#CostaRica 🇨🇷 #Article: Impact of Global Income Tax for Workers

SQ 2020_Mesa de trabajo 1 copia 5
 
Without being clear about the final outcome of the events that will take place in the Legislative Assembly, and noting that the bill called "Dual Global Income" is just that, a proposal, it is convenient to understand some of the main impacts it would have on the personal finances of dependent and independent workers regarding global income.
 
Global income tax, schedular income tax systems. The proposed global income tax would include all income of a person (wages, allowances, earnings from professional or business activities), and the tax return would be submitted once a year, deducting expenses and cutting down from the tax base certain amounts established by law to obtain a taxable income to which a rate ranging from 5 to 27.5% is applied. In the current schedular income tax system, no taxpayer adds up all income from different sources in a single tax return but pays different types of taxes depending on the nature of the income.  
 
By creating a "global" income, income obtained from dependent or independent work is standardized in terms of tax treatment because regardless of whether some taxes are withheld at the source (workers have taxes retained by their employers), both types of taxpayers will file a return in March of 2024 (the bill would enter into effect in 2023) and both will be subject to the same exemption minimum and deductions.  
 
Does the tax payment increase? This will depend on the conditions of each worker (dependent or independent) because by lowering the exemption minimum to 683,333,333 per month from the current one - which is 842,000 - the taxpayer base is clearly expanded. However, there are certain items that are not currently considered in favor of taxpayers: 250,000 colones per spouse and 150,000 colones per year for children and parents or grandparents who depend on the taxpayer. Then, 100,000 are added for each son or daughter who is studying. But beware, these are annual amounts. Medical, housing, and professional training expenses can also be deducted, but it has to be said, in my opinion, that these are very low amounts: less than 300,000 colones a year for job refresher courses or continuing education expenses, for example. What we do know is that workers that have no ascendants or descendants under their care will pay more.  
 
Components of workers compensation. Usual elements in the market, such as the granting of a vehicle and payment of housing or expenses related to connectivity will also be affected, as everything that is not strictly a work tool will be taxed as gross income for the relevant worker. For example, “company cars” will be considered as part of the worker's income, adding 20% of the cost of the vehicle per year as taxable income on the annual tax return. Some benefits known as triple severance pay are maintained, but clearly, companies must review their current compensation models, just as independent workers must decide whether to declare their income in professional corporations or include them in their personal tax return.  
 
Final comments. The maximum tax contribution increases from 25% to 27.5%, and all workers who earn more than 8,200,000 a year must file a tax return in March of every year, where they would also include all their other income minus capital income and capital earnings, with some exceptions. The system would change radically, and we will have to be pay close attention to what happens in Cuesta de Moras (Congress) and Zapote (Presidential House) in the coming months. After 30 years of dedicating my life to taxes and having been a witness and participant in the fiscal reforms that have occurred in Costa Rica, I only know one thing: nothing that enters as a bill ever comes out just the same as a law. Sometimes, not even close..
 
By our strategic partner:
Francisco Villalobos / fvillalobos@icsabogados.com
This and other pieces are available on our Café Laboral blog with La Nación newspaper.
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