Some expats in Costa Rica arrive without ever needing to work another day in their lives. How fortunate for them! Others, like me, have to work for a living.

This post explains the ins and outs of earning income as a Costa Rica expat.

Legal Implications

I was only being half facetious with the “legal” qualifier. Some expats – not you or me, of course – come to Costa Rica with the idea of exploiting the local population for nefarious causes, or they get involved in questionable pursuits. Some of them are shown the door by Costa Rican immigration authorities. Others end up in a Costa Rican carcel (Spanish for jail). Please don’t be one of those!

What can you do legally for earning income as a Costa Rica expat? Well, for starters, if you aren’t yet a resident, or even if you have achieved “temporary residency status”, you can’t be an employee of your own company, or anyone else’s. You can, however, start, own, and operate a business as a manager/owner. You can draw income in the form of cash distributions, or even loans, from that business.

Lifestyle Income Producing Options

One thing many expats get into, including yours truly, is real estate. Now, granted, I’m a permanent resident. So, I could work and draw a salary in Costa Rica as an employee with all the worker’s rights afforded a Costa Rican citizen. I’ve never done that and don’t plan to. But, even if I wasn’t a permanent resident, I could still work as a real estate agent under the roof of a local real estate brokerage. In my case, that’s Coldwell Banker in Dominical. I am essentially operating my own business as an agent. And you can do the same. Many do and do so without ever receiving any form of Costa Rican residency.

There is a wrinkle that has only recently come to the fore for non-resident agents, i.e., perpetual tourists operating as real estate agents. The government agency that regulates banking (SUGEF), especially as it relates to potential money-laundering, is now requiring all agents to register. In order to do that you have to get what’s called a digital signature. In order to get that you have to be a resident. Many agents are getting around the requirement by registering through corporations. But that is more difficult and I wouldn’t be surprised to see the SUGEF close that loophole in the future, effectively making it impossible to legally work as a real estate agent as a non-resident.

Real estate is just one lifestyle business option one might choose for earning income as a Costa Rica expat. Many also operate online businesses as writers, consultants. tourism agents, sellers of various products, etc., etc. These days offering your expertise, or some unique product, online is a great option. You’ve got the whole world as your market.

Renting property, either in the form of long-term rentals, or vacation rentals, is a great idea. You could convert your property to a B&B. You could simply rent out a separate room, or studio apartment, on Air B&B, Home Away, VRBO, or others. You could buy and operate a small boutique hotel.

Many get involved in offering some kind of unique tourism experience to vacationers. Others get involved in producing arts and crafts, or organic products, and sell them to other expats. The list of ideas in virtually endless.

Hiring Employees

Even though as a non-resident, or even as a temporary resident, you can’t work for your own company as an employee, you can still hire others. Costa Ricans can make great employees, sometimes. If you plan on hiring employees in Costa Rica you need to know what you’re getting into. Costa Rica has very strict pro-worker laws that govern employment relationships. Hard-core capitalists would probably call them socialistic.

Employment taxes are extremely high compared to the U.S. Employers must kick in around 26% of wages, with the employee having to pay an additional 9%. The employer is responsible for collecting and remitting these taxes to the CAJA, or Costa Rica social security administration.

Employees are guaranteed a full month’s wage bonus at the end of the year, called the aguinaldo. That must be paid regardless of your business’s ability to pay it. It is also hard to fire an employee and when you do you have to pay them a guaranteed severance plus any unpaid vacation for every year they worked.

I have paid out $1,000’s for these items to employees over the years. It is probably better to steer clear of hiring employees in Costa Rica to the extent that is feasible for your business. And if you do hire, make sure to dot your i’s, cross your t’s, and get a good lawyer to advise you.

Getting Paid

Getting paid from customers buying your goods or services from afar is incredibly easy these days. You can use an online payment processor like PayPal, Square, or many others. You can link your PayPal account to a Costa Rican bank, or it can be linked to a U.S. bank. In the latter case, you can use wire transfers, or ATM withdrawals and credits cards, or a combination of both, to access the funds in Costa Rica.

