentation, and moving expense records (if military). Costa Rica requires facturas (official invoices) for any local business deductions.

Foreign Account Information: Year-end balances for all Costa Rican bank accounts, investment account statements, maximum values during the year for FBAR reporting, and documentation of any foreign business interests. This information is crucial for FBAR and Form 8938 compliance.

Step 3: Complete Costa Rican Tax Filings (If Required)

Most U.S. expats have no Costa Rican filing requirements due to territorial taxation. However, if you have Costa Rican-source income, requirements vary by income type.

For employment income, taxes are withheld at source by employers. Annual filing (Form D-101) is required only if you have multiple income sources or seek refunds. The deadline is December 15 following the September 30 fiscal year-end.

Rental property owners must file quarterly advance payments and annual returns. Choose between standard regime (deduct actual expenses) or simplified regime (15% on gross). File Form D-101 by December 15 with quarterly payments via Form D-106.

Business income requires monthly sales tax filings if registered for VAT, quarterly income tax advances based on prior year's tax, and annual income tax return (D-101) by December 15. Small businesses may qualify for simplified regimes with reduced requirements.

Step 4: Complete U.S. Tax Filings

U.S. expat tax returns require additional forms beyond standard domestic filings. Essential forms include:

Form 1040: Report worldwide income converted to dollars using IRS-approved exchange rates. Most expats use yearly average rate for wage income and spot rates for specific transactions. Include all income, even if tax-free in Costa Rica under territorial system.

Form 2555 (Foreign Earned Income Exclusion): Exclude up to $126,500 (2024) of foreign earned income. Demonstrate qualification through Physical Presence Test (330 days outside U.S.) or Bona Fide Residence Test. Include housing exclusion for qualifying expenses exceeding base amount. Cannot be used for passive income like pensions or investments.

Form 1116 (Foreign Tax Credit): Claim credits for any Costa Rican taxes paid (likely minimal for most expats). Separate calculations for passive and general category income. Excess credits carry back one year and forward ten years. May be more valuable than FEIE for those with Costa Rican-source income.

Form 8938 (FATCA Reporting): Required if foreign assets exceed $200,000 (year-end) or $300,000 (any time) for single filers. Thresholds double for joint filers. Include Costa Rican bank accounts, real estate, and business interests. Substantial penalties for non-compliance make accurate reporting essential.

FBAR (FinCEN Form 114): Report all foreign accounts exceeding $10,000 aggregate value at any point. File electronically by April 15 with automatic extension to October 15. Include all Costa Rican financial accounts regardless of income generation. Penalties for non-filing can be severe.

Step 5: Optimize Tax Strategies

Strategic planning throughout the year optimizes your tax position:

Frequently Asked Questions for U.S. Expats in Costa Rica

Q: Does Costa Rica tax U.S. Social Security benefits?

No, Costa Rica does not tax U.S. Social Security benefits or any other foreign pension income under its territorial tax system. Social Security benefits are considered foreign-source income and remain completely tax-free in Costa Rica. However, U.S. citizens must still report Social Security benefits on their U.S. tax return, where up to 85% may be taxable depending on total income levels. This makes Costa Rica particularly attractive for retirees, as they face no local tax on retirement income while potentially minimizing U.S. tax through standard deductions and lower tax brackets.

Q: Can I contribute to U.S. retirement accounts while living in Costa Rica?

Yes, but with important limitations. To contribute to traditional or Roth IRAs, you need earned income that's not excluded by the Foreign Earned Income Exclusion. If you exclude all your foreign earned income using Form 2555, you have no "compensation" eligible for IRA contributions. Solutions include: taking only partial FEIE to leave some taxable earned income, using Foreign Tax Credits instead of FEIE, or contributing to accounts before excluding income. Self-employed expats can consider SEP-IRAs or Solo 401(k)s with the same earned income requirements. Many expats strategically limit their FEIE claim to preserve retirement account contribution eligibility.

Q: What happens to my U.S. state tax obligations when I move to Costa Rica?

State tax obligations depend on your former state and steps taken to establish non-residence. Some states aggressively pursue former residents, while others readily recognize foreign moves. California, New York, New Jersey, and Virginia are known for challenging residence changes. Key steps include: changing voter registration to federal-only or Costa Rica address, surrendering state driver's license and vehicle registrations, closing state bank accounts and canceling professional licenses, filing final part-year or non-resident state returns, and documenting Costa Rica residence (lease, utilities, visa). States with no income tax (Florida, Texas, Nevada, Washington, Wyoming, South Dakota, Alaska) make attractive "home bases" for maintaining U.S. ties without state tax burden.

