The reduction from the last weeks in the exchange between the Dollar and the Costa Rican Colon has brought the price very close to the same price of 2021 as of the current date, this is something that will affect the operation of the individuals and companies that make their income in dollars and pay their providers and employees in colones, this due the affordability of the same amount of dollars for paying dues in colones (majority of providers of companies in Costa Rica) will be considerably reduced, as an example shown below:
On a company that received the majority of their income in USD, a set of vendor payments and payroll for an amount of $50,000 in august was able to pay 33,000,000.00 colones to vendors, the same $50,000 today september 20th can pay only 31,250,000.00, means 1,750,000.00 ($2,800) less compared to one month before, in a relative analysis, this is the equivalent to 5.6% reduction in the payment capacity of the same dollars one month later.
The reason for this was that the gradual historic increase in the dollar value against the colon was replaced by an uncontrollable raise due the increase in the gas prices as an effect of the international oil cost due the conflict between Russia and Ukraine, also added to this the effect of the reactivation of the economy after the pandemics caused the CRC to increase its value against the USD, the government created a contingency to pull the break into the increase on the price of the oil derivated products, stabilizing the prices and that caused the dollar value to collapse in a very short term, economists say that this temporary since there is Costa Rican debt bonds in USD and EUR that is about to enter the international market which might stop the decrease in value and bring the up trend again back in November and December, not only by the effect of the debt emission but the regular trend at the end of the year as you can see in the graph due the hign volume of transactions due the acceleration of the economy due the year end holidays, christmas bonus payments and also the impulse caused by black friday and other sales impulse movements that happen yearly in the same dates at the end of the year.
In ConsultantsCR we’re business advisors with a wide variety of services and high amount of experience, if you need assistance regarding the operation, legal, financials and tax planning on your business don’t hesitate to contact us for an initial free consultation call or meeting, you can email us to info@consultantscr.com or direct whatsapp at +1 917 9938055.
On august 24th, 2022, the Costa Rican president signed the new law 19256 for the regulation of the medical and therapeutic usage of marihuana and hemp in it’s different versions for the alimentary and industrial usage, this law is expected to produce a positive effect in the economy looking for contributing to its reactivation with the creation of new business opportunities, new work sources, attraction to new investors and promotion of the exporting offer to other countries.
With this extended rulement the governments is expecting to clarify and set the rules for the commercialization of the products that include hemp, and medicinal marihuana and the regulation for the production and submission of agricultural permits to legally produce both plants in the country which would be .
In the weekly conference the president has stated that the government of Costa Rica will not be selling licences to the farmers and will only provide authorization for producing, eliminating the monopolies that exist in other countries where the companies and individuals that enter in the cultivation and production of cannabis and hemp based product have to pay expensive licenses for the usage of certain seeds, those are free to be imported from foreign countries as long as they comply with the requirements established by the fitosanitary division of the health ministry.
In coming posts from ConsultantsCR we will be going deeper in this important matter regarding the procedures that need followed in order to grant the authorization from the government, the institutions where the paperwork will need filed and also where and how to get and/or import the seeds for the cultivation in Costa Rica.
Many of our clients regularly request us information about how what are the brackets that make property owners to be subject to luxury tax for their homes in Costa Rica and what are the rates for it, how should it be declared and how often and other important questions about this tax. For all those questions that we regularly have we have created this post.
The Luxury Tax in Costa Rica
The luxury tax (impuesto solidario in spanish), is a tax that has been created by the costarican law applicable to the luxury homes with values superior to 137,000,000.00 colones ($208,000.00 approximately with the current exchange rate), the homes with values over this amount are subject to filing the return every 3 years, and paying the annual tax. The luxury tax is part of a social help program for financing projects of social help as housing and aid for families that have no access to a proper home.
How Do I Know If My House Is Held This Tax
In order to determine the value of the home, the house owner should separate the value of the property from the value of the home. In order to do this the easiest way is to get the last property declaration filed at the municipality, this document details the value of the home and the value of the property as separate items, those items should be the refference for the values to be included in the luxury tax form. If the value declared in the tax form for the house is over the $208,000.00 then you are now sure that you should file and pay luxury tax for your house.
When you don’t have a way to determine the value of the house through the property declaration from the municipality you should request assistant from your accountant, since the other methods require a calculating tool and standard values from the national cadaster to estimate the value of the home, the difference from the purchase value and the home value will be the property value.
How Do I File The Luxury Tax Form
In order to file the luxury tax form you should first determine if the corporation or you as individual has filed requirements at the tax administration before, if so you or your accountant should have the access to file the corresponding forms, the procedure should be registering your property id as a tax payer for the luxury tax, and then file the tax return, this should be done every 3 years, and the tax should be paid annually, if the corporation or individual hasn’t filed tax forms before a D-140 for enabling the access to file tax forms should be filed. In order to make this process easier you can request your accountant to file this form for you.
