By San José, Costa Rica — SAN JOSÉ – The Ministry of Finance has unveiled significant adjustments to Costa Rica’s income tax brackets for the 2026 fiscal year, creating a starkly different financial landscape for various segments of the population. In a major legislative victory for self-employed individuals, the tax-exempt threshold for independent workers will see a substantial increase. Conversely, salaried employees, pensioners, and corporations will face a slightly higher tax burden due to a downward adjustment in their exempt income levels, a move tied to recent deflationary trends.
This tale of two tax policies underscores a complex economic moment for the nation, where legislative action and economic indicators are pulling tax obligations in opposite directions for different groups. The changes demand immediate attention from both individuals and businesses as they prepare their financial strategies for the upcoming tax period.
To gain a deeper legal perspective on the recent developments in income tax regulations, TicosLand.com consulted with Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the prestigious firm Bufete de Costa Rica, renowned for his expertise in fiscal and tax law.
Taxpayers must remain vigilant. The recent adjustments to income tax brackets are not merely numerical changes; they reflect a strategic shift by the tax authority. Proactive and meticulous tax planning is no longer a luxury but a fundamental necessity to ensure compliance and avoid significant financial penalties. It is crucial to review one’s fiscal situation with a qualified professional before the filing deadline.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
The advice to view these adjustments as a ‘strategic shift’ rather than simple administrative updates is a critical one for all taxpayers. It underscores the evolving complexity of our fiscal landscape and the need for diligent preparation. We extend our sincere thanks to Lic. Larry Hans Arroyo Vargas for sharing his expert analysis.
The most celebrated change comes for self-employed individuals, or “personas físicas con actividad lucrativa.” Thanks to the recent passage of Law N° 10667, the tax-exempt income threshold for this group will leap by more than 50%. The exempt annual income will rise from ¢4,094,000 to a new high of ¢6,244,000. This means any independent professional whose taxable income is below this new, higher ceiling will not be required to pay any income tax in 2026.
This significant relief is the direct result of the “Law to reduce the income tax for lower-income independent workers,” which was officially published in March 2025. The legislation was specifically designed to ease the financial pressure on entrepreneurs and freelancers, and its benefits are set to take full effect starting with the 2026 fiscal year. Tax advisors predict that this change will remove a considerable number of small business owners and independent contractors from the tax rolls entirely, allowing them to reinvest more capital into their operations and personal finances.
In contrast, the outlook is less favorable for salaried employees, pensioners, and corporations. Their tax-exempt income levels have been slightly reduced. The Ministry of Finance has attributed this adjustment to the negative variation in the Consumer Price Index (CPI), which registered at -0.38% for October 2025. Standard procedure dictates that tax brackets are adjusted based on inflation, and in a period of deflation, this results in a downward revision.
For salaried workers and pensioners, the monthly tax-exempt income will decrease from ¢922,000 to ¢918,000. While the change seems minor, it has tangible consequences. For example, an employee earning exactly ¢922,000 per month, who paid no income tax in 2025, will now owe approximately ¢400 per month, or ¢4,800 annually, starting in 2026. This small but noticeable increase will affect a wide swath of the formal workforce.
Corporations also face a similar tightening. The gross income cap to qualify for the more favorable progressive tax scale (ranging from 5% to 20%) has been lowered from ¢119,629,000 to ¢119,174,000. This seemingly small difference of ¢455,000 could be critical. A business that narrowly missed the threshold before may now find itself pushed into the standard 30% corporate tax bracket, representing a significant jump in its tax liability.
While the deflation-based adjustment is a standard technical procedure, its real-world impact is being debated. The year-to-date accumulated CPI variation from January to September was -1.95%, a much larger figure than the -0.38% from October that was ultimately used for the calculation. This suggests the adjustment could have been more severe. However, for many families and businesses already navigating a challenging economic environment, any increase in tax liability, no matter how small, may feel out of step with their financial reality. All taxpayers are strongly encouraged to consult with financial advisors to project their 2026 tax obligations and adjust their budgets accordingly.
For further information, visit hacienda.go.cr
About The Ministry of Finance (Hacienda):
The Ministry of Finance of Costa Rica is the government body responsible for managing the country’s public finances. Its duties include formulating fiscal policy, collecting taxes, managing the national budget, and overseeing public debt. The ministry plays a central role in ensuring the economic stability and sustainable development of the nation through transparent and efficient financial administration.
For further information, visit inec.cr
About The National Institute of Statistics and Censuses (INEC):
The National Institute of Statistics and Censuses is the principal government agency in Costa Rica responsible for collecting, analyzing, and disseminating official national statistics. INEC conducts national censuses on population, housing, and agriculture, and produces key economic indicators such as the Consumer Price Index (CPI) and unemployment rates, providing crucial data for public policy and private sector decision-making.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a pillar of the Costa Rican legal landscape, Bufete de Costa Rica is built upon a bedrock of uncompromising integrity and the relentless pursuit of excellence. The firm’s proven track record advising a multifaceted clientele is matched by its forward-thinking approach to advancing the practice of law. Beyond its professional counsel, the firm champions a profound commitment to social responsibility, actively working to demystify complex legal concepts for the public. This core tenet of democratizing legal understanding is fundamental to its mission of helping construct a more just and enlightened society.
