The business environment in Costa Rica is very friendly and welcoming of foreign direct investment (FDI). Unlike other jurisdictions, there is actually very little difference between the corporate compliance requirements between national and foreign companies.
There are many other advantages to conducting business in Costa Rica. Firstly, competency in English is well above the average level spoken in the rest of Latin America. Furthermore, Costa Rica is on the same time zone as the majority of the United States, which facilitates business relations between the two regions, and also boasts a very high level of education among its citizens.
Finally, the company formation process in Costa Rica is a relatively easy process. This has been helped for the most part by the decision to, for the most part, digitalize the institutional procedures required to form a company. It means that most of the constitution processes can be done via a number of online platforms.
Requirements to Start a Company in Costa Rica
There are a number of legal structures which all accommodate to the different needs and corporate objectives of a company. Among the most popular is the Sociedad Anónima (SA) (Stock Corporation) or the Sociedad de Responsabilidad Limitada (SRL) (Limited Liability Company). In these companies, the major difference is in the format of administration and the person/people who carry out this role. These are respectively a management board or a general manager.
In order to begin the registration of a new company, the sole requirement is that there are two partners and the name of the company is available to avoid copyright issues. There are no requirements regarding minimum capital or even on the currency used.
The legal representation of your company will depend on the legal structure that you choose. With regards to an SA, the most important points to remember are that:
- Generally, it is the president who holds the power of the corporation.
- You must name a management board whose members can, but do not have to be, legal representatives of the company.
- As a minimum requirement, the management board must have a President, a Secretary, and a Treasurer. Other roles may be added as and when necessary.
- Additionally, you must name a person who will be responsible for supervising the fiscal proceedings of the managing board.
- All of the members of the board can be foreign and can reside in or outside of Costa Rica.
- If none of the legal representatives resides in Costa Rica, you must choose a resident agent that does live in Costa Rica. This is a lawyer, whose only function will be to receive and act upon legal developments.
All companies, regardless of their structure, must have a fiscal address in Costa Rica. You must present a fiscal address to the Treasury which is:
- Able to receive notifications and messages from the CCSS (Costa Rican Social Security).
- Where you are registered as an employer.
- A real address (given they may send officials to check up on your working conditions).
The administration is arguably the biggest benefit of establishing an SRL over an SA. The SA requires a management board, although there are cases where the legal powers granted to the representative can be sufficiently broad that you do not need a full board. Furthermore, you may need the support and agreement from the partners to act in certain situations.
With regards to an SRL, only one manager (unless you choose to have more) leads the administration meaning that there is no need to have a full administrative board. Even so, if it is agreed as part of the shareholder’s terms and conditions, then you will require one.
Shareholders Meetings and the Mangement Board
With regards to the requirements for the shareholder meeting, the law states that you must meet once a year, amongst a few others. This being said, when constituting your company, you are able to stipulate in more detail all the requirements and concessions that your company will have. This can include, for example, allowing a foreign member of the board to lead the meeting.
On the other hand, the meetings of the management board will be summoned by and be lead by the President as established in the constituting documents.
Accounting and Legal Records
Every company must keep an up-to-date record of all legal books in which they note the bylaws and the share divisions of their partners. These books must be kept private but can be made available should any shareholder or public judge wishes to see them.
Likewise, the company must maintain all accounting records with all transactions. There is no obligation to present these accounting records alongside your annual tax declarations; they will only be requested in the event of an inspection. For this reason, you need to keep a copy of all your transactions for the last 10 years.
With regards to your tax requirements, all persons in Costa Rica that carry out commercial activities must pay the following taxes:
- Tax on Legal Entities: This is an annual tax levied on all types of societies. You make the first payment when you make start the company and then at the start of every calendar year.
- Income Tax: This is the tax on all earnings that the company registers. It ranges from 10-30% according to the income bracket that the company falls into. You declare and pay this tax annually.
- Sales Tax: This tax only applies to the sale of goods and not services. You pay this tax monthly and it must be applied by the vendor on every transaction.
According to the type of activity that your company engages in, there may be other types of taxes that your company must pay. An example is the ‘Hotel Tax’ applied to companies in the hospitality sector. Equally, there are some financial benefits that can be enjoyed depending on the activity and size of the firm.
Once the company is registered with the Costa Rican National Register, you must do the following before you can begin your business operations:
- Register as a contributor with the Treasury.
- Register the company before the Board for Costarican Social Security.
- Register before the National Insurance Institute.
- Request municipal permits.
- Specific incursion permits.
With the support of a local partner with good knowledge of navigating the institutional systems, doing business in Costa Rica can lead you to commercial success. To begin your business adventure in Costa Rica, get in contact with our team at [email protected] for personalized support.
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