Business expenses in Costa Rica: what you can deduct and the right structure

Last reviewed: November 2026 · Reviewed by Stéphane Gombauld, tax expert, technologist and digital nomad

You run a business in Costa Rica, or plan to, and want to know which costs cut your tax bill. This guide explains the 2026 deduction rules, the limits, VAT recovery and which structure gives you the best result for what you do.

Costa Rica business expenses in 2026: the key figures

Is this guide for you?

Read on if you…

• work as a self-employed professional with Costa Rican income;
• run, or plan to open, a Costa Rican company;
• want to recover VAT on your business purchases.

Probably not your case if you…

• earn only foreign-source income as a remote worker: Costa Rica does not tax it, so deductions do not matter there;
• are an employee with no side business.

What counts as a deductible business expense?

The three conditions

1. Necessary and useful: the cost must relate to producing income taxed in Costa Rica.
2. Documented: an electronic invoice issued to your tax ID, or an official foreign invoice for foreign suppliers.
3. Recorded: in your books for the right tax year (the calendar year).

Here's the catch. Costs linked to income that is not taxable, such as foreign-source income, are not deductible. If you mix local and foreign work, you must split costs.

Typical deductible costs

• Rent of offices and coworking spaces.
• Staff salaries and the employer's CCSS contributions.
• Professional fees: accountants, lawyers, designers.
• Software, cloud services and subscriptions.
• Travel, transport and lodging for business trips.
• Marketing and advertising.
• Insurance on business assets.
• Bad debts, once collection efforts are documented.

Not deductible

• Income tax itself, fines and surcharges.
• Personal and family expenses.
• Costs without a valid invoice.
• Donations beyond the limits set for approved entities (10% of net income).

Which expenses are capped or need care?

Interest

Since Law 9635, net interest paid to non-financial lenders is deductible only up to 20% of EBITDA. Excess interest can be carried forward. Loans from regulated banks are outside the cap.

Vehicles and home office

A car is deductible in proportion to business use. You must justify the share with a log or reasonable evidence. A home office works the same way: a documented share of rent and utilities, consistent with the space you actually use.

Payments abroad

Paying a foreign supplier can trigger Costa Rican withholding: 25% on services and royalties, 15% on interest. No withholding, no deduction. Check treaties first: see international tax treaties of Costa Rica.

Related parties

Prices between related companies must follow arm's length rules. Larger taxpayers file a transfer pricing return.

How do depreciation and losses work?

Depreciation

Assets are depreciated straight-line over their useful life, using the rates in the Income Tax Regulation:

You can ask for an accelerated method with tax administration approval.

Losses

Business losses carry forward for three years and offset future profits. Agricultural businesses get five years. There is no carry-back.

Which legal form gives you the best deductions?

Deductions work the same way in principle, but the rate you deduct against, the costs and remote management differ.

Honestly? For most freelancers with modest local income, the sole trader route is cheaper. A company pays off when profits are high enough that 30% beats the top personal brackets, or when you need limited liability. Compare structures in legal forms of business in Costa Rica and get a second opinion through Heavnn's business setup service.

Management and control: the PE warning

A Costa Rican company run from abroad can still be taxable where its decisions are made. And a foreign company managed by you while living in Costa Rica may create a permanent establishment (PE) – a taxable presence – in Costa Rica. Decide where real management happens and document it.

How does VAT work on your expenses?

VAT you pay on business purchases (crédito fiscal) offsets VAT you charge on sales. Full credit applies when all your sales are taxable or exported. If part of your sales is exempt, you recover VAT only in proportion. VAT returns are monthly in TRIBU-CR, due by the 15th. Exported services are exempt with a right to credit, so exporters often hold a VAT credit they can offset or claim back.

Common mistakes (and what they cost)

• Paying suppliers without an electronic invoice → the cost is disallowed, adding up to 30% of it to your tax.
• Deducting costs linked to foreign income → disallowed deductions plus a 50% understatement penalty.
• Paying a foreign supplier without withholding → you owe the 25% withholding yourself and lose the deduction.
• Ignoring the 20% EBITDA cap on shareholder loans → excess interest is added back, with interest on late tax.
• Letting losses expire → after three years, unused losses are gone for good.

Frequently asked questions

What expenses are tax deductible for a business in Costa Rica?

Any cost that is necessary to produce taxable Costa Rican income and backed by a valid electronic invoice: rent, salaries and CCSS contributions, professional fees, software, travel, marketing, insurance and depreciation. Personal expenses, fines, income tax itself and undocumented costs are not deductible. Costs tied to untaxed foreign income cannot be deducted either.

Do I need an electronic invoice to deduct an expense?

Yes, for local suppliers. Costa Rica requires electronic invoices for almost every transaction, issued to your tax ID. Without one, the tax administration disallows the cost. For foreign suppliers, keep the foreign invoice and proof of payment, and check whether you had to withhold Costa Rican tax on the payment.

Can I deduct a car in Costa Rica?

Yes, in proportion to business use. You depreciate the vehicle at around 10% a year and deduct fuel, insurance and maintenance in the same proportion. Keep a log or other evidence of business use. A car used mainly for private trips will be challenged in an audit.

How long can I carry forward losses in Costa Rica?

Business losses carry forward for three years, or five years for agricultural activities. They offset future taxable profits in those years only. Costa Rica does not allow losses to be carried back. Track each year's loss carefully, because unused amounts expire at the end of the period.

Is interest on loans fully deductible?

Not always. Since Law 9635, net interest paid to lenders other than regulated financial entities is deductible only up to 20% of EBITDA. Interest on bank loans falls outside this cap. Related-party loans must also respect arm's length pricing, or the excess interest is disallowed.

Can I recover VAT on my business purchases?

Yes. VAT paid on purchases linked to taxable or exported sales is credited against the VAT you charge, through your monthly return. If you also make exempt sales, you recover only a proportion. You need valid electronic invoices showing the VAT for every credit you claim.

Related guides

• Legal forms of business in Costa Rica – choose the right structure
• Tax fraud regulations of Costa Rica – invoicing penalties and audits
• Specific taxes in Costa Rica – VAT and the annual entity tax
• Costa Rica tax landscape overview – the full system on one page
• Business expenses in Paraguay – deductions under a 10% tax
• Business expenses in Mexico – CFDI invoices and caps
• All country tax guides

Sources

• Ministerio de Hacienda – tax administration
• SCIJ – Income Tax Law 7092 and its regulation
• Registro Nacional – company registry
• Caja Costarricense de Seguro Social
• PwC Worldwide Tax Summaries – Costa Rica

This guide is general information, not personalised tax advice. See how we research and review.