If My House Was Valued Less Than The Minimum Amount But I Have Done Improvements To My Home What Should I Do?
If your house was not subject to the luxury tax in the past but now, due the amount of improvements made to the property you estimate it could reach over the minimum amount to be subject to luxury tax then the best way to determine will be updating your property declaration at the municipality and finding out what is the amount that their systems will update to the new home value, then if the value exceed the minimum you now can complete the registration for your home for complying with the luxury tax.
What Are The Tax Brackets for The Luxury Tax in Costa Rica?
As of 2022 the following are the tax brackets for the luxury tax:
If you have any inquiries about the luxury tax in Costa Rica or need assistance with it, don’t hesistate to contact us anytime.
In ConsultantsCR Advisory, we’re business consultants, we provide assistance with the operation of your business, from taxes and finances to legal and operations.
Last week, the tax administration informed that they have extended the deadline to comply with the filing of the D-101 form for inactive corporations, now the corporation owners that haven’t complied with this mandatory requirement have until November 15th, 2022 to file this mandatory form.
The D-101 Form for inactive corporations, also known as the “asset declaration form” it’s a new requirement for corporations with no business activity, those corporations are now obligated to declare a statement with the updated balances of their Assets-Liabilities and Capital annually to the tax administration, this requirement was implemented in 2020 by the tax administration of Costa Rica in compliance with the requirements from OECD in order to improve the grade and international reputation in tax regulation matters. However, due COVID-19 and the limited amount of resources to attend all the inquiries and request from the tax payers, the tax administration ended up suspending the new requirement for 2020 making it mandatory to be declared for both 2020 and 2021 starting in 2022, the next tax period to be declared will be 2022 with the deadline in march 15th, 2023, and the same for the following years.
This form is an informative requirement and doesn’t generate any taxes for the corporation owners.
A very important step to follow regarding this requirement is also to update the writting in the legal books of your corporation, updating the balances of the capital account into the company books (normally what is showed in that account is just the shares).
The update should add the value of all the assets as extraordinary capital contributions, perhaps not complying with this is not fined as with the D-101 tax form, this legalize the assets of the corporations as part of the total capital. For this an act has to be written with the updated numbers (numbers come from the new tax form) and it’s added to the corporate books by your attorney, therefore is very important that if your accountant has done this work for you, besides the tax administration return and the receipt they should also submit you with copy of the corporation opening books and also the update to each corresponding fiscal period (2020 and 2021 for now).
In ConsultantsCR, we’re an integrated-customer focused legal, business & accounting firm, we can provide assistance with this and many more requirements and compliance, feel free to contact us anytime at info@consultantscr.com or our phone numbers in the contact section.
Original Communnication from the Tax Administration
WHAT DO YOU NEED TO KNOW ABOUT YOUR TAXES IN COSTA RICA?
The Costa Rican tax administrator in Costa Rica is ¨Ministerio de Hacienda¨, this institution is divided in three grand departments which are the DGT (General Tax Administration), DGH (Tax Administration), DGA (General Customs Administration).
There are tax administration branches in certain strategic places all over the country, each one of them is responsible for a different area, so when you plan to visit one make sure the branch you´re visiting correspond to the place where you have founded your business.
There are no restrictions on how or who can do business in Costa Rica, foreign people can get a NITE (special tax identification number), that equals to having a Costa Rican id for tax purposes, you need a NITE whether you are doing business personally or through a corporation.
Registering yourself or a corporation can be a very stressful process if you don´t know how to do it, normally the people rely on their accountant to do this process for them instead.
The list of economic activities is extensive for both personal and corporation businesses, with one single corporation or physical person you can have as many economical activities as you want as long as those are registered and reported to the tax administration.
What type of documents has to file a corporation with no economic activity holding one or multiple property only?
The taxes for a corporation that is used to only handle their assets are the following:
Luxury tax (for homes with values over 133,000,000.00 colones or $225,000.00 approximately), this tax is filed each 3 years with the form called d-179, and the tax is paid yearly at the beginning of the year, the base rate is 0.3% of the value of the home.
Property tax, any property in Costa Rica has to be declared at the local government each 4 years, from the property tax form the municipality calculates the annual property tax to be paid, the property tax is due in February of every year, the rate is 0.25% the value of the property.
Corporation tax, this is a tax paid to the tax administration, it´s paid annually and the rate depends on the income of the corporation, for corporations with no economic activity the property tax is usually around $120 a year.
Stamps for education and culture, this is a small tax that paid every year, it goes along the corporation tax and its calculation depends on the income of the company, for corporations with no economic activity it is usually round $40 a year.
The property tax for vehicles is included on the annual payment called ¨marchamo¨, this is an annual fee that the car holders pay to the government as a right to circulate through the national roads.
If you own a corporation for having your property and assets in Costa Rica and need to know more about the new requirement from the CR Tax administration please visit our blog post ¨New tax form for inactive corporations¨.
