BILL 25.796: FOREIGN PASSIVE INCOME AND A NEW CONNECTING FACTOR
The bill would make Costa Rican tax residence sufficient to tax a broad category of passive income generated abroad.
Bill 25.796titled the Law on the Taxation of Foreign-Source Passive Income and the Elimination of Tax Credits for Thematic Public Securities, is arguably the most far-reaching tax proposal filed to date.
Under the rules introduced in 2023, certain foreign passive income is taxed mainly when earned by multinational-group entities that fail the qualified-entity and economic-substance tests. The bill would remove those conditions and rely primarily on Costa Rican tax residence as the connecting factor.
Resident individuals, companies, trusts, investment funds, collective entities and similar structures would be covered, even if they do not conduct a business. The scope includes interest, dividends, royalties, real estate and other investment income, and capital gains on assets located or used outside Costa Rica. The general rate would be 15%.
The Government states that the bill does not introduce worldwide taxation. Formally, that is correct: territoriality would remain the general rule and the exception would focus on foreign passive income. Yet the change is fundamental. For that income, residence alone could create Costa Rican tax liability even when the investment has no economic connection with an activity carried on in Costa Rica.
A resident holding a portfolio in the United States or Europe could therefore owe Costa Rican tax on interest, dividends and capital gains. This is not full worldwide taxation, but it is a broad, structural exception to territoriality.
BILL 25.796: IMPACT ON BANKS, DOUBLE TAXATION AND LOSSES
International portfolios held by financial institutions deserve specific review because of their operational, regulatory and liquidity-management functions.
The impact may be particularly significant for banks. Sovereign and corporate bonds, deposits, fund interests, shares and other instruments held abroad commonly support treasury, liquidity, diversification, collateral and risk management. Their interest, dividends and gains could enter the Costa Rican tax base.
If that income is legally connected to the banking business, it would be taxed under the profits regime rather than necessarily at Chapter XI's general 15% rate. Even so, the central change remains: Costa Rica's taxing jurisdiction over foreign returns would expand. Each institution should review where and how an asset is used, its legal connection to the business and the treatment of tax paid abroad.
The mechanism for relieving double taxation would also change. In covered cases, current law allows foreign tax to be credited directly against Costa Rican tax, subject to the statutory cap. The bill would instead deduct that tax from gross income before applying the Costa Rican rate. A credit and a deduction do not produce the same result, and the proposed formula may leave a residual combined burden.
Foreign capital losses would not be recognized. Costa Rica could tax gains from an international portfolio without necessarily allowing losses on the same assets, creating a material asymmetry for volatile or actively traded portfolios.
The bill would also repeal the credit for thematic securities issuers, equal to one third of certain capital-income taxes withheld from investors, with no express transition for unused balances.
The proposal is not yet law. If enacted, it would apply upon publication and regulations would be due within six months. Institutions should begin modeling the impact by asset, entity, rate and jurisdiction.