The New Corporation Tax was approved on December 27th, 2011 under the Costa Rican Law number 9024. According to the Article 11, the funds obtained from this New Tax will be given to the “Ministerio de Seguridad Pública” (or Ministry of Public Security), to be invested in Public [...]]]> New Corporation Tax in Costa Rica

The New Corporation Tax was approved on December 27^th, 2011 under the Costa Rican Law number 9024. According to the Article 11, the funds obtained from this New Tax will be given to the “Ministerio de Seguridad Pública” (or Ministry of Public Security), to be invested in Public Safety programs, and the fight against crime.

So… Who will have to pay this new tax?

This new tax will be affecting only the Business Entities, including the ones known as S.A (Anonymous Corporation),  S.R.L (Limited Liability Corporation) and “E.I.R.L.” (Limited Liability Individual Company).  It will also apply to any branch, subsidiary or entity representing any foreign corporation registered in the Costa Rican National Registry.

It will not affect nonprofit organizations like Associations or “Cooperativas”

Which is the Amount that I will have to Pay?

In order to answer this question, we first need to define the Base that will be used to determine the amount:

The law uses as a base the amount of wages that are paid to an administrative assistant of the Court during January of the respective year.

In 2012, the wages amount is of ¢360,468 colones. Using an Average exchange rate of ¢520 colones per US Dollar, the wages amount will correspond to an Average of $693 US dollars. Remember that this amount is just as a reference and will change according to the Exchange Rate for the US currency,

The law states that Corporations that are registered as active in Tax Administration Office, will have to pay 50% of such base (Aprox. US$347) and Corporations that are registered as inactive in the Tax Administration Office will pay 25% of such base (Aprox. US$173),  then again, please remember that this amounts in US dollars are for reference, and will change according to the Exchange Rate for the US currency.

How can I know if my Company is Active or Inactive?

An Active corporation stands for a Company that is managing a business and declares the Rent and/or the Sale Tax at the Tax Administration office.

In the Other hand, Inactive corporations are the ones that do not have a business.

Both active and Inactive corporations are allowed to hold assets,

If you own a corporation that only holds land, or a car, is very likely that it will be an Inactive corporation, however; all will depend on how it was declared. To be 100% sure, it’s better to ask to the Tax Administration office

When I Have to Pay this Tax?

Existing Corporations must pay this tax during the first 30 natural days of every year (On or before Jan 30). Corporations that are in process of being registered will pay the tax during the registration process.

What happens if the Tax is not paid?

Besides the fines, If the Tax is not paid, the Corporation will not be able to obtain “Personerias Juridicas”, or Corporate Certificates from the Costa Rican National Registry. Since this document is a requirement to virtually all the corporate transactions, it will be not possible to use the company for any act, especially If the transaction involves Government Institutions.

The lack of payment of this tax for three years will cause the dissolution and cancelation of the corporation. A lien will be inscribed against all of the corporation assets, to guarantee that the tax will be paid. This lean will be considered as a legal mortgage on the assets.

I own many corporations or I have corporations that I do not use, What can I do?

The Following are only brief examples of how the process can be handled. Please remember that in order to determine the best option that suits your needs, your case will have to be studied individually

Example #1

If you own many corporations with different assets like a house, a property and a car, and you determine that you need to keep all in separate companies, then your only option would be to pay the tax for each company. In the other hand, if you determine that you can keep all in one or less companies, you may choose to merge all the corporations in to one. This means that you will only have one company and all of the assets will be transferred to it. This way, you will pay the corporation Tax only for one corporation.

But… Will I have to pay Transfer Taxes and Registration Stamps for the transfer of all of the assets in to one company?

This new law determines on the Section V that “Since the effective date of this law and for a period of six months, for one time only, all the transfers of assets of corporations that have been inactive for at least 24 months prior the enactment of this law, will be exempt from the respective payment of transfer Tax and Registrations stamps”

Example #2

If you own a corporation without any assets, and you are not planning to use that company in the near future, you may decide to dissolve that corporation. The law states on the section II that all the corporations that are dissolved within the next 3 months since the effective date of the law, will be excepted to pay the tax.

