The Real Story Behind Corporate Taxes in Costa Rica

by Rod Martin

A few weeks ago, Costa Rica’s high court ruled that portions of the law introducing the tax on corporations were unconstitutional.  We continue to receive many questions from clients asking, “Do I have to pay the corporate tax for 2015?”  It’s a question that deserves a clear answer.

Investors and residents often buy property, automobiles, boats, and even businesses and put them in a Costa Rica corporation.  For those new to Costa Rica real estate, you cannot use your corporation (e.g., an LLC) from your home country.  It has to be a Costa Rican corporation.  For larger groups or multiple investors, the Sociedad Anonima (S.A.) may be a good choice as it requires two active officers, with at least one share each.  A Sociedad de Responsibilidad Limitada (S.R.L.) is an even easier option, as it only requires one shareholder although dividing shares among two officers is common.  Costa Rica also allows you to own property, as a foreigner, in your personal name.  Many people ask why bother owning anything in a corporation, and a few of the benefits are:

• Limited liability; as the S.R.L. suggests, the shareholder are only liable for their share of debt or assets within the corporation.
• Estate Planning; passing shares on to family members.
• Income; taxes are paid as corporate income instead of personal income.

Ley 9024 (the Corporate Tax Initiative) was passed in 2011.  Many investors (especially developers) with multiple corporations were forced to make changes to their portfolios.

Each corporation can either be active, which means a business entity that is registered with the Hacienda de Tributacion (National Tax Department) or or inactive, which is simply a dormant corporation with no business or income tax component.  For active corporations, shareholders are required to pay an annual tax of 200,000 colones (approx. $380) and approximately 100,000 colones ($180) for inactive corporations.

The High Court Repeals the Corporate Tax

A few weeks ago, lawyers persuaded the High Court to rule that the tax was unjust for two main reasons.  In Costa Rica, when major changes are made to a bill passed by law makers, the changes have to be advertised in the official newspaper of Costa Rica, La Gaceta.  The second reason it was repealed was that large and small corporations pay the same amount.

Since over 30% of corporation shareholders already paid the 2015 tax, the high court decided their ruling will not go into effect until 2016.  Many lawyers believe this will give the legislature time to re-announce the corporate tax bill properly in La Gaceta before the fiscal year of 2016.

The bottom line is… Yes, you have to pay your corporate tax for 2015.  The longer you wait, the more interest you will have to pay.    If you have any questions about this topic and its tax implications, please contact your lawyer in Costa Rica.