One of the first questions North Americans ask before moving south is a simple one: will I be taxed twice? This guide gives a plain overview of US expat taxes in Costa Rica, so you understand the moving parts before you talk to a professional. Nothing here is tax advice for your specific case.
Do US citizens still have to file US taxes abroad?
Yes. The United States taxes its citizens on worldwide income regardless of where they live, so as a US citizen you generally must file a federal tax return every year even after you move to Costa Rica. Filing is required even in years when you end up owing nothing. This surprises many people, so it is worth saying clearly: moving abroad does not end your US filing obligation.
Does Costa Rica tax my income?
Costa Rica generally uses a territorial approach, meaning it focuses on income earned inside the country rather than income you earn elsewhere. If you work or run a business locally, that income is typically taxable in Costa Rica. How pensions, foreign investment income, and remote work are treated can be nuanced, and rules can change, so confirm your situation with a local accountant.
How do I avoid being taxed twice?
This is what most people really want to know. The US tax system includes tools designed to prevent double taxation for citizens living abroad:
- Foreign Earned Income Exclusion: may let you exclude a portion of foreign earned income if you qualify
- Foreign Tax Credit: may credit taxes you paid to another country against US tax on the same income
- Tax treaties and totalization rules: can affect specific situations
Used correctly, these often mean you are not paying full tax twice on the same dollars. Which tool is best depends on your income type and amounts, and the thresholds change year to year, so this is a conversation to have with a cross-border professional.
What about reporting my foreign bank accounts?
The US has separate reporting rules for foreign financial accounts that are distinct from paying tax. If your accounts abroad cross certain balance thresholds, you may need to file informational reports even if you owe no additional tax. Penalties for missing these can be significant, so make sure your tax professional asks about your Costa Rican accounts.
What records should I keep as an expat?
Good records make cross border tax life much easier. Keep organized copies of your income, any taxes you pay in Costa Rica, your bank statements, and your residency documents. When it is time to claim the Foreign Tax Credit or the Foreign Earned Income Exclusion, your professional needs clear documentation of what you earned and what you paid where. Starting a simple filing system in your very first year abroad saves a scramble later.
Does owning a Costa Rican company change things?
Some buyers hold property through a Costa Rican corporation, which can carry its own filing and reporting obligations in both countries. That is not automatically good or bad, it simply adds steps, and the US in particular has detailed rules for reporting foreign entities. If you are considering this structure, get advice from a cross border professional before you set it up, not after, so you understand the yearly obligations that come with it.
What do Canadians need to know?
Canada taxes based on residency rather than citizenship, so the rules differ from the US. Whether you remain a Canadian tax resident after moving depends on your ties to Canada, and severing residency has its own requirements and consequences. Canadians should speak with a Canadian cross-border accountant about residency status before assuming their tax picture.
Who should I actually talk to?
Taxes are the area where general information is least useful, because the right answer depends on your income, residency, and goals. Before you move, line up a cross-border tax professional who handles Costa Rica and your home country. It is a modest cost that prevents expensive mistakes, and it lets you enjoy the move without a nagging worry about what you might have missed.