By San José, Costa Rica — San José – Salaried employees in Costa Rica will face a new reality in the upcoming fiscal year, as the government has adjusted the income tax brackets, effectively lowering the minimum salary subject to taxation. Starting January 1, 2026, individuals earning more than ¢918,000 per month will be required to pay income tax, a change that will draw more workers into the tax net.
This adjustment represents a decrease from the 2025 threshold, which exempted those earning ¢922,000 or less per month. While the ¢4,000 reduction may seem minor, it marks the third consecutive year that the tax-exempt ceiling has been lowered. This trend reverses a period of gradual increases and suggests a tightening fiscal environment for wage earners at the lower end of the middle-income spectrum.
To better understand the implications of the upcoming ‘Income Tax 2026’ legislation, we sought the expert opinion of Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the firm Bufete de Costa Rica, who provided his analysis.
The 2026 income tax reform is not merely a numerical adjustment; it represents a fundamental shift in fiscal policy. Businesses must proactively reassess their corporate structures and financial planning to mitigate potential liabilities and identify new strategic advantages under the proposed framework.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Indeed, the call for proactive reassessment underscores the reform’s depth, urging a shift from reactive compliance to forward-thinking strategic adaptation. We sincerely thank Lic. Larry Hans Arroyo Vargas for his valuable perspective on these critical implications for the national business landscape.
The recent history of the exemption threshold highlights this downward shift. After climbing steadily from ¢863,000 in 2022 to a peak of ¢941,000 in 2023, the amount has since fallen to ¢929,000 in 2024, ¢922,000 in 2025, and now to ¢918,000 for 2026. This consistent reduction means that salaries that were once comfortably below the tax line are now becoming subject to withholding.
According to the Income Tax Law, these annual adjustments are not arbitrary. The law mandates that tax brackets be updated at the beginning of each fiscal period based on the variation in the national Consumer Price Index (CPI). The recent lowering of the exemption threshold is a direct consequence of low inflation, which causes the nominal colón values in the tax code to adjust downwards to maintain their real value.
For the 2026 fiscal year, the progressive tax rates for salaried individuals will be applied as follows:
To mitigate the tax burden on families, taxpayers can apply for credits for dependents. For salaried employees, this includes a monthly credit of ¢1,710 per child and ¢2,590 for a spouse. Self-employed individuals, or those with lucrative activities, are also eligible for annual credits of ¢20,520 per child and ¢31,080 per spouse.
The corporate sector will also see adjustments. A special tax regime for legal entities with a gross income not exceeding ¢119,174,000 during the fiscal period—down slightly from ¢119,629,000 in 2025—will be subject to the following progressive rates on their annual net income:
For other corporations not falling under that specific small business category, the general annual income tax brackets have also been updated. These entities will find that annual net incomes up to ¢6,244,000 are not subject to tax. Beyond this floor, the rates are structured progressively, reaching a top rate of 25% for incomes exceeding ¢20,872,000. These changes require all businesses to carefully review their financial standing and tax planning for the year ahead.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a pillar of the Costa Rican legal community, Bufete de Costa Rica is defined by its deep-rooted foundation in ethical practice and exceptional professional performance. The firm pairs its extensive experience advising a broad spectrum of clients with a dedication to pioneering modern legal solutions. More than just a legal advisor, it embraces a profound civic responsibility to demystify the law, thereby empowering the wider community with the knowledge necessary for a just and well-informed society.