You can also set up a merchant service account with a Costa Rican bank. It is important to have a corporate Costa Rican account for such purposes, rather than a personal checking or savings account. For instances, a personal account linked to PayPal will only allow you to transfer $1,000 per month from your PayPal balance, whereas for a corporate account that limit goes up to $10,000.

The Tax Man Cometh

Costa Rica will not impose any taxes at all on companies registered in the country, or individual residents of the country, that do not actually generate revenue within Costa Rica. That is far different from the U.S., which taxes the worldwide income of any U.S. citizen, or U.S. corporation.

As noted above, the U.S. has a worldwide income taxation regime. Meaning that the U.S. taxes your income, no matter where it’s generated. So, if you come to Costa Rica and establish some sort of business that generates an income in Costa Rica, you are required to report it on a U.S. income tax return.

However, you could qualify for what is known as the Foreign Earned Income Exclusion. This allows you to exclude from your U.S. income, foreign earned income of around $100,000 per taxpayer (so, $200,000 for marrieds filing jointly). The exact amount of the exclusion is adjusted each year for inflation.

To qualify for the exclusion you either have to have lived in the foreign country for at least 330 days out of any period of 12 consecutive months, or have lived in the foreign country for an entire tax year.

The exclusion is complicated and the ins and outs of its application are beyond the scope of this post. For more complete information, you should obviously consult a tax professional.

As an expat you can have bank accounts in local and/or U.S. currency. There are reporting requirements for foreign owned bank accounts. One is the FBAR (Foreign Bank Account Report), which is required if you have $10,000 or more in your foreign bank account at any point during the U.S. tax year. Also, there is the FATCA (Foreign Account Tax Compliance Act), by which foreign financial institutions are required to report on the accounts of their American clients as part of the U.S. initiative to uncover tax cheats. If you have specified foreign financial assets that exceed certain thresholds, you are required to file Form 8938 (which you would send with your regular tax return to the IRS).

Costa Rica passed a law not too long ago that requires certain accounts, especially those owned by foreigners, to be verified periodically. They call it the requirement to “actualizar datos.” It simply means you have to show them where the money is being generated. The law was enacted to prevent money laundering. It’s not that onerous a requirement, but it can slip up on you. If you fail to do it, you might find your account frozen until you do. The bank is supposed to notify you and give you time to do it, but I’ve had my account frozen without them ever telling me a thing.

How I’ve Made a Living in Costa Rica

I’ve operated a tourism business in Costa Rica since 2003. I now also work as a real estate agent with Coldwell Banker in Dominical. I’ve done other things as well for earning income as a Costa Rica expat. I once owned a small shop in San Jose where I sold 100% indigenous arts and crafts that I acquired on a “fair trade” basis directly from the 6 tribes of Costa Rica. I also sold the arts and crafts online via a web site. So, I’ve done quite a few things to make a living during my almost two decades of expat experience.

With the exception of the real estate income that I generate these days, income that I have earned has always been generated abroad. Virtually 100% of my sales were online and most of the time customers where either in the U.S., or Canada. For years I used a merchant service account in the U.S., as well as PayPal, to accept payments.

I transferred the money to Costa Rica primarily with international bank wires, or I would simply use my PayPal debit card to get money from ATMs in Costa Rica, or make payments with the card. Constantly moving money from the U.S. to Costa Rica can get expensive. It will definitely take a bite out of your profits. Back when I started there weren’t really good options for Costa Rican based merchant service accounts. Now there are. Also, back then there was no way to link a PayPal account with a Costa Rican bank account. Now there is. So, bottom line is that these days it’s much easier to operate your business and get paid than it was when I first started.

It pays to think all these issues through with respect to your ideas for earning income as a Costa Rica expat. How will you get paid? How will you access the money in Costa Rica in the cheapest manner possible?

It’s best to take a clue from the ticos, who work in order to live, as opposed to the common gringo mentality of living in order to work.