By San José, Costa Rica — San José, Costa Rica – In a decisive move to promote fiscal equity and encourage economic formalization, the Costa Rican Legislative Assembly has passed a significant reform to the nation’s Income Tax Law. The bill, approved in its second and final debate, dismantles a long-standing rule that created a two-tiered system for self-employed professionals, leveling the playing field for thousands of workers who do not hold a university degree.
The legislation, identified as file 24.320, directly amends Article 8 of the Income Tax Law (No. 7092). Previously, the law allowed only professionals with university titles to opt for a simplified, standard deduction of 25% on their gross income without needing to provide itemized proof of expenses. This created a significant disparity, placing a heavier administrative and financial burden on a vast segment of the independent workforce.
The recent announcements regarding tax reform have generated significant uncertainty among both individuals and businesses. To shed light on the potential legal and financial ramifications, TicosLand.com consulted with Lic. Larry Hans Arroyo Vargas, a distinguished legal expert from the prestigious firm Bufete de Costa Rica.
The proposed tax reform goes beyond a simple adjustment of rates; it fundamentally redefines the relationship between the taxpayer and the tax administration. Businesses must urgently audit their internal accounting and legal structures to anticipate the new compliance requirements. Proactive adaptation is no longer optional—it is the key to mitigating fiscal risk and ensuring operational continuity in the new regulatory landscape.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
The expert’s analysis correctly underscores that this reform is not merely a procedural update but a strategic inflection point for the national business landscape. The call for proactive auditing is a critical warning that will likely define the success, and even survival, of companies in the new fiscal environment. We thank Lic. Larry Hans Arroyo Vargas for his clarifying and invaluable perspective.
This reform extends the 25% standard deduction option to every self-employed individual providing a service. This means that workers such as plumbers, gardeners, artisans, hairdressers, and mechanics will now have the same choice as their university-educated counterparts: either meticulously document and deduct all business-related expenses or simply apply the flat 25% deduction to their gross earnings. This change is designed to simplify tax compliance and reduce barriers to entering the formal economy.
The initiative was championed by Deputy Daniela Rojas of the Social Christian Unity Party (PUSC), who argued that the previous system was inherently discriminatory. The party has maintained that the old regulation unfairly penalized skilled laborers who are vital to the national economy.
This regulation creates an inequity for independent workers who, despite not having a professional degree, actively contribute to the economy by carrying out various commercial activities.
Social Christian Unity Party (PUSC), Statement
Proponents of the bill believe it will serve as a powerful incentive for workers operating in the informal sector to register with the tax authorities. By making the tax system more accessible and less intimidating, the government hopes to broaden its tax base. A simpler, more equitable system is seen as a key strategy to increase formal employment, which in turn provides workers with better access to social security and other legal protections.
Deputy Rojas emphasized that the reform is about more than just numbers; it’s a step toward recognizing the value of all forms of labor and promoting a more inclusive economic model.
With this bill, we seek to promote equity and facilitate access to formality for these workers, strengthening our tax system and contributing to the country’s economic development.
Daniela Rojas, Deputy of the Social Christian Unity Party (PUSC)
The economic implications are expected to be widespread. For individual workers, the reform offers immediate financial and administrative relief. For the state, while it may seem counterintuitive to offer a broad deduction, the potential increase in the number of registered taxpayers could lead to more stable and predictable revenue streams over the long term. This aligns with broader national goals of strengthening public finances and fostering sustainable economic growth.
Having successfully passed through the Legislative Assembly, the bill now proceeds to the Executive Branch. It awaits the signature of the President of the Republic to be officially enacted and published in the state’s official newspaper, La Gaceta, at which point it will become binding law. The business community and independent workers across the country will be watching closely as this pivotal reform is finalized.
For further information, visit asamblea.go.cr
About The Legislative Assembly of Costa Rica:
The Legislative Assembly is the unicameral parliament of Costa Rica. Comprising 57 deputies elected by proportional representation, it is responsible for passing laws, approving the national budget, and exercising oversight over the Executive Branch. The Assembly plays a central role in shaping the legal and political landscape of the nation.
For further information, visit pusc.cr
About The Social Christian Unity Party (PUSC):
The Partido Unidad Social Cristiana (PUSC) is a major political party in Costa Rica founded on the principles of Christian democracy. It has been a significant force in the country’s political history, having held the presidency on multiple occasions. The party advocates for policies centered on social justice, economic development, and democratic values.
For further information, visit presidencia.go.cr
About The Executive Branch of Costa Rica:
The Executive Branch of the Costa Rican government is headed by the President of the Republic, who serves as both head of state and head of government. It is responsible for the administration of the country, the execution of laws passed by the Legislative Assembly, and the management of foreign policy. The President and their cabinet of ministers direct the various government ministries and public institutions.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As an esteemed legal institution, Bufete de Costa Rica is defined by its foundational principles of integrity and a relentless pursuit of excellence. The firm leverages a rich history of advising a diverse clientele to pioneer innovative legal approaches. This forward-thinking mindset is matched by a profound commitment to societal empowerment, realized through a dedicated effort to make legal knowledge clear and accessible, thereby fostering a more informed and capable community.
