The Tax Authority issued a private letter ruling (No. MH-DGT-OF-0460—2023) on 23 August addressing a consultation submitted by the Director of Revenue and the Director of Taxpayer Services, both from the General Directorate of Taxation, requesting guidance on the tax treatment of cryptocurrencies and crypto assets.

Key points

In summary, the private letter ruling states that cryptocurrencies, not being authorized as legal tender by the Central Bank of Costa Rica, should be viewed as virtual assets (intangible assets). These virtual assets are subject to the Corporate Income Tax (CIT) or the Tax on Capital Income and Capital Gains, depending on the activity carried out by the taxpayer or the transactions performed.

The ruling clarifies that the collection of fees for transactions or activities related to the organization, verification or exchange of virtual assets are subject to CIT and Value Added Tax (VAT).

Furthermore, it points out that returns on investments in crypto assets or cryptocurrencies are subject to Tax on Capital Income and Capital Gains, as applicable, unless the asset is linked to a business activity, in which case it will be taxed under the CIT.

Related or administrative services (wallet providers, miners, exchanges, among others)

The private letter ruling states that individuals or legal entities, resident in Costa Rica or nondomiciled, that (i) provide services to safeguard private cryptographic keys on behalf of third parties, (ii) maintain, store, and transfer virtual assets, (iii) exchange virtual assets for legal tender or between different virtual assets, or (iv) assist in carrying out these operations are obligated to fulfill all formal and material tax duties according to their activity.

According to the private letter ruling, if the service provider is a resident in Costa Rica, the income from providing the services is considered subject to the CIT, as it corresponds to the development of business activity (Costa Rican source).

On the other hand, if the service provider is a nonresident, providing services to a resident, and the service has a direct effect within the national territory, the withholding tax for remittances abroad applies.

Regarding the VAT, the private letter ruling considers that the provision of these services (including the sale or acquisition of virtual assets) is subject to VAT in accordance with the provisions of the VAT Law.

Investors

According to the private letter ruling, an investor is an individual or legal entity who acquires a virtual asset that becomes part of their assets and can be used in various ways, such as buying goods or services, real or virtual, making personal transfers to others, or held as a personal investment.

The private letter ruling states that potential returns from a virtual asset, as well as income originating from the acquisition or sale of a virtual asset, affect the value of taxpayers' assets and consequently constitute the taxable event for Tax on Capital Income and Capital Gains, unless the asset is linked to business activity, in which case it must be taxed under the CIT.

Scope of the private letter rulings under Article 119 of the Tax Code

According to Article 119 of the Tax Code, private letter rulings issued by the Tax Authority to consultations submitted, are only for informational purposes.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young, Costa Rica

• Rafael Sayagues | rafael.sayagues@cr.ey.com
• Randall Oquendo | randall.oquendo@cr.ey.com
• Daniel Quesada | daniel.quesada@cr.ey.com

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor