From the print edition
For many expats, learning another language can be a challenge. Combine that with another complex topic – foreign tax laws – and you have a recipe that stumps many foreigners living in Costa Rica.
To address the issue and prepare residents for major Costa Rican tax changes that will take effect April 1, a group of tax experts is putting on a seminar to help people navigate the treacherous waters of tax filings in a foreign land.
Randall Lindner, who operates a tax and accounting service in Costa Rica, said U.S. citizens are in a particularly precarious situation because unlike almost all other countries, the United States requires its expats to maintain yearly filings in their mother country as well as in their new country of residence.
According to the Internal Revenue Service website, rules for filing taxes are generally the same whether you are in the U.S. or abroad, and worldwide income is subject to U.S. income tax, regardless of country of residence. Lindner said even this very important detail is unknown to many U.S. foreign residents in Costa Rica.
“My office stays continuously busy just to keep people out of trouble,” he said, signaling toward several file cabinets full of clients’ paperwork. “People are getting in trouble because they don’t know [the law].”
There are also sticky rules pertaining to money kept in foreign bank accounts. Lindner said more than a $10,000 cumulative amount in overseas accounts must be reported, and the U.S. government is now monitoring all foreign bank accounts more closely. Previously, he said, underreporting overseas transactions was something a person could “get away with.” Now, with increased cooperation from Costa Rican banks, expats shouldn’t be surprised if more information is requested from a foreign account-holder conducting seemingly simple transactions.
But the U.S. aspect of taxes is just one side of the coin for residents living abroad. The unfamiliar Costa Rican tax system can pose an even greater problem. According to Jorge Granados, a Costa Rican tax specialist and an associate of Lindner, people often move to Costa Rica and think that because they independently prepared their taxes in the U.S., they will also be able to do so in a foreign country.
He listed a few problems people who try to do this often run into: multiple and varied filing dates in Costa Rica versus the U.S., different standard accounting methods, a proprietary tax software that can be difficult to navigate and specialized receipts necessary for deductions. And when the new Costa Rica tax laws take effect, one of the major changes will be a new tax on corporations often used by expats to hold personal assets such as cars and homes. Granados said misreporting can jeopardize assets.
And matters get even more complicated when other legal issues are involved. Costa Rican attorney Juan Carlos Castro, who will also be speaking at the seminar, said a slew of complications can arise from certain transactions and legal affairs – including running a business, hiring a maid, making a will, acquiring property and divorce. Failure to pay alimony is one of the few causes for jail time in Costa Rica stemming from a non-payment issue. Castro encouraged people to seek expert help.
Castro, Granados and Lindner will all be speaking at the forum March 27 at 6:30 p.m. at Tony Roma’s in Escazú, southwest of San José. Entrance fees to cover hosting costs are $35 in advance and $50 at the door. Call 2220-0227 to make reservations.