Costa Rica may request foreign banking information under Law No. 9118.

Costa Rica, through Law No. 9118 and the international CRS standard, can now request banking information abroad.

• The DGT has started with the Common Reporting Standard information.
• It plans to incorporate into its audit plans.
• At least 400 people have reportedly been notified.

Within the framework of international commitments in tax matters, Costa Rica has a robust legal tool that allows its Tax Administration to access financial information outside its borders. This is the Law No. 9118by which
was approved Convention on Mutual Administrative Assistance in Tax MattersThe OECD and the Council of Europe have signed this agreement, which has been in force since 2013.

This legal instrument grants the General Directorate of Taxation (DGT) the power to request tax and banking information from more than 150 jurisdictions adhered to the Convention, in the following terms:

What can Costa Rica request from other countries?

Under this regulation, the DGT is empowered to request from its foreign counterparts information on:

• Actual holders of bank accounts.
• Financial transactions.
• Data on trusts, foundations and asset structures.

This allows, in principle, to investigate cases of undeclared assets, omitted income or tax avoidance schemes, even if the funds are located abroad, a matter that in any case, is always debatable given the system of taxation of income by source and not by residence, in other words, Costa Rica has strongly established the principle of "territoriality" in its tax regulations. Thus, in principle, only income generated by capital invested in Costa Rica, goods located here, or services rendered from the territory are taxable. Therefore, offshore income would not be or should not be of interest to the authorities unless, of course, they have sufficient evidence of income generated in Costa Rica but "hidden" in other countries.

Bank secrecy does not apply as an obstacle

One of the cornerstones of the Convention is that signatory jurisdictions may not invoke bank secrecy to deny requests for information.. Thus, if a Costa Rican individual or legal entity maintains accounts abroad, the foreign tax authority must share this information with Costa Rica.provided that the formal and substantive requirements are met.

Guarantees and confidentiality

The legislation provides important safeguards:

• The information is used exclusively for tax purposes.
• Their handling is subject to strict confidentiality.
• Misuse may result in administrative and criminal penalties.

Requests must be specific, justified and based on current agreements.

What does this mean for taxpayers?

Individuals or legal entities with operations or assets abroad should bear in mind that the Tax Administration Costa Ricans now have the legal tools to access this information, including banking information.In the last few weeks we have witnessed the formal information requests that the DGT has made to Costa Ricans or foreigners residing in Costa Rica about their bank accounts or those of companies in which they hold some kind of power abroad. This within the framework of the Common Reporting Standard or CRS. And it is very likely that soon the FATCA (USA) information will also be used to generate the above mentioned requirements.

What is the Common Reporting Standard or CRS?

The Common Reporting Standard (CRS), o Common Reporting Standardis a global framework developed by the Organization for Economic Cooperation and Development (OECD) with the objective of combating international tax evasion through the automatic exchange of financial information between countries.
The CRS establishes a set of uniform international standards that oblige financial institutions (such as banks, trusts, insurers and investment funds) to:

1. Identify to financial account holders who are non-resident taxpayers in the country where the institution is located.
2. Collect and report relevant information about these accounts to the national tax administration.
3. This information is automatically shared with the tax authorities of the account holder's country of tax residence..

The CRS includes:

• Due diligence rules.
• Mandatory information fields (name, address, account number, balance, financial income, etc.).
• Secure electronic transmission schemes between tax administrations.

How is CRS applied in Costa Rica?

Costa Rica implemented the CRS as of the year 2016through a combination of legal and regulatory reforms:

Legal basis

1. Law No. 9416 (Act to Improve the Fight against Tax Fraud): Introduces the obligation to identify the beneficial owner and creates the basis for financial due diligence.
2. Resolutions of the Tax Administration (DGT): DGT-R-16-2020 and its amendments, as well as Oficio DGT-147-2022, detail the procedures and forms to be followed by the obligated financial institutions.

Obligated financial institutions

• Banks.
• Savings and credit cooperatives.
• Insurance companies.
• Trust entities.
• Investment funds and other custodial entities.

They must classify their clients according to their tax residence and report the relevant accounts.

Automatic exchange of information

• Costa Rica sends non-resident financial information to CRS participating jurisdictions once a year, automatically.
• It also receives information on accounts of Costa Ricans or foreigners who report Costa Rica as their tax residence held abroad.