When entering the Costa Rican market, many investors choose to form a stock corporation in Costa Rica, thanks in part to the low number of shareholders required and limited liability they enjoy.
For anyone who only needs a local executive, such as a regional sales director, or a small team for a specific project, such as IT developers, hiring through an employer of record in Costa Rica could be a good option.
Because the EOR will hire those staff on your behalf through its own local entity, meaning that you can avoid company formation and liquidation and get to work in only the time it takes to find the right staff – something the EOR will also be able to help with.
However, if you are planning on launching a business or any other pursuit that makes company incorporation necessary, forming a stock corporation in Costa Rica could be your best choice.
Costa Rica has enjoyed long standing economic and political stability and has some of the lowest violent crime levels in Latin America and the Caribbean, helping it to register significant economic growth over recent years.
Both gross domestic product (GDP) and gross national income (GNI) have increased exponentially since the turn of the century to make Costa Rica one of the most prosperous nations in the region, providing a high quality of life to the country’s residents.
As well as being known for being business-friendly, Costa Rica also boasts some of the highest levels of English proficiency in the region, making it particularly attractive to investors and visitors from English-speaking countries.
Those factors have combined to help make Costa Rica a popular destination for foreign direct investment (FDI), which contributed an estimated 7.8% of GDP prior to the COVID-19 pandemic.
While that fell to around 3.5% after the onset of the global health emergency, Costa Rica has been taking measures to encourage investment to return, including lowering the minimum investment needed for residency and offering generous tax incentives to investors.
The government also introduced a “digital nomads law” passed in August that offers enticing incentives for remote workers and their dependents to move to Costa Rica.
If you are interested in entering the Costa Rican market, or already active there and in need of back-office support, contact us today to find out more about how we can assist you.
Features of a stock corporation in Costa Rica & alternative options
While the most popular choice among investors is to form a stock corporation in Costa Rica, which is known as a Sociedad Anónima (S.A.), another common option is establish a limited liability company, referred to as a Sociedad de Responsabilidad Limitada (S.R.L.).
Other possibilities include the option to form a branch in Costa Rica or to register a subsidiary.
Below, some of the features of each entity type are highlighted.
Stock corporation in Costa Rica
As previously highlighted, a stock corporation in Costa Rica requires just two shareholders, whose financial liability is limited according to their initial investment, while the corporation’s liabilities are limited to the assets it holds.
A stock corporation in Costa Rica is governed by a board of directors, which must be composed of a minimum of three members (serving as president, secretary, and treasurer). However, most stock corporation boards will be made up of at least five people, with a resident agent and an auditor (or comptroller) also included.
Note that the shareholders have the power to establish more roles on the board and ultimately define the representation of the corporation.
As part of financial regulatory compliance in Costa Rica, all companies must keep six legal books. They are made up of three for administrative purposes (a board of directors’ log, a shareholders’ assembly log, and a shareholder registry) and three accounting books.
All companies must also register with tax authorities, and a stock corporation in Costa Rica must file a yearly declaration for income tax purposes. Corporations that have annual turnover of less than $50,000 are considered small enterprises and are subject to income tax of 10%, while companies with a higher turnover are taxed at a rate of 30%.
Limited liability company in Costa Rica
A limited liability company is similar to a stock corporation in Costa Rica in many ways, with stocks in the entity known as quotas, and stockholders known as quoteholders.
However, one key difference is the requirement to appoint a general manager, who can be a quotaholder. Where that individual is not a resident of Costa Rica, a resident agent is also required.
While at least one manager must be appointed, there is no limit on the number of managers that can be installed, and they will be appointed and removed by quotaholders during a quotaholder assembly.
Like a stock corporation, the liabilities of a limited liability company in Costa Rica are confined to the corporation’s assets and the contributions made by individual quotaholders – who similarly define the representations of the corporation.
A limited liability company in Costa Rica faces the same regulations with regard to taxation as a stock corporation.
Form a branch or register a subsidiary in Costa Rica
Another option available beyond establishing a stock corporation in Costa Rica is to form a branch or register a subsidiary. In each case, the entity will be an extension of a company headquartered elsewhere.
The main difference between a branch and a subsidiary is the degree to which the parent company is liable and the manner in which the products or services it provides are presented.
In the case of a branch, the parent company will retain more control over day-to-day operations, and therefore retain a greater degree of liability, while the product or service will likely be offered under the same branding as in the company’s home market.
In the case of a subsidiary, the entity will retain more independence in its operations and finances, thereby limiting the liability of the parent company, while the product or service it offers may be branded so that it is not clearly being provided by the parent company.
If you think a branch or subsidiary could be your prefered option, but are unsure which suits you best, a local corporate lawyer will be able to provide you additional advice.
How to form a stock corporation in Costa Rica
Forming a stock corporation in Costa Rica and establishing a limited liability company are similar processes that entail the following 10 steps:
1. Choose a name for your for your stock corporation in Costa Rica
Before you form a stock corporation in Costa Rica, you will need to verify on the National Public Registry that your chosen name is available, and consider alternative options in the event another company is trading under an identical or similar name.
2. Draft the articles of incorporation
You will then need to draft the articles of incorporation, a document that includes key details of the structure and purpose of the company, which the shareholders must sign and a notary public will have to legalize.
3. Publish the company registration
The next step will see the notary public publish the company registration in the Official Gazette to notify third parties.
4. Make an initial deposit in a national bank
To register a stock corporation in Costa Rica, funds totalling 25% of the capital stock as outlined in the incorporation charter must be deposited in a national bank.
5. Register the incorporation charter
The notary public will then register the deed of incorporation in the Commercial Registry Department of the Public Registry. The notary who issued the deed must also properly record it in their legal minute book.
6. Register with tax authorities
Like all companies, a stock corporation in Costa Rica must file form D-140 to register the company as a taxpayer before it can engage in any commercial activity.
7. Apply for necessary licences and permits
After registering the business, the company must apply for and receive a business licence from the municipality in which it is registered. Where the business activity requires it, the company must also apply for a sanitary operating permit from the Ministry of Health.
8. Register the company as an employer
With the necessary licenses and permits acquired, a corporation in Costa Rica must register as an employer with the social security institution, known as the Caja Costarricense de Seguro Social (CCSS).
9. Conduct an inspection
The next step is to receive an inspection from the CCSS, which will see the facilities of the business and all claims made on official documentation thoroughly checked.
10. Take out labor risk insurance for you stock corporation in Costa Rica
The final step to forming a company in Costa Rica involves registering for labor risk insurance with the National Insurance Institute, in order to guarantee that all employees occupational health is protected.
Biz Latin Hub can help you doing business in Costa Rica
At Biz Latin Hub, we provide integrated back-office services to investors and corporations entering and doing business in Costa Rica.
Our comprehensive portfolio of services includes accounting & taxation, company formation, due diligence, hiring & PEO, and corporate legal services, and we provide tailored packagaes of services to suit every individual need.
With teams in place in 16 markets around Latin America and the Caribbean, we are also ideally placed to support multi-jurisdiction market entries and operations.
Whether you are looking to form a stock corporation in Costa Rica or have other plans in the market, contact us today to find out more about how we support you.
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