4 Tempting Tax Benefits To Retiring in Costa Rica

If you're looking forward to spending retirement in an exotic, tropical place, Costa Rica is right up your alley. The country seemingly has everything — including affordable healthcare, scenic sights, fair weather, and a large expat community.

Besides, Costa Rica is a great choice because of several tax benefits that may allow you to live a little more comfortably than you would if you retired in the U.S., which can help you enjoy the stress-free retirement of your dreams. Keep reading to find out what they are.

Costa Rica has a low real estate tax, which can make your dream of owning a home on the shoreline a reality. Coupled with lower housing prices, this .25% property tax translates to an average yearly property tax bill that has the potential to be a fraction of what you'd pay in America.

In addition to low real estate taxes, Costa Rica doesn't tax inheritance, which makes a good bet for seniors who want to avoid burdening their family with hefty taxes. One way to take advantage of this tax is to buy property in Costa Rica and leave it to your heirs.

Likewise, the country doesn't have a gift tax. As long as you don't receive a foreign income while you reside in Costa Rica, you can dispose of property through gifts without worrying about taxes.

Costa Rica doesn't consider Social Security, pensions, and investment revenue as "earned income," so your retirement benefits will not be subject to taxes if you retire in the country.

But beware, while Costa Rica doesn't tax your retirement income, living in-country for 183 days or more each year makes you a resident, which may cause you the headache of double taxation.

There are two tax breaks that some U.S. retirees may qualify for, which could potentially help you to avoid paying any taxes on your U.S. income. The first one is the Foreign Earned Income Exclusion. 

As of 2024, this tax break allows you to exclude up to $126,500 of your U.S. income from your tax burden when you retire to Costa Rica.

The second tax break, the Foreign Tax Credit, lets you claim foreign taxes on income. If you use it, you can avoid being double-taxed by Costa Rica and the U.S.

While retiring to Costa Rica could provide you with some tax breaks, there are other financial obligations you should keep in mind. For example, you'll have to pay into the Costa Rican Social Security Fund, which amounts to between 7-11% of your monthly income.

Costa Rica also taxes your monthly income if you earn extra money during retirement, and you'll be expected to pay a value-added tax when you shop. 

This 13% consumption tax is similar to the U.S. sales tax and applies to most products and services. Expect to pay it every time you make a purchase.

Retiring to Costa Rica is fairly straightforward. The country has several visa categories you may qualify for. However, the one that suits seniors best is Costa Rica's Pensionado visa.

Applying for a Pensionado visa is as easy as putting together proof of income — you'll need to show minimum earnings of $1,000 from Social Security or an IRA — your passport, and three passport photos.

It's clear that Costa Rica offers American retirees great tax benefits, but that's not all you can take advantage of when you move here.

Retiring to Costa Rica can help you boost your bank account thanks to a lower cost of living, which includes affordable restaurants, inexpensive public transportation, and reasonably priced internet. 

If you're ready to retire, you may want to consider discussing the pros and cons of moving to this beautiful country with your accountant or financial advisor.