Updated on: 2025/08/04 14:26 (UTC)
Overview
The Republic of Costa Rica is located in Central America and consists of seven provinces. The national government has the power to enact tax and labor legislation. Costa Rica is bordered to the north by Nicaragua, to the east by the Caribbean Sea, to the southeast by Panama, and to the southwest by the Pacific Ocean.
Costa Rica consists of seven first-order administrative divisions known as provincias. They are Alajuela, Cartago, Guanacaste, Heredia, Limon, Puntarenas, and San Jose.
Costa Rica’s currency is the Costa Rican colón.
Employers in Costa Rica are responsible for administering payroll-related income taxes and Social Security taxes. Additionally, Costa Rica labor law requires certain amounts of compensation and benefits that employers must give their workers.
Foreign workers generally are subject to the same income tax rates and requirements as Costa Rican workers.
Costa Ricans working in the United States are covered by U.S. tax law with possible treaty and work status exclusions applying. Work within the U.S. states and territories is covered by various labor laws.
CURRENCY DETAILS
The currency of Costa Rica is the Costa Rican colón (), also known simply as the colón and also written as colon. The internationally recognized three-letter currency code for the colón is CRC. The plural form of colón is colónes, which also is written as colones.
When an amount of colónes is written using the currency symbol , the symbol precedes the numerical value with no space between the numerical value and symbol. A variant of the currency symbol with one diagonal line instead of two sometimes is used, and it has the same placement treatment as the standard version with two diagonal lines.
Amounts of colónes sometimes are written using the currency symbol ¢, which while commonly used as the currency symbol for cent subdivisions of integer currencies also is used for whole amounts of colónes because of its derivation from the letter C, the first letter of colónes. When an amount of colónes is written using the currency symbol ¢, or the italicized variant of that symbol, the symbol precedes the numerical value with no space between the numerical value and symbol.
The letter C, either in capitalized or lowercase form, sometimes is used as a simplified currency symbol for the colón, and when an amount of colónes is written using the currency symbol C or the currency symbol c, the symbol precedes the numerical value with no space between the numerical value and symbol.
One hundredth ( 1 ⁄ 100 ) of a colón is referred to as a céntimo, with the plural form of céntimos.
When amounts of colónes are written in Spanish, which is the predominant language in Costa Rica, the comma that in English separates the thousands place from the hundreds place instead is rendered as a dot (.), and the dot that in English separates the ones place from the tenths place instead is rendered as a comma.
TAXES
The federal government generally enacts laws relating to income tax. Costa Rican provinces do not levy any payroll-related taxes. The tax year is from Oct. 1 to Sept. 30.
Costa Rican employers and employees also must contribute to Social Security through payroll withholding and separate employer contributions.
Income Taxes
The Ministry of Finance (Ministerio de Hacienda) regulates the imposition of income taxes in Costa Rica under the Costa Rican Income Tax Law and the Tax Code.
Effective since July 1, 2019, the tax year is the calendar year, from Jan. 1 to Dec. 31. Previously, the tax year was from Oct. 1 to Sept. 30.
Coverage: All employers must withhold taxes from all persons in their employ residing in Costa Rica who have received income in Costa Rica or had their income remitted abroad.
Employees: An employee is considered someone who receives remuneration during the fiscal year for the performance of dependent work in Costa Rica. An individual is considered as domiciled in Costa Rica when that person has resided or remained in the country for at least six months in a continuous period during the tax year. However, the Costa Rican tax administration may consider an individual as domiciled, regardless of the fact that he/she has remained less than six months in Costa Rica, when an exclusively working for a Costa Rican employer. Similarly, individuals who are transferred to Costa Rica on assignments that will last at least six months will be treated as domiciled in Costa Rica from the first day in Costa Rica.
Rates and Thresholds: For withholding from employment income, there are two income tax rates assessed on the income, with income under a particular threshold exempt from tax. A separate set of progressive income tax brackets is in effect for income from self-employment.
Effective for 2021, Costa Rica’s income tax rates and minimum and maximum amounts of monthly income for each tax bracket applicable to income from employment, but not self-employment, are as follows:| Range of Monthly Income (Costa Rican Colónes) | Income Tax Rate |
|---|---|
| Up to 842,000 | zero |
| More than 842,000 and up to 1,236,000 | 10% |
| More than 1,236,000 and up to 2,169,000 | 15% |
| More than 2,169,000 and up to 4,337,000 | 20% |
| More than 4,337,000 | 25% |
| Range of Monthly Income (Costa Rican Colónes) | Income Tax Rate |
|---|---|
| Up to 840,000 | zero |
| More than 840,000 and up to 1,233,000 | 10% |
| More than 1,233,000 and up to 2,163,000 | 15% |
| More than 2,163,000 and up to 4,325,000 | 20% |
| More than 4,325,000 | 25% |
A flat tax of 10% applies if salaries are remitted abroad.
