Entity health checks in Costa Rica protect businesses from potential risks during commercial operations. Companies purchasing or merging with local organizations should conduct these reviews. If you are starting a business in Costa Rica or have established commercial presence in the country, this guide explains the importance of due diligence Costa Rica requirements.
Key Facts: Entity Health Check Costa Rica
| Topic | Details |
|---|---|
| Health Check Types | Legal review, tax audit, labor compliance check, environmental review |
| Main Benefits | Risk reduction, compliance assurance, transaction protection, better operations |
| Legal Status | Not required by law but essential for business protection |
| Who Conducts | Independent auditor with Costa Rican Commercial Code knowledge |
| Standard Timeline | 2-4 weeks basic review, 4-8 weeks detailed audit |
| Cost Factors | Company size, operations scope, compliance gaps, industry type |
| Key Laws | Commercial Code, Tax Code, Labor Code, SUGIVAL ownership rules |
| Best Frequency | Annual for active businesses, before transactions or investments |
What is an entity health check in Costa Rica?
An entity health check in Costa Rica includes an exhaustive legal and accounting review to determine if a company complies with all local norms and regulations, and verify that accounting records are accurate. An entity health check can include the examination of different corporate documents such as tax returns, corporate filings, or operating licenses.
By conducting an entity health check in Costa Rica when buying or doing business with a local organization, you will be able to identify — and ideally rectify — any inconsistencies to protect your business operations and avoid possible penalties imposed by local authorities.
In addition to undertaking such due diligence ahead of doing a deal in Costa Rica, you can also conduct a self-check. Such a measure is particularly useful if your company has witnessed a decrease in productivity or profits, but can simply be undertaken to verify that everything is running smoothly and identify and eliminate potential future risks that may come to affect your business operations.
Note that you can also carry out an entity health check on a subsidiary or branch operating in Costa Rica, to know if there is any type of non-compliance or bad business practice that could have repercussions for your headquarters or broader operations.
Due Diligence Costa Rica: Heath Check Types
The following types of corporate health check may be particularly useful, depending on your goals:
High-level corporate health check: This type of entity health check closely examines a company’s registration submissions, legal records, and meeting minutes to identify issues that may turn into potential violations of the law.
In-depth gap analysis: This type of entity health check analyzes the finances, accounting practices, and financial statements of a company, to identify gaps in the management of accounting records that may cause future legal sanctions.
Entity Health Check Process: 3 Steps
1. Information Collection
Teams gather data from operations, legal, accounting, and administrative departments. Best practice: Companies should create a compliance department to centralize important company information.
2. Information Validation
Auditors review all documents and cross-reference data against primary sources to verify record accuracy and identify gaps.
3. Record Keeping
Companies maintain detailed documentation for tax authority inspections and future health checks. Record keeping is legally required under anti-money laundering regulations in some cases.
Legal Due Diligence Costa Rica
Legal due diligence Costa Rica verifies your company’s legal status under Costa Rican law:
Corporate Structure Check
- National Registry compliance: Corporate status, capital, and business purpose verification
- Commercial Code compliance: Corporate governance, board structure, shareholder agreements
- SUGIVAL ownership: Ultimate beneficial owner disclosure and annual updates (required since 2019)
Intellectual Property Check
- SENAPI registration: Trademark, patent, and copyright registrations
- Usage rights: IP licensing agreements and usage permissions
- Domain registration: .cr domain ownership and registration
Contract Review
- Supplier agreements: Review under Costa Rican Civil Code
- Employment contracts: Labor Code compliance
- Real estate agreements: Property ownership and lease verification
- License agreements: Professional and operational license validity
Legal Risk Assessment
- Court database search: Pending or past litigation review
- Administrative penalties: Regulatory penalties or warnings review
- Labor disputes: MTSS (Ministry of Labor) complaint verification
- Tax disputes: Ministerio de Hacienda audit results and appeals
What does an entity health check involve?
An entity health check can be comprised of several elements, and an individual process may involve all or just some of them, depending on your aims and needs. A common breakdown of reviewing is to have either a legal or fiscal entity health check. Areas covered in any type often include:
Corporate compliance: An entity health check process verifies that all corporate practices comply with local regulations. This includes a review of the minutes of annual meetings to verify if such meetings have been held and logged according to rules established in the Costa Rican commercial code.
