A proposed Costa Rica foreign income tax would make it the only Central American country taxing residents on overseas investment income. Here’s what expats and potential expats should know about Bill 25.796.
Last month, the Costa Rican government proposed a significant change to the country’s tax system, with a bill that would tax certain types of passive income generated outside the country and received by Costa Rican tax residents.
If approved, the proposal would apply a 15% tax to foreign-source passive income, potentially affecting people in Costa Rica who own property, investments, or other income-producing assets overseas.
Costa Rica currently operates a territorial tax system. Broadly speaking, that means the country taxes income generated from sources within Costa Rica rather than taxing residents on their worldwide income.
Bill 25.796 would create an important exception to that principle for certain types of passive income from outside Costa Rica.
Here’s what the bill would do, who it would catch, and how Costa Rica would compare with the rest of Central America.
What Is Costa Rica Proposing?
The government presented Bill 25.796 to the Legislative Assembly on September 22, 2026.
The proposal would extend Costa Rican taxation to three categories of passive income from foreign sources: income from overseas real estate, income from investments and other capital, and capital gains. In practice, that means foreign rental income, dividends, interest, royalties, and gains from selling overseas investments. These would generally be taxed at 15%.
The proposal applies to Costa Rican tax residents. Costa Rica already taxes some foreign passive income under rules introduced in 2023, but those rules are limited to certain non-qualified entities belonging to multinational groups. Bill 25.796 would go much further by bringing individual tax residents into the picture.
The proposal wouldn’t introduce full worldwide taxation. It concerns specified categories of foreign passive income rather than every type of income someone might receive from outside Costa Rica, and it doesn’t propose a new tax on salaries or other income earned from working.
What Could This Mean in Practice?
If You Have Investments Overseas
If you’re a Costa Rican tax resident with overseas investments (meaning investments outside of Costa Rica), the income they generate could become taxable in Costa Rica. That includes dividends from foreign shares, interest from overseas investments, and capital gains when foreign investments are sold at a profit.
Simply having an overseas brokerage account wouldn’t create a tax. What matters is whether those investments produce income or you sell them for a profit.
One point isn’t settled yet: whether the money has to come back into Costa Rica before the tax applies. Most coverage of the bill, including analysis by tax firms, describes it as applying to income when it’s earned, wherever it’s kept. At least one Costa Rican news report has described it as applying when the earnings come back into the country’s financial system. Until the details are clarified or the bill is amended, it’s safest to assume income kept overseas would be covered too.
Losses wouldn’t count, though. Under the proposal, a loss on a foreign investment couldn’t be used to offset gains made elsewhere.
If You Own Property Overseas
A Costa Rican tax resident who owns a rental property overseas (meaning outside of Costa Rica) could become liable for Costa Rican tax on the rental income it produces.
Under the current territorial system, foreign-source rental income generally falls outside Costa Rican income tax for ordinary individual residents. The proposal would change that.
If You’re a Pensionado or Rentista
The categories in Bill 25.796 cover income from property, investments, and capital gains. A state pension or a company pension doesn’t fall into any of them, so the proposal wouldn’t introduce the new 15% tax on that income.
Withdrawals from retirement accounts such as IRAs and 401(k)s, and income from annuities, are less clear-cut. How they’re treated will depend on the bill’s final wording.
Retirees with investments on top of their pension would be in the same position as anyone else for that portion of their income. The same goes for rentistas whose income comes from investments.
What If You’ve Already Paid Tax Overseas?
Already paying tax on the income somewhere else doesn’t get you off the hook in Costa Rica.
Under the proposal, similar tax paid in another country would be deducted from the amount subject to tax in Costa Rica rather than credited directly against the Costa Rican tax bill.
For example, someone receiving $10,000 in overseas rental income who had already paid $1,500 in tax abroad would have a Costa Rican taxable amount of $8,500. At 15%, the resulting Costa Rican tax would be $1,275.
US citizens face an extra complication. The United States taxes its citizens wherever they live, and it doesn’t allow a credit for foreign tax paid on income it considers US-source, such as rent from a US property or dividends from US companies. On that income, a US citizen living in Costa Rica would pay the full US tax and the Costa Rican tax on what remains.
How Does Costa Rica Compare With the Rest of Central America?
The other six countries in Central America all operate territorial tax systems for individuals. Ordinary residents aren’t taxed locally on investment income generated overseas.
Belize
Belize taxes individuals on income accruing in or derived from Belize. Separate rules apply to certain foreign income received by companies, but individual residents aren’t taxed on overseas investment income.
El Salvador
El Salvador changed its income tax law in 2024 to explicitly exclude income received from foreign sources. The change applies to individuals as well as companies and covers foreign dividends, capital gains, and returns on overseas securities and other financial instruments.
The one exception is for certain entities belonging to multinational groups, similar to Costa Rica’s current rules.
Guatemala
Guatemala taxes individuals on Guatemalan-source income. Foreign investment income and capital gains are outside its income tax.
Honduras
Honduras taxes individuals on income from Honduran sources. Proposals in recent years to tax foreign income more broadly never became law.
Nicaragua
Nicaragua taxes citizens, residents, and non-residents on income originating in Nicaragua. Foreign investment income isn’t included.
Panama
Panama taxes individuals on income sourced within Panama, and foreign-source income falls outside its income tax.
New rules approved in 2026 will change the treatment of foreign passive income received by entities belonging to multinational groups from 2027. Entities that don’t meet economic substance requirements can become liable for tax on foreign dividends, interest, royalties, capital gains, and real estate income. The rules don’t apply to individuals, so someone living in Panama with an overseas investment portfolio is unaffected.
If Bill 25.796 passes in its current form, Costa Rica would be the only Central American country generally taxing ordinary individual tax residents on foreign-source passive income.
What Happens Next?
Bill 25.796 is still at an early stage in the Legislative Assembly. It will need to go through the normal legislative process before it can become law, and its provisions could change along the way.
The government is in a strong position in the current Assembly. Pueblo Soberano, the ruling party, holds 31 of the 57 seats and controls the permanent legislative committees, including the Finance Committee that handles tax and fiscal matters. In plain terms, the opposition can’t outvote it. The bill could still change on the way through, but the government doesn’t need anyone else’s votes to pass it.
In the meantime, the existing tax rules remain in place. Residents aren’t (yet) liable for the proposed 15% tax on overseas rental income, dividends, interest, or capital gains just because Bill 25.796 has been introduced.