Registration: All companies must register with the Ministry of Finance’s Unified Tax Registry (Registro Único Tributario) using the Declaration of Registration (Declaración de Inscripción en el Registro Único Tributario). All companies must submit this form before engaging in commercial activities.
All forms may be submitted electronically or in print to the Ministry of Finance.
Taxable Amounts: Costa Rica’s Ministry of Finance lists taxable income as all income in the form of salaries, retirement pay, pensions, bonuses, or other remunerations for personal services.
Notable deductions include spousal tax, deductions for children, physical or mental disability deductions, and higher education deductions given the taxpayer is younger than 25.
Withholding Methods: Employers are legally responsible for calculating and withholding workers’ correct tax liability. All employers must withhold income tax from all employees every paycheck and make monthly payments. Institutions of the state and state universities are exempt from withholding income taxes.
Returns and Remittance: To file and remit withheld taxes, employers must first submit Form D-103, Affidavit of Withholding (Declaraciones Juradas de Retenciones en la Fuente), online using the Virtual Tax Administration (Administración Tributaria Virtual) portal, listing the deductions of the prior month.Instructions for filing the form online are available from the Ministry of Finance. After the form is filed, employers can make payments through online banking, in person at an authorized bank, or at a location accepting payment for local utilities. Employers must file and make payments by the 15th of each month following the month in which taxes were withheld. If the 15th falls on a Saturday, Sunday, or a holiday, the form must be submitted on the following business day.
In addition to monthly payments, all employers must file annual returns by Dec. 15 for the preceding fiscal year. Employers may file their returns online on the Ministry of Finance website, and make payments at an authorized bank, or they may present a print out of their return and their tax payments to an authorized tax collector. Those with no tax obligations are still required to file an annual tax return.
In addition to income tax returns, employers must submit an annual summary of income tax withholding, Form D-152, Annual Withholding Statement (Declaración Anual de Retenciones – Impuestos Únicos y Definitivos) on the treasury payments website. This form must be filed by Jan. 15 of each year.
Employee Share Plans: Stock plans offered as salary or at a discount to employees are taxable. Stock options are taxed based on their discount at grant while stock awards are taxable at exercise. Employers must withhold income taxes from all capital payments to employees. Employers must withhold income tax at a flat rate of 15% from capital payments and file returns and remittances by the tenth day of the following month. Employers must file form D-103 and make payments to the Central Bank of Costa Rica.
Recordkeeping: The statute of limitations for determining one’s tax liability is three years. The term is extended to five years if the taxpayer is not registered with the Tax Authority, has filed a fraudulent claim, or didn’t file a return.
Penalties: Tax penalties are dictated in articles 70 to 88 of the code of Tributary Norms and Procedures and the amended Law No. 4755. Fines are often based on a base penalty, a value set annually by the Ministry of Finance.
The following are possible tax infractions and their associated penalties:
- Failure to register in the Unified Tax Registration or to update one’s information will result in a fine of between one half and three times of the base penalty.
- Failure to properly file the correct forms can result in a fine of half of the base penalty.
- Failure to make timely income tax payments within 15 days of being notified of tax delinquency can result in fines of 1% of the amount owed per month (or fraction of a month) with a maximum fine of 20% of taxes owed.
- Omissions of taxable income or faulty arithmetic resulting in errors in tax payments can result in a fine of 25% of the difference in taxes owed and taxes paid.
- Accounting errors can result in a fine of one times the base penalty.
- All delinquent payments are subject to interest charges.
- Willful errors on tax forms or late payments resulting in over 200 times the minimum salary of taxes and fines owed may be penalized by between five days and 10 years in prison.
Social Taxes
Costa Rica has a comprehensive Social Security system which is mandatory for all legally established employers and employees. The Costa Rican Social Security Fund (Caja Costarricense del Seguro Social, abbreviated as CCSS), and the Ministry of Health (Ministerio de Salud) together manage the country’s Social Security system. The system covers disability, illness, death, maternity and retirement, among other conditions.
There are three categories of elements funded by social taxation administered by the CCSS: insurance programs directly overseen by the CCSS, a group of social institutions other than the CCSS, and additional elements authorized by Costa Rica’s Worker Protection Act (Ley de Protección al Trabajador, abbreviated as LPT).
The two insurance programs directly overseen by the CCSS are sickness and maternity insurance (seguro de enfermedad y maternidad, abbreviated as SEM) and disability, old age, and death insurance (seguro de invalidez, vejez y muerte, abbreviated as IVM).