Tax compliance: An entity health check in Costa Rica can involve the study and verification of tax returns made before the General Directorate of Taxation of Costa Rica, as well as the municipality where the entity is based. Such a process will verify compliance with the likes of valued added tax (VAT) and income tax regulations, among any other business- or sector-specific levies.
Labor compliance: Where an entity health check looks at labor compliance, a study will be done of the likes of social security payments made to the Costa Rican Social Security Fund, as well as a review of workers’ compensation insurance policies held with the National Insurance Institute.
In addition, employee hiring and firing processes and relevant legal documentation related to the workforce will also be evaluated. Note that failing to comply with labor regulations in Costa Rica can lead to serious penalties, or even result in the closure of your business.
Costa Rica Compliance Check Requirements
A full Costa Rica compliance check covers multiple regulatory areas:
Tax Compliance Review
- Income tax returns: Verification with Ministerio de Hacienda
- VAT compliance: Monthly and annual VAT return verification
- Municipal tax compliance: Business license and patent fees
- Electronic invoicing: Certified e-invoicing compliance (required for companies with revenue over ₡3 million)
Labor Compliance Review
- CCSS payments: Social security payment verification and timing
- Christmas bonus: Aguinaldo compliance and correct calculations
- Vacation time: Proper vacation calculation and payment
- Severance compliance: Correct severance calculation and fund contributions
- Work safety: INS workplace insurance compliance
- Immigration compliance: Work permit verification for foreign employees
Municipal and Local Compliance
- Business licenses: Municipal patent and operating license verification
- Construction permits: Building and renovation permit compliance
- Fire certificates: Safety compliance verification
- Health permits: SENASA health permit requirements for applicable businesses
FAQs on an entity health check in Costa Rica
Why should you get an entity health check?
An entity health check helps executives understand how the business is being managed, reduces the risk of penalties and reputational damage, and minimizes transaction risks in events like mergers or regulatory reviews.
What steps are involved in an entity health check?
The three main steps of an entity health check are: (1) Information collection from legal, financial, and administrative departments; (2) Information validation through cross-checking and document review; and (3) Record keeping, which ensures compliance and assists with future audits or inspections.
What happens during an entity health check?
An entity health check typically involves reviewing financial obligations, social security contributions, third-party contracts, corporate and accounting books, monthly tax filings, financial statements, and balance sheets to ensure compliance and accuracy.
Who can perform an entity health check in Costa Rica?
Entity health checks in Costa Rica should be conducted by a fully independent auditor to ensure objectivity and compliance with local regulatory standards.
How much does an entity health check cost in Costa Rica?
The cost ranges from $2,500 to $15,000 depending on company size, scope of the review, number of compliance gaps, industry-specific regulations, and urgency of the review.
How long does an entity health check take in Costa Rica?
A standard entity health check takes 2–4 weeks, while a full audit can take 4–8 weeks. Urgent checks for transactions can be completed in 1–2 weeks with additional fees.
What documents are required for an entity health check?
Required documents include corporate bylaws, tax returns, employee records, financial statements, licenses, permits, and beneficial ownership filings such as those mandated by SUGIVAL.
What happens if a company fails an entity health check in Costa Rica?
Consequences of failing a health check can include fines up to ₡10 million, temporary or permanent business closure, failure in completing transactions, public reputational damage, and potential criminal liability for company directors.
How often should companies conduct entity health checks in Costa Rica?
It is recommended to conduct entity health checks annually, and additionally before transactions, after compliance issues, during ownership changes, or prior to expanding business operations.
Can companies perform health checks on Costa Rican subsidiaries remotely?
Yes, companies can conduct remote health checks on Costa Rican subsidiaries, though local expertise is essential for regulatory interpretation, database access, and communication with local authorities.
Biz Latin Hub can conduct an entity health check in Costa Rica
At Biz Latin Hub, our team of multilingual legal services specialists has deep knowledge of Costa Rica’s regulatory framework and broad experience conducting entity health checks for companies and executives doing business in the country. With our extensive portfolio of accounting, commercial representation, and back-office services, we are equipped to deliver service with excellence and can be your single point of contact to support your commercial operations in Costa Rica or in any other of the 15 countries in Latin America and the Caribbean where we are present.
Reach out to us now for personalized assistance or a free quote.
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