Retire in Costa Rica With These Three Tax Benefits

Did you know Costa Rica has a “blue zone,” where people reportedly live longer and healthier lives than other parts of the globe? And it’s no wonder. With a warmer climate, active community, and family-oriented lifestyle, Costa Ricans age 60 and older ranked #17 on last year’s World Happiness Report*, just behind the U.S., ranking #10.

So if you plan on retiring in Costa Rica, you may be in luck. Depending on where you’re from, you could see your inheritance and estate tax go way down, enjoy property tax savings, and obtain a lower cost of living.

Sound interesting? Pack your bags and prepare for takeoff to this Central American destination.

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*Note: The World Happiness Report is a partnership with Gallup, the Oxford Wellbeing Research Centre, the UN Sustainable Development Solutions Network, and the WHR’s Editorial Board.

Retire in Costa Rica

According to International Living, Costa Rica has a retiree visa called Pensionado. To apply for this retirement visa, U.S. expats will need to:

• Prove a minimum monthly income of at least $1,000 from a pension or retirement fund (like an IRA, 401(k), etc.).
• Provide a birth certificate and passport.
• Produce three recent passport-sized photos.

…among other requirements. Once you are in the country for three years you can apply for permanent residency. Becoming a permanent resident gives you fewer work restrictions (if you’re interested in earning wages in retirement) and access to public healthcare.

Retiring to Costa Rica with a low cost of living

Costa Rica boasts a low cost of living compared to the United States. Daily expenses like rent, most groceries, and basic utilities are generally cheaper compared to the national average of those same items in the U.S.

Online database Numbeo, as of February 2025, shows potentially cheaper costs for the average retiree living in Costa Rica:

• Restaurants ranging from inexpensive to three-course sit-downs can be up to 50% cheaper in Costa Rica than in the U.S.
• Public transportation tickets (buses, some taxis, etc.) can be 60% cheaper than average U.S. prices.
• Mobile phone plans and internet are between 24% and 55% lower in cost compared to the U.S.

However, not everything is lower in cost in Costa Rica compared to the United States. You may still pay more on items like some groceries, clothing, and potentially higher mortgage interest rates for 20-year fixed-rate loans.

Tax Considerations for a Move to Costa Rica

1. Costa Rica's real estate tax is low

Ever dreamed of owning property by the beach? That dream may become a reality in Costa Rica. Property taxes at this destination start at .25% of the registered property value.

This means that on a Central Pacific property worth about $230,000, you could pay just $575 in property taxes annually. Meanwhile, according to the Tax Foundation, the average property tax bill in the U.S. is $1,815.

However, before you close on a home in Costa Rica, keep these property tax considerations in mind:

• Costa Rica’s transfer tax (the amount charged when property changes hands) is 1.5%. Unlike in the U.S., where the seller typically pays this tax, Costa Rica usually splits transfer taxes between the buyer and the seller.
• Additionally, a “luxury tax” may be levied on higher-value homes in Costa Rica. Luxury taxes range from .25% to .55%.

However, it’s important to remember that some buyers in the U.S. already face luxury transfer taxes, known as “the mansion tax.” These taxes can be as high as 20% in some states.

2. Costa Rica has no inheritance tax

Costa Rica is one of several countries without inheritance tax. This may be another reason to retire in Costa Rica. Your sizeable inheritance could potentially pass on to your heirs without paying Costa Rica taxes — which may be welcome considering Costa Rican property tax is typically low.

But keep in mind that the amount you have to give to your heirs could be reduced. (You may still have to pay tax on income you receive while living in Costa Rica.)

That’s because U.S. retirement benefits and foreign-earned income may still be taxable depending on your Costa Rican residency status (more on that below). Consult with a financial advisor or legal professional for your specific tax situation.

3. Costa Rica and U.S. retirement income

U.S. retirement income is often tax-exempt in Costa Rica. However, you may pay Costa Rica taxes if you meet the residency requirements, like living in the country for at least 183 days in the tax year. This could lead to double taxation on U.S. and Costa Rican income.

But you may qualify for a couple of tax breaks to cut down on your U.S. taxes:

• Foreign Earned Income Exclusion, excludes up to $130,000 of “foreign income” (U.S. earned income if you are a tax resident of Costa Rica) in tax year 2025.
• Foreign Tax Credit, excludes a certain amount paid in foreign taxes, or, if smaller, the credit limit on Form 1116.

With these tax breaks, you may limit your U.S. earned income to zero. This would allow you to take advantage of Costa Rica’s low-cost-of-living benefits without the added side effect of double taxation on the income you earn.

Note: "Earned income" doesn't include passive sources, like retirement or investment revenue streams.

What are tax disadvantages of Costa Rica?

Unfortunately, with every upside, there is a downside, and Costa Rica is no different. This richly biodiverse country also has some diverse tax challenges:

• U.S. retirees may pay a monthly tax to the Costa Rican Social Security Fund (CCSS), even if they do not work. The tax ranges from 7% to 11% of monthly income, though most expats do not pay more than $100 per month, according to InterNations.
• Costa Rica’s value-added tax (similar to a sales tax) is 13% on most services and goods, with only some exceptions on groceries and medicine.
• While simpler, Costa Rica’s tax structure could increase your income tax bill, depending on how much you make.

On the last bullet, it’s important to note that Costa Rica has only five tax brackets ranging from 0% to 25%. The highest tax rate kicks in for income at or above $40,171*. Depending on your monthly income, you could automatically qualify for the highest income tax bracket in Costa Rica.

However, by comparison, the U.S. tax system has seven tax brackets and a maximum federal income rate of 37%. So if you have income that falls in the highest U.S. tax bracket, that would be taxed at a potentially lower rate in Costa Rica.

Be sure to talk with a tax professional or advisor and explain your income sources. A decision on whether to move abroad could be right at your fingertips — if you’re looking for a warm, “happy” place in the tropics.

*Note: Income level was converted from CRC to U.S. dollars as of February 2025.

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