Costa Rica recently issued a new tax directive regarding the handling of cryptocurrencies and crypto assets. This groundbreaking development offers detailed insights into how these digital assets are perceived and taxed by the Costa Rican Tax Authority. At the core of this initiative is the classification of cryptocurrencies and crypto assets as virtual, or intangible, assets. This classification plays a crucial role in determining the costa rica crypto taxation treatment, varying between ordinary income or capital gains based on specific circumstances. Additionally, certain crypto transactions might be liable for value-added tax (VAT).
The guidance has gained greater importance as the crypto market has been very active including sale and purchase of properties using cryptocurrency in Costa Rica. The information was encapsulated in a private letter ruling (No. MH-DGT-OF-0460—2023) issued late August 2023, emerged from inquiries made by the Director of Revenue and the Director of Taxpayer Services at the General Directorate of Taxation. Their queries sought clarity on the fiscal implications of cryptocurrency and crypto asset transactions.
Key Takeaways:
- Cryptocurrencies, not recognized as legal tender by Costa Rica’s Central Bank, are considered virtual assets for tax purposes. Depending on the taxpayer’s activities or transactions, these assets could be subject to Corporate Income Tax (CIT) or the Tax on Capital Income and Capital Gains.
- The directive specifies that fees generated from crypto-related transactions or activities, such as organization, verification, or exchange, are subject to CIT and VAT.
- Profits from crypto investments are typically taxed as capital gains unless the investment is directly related to a business activity, in which case CIT applies.
Service Providers in the Crypto Space: The ruling clarifies that various service providers, including wallet providers, miners, and exchanges, are required to comply with tax obligations. For residents of Costa Rica providing these services, income is subject to CIT, reflecting business activity within the country. Non-resident service providers engaging with Costa Rican residents, where the service impacts the local jurisdiction, are subject to withholding taxes.
VAT Implications: The provision of crypto services, alongside the sale or acquisition of virtual assets, falls under the purview of VAT as per the VAT Law’s guidelines.
Investor Implications: Individuals or entities acquiring crypto assets, whether for personal use, transfers, or investment, must consider the tax implications. Any income or gains from these assets could be taxable under the Tax on Capital Income and Capital Gains, unless linked to a business operation, which then shifts the tax requirement to CIT.
Scope and Intent: This directive, informed by Article 119 of the Tax Code, serves an informational role, guiding taxpayers on the Tax Authority’s stance on crypto assets.
For those seeking further understanding or clarification on Costa Rica crypto taxation, the original source of this summary is a tax alert published by EY, a leading authority on tax advisory. Their expertise provides invaluable insights into the evolving landscape of cryptocurrency taxation in Costa Rica.
