Global Tax Alert | 3 June 2013

Costa Rican Tax Authorities issue rules on deductibility of expenses paid in cash

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The Costa Rican Tax Authorities issued resolution N° DGT-R-017-2013, published in the Official Gazette on 10 May 2013 (the Resolution), which establishes rules on the deductibility of expenses paid in cash for income tax purposes.

The Resolution, which is mandatory for all taxpayers and enters into force on 1 June 2013, states that:

  • Expenses paid in cash in excess of approximately US$2,250 are no longer deductible.
  • Expenses paid in cash in excess of approximately US$110 but not exceeding the US$2,250 threshold are deductible only if certain documentation requirements are met.
  • As an exception to the above, purchases of goods and services paid by offset are deductible subject to satisfying certain requirements.

Expenses paid in cash in excess of approximately US$2,250

Expenses paid in cash in excess of three base salaries,1 i.e., approximately US$2,250, are no longer deductible.

In accordance with the Resolution, expenses incurred by taxpayers in the purchase of assets or services in excess of this US$2,250 threshold can be deductible only if the payments are made through the banking system enabling the identification of the beneficiary thereof, e.g., by means of checks, wire transfers, credit or debit cards.

Expenses paid in cash in excess of approximately US$110 and not exceeding approximately US$2,250

Furthermore and in addition to the deductibility requirements set forth in the Income Tax Law,2 the payer of expenses paid in cash in excess of 15% of one base salary (i.e., approximately US$110) and not exceeding approximately US$2,250 must issue and keep a payment receipt, including the following information:

  • First name, last name and ID number of the individual receiving the cash;
  • First name, last name and ID number of the supplier providing the good or the service in the case of an individual;
  • Corporate name and corporate ID number of the supplier providing the good or the service in the case of a company;
  • Receipt number of the supplier supporting the sale;
  • Full amount of the cash handed over;
  • Signature of the individual receiving the money;
  • Statement made by the payer attesting that it has confirmed the identity of the person to which the cash is being handed over; and
  • First name, last name, ID number and signature of the person handing over the cash.

Exception for purchases of goods and services paid by offset

As an exception to the above, the acquisition of goods and services paid by means of an offset against amounts owed to the buyer by the seller are deductible as long as the offsetting companies have real business operations. Additionally, the companies must be duly registered as taxpayers before the Tax Authorities and the accounting records must support the registered credit and debit accounts.

Endnotes

1. A base salary for 2013 is 379,400 colons (approx. US$751).

2. In principle, all costs and expenses required to produce taxable income as well as to protect investments are deductible. However, the Tax Authorities are empowered to disallow a deduction if, under their judgment, any of the following criteria is met: (i) the expenses are not necessary to produce taxable income, (ii) the expenses are excessive or unreasonable, (iii) the expenses pertain to a different tax year, (iv) the expenses are not supported by appropriate documentation, (v) no withholding was applied (when applicable).

For additional information with respect to this Alert, please contact the following:

EY, S.A., San José, Costa Rica
  • Alexandre Barbellion
    +50 622 089 800
    alexandre.barbellion@cr.ey.com
  • Randall Oquendo
    +50 622 089 800
    randall.oquendo@cr.ey.com
Ernst & Young LLP, Latin American Business Center, Houston
  • Priscila Maya
    +1 713 750 8698
    priscila.maya@ey.com

EYG no. CM3492