Last week, we had the privilege of hosting our Costa Rican Country Manager, Mauricio Zuñiga, in our Bogotá office. We got the chance to ask him a few questions about the legal aspects of business in Costa Rica. Here we’ve provided a detailed and insightful guide to the inner-workings of Costa Rican business operations.
Business in Costa Rica – What types of legal entities are there in Costa Rica?
There are 5 types of legal entities available to set up in Costa Rica. Of those 5, I would say 2 are used in the vast majority of cases and these are the two I would personally recommend to a foreign investor.
- Sociedad de Responsibilidad Limitada (SRL): This is a Limited Liability Company. It’s more familiar business, private, and with known investors. There’s a more restricted liability.
- Sociedad Anonima Corporation): corporations often have unknown shareholders and can be listed on the stock exchange. Generally, these are more restrictive as any changes to the company have to be ratified by the major shareholders.
Both of these are able to be incorporated by foreign people. However, there does need to be 2 shareholders as a minimum in both cases. The choice between these two is dependent on the activities the businesses seek to perform in the future.
What key steps are involved in company formation and incorporation?
Generally speaking, company incorporation in Costa Rica is fairly straightforward compared to its other Latin American counterparts, and can even take as little as a few days!
Firstly, the company must form a set of bylaws which summarize the intent and activities of the business.
Then they must obtain the unique company ID number from the Registro Nacional (National Registry).
From here, there are 2 routes in which businesses can go down when registering their company: they can do it themselves or with legal assistance. Without legal assistance, the process is done by visiting a public notary office with your business partner and expressing your desire to start a business. From here, the notary forms the deeds. The full registration process can take as little as 2 days.
Following this, the shareholders must visit the Costa Rican tax authorities to obtain their tax ID. Dependent on the activities of the company, other licenses may be required. If hiring employees, for example, there are further processes that need to be fulfilled such as the permit for work allocated by the health department.
The other way in which to incorporate the company is by signing a Power of Attorney to a Costa Rican legal representative. In this case, the whole process can be done by the Power of Attorney on behalf of the shareholders, without the need for their involvement.
Are there any corporate regulations that differ significantly in Costa Rica compared to the rest of Latin America?
From my experience across other Latin American nations, I would say that Costa Rica is more straightforward than many others. I wouldn’t go as far to say it is as simple as Panama, but as a foreign investor, I cannot see any bureaucratic barriers that might halt them coming to Costa Rica.
What tax or commercial incentives should prospective investors consider for Costa Rica?
Generally speaking, the tax system in Costa Rica is standardized for everyone. Our commercial tax laws are transparent, straightforward, and equal for all. Outside of the Costa Rican national customs territory, however, there are advantageous Free Trade Zones. These operate under a different set of laws with considerably lower taxes. These delimited zones, of course, incentivize multinational businesses to come into Costa Rica. Just in the Centre of Costa Rica, I can think of 5 operational Free Zones.
Are there any changes or further reforms in the future that will make doing business easier?
Many are not aware that social security in Costa Rica is very high. Social security for a single employee accounts to a 26% add-on to their salary. Further to that, there are a number of other payments on top such as a monthly contribution to an exit package for the employee if they were to leave. By the end of these additional payments, a total of 48% above salary can be expected.
In order to help a new business, the government has shown an interest in reducing these social security rates for the first 6 months a startup company operating in Costa Rica. A tax break like this would significantly help a company to get off the ground in its infancy stages.
On business relations, what crucial tips should foreign investors be mindful of?
In terms of my experiences, I have found Latin American business is one done with the mere shake of a hand. Foreign investors, and in fact some of our clients have often found this to be insufficient. However, the more foreign investment, particularly from the USA, comes into Costa Rica, the more accustomed us Costa Ricans have become to legally binding contracts and bureaucracy.
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