Costa Rica, Nicaragua have highest tax rates in Central America

November 28, 2013

Costa Rica has the second highest total tax rate in Central America and the Caribbean, behind only Nicaragua, according to a new report from the World Bank and PricewaterhouseCoopers.

The report Paying Taxes 2014 compared tax regimes from 189 countries during the previous year and reported that while there have been improvements, Latin America has one of the world’s most onerous tax systems.

Regionally, Central America and the Caribbean’s Total Tax Rate (TTR), the total cost of all taxes levied, is below the world average of 43.1 percent. But Costa Rica’s TTR comes in at 55.3 percent, according to the report, just after Nicaragua’s at 64.9 percent. The high tax rate in Costa Rich helps fund various social programs in the country, including a socialized health care system that’s long been considered one of the best in the Americas (although recently it’s faced a funding crisis due to mismanagement – and tax fraud and delinquency).

While still a hair below the global average, Central America’s TTR (42.8 percent) is right behind South America (52.7 percent) as the third and second highest total tax rates in the world. Only Africa has higher TTR, 52.9 percent, according to the report.

Despite some of the highest average taxes in the world, the ease of paying taxes, especially when it comes to the number of taxes and the time it takes to comply, is Latin America’s biggest tax headache.

It takes more time to file taxes in South America than any other region in the world. Companies there need an average of 618 hours — twice the global average — to file their taxes. .

But Brazil takes the cake. The report’s dummy company needed 2,600 hours to comply with Brazil’s tax code, more time than any country in the world. Compare that to the United Arab Emirates, where the report estimated a company could file all its tax paperwork in just 12 hours.

The report noted that Costa Rican businesses needed 60 fewer hours to file after the country implemented electronic filing in 2006. Guatemala made the biggest strides in the world from 2012-2013 in improving “the ease of paying taxes” during the past year, mostly due to the implementation of online tax filing.

Not a fan of taxes? Try Macedonia. Paying Taxes 2014 reported that the former-Yugoslav republic has the lowest TTR in the world, 8.2 percent. Meanwhile, the Middle East enjoys the “least demanding” tax systems.

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