Example #3

You may decide to transfer all the assets of the corporations into your personal name, and dissolve all the companies. Without holding a corporation, you won’t have to pay the corporate tax

Once again please let us remind you that the only way to determine your best option is to individually study your case. Many items will have to be taken in consideration like: if you have Active or Inactive companies, if you are planning to Start a Business, How many assets you have, Liability Issues, If you have Employees, if you have bank accounts, among others…

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Please Note: This material is for personal use only and is protected by Copyright Law. It is provided as general information only and does not constitute and is not a substitute for legal or other professional advice. Reliance on this material is solely at your own risk. Always consult your own legal or other professional advisors and discuss the facts and circumstances that apply to your specific case.

If you have any questions, or comments, or need assistance to pay the corporation tax, or an advice on how to proceed, please feel free to contact us, for us will be a pleasure to help you.

These rates will be applied during the 2012 tax period as follows:

However, in addition to such tax, every Costa Rican Corporation or foreign corporation registered in Costa Rica National Registry must pay a special tax which is [...]]]>

Like in most of the countries, any Corporation making profits in Costa Rica must pay the respective Income Tax, which is called in Costa Rica as “Impuesto sobre la Renta”.

However, in addition to such tax, every Costa Rican Corporation or foreign corporation registered in Costa Rica National Registry must pay a special tax which is called “Timbre de Educación y Cultura” (Education and Culture Stamp Tax). This tax must be paid every year, during February or March. Each Corporation must pay it, either if it is making profits or not.

This tax was created by Law No. 5923. It is calculated based on the statuary capital of the Corporation and according to the following rate:

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( www.escrowtrustsolutions.com ) (Re-printed with its permission)

Please Note: This material is for personal use only and is protected by Copyright Law. It is provided as general information only and does not constitute and is not a substitute for legal or other professional advice. Reliance on this material is solely at your own risk. Always consult your own legal or other professional advisors and discuss the facts and circumstances that apply to your specific case.

These are the parameters to calculate it:

The law defines the Christmas bonus period in one year, starting on December 1st of [...]]]> Christmas Bonus is an average extra yearly payment that must be made to every worker in Costa Rica. This payment must be done even If the employee works for less than a year.

These are the parameters to calculate it:

The law defines the Christmas bonus period in one year, starting on December 1st of one year and ending on November 30^th of the next year.

You must sum all the wages paid to a worker during the respective period (including overtime payments) and divide it by 12. The result will be the amount of the X’mas bonus you must pay to the worker on or before December 20^th.

But what happens if the employee has worked only a few days, weeks or months during that X’mas bonus period?

Well, let’s use the following EXAMPLE:

We have an employee who started to work on September 1st, 2010 and let’s say today is December 1st, 2010. Therefore, the X’mas bonus period finished yesterday. Let’s say that the salary paid has been $500 every month. In this case, you paid him/her the sum of $500 during September, plus $500 during October and $500 during November. This means that you paid a total of $1,500.00 during the X’mas Bonus that goes from September 1st, 2009 to November 30^th , 2010. Then you must divide $1,500 by 12 months, and you will get an average monthly payment of $125.00 during the expired X’mas bonus period. Therefore, you must pay to the worker the sum of $125.00 as X’mas Bonus and such payment must be made on or before December 20^th , 2010. (in this case).

ANOTHER EXAMPLE:

Let’s say that a worker began to work on July 12, 2008 and his wages were as follows:

$400 in July, 2008,

$500 in Aug, 2008,

$450 in Sept, 2008,

$600 in Oct, 2008, and

$500 in Nov, 2008  (end of the X’mas period),

Then, the total wages paid between Dec, 1, 07 and Nov 30, 08 were $2,450.00 (It was paid during 5 months, but to define the X’mas bonus amount, it must be divided by 12).

