Costa Rica has an appealing business environment for foreign direct investment (FDI), and this is reflected in the regions economic growth in recent years. Different from many countries in Latin America, there are limited differences in the legal requirements between Costa Rican nationals and foreigners when commercially operating in the region.
Additionally, there are several other factors that make Costa Rica an attractive destination. The percentage of English speakers is well above the rest of Latin America, there’s little to no time change for many American investors (Costa Rica uses the US Central Time Zone), and there’s a high academic education level in the country.
Furthermore, it’s quite simple to start a new business in Costa Rica with the right local support. The administration is moving fast towards a digitalization of the necessary institutional procedures, now making it possible to nearly complete the company registration process online. However, it’s still recommended to work with a qualified professional who’s familiar with the process.
Initial requirements to Start a Business in Costa Rica
It’s not always necessary to create a separate company to start a business in Costa Rica, with some business choosing to incorporate a foreign branch office. However, it is generally a good idea to form a local an independent company as it secures your personal assets by separating you, the individual, from your business, in addition to having a less complicated incorporation process.
There are several different legal structures you can use that can be adapted to meet your business needs and objectives when operating in Costa Rica. The most commonly used are the Corporation (Sociedad Anónima or S.A. in Spanish) and the Limited Liability Company (Sociedad de Responsabilidad Limitada or S.R.L.). Between these two types of companies, the biggest difference lies in the administration: an S.A. has a board of directors while an S.R.L. has a CEO or general manager.
To begin registering your new Costa Rican company, there are surprisingly few requirements. All you need are a partner to support you throughout the formation process. There are no requirements that dictate the minimum amount of starting capital or even what currency is required; with many companies choosing to subscribe USD$ as their starting capital contribution.
The legal representation of the company will depend on which legal structure you choose. When it comes to a Corporation (S.A.), the most important things to consider are:
- A board of directors should be appointed whose members can also be the legal representatives (but don’t have to be) and can act either jointly or separately with the other representatives.
- As a minimum requirement, the board of directors must at least have a president, secretary, and treasurer as members; other positions can be added if desired.
- A supervisor (fiscal in Spanish) must be appointed to oversee the actions of the board of directors.
- All the members can be foreigners and can reside inside or outside of Costa Rica.
- If no legal representative resides in Costa Rica, a resident agent must be appointed. The resident agent needs to be a lawyer, whose sole function will be to receive and respond to any legal notices.
In the case of a Limited Liability Company (S.R.L.), the representation is held by a manager with the general power of attorney with or without limitations. Additionally, you can appoint as many managers, as well as sub-managers, as you want.
All companies must have a registered company address (‘domicilio fiscal‘). Generally speaking, this will be the same address you use to register with the various local and national government institutions. For the Ministry of Finance, you’ll need to present a tax address in which you can receive correspondences. For the CCSS, where you’ll register as an employer, the address must be the actual company address as agents are sent to verify the working conditions of company employees.
The greatest advantage of an S.R.L. compared to an S.A. lies in the form of managing the company – an S.A. requires a board of directors while an S.R.L. does not. While the powers granted to the representative may be sufficient to not require the approval of the board of directors, it may also be necessary for the approval of the assembly of partners to act in certain situations.
With the S.R.L., the administration is governed by a single manager (unless the company is set up to have more than one), so it is not necessary to have an agreement amongst a board of directors. However, in some cases, a meeting of the shareholders will be required.
Assemblies of Partners and Board of Directors
Regarding the requirements of shareholders’ meetings, there are some restrictions imposed by law such as they must meet at least once per year. However, in the constitution of the company, it can stipulate all the desired requirements or concessions; for instance, the meetings can be held remotely.
On the other hand, meetings for the board of directors will be convened and chaired by the president in the manner and time stipulated by the company articles of incorporation.
Accounting and Legal Records
All companies must keep a record of minutes in official legal books, along with a register of the shareholders. These books will always be private, but they must be available for review should a shareholder or judge request to see them.
Likewise, the company must keep accounting records of all its transactions. There is no obligation to present the accounting records with the annual declarations, these will only be requested in the case of an inspection. Records of the last ten years should be kept.
Regarding Costa Rican company tax requirements, businesses in Costa Rica that carry out commercial activities must pay the following taxes:
- Tax on legal persons. It is an annual tax on all companies, it is paid initially when the company is established and then at the beginning of each calendar year.
- Income tax. This ranges from 10% to 30% depending on the income level of the company. This is declared and paid annually.
- Sales tax. Applies only for the sales of goods, not services. It is declared and paid monthly, and the seller must charge it in each transaction.
Depending on the activity that is carried out, there are other types of taxes that may be necessary. For example, hotels are charged a specific hotel tax. Likewise, there are also tax benefits that can be requested according to the area of performance or the size of the company.
Once the company is incorporated into the National Registry, but before starting its operations, the company must also:
- Register as a taxpayer with the Ministry of Finance.
- Register with the Costa Rican Social Security Fund.
- Register with the National Insurance Institute.
- Request municipal permits.
- Permits specific to the area of incursion.
Need Additional Information?
There are a lot of business opportunities in Costa Rica, but figuring out how to start can be a daunting task. That’s why we suggest working with a local and experienced team that knows how to navigate the bureaucratic process.
To answer any questions and/or receive personalized assistance, contact us now. Our local team looks forward to supporting your business venture in Costa Rica.
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