At Costa Rica’s Foreign Ministry, Costa Rica joined Mexico as the second country in Latin America to sign a memorandum of understanding to comply with the U.S. Foreign Account Tax Compliance Act (FATCA) on Tuesday afternoon.
Costa Rican Finance Minister Edgar Ayales and U.S. Chargé d’Affairs Gonzalo Gallegos signed the memo, ratifying the agreement that financial institutions would report the holdings of U.S. citizens living in Costa Rica, or face a 30 percent retention tax on payments from the United States.
Under the memorandum, Costa Rican financial institutions will report this information to the Finance Ministry, who will then submit it to the Internal Revenue Service.
Starting on March 31, 2015, local financial institutions will have to start reporting to the IRS information about their U.S. taxpayer clients who conducted transactions during 2013 and 2014. Starting in 2016, personal accounts containing more than $50,000 and corporate accounts containing more than $250,000 will be reported.
“This shows Costa Rica’s willingness to be transparent [and] collaborate in the fight against tax evasion, money laundering, and legal loopholes,” said Ayales, who added that sharing financial information would improve the country’s once notorious reputation as a tax haven and bring Costa Rica in line with international banking standards.
Gallegos added that the mechanism would benefit both countries.
“FATCA is not a mechanism to collect taxes directly,” Manrique Blen, a tax specialist with Deloitte in Costa Rica, told The Tico Times, “It’s a mechanism to collect information, investigate and then decide if there needs to be additional collection.”
Blen reminded U.S. expats living in Costa Rica that the U.S. tax system obliges them to report their holdings abroad, even if they don’t receive an income. The tax specialist added that besides personal accounts, FATCA requires financial institutions to list any U.S. shareholders with at least a 10 percent stake in a Costa Rican corporation.
In 2010 the United States passed the HIRE Act, which grants incentives to employers who contract persons who have been unemployed for a certain period of time. To cover the cost of these incentives, the government created FATCA, which institutes a series of controls over international financial operations.