Nuestra Señora de la Muerte.
Imaginations of a secret death cult tormented me as I rounded yet another hairpin bend on a mist-shrouded mountainside. A lightly guardrailed drop of lord knows how many hundreds of feet was just inches away.
“Pura vida, hell,” I thought to myself grimly. “These ticos want to end it all and take me with them.”
I’d seen some dodgy driving. I thought African minibus taxis were the worst. But that was before I drove a rented jeep across the mountainous back roads from Quepos to San José, Costa Rica, during a rainy harvest season. Massive flatbeds packed with heavy sacks of coffee beans crawled up the steep single-lane passes. Impatient locals thought nothing of overtaking them against the traffic on the blind curves… presumably crossing themselves as they did.
“Ah, señor,” said the bartender back at the hotel, as I explained that my shaking hands weren’t due to alcohol deprivation. “Only locos make that trip this time of year.”
Call me loco, because this week I head back to Costa Rica to do it again…
Costa Rica: The “Uruguay” of Central America
Costa Rica is an unusual place.
For starters, its army was disbanded shortly after World War II in order to take military coups out of the political equation. It’s been peaceful ever since, unlike its Central American neighbors.
Like Uruguay farther south, Costa Rica has a strong track record of good governance, strong economic growth and good policies on individual rights, human development and care for the environment. Thanks to its military-free budget, it has a highly educated population, low inequality and correspondingly low crime.
The country’s focus on good living rather than political squabbling has allowed it to move from dependence on coffee and banana exports to a diversified economy embracing medical and ecotourism, pharmaceuticals and software. It has good infrastructure and communications services.
To top it all off, ticos have been at the top of global “happiest people” lists for years.
An Open Society
With 3.5 million tourists annually, Costa Rica is the most visited nation in Central America. The main nonregional sources are the U.S. and Canada, although European visits are growing fast thanks to a new international airport at Liberia on the Pacific coast. Tourism now brings in more foreign exchange than bananas and coffee combined.
The country is home to about 50,000 Americans and a smaller number of Canadians. They come for the climate and environment, but also to take advantage of a good standard of living at a lower cost than at home. You can get residence by proving at least $1,000 in monthly retirement or other income. There are currently no taxes on foreign source income.
Once you’re in, you can enroll in Costa Rica’s excellent public health care system, where you pay a small monthly income-based fee that gives you access to more than 30 hospitals and 250 clinics. Private health care is world-class, which is why many people go there for surgery. Overall health care costs are a fraction of the U.S. Private health insurance costs about $60 a month.
Housing costs are reasonable, but as you might imagine with so many foreigners around, homes aren’t super cheap. Houses on the popular Pacific coast can run to the millions, and rentals can be several thousand dollars a month. But decent family homes slightly back from the coast or inland can be had for much less than comparable properties in the U.S.
So What’s the Catch?
Unlike Panama to the south, Costa Rica doesn’t have a strong banking tradition. Costa Rican law makes it easy for government and tax authorities to learn the owners of accounts. It’s also compliant with international tax-reporting agreements. It’s not known for offshore legal structures.
That’s because, unlike Panama, the country has little history in private banking. Until 1996, the only banks in the country were public institutions. Private banks have since emerged, but they just aren’t set up for the sorts of international banking in which Panama (or the Cayman Islands) specialize. They’re just everyday retail banks, albeit solid ones.
In addition, although foreign source income isn’t currently taxed, the government of President Luis Guillermo Solís recently proposed to tax the worldwide income of Costa Rican tax residents. That status would apply to anyone who spends more than 183 days a year in the country.
The law would give credit for foreign taxes paid, which is good. But it’s unclear whether it would tax U.S. taxpayers’ foreign income that currently enjoys the Foreign Earned Income Exclusion ($100,800 per annum, double for couples). It might also lead to Costa Rican taxation of Roth IRA distributions, which are tax-free in the U.S.
The Preliminary Verdict
People often ask my opinion of specific countries. My answer is usually: It depends. What do you want from a country?
Costa Rica is a great place if you want to retire in a beautiful, safe country with a warm climate, friendly people and a high standard of living. But it’s not the place to keep your money or to set up a foreign asset protection vehicle.
But as I stress, money isn’t everything. It’s just a means to an end… and depending on your goals, Costa Rica might just be the place to end up.