Costa Rica and a US annuity: territorial tax, no treaty, and a $500,000 example
Written by Hans Goldstein, EA, licensed insurance agent · CA 4273294Admitted to practice before the IRS
Short answer: Costa Rica taxes only Costa Rican-source income, and a pension or annuity paid from abroad is generally outside it, so the US tax is the only tax on a US annuity. There is no US-Costa Rica income tax treaty, so no treaty credit is involved and none is needed. In my $500,000 example you pay $2,200 a year, 6.3% of the $35,000 check, all to the US. The risk is bill 25.796, filed 22 September 2026, which would tax residents’ foreign passive income at a reported 15%; it is not law and press reports do not say whether annuities are covered.
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How Costa Rica taxes a resident’s annuity
Costa Rica taxes on a territorial basis. Ley 7092 defines Costa Rican-source income as income “generated exclusively in the national territory” (art. 1, Ley 7092 art. 1, checked 18 Oct 2026), and PwC describes income taxes on individuals as levied on local income, whatever your nationality or residence (PwC, checked 18 Oct 2026). A resident is anyone who spends more than 183 days in the country in a fiscal period (PwC, checked 18 Oct 2026). On its face, then, a payment from a US insurer under a US contract is foreign-source and outside the tax. That is my reading of the statute: I found no ruling written for a purchased US annuity, so it is not a certainty. The one exception in the law today is certain passive foreign income, and only when a member of a multinational group earns it through an unqualified entity (Ley 7092 art. 1, Ley 7092 art. 1, checked 18 Oct 2026). That is not a retiree.
PwC also says Costa Rica allows individuals no credit for taxes paid to foreign governments (PwC, checked 18 Oct 2026). That matters only if a foreign tax were charged on income Costa Rica taxes, which today it does not on a foreign annuity.
SPIA, DIA and MYGA
A SPIA, and a DIA once it pays, are the same here: foreign-source payments outside the Costa Rican tax, so the US exclusion ratio is the only tax calculation. A MYGA or other deferred annuity that is growing is also foreign-source, so there is no Costa Rican tax on the build-up or on the withdrawal today. The US still taxes the gain when you withdraw it (IRC 72(e)).
The pending bill, number 25.796
On 22 Sept 2026 the Executive filed bill 25.796, which would change Ley 7092 so that foreign-source passive income is taxed by residence, for residents in general, with a deduction, not a credit, for similar foreign tax (KPMG, checked 18 Oct 2026). Press coverage says the general rate would be 15% and lists interest, dividends, royalties, rents and capital gains; it does not say whether pensions or insurance annuities are covered (La República, checked 18 Oct 2026). It is in the legislative process and not law (KPMG, checked 18 Oct 2026). Whether annuity earnings would fall inside it is not settled, so ask a Costa Rican adviser to track it before you buy a large contract.
The pensionado visa has its own $1,000 a month lifetime income rule, covered on the Costa Rica pensionado page. I did not find a tax rule that applies to pensionados differently from other residents, so the territorial rule above is the one to use.
Treaty: none
Costa Rica is not on the IRS list of United States income tax treaties (IRS, checked 18 Oct 2026). With no treaty there is no annuity article, no saving clause and no re-sourcing rule: each country applies its own law. The US foreign tax credit only offsets US tax on foreign-source income (IRS Pub 514, checked 18 Oct 2026), and the taxable part of a US insurer’s annuity is generally US-source, so a Costa Rican tax on it would be hard to credit. Today that does not bite, because Costa Rica charges none.
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Estimates use the September 9, 2026 ImmediateAnnuities.com payout survey (life only) and a 15% cushion. Illustrative, not a quote.
Who taxes first, and does it cancel out?
Nothing needs to cancel. Under current law Costa Rica does not tax the payment, so the US tax is the only tax: you pay what you would pay in the US, and no more. If bill 25.796 passed and reached the gain share of your annuity, a 15% Costa Rican tax would be on top of the US tax, not credited, because there is no treaty and the income is generally US-source. That is a hypothetical, shown below.
Wealth tax, inheritance and exit
PwC’s individual summary for Costa Rica lists property tax at 0.25% of appraised value and a 1.5% real estate transfer tax, and no net wealth or inheritance tax (PwC, checked 18 Oct 2026). That is absence in a summary, not a statute I read, so ask a local adviser to confirm for your heirs. I did not find an exit tax on individuals. A US annuity is in no Costa Rican wealth base I could find. US tax on you as a citizen stays wherever you live (IRS).
Refund or death benefit
A refund feature cuts the check by roughly 5% in my model and pays heirs if you die early. I did not find a Costa Rican rule on a refund paid to a beneficiary, and PwC lists no inheritance tax, so I cannot say how a cash refund is treated there. Not settled. On the US side the refund feature lowers your investment in the contract by its actuarial value, which shrinks the exclusion (IRC 72(c)(2); IRS Pub 939, checked 18 Oct 2026).
Dollar and colón risk
The annuity pays dollars and local costs are in colones. OECD monthly averages via FRED show the colón at 452.29 per dollar in Sept 2026, the strongest dollar-for-colón rate in 20 years, down from 685.64 in June 2022 (FRED, checked 18 Oct 2026). A $35,000 check was worth about 24.0 million colones at the 2022 high and about 15.8 million now. I do not predict it. A dollar income against colón costs is a real exposure.