The social institutions funded under the CCSS social taxation category of institutions other than itself are the Joint Institute of Social Assistance (Instituto Mixto de Ayuda Social, abbreviated as IMAS) National Training Institute (Instituto Nacional de Aprendizaje, abbreviated as INA), the Fund for Social Development and Family Allowances (El Fondo de Desarrollo Social y Asignaciones Familiares, abbreviated as FODESAF) and Costa Rica’s People’s Bank (Banco Popular), a public bank established by law whose main objectives under the law are to promote savings accounts for workers and provide loan services for new businesses and community development initiatives.
Coverage: Employer and employee contributions to CCSS are mandatory regardless of number of employees, length of employment, or residence of employee.
Rates and Thresholds: Social taxes in Costa Rica are assessed on employees and employers. The assessments on employees are deducted from their salary and the assessments on employers are based on a percentage of the salary they pay to each employee.
Employer and employee SEM and IVM contributions are not subject to a maximum amount of assessable wages, but they are subject to a minimum tax base (base mínima contributiva, abbreviated as BMC) each month. If an employee’s compensation for a month was less than the minimum monthly tax base, the employee’s compensation for the month would be treated as having been the minimum monthly tax base for calculations of SEM and IVM contributions. Costa Rica’s minimum monthly tax base for SEM contributions and its minimum monthly tax base for IVM contributions are not required to be set at the same level as each other but sometimes are equal, and they are subject to adjustment each Oct. 1. The bases are set as an applicable percentage of the monthly minimum wage for generic unskilled workers, with the percentage currently lower than 100%.
Effective since Oct. 1, 2019, he minimum monthly tax base for employer and employee contributions for SEM funding is 294,619 and minimum monthly tax base for employer and employee contributions for IVM funding is 275,759. Effective from Oct. 1, 2018, to Sept. 30, 2019, the minimum monthly tax base for employer and employee contributions for SEM funding was 279,088 and minimum monthly tax base for employer and employee contributions for IVM funding was 261,223. Effective from Oct. 1, 2017, to Sept. 30, 2018, the minimum monthly tax bases for employer and employee contributions for SEM and IVM funding both were 257,920.
Effective since Jan. 1, 2020, for each employee, employers are assessed a rate of 26.5% of the employee’s salary to fund numerous social benefits and the total rate of 26.5% consists of an SEM contribution rate of 9.25%, an IVM contribution rate of 5.25%, a contribution rate of 7.25% to fund social institutions other than the CCSS, and a contribution rate of 4.75% to fund additional elements authorized by Costa Rica’s Worker Protection Act. Effective from Jan. 1, 2018, to Dec. 31, 2019, for each employee, employers were assessed a rate of 26.33% of the employee’s salary to fund numerous social benefits and the total rate of 26.33% consisted of an SEM contribution rate of 9.25%, an IVM contribution rate of 5.08%, a contribution rate of 7.25% to fund social institutions other than the CCSS, and a contribution rate of 4.75% to fund additional elements authorized by Costa Rica’s Worker Protection Act.
The employer rate component of 7.25% to fund social institutions other than the CCSS consists of four subcomponents, including a rate of 5% for the Fund for Social Development and Family Allowances, 1.5% for the National Training Institute, 0.5% for the Joint Institute of Social Assistance, and 0.25% for the Costa Rica’s People’s Bank.
The employer rate component of 4.75% to fund additional elements authorized by Costa Rica’s Worker Protection Act consists of four subcomponents, including 3% for the Labor Capitalization Fund (Fondo de Capitalización Laboral), 1% for the National Insurance Institute (Instituto Nacional de Seguros, abbreviated as INS), 0.5% for the Supplementary Pension Fund (Fondo de Pensiones Complementarias), and 0.25% for another contribution to Costa Rica’s People’s Bank.
Effective Oct. 5, 2020, the employer rate component of 5.75% to fund additional elements authorized by Costa Rica’s Worker Protection Act consists of four subcomponents, including 1.5% for the Labor Capitalization Fund (Fondo de Capitalizacion Laboral), 1% for the National Insurance Institute (Instituto Nacional de Seguros, abbreviated as INS), 3% for the Supplementary Pension Fund (Fondo de Pensiones Complementarias), and 0.25% for another contribution to Costa Rica’s People’s Bank.
Effective until Oct. 4, 2020, the employer rate subcomponent of the Costa Rica’s Worker Protection Act regarding the Labor Capitalization Fund (Fondo de Capitalizacion Laboral) was 3% and the Supplementary Pension Fund (Fondo de Pensiones Complementarias subcomponent was .5%.
