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
There are five types of companies in the country; Corporation (C), Limited Liability Company (LLC), Individual Limited Liability Company (ILLC), Collective Name Company (CNC) and Simple Limited Partnership (SC), however, the most common are:
- Corporation (C): is a company with its own legal personality and limitation of liability of its shareholders. The share capital is divided into shares that can be transferred to third parties.
- Limited Liability Company (LLC): is a company whose partners have limited liability to the capital they contribute.
A taxpaying company is understood to be A company that has been registered in the Single Tax Registry (RUT) in the Ministry of Finance and complies with monetary activities, therefore, it must pay, declare, and pay taxes.
Taxes on Legal Entities
All persons or legal entities must pay an annual tax as established in Law 9024 of the Tax on legal persons. The amount of this tax varies according to the type of commercial activity and the income of the company according to the % of the base salary. The current base salary during 2023 is ₡ 462,200.
Non-contributing companies pay a rate of 15% of the base salary, around ₡ 69,330 (approx. USD $128). The same amount applies to companies registered in the RUT that do not declare income tax.
For Taxpaying companies
Companies that do not declare activity declare income at zero or less than 120 base salaries, approximately $102,800. They pay 25% of the base salary (approx. USD $214).
Companies with gross income between 120 and 280 base salaries pay 30% of the base salary (approx. USD $257).
Companies with gross income of more than 280 base salaries pay 50% of the base salary (approx. USD $428).
Newly created companies pay the same amount as “non-taxpayer” companies and the payment is made proportionally to the date the company was formed and the rest of the year.
Income Tax in Costa Rica
The generating event of the tax on profits is the perception or accrual of income in money or in kind, continuous or occasional, from lucrative activities of Costa Rican source, as well as any other income or benefit of Costa Rican source not exempted by law. Payment of this tax is made in 3 quarterly installments, in June, September and December. The payment is made by taking an average of the last 3 fiscal periods.
This tax occurs in the tax year beginning on January 1 and ending on December 31 of each year and is calculated using figures based on gross income and the relevant percentages of your net income:
|Rent brackets||Applicable tax rate|
|The first five million seven hundred sixty-one thousand colones (¢5,761,000.00)/($10,678) of annual net income||5%|
|Over the excess of five million seven hundred sixty-one thousand colones (¢5,761,000.00)/($10,678) and up to eight million six hundred forty-three thousand colons (¢8,643,000.00)/($16,019) of net income||10%|
|Over the excess of eight million six hundred forty-three thousand colones (¢8,643,000.00 )/ ($16,019) and up to eleven million five hundred twenty-four thousand colones (¢11,524,000.00)/($21,359) of annual net income||15%|
|On the excess of eleven million five hundred twenty-four thousand colones (¢11,524,000.00)/($21,359) of annual net income||20%|
|Legal entities whose gross income exceeds ¢122,145,000,000 / $226,383,097, must apply a fixed tax rate||30%|
VAT in Costa Rica
It is an indirect tax that falls on consumption, which means that when a person (customer) purchases a good or service, they are paying this tax at a general rate of 13% or at one of the reduced rates of 4%, 2%, 1% or 0.5%.
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.
Obligations of Companies for accounting in Costa Rica
- Keep the accounting and legal books updated.
- Make sure that all information regarding the company is up to date with the Ministry of Finance.
- Complete the registry of transparency and final beneficiaries, which consists of a computer system developed by the Central Bank of Costa Rica, which allows legal entities to provide the information to register their participants.
- Presentation of VAT tax declarations, this is presented monthly in the first 15 calendar days of the following month.
- Presentation of income tax returns, this is presented during the first 15 calendar days of March.
- Keep supporting documents for a period of 5 years.
- Tax withholding: If a worker’s salary exceeds ¢ 941,000 colones, the employer must withhold a percentage of the salary, submit the corresponding declaration to the Ministry of Finance and pay the tax.
- Employee Social Security: An employer must pay social security charges of 26.67% of employee wages and 10.67% on behalf of the worker. Both payments must be completed by the employer, who must withhold the relevant percentage of the worker’s salary. Payment is made monthly.
INS work risk policy: This policy is mandatory payment and aims to protect workers against work risks that they may suffer as a result of the work carried out. The rate for calculating the policy ranges from 0.36% to 9.04% of the total wages reported at the end of the year.
- 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.
Common Questions when understanding accounting and taxation in Costa Rica
Based on our extensive experience these are the common questions and doubts from our clients when looking to understand accounting and taxation in Costa Rica.
Corporate Tax rate in Costa Rica is 30%.
Businesses in Costa Rica are taxed according to the IFRS, which works on the basis of paying tax on the difference between revenue minus deductible expenses.
The IRS in Costa Rica is called the Ministerio de Hacienda and it is responsible for implementing the fiscal and customs legislation in Costa Rica.
Costa Rican accounting standards require companies to prepare their financial statements in Spanish and according to International Financial Reporting Standards. Accounting registries and books of account must be recorded in Spanish.
The equivalent of a CPA in Costa Rica is a certified public accountant (Contador Publico Autorizado—CPA).
All listed companies must follow IFRS Standards.
Do you need support in accounting in Costa Rica?
If you want to start a company and start accounting 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.
The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.