Therefore, we take this amount ($2,450.00) and divide it by 12 (not by 5).

The result is $204.15 and this is the amount to pay for X’mas Bonus within the first 20 days of December 08.

No Social Security or any other kind of deductions will be applied to the X’mas Bonus.

A delay in the payment of this Bonus may be considered as a serious labor offense against the worker. So, a Labor Judge may impose fines to the employer and the employee may consider him/herself as fired with no legal justification. So, in this case, the employer will have to pay to the worker legal compensations like “Preaviso”[1], “Auxilio de Cesantia”[2], etc., (just like if the employee was fired with no legal justification).

[1] Pre-notice

[2] Severance payment.

© Copyright E&T ESCROW & TRUST SOLUTIONS S. R. L. Costa Rica.

Please Note: This material is for personal use only and is protected by Copyright Law. It is provided as general information only and does not constitute and is not a substitute for legal or other professional advice. Reliance on this material is solely at your own risk. Always consult your own legal or other professional advisors and discuss the facts and circumstances that apply to your specific case.

They [...]]]> There are many kind of legal entities, but for business in Costa Rica, there are two that are used the most. The S. A. or SA. (which stands for “Sociedad Anónima”, something like  “Anonymous society”) and the S. R. L. or SRL (which stands for “Sociedad de Responsabilidad Limitada”, something like  “Limited Liability Society”).

They both are “limited liability corporations”, so regarding this matter there is no difference.

Basically, the S. A. is a kind of corporation that is supposed to be used when there are many shareholders and/or  when the idea is to negotiate and sell shares in the stock market. (Of course, an S. A.  requires some additional authorizations to participate in stock market, but if you want to negotiate in such market, it must be an S. A.)

Because it is suppose to have so many shareholders, this kind of Corporation must have a Board of Directors with a minimum of 3 members and a Fiscal, which is kind of “Auditor” that represent the shareholders. This means that if you want an S. A., you must appoint at least 4 officers. (3 in the board and one Fiscal). In your case, you will be only 2 partners, so, you will have to ask some friends or relatives to serve as a officers and explain them the risks it means and so on. So, it becomes sometimes a non comfortable situation.

Some people use this corporation also because it can make easier to hide the names of the real partners. I mean, for the public, it is almost impossible to know who are the partners.

There will be a private record that shows who are the partners. If a Judge requires information, it may be possible to know in the process who is the partner according to such record. However, because the shares may be negotiated without registering the transfer in such book, at the end is not sure that what such records show is the truth. (This is not suppose to happen with the S. R. L. in which the shares are a different kind of shares). (A Judge can only require such information in some special cases, not at any moment).

The S. R. L. is a kind of corporation that is supposed to have only a few partners and its shares are not to be negotiated in the stock market. Therefore, there is not need for a Board of Directors and there is no need for an Auditor. (“Fiscal”). The Corporation will have only one or more Managers, with the Powers of Attorney and representation that the partners decided. The administration of this corporation is supposed to be easier that in a S. A. (but when you only have a couple of partner, virtually there is not too much difference in regards such administration).

Again, the names of the shareholders are not in a public record, so, for the public, is  almost impossible to know who are the partners. However, there will be a private record that shows who are the partners, so, if a Judge requires information, it may be possible to know in the process who is the partner.

For tax purposes in Costa Rica is exactly the same. (You must ask your accountant about if it makes a difference in your case in the United States. I mean, I understand that sometimes it is possible for a U. S. citizen to use a S. R. L. as a kind of a “pass through corporation” in the United States, meaning that you may report some expenses of the corporation as if they were your personal expenses. However, this is something that you must consult with your U. S. Accountant.