What type of documents has to file a corporation with economic activity?
Besides the taxes mentioned above, the variety of taxes on a corporation with an economic activity depends on the nature of the activity, each case has to be analyzed separately, but generally the following are the possible tax types:
Traditional income tax: The traditional income tax corresponds to the tax that is calculated using the income through the year and subtracting the costs and expenses, the remaining amount will be taxed with the traditional income tax, the form for this tax has to be filed annually for regular economical activities and monthly for rental incomes for homes that are rented for vacation purposes.
Capital gain tax: The capital gain tax corresponds to the tax that is paid when an asset is sold and there is a profit due the asset has increased their value through the time, as an example, if you buy a property for $10,000 and a year later your sale it for $15,000 you´re taxed 15%, this tax form is filed when the sell process of any asset is giving.
In mobiliary rental tax: The mobiliary rental tax is a special income tax for corporations or physical persons who have homes that are rented for vacation purposes (in periods less than one calendar month), in this case the form has to be filed monthly.
In-source retainer: The retainer is a tax that is applied to salaries over $1,400.00 approximately, a variable % has to be ¨retained¨ based on brackets that are stablished by the TA every year, those tax amounts have to be retained by the employer and paid directly to the tax administration in a monthly basis.
Dividend tax: When a corporation is making dividend distribution between their shareholders, a 15% dividend tax has to be retained to the shareholders by the company and paid to the tax administration, there is a special form for this tax as well.
Value added tax: The value added tax is a tax applied to the consumption of goods and services in Costa Rica, this tax is called ¨transferable¨, which means it starts being charged by the fabricator to the distribution businesses and finally paid by the final consumer, which means if you have a business buying and selling goods for example you will collect the tax and pay it to the tax administration only on the portion of your margin, not the entire value, as a clear example, if you bought an item for $113 ($100 value + VAT), and you sell it for $150 + VAT, you have a tax credit of $13, which means the final tax amount to be paid is $6.5 only ($19.50 Vat on sell minus $13 Vat on purchase). The VAT tax form is a form that has to be filed every month and it´s one of the taxes that involves the most work accounting wise.
Selective consumption tax: This tax is filed when an import is done, also for goods fabricated and sold in the country.
Other taxes:
Transfer tax: Tax generated at the transfer of a tittle from one owner to the other.
Casinos
Investment funds
Fuel and other energy sources
Alcoholic and no alcoholic beverages
Retainers of VAT and Income tax on the credit-debit card machine and other bank-related payment tools
The tax administration along the national banking system holds a percentage of funds when a customer makes a payment to a commerce, those retainers are accumulated through the year and are applied to both VAT and income tax forms as a tax credit monthly and/or at the end of the year, if you have a business and you receive cards you need to have into account that besides the commission from the bank (typically 2.5%), you will also be retained 2% income tax and a range from a 1% to 6% of VAT tax.
In ConsultantsCR, we´re a network of qualified professional for all your needs in Costa Rica, we are compromised with providing support to our customer and make their ideas a reality before, during and after, we´re here to make your business idea profitable and sustainable, feel free to contact us anytime.
The new government of Costa Rica, lead by Rodrigo Chavez, president elected in 2022 has approved a new law that allows foreigns to obtain a VISA to freely work in the country for one year and can be extended for another 12 months after filing an extension if you can prove you have been in the country for at least 180 days.
This Digital Nomad VISA “DNV”, has been designed for remote workers, business owners and freelancers that are looking for a stay and work in Costa Rica for longer time periods than 3 months that is the current amount of time that a foreign holding a passport can stay freely in the country without leaving and returning back so the 90 day count starts over. The remote workers that acquire this VISA will not have to pay any taxes in the country as long as they comply with the requirements from the regulation, also they will be able to open bank accounts in Costa Rican banks and use the driver’s licence from their original countries.
The requirements for obtaining the Costa Rican work VISA are:
Minimum stable income of US $3,000.00 per month for single applicants and US $4,000.00 for families.
You have to work for a foreign company outside of Costa Rica, own a business or work as a freelancer with clients from another companies.
Paying the corresponding stamps and application rights.
Having a permanent health insurance.
Proof of accomodation for the stay (reservation, rental agreement or equivalent).
Employement contract and a letter from your employer.
Copy of your bank statements.
Filling out the VISA application form.
It’s very important to mention that the DNV is not a work VISA, you are able to work for companies outside of Costa Rica, but if you are looking for working for a Costa Rican company then you will need a work VISA.
You can obtain more information at the official website of the migration office of Costa Rica in the VISA section.
The continuous cyber attacks to the institutions of the Costa Rica government has been in the news and every media for the last 2 months, after the president announced that they will never pay for any rescue of information the attacks started to expand to other institutions as the CCSS, the costarican institute for social security, this not only paralized the cashflow of the central government but the social security of the country.