Effective since Jan. 1, 2020, employees are assessed a rate of 10.5% of their salary for social taxation, consisting of an SEM contribution rate of 5.5%, an IVM contribution rate of 4%, and a contribution rate of 1% to fund a mandatory individual pension account. Effective from Jan. 1, 2018, to Dec. 31, 2019, employees were assessed a rate of 10.34% of their salary for social taxation, consisting of an SEM contribution rate of 5.5%, an IVM contribution rate of 3.84%, and a contribution rate of 1% to fund a mandatory individual pension account.
The IVM rates for employers and employees will increase in each of two upcoming five-year periods before increasing again in 2035. Effective from Jan. 1, 2025, to Dec. 31, 2029, the IVM rate for employers is 5.42% and the IVM rate for employees is 4.17%. Effective from Jan. 1, 2030, to Dec. 31, 2034, the IVM rate for employers is 5.58% and the IVM rate for employees is 4.33%. Effective starting Jan. 1, 2035, the IVM rate for employers is 5.75% and the IVM rate for employees is 4.5%.
Registration: All employers must enroll with CCSS. Additionally, employers must register all new employees with the Social Security program within eight business days of their hire date.
Taxable Amounts: Social Security payments are based on the entire compensation package paid to employees including salary in cash, salary in kind, overtime, salary bonuses, and any other item that may be deemed to be salary.
Returns and Remittance: Employers must file a completed Planilla Procesada or payroll form, make social security payments and release proof of social security payments and filings to their employees, on a monthly basis. Filings can be made starting the 26th day of each month and are due by the 3rd day of the following month. Monthly filings must be made in electronic format using the System for Large Clients, the System of Magnetic Filings, or the Self Management System Online. To assist in online filings, the CCSS has provided the Virtual Office portal. Payments can be made using cash, credit, or checks, at local CCSS offices, approved banks, and approved pharmacies.
Recordkeeping: Generally, all returns must be kept for three years.
Penalties: Penalties for Social Security filing and payment violations include:
- Failure to Register with CCSS within eight business days of beginning business activities: 5% of total payroll.
- Failure to withhold Social Security taxes from employees: three times the base penalty.
- Omission of salaries: five times the base penalty.
The base penalty is annually set by the Ministry of Finance.
Effective for 2021, the base penalty is 462,200. Effective for 2020, the base penalty was 450,200.
Late payments are assessed interest fees in addition to the fine. Additionally, CCSS has the right to order an establishment to close if the establishment has not made payments for more than two months.
Other Taxes
Costa Rica’s national government does not assess any taxes on employment income other than those covered in the Income Taxes and Social Taxes sections of this primer.
State/Jurisdiction Taxes
Taxes on employment income are not assessed by any of Costa Rica’s provincias or local jurisdictions.
COMPENSATION AND BENEFITS
Costa Rica’s labor laws mainly consist of the Constitution and the Labor Code. Both the Constitution and the Labor Code elaborate on the rights and obligations pertaining to workers and employers. Specifically, they include information on minimum wage, overtime, hours of work, holidays, leave, wage payment, and termination pay.
In addition, Costa Rica requires employers to contribute to workers’ compensation. Retirement plans generally are administered as part of the Social Security program.
The Ministry of Labor and Social Security is the government agency in charge of setting Costa Rica’s labor policies and ensuring they are followed. The ministry has the power to inspect workplaces, and intervene in labor disputes in order to enforce the labor law.
Minimum Wage
The minimum wage varies by occupation based on the cost of living and is revised either once or twice each year by the Ministry of Labor and Social Security (Ministerio de Trabajo y Seguridad Social, abbreviated as MTSS). When an occupational minimum wage specified in an employment contract becomes lower than the applicable minimum wage for the occupation covered by the employment contract because of a minimum wage adjustment by the Ministry of Labor and Social Security, the rate specified in the contract becomes overridden by the higher minimum wage established by the ministry.
Costa Rica’s comparative list of varying minimum wage rates for occupations and types of employees is available on a webpage of its Ministry of Labor and Social Security. These rates do not include surcharges applicable to some occupational categories, such as the surcharge of 23% available for some education workers. Some minimum wages designated by the ministry are daily rates and others are monthly rates. The lowest daily minimum wage for nonhousehold employment typically is applicable to unskilled workers (trabajadores no calificados, abbreviated as TNC) and the highest daily minimum wage for nonhousehold employment typically is applicable to advanced specialization workers (trabajadores de especialización superior, abbreviated as TES). The lowest monthly minimum wage for nonhousehold employment typically is applicable to generic unskilled workers (trabajadores no calificados genéricos, abbreviated as TNCG) and the highest monthly minimum wage for nonhousehold employment typically is applicable to university graduates (licenciados universitarios, abbreviated as Lic.).
