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San José, Costa Rica, Monday, Sept. 26, 2016, Vol. 17, No. 190
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U.S. income tax avoidance drawing some to live here
By the A.M. Costa Rica staff

There is no secret that some mid and-upper range landlords are having a tough time filling their apartments and condos.

The repeated complaint is that Costa Rica is just attracting expats who only want to pay under $400 for an apartment or house rental.

Also true is the growth of telecommuting. In fact, the Costa Rican government is promoting telecommuting for its employees to cut down on traffic and increase employee morale.

However, the government has not promoted Costa Rica as a telecommuting location for foreigners.

Some landlords are doing that now, and several travel and relocation agencies also have promoted the concept to foreigners.

The big benefit is to duck the North American or European winter and conduct business from a Central Valley apartment or a central Pacific condo.

And for U.S. citizens and green card holders, there is an additional economic benefit already well-known to some perpetual tourists here. Uncle Sam exempts citizens and other taxpayers on the first $101,000 of annual foreign earned income. For many that income tax break is enough to pay the rent and make a couple of trips north a year.

The amount exempted keeps going up. And the U.S. Internal Revenue Service says that taxpayers can exclude or deduct certain foreign housing amounts.

The U.S. Congress is being urged by expat advocacy organizations to eliminate the citizenship-based tax in favor of a territorial one, like Canada has. But expats have low priority with Washington politicians. Consequently, the tax break is likely to continue for years.

The U.S. rules, like everything else in Washington, are complex, and professional help is needed in most cases. For example, for some reason the exemption does not  cover pay for services conducted in international waters. The I.R.S. summary is HERE!

Those U.S. expats working here are a mixed bunch. They include those at sportsbooks who probably would not pay U.S. income tax anyway, to writers, bookies, Web site designers sales people and day traders.

Some come here with a clientele.

another day at the office
A.M. Costa Rica file photo
Another day at the office

Fortunately, the local Internet infrastructure can handle most video conferencing and telecommuting needs, although a few day traders have been known to panic when their Internet connection failed as they were trying to buy or sell stock.

U.S. employers sometimes favor the setup because they can outsource and avoid Social Security payments and similar charges at home, and the person doing the job is the same one who had just been a stateside employee.

Of course, expats working here are subject to Costa Rican taxes, but plenty evade this by accepting payment in the United States. In addition, the Costa Rican tax brackets are generous. Expats who have corporations face a stiffer local tax, but many simply do not enroll with the Dirección General de Tributación or even with the Caja Costarricense de Seguro Social.

The situation might change in the next few years as Costa Rica and the United States exchange more and more tax information.

Theoretically, tax inspectors here could flag U.S. taxpayers who claim an exemption or credit and are living here. Still, the Costa Rican tax bite is not as big as that in the U.S., and the inspectors are not as competent or tenacious.

Tourists are not supposed to work here, but that rule seldom is enforced.  The informal rule is that tourists can work here until a Costa Rican complains that the foreigner is taking his or her job.

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