After a big struggle to find the best way to resolve the problem and get the systems back online on both the tax administration and then the socia security, in the middlle of a dramatic government transition where Rodrigo Chavez, the new president of Costa Rica elected in 2022, a figure of sharpness and ethics internationally due his work on the United Nations, World Bank and other international entities, took the steering wheel of the country for good but with lots of traditional politics and supporters of the traditional parties against him. With his hands in the government many public employees will lose their job due his promissing fight against corruption and impulse to more eficient government structure, including the majority of the national news channels and other related media.
Finally at the beginning of june, the new minister assigned requested an inventory of the damages caused and they a plan for the restablishment of the systems that went from the tax declaration systems to the custom paperwork online portals that allowed the importers and exporters to file their requirements easily and those systems were over 5 weeks down. They restablished their most important functions by June 14th, 2022 and will keep working on other accesory systems along the way for the rest of the month, tax wise this marked the line to the return to the normality for the costa rican tax payers.
Similar happened in CCSS, where they were in charged of restablishing their systems to normal, but it took them about two weeks managing to have their most important functions back on track on the 21st of June.
This means that now the taxes can be filed and paid online and also the social security can be reported and paid online again.
What is going to happen with the outstanding requirements, here’s a quick schedule that the tax administration and the social security has set for the tax payers and employeers to comply with no penalties:
Cyber Attacks to Costarican Government Institutions
As all the news sources nationally and internationally have announced in the last weeks, it’s been over a month since the day that the cyber attacks to the institutions of the government of Costa Rica and things are not getting much better regarding having their systems back to normal. Just last week, the CCSS (Social Security Institute of Costa Rica), they have been the last victim of the cyber terrorists, despite their system were working normally, in order to protect the databases and servers, the TI department decided on turning off their website in order to avoid any infections going through their servers.
Currently, the tax administration is not operating their online portal for filing the monthly tax forms, the taxes are being filed through draft forms and the taxes are paid manually with receipts generated by an old system enabled to be dowloaded from an external service. Since the connectivity between the online filing of the tax forms and the online banking is down, the receipts generated by the accountants should be taken by the tax payers to the bank, lining up in the banks to pay their taxes and swamping the banks with tax payers desperate to deliver their receipts and pay the taxes.
Another anoying contingency procedure is the one for new registrations, for new tax payers, unsuscriptions and changes in the business activities registered. Prior to the cyber attacks the way to make those paperworks was through the online portal and 100% of the paperwork can be submitted digitally, now the temporary procedure will be filling out a manual printed form and get the signature of the tax payer or legal representative in case of a corporation, those sigatures will need notarized not only by a notary but an attorney, this makes the paperwork hardly possible in the case that the tax payer or legal rep. is not in the country, in order to get this paperworks done being out of the country will be through a power of attorney to a thirdparty authorizing him to file the forms in behalf of the tax payer, a POA could go up to $400, which makes it very expensive to get. This situation affects the completion of the D-140 form in it’s 3 different types (modification, registration and unregistration) and D-101 form for inactive corporations.
In the above mentioned cases, and considering the amount of work and requests that the tax office is receiving manually, they have requested the tax payers that if there is no hurry to file those forms, it will be better to just wait until the online portals are back online. For the mentioned cases there will be no fines or sanctions, once the systems are back to normal they will grant 3 days to complete the paperwork, the Costarican Accountants Association is requesting them to change it to 20 days instead.
If you have an outstanding paperwork as the ones mentioned above you can request your accountant to keep you updated regarding the dates when the systems are back to normal.
In ConsultantsCR we can assist you with the compliance with the government institutions for you or your corporation, feel free to contact us anytime.
Conti, a Russian based group has made an attack via ransomware to the servers of the Costa Rican tax administration, as they themselves have stated in twitter, due this attack they have published they own about one therabyte (1000 gygabytes) worth of sensitive information stolen from the servers of the Costa Rican government, this also has involved institutions as CCSS (Social security of CR), INVU (Home & living institute), MEP (National education ministry) and some other institutions. Due this event the tax administration, along the other institutions has decided to turn off their servers leaving very important services unable to be accessed by the users, like the online portal of the tax administration, for filing tax forms and doing tax related paperwork, this system is also linked with the national registry of CR which has disabled some of it’s main services in order to prevent the attack to be expanded. The costarican government has informed that they are forming a consultancy group along international experts to deal with the issue, this could take weeks or even months, they have lifted some of the current deadlines due the users are not able to comply with their material and/or formal responsabilities.
A ransomware is a virus that gets into the servers and/or equipments connected to the internet through multiple sources, often hidden into attachments in emails, the virus installs itself silently and stays there silently encrypting data for long periods of time, then when all files are encrypted the sender takes control of those files and requires a amount in crypto currency in exchange for restoring the files to it’s original state.
The tax administration has published the new deadline for this requirement, the new date will be June 15th, 2022, now the corporation owners that haven’t complied with this mandatory requirements have a time window of 3 months to file the D-101 form for inactive corporations.
