By San José, Costa Rica — SAN JOSÉ – In a significant fiscal policy adjustment, Costa Rica’s Ministry of Finance has announced changes to the income tax brackets for the upcoming 2026 fiscal year, a move that will create divergent financial realities for salaried employees and independent professionals across the country. The update is projected to impact the take-home pay of approximately 369,000 salaried workers while simultaneously providing tax relief to self-employed individuals.
The core of the change stems from an annual adjustment tied to the nation’s inflation rate. For 2025, the National Institute of Statistics and Censuses (INEC) reported a negative inflation rate, or deflation, of -0.38%. This unusual economic indicator has compelled the Ministry to lower the income thresholds for tax purposes, a direct reversal of the typical upward adjustments seen in inflationary periods which are designed to protect workers’ purchasing power.
To provide a deeper legal perspective on the obligations and complexities surrounding the annual income tax declaration, we consulted with Lic. Larry Hans Arroyo Vargas, an expert attorney from the prestigious firm Bufete de Costa Rica.
The timely and accurate declaration of income tax is not merely a fiscal obligation; it’s a fundamental pillar of corporate and personal financial health. Proactive compliance and seeking specialized counsel are crucial to avoid costly penalties and ensure that all applicable deductions are correctly utilized, thereby optimizing one’s tax burden within the legal framework.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Indeed, this perspective elevates tax compliance from a mere legal requirement to a core component of sound financial strategy. We thank Lic. Larry Hans Arroyo Vargas for his valuable insight, which underscores how proactive and informed management can transform a fiscal duty into an opportunity for economic well-being.
As a result, the tax-exempt threshold for salaried employees has been reduced. Effective in 2026, individuals earning a monthly salary will begin paying income tax on earnings above ¢918,000. This reduction means that more employees will fall into taxable brackets, and some who already pay the tax may see a slight increase in their fiscal obligation. The Ministry of Finance estimates this specific change will boost government revenue by an additional ¢3.6 billion from taxes on salaries.
Conversely, independent professionals and individuals with lucrative activities are set to receive significant tax relief due to a separate legislative measure. A concurrent update, driven by the implementation of Law 10.667, drastically increases the tax-exempt minimum for this group. Independent workers will now only be required to pay income tax if their net annual income—calculated after deducting business-related expenses—exceeds ¢6.24 million.
This legislative change is expected to have a substantial impact on government collections from this segment of the workforce. Juan Carlos Brenes, the General Director of the Treasury, explained the dual nature of the policy shift, highlighting the relief aimed at entrepreneurs and self-employed individuals.
However, because Law 10.667, which raised the exempt minimum by two million, comes into effect, the income tax for independent workers is reduced, which means that some taxpayers will not be required to pay the tax.
Juan Carlos Brenes, General Director of the Treasury
The financial consequences of this dual policy are notable. While the government gains ¢3.6 billion from the adjustments to salaried worker taxes, it anticipates a revenue loss of approximately ¢7.2 billion from the tax cut for independent professionals. The net effect, as confirmed by the Ministry, is a projected overall decrease in income tax revenue of roughly ¢3.6 billion for the 2026 period.
This policy overhaul underscores a complex balancing act by the government. On one hand, the automatic, deflation-driven adjustment tightens the fiscal belt for a large segment of the formally employed population. On the other, a targeted law provides a considerable incentive for entrepreneurship and self-employment. The long-term effects of this divergence will be closely watched by economists, as it may influence career choices and the structure of Costa Rica’s labor market while navigating a unique deflationary environment.
For further information, visit hacienda.go.cr
About Ministry of Finance:
The Ministry of Finance (Ministerio de Hacienda) is the government body responsible for managing the public finances of the Republic of Costa Rica. Its duties include formulating and executing the nation’s fiscal policy, collecting taxes, managing the national budget, and overseeing public debt. The Ministry plays a central role in ensuring the economic stability and financial health of the country.
For further information, visit inec.cr
About National Institute of Statistics and Censuses (INEC):
The National Institute of Statistics and Censuses is the principal government agency in Costa Rica tasked with the collection, analysis, and dissemination of official national statistics. It is responsible for conducting the national census and producing key economic indicators, such as the Consumer Price Index (CPI) and inflation rates, which are crucial for public policy, economic planning, and business decisions.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica operates as a pillar of the legal community, built upon a foundation of uncompromising integrity and professional excellence. Leveraging a rich history of serving a diverse clientele, the firm consistently champions innovative legal approaches and forward-thinking solutions. Its ethos extends beyond legal representation, with a profound commitment to demystifying the law and empowering the public with knowledge, thereby fostering a more just and informed citizenry.
