Tax Residence Certificate in Costa Rica | An Analysis

María Elena Mora, associate in Costa Rica expert in Tax Law, shares this article on applying for the issuance of a Tax Residence Certificate before the Tax Administration, its requirements, benefits under treaties to avoid double taxation, and practical considerations to ensure legal certainty in international operations.

The Tax Residence Certificate (hereinafter "TRC”) is a document issued by the Tax Administration that officially certifies the condition of tax residency, enabling taxpayers to access the benefits established under international treaties and to comply with requests from foreign tax authorities.

Beyond its formal function, the determination of tax residency, the TRC provides certainty and legal security in dealings with other jurisdictions, serving as the appropriate instrument to ensure that the provisions recognized both under national legislation and international treaties are effectively applicable.

The following sections will analyze the nature of the TRC, the requirements for its issuance, and the relevance of double taxation treaties, with the purpose of providing a clear and practical guide for its proper management.

What is a Tax Residence Certificate (TRC)?

The TRC is a document issued by the Tax Administration certifying that an individual or legal entity is considered a tax resident in Costa Rica for tax purposes during the specified fiscal period.

In this regard, pursuant to Resolution DGT-R-065-2018, the determination of whether a person qualifies as a tax resident in Costa Rica for the issuance of a TRC depends on Article 5 of Executive Decree Number 43198, known as the Regulations to the Income Tax Law, which establishes, in general terms, the following:

• Individuals who (i) remain in the national territory, continuously or intermittently, for a period exceeding 183 days during the fiscal year, according to the computation regulated by the Tax Administration, or (ii) hold official positions abroad remunerated by the Costa Rican State, its public entities, or municipalities.
• Legal entities incorporated under Costa Rican law, as well as de facto companies.
• Branches, agencies, and other establishments in Costa Rica belonging to non-domiciled persons.
• Trusts or fiduciary arrangements established under Costa Rican law.
• Estates, regardless of the nationality or domicile of the deceased.
• Sole proprietorships with limited liability, as well as other sole proprietorships conducting business activities in Costa Rica.

The main purpose of obtaining the TRC is to certify the status of tax residency during a specific period, allowing taxpayers to:

• Apply treaties to avoid double taxation or other international agreements signed by Costa Rica.
• Comply with requirements established under the domestic legislation of other states.
• Respond to requests from foreign tax administrations.

The TRC provides multiple benefits to taxpayers, including:

• Legal certainty: It allows the official demonstration of tax residency in Costa Rica, avoiding divergent interpretations by foreign tax authorities.
• Application of international treaties: It facilitates the application of benefits under treaties to avoid double taxation, including the reduction of taxes on income subject to taxation in more than one country.
• Facilitation of tax procedures and requirements: It serves as supporting documentation for financial institutions and foreign tax authorities.

What are the main requirements to request the issuance of a Tax Residence Certificate in Costa Rica?

Applicants seeking a TRC must meet the following requirements:

a. Registration with the Tax Administration:

The applicant must be registered as a taxpayer for the Corporate Income Tax, Income and Capital Gains Tax, or as a withholding agent of the Single Tax on income from dependent personal work, retirement, or pension (i.e., Salary Tax), or for the Capital Income, Gains, and Losses Tax.

Additionally, the applicant must be current with their tax obligations, a condition that will be verified by the Tax Administration during the analysis of the application.
In the case of individuals, they must demonstrate residence in the country, continuously or discontinuously, for more than 183 days within the fiscal period for which residency is being certified.

b. Compliance with Tax Obligations:

The applicant must be up to date with their tax obligations. This requirement will be reviewed by the Tax Administration during the evaluation of the application.

c. Supporting documentation for the application

The applicant must submit the current form called "Application for Tax Residence Certificate,” available on the Tax Administration website. This form must be signed by the applicant or, in the case of legal entities, by the Legal Representative or an Attorney-in-Fact with sufficient authority.

Additionally, certain formal requirements must be met:

• Application of the Salary Tax: Individuals subject to Salary Tax withholding, who request the TRC for purposes of treaties to avoid double taxation, must submit the withholding certificates issued by the withholding agent.
• Foreign Legislation and Requirements from Tax Authorities: When the application is based on provisions of foreign legislation or requirements from a foreign tax administration, the applicant must attach a certified copy of the relevant normative or administrative provisions, including their title and identifying elements proving their validity, as well as an official translation into Spanish.
• Application Based on Treaties to Avoid Double Taxation: If the application is submitted to apply an active treaty to avoid double taxation signed by Costa Rica, the applicant must demonstrate that they have effectively been subject to taxation in the foreign jurisdiction. Otherwise, the Tax Administration will certify only the status of tax resident, without extending the document for the purpose of applying benefits derived from a treaty.

It is important to note that, during the analysis of the application, the Tax Administration may request justification from the applicant regarding the purposes for which the TRC is requested.

The application must be submitted through the authorized electronic platforms and comply with all formal requirements.

According to Article 102 of the Code of Tax Norms and Procedures ("CNPT” by its initials in Spanish), this process has the nature of a petition, so the resolution period is two months from its submission, which may be extended depending on workload and the volume of applications in process.

In conclusion, obtaining a TRC in Costa Rica requires demonstrating both the material condition of tax residency and the formal and documentary requirements before the Tax Administration. As it is an administrative request, verification of the submitted information and the resolution period may vary depending on the operational capacity of the Administration.

How is the 183-day rule applied to determine Tax Residence and issue the TRC for individuals?