The US side, the same wherever you live
You stay taxable in the US on worldwide income as a US citizen (IRS). On a non-qualified life-only immediate annuity (SPIA) only the gain share of each check is taxable: the exclusion ratio is your investment divided by the expected return (26 U.S.C. 72, IRC 72(b)). The expected return is the yearly payment times the Table V multiple, which is 20.0 at age 65 (IRS Pub 939, Table V). " "Once you have recovered your premium the exclusion stops and every dollar is taxable (26 U.S.C. 72(b)(2), IRC 72(b)(2)). A deferred income annuity (DIA) is taxed the same way once payments start. Money from an IRA is different: every check is taxable.
Worked example: $500,000 SPIA at 65, illustrative
A US citizen, age 65 at the start, pays $500,000 of after-tax money for a life-only SPIA. I assume a payout of 7.0%, or $35,000 a year (illustrative, not a quote). Expected return is 20.0 x $35,000 = $700,000, so the exclusion ratio is $500,000 / $700,000 = 71.4%. Each year $25,000 is excluded and $10,000 is taxable until the $500,000 is recovered, about year 20. After that the full $35,000 is taxable. " "I assume the $10,000 lands in the 22% federal bracket, which for a single filer in 2026 is taxable income from $50,400 to $105,700 (IRS, Rev. Proc. 2025-32, checked 18 Oct 2026). That is $2,200 a year of US tax. Costa Rica charges nothing on the foreign annuity today, and there is no treaty, so the US tax is the whole bill.
| Per year, in US dollars | Costa Rica today | Hypothetical: bill 25.796 taxes the gain share at 15% |
|---|---|---|
| SPIA check (illustrative) | $35,000 | $35,000 |
| US: excluded / taxable | $25,000 / $10,000 | $25,000 / $10,000 |
| US tax at 22% | $2,200 | $2,200 |
| Costa Rican tax | $0 | $1,500 (15% of $10,000) |
| Credit for the Costa Rican tax | None needed | None: no treaty, income generally US-source |
| Total tax | $2,200 (6.3% of the check) | $3,700 (10.6%) |
| Left after tax | $32,800 | $31,300 |
The right-hand column is a what-if, not law, and the bill’s base for an annuity is unknown. After year 20 the whole $35,000 is taxable in the US, about $7,700 at 22%. Costa Rica does not use an age-based share, so there is no age-70 line; the US exclusion at 70 would use the Table V multiple of 16.0 (IRS Pub 939, Table V).
Reading it. With no treaty and no foreign credit, the US tax stands alone, and that is the simple answer. A MYGA or DIA changes timing only: the US taxes the gain when you draw it, Costa Rica taxes nothing today, and the bill is the risk to watch.
How to use this
If you are weighing Costa Rica, tell me your age and whether the money is IRA or after-tax. I will size the annuity while you still live in the US, and a Costa Rican adviser should confirm in writing the status of bill 25.796 before you buy.
I am a US-licensed insurance agent and an Enrolled Agent (EA, admitted to practice before the IRS). I can only help with annuities while you still live in the US, and I do not give Costa Rican tax or legal advice: get a local adviser’s written view before you move. The payout in the example is an illustrative assumption, not a quote. This is education, not tax advice.
Married? Make the income outlive either of you. In Costa Rica the main applicant shows the income and the spouse joins as a family member, so the annuity sits with the main applicant. If a single-life annuity is on one spouse and that spouse dies first, the payments stop, and the surviving spouse may have to show income of their own at the next renewal. A joint and survivor annuity, which keeps paying until the second death, or a separate annuity on each spouse closes that gap. Joint and survivor pays less per dollar than single life, so ask for both quotes and compare.
Frequently asked questions
Related reading
- Moving abroad on a fixed income: the hub
- Where a US annuity is tax-smart abroad
- The exclusion ratio when you live abroad
- Costa Rica pensionado income requirement
- Wealth tax by country and US annuities
- Costa Rica vs Panama pensionado with an annuity
- Panama US annuity tax for retirees
- Mexico US annuity tax for retirees
Sources
- Ley 7092 (income tax), art. 1, as amended by Ley 10381 (text reproduced by a Costa Rican law firm)
- PwC: Costa Rica, taxes on personal income (reviewed 30 June 2026)
- PwC: Costa Rica, residence
- PwC: Costa Rica, foreign tax relief and tax treaties
- PwC: Costa Rica, other taxes
- KPMG Costa Rica newsflash, 29 Sept 2026: bill 25.796, passive foreign-source income
- La República: bill would tax foreign passive income of Costa Rican residents
- IRS: United States income tax treaties, A to Z
- IRS Publication 514: foreign tax credit limited to US tax on foreign-source income
- OECD via FRED: CRICCUSMA02STM, colones per US dollar, monthly average
- 26 U.S.C. 72 (annuities: exclusion ratio in 72(b), refund feature in 72(c)(2))
- IRS Publication 939 (Rev. December 2025): Table V multiples, refund feature, end of exclusion
- IRS: 2026 inflation adjustments (22% bracket, Rev. Proc. 2025-32)
- IRS: US citizens and resident aliens abroad
Goldstein & Co. LLC dba Goldstein Insurance Services · Hans Goldstein, licensed insurance agent, CA lic. #4273294 · NPN 20602398 · 213-414-2808 · hans@hansgoldstein.com
Education, not tax, legal or immigration advice. Rules, thresholds and exchange rates change; confirm with the consulate or immigration authority and a local tax adviser before you act, and get answers in writing. Hans Goldstein is a licensed insurance agent (CA 4273294) and can only offer annuities to residents of states where he is licensed. Annuity payments are guaranteed by the issuing insurer’s claims-paying ability, not by any government. Payout figures are illustrations from a published survey, not quotes. Immediate annuities are generally irrevocable.