The D-101 Form for inactive corporations, also known as the “asset declaration form” has the purpose of having all corporations with no business activity to declare their Assets-Liabilities and Capital to the tax administration in an annual basis, this requirement was implemented in 2020 by the tax administration of Costa Rica in compliance with the requirements from OECD in order to improve the grade and international reputation in tax regulation matters. However, due COVID-19 and the limited amount of resources to attend all the inquiries and request from the tax payers, the tax administration ended up suspending the new requirement for 2020 making it mandatory to be declared for both 2020 and 2021 starting in 2022, the next tax period to be declared will be 2022 with the deadline in march 15th, 2023, and the same for the following years.
A very important step to follow regarding this requirement is also to update the writting in the legal books of your corporation updating the capital amount (normally just the shares) with the value of all the assets as extraordinary capital contributions, perhaps not complying with this is not fined as with the D-101 tax form, this legalize the assets of the corporations as part of the total capital. For this an act has to be written with the updated numbers (numbers come from the new tax form) and it’s added to the corporate books by your attorney.
In ConsultantsCR, we’re an integrated-customer focused firm, we can provide assistance with this and many more requirements and compliance, feel free to contact us anytime at info@consultantscr.com or our phone numbers in the contact section.
The tax administration has published the new tax brackets for the year 2022, the different tax rates will depend on if your business activity is registered under an individual, a corporation or a salary.
The following are the rates for the current fiscal year:
In ConsultantsCR we’re accounting, financial, legal and real estate advisors, feel free to contact us anytime. Our email is info@consultantscr.com
The original deadline for this requirement was on march 15th 2021, the Tax Admin. has defined March 15th, 2022 as the final deadline for this requirement, with this change corporations that were created before 2022 will need filling this requirement for two fiscal períods (2021-2022)
According to the tax Administration, March 15th, 2022 will be the deadline for the corporations with no economical activity for filing the now mandatory annual form declaring the assets, liabilities, and patrimony owned by the non active companies. If you own an empty corporation or just use it for holding your assets in CR you will need to comply with this requirement.
Many new and existing investors start their operations in Costa Rica, working as employers to Costa Rican workers without having a base knowledge about what Costa Rican labor law demands, in this post, we’re explaining the minimal aspects to be considered when hiring someone as an employee or a consultant, what are the advantages and disadvantages for each condition, in both of the cases we recommend to establish the scope of the relation in the contract.
Hire as an employee
An employee and employer relation in CR are regulated by the Costa Rican labor regulation, between the most important aspects to consider are the following:
Labor hours: The regular daily working day for an employee in CR is 8 hours a day, over 8-hour threshold the overtime rate will be 1.5 hours to a maximum of 12 hours a day. There are other working journeys as the nightly that goes until 6 hours regular and over that is considered overtime to a maximum of 12 hours a day.
Types of Employees: There are two position types that determine the maximum hours per day, the regular employees and the trusted employees.
Regular employees work under certain conditions as their time is tracked, they respond to a direct supervisor, they earn overtime over 8 hours a day, and in principle there is a dependency relation between the employee and the employer, they are registered into the employer’s payroll, labor risk and social security as CR labor laws state.
Trust employees differ from regular employees because their conditions are less depending on the employer, they have liberty to manage their time along the day, their tasks are usually related to high responsibility tasks, their time is not tracked, and they don’t respond to a supervisor, they are registered into the employer’s payroll, labor risk and social security.
Employers in CR by law have to give their employees all the guarantees by law, as minimum one day off a week, vacation days 12 days per each 52 weeks of work, Christmas bonus (equal to the average monthly salary throughout a year), social security including labor risk insurance policy mandatory for workers in the country.
Employee hires are understood to be for undefined time, unless their contract states a temporary period.
On top of the gross salary of a worker, the employer must cover the following costs, as an example using a $1000 gross salary:
In summary the cost for an employer equals to 39% of the gross salary paid to each employee
Hire as a consultant
A consultant is an independent professional that provides services to a company or individual through a services contract on a determined amount of time, for a determined fee, all the conditions can be set on the contract, the relation between the consultant and the client is totally independent, a consultant can make use of his time as he please as long as he complies with the dues and responsibilities set on the service contract and the scope of services and results.
The consultancy services are billed to the client, the only charge on top of the financial scope of a contract is the VAT tax which in CR equals 13% if the services are billed by the consultant to a company or individual on CR, if the services are given to a company overseas there is an additional retainer of up to 25% of the gross amount to be paid.
A consultant is not subject to the following benefits: Social security, labor risk insurance, Christmas bonus, vacations and others since the relation is for services provided only.
