Costa Rica is one of the true democracies in Latin America and has one of the oldest and most established economies. It is blessed with political, economic and democratic stability, which is not present in all parts of the region.
Additionally, it is geographically located in a very strategic position- right in the middle of the entire American Continent. It has easy access to the entirety of the South, Central and North American economies and has a time zone that is convenient across the region too. The importance of this cannot be overlooked, it makes the country a great trading hub and is a major factor in many company’s decision to move their operations to the country.
Finally, Costa Rica is renowned for having a high level of anonymity and very favourable accounting requirements, especially through the offshore companies that have been allowed to thrive in the small nation. This article will explain the differences between an onshore and offshore company and walk you through the different incorporation processes.
Differences between Onshore and Offshore Companies
Onshore companies are companies that function regularly in Costa Rica, carrying out commercial activities in the national territory and are therefore simply taxed according to these activities and the Costa Rican regulations. They essentially function exactly as a company would in the USA, the UK or in Australia.
On the other hand, offshore companies are those that are formally incorporated in a national territory but only carry out commercial activity outside of the national domain. This normally means that they receive varying degrees of tax cuts and benefits on their income.
The main difference between these companies lies in the destination of economic activity. Both companies are registered in Costa Rica with the objective of carrying out commercial activities, however, the offshore company completes all transactions and business outside of the national territory meaning for tax purposes in Costa Rica, it is considered an inactive company by the Ministry of Finance.
Benefits of an offshore company in Costa Rica.
The Costa Rican jurisdiction is especially useful for offshore companies, as there is no double taxation since the territorial principle is used in Costa Rica. Among the tax benefits obtained from an off-shore company in Costa Rica are:
All income from commercial activities completed outside the Costa Rican jurisdiction will not be taxed.
Since offshore companies do not have properties or assets in the country, they are not charged property taxes either.
In tax terms, companies are divided into two categories: active and inactive. The advantage is that offshore companies are considered inactive and therefore the annual amount of the company tax is less than that of active companies.
In addition to the reduction of expenses in terms of tax, in Costa Rica, the shareholder´s registries are totally private, so the anonymity of shareholders in the companies after the moment of incorporation is guaranteed. Another advantage of having an off-shore company in Costa Rica is that there are no requirements to present accounting books.
The incorporation process for off-shore companies
Offshore companies can be constituted as Public Limited Companies or Limited Liability Companies; for both cases, it is necessary that they are created with two shareholders (this can be reduced to one after incorporation process, but must be two at the point of formation). In these companies, there is no minimum amount established for the social capital and a significant advantage to Costa Rica over other countries is that it can be constituted in any foreign currency. The steps are the following:
- The incorporation begins with the selection of the type of Costa Rican company that is required and the name of the company. For copyright reasons, the availability of this name must be verified in the database of the National Registry.
- Once you have chosen the legal name and structure, you can proceed with drafting the articles of incorporation before a Public Notary.
- The shareholders appear before the Public Notary to sign the deed of incorporation and pay the taxes of incorporation and legal entities.
- According to the legal structure that has been chosen, a board of directors or a manager should be appointed.
- At least one legal representative residing in the country must be appointed, otherwise, it is necessary to appoint a resident agent, who must be a lawyer, to receive possible judicial notifications.
- Within the constitution, the denomination, social capital, object of the company, form of administration and representation must be consigned.
- Once the public deed has been signed, the Notary proceeds to enter the data in a digital form on the “Crear Empresa” portal.
- The payment of registration and incorporation costs are also made through a digital platform.
Once the form has been sent, as long as the information is in accordance with the guidelines established by the National Registry, the company could be ready as soon as one hour and no later than ten days.
Sometimes there may be an error in the processing, meaning there is a correction in the documents that must be mended leading to a slight delay. This is, however, a relatively fast process.
Power of Attorney
In cases where the partners are based outside of the country, the public deed may be signed by a proxy assigned by the partners. The Power of Attorney must have the following requirements:
- It will be signed by both partners if it is done jointly or by a partner if two powers are drafted.
- You will have to indicate the details of the company, such as legal figure, name, participation, etc.
- Must be authenticated by the Notary.
- It must be duly apostilled by the corresponding institution in the country of origin.
Are you interested in incorporating an offshore company in Costa Rica?
In Costa Rica, the creation of companies (either offshore or onshore) is a relatively simple and fast process if you have the right local support. This is mainly thanks to the commitment of governments to attract direct investment in various sectors of production and provision of services. If you want to start doing business in Costa Rica, our team of local experts can help you with everything you need. Contact Josseline, our Country Coordinator at [email protected] for personalised information.
Watch the short presentation below, created by our team in San Jose and learn about the accounting and taxation requirements for companies operating in Costa Rica.