What to Know About Business Processes and Tax Procedures in Costa Rica
This article is a brief on the various business processes and tax procedures in Costa Rica. With a fast-growing tourism industry and its clean energy sector, Costa Rica is a great country to invest in. Just like in every other country, it is necessary to know the fiscal requirements for all entrepreneurial activities and investments.
Types of Companies in Costa Rica
It is imperious to make a difference between a Contributing Society and a Non-Contributing Society before studying the taxes paid by companies and businesses in Costa Rica.
- Contributing Society: This kind of company operates financial and monetary activities and has registration in the Unique Tributary Register in the Treasury Department.
- Non-Contributing Society: They do not pay any tax because they do not operate any financial activity.
Taxes on Legal Entities
As stated in law 9024 of the Legal Persons Tax, all Legal Entities or persons must pay an annual tax. This tax varies from business to business and according to the income salary of your employees. The law states that this must be C431, 000 as of 2018.
- Non-contributing societies pay a base rate of 15% of salary, almost C65.000 approximately USD$110 and this amount applies to companies registered in the RUT which do not declare income tax.
- For Contributing Societies; they do not declare their activities but claim their income range between 0 or less than 120 base salaries, approximately C90, 000. They pay 25% of the base salary (approx. $200)
- Societies with gross income ranges between 120-280 base salaries pay 30%
- While those with total income salaries above 208 base pay 50%, approximately $400
Newly established businesses pay the same amount as the non-contributing societies and proportionately to when it was established and the rest of the year.
Income Tax in Costa Rica
In Costa Rica, all businesses having a profitable commercial activity have to declare and pay an Income Tax.
There are three quarterly instalments, respectively, in March, June and September. They are complete by taking an average of the last three fiscal periods.
The taxation takes place during the fiscal year, which starts on October 1, ends on September 30 the following year, and obtained using figures on the gross income and relevant percentages of our net income:
- With total revenues of up to C53 million, you will pay 10% of net income
- Gross profits up to C106 million, 20%
- Gross incomes above C106 million, 30%
General Sales Tax
With a tax rate of only 13%, any business that sells goods or provides regular services must pay this tax per month.
Business Obligations in Costa Rica
In Costa Rica, most corporate accounting procedures are:
- Maintaining accounting records
- Must keep all business sales and purchases documents
- Updating all the information about the company with the treasury
- You must file all income tax declarations
- Also, meet with all VAT declaration requirements
CEO Responsibilities Include:
- Withholding Tax
The CEO or partner must evaluate the rebates relating to payroll and employee income tax and must ensure all payments at the right time. It means it should keep the calculated figures from the last declaration
- Employee Social Security
An employer must guarantee a social security charge of 26.3% of the employees’ salary and 1034% on behalf of the worker. The employer, however, retaining the relevant percentage of the employees’ salary completes all payments, monthly using methods available to pay the Costa Rican Board of Security.
- Keeping Supporting Documents
Note that, the annual declarations, a record of all invoices, correspondences and accounting documents for up to 5 years.
- Municipal Patents
Some businesses must pay quarterly civil patents that permit them to operate their economic activity depending on the sector in Costa Rica.
- Last banking day of March (First instalment of income tax)
- The last working day of June (Second payment of income tax)
- Last business day of September (previous amount of income tax)
- December 15 (Final day to present a declaration of income tax)
- 15th of every month (VAT payment)
NOTA BENE: The lack of a sound business accounting system and tax operation is the main problem small and medium businesses have in Costa Rica. Due to this problem, only 20% of these businesses last over three years, according to Public Accountancy College. It connects to the tax evasion of over C750 million per year.
In Need of Business Accounting Processes and Tax Procedures Support in Costa Rica?
From the start, it is advisable to have a qualified account and tax specialist if you want to establish your business in Costa Rica. A good business plan will not affect if your company does not follow the standards in line the local Costa Rican authorities.
Biz Latin Hub can be of help with your accounting processes, taxation procedures and financial matters. Our local team have a good mastery and knowledge of the local laws in the Costa Rican business environment. We are ready to work with foreign companies looking to establish commercial activities in the area.
Our team of local experts have the competence and experience in business accounting and taxation procedures and can support your company in the region. Contact our Costa Rica office – person-in-charge Joss, our bi-lingual Coordinator, and find out how we can assist you.
Also, if you are interested in recruiting local staff, we can help you either through a local company training or via a specific PEO solution.