AOW, pension and tax in Costa Rica: without a treaty the Netherlands keeps taxing, and without credits

"Costa Rica doesn't tax foreign income" — that is true, and it is exactly the half-truth with which English-language sites put Dutch people on the wrong foot. For an American it is the whole truth, because America taxes its citizens wherever they live. For a Dutch person the sum consists of three parts: what the Netherlands does without a treaty, what Costa Rica does, and what the Wet BEU does with the AOW. This article completes it.

There is no treaty

The Netherlands has with Costa Rica only a treaty on the exchange of information in tax matters — no treaty against double taxation. Costa Rica accordingly isn't on the list of treaty countries of NederlandWereldwijd, and that page says what then applies: if there is no tax treaty with your country of residence, the Netherlands has the right to tax.

With almost every other destination on this site a treaty assigns your pension to the country of residence and you apply for the wage tax exemption. Not here. The Netherlands taxes under its own law everything that comes from the Netherlands: your AOW, your occupational pension, your government pension, your annuity. The SVB and your fund keep withholding, and there is no exemption to apply for. You file a return as a non-resident taxpayer on your Dutch income.

What does fall away, and what comes back for it

Two things lapse with your deregistration: the national insurance contributions and the Zvw contribution. You're no longer insured, so on your AOW and pension you pay only tax — and in the first bracket that saves a lot.

But against that stands something most people don't see coming. Whoever lives outside the EU, the EEA, Switzerland and the BES islands isn't a qualifying non-resident taxpayer, and according to the Belastingdienst usually has no entitlement to the tax part of the tax credits. No general tax credit, no elderly person's credit. To some tax parts you may be entitled depending on your country of residence; that follows from the return. Have a tax adviser work it out net before you believe the brochure promise: the outcome is "Dutch taxed, without contributions and without credits", and that is a different sum than "tax-free".

What Costa Rica does: nothing, and yet something

Article 1 of the Costa Rican income tax hits income from a Costa Rican source. Your Dutch AOW, pension, annuity and rental income aren't that: Costa Rica taxes nothing on them and asks no return for them. If you work in Costa Rica or let a house there, then that is Costa Rican income — and for a temporary resident as pensionado or rentista working is only allowed with a separate permission.

What Costa Rica does ask of you is no tax but a premium: the compulsory affiliation to the Caja, on a reference income of at least the amount of your card. That is in the healthcare article, and it belongs in the same sum.

The AOW blow for singles

Apart from the tax, and harder: Costa Rica isn't among the 36 countries with which the Netherlands has a social security treaty. The minister listed them in 2024 in answer to parliamentary questions, from Argentina to South Korea — Costa Rica isn't among them.

Outside a treaty country the AOW is exported at no more than the married rate. For couples little changes — they already have that rate — but a single person falls back from 70 to 50 percent of the net minimum wage, and the AOW supplement lapses.

Twenty percentage points of AOW is for many budgets the difference between ample and tight, and almost no site on Costa Rica mentions it. Work out your monthly income with the export amount, and have the pension statement for the DGME name that amount — the income test of 1,000 dollars looks at what you really get.

The Netherlands tried in 2015 to conclude an enforcement treaty with the countries with the most AOW recipients. None of them wanted to negotiate, and according to the minister that has remained so to date.

What the Netherlands doesn't let go of either

The year of departure goes with an M return, usually without invitation. Immovable property in the Netherlands is always taxed in the Netherlands, also without a treaty: a home you keep or let falls into box 3. An annuity, pension entitlement or substantial interest travels with a protective assessment, and outside the EU the deferral is no automatism: you apply for it, and the Belastingdienst can demand security.

And the child benefit: article 7b of the Child Benefit Act gives no entitlement for a child outside the Netherlands, unless it lives in an EU country, the EEA, Switzerland or a treaty country. Costa Rica is none of those. The child benefit stops with the quarter in which you leave.

The honest summary

You don't become tax-free in Costa Rica. You keep the Dutch tax burden on your AOW and your pension, without the Dutch contributions but also without the Dutch credits, and Costa Rica adds the Caja premium. As a single person twenty percentage points of AOW come on top. For many households that is still a liveable sum — the cost of living does the rest — but it is a different sum than the brochure promises, and you make it before you leave.