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February 2, 2023

Costa Rican Tax Authority publishes Institutional Criterion regarding tax treatment of foreign exchange in financial investment instruments

  • The Costa Rican Tax Authority has issued guidance on the tax treatment of foreign exchange gain or loss in financial investment instruments under the Capital Gains Tax.

  • This Alert summarizes the key provisions under the Institutional Criterion (guidance) and the scope of its authority.

The Costa Rican Tax Authority issued Institutional Criterion N° DGT-CI-001-2022, regarding the tax treatment of the foreign exchange gain or loss in financial investment instruments under the Capital Gains Tax. The Institutional Criterion was issued on 21 November 2022 and recently published on the Ministry of Finance website.

Tax treatment applicable under the Capital Gains Tax regarding financial investment instruments

In general terms, the Institutional Criterion clarifies that in the event of a return of capital resulting from an investment made in foreign currency, there is no taxable or deductible exchange rate differential with respect to the tax on capital gains, until there is an effective exchange of foreign currency to national currency.

This assumption includes the following situations: (i) if the return is given at the time of the expiration of the investment; (ii) if there is a renewal of the investment in foreign currency; and (iii) in cases where the investor does not develop an economic activity and is not obliged to keep accounting records.

Likewise, the Institutional Criterion clarifies that for point (i) above, there is an obligation to record the transaction under the accounting regulations with the requirement to apply, for valuation purposes, the currency exchange gain or loss at the reference exchange rate for sale established by the Costa Rican Central Bank.

In cases where there is an effective exchange of currency, the quantification of the exchange rate differential must consider the exchange rate for the sale established by the Costa Rican Central Bank for foreign currency, applied at the time of acquiring the investment, compared with the exchange rate of reference for the sale applied at the time of converting the currency to Costa Rican colons.

This tax treatment is applicable only to the Capital Gains Tax and not to the Corporate Income Tax.

In addition, the Institutional Criterion clarifies that for purposes of the Tax on Income from Movable Capital, when the returns (i.e., interests) obtained as a result of an investment made in foreign currency are canceled or made available to the investor, there is no profit of loss resulting from the exchange rate, since the account record would be made at the same time.

Sale of financial instruments

The Institutional Criterion clarifies that in the case of sales or disposal of the investment, the possible gain or loss, as well as the foreign exchange differential, is levied with the Capital Gains Tax. Such capital gain must be converted to Costa Rican colons at the sale exchange rate of the Costa Rican Central Bank applicable to the date on which the gain is generated.

Scope of the Institutional Criterion regarding other criteria previously issued

The Institutional Criterion establishes that, given the possibility of modifying criteria previously issued by the Tax Authority in private letter rulings, such criteria are considered modified as from the entry into force of the Institutional Criterion, insofar as its scope has been specified for the Capital Gains Tax.

Repeals and entry into force

The Institutional Criterion repeals any previous criteria that opposes and covers what is established therein and entered into force from the day after its publication on the website of the Ministry of Finance (in this case, the date is not specified on such website).

Clarification on the scope of the Institutional Criterion by the General Directorate of Taxation

Article 99 of the Tax Code authorizes the Tax Authority to issue general regulations for the purposes of the correct application of tax laws. The institutional criteria are mandatory for the Tax Authority in the issuance of all administrative acts and any act that is contrary to an institutional criterion issued will be considered null.


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

Ernst & Young, S.A., San José, Costa Rica

Ernst & Young LLP (United States), Latin American Business Center, New York

Ernst & Young LLP (United Kingdom), Latin American Business Center, London

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific


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