On
this Page:
- COSTA
RICA FORMS OF OFFSHORE OPERATION
- COSTA RICA TAX TREATMENT
OF OFFSHORE OPERATIONS
- COSTA RICA TAXATION
OF FOREIGN EMPLOYEES OF OFFSHORE OPERATIONS
- COSTA RICA EXCHANGE
CONTROL
- COSTA RICA OFFSHORE
ACTIVITIES
- COSTA RICA
EMPLOYMENT AND RESIDENCE
Costa
Rica does not distinguish between onshore and
offshore businesses as such. The basis of taxation
is territorial, with both residents and non-residents
paying tax on Costa Rican income, and not on foreign-source
income.
However,
the Government has increasingly sought to make
a virtue out of the country's low-tax regime,
and there are a number of special regimes offering
tax privileges to particular sectors, which are
described in this section.
Since
2002, the government has been struggling to pass
a package of tax reforms in an attempt to reduce
the country's deficit.
The
bill itself was eventually killed off shortly
before the 2006 presidential elections when the
Sala IV constitutional court ruled that supporters
acted illegally in the Legislative Assembly by
creating new procedures to "fast track" priority
legislation, including the tax bill.
In
August, 2006, following Oscar Arias's election
to the presidency, Costa Rica's legislators once
again begun to discuss the vexed question of reforming
the country's taxation system, although it would
appear likely that the same problems that blocked
the former fiscal reform bill for four years could
hinder the progress of the new proposals.
The
new tax plan is a mixture of the old one, which
includes reforms to the income tax system and
a new system of value-added tax, and new proposals
championed by President Arias designed to redistribute
wealth from rich to poor through such mechanisms
as a real estate tax on luxury properties and
a 0.5% financial transactions tax.
A
new tax on corporations has also been proposed
as part of the comprehensive tax reform plans.
The $200 tax would apply to all personas juridicas,
or legal persons, and would be payable within
ten days of the start of a new tax year, which
would run from January 1 to December 31.
However,
the situation regarding the tax reforms remains
uncertain.
Costa Rica
Forms of Offshore Operation
There are no special forms for offshore or low-tax
operation in Costa Rica. See Forms
of Company for a description of the available
forms. The stock corporation,
which is the form normally used for business activities,
has some advantages from a withholding
tax point of view.
BACK
TO TOP
Costa
Rica Tax Treatment of Offshore Operations
See Domestic
Corporate Taxes for the general principles
of Costa Rican corporate taxation, which also
apply to entities taking advantage of special
low-tax regimes.
Businesses
in Export Processing
Zones (Free Zones) have traditionally benefited
from a number of tax privileges. Originally these
concessions were offered only to industrial or
agricultural companies, but were extended to a
wide range of processing and service activities.
The main incentives have traditionally been:
-
full exemption from income tax on profits for
a period of 8 to 12 years from the commencement
of trading, and 50% exemption for a further
period of 4 to 6 years;
- exemption
for the same period from customs duties on raw
materials, machinery and equipment;
- exemption
for the same period from VAT and other sales
taxes including selective consumption tax;
- exemption
from withholding tax on payments to non-residents;
-
legislation passed at the end of 1999 offered
a 4-year extension of the 12-year 100% tax exemption
to companies that have operated in a free zone
for more than 4 years and that have reinvested
profits in Costa Rica.
There
were also a number of related schemes offering
tax privileges to exporters which stop short of
giving the full range of benefits outlined above.
These include the Drawback regime, Export Contracts,
and the Temporary Admission scheme. See Foreign
Investment Incentives for brief details.
Costa
Rica is a member of the WTO, and will need to
eliminate Free Zone fiscal privileges for manufacturing
companies by 2015.
A
number of sectors involved in the tourist business
have traditionally received tax incentives under
the Incentives to Tourist Development Law 1985.
Incentives have included:
- All
business entities engaged in the running
or construction of hotels receiving exemption
from import duties on goods imported for the
purposes of their trade, purchase (sales) taxes
on supplies (excluding those payable on the
purchase of vehicles and fuels) and the 0.25%
annual rates tax. They also benefit from accelerated
depreciation allowances.
- All
business entities engaged in the air transportation
of tourists receiving exemption from import
duties on goods imported for the purposes of
their trade and purchase taxes on supplies required
for the operation of airplanes. Furthermore
they can purchase their fuel at favorable prices
and are entitled to accelerated depreciation
allowances.
