Taxes on CD Interest
Understanding withholding taxes and how they impact your net returns. A complete guide to tax rates in Costa Rica.
Overview
When you earn interest from a CD in Costa Rica, the financial institution automatically withholds income tax from your interest earnings. This is called "withholding tax" or "retención de impuesto" in Spanish.
The tax rate depends on the type of financial institution where you have your CD. Rates range from 7% to 15%, with most banks charging 15%.
Tax Rates by Institution Type
Banks
15%
Public and private banks charge 15% withholding tax
Cooperativas
15% / 7%
Standard 15%, or 7% with special tax regime
Mutuals
7-15%
Varies based on institutional classification
Note: Some cooperativas and mutuals qualify for special tax regimes that allow a 7% rate instead of the standard 15%. Check with your institution.
Understanding Gross vs Net Rates
Gross Rate
The annual interest rate before taxes are applied. This is the number advertised by the institution.
Example: A CD advertised at 5.45%
Net Rate
The actual return you receive after withholding tax is deducted. This is what matters for comparing CDs.
Example: 5.45% - (5.45% × 15% tax) = 4.63% net rate
Why This Matters:
When comparing CDs, always use NET rates, not gross rates. That's the actual money you'll receive.
Calculation Examples
Example 1: Bank with 15% Tax Rate
Setup:
- Principal: 1,000,000 CRC
- Gross Rate: 5.45%
- Term: 12 months
- Institution: Bank (15% tax)
Calculation:
Gross Interest = 1,000,000 × 5.45% = 54,500 CRC
Tax Withheld = 54,500 × 15% = 8,175 CRC
Net Interest = 54,500 - 8,175 = 46,325 CRC
Net Rate = (46,325 / 1,000,000) × 100 = 4.63%
Result:
You receive 1,046,325 CRC at maturity (principal + net interest)
Example 2: Cooperativa with 7% Tax Rate
Setup:
- Principal: 1,000,000 CRC
- Gross Rate: 5.50%
- Term: 12 months
- Institution: Cooperativa with special regime (7% tax)
Calculation:
Gross Interest = 1,000,000 × 5.50% = 55,000 CRC
Tax Withheld = 55,000 × 7% = 3,850 CRC
Net Interest = 55,000 - 3,850 = 51,150 CRC
Net Rate = (51,150 / 1,000,000) × 100 = 5.12%
Result:
You receive 1,051,150 CRC at maturity (principal + net interest)
Comparison
| Item | Bank (15%) | Cooperativa (7%) |
|---|---|---|
| Gross Interest | 54,500 CRC | 55,000 CRC |
| Tax Withheld | -8,175 CRC | -3,850 CRC |
| Net Interest | 46,325 CRC | 51,150 CRC |
| Net Rate | 4.63% | 5.12% |
In this example, the cooperativa with a 7% tax rate provides 4,825 CRC more in net interest, even though the gross rate is only 0.05% higher.
Impact on Rate Comparisons
Tax rates significantly affect which CD is truly the best. A cooperativa with a 7% tax rate can provide better returns than a bank with a 15% tax rate, even with a lower gross rate.
Important Rule:
Always compare NET rates (after taxes), not gross rates. This is the true return you'll receive.
Example Comparison:
Bank A
5.50% gross
4.68% net (15% tax)
Cooperativa B
5.20% gross
4.84% net (7% tax)
Bank C
5.40% gross
4.59% net (15% tax)
Best choice: Cooperativa B (4.84% net), despite having the lowest gross rate.
How to Calculate Net Rate
Formula:
Net Rate = Gross Rate × (1 - Tax Rate)
Step by Step:
- Take the gross rate (the advertised rate)
- Multiply by (1 - the tax rate as a decimal)
- The result is your net rate
Example:
5.45% × (1 - 0.15) = 5.45% × 0.85 = 4.63%
Don't Calculate Manually
Our calculator automatically accounts for tax rates when showing you results. Just:
- Enter your principal amount
- Select the term and currency
- Choose an institution
- See your net returns displayed instantly
The calculator factors in the institution's specific tax rate, so you always see accurate net returns.
Next Steps
Now that you understand how taxes affect your returns, use our tools to find the best after-tax rates available.