The following post was published by “La Nacion”, a Costa Rican famous paperwork, it shows the progress made by CR in attracting and providing value for foreign investor firms and individuals, you can read the full article in the link below:
At first glance, anyone you can ask about if Costa Rica is a fiscal paradise will give a powerful “no”, and this is not something that is a surprise since the country is well know for having one of the highest living cost in all America, when we take this into account we might be getting into something regarding CR not being anything close to a fiscal paradise, however, not in overall but in some aspects, Costa Rica leads the list of the best places for some of the taxes, adding this up to a high stability of it’s economics, social balance and government it might not be a bad idea to consider moving your operations to CR depending of the type of activity you’re planning on executing in the know as the Centro-American Switzerland.
Property taxes: In United States, the average property tax rate is 1.31%, compared to US, Costa Rica has a property tax of 0.25%, a 1.06% less than US. Panama has a 0.5% property tax, Nicaragua has a 1%, Belize has a 1.5%, Colombia has a 0.5%, this also taking into account that the average capital gain tax among all those countries is 15%, equal to the 15% fixed capital gain tax in Costa Rica, plus, for properties bought before 2019, the tax can potentially be 2.5% on the total price under certain conditions.
This can be considered if you’re planning on investing on real estate in Latin America, and will make huge differences through the years.
Income taxes: United States averages an incredible 39% income tax, compared to a max 30% in Costa Rica, also for new entrepreneurs of mid and small businesses, there can be very good tax benefits by linking your company with MEIC (Ministry of Economics and Commerce), in @ConsultantsCR blog we wrote a full article about all the tax benefits you can obtain by joining your business to this government institution for the support of micro, small and mid businesses.
The income/tax ratio of the CDP’s: Another advantage very undiscovered about Costa Rica is the performance of the certificates of deposit from banks and credit unions against the tax rates applied to them, the best performance rates in Costa Rica goes as follows:
CDP’s for corporations: The max annual performance of a CDP can go as high as 7.8% with the Central Bank instruments (government bonds and IF) and as high as 6.4% with the national banking system while in US the average best APY can be about 0.6%, this also adding up that national bank instruments and funds have the back up from the government with no amount limit. Now lets consider the taxes, the CDP’s from banks in Costa Rica are taxed 15%, this brings the 7.8% from the Central Bank instruments to a 6.63% and the 6.4% from the national banking to a still not despicable 5.44%, still a 4.84% over the best performances from US after taxes.
CDP’s or physical person: In the case of a physical person, with credit unions, that are the ones that offer the most attractive interest rates, the CDP’s in USD can go as high as 5.4% that with the 7% tax can become 5.02% and for the CDP’s in CRC the APY can go as high as 12% with a net APY of 11.16%, this, considering the continuous appreciation of the US dollar against the CR Colon, and making a good analysis and projection of the price in the case the investor wants to bring the money back to his country the performance of the investment can be very attractive.
In following posts we will keep analyzing other very important facts about the opportunities of investing in Costa Rica.
In @ConsultantsCR, we’re business, tax and finance advisors, with over 25 years of accumulated experience, our job is to make your life easier so you can do what you’re best at! Don’t hesitate to contact us for more information at info@consultantscr.com or write us a WhatsApp message at +1 917 993-8055.
Now more than ever companies and individuals are acquiring their assets through each of those two methods, the newest option in the market is renting that differs from the original leasing, and many people wonder what is the best option, even if renting is considered the best option in most of the cases, the leasing option can also be very appealing, it all will depend on the needs of the user, here we explain what is the difference and also what is the best option depending on the different cases.
Many companies in Costa Rica offer multiple options beside the regular sale of vehicles, as vehicle loans, leasing, short and long term renting.
Leasing
The leasing consist on a rental contract with a purchase option at the end of it, where the payments done along the contract are proportionally considered as part of the purchase price if the client takes the purchase option at the end of the contract, in this modality the monthly interest is the main expense that can be used as write off for tax purposes.
Some of the advantages of utilizing a leasing are the insurance policy, preventive maintenance, the annual circulation permit and inspection is covered by the lessor, the purchase costs are lower than in regular purchase or vehicle loan, and finally there is no obligation related with the asset unless the holder decides on making the purchase at the end of the contract. The cons are it requires a prime payment of at least 25% of the value, the vehicle is depreciated and since its’s not owned the lessee, the lessee has to cover all the expenses related to maintenance, repairs, taxes and inspections and the contracts are extended for periods from 3 to 8 years, no short term options.
Renting
The renting option becomes more suitable if the person or company is not looking for possessing the asset, and if the asset is used for an economic activity, specially under this conditions it became the best option, this because 100% of the renting bill works as write off for tax purposes, this added to the fact that the renting covers all the expenses related to the vehicle makes it the best option.
Between the advantages of the renting we can mention the lease periods for even under 6 months, it doesn´t need any initial deposit, this is specially attractive for business owners since they don´t have high investment costs for acquiring the asset, the rates are 100% usable for tax purposes, the formalization time is very low compared to other forms of lease, and another huge advantage is the maintenance, repairs, insurance, tires, inspections and all the expenses ¨but the gas¨ are covered by the lessor.