Effective for 2021, nonhousehold occupational minimum wage rates purely based on time worked range, with regard to daily rates, from 10,652.48 for unskilled workers to 21,593.60 for advanced specialization workers, and with regard to monthly rates, from 319,574.46 for generic unskilled workers to 682,607.23 for university graduates. Effective for 2020, nonhousehold occupational minimum wage rates purely based on time worked ranged, with regard to daily rates, from 10,620.62 for unskilled workers to 21,529.01 for advanced specialization workers, and with regard to monthly rates, from 316,964.69 for generic unskilled workers to 680,565.53 for university graduates.
The minimum wage for household workers (trabajadoras domésticas) is not automatically subject to the same percentage adjustment as other minimum wage rates and consequentially is not included in the Ministry of Labor and Social Security’s aforementioned list of industry-specific minimum wages.
Effective for 2021, the monthly minimum wage for household workers is 205,047.68. Effective for 2020, the monthly minimum wage for household workers was 199,648.05.
In Costa Rica, the minimum wage also is known as the legal minimum salary (salario mínimo legal, abbreviated as SML).
Overtime
Employers are required to pay overtime paid at time-and-a-half to employees working more than eight hours per day or 48 hours per week. Generally, an employee may not work more than 12 hours per day, including overtime. Employees engaged in dangerous or unhealthy work, as determined by the Ministry of Labor and Social Security, may not work overtime. Additionally, employees who work on days of rest are entitled to double pay for time worked.
Managers, administrators, trustees, and other employees in positions of trust are not eligible for overtime pay.
Hours of Work
The constitution and the Labor Code establish a 48-hour workweek for daytime work, not to exceed eight hours per day, six days per week. The Labor Code stipulates that for jobs in which the daytime work is not dangerous, a standard workday may be as long as 10 hours, but the workweek still may not exceed 48 hours. Night work—defined as work between 7 p.m. and 5 a.m.—may not exceed 36 hours per week or six hours per day. Mixed shifts that include both daytime and nighttime hours are treated as night work if more than three hours are worked after 7 p.m. Otherwise, mixed shifts are limited to seven hours per day (eight hours per day for work that is not dangerous) and 42 hours per week. All work schedules must include a 30 minute break.
These limitations do not apply to managers, administrators, trustees, other employees in positions of trust, or generally all employees without an immediate supervisor, who are limited to working no more than 12 hours per day with a minimum rest period of 1.5 hours. However, supervisory and professional employees who are not eligible for overtime pay may not be required to work more than 12 hours and during that time must be granted a break of at least 90 minutes. Additionally, all employees are entitled to one day of rest after six consecutive days of work. Sunday is the usual rest day.
Persons under the age of 18 may not perform work between 6 p.m. and 6 a.m, nor can they work more than 6 hours a day or 36 hours a week. Women generally may not perform work between 7 p.m. and 6 a.m., although exceptions allow them to work until midnight at home, as nurses, as domestic help, in purely bureaucratic work, and in commercial sales establishments, as long as their working conditions are set forth in individual work contracts approved by the general inspectorate of the industry involved. In addition, women who work for companies that provide services in the public interest may work at night with the permission of the Ministry of Labor and Social Security.
Holidays
Employers must provide employees with 10 paid holidays and must pay double employees’ normal salaries for work performed on holidays.
The paid public holidays are:
- Jan. 1: New Year’s Day
- April 11: Juan Santamaría Day
- Holy Thursday
- Good Friday
- May 1: Labor Day
- July 25: Guanacaste Day
- Aug. 15: Mother’s Day and Assumption
- Sept. 15: Independence Day
- Dec. 25: Christmas
Effective May 19, 2020, Aug. 2, Virgen de los Angeles Day, and a holiday first observed in 2020, Dec. 1, Día de la Abolición del Ejército (Day of the Abolition of the Army), are considered holidays, but are not required to be paid holidays, and Oct. 12, Día de las Culturas (Day of Cultures), is no longer considered a holiday. Employees who practice a religion other than Catholicism may request unpaid days off for their religious holidays, and the employer must agree to any such request for up to four days a year. When such a holiday is taken, the employer and the employee will agree on a replacement workday or the day can be taken as annual leave.
Effective from 2020 to 2024, some public holidays are observed on either the preceding or following Monday. Effective for 2020, Guanacaste Day and Mother’s Day/Assumption move to the following Monday, while Independence Day and Day of the Abolition of the Army move to the preceding Monday. Effective for 2021, Labor Day and Guanacaste Day move to the following Monday, while Independence Day and Day of the Abolition of the Army move to the preceding Monday. Effective for 2022, Independence Day and Day of the Abolition of the Army move to the following Monday. Effective for 2023, Juan Santamaría Day, Guanacaste Day, and Mother’s Day/Assumption move to the preceding Monday, and effective for 2024, the same holidays move to the following Monday.
