Banking in Costa Rica is not generally associated with offshore tax havens because national authorities there cooperate with international agencies to prevent any illicit financial schemes. However, U.S. citizens living in Costa Rica as residents, students or workers will eventually have a legitimate need to open a local personal bank account. Here’s what you need to know to get started.

Choosing a Bank

Banks in Costa Rica fall into two categories: state-owned (national) and private. You can open an account in either category. There are three state-owned banks to choose from: Banco Nacional de Costa Rica, Banco de Costa Rica and Bancrédito. The largest private commercial banks include BAC San José, Scotiabank and Citibank.

Some very important differences separate the two types of banks. The state-owned ones, for instance, guarantee all deposits and typically have many branch and ATM locations (a prime consideration for residents living in rural or remote areas). However, they are also known for their incredibly long lines.

Private banks, on the other hand, generally have shorter lines and are more likely to employ bilingual staff, which in itself can be reason enough to go private. They may also offer appealing transactional and cost benefits to Americans with whom they have already established a relationship in the U.S.

Opening an Account

Most banks offer accounts in colones, the Costa Rican currency, or dollars. A basic savings account represents the most common type of account and it’s also the easiest to open. That said, establishing a bank account in Costa Rica can be a laborious process, largely because of the huge amount of paperwork involved. Requirements vary among institutions, but they generally revolve around the following:

Identification (ID): In order to conduct any banking transactions, Costa Rican banks require all foreigners residing there to present their DIMEX ID card (issued by Immigration). Tourists, on the other hand, may simply present their passports, but they may only be eligible to open an account at certain institutions.

Minimum deposit: This depends on the type of account, but savings accounts usually require at least US$25 or 5,000 Costa Rican colones.

Proof of residence: You need to present a physical document, such as a utility bill or lease agreement, that states your local residential address.

Proof of income: Independent contractors will need to produce a letter, or “certification of income,” from an accountant, while salaried employees will need proof of income from their local employer.

Additional forms: A local policy called “Conozca a Su Cliente” (Know Your Client) requires that any U.S. citizen with a Costa Rican bank (individual and corporate) verify and update personal information every year. Various tax forms may also be required to inform the IRS of offshore bank accounts.

Reporting Your Income

Costa Rica’s income tax rules must be observed by Americans who reside there, and U.S. citizens living and working abroad must report all worldwide income to the IRS on their tax return. Very costly penalties can apply if your income is not reported correctly. (See also: The Tax Implications of Opening a Foreign Bank Account.)

It is possible for U.S. nationals to avoid double taxation on foreign-earned income through the foreign earned income exclusion and foreign tax credits. However, a tax return must be filed with the IRS to qualify for these benefits.

The Bottom Line

Once you’ve decided between a state-owned and private banking institution, opening a bank account in Costa Rica should be pretty straightforward as long as you meet all of the eligibility criteria.

While the banking system itself is fairly standard, procedures can be relatively slow, so it’s a good idea to practice patience. Customers are also advised to refrain from visiting branches and ATMs on local paydays to avoid even longer-than-usual lines. And remember, any American generating income in Costa Rica must closely observe both local and U.S. tax-reporting rules.

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