The renting is gradually becoming the best option, specially for business owners since it allows to obtain a temporary asset without the typical obligations that comes along it.
In ConsultantsCR Advisory Group, we are business, tax, finance and legal consultants with more than 10 years of experience in our fields, we provide timely and useful information to our customers to make their life easier daily.
Feel free to contact us any time at info@consultantscr.com or to our whatsapp direct line in the home page.
MEIC (Costa Rican Ministry of Economy and Commerce)
MEIC in Costa Rica is the institution that it´s main focus is the consumer, and the support of micro, small and mid size companies in the country, providing assistance to the commerce and consumer to grant justice on both sides.
Also MEIC assist on projects of international cooperation bringing technical and financial support to enhance the development of the country.
The PYME (micro, small and mid size company) is a division of MEIC in charge of providing support to the mentioned categories of Costa Rica corporations with support programs and information mechanisms that enhance the industrial and commercial market in the country.
What are the benefits for a PYME??
There are multiple benefits on becoming a PYME in Costa Rica, the most attractive to the entrepreneurs of small companies or new business owners are the tax benefits and the financing options from the national banking system and other institutions that suport PYMES.
Between the tax benefits a person or company can obtain are the exception of the corporation tax, this can save some hundreds of $$ a year in taxes, the second and most important benefit is the exemption on the income tax, this applies for people or companies that are registered as PYME and with an annual gross income less than $180,000.00, under those conditions the rates are the following;
0% Tax during the first year
75% Tax exemption during the second year
50% Tax exemption during the third year
The benefits mentioned are subject to the analysis of MEIC using the annual income tax forms.
The registration on MEIC can be made through two different platforms, MEIC Directo for business owners that have a digital signature and SIEC for owners that doesn´t have a D-Signature device, this is a simple paperwork that can be done by yourself or with the help of your tax advisor.
In ConsultantsCR we provide accounting, tax and financial solutions, our main target is adapting to your company and help bring out the best of your business, you can contact us at info@consultantscr.com
The regulation approved in 2019 with the law #9635 updated the conditions that affect the income related to the capital gains, the calculation methods change depending the conditions of the sale of the asset as we explain below.
About the Capital Gain Tax in Costa Rica
The capital is taxed in Costa Rica when a profit is generated during the sale of an asset, the difference between the acquisition and the sale value will represent the amount to be taxed by the Costa Rican government. The capital income is divided on the following categories:
Capital IncomeFor Rentals
It is understood as capital income, those from the lease, sublease, as well as the constitution or assignment of rights or faculties of use or enjoyment of real estate. Legal Basis Subparagraph a) numeral 1. Article 27b Law 9635
This tax is declared and paid monthly, within the first fifteen calendar days of the following month, or moment in which the generating event occurs. Unless it occurs periodically several times a year, where you can submit a quarterly or annual statement for which the Tax Administration must regulate.
The capital income tax for rental properties is declared and paid monthly along the VAT tax monthly declaration, this unless, the taxpayer decides to declare it as traditional Income Tax, the hotels and bigger operations normally choose for traditional income tax since their profit margins are limited to the expenses they file against the income, this type of income tax is declared and paid annually, to be subject of this calculation method the tax payer should meet the following conditions, prior to the beginning of the fiscal period, beginning with the fiscal period of 2020:
Having an employee registered with the Costa Rican Social Security Fund.
The asset is registered in the accounting.
Expressly communicate to the Tax Administration your decision to declare in the Income Tax.
The condition elected will remain for a minimum of 5 years under this condition.
Movable Capital Income
It is understood by income of movable capital: Income originated in money or in kind obtained by the transfer to third parties of own funds, including the repurchase and reporting of securities in different modalities. Those originating from leases and subleases as well as the constitution or assignment of rights or faculties of use or enjoyment of movable property, as well as key rights, royalties and other intellectual and intangible property rights. The benefit plans to which the beneficiaries of the mandatory pension scheme, the labor capitalization fund and the beneficiaries of the voluntary pension plans are accepted. The distributions of disposable income, in the form of dividends, social participations, as well as surplus distribution of cooperatives and solidarity associations and all kinds of benefits similar to dividends. Legal Basis Subparagraph a) numeral 2. Article 27b Law 9635
Capital Assets
A capital asset corresponds to goods or rights that are not intended for sale within the usual activity of the taxpayer. Legal Basis Section a) Article 29 Regulation of the Income Tax Law.
Subjects of the Capital Income Tax and Capital Gain Tax?
Taxpayers of capital income and capital gains and losses are taxpayers, all natural persons, legal entities, collective entities, without legal personality and investment funds contemplated in the Securities Market Law, as well as any other similar legal figure that captures resources from the stock market during the corresponding fiscal period. Legal Basis Article 28 of Law 9635
Taxable Income and Rates
Taxable income is the difference between gross income or income less deductible expense: In case of the capital income for rentals or non traditional income tax, it is the total amount of the consideration, less 15% of the gross income without any proof and without any other deduction. In non-financial investment funds (Law No. 7732), it is gross income, less 20% of this without any proof and without any other deduction. If you have the vouchers that support the deductible expenses, the gross income is subtracted.