Leave
Employees are entitled to at least two weeks of paid annual leave after every 50 weeks of work for the same employer. The employer can schedule the employee’s vacation at its convenience within 15 weeks of its having been earned. Generally, the employee must be permitted to take the entire vacation at one time. If the employee performs work of a special nature that does not permit a long absence, however, and the employee and the employer agree, annual leave may be split into no more than two segments.
Maternity and Adoption Leave: Employees are entitled to four months of maternity leave—one month before the expected due date and three months after childbirth. In the case of a multiple birth pregnancy, the leave is extended 1 month per additional child. The employee receives full pay, half covered by the employer and half by the Social Security Fund. To obtain paid maternity leave, the employee must provide the employer with a doctor’s certificate five weeks prior to the due date. An employee who adopts a child is entitled to three months’ paid maternity leave beginning on the date after the child arrives. To obtain adoption leave, the employee must submit a certificate from the National Foundation for Children or a family court confirming the adoption.
Women who are breast-feeding are entitled to a 15-minute break every three hours or a 30-minute break twice a day.
Sick leave: Employees who have made a contribution to social security in the month before becoming ill are entitled to paid sick leave for up to 365 days. The employer pays the worker 50% of his or her salary for the first three days and the Social Security Fund pays the other 50%. After the first three days, the Social Security Fund pays the worker 60% of his or her average earnings during the three months prior to the illness. Entitlement to sick leave may extend beyond 365 days in special cases.
Wage Payment
Wages must be paid in legal tender, not merchandise, vouchers, tokens, or coupons. Manual laborers must be paid at least once every two weeks, while employees working in intellectual work or domestic work must be paid at least once a month.
Bonuses and Special Benefits
Employers must compensate all employees who have worked one month during the calendar year with a bonus (Aguinaldo) equivalent to one 12th of each employee’s salary earned between Dec. 1 of the previous year and Nov. 30 of that year. The bonus must be paid by Dec. 20 each year.
Retirement Plans: The government requires that employers contribute to the Social Security pension funds, covered under the more comprehensive treatment of Costa Rica’s Social Security program under the taxes section. These contributions are taken from social taxes payments made to the Social Security Administrations (CCSS) and are administered by the SICERE.
Termination Pay
No notice is required when either party terminates the employment contract for just cause. Written notice is required when either party terminates the employment contract without cause, unless the employee has been working for the employer for less than three months, in which case no notice is required. At least one week’s notice must be given if the employee has worked at least three months but not more than six months. If the employee has worked for at least six months but not more than one year, the notice period is at least 15 days. If the employee has worked for the employer more than one year, at least one month’s notice must be provided.
In lieu of providing the requisite notice, either party may make payment to the other equal to the amount of wages that would have been earned during the notice period. During the notice period, the employee is entitled to one day off per week to look for new employment.
If an employee is terminated without cause or quits with cause, the employee is entitled to severance pay based on his or her length of service. No severance pay is due if the employee has worked for the employer for fewer than three months.
An employee who has worked at least three months but not more than six months is entitled to seven days’ pay. An employee who has worked at least six months but not more than one year is entitled to 14 days’ pay. An employee who has worked for the employer for more than one year is entitled to severance pay ranging from 19.5 days of pay per year worked to 22 days of pay per year worked, depending on the number of years worked. If during a year an employee did not work for the full year but worked for at least six months of the year, that year would count as a full year for severance pay calculations.
All employees who leave employment for any reason, including those terminated for cause, are entitled to the Christmas bonus (Aguinaldo) proportionate to the part of the year they worked before leaving, as well as pay for accrued but unused vacation time.
Employment Certificate: When employment ceases for any reason, the employer must, at an employee’s request, provide an employment certificate stating the dates of employment and the type of work performed. If the employee requests it, the employment certificate must state the employee’s work performance and the reasons employment ended.
Successorship Liability: When a business is sold or otherwise acquired by another business, the original employer and the new employer are jointly liable for the original employer’s obligations under any pre-existing employment contracts for a period of six months. After six months, the new employer is solely responsible. The replacement of the original employer may not detrimentally affect any pre-existing employment contracts.
Workers’ Compensation
Workers’ compensation is funded by insurance paid for entirely by the employer and purchased from the National Insurance Institute, a government-owned entity. The government may suspend work or shut down any employer that fails to purchase workers’ compensation insurance. Any employer that is uninsured is liable for all expenses incurred by an employee as a result of a work-related accident or injury.