Because there is a lot of confusion about this, a lot of people (even attorneys), use only S. A., but the true is that in most of the cases there is no need of an S. A. In fact, it is supposed that the law must require a big number of partners to create an S. A.. However, because of a mistake in the Costa Rican Law, it is allowed to create a corporation of this kind by only 2 partners.

© Copyright E&T ESCROW & TRUST SOLUTIONS S. R. L. Costa Rica.

Please Note: This material is for personal use only and is protected by Copyright Law. It is provided as general information only and does not constitute and is not a substitute for legal or other professional advice. Reliance on this material is solely at your own risk. Always consult your own legal or other professional advisors and discuss the facts and circumstances that apply to your specific case.

This Insurance provides coverage to employees for any accident happened to them while at work or in their route [...]]]> According to Costa Rica Labor Law, in addition to the Social Security Health Insurance, every employer must buy a Labor Risk Insurance (in Spanish “Seguro de Riesgos del Trabajo”) in which all workers must be included.

This Insurance provides coverage to employees for any accident happened to them while at work or in their route from their homes to their workplace or back from their workplace to their homes.

It is usually paid by year, but it is possible to paid also by quarters or half year. Most of the times is a lot cheaper than Social Security Health Insurance. (It is an obligation to have both).

It is important to make clear that both of them are very important. Some people believe that Labor Risk Insurance is more important because it covers any accident while the employee is at work. However, it must be remind it that a worker may also have an accident while he is not at work and that is covered by the Social Security, not by the Labor Risk Insurance. Therefore, if the employer is not paying the Social Security and the employee has an accident on a weekend and repairing his roof (for example), the Social Security will charge the employer for any treatment provided to the worker who is not included in the Social Security payroll. Very often the cost of this treatments are very high, so, it is worth to pay for the Social Security. Not to mention that not buying any of these will mean high fines and penalties if you are catch.

In the same way, if for example the worker’s wife have a baby or one of the employee’s child becomes sick, Social Security Administration will charge all medical treatments to the employer who is not paying the Social Security for not having that worker included in the Social Security Payroll.

We can give you a lot more of examples, but be enough for now to say that it is highly advised to buy both insurances, regardless of what some people will tell you on the Street.

But Just having both insurances it is not enough. It is very important to make sure that the worker is and was included in the list of employers at that time in which any accident happens. Otherwise, even if the employer is paying the insurance, the worker will not be covered and the Social Security administration or the Labor Risk Insurance Administration will charge the employer for all the treatments and medicines, in addition to the Social Security and the Labor Risk Insurance costs.

This is why, once the employer buys these insurances, it is important to report immediately the list of workers and, as soon as he/she/it hires a new worker, it is important to report it to both administrations.

It is also very important to know that, if the worker is included but, at the time of any accident or sickness, a payment is due and unpaid, the employer will have to pay for any treatment and medicines in addition to the respective due payment. If the payment is made after the accident or sickness, even so, the employer will have to pay for it, in addition to the cost of the insurance.

Therefore, it is really important:

a.)   To buy both insurances;

b.)  To make sure that all employees are included in the list of workers;

c.)   Make sure that all payments are made on time;

d.)  Report every monto,  to both Insurance administrations, the list of workers;

e.)   Report any new worker before he/she starts to work (In some cases, Social Security admits a few days delay, but you must be very carefully about this);

Until recently, in Costa Rica the Insurance business was a government’s monopoly. The market is now open to other companies, but, at least at the time in which this article is written, only the Government Insurance Company ( I. N. S.) is authorized and selling the labor Risk Insurance. In consequence, as of today, all employers must buy the insurance from such company. ( www.ins.go.cr ).

As it was said above, most of the times, the cost of this insurance is lower than Social Security. For the Labor Risk Insurance the employer (not the worker) must pay a percentage of the worker’s salary. It may be paid once a year or by half year or by quarter. If for example you pay for the whole year, you still must present reports every month with the list of workers and its monthly payments. If at the end of the year you had less workers that for what you paid, the I. N. S. will reimburse you the proportional part. If you had more workers or higher wages than initially reported, they will charge you for the difference.