Real Estate Capital Gains
The income generated by the sale of real estate is also taxed with capital gain, for this case there could be two different scenarios:
When a property owner sales his real estate for more than the original purchase price he acquired the property, there is a need for declaring and paying capital gain tax, as the regulation estates, if for the physical or juridical person it corresponds to the first sale ever registered, the owner will acquire the right of calculating the tax by applying a 2.25% over the sale price of the property.
The second way is determined by calculating the difference between the origial acquisition value and the new sale price, that difference is taxed with a 15% capital gain tax.
The analysis of those two different scenarios will determine what is the best option for the seller, before proceeding, make sure to request your attorney for the calculation of both scenarios in order to know what is the best option for you to save money.
Transfer of Real Estate For Non Domiciliated Corporations or Physical Person
When a property is transfered from a ¨non domiciliated¨ person or corporation, the buyer will retain a 2.5% of the sale price.
Transfer Tax
For all the tittle transfers on real estate, there is a tax of 1.5% of the valuation according the national registry.
The implementation of Cabys codes was started by the Costa Rican Tax Administration in december 1st, 2020. Cabys means ¨catalog of goods and services¨, it is a general coded list of goods and services commercialized in the national Costa Rican market, just as the Share Holders Registry, the catalog has been created by the Central Bank of Costa Rica, the catalog is continuously updated and it´s posted live at the website of CBCR here and can also be downloaded as an excel spreadsheet, you can also find the updated list of Cabys codes in your electronic billing system.
Since the Cabys catalog contains all the products and services marketed in the country it is constantly being updated and new codes are added every time. Very important to mention that Cabys contains the names and codes of all the products and services, not the economical activities so at the time of seeking the codes please have into account the proper text to type is the good or service name and not the activity.
The goods and services listed in the Cabys catalog are identified by a unique 13 digit code, that allows its individualization, starting on 10 major categories and then amplify to over 20,000 products.
The first 5 categories, with the exception of the dressing clothes, medicines and health, respond to the international classification called CPC or central product classification published by the UN, with the back up of international organization such as Eurostat and OCDE. CPC keeps a correspondence with the international classification of all economic activities (CIIU).
How can i comply with this?
In order to comply with this you will need to adapt your billing system, as almost every commerce in the country has gradually moved to the electronic billing this is a simple step, the difficulty of doing this rely on the number of products and services your business provides to your clients, a for a hardware store for example, implementing the Cabys code is a massive task and requires lots of resources from programming experts to accountants and workers. For a professional or a person or corporation that has a limited amount of goods and services on their catalog this can become an easy task to comply.
The target of implementing the Cabys is going into your electronic billing system and manually check your registered products, then in each area of each product you will see a new field on the form called ¨Cabys¨, if you manage to see this field it will take you to a search screen where you can type the description of your good or service and find the closest match possible, once this is achieved and the right code for the product is assigned, the next step is saving your product settings and then close the section. This has to be repeated for every product of the company in order to comply with this requirement.
If you have doubts on how to assign or comply with Cabys please contact your acconting service provider.
In ConsultantsCR we are accounting, tax planning and financial advisors, you can contact us through whatsapp or write us an email to the address info@consultantscr.com, we will be glad to assist.
The Shareholders Registry is a requirement created by the Tax Administration and the Central Bank of Costa Rica, the process started in 2019 and was suspended in 2020 due to the COVID-19 pandemic, this year the requirement has been brought back, now with the deadline on April 30th, 2022, the tax payers that must fulfill this requirement are all the Costa Rican corporations as follows:
Sociedades Anónimas (Public Limited Company)
Sociedades de Responsabilidad Limitada (Limited Liability Corporation)
Sociedades en Nombre Colectivo (Collective Corporation)
Sociedades en Comandita (Limited Partnership)
Sociedades Extranjeras con cédula jurídica nacional (Foreign Corps. With Costarican ID)
Empresas Individuales de Responsabilidad Limitada (Individual Liability Corporations)
Sociedades Civiles y Sociedades Profesionales (Civil and Professional Corporations)
Trusts of national and international origin that execute activities in Costa Rica
For completing this paperwork is mandatory that the representative of the corporation counts with a digital signature and a signing device from the Central Bank, this can be obtained by people holding national id cards or DIMEX resident cards, foreign holding only passport will require creating a POA at the name of a professional or a person of his trust to perform the filing of the paperwork on behalf of their corporations.
In ConsultantsCR we provide accounting, tax and financial solutions, our main target is adapting to your company and help bring out the best of your business, you can contact us at info@consultantscr.com
ConsultantsCR Advisory Group 