We have been preparing US income
tax returns for US Citizens and permanent residents living in Costa Rica for over
20 years. As a US Citizen or permanent resident you are
required to file a US return each year regardless of the fact that you file
and pay taxes in your residence country. The expatriate earned income
exemption (currently approximately $105,500) only can be claimed if you file a timely tax
return. It is not automatic if you fail to file your return. You can also offset
US taxes with foreign tax credits for the income taxes you pay in Costa Rica on
your Costa Rican tax return.
We have scores of clients located in Costa Rica and know how to integrate your US taxes into the local income taxes
you pay. Any income tax you pay there can be claimed as a dollar
for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to
file it until June 15th following the calendar year end. You must pay any tax that may be due by April 15th in order to
avoid penalties and interest. You can get an extension to file (if you
request it) until October 15th.
There are other forms which must be filed
if you have foreign bank or financial accounts; foreign investment
company; or own 10% or more of a foreign corporation or foreign partnership.
If you do not file these form or file them late the IRS can impose penalties
of $10,000 or more per form. These penalties are due regardless of
whether you owe income taxes or not.
There are certain times you may wish to make
elections with respect to your Costa Rica corporation which
will give you US tax benefits. There are other situations where
forming a US corporation to receive your business income may be more
advantageous than using a corporation in your resident country. We can help
you with these decisions.
If you are
self employed there are no US Costa Rican social security
agreements. Therefore if you file a schedule C on your self employment income
you must pay the 15.3% self employment tax on your net self employment income.
If you are a bona-fide employee of a foreign corporation you do not have to worry about paying US
social security on your wages.
Rica almost everything you owned is held by a Costa Rican Corporation. That
means you must file form 5471 for all of the Costa Rican Corporations that you
own 10% or more of the stock. Failure to file this form each year with you US
income tax return can result in a $10,000 US per year penalty.
We have helped hundreds of US expatriates around the world catch
up because they have failed to US returns for many years. Unfortunately,
unlike Australia, Canada, UK, etc. you must also file so long as you are a
US citizen or resident. You can if you follow proper IRS and State
Department procedures surrender your US Citizenship and therefore cut off
your obligation to pay US taxes in the future. You must surrender that
Citizenship for non-tax avoidance reasons and then can usually not return to
the US for more than 30 days per year for the subsequent ten years.
You can more read about Costa Rica's income Taxes and
If you have not been filing, we can help you catch up.
There is not penalty for filing late if no taxes are due. The penalties
arise with respect to late filing certain other reporting forms for foreign
financial accounts, foreign corporation ownership, etc. We can explain
your exposure and help you move forward with your US return filing requirement.
Let us help you with your US tax returns, US tax planning
and other US tax and legal concerns. Download our
expat tax questionnaire below
or email us to request a mini
consultation by phone, skype or email
I look forward to solving your tax concerns. Thanks
Don D. Nelson, Attorney, CPA