The cost of the Labor Risk Insurance varies depending on the kind of labor and its risk. There is a specific percentage for each kind of occupation. We are inserting below a chart or list with the last approved rates per occupation.

Please Note: This material is for personal use only and is protected by Copyright Law. It is provided as general information only and does not constitute and is not a substitute for legal or other professional advice. Reliance on this material is solely at your own risk. Always consult your own legal or other professional advisors and discuss the facts and circumstances that apply to your specific case.

© Copyright E&T ESCROW & TRUST SOLUTIONS S. R. L. Costa Rica. ( www.escrowtrustsolutions.com )

The contents of this Web site are copyrighted by © CVFIRM S. R. L. Costa Rica 2011 and may not be reproduced anywhere without permission. Abstracts and fair use are permitted if source is indicated. ©2008 – 2011 CVFirm Web Page

Law Number 7509, enacted on June 6th, 1995, created this tax. According to it, every landowner must pay a 0.25% yearly tax to the local government (“Municipality”) of the county where the property is located. It may be paid by yearly quarters, but usually it is better [...]]]> Costa Rica Property Tax (“Impuesto sobre Bienes Inmuebles”)

Law Number 7509, enacted on June 6th, 1995, created this tax. According to it, every landowner must pay a 0.25% yearly tax to the local government (“Municipality”) of the county where the property is located. It may be paid by yearly quarters, but usually it is better to pay it once a year during January or February.

The base to calculate it, will be the sum of the registered values of all properties owned by the same landowner in the respective Municipality. (All properties owned by such person on January 1st of every year. The tax period starts on January 1^st and finishes on Dec 31^st of every year.)

From time to time, every local government may decide to make a general appraisal of all the properties in its county. However, it will not be allowed to make it if the last one was made less than 5 years ago. Once the general appraisal is made, the values of all properties of the county will be automatically adjusted according to this general appraisal. However, most of the local governments have not been doing this kind of general appraisals very often.

The law created an obligation for every landowner, to present a Declaration to the respective local government at least once every 5 years. In such declaration, the owner must say how much he/she/it estimates the value of this property. It will also be important to present this declaration to the Municipality when, after buying the property, the transfer of ownership has been submitted and Registered in Costa Rica National Registry.

Municipality will be allowed to reject the value given in such declaration within the next tax period from the date in which the declaration is presented. If for example you presented your Declaration on Oct 1^st, 2009, the next tax period started on Jan 1^st, 2010. Therefore, local government was allowed to reject the value until December 31^st, 2010. If by this date the value was not rejected, then this will be taken as the Registered Value starting on January 1^st, 2011.

If the landowner does not present its declaration, or if the declared value is not accepted, then the local government will be allowed to make an individual appraisal of the property. Because of this, it is important to present your declaration. By doing so and if you declare an acceptable value, you will be closing the door for the municipality to send an appraiser to your property.

Every registered value will be good for at least five years, but it may be automatically modified in the following cases:

1.      If the property is sold by a declared price higher than the registered value;

2.      If a Mortgage is registered in the property for an amount higher than the registered value;

3.      A registered correction in the total area of the property;

4.      The fact that the landowner provides a higher value in a new declaration presented by him;

5.      The property subdivision; and,

6.      The building or improvements made to the property, if they require building permits for a value more than 20% of the registered property value;

The local government will automatically make the aforementioned modifications without making any new appraisal.

There are other cases in which the local government is allowed to change the registered value of the property before the 5 years period, but these ones will not be made in an automatic way. They will require for the Municipality to send an appraiser to the property and follow the procedure for new appraisals. These cases are the following ones:

a.)    The building of highways, public roads or other important improvements that my increase the property value;

b.)    Damages suffered by a property for situations like earthquakes, river floods, etc.;

c.)    The fact that the National Government, through a Section of the National Tax Administration named “Organo de Normalización Técnica”, define new technical rules that, when applied to the property, increase its value.

