International freight and withholding taxes: an interpretation by the Treasury that deserves review

By: MAF Gabriela Páez | Tax Manager - EAS LATAM

The consultation MH-DGT-CONS-119-001-2026 raises a relevant criterion for importers and logistics operators: Taxation considers that certain payments to non-resident suppliers for international freight transport may be subject to the Tax on Remittances Abroad (IRE), with a withholding of 25% on the gross amount.

This issue warrants review because international freight is typically included in the CIF (cost, insurance, and freight) value used to clear goods through customs in Costa Rica. Therefore, applying a withholding tax on freight payments should not be treated as an automatic operational matter, but rather as a discussion of source, territoriality, and proper legal interpretation.

1. What does the query say?

The consultation analyzes the case of a Costa Rican company that directly contracts non-resident suppliers for international air, land, and sea transport services, without a permanent establishment, agency, or local representation. The taxpayer argues that, in such cases, the freight should be treated as extraterritorial income.

The General Directorate of Taxation concludes the opposite. According to its interpretation, if the service is provided, used, deployed, or takes effect in Costa Rica, the payment to the non-resident constitutes Costa Rican-source income and a 25% withholding tax (IRE) must be applied to the gross amount.

2. Why does customs treatment matter?

From a customs perspective, international freight is not an isolated service. It is part of the cost necessary to prepare the goods for import. Therefore, it can be included in the CIF value declared for customs clearance.

The consultation itself acknowledges that, when international transport is included in the CIF value and VAT has already been considered in the customs settlement, it is not appropriate to issue an additional electronic purchase invoice or to self-assess VAT again for that same freight.

This recognition is key: for customs and VAT purposes, the Treasury accepts that freight costs can be absorbed within the process of nationalizing the goods. The debatable point is whether, for income tax purposes, the same economic component is treated as Costa Rican income taxed as a remittance abroad.

3. It is not double taxation, but it may be a misinterpretation

Technically, this is not a case of double taxation. Import VAT and the IRE (Income Tax on Real Estate) are based on different circumstances. However, this could generate an overlapping economic burden and, above all, a questionable interpretation of the concept of Costa Rican source income.

Payment from Costa Rica may trigger the formal obligation to analyze a withholding tax, but it should not, by itself, define the source of the income. For the withholding tax to apply, there must first be income from a Costa Rican source.

In international maritime transport, a container freight charge does not represent a profit generated in Costa Rica. It typically covers fuel, vessel operation, crew, captains, insurance, ports, equipment, maintenance, and international logistics costs. Therefore, taxing the gross amount with a 25% withholding tax could have a disproportionate economic impact.

4. Practical example

Let's assume a maritime freight of US$3,500 per container paid to a non-resident shipping company:

Concept	Amount
Agreed international freight	US$3,500
Intended 25% retention	US$875
Net payment to the supplier if they accept the withholding.	US$2,625

Commercially, an international shipping company is unlikely to accept US$2,625 for a service agreed upon at US$3,500. If it demands to receive the full net amount, the importer would have to assume a gross-up, increasing the freight cost.

Concept	Amount
Net amount required by the shipping company	US$3,500
Gross payment required with 25% withholding	US$4,666.67
Withholding to be paid	US$1,166.67
Total economic cost to the importer	US$4,666.67

5. The international transport rule

The legal issue is that the Income Tax Law contains specific rules regarding international transportation. In the inquiry, the taxpayer invokes the rule that refers to income derived from transportation between Costa Rica and foreign countries, and vice versa, especially when the companies are domiciled in Costa Rica or when the service is contracted through agencies or representatives of foreign companies.

If a special rule exists for international transport, it does not appear sufficient to resolve the case solely through a general rule on services that produce effects in Costa Rica. The Administration should justify why the general clause and a 25% withholding tax on the gross amount should be applied, instead of first analyzing the special rule for international transport.

The discussion, then, should not be reduced to the place of payment. The correct question is whether international freight paid to a non-resident shipping company, carrier, or freight forwarder, without a permanent establishment or local agency, actually constitutes Costa Rican-source income.

6. The international perspective

Internationally, the transport of goods and passengers has traditionally received special tax treatment, precisely because of the cross-border nature of these activities. Article 8 of the OECD Model Tax Convention establishes that profits derived from the operation of ships and aircraft in international traffic are, as a general rule, taxed in the State where the carrier's residence or effective management is located.

Although Costa Rica only applies this rule when there is a double taxation agreement that so provides, the OECD criterion remains a valuable reference for understanding how international transport taxation is addressed internationally and the risks that can arise when the same operation is intended to be taxed in more than one jurisdiction.

From this perspective, a valid question arises: Is it reasonable to automatically consider all payments made to non-resident international carriers for foreign trade-related transactions as Costa Rican-source income? The answer does not seem so obvious, especially in activities that, by their very nature, take place across several countries and markets simultaneously.

7. What should companies review?

• agreed Incoterm and who legally assumes the transport.

• Who hires, who pays, and who appears as obligated to the transport provider.

• If the freight was included in the CIF value and in the customs declaration.

• If there is a separate invoice for the freight and if the supplier is a non-resident without a permanent establishment.

• If the contract with the shipping company or freight forwarder establishes a net price, gross price or gross-up clause.

• Consistency between contract, commercial invoice, bill of lading, payment receipts and customs declaration.

The ruling MH-DGT-CONS-119-001-2026 adopts a broad and unfavorable position towards importers. This may make sense from a revenue collection perspective, but not necessarily from a systematic interpretation of income, customs, and international trade.

International freight is part of the cost of clearing goods through customs. Treating it as Costa Rican income taxed at 25% on the gross amount, solely for payments made from Costa Rica or based on the cargo's destination, could generate debate regarding the scope of the concept of Costa Rican source income.

Due to its economic impact, this criterion should not be applied automatically. In significant or recurring transactions, it warrants specialized legal review and, potentially, escalating the discussion to a higher administrative or judicial body.

References

· Directorate General of Taxation. Consultation MH-DGT-CONS-119-001-2026, April 28, 2026. Tax treatment of remittances abroad, international freight transport, VAT, electronic purchase invoice and CIF value.

• Income Tax Law, Law No. 7092, and its amendments. Rules on income from Costa Rican sources, remittances abroad and applicable rates.

· Regulations to the Income Tax Law, Executive Decree No. 43198-H, and its amendments.

· General Customs Law, Law No. 7557, and its regulations. Rules on customs valuation and elements that make up the customs value.

· General Directorate of Customs. Circular MH-DGA-CIR-060-2023, on the declaration of internal transport in Costa Rica and its treatment in relation to customs value.

Organization for Economic Co-operation and Development (OECD). (2025). The 2025 Update to the OECD Model Tax Convention . OECD Publishing. https://www.oecd.org/en/publications/the-2025-update-to-the-oecd-model-tax-convention_5798080f-en.html