-
Businesses engaged in maritime transportation
of tourists receiving exemption from import
duties and purchase taxes on goods imported
for the purposes of the construction of marinas,
bathing resorts and aquariums. Furthermore they
are entitled to accelerated depreciation allowances
and are exempted from all taxes relating to
the purchase of a boat with the exception of
import duty.
- All
business entities engaged in car rentals
receiving a 50% reduction in all taxes relating
to vehicles imported for rental.
For
an agreed period forest development businesses
have traditionally been exempted from income tax
on business profits and the annual rates tax of
0.25% of the value of the land.
BACK
TO TOP
Costa Rica Taxation of Foreign
Employees of Offshore Operations
This
section refers to the taxation of foreign employees
of tax-privileged operations; see Domestic
Personal Taxes for the general principles
of individual taxation in Costa Rica, which also
apply to the resident employees of offshore entities.
Foreign
employees working in Costa Rica are taxed at normal
rates whether resident or non-resident. There
are no special arrangements for expatriate workers;
indeed they and their employers pay full social
security contributions although they can receive
little benefit from it.
BACK
TO TOP
Costa Rica Exchange Control
Although there are no exchange controls as such
in Costa Rica, currency received by resident corporations
or individuals has to be sold through a Costa
Rican bank; and capital imported for investment
purposes needs to be 'registered' in order to
ensure eventual problem-free repatriation.
Enterprises
taking advantage of one or other of the investment
incentive regimes described above are free of
these restrictions to a greater or lesser extent.
BACK
TO TOP
Costa Rica Offshore Activities
Since there is no offshore sector as such in Costa
Rica, there are no limitations on the types of
activity that can be carried on by companies taking
advantage of Costa Rica's low-tax regime.
Restrictions
are placed on foreign investment in the state-owned
monopolies of telecommunications, alcohol distilleries,
insurance, newspapers, radio, television broadcasting,
electricity and petroleum refining in all of which
industries foreign participation is either forbidden
or alternatively required to be part of a joint
venture with a Costa Rican majority shareholding
partner .
Beachfront
development concessions also require local participation
with the requirement that 50% of the capital must
come from nationals and that foreigners wishing
to be joint partners must have resided in Costa
Rica for at least 5 years.
The
advantages of the Export
Processing Zones (see above) are of course
limited to their physical extent, although there
has been some 'spread' of these Zones into adjacent
Industrial Parks, particularly for processing
and service companies. Many of the tax advantages
afforded by locating in such zones will have to
be phased out, however, in line with Costa Rica's
World Trade Organization commitments.
BACK
TO TOP
Costa Rica Employment and
Residence
Residence has traditionally been obtained in one
of 2 ways:
- Under
Law No 6982 of 1984 (known as "the Retirement
Law") a foreigner may acquire residence in Costa
Rica if he can show a sufficient income whether
from investments or from a pension and irrespective
of whether the income is sourced locally or
abroad. Residence obtained under this law allows
an individual to work in Costa Rica but does
not allow him to work in areas which would have
the effect of displacing indigenous workers.
A resident under this law is expected to reside
in Costa Rica for at least 4 months in each
calendar year.
- Residence
permits obtained under Law 1155 of 1950 (known
as "the Residence Law 1950") carry no restrictions
on the sorts of economic activity that a resident
permit holder can engage in. However permits
under this law are granted on a very selective
basis and only to businessmen and professionals.
In
March, 2004, the immigration agency (Migracion)
said that the migratory situation in Costa Rica
was “out of control” and that they would
in future be restricting residency approvals to
the minimum. Migracion has begun to apply an economic
criterion, stating in some cases that an applicant
'would not add any input to the economy of Costa
Rica or create employment for Costa Ricans'.
In
August, 2006, a
new immigration law (the General Law of Immigration)
had been passed by Costa Rican lawmakers aiming
to crack down on illegal immigration from neighbouring
countries, particularly Nicaragua, by, among other
measures, imposing tough penalties on businesses
that employ, or individuals that harbour, illegal
immigrants.
The
law also set out new income and investment limits
for rentistas, but was ambiguous. Previously,
rentistas were obliged to show a minimum monthly
income of US$1,000 per month, or a lump sum of
US$60,000 in a foreign bank account. Under the
updated law, it seemed that both the primary applicant
and the spouse must pass the US$60,000 test, while
an extra $30,000 would be required for each dependent.
However, it seemed that two separate sections
of the legislation contradict each other and confusion
reigned.
The
law went through various stages of amendment,
and as of early 2009 was till being discussed
in the legislature. The latest draft of the law
would increase the required income for 'pensionados'
to USD2,000 per month, and that for 'rentistas'
to USD5,000 per month.