Employees who suffer a work-related injury or illness receive 75% of their wages for the first 45 days of temporary disability and thereafter receive 100% of the minimum wage plus 75% of the employee’s wages that exceed that amount. An employee may receive temporary disability benefits for no more than two years.
If an employee is permanently disabled, the amount of the benefit depends on the assessed degree of disability. An employee with at least a 67% degree of disability—considered a permanent total disability—is entitled to a lifetime annuity, paid monthly, of 100% of the minimum wage plus 67% of the employee’s earnings that exceed that amount. An employee with a 50 to 67% degree of disability—a permanent partial disability—is entitled to monthly payments of 67% of his or her salary for up to 10 years. An employee with a 0.5% to 49% degree of disability—a minor permanent disability—is entitled to receive, monthly for up to five years, a payment equal to the assessed degree of disability times the employee’s annual earnings divided by 12; the benefit may be extended for additional five-year periods on a case-by-case basis.
Workers’ compensation also provides for medical and rehabilitation benefits, payment for required prostheses or medical devices, survivors’ benefits, and funeral expenses.
Recordkeeping
An employer with workers under the age of 18 must keep a record of each worker’s name, age, parents or guardians, residence, occupation, work hours, and wages.
FOREIGN WORKERS
Visas: Foreigners assigned to work for a year or less in Costa Rica must obtain a visa, a temporary residency card, and a temporary work permit. Applications for visas and temporary residence cards must be filed with a Costa Rican consulate and both typically take 90 to 120 days to process. Visa and residency card applications are occupation specific. Additionally, many visa applications require documentation of professional credentials, an employment contract, letter or affidavits from the company wishing to employ the applicant, and/or other documentation.
Applications for temporary work permits are filed in Costa Rica with Costa Rican immigration authorities and typically take five to six weeks to process. Temporary work permits generally are issued only to highly skilled workers for jobs that cannot be filled by a Costa Rican worker. The Costa Rican Minister of Immigration specifically advises against granting work permits for workers in many low skilled occupations.
Taxes: Foreign workers and their employers are subject to the same income tax rates and requirements as Costa Rican workers.
Wages/Payments: Wages may be paid in foreign currency but all taxes must be paid and filed based on salaries in colónes. In order to convert from foreign currency into colónes, employers must use the rates posted by the Central Bank of Costa Rica on payroll closing day.
WORKING IN THE UNITED STATES
Foreign workers from Costa Rica must meet general visa requirements and be certified to be employed in the United States. General visa requirements for the U.S. are included in the separate
U.S. employers also must check the names of all new-hires and employees against the Specially Designated Nationals and Blocked Persons List, administered by the Treasury Department’s Office of Foreign Assets Control (OFAC). Because OFAC prohibits financial transactions with individuals on the list, employers cannot employ them and may face fines for failing to comply.
Costa Rican workers are eligible to work in the U.S. under H-2B visas, which cover labor or services of a temporary or seasonal nature in occupations other than agriculture or registered nursing. The number of H-2B visas issued each year is limited by U.S. law.
For tax purposes, Costa Ricans are subject to U.S. employment-based taxation on income earned in the U.S. unless they can claim an exemption under certain tax treaty provisions or they work under specific visa types that exempt earnings from taxes.
State and local taxation of Costa Rican workers also can apply, although some states within the U.S. recognize international tax treaties that can eliminate that income tax liability for foreign workers.
The U.S. labor laws apply to all workers employed and providing services in the country.
Work eligibility as an employee is contingent upon Department of Homeland Security and Labor Department approval and the employee receiving a U.S. Social Security number from the Social Security Administration.
Tax Residency: In general, employees working in the U.S. on a temporary basis are considered nonresidents for tax purposes unless they are granted resident status. Employees can be granted permanent resident status through the so-called green card test or if they meet the substantial presence test under the U.S. tax code. More information on these requirements is in the chapter “Resident and Nonresident Aliens.”
Permanent residents are subject to U.S. tax requirements the same as U.S. citizens and are taxed under the U.S. system on their worldwide earnings.
Income Taxes: Generally, nonresidents in the U.S. who are from Costa Rica and are working in the U.S. are subject to U.S. taxes based on their U.S.-sourced income. Income is taxed differently based on whether it is categorized as wage income or nonwage income, which includes interest and dividends.
A Form W-4, Employee’s Withholding Certificate, must be filed by each employee with their employer. All nonresidents in the U.S. who are from Costa Rica and are working in the U.S. must claim “single” in Step 1c, regardless of marital status; write “Nonresident Alien” or “NRA” in the space under Step 4c of the form; and may not claim “exempt” in the space under Step 4c.
