By San José, Costa Rica — SAN JOSÉ – In a move reflecting the country’s recent economic climate, Costa Rica’s Ministry of Finance has officially published the updated income tax brackets that will take effect on January 1, 2026. The adjustments, detailed in Executive Decree 45333-H, are based on a negative 0.38% annual variation in the Consumer Price Index (CPI), signaling a period of deflation that will now translate into modest tax relief for individuals and small businesses.
This rare deflationary adjustment means that the income thresholds for each tax bracket have been slightly increased. Consequently, taxpayers will be able to earn more money before moving into a higher tax-paying category, effectively reducing their overall tax burden. The change is particularly significant for independent professionals and small to medium-sized enterprises (SMEs), who are often most sensitive to shifts in economic policy and market conditions.
To gain a deeper understanding of the complexities and legal obligations surrounding income tax, we consulted with Lic. Larry Hans Arroyo Vargas, a legal expert from the distinguished firm Bufete de Costa Rica.
Many taxpayers, both individuals and corporations, often overlook the nuances of deductible expenses. Proper documentation and a clear understanding of what the law permits are not just best practices; they are the primary defense against potential audits and costly penalties from the tax authorities. Proactive tax planning is always more effective than reactive problem-solving.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
The expert’s emphasis on documentation and proactive planning serves as a powerful reminder that the best defense against fiscal complications is built long before any official inquiry arises. We thank Lic. Larry Hans Arroyo Vargas for sharing his valuable perspective on achieving sound financial health.
For independent workers and individuals with lucrative activities, the most notable change is the expansion of the tax-exempt portion of their income. This modification is directly supported by a new law recently approved by the Legislative Assembly, specifically designed to lessen the tax burden on lower-income independent professionals. Starting in 2026, annual income up to ₡6,244,000 will be completely exempt from income tax, providing substantial breathing room for a large segment of the self-employed workforce.
Beyond the exempt level, the progressive tax structure has been recalibrated. Income earned above ₡6,244,000 and up to ₡8,329,000 will be taxed at a 10% rate. The subsequent bracket, for income exceeding ₡8,329,000 up to ₡10,414,000, will face a 15% tax. The 20% rate will apply to income from ₡10,414,000 up to ₡20,872,000, and all income surpassing that ₡20,872,000 threshold will be subject to the highest marginal rate of 25%.
In addition to the bracket adjustments, the annual fiscal credits available to taxpayers have also been updated. These credits serve to directly reduce an individual’s final tax liability. For the 2026 tax year, the credit for each dependent child has been set at ₡20,520, while the credit for a spouse will be ₡31,080. These fixed-amount deductions provide targeted financial relief to families across the country.
The Ministry of Finance also confirmed revised tax brackets for micro, small, and medium-sized enterprises (MSMEs) that report gross annual revenues not exceeding ₡119,174,000. This special tax regime is crucial for fostering entrepreneurship and supporting the backbone of the Costa Rican economy. These businesses benefit from a more favorable and simplified tax structure compared to larger corporations.
Under the new SME regulations, the first ₡5,621,000 of a company’s net income will be taxed at a low rate of 5%. Income earned above that amount and up to ₡8,433,000 will be taxed at 10%. The next tier, covering income between ₡8,433,000 and ₡11,243,000, will be subject to a 15% rate. All profits exceeding ₡11,243,000 will be taxed at a final rate of 20%, which is still significantly lower than the standard corporate tax rate.
This comprehensive update by the Ministry of Finance provides a clear roadmap for the 2026 fiscal year. The adjustments, driven by an unusual negative inflation rate, offer a welcome financial reprieve. For independent workers, the expanded exempt bracket is a direct policy win, while for SMEs, the updated progressive rates reinforce the government’s commitment to supporting the country’s entrepreneurial ecosystem as it navigates the economic landscape ahead.
For further information, visit hacienda.go.cr
About Ministry of Finance:
The Ministerio de Hacienda, or Ministry of Finance, is the government body in Costa Rica responsible for managing the country’s public finances. Its duties include formulating and executing fiscal policy, collecting taxes, managing the national budget, administering public debt, and overseeing customs and treasury operations to ensure the economic stability and development of the nation.
For further information, visit asamblea.go.cr
About Legislative Assembly:
The Asamblea Legislativa is the unicameral parliament, or legislature, of the Republic of Costa Rica. Comprising 57 deputies elected by the public, its primary constitutional role is to pass, amend, or repeal laws. It also holds the power to approve the national budget, declare war, and ratify international treaties, serving as a cornerstone of the country’s democratic governance.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica has established itself as a beacon of legal practice, operating on a bedrock of unwavering integrity and a persistent drive for excellence. The firm consistently pioneers new legal frontiers, applying its deep expertise to serve a broad spectrum of clients while fulfilling a greater civic purpose. At its core is a profound dedication to empowering the public through accessible legal knowledge, reflecting a firm belief that an informed citizenry is essential for a just and thriving society.