Pending
approval of the new law, the government of Oscar
Arias authorized successive extensions of existing
permits.
The
new Costa Rica Immigration Law (Ley General
de Migración y Extranjería) was
published in the official Costa Rica government
newspaper La Gaceta on September 1, 2009. The
law is effective as of March 1, 2010, but is
not retroactive - i.e. pesionados and rentistas
who applied for or been granted residency prior
to this date will fall under the old immigration
regime.
The
new law creates 5 residency types as follows:
Pensionado
Rentista
- Must
have proof of USD2,500 per month in income guaranteed
by a bank;
- Can
claim spouse and dependents under 25 years of
age or older with disabilities;
- Cannot
work as an employee;
- Can
own a company and receive income;
- Cannot
be absent from Costa Rica more than 2 consecutive
years.
Inversionista
- Must
invest USD200,000 in any Costa Rica business
or a specified amount of investment in certain
Costa Rica government approved sectors.
- Can
claim spouse and dependents under25 years of
age or older with disabilities.
- Can
claim income from investment projects
- Can
own a company and receive income.
- Cannot
be absent from Costa Rica more than 2 consecutive
years.
Representante
- Open
to directors, executives, representatives, managers
and technical employees of companies meeting
certain requirements;
- Income
must exceed Costa Rica minimum wage for specified
position by at least 25%;
- Can
own a company and receive income;
- Cannot
be absent from Costa Rica more than 2 consecutive
years.
Permanent
- Must
be related to a Costa Rica citizen through marriage
or having a child, or may apply after 3 years
in another residency;
- Can
claim spouse and dependents under25 years of
age or older with disabilities;
- Can
work as an employee;
- Can
own a company and receive income;
- Cannot
be absent from Costa Rica more than 4 consecutive
years;
It
is important to note that under the new residency
law, all residency types must participate in Costa
Rica's national social security and healthcare
insurance system, know as “Caja”.
Proof of participation and payments for the entire
term of residency are required for renewals.
No
one can work in Costa Rica without first obtaining
a work permit, may take between 30 days and 60
days to be approved. A work permit cannot be applied
for until a residence permit has been granted.
Work permits are valid for one year and require
annual renewal.
A
company which has more than 30 employees can apply
for a general work permit enabling it to bring
foreign technicians and executives to work in
the jurisdiction without the need to make an individual
application for each person it wishes to engage
.Such a permit is valid for one year and must
also be renewed annually.
The
labor code limits the percentage of foreigners
working in each corporation, specifying that at
least 90% must be indigenous and that 85% of salaries
paid by a company must go to Costa Rican nationals.
Moreover foreigners cannot occupy jobs for which
Costa Rica nationals are available unless special
permission is granted.
In
terms of work permits, since May, 2008, the General
Directorate of Immigration authorized an expedited
procedure for the regulation of companies and
their personnel. There are sub-categories within
the migrant category of Temporary Residents for
executives, representatives, managers and technical
personnel of corporations established in the country,
as well as their spouses and children, professional
scientists and specialized technicians. The categories
are as follows:
- Classification
A: those that are operating or will begin operations
under a special export promotion system and
temporary admission for inward process.
-
Classification B: those that are operating or
will initiate operations outside the special
export promotion systems, but their commercial
nature continues to be exporting goods and services
from Costa Rica to worldwide markets.
-
Classification C: those that are operating or
will initiate operations in the tourism sector
of Costa Rica.
-
Classification D: those that are operating or
will initiate operations in the financial area
of Costa Rica, and are supervised or registered
as entities of the banking sector and non-banking
financial institutions.
-
Classification E: those no- exporting companies,
whether local or foreign, that are operating
or will initiate operations Costa Rica. (Pending
the implementation of this category until requirements
are established).
-
Classification F: those multinational companies
that do not pertain to the previously described
classifications, and are characterized by having
a name or brand whose track record is recognized
worldwide; where the home office has decided
to establish a subsidiary in Costa Rica, whose
operational line is developed in the areas of
production and marketing of goods and services.
-
Classification G: companies under category G
are those national or foreign companies operating
in Costa Rica that give services to the government
through the process of “contratación
administrativa”.
The
benefits of Circular DG-2663-2008 include:
- “Fast-track”
process to export companies: residencies and
visas.
-
Decrease of the number of days to get a resolution
from Immigration.
-
Existence of a unique window for export companies.
-
Submission of documents in Costa Rica not in
Consulates.
-
General recommendation of the Ministry of Work
for 2 years (normally one year).
-
Granting of resident status to both, the employee
and his family.
BACK
TO TOP
|
LOWTAX.NET
13/07 
