Gains from Fluctuations in Exchange Rate Will Be Taxed

October 27, 2010

The Finance Ministry announced this week that income earned through the rise in value of the Costa Rican colón against the U.S. dollar is taxable. At the same time, losses due to changes in the exchange rate can be counted as expenses and deducted from income for tax purposes.

The exchange rate of the colón against the dollar has risen by more than ₡50 since the beginning of the year

“During the last few decades the behavior of the colón was toward devaluation, and so for business with assets in foreign currency the effect was that gains were considered taxable income while liabilities were deductible expenses,” said Francisco Fonseca, the general director of the Finance Ministry’s tax board. “What has changed today is the behavior of the exchange rate, but the tax rule is the same and it is still being applied as it always has been.”

Fonseca explained said that due to the reversed trend in the value of the colón, companies that usually generate liabilities due to the devaluation of the colón will now experience the reverse, although the tax laws remain the same.  

The law regarding fluctuations in income  as a result of the exchange rate was established in 1988, and established that all income generated as a result of changes in the exchange rate is subject to taxation.

On Oct. 27, 2009, the buy value of the colon was ₡577 against the dollar. One year later, on Wednesday, the buy value was ₡504.

The final day to pay income taxes in Costa Rica is Dec. 15.

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