Q: How are Costa Rican real estate investments taxed for U.S. expats?

Costa Rican real estate faces both local and U.S. tax considerations. In Costa Rica, rental income can be taxed under standard regime (progressive rates with expense deductions) or simplified regime (15% on gross). Property tax is only 0.25% of registered value (usually below market value). Capital gains on sale face 15% Costa Rican tax with no primary residence exemption. For U.S. taxes, report rental income on Schedule E with depreciation over 27.5 years. Capital gains are taxable with potential $250,000/$500,000 primary residence exclusion if qualified. Foreign tax credits apply for Costa Rican taxes paid. Many investors hold property through Costa Rican corporations (S.A.s) for liability protection, though this adds complexity to U.S. reporting.

Q: Should I choose the Foreign Earned Income Exclusion or Foreign Tax Credit?

For most expats in Costa Rica, the Foreign Earned Income Exclusion (FEIE) provides greater benefit due to Costa Rica's territorial tax system. Since you likely pay little or no Costa Rican tax on foreign-source income, there are minimal foreign taxes to credit. FEIE can exclude up to $126,500 (2024) of earned income from U.S. taxation. However, Foreign Tax Credits may be preferable if you have significant Costa Rican-source income (employment, business, or rental), want to maintain U.S. retirement account contributions, have income exceeding FEIE limits, or need to preserve U.S. tax benefits like Child Tax Credit. Many expats use both strategies: FEIE for foreign earned income and FTC for any Costa Rican taxes on local income.

Q: Do I need to report my Costa Rican bank accounts to the U.S.?

Yes, U.S. citizens must report foreign financial accounts exceeding certain thresholds. FBAR (FinCEN Form 114) is required if aggregate foreign accounts exceed $10,000 at any point during the year. This includes all Costa Rican bank accounts, investment accounts, and any accounts where you have signature authority. Form 8938 is required if foreign financial assets exceed $200,000 at year-end or $300,000 at any time (doubled for joint filers). This broader form includes bank accounts plus real estate held through entities, foreign stocks, and business interests. Penalties for non-compliance are severe: FBAR penalties start at $12,921 per account for non-willful violations, while Form 8938 penalties begin at $10,000. Costa Rican banks report U.S. citizen accounts to the IRS under FATCA, making compliance essential.

Q: How does the U.S.-Costa Rica totalization agreement affect Social Security?

The totalization agreement, effective January 1, 1991, prevents double Social Security taxation and helps qualify for benefits. If you work temporarily in Costa Rica (generally under 5 years), you remain in the U.S. Social Security system only. For longer assignments or local employment, you enter the Costa Rican CCSS system. Self-employed individuals generally remain in their country of residence's system. The agreement allows combining credits from both countries to qualify for benefits - particularly helpful if you don't have enough quarters in either system alone. For U.S. Social Security, you need 40 quarters (10 years) of coverage; Costa Rica requires 300 quotes (25 years) for full pension. Benefits are calculated and paid separately by each country based on their respective credits.

Q: Can I use the Costa Rican healthcare system, and how does it affect my taxes?

Legal residents can join the Caja Costarricense de Seguro Social (CCSS), Costa Rica's universal healthcare system. Monthly costs are income-based: employees contribute 10.67% of wages (automatic withholding), retirees pay about 7-11% of declared pension income, and self-employed/voluntary members pay based on declared income. These contributions are not tax-deductible in Costa Rica but may qualify as self-employed health insurance deductions on U.S. returns. Private health insurance, widely available and affordable, isn't tax-deductible locally but may be deductible on U.S. returns if self-employed. The U.S. individual mandate exemption applies to expats with foreign coverage or spending 330+ days abroad. Many expats use combination of CCSS for routine care and private insurance for faster service or specialized treatment.

Q: What are the tax implications of running an online business from Costa Rica?

