Costa Rica is a great country to invest in and/or to move your company. It has a booming tourism industry and is breaking records year on year with its astonishing performance in the clean energy sector. As with all countries, it is necessary to know the fiscal requirements for all companies and investors in Costa Rica. This article will provide a brief analysis of the different tax and accounting rules.
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Accounting Requirements – Types of Companies in Costa Rica
Before outlining which are the taxes that must be paid by a company in Costa Rica, it is necessary to outline the difference between a:
- Contributing Society: A society which has been written into the Unique Tributary Register (RUT) in the Treasury Department, and fulfils monetary activities
- A non-contributing society: No contributing societies do not complete any type of paid/financial activity, and therefore do not pay any tax
Taxes on Legal Entities
All Legal Entities or Persons must pay an annual tax as stated in Law 9024 of the Legal Persons Tax. The amount of this tax varies according to the type of commercial activity and the income of the company according to the % of base salary. As of 2018, this amount is set at ₡431,000.
- Non contributing societies pay a base rate of 15% of salary, about ₡65.000 (approx. USD$110). The same amount is applied to societies inscribed in the RUT which do not declare income tax.
For contributing societies:
- The Societies that do not declare activity, declare income on 0 or less than 120 base salaries.
- Societies with gross incomes of between 120-280 base salaries pay 30%.
- Societies with gross incomes of more than 280 base salaries pay 50%, approximately $400.
Newly created companies pay the same amount as ‘non-contributing’ societies and the payment is done proportionally to when the company was formed and the rest of the year.
Income Tax in Costa Rica
Every company that has profitable commercial activity must declare and pay Income Tax in Costa Rica. This payment is made in 3 quarterly instalments, in March, June and September. The payment is done by taking an average from the last 3 fiscal periods.
This taxation occurs in the fiscal year starting the 1st October and ending on the 30th September the following year and is calculated using figures based on the gross income and the relevant percentages of your net income:
- With gross incomes of up to ₡53 million, you will pay 10% of net income.
- Gross incomes up ₡106 million- 20%.
- Gross incomes exceeding ₡106 million- 30%.
General Sales Tax
Any company that sells goods or provides regular services must pay this tax once a month. The tax rate is 13% for the provision of any service or good.
Company Obligations in Costa Rica
Some of the corporate accounting requirements in Costa Rica include:
- Maintain accounting registers.
- Keep a record of all documents concerning the company’s sales and purchases.
- Ensuring all information concerning the company is up to date with the Treasury.
- Filing declarations of income tax.
- Filing declarations of sales tax.
Company responsibilities include:
- Withholding Tax
The employer must calculate the rebates relating to payroll and employee income tax and must make sure that all payments are processed at the right time. This is known as Withholding Tax, or, keeping the calculated figures from the last declaration.
- Employee Social Security
An employer must pay social security charges at 26.3% of employee salaries and 10.34% on behalf of the worker. Both payments must be completed by the employer, who must hold back the relevant percentage of the worker’s salary. The payment is made monthly using any of the various methods available to pay the Costa Rican Board of Social Security.
- Keeping Supporting Documents
It is important to remember that as well as annual declarations, you must maintain a record of all invoices, correspondences and accounting documents for up to 5 years.
- Municipal Patents
Depending on the sector in which they operate, some companies must pay quarterly municipal patents which allow them to legally carry out their economic activity in Costa Rica.
- Last working day of March (First instalment of income tax)
- Last working day of June (Second instalment of income tax)
- Last working day of September (Third instalment of income tax)
- 15th December (Final day to present declaration of income tax)
- 15th of each month (Sales Tax).
WATCH OUT: The main problem that many small and medium companies face in Costa Rica is they often lack an ordered accounting system. According to data from the Public Accountancy College, only 20% of small and medium businesses last more than 3 years, and often these numbers are due to a lack of coordination and accounting support. It is also the major cause of tax evasion cases which costs the government upwards of ₡750 million per year.
Do you need accounting and taxation support in Costa Rica?
If you want to start a company in Costa Rica, it is advisable that you have the support of a qualified account and tax specialist from the start. A well thought out business plan will not be able to evolve if your business does not remain in good standing with the local Costa Rican authorities.
Biz Latin Hub can assist you with all accounting, taxation and financial matters. Our locally specialist team have a comprehensive understanding of the local laws and complications in the Costa Rican business environment and are well equipped to work with foreign companies looking to conduct commercial acticity in the region.
To learn more about the Costa rican economy, the business opportunities to form a company in Costa Rica, and how you might take advantage of these political shifts, please contact us today.
Interested in hiring local staff in Latin America? See how we can support through either a local company formation or through a tailored PEO solution.