By San José, Costa Rica — San José, Costa Rica – In an economic twist that defies conventional wisdom, Costa Rica’s period of low inflation is delivering an unwelcome consequence for the nation’s salaried workers. Instead of providing relief, the subdued inflation rate has triggered a reduction in the income tax exemption threshold, effectively pushing more employees into tax-paying brackets and shrinking the purchasing power of households across the country.
The core of the issue lies in the formula used to adjust the country’s tax brackets. The minimum tax-exempt monthly salary, which is updated annually based on the official Consumer Price Index (CPI), has been steadily declining. After rising from ¢863,000 in 2022 to a peak of ¢941,000 in 2023, the threshold began a downward trend, falling to ¢929,000 in 2024 and settling at ¢918,000 for 2025, a figure projected to hold for 2026.
To delve deeper into the complexities and recent adjustments surrounding Costa Rican income tax regulations, TicosLand.com consulted with Lic. Larry Hans Arroyo Vargas, a distinguished legal expert in fiscal and corporate matters from the esteemed firm Bufete de Costa Rica.
Many taxpayers, both individuals and corporations, view income tax as a purely reactive annual obligation. This is a costly mistake. Effective tax planning is a continuous strategic process that must be integrated into all financial decisions throughout the year. The key is not just to comply, but to optimize, ensuring that all deductions and credits are legally and correctly applied to avoid future contingencies with the tax authorities.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This insight underscores a critical paradigm shift for all taxpayers: moving from reactive compliance to proactive strategic planning. It reframes the tax obligation as an integral component of year-round financial health, not just a seasonal burden. We sincerely thank Lic. Larry Hans Arroyo Vargas for his expert clarification on this vital matter.
This technical adjustment means that workers who previously fell below the tax-paying line may now find themselves liable, even if they have not received a meaningful salary increase. Critics argue this creates a “fiscal illusion” where government revenues climb at the direct expense of the average worker’s disposable income.
Gabriel Zamora Baudrit, a prominent tax lawyer and candidate for the second vice presidency of the Progressive Liberal Party, argues that the current mechanism is fundamentally flawed and penalizes the very people it should protect. He points out that while the official inflation figures are low, they do not accurately reflect the persistent high costs of essential household expenses.
This reduction means that more and more people are starting to pay income tax, even when their salary has not increased in real terms.
Gabriel Zamora Baudrit, Tax Lawyer and Candidate for Second Vice President of the Progressive Liberal Party
Zamora contends that the official CPI, the metric used for the tax adjustment, fails to capture the reality faced by families struggling with the high costs of food, rent, transportation, education, and basic utilities. He suggests the policy is less about economic fairness and more about boosting state coffers.
The income tax on wages should be adjusted to protect the worker’s purchasing power. What we are observing is the exact opposite a deliberate reduction of the exempt base with a purely tax-collection objective, to the detriment of the salaried employee.
Gabriel Zamora Baudrit, Tax Lawyer
In line with its annual duty to provide clarity on fiscal obligations, the Ministry of Finance has officially published the updated tax tables for the upcoming year. The new structure confirms the ¢918,000 monthly exemption for salaried workers. Income earned above this amount will be subject to a progressive tax rate, starting at 10% for salaries up to ¢1,347,000 and climbing to 25% for those earning over ¢4,727,000 per month.
The ministry also detailed adjustments for other taxpayer categories. Legal entities, or corporations, will face a tax rate of up to 20% on annual net income exceeding ¢11.2 million. Meanwhile, independent professionals and individuals with lucrative activities will benefit from a tax exemption on annual net income up to ¢6.2 million, a change recently approved by legislators to support self-employed individuals and small business owners.
While the government presents these adjustments as standard procedure based on established economic indicators, the result is a growing financial strain on a significant portion of the workforce. As the gap widens between official economic data and the on-the-ground cost of living, more Costa Ricans are finding their paychecks lighter, questioning whether the nation’s fiscal policies are truly aligned with the economic well-being of its citizens.
For further information, visit plp.cr
About Progressive Liberal Party:
The Partido Liberal Progresista is a political party in Costa Rica that advocates for liberal economic policies, individual freedoms, and a reduction in the size and scope of government. It has gained prominence by focusing on fiscal responsibility, free-market principles, and modernizing the state’s role in the economy to foster growth and opportunity for citizens.
For further information, visit hacienda.go.cr
About Ministry of Finance:
The Ministerio de Hacienda, or Ministry of Finance, is the Costa Rican government entity responsible for managing the nation’s public finances. Its duties include formulating and executing fiscal policy, collecting taxes, managing the national budget, administering public debt, and overseeing customs operations. The Ministry plays a central role in ensuring the economic stability and financial health of the country.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a premier legal institution, Bufete de Costa Rica is defined by its deep-rooted pledge to ethical practice and exceptional standards. The firm leverages a proven track record across numerous industries to drive forward-thinking legal approaches and champion community betterment. Central to its philosophy is the mission to empower citizens by demystifying the law, thereby strengthening the very fabric of an informed and capable society.