A key criterion for determining the tax residency of an individual in Costa Rica consists of verifying that the person has remained in the national territory, continuously or intermittently, for a period exceeding 183 days within the relevant fiscal year.

For this calculation, the Tax Administration has established that both entry and exit days from the country during the specific fiscal period are counted.

Additionally, the called "sporadic departures” are considered, understood as brief and occasional absences for work, business, health, or other reasons, which do not exceed 30 calendar days.

Accordingly, any departure from the country exceeding this period will not be counted toward the 183 days required to determine tax residency.

Furthermore, for the purpose of calculating this period, it is important to consider a criterion applied when requests involve Income Tax certificates with a monthly fiscal period (e.g., Salary Tax).

In these cases, the period will be counted as follows:

• Requests for previous years: The verification of the individual’s presence will be carried out over a 12-month period of the requested year.
• Requests for the current year: The individual’s presence will be verified during the months elapsed, that is, from January of the current year until the date of submission of the request. This period must exceed 183 days.

The Tax Administration will carry out the verification of this period based on the information regarding migratory movements provided by the General Directorate of Migration and Foreigners.

What are the main uses of the TRC?

According to national regulations, the TRC can be requested mainly for the following purposes:

• Application of international treaties signed by Costa Rica that are in force.
• Compliance with requirements from foreign tax authorities requesting proof of tax residency.
• Application of double taxation treaties in force.

Which Double Taxation Treaties are currently signed by Costa Rica applicable to the TRC?

Currently, Costa Rica has signed double taxation treaties with the following jurisdictions:

• Spain: Through Law No. 8888, entitled "Agreement with the Kingdom of Spain to Avoid Double Taxation and Prevent Tax Evasion on Income and Property,” signed on March 4, 2004, entering into force on January 1, 2011.
• Germany: Through Law No. 9345, entitled "Agreement with the Federal Republic of Germany to Avoid Double Taxation on Income and Property,” signed on February 13, 2014, which entered into force on August 10, 2016.
• Mexico: Through Law No. 9644, entitled "Agreement with the United Mexican States to Avoid Double Taxation and Prevent Tax Evasion on Income,” signed on April 12, 2014, entering into force on April 21, 2019.
• United Arab Emirates: Through Law No. 9963, entitled "Agreement with the Government of the United Arab Emirates for the Elimination of Double Taxation on Income and Capital Gains and Prevention of Tax Evasion and Avoidance, and its Protocol,” signed on October 3, 2017, entering into force on June 9, 2021.

In this way, taxpayers can request a TRC in Costa Rica when they can demonstrate that they have operations that have also been taxed in these jurisdictions.

What is the purpose of a Treaty to Avoid Double Taxation?

The treaties aim to prevent the same income from being taxed by more than one country, ensuring that taxpayers do not incur double taxation. Additionally, they promote cooperation between tax administrations, facilitating information exchange and the application of tax regulations.

What is the importance of these treaties for the TRC application?

Mentioning the treaties is essential, as the TRC allows individuals and legal entities to access the benefits these agreements provide, avoiding double taxation.
Knowing the current treaties provides legal certainty and tax certainty, legally supports the application of their benefits abroad, and helps taxpayers identify if their situation is covered by an international agreement, ensuring proper compliance with tax regulations and optimizing tax planning in cross-border operations.

Are there special cases for requesting a TRC?

The Tax Administration has analyzed specific situations where doubts may arise regarding eligibility for a TRC. A relevant example concerns companies under the Free Trade Zone Regime (FTZR).

Through Official Letter No. MH-DGT-CONS-119-0008-2024, it was clarified that being part of this special regime does not prevent requesting a TRC, provided that the requirements in Resolution DGT-R-065-2018 are met.

However, when the request is made for the purpose of applying a double taxation treaty, it will be necessary to demonstrate that the taxpayer was effectively subject to taxation in the foreign jurisdiction. Otherwise, the TRC will only certify tax residency without entitling the taxpayer to treaty benefits.

This issue is particularly relevant for companies under the FTZR, as they enjoy exemptions or tax incentives during certain periods, which may prevent them from proving taxation in those years. Therefore, it is essential to conduct a prior analysis before filing the request to ensure compliance with the applicable requirements and conditions.

Practical Considerations and Recommendations

Based on the above, it is essential that applicants consider the following when requesting a TRC:

• Advance Planning: It is advisable to request the TRC well in advance to avoid delays in foreign withholding processes or in applying benefits under treaties to avoid double taxation.
• Verification of Requirements: Carefully review the material and formal requirements established in Resolution DGT-R-065-2018, as well as the supporting documentation requested by the foreign jurisdiction.
  This is particularly relevant for FTZR companies, which, given their exemptions or reduced ISU rates, must carefully assess whether they meet the condition of being effectively subject to taxation in Costa Rica during the corresponding fiscal period.
• Use of Electronic Platforms: The TRC request must be submitted exclusively through the official channels authorized by the Tax Administration, ensuring the use of updated forms and avoiding informal procedures that could delay the process.
• Specialized Consultancy: The practical application of international treaties and local regulations can present complex scenarios, especially for FTZR companies, where exemptions may limit the recognition of taxation required by certain treaties.

At ARIAS, we provide our clients with a team with extensive experience in managing these procedures and in the proper application of national and international tax regulations.

Our commitment is to offer comprehensive solutions that allow companies to structure cross-border operations efficiently, with legal certainty and full security before the Tax Administration and foreign authorities.

The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.