Municipalities must send a notice to the Property owner each time they make a new appraisal of the property. The landowner will be allowed to appeal such appraisal within the next 15 business days from the date in which the notice is received.  And this is another reason why the landowner must present the declaration to the local government. In such declaration it will be included the address where the notice must be send. Therefore, in some cases this 15 business days will expire without the landowner know it, if the declaration has not been presented

Article reprinted with permission from copyrighted by © E&T ESCROW TRUST SOLUTIONS S. R. L. ( www.escrowtrustsolutions.com )

Please Note: This material is for personal use only and is protected by Copyright Law. It is provided as general information only and does not constitute and is not a substitute for legal or other professional advice. Reliance on this material is solely at your own risk. Always consult your own legal or other professional advisors and discuss the facts and circumstances that apply to your specific case.

Because of it, until recently, it was very usual to have attorneys, Real Estate Brokers, hardware Stores, [...]]]>

In Costa Rica, every person or entity providing escrow services must be registered with the SUGEF, which is the authority that oversees the National Financial system. The need for this registration became mandatory  just a few years ago.

Because of it, until recently, it was very usual to have attorneys, Real Estate Brokers, hardware Stores, Accountants, Property managers, or any other private entities or professionals providing this kind of services without any kind of regulation or supervision.

In fact, it is important to be alert about this, because even today, there are some people providing this kind of services in a non legal way. (Without registration and supervision).

SUGEF oversees and create regulations over this kind of entities to avoid money laundering and to combat the Financing of Terrorism. So, you may ask: If my money is clean, why this must matters to me? Well, there are very good reasons why this must important to you and us.

The problem is that when you have your money in a pot (or an Account), if later somebody put dirty money in the same pot, your clean money will become dirty. Therefore, if later such account or pot is tracked by police or banking authorities, your money may even be frozen and you could even be involved in a serious criminal investigation. This is why Banks and Financial Institution are very carefully right now to receive money from strangers or money coming from not clean sources.

They must do so to protect the funds of their clients and their own funds and to avoid serious responsibilities or consequences. This is why a good Escrow Agent is also concern about complying with the law and those regulations and this is also why it is very important for you to make sure that you have your funds with an Escrow Agent that makes a proper due diligence of every new client before receiving her/his funds.

SUGEF creates and impose very heavy regulations to Escrow Agents to avoid this kind of situations, but also provide tools to such Agents. Therefore, by having your funds in a registered Escrow Agent, you will have an extra protection, because it will be a lot more difficult for dirty money to be associated with your clean money.  And even if some dirty money touches yours, it will not necessary means a problem as long as Escrow Agent has been complying with all regulations, because the authorities will be able to see that the Escrow Agent and its clients was not involved in criminal activities.

SUGEF does not provide a financial guarantee for the funds. The Escrow Agent will be responsible for it. However, there is certain unspoken protection you received by working with a registered Escrow Agent, because the government is watching the Escrow Agent activity; not to mention that these regulations will guarantee not dirty funds will be associated with your money.

Remember, if you deposit money with a non registered agent, the proper authorities can freeze the account at any time because of the suspicious of illegal actitivities. Because we are registered agents and must continuously provide accounting and transparency of all transactions to the government, this provides you reinsurance that your money is safe.

In the future, please remember,  it is in your best interest never use a non registered agent, because this could put your money, your investments and your future business transactions in Costa Rica and Central America at risk.

© Copyright E&T ESCROW & TRUST SOLUTIONS S. R. L. Costa Rica.  ( www.escrowtrustsolutions.com )

Please Note: This material is for personal use only and is protected by Copyright Law. It is provided as general information only and does not constitute and is not a substitute for legal or other professional advice. Reliance on this material is solely at your own risk. Always consult your own legal or other professional advisors and discuss the facts and circumstances that apply to your specific case.