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December 19, 2023

Costa Rican Ministry of Finance and Tax Authority publish regulations for new foreign-source passive income regime

  • On 28 and 30 November 2023, the regulations to the Law No. 10,381 were published in the Official Gazette.
  • Law No. 10,381, which incorporate amendments to the Income Tax Law necessary to achieve Costa Rica's removal from the European Union's (EU's) list of non-cooperative jurisdictions in tax matters, had been published in the Official Gazette on 2 October 2023.
  • It is important for taxpayers to review the provisions of the regulations to determine their position regarding foreign-source passive income.

On 28 November 2023, Executive Decree No. 44262, amending the Income Tax Law Regulations to align them with the provisions contained in Law No. 10,381, was published in the Official Gazette.

Also, on 30 November 2023, Resolution No. MH-DGT-RES-0030–2023, which contains the objective criteria that the Tax Authority set out for assessing adequate economic substance of a qualified entity and its belonging to a multinational group, was published in the Official Gazette.

Both the Executive Decree and the Resolution regulate the dispositions contained in Law No. 10,381.


On 2 October 2023, the Official Gazette published Law No. 10,381, which incorporates amendments to the Income Tax Law necessary to achieve Costa Rica's removal from the European Union's (EU's) list of non-cooperative jurisdictions in tax matters.

For the purposes of this Tax Alert, it is important to recall that under the Law No. 10,381 (the Law), the following types of foreign-source passive income are taxable when obtained by an entity belonging to a multinational group that is also considered a non-qualified entity (without adequate economic substance):

  • Dividends
  • Interest
  • Royalties
  • Capital gains
  • Immovable-property capital income
  • Other income from movable capital

For the purposes of the Law, a "qualified entity" is a member of a multinational group and has adequate economic substance in Costa Rican territory during the fiscal period. Under the Law, an entity will be considering to have adequate economic substance when it meets all the following conditions regarding all foreign-source income received:

  • Employs human resources suitable in number, qualification and remuneration to manage investment assets and has adequate resources or infrastructure to develop this activity in the national territory
  • Makes the necessary strategic decisions and bears risks in the national territory
  • Incurs expenses and costs related to the acquisition, holding or disposal of assets

Law No. 10,381 required the Executive Branch to issue the respective regulations within a three-month period.

Executive Decree No. 44262-H

Executive Decree No. 44262-H amends the Income Tax Law Regulations to align them with the provisions of the Law No. 10,381.

The Executive Decree incorporates significant changes to the Income Tax Law Regulations, including by:

  • Amending Article 1, relating to definitions, to reflect changes incorporated through Law No. 10,381
  • Amending Article 8, concerning the definition of permanent establishment
  • Modifying provisions on tax matters of income from movable and immovable capital, as well as capital gains
  • Modifying the definitions of income from movable and immovable capital
  • Including provisions on qualified entities, appropriate valuation of economic substance and belonging to a multinational group
  • Incorporating provisions concerning the application of the specific anti-abuse clause incorporated in Article 2 quinquies of the Income Tax Law
  • Regulations on deductions of income tax on capital income and capital gains associated with foreign-source passive income

The Executive Decree came into effect upon its publication in the Official Gazette.

Resolution No. MH-DGT-RES-00302023

Resolution No. MH-DGT-RES-0030–2023 (the Resolution) contains criteria set by the Tax Authority to determine if an entity is qualified (belongs to a multinational group and has adequate economic substance regarding foreign-source passive income).

In relation to the assessment of the adequate economic substance for a qualified entity, with regard to human resources, the Resolution stipulates that there is adequate economic substance in relation to a foreign-source passive income if:

  • The taxpayer is registered as an employer with the Costa Rican Social Security Fund and employs at least one registered employee in a professional occupation related to the management their investment assets and income obtained from abroad.
  • The taxpayer has a space for conducting business (a shop, office, or business center of their own or rented) that is adequately furnished and equipped to perform the tasks associated with managing the income obtained from abroad.

These requirements may be handled directly by the taxpayer or by contracting with external service providers. If the taxpayer utilizes an external service provider, the service provider must satisfy these requirements and the amount that the taxpayer pays the service provider should not be less than 80% of the cost that would have been incurred had the taxpayer managed the services directly.

Furthermore, the Resolution establishes that an adequate economic substance is deemed to exist in relation to foreign-source passive income, with reference to the decision-making process, if:

  • The taxpayer has a Board of Directors or similar body for the administration and risk management of the social business. This body must meet at least twice a year in Costa Rica.
  • The taxpayer conducts an annual general meeting of shareholders at least once a year in Costa Rica.
  • The taxpayer's corporate governance policies have been approved by the Board of Directors or equivalent body, including the provisions referred to in Article 32 ter of the Commercial Code, related to corporate governance policies and the protection of minority shareholders.
  • The taxpayer has established their domicile within Costa Rica for all legal, tax, and business purposes.
  • The Board of Directors or equivalent body and the assembly of shareholders cannot be outsourced or subcontracted.

As for the assessment of adequate economic substance related to expenses and costs, the Resolution provides that an adequate economic substance for foreign-source passive income is considered if: The taxpayer procures goods and services within Costa Rica necessary for managing their investment assets, supported by electronic invoices and amounting no less than three base salaries.

The Resolution establishes that an entity is considered to belong to a multinational group if it complies with the provisions determined in Law No. 10,381, as well as with the generally applied accounting principles, within which the regulations in International Financial Reporting Standard (IFRS) 10, Consolidated Financial Statements, must be taken into consideration.

Additionally, for the purposes of accrediting their status as a qualified entity and the respective declaration and payment of taxes on foreign-source passive income, the Resolution provides that the taxpayer must use the forms that the Tax Authority will make available through a general resolution. These forms will be available on the Tax Authority virtual system (ATV).

In the meantime, the special cases form must be submitted to declare and pay the respective tax on foreign-source passive income.

The Resolution entered into force following its publication in the Official Gazette.


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

Ernst & Young, Costa Rica

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


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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