Weekly tax updates 18-02-21

Tax Thursday: Changes in Costa Rica’s treatment of gains or losses on exchange rate differentials

From January 6th, 2021, there have been changes in the Costa Rican treatment on exchange rate differentials for Income Tax on individuals and Corporations


A taxpayer may tax or claim a deduction due to a gain or loss on exchange rate differential.

Before 2020, CR Income Tax Law did not have any specific written mention of exchange rate differential as a taxable matter.

However, the Costa Rican Tax Authority and The Supreme Court agreed that under articles 1, 5, and 81 of Income Tax Law, exchange rate differentials were implicitly a taxation matter, either as taxable income or a deductible expense.

Moreover, Parliament changed the law for

fiscal period 2020 to expressly mention exchange rate differentials as a taxable matter under the accrual principle or for those not accrued at year end due to the mandatory Financial Statements translation for income tax assessment.

On January 6th , 2021, the CR Tax Authority issued an Administrative criterion expressing that its interpretation of the law is that under the accrual principle only those realized exchange rate differentials are taxed or can be claimed as a deductible expense.

The legality of this criteria has been questioned, as the law expressly mentions the mandatory translation of financial statements especially in the case of taxation for unrealized exchange rate differentials.

To Do:

All taxpayers that carry out transactions on foreign currency should pay close attention to the recently introduced criterion in relation to the taxation of exchange rate differentials in order to avoid having an outstanding tax contingency.

If you have any questions, please contact Jorge Chinchilla, Tax Partner at Crowe CR:  Jorge.chinchilla@crowe.cr or Daniela Beirute, Tax Partner at Crowe CR: Daniela.beirute@crowe.cr