Nonresident alien employees may adjust withholding using Step 2b or 2c of the Form W-4; certain employees also may be able to use Steps 3, 4a, or 4b. More information about Form W-4 requirements for nonresident alien employees is available in the
Although the versions of Form W-4 issued in 2020 or later significantly differ from the versions issued in 2019 or earlier, nonresident employees that filed a valid version of Form W-4 from 2019 or earlier with their employer do not need to file another Form W-4 with the employer unless they need to implement a change for their withholding. On Forms W-4 issued in 2019 or earlier, nonresident alien employees were required to check the “single” box on line 3, regardless of marital status; write “Nonresident Alien” or “NRA” above the dotted line on line 6; and were not permitted to claim “exempt” on line 7 of the form.
An additional amount is added to a nonresident alien employee’s wages for calculating federal income tax withholding, with the amount based on pay period frequency and the date of the employee’s most recently filed Form W-4. The table of additional amounts applicable to Forms W-4 from 2020 or later and the table applicable to Forms W-4 issued before 2020 are available in the
Nonwage income and self-employed foreign workers can be subject to income tax withholding at a flat rate of 30%.
Additionally, foreign workers may be taxed differently based on the specific type of visa they hold.
Tax treaties: Costa Rica and the U.S. do not have a tax treaty.
Social Taxes: Most foreign workers are subject to paying into the U.S. Social Security system. Foreign nationals who are exempt from paying income tax and who do not have the eligibility to receive a social security number may not be required to pay social taxes. Foreign workers contributing to Social Security for a certain time period may be eligible to receive benefits.
Generally, foreign workers in the U.S. that have specific visas as exchange visitors or students or who are temporarily in the U.S. for agricultural work are not subject to social taxes on income that is obtained from the purpose in which they originally entered the United States.
Totalization Agreements: Costa Rica and the U.S. do not have a social security totalization agreement.
Wage Payment: Under certain visas for certain types of employment, employers are required to pay foreign workers the higher of either the prevailing wage or the actual wage that is paid to U.S. workers that have similar skills and qualifications.
There are no particular requirements that employees be paid in U.S. dollars.
TREATY ARRANGEMENTS
Costa Rica does not have an income tax treaty or totalization agreement with the United States.
The countries with which Costa Rica has a bilateral income tax treaty in effect are Germany, Mexico, and Spain.
Costa Rica has totalization agreements for social tax purposes with more than 20 countries. The countries with which Costa Rica has agreements are Andorra, Argentina, Bolivia, Brazil, Chile, Colombia, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Portugal, Spain, Uruguay, and Venezuela.
RESOURCES
All resources in English unless otherwise noted.
General
U.S. State Department: U.S. Relations With Costa Rica
CIA World Factbook: Costa Rica
Costa Rican-American Chamber of Commerce
United States Library of Congress Law Library, Guide to Law Online: Costa Rica
Currency Details
International Organization for Standardization: Currency Codes - ISO 4217
Unicode Consortium: Currency Symbols
United Nations: United Nations Terminology Database: Costa Rica
Taxes
Costa Rica Income Tax Law (Spanish)
Costa Rica’s Ministry of Finance Income Tax Rates (Spanish)
Costa Rica’s Ministry of Finance Income Tax Law (Spanish)
Ministry of Finance (Spanish)
Social Security Laws (Spanish)
United States Social Security Administration, Office of Retirement and Disability Policy, Social Security Programs Throughout the World: The Americas, 2015, Costa Rica
Law to protect the right of workers to withdraw resources from the supplementary pension, Decree Number 9906, 2020 (Spanish)
Executive Decree No. 42733-H, of Dec. 8, 2020 (Spanish)
Compensation and Benefits
Costa Rica Labor Code (Spanish)
International Labor Organization, Fundamental Principles and Rights at Work: A Labour Law Study—Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua
Minimum Wages, Ministry of Labor and Social Security (Spanish)
Ministry of Labor and Social Security
The Real Costa Rica, Labor Laws and Policy—Costa Rica
The Real Costa Rica, Working in Costa Rica and Labor Laws
Foreign Workers
Costa Rican Embassy in Washington, DC
Department of Immigration (Spanish)
Embassy of the United States of America, Costa Rica
General Directorate of Migration and Foreigners (Spanish)
Working in the United States
Department of Labor:
- Foreign Labor Certification:
- Hiring Foreign Workers
U.S. Internal Revenue Service:
- IRS Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens
- IRS Publication 15, Circular E, Employer’s Tax Guide
- IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
- IRS Publication 519, U.S. Tax Guide for Aliens
- IRS Publication 901, U.S. Tax Treaties