Operating an online business serving foreign clients from Costa Rica can be highly tax-efficient. If all clients are outside Costa Rica and no local business presence exists, income may qualify as foreign-source and remain untaxed locally. However, careful structuring is essential: maintain contracts with foreign entities, receive payments to foreign accounts initially, avoid creating permanent establishment, and document foreign-source nature of income. For U.S. taxes, business income remains fully taxable regardless of where earned. Self-employment tax (15.3%) applies to net earnings. Foreign Earned Income Exclusion can eliminate income tax on up to $126,500 (2024) but doesn't affect self-employment tax. Consider forming U.S. LLC for liability protection and simplified reporting, or foreign corporation for potential tax deferral (complex rules apply). Many digital entrepreneurs find Costa Rica's combination of territorial taxation, low cost of living, and quality infrastructure ideal for online businesses.

Q: How do I handle my U.S. investment accounts while living in Costa Rica?

U.S. investment accounts can generally be maintained while living in Costa Rica, though some restrictions apply. Many brokerages restrict services for foreign addresses due to regulatory concerns. Solutions include maintaining a U.S. mailing address (family, mail service), using brokerages that explicitly serve expats (Charles Schwab International, Interactive Brokers), or consolidating accounts before moving. Investment income remains tax-free in Costa Rica (foreign source) but fully taxable in the U.S. Capital gains, dividends, and interest face normal U.S. tax rates. Foreign Tax Credit won't help since Costa Rica doesn't tax this income. Consider tax-efficient investments like index funds over actively managed funds, municipal bonds (though state tax exemption may be lost), and tax-loss harvesting strategies. Some expats establish Puerto Rico residence (Act 60) for potential investment tax benefits while maintaining Costa Rica lifestyle.

Why Choose American Expat CPA as Your Tax Partner

Navigating U.S. tax obligations while enjoying Costa Rica's territorial tax benefits requires specialized expertise that goes beyond traditional tax preparation. At American Expat CPA, we've built our practice specifically around the unique opportunities and challenges faced by U.S. citizens living in Costa Rica and throughout Latin America.

Our Specialized Expertise

Our team combines deep U.S. tax knowledge with thorough understanding of Costa Rica's territorial system and how to optimize the interaction between them. We stay current with both U.S. tax reforms and Costa Rican regulatory changes, including immigration law updates that affect tax status. Our professionals understand the specific documentation required by both countries and maintain relationships with trusted Costa Rican accountants for the minority of clients who need local tax assistance.

We recognize that every expat situation is unique. Whether you're a retiree living on Social Security and investments, a digital nomad working for U.S. clients, a real estate investor with rental properties, or an entrepreneur running an international business, we develop customized strategies that maximize Costa Rica's territorial benefits while ensuring U.S. compliance. Our approach goes beyond compliance – we proactively identify opportunities to legally minimize your global tax burden.

Comprehensive Service Offering

Technology-Enabled Global Service

We've built our practice for the digital age, serving clients throughout Costa Rica and worldwide through secure, cloud-based systems. Our portal provides 24/7 access to your tax documents, secure messaging with your tax team, and digital signature capabilities. We conduct video consultations accommodating Central Time Zone schedules, ensuring convenient access to expert advice whether you're in San José, Guanacaste, or the Caribbean coast.

Transparent, Value-Based Pricing

We believe in transparent pricing with no surprise bills. Our comprehensive expat tax packages include all necessary forms and schedules, with clear pricing for additional services. Most importantly, our fee structure delivers value – the tax savings we identify typically far exceed our professional fees. For Costa Rica expats with straightforward situations (foreign pensions and investments only), our streamlined service options provide cost-effective compliance.

Your Success is Our Mission

Living in Costa Rica as a U.S. expat should be about enjoying the incredible biodiversity, perfect climate, and "Pura Vida" lifestyle – not stressing about tax compliance. We handle the complexity of U.S. taxation while helping you maximize Costa Rica's territorial tax benefits. Our clients consistently save thousands in taxes while gaining peace of mind that their obligations are properly managed.

Whether you're planning your move to Costa Rica, already established as a resident, or anywhere in between, American Expat CPA provides the expertise and support you need. We understand the expat journey because we specialize exclusively in international tax matters for U.S. citizens abroad.

Don't let tax complexity interfere with your Costa Rican dream. Contact American Expat CPA today and discover how our specialized expertise can optimize your tax situation, ensure compliance, and maximize the financial benefits of Costa Rica's territorial tax system. Your "Pura Vida" lifestyle deserves expert tax support – let us be your trusted partner in navigating U.S. tax obligations while living tax-free in paradise.