During the last 10 years Costa Rica had received a lot of attention from multinational companies, and therefore has been chosen as the country to be due to its affordable labor cost; economical, social and political stability.
If you are planning also to open a branch in Costa Rica or run a business from here, we strongly recommend you take into consideration some of the most important taxes, that will be briefly explained as follows:
Taxes the net profit of any corporation, the brackets are defined by the gross revenue; however the tax is applied to the net profit, if any. If the corporation pays this tax in one year, then on the following year will have to pay 3 advances equivalent to the 0.75 of the amount paid the previous year divided by 3.
Every corporation, regardless if it is in operation or not, must file the annual tax return, which dues on December 15.
Costa Rica’s Tax Year Ends 30th September 2009
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Currently Costa Rica doesn’t tax some services with this tax, such as Accountants, Attorneys, Architects, etc; and other items considered as basics like milk, vegetables meat, etc are also excluded, however many others are in the long list of taxable services and items.
The Current rate is 13%, and must be collected by the tax payor and give it back to the government within the following 10 working days after the month end. Some credits can be applied like the sales tax paid for the inventory or other services that are necessary to run the company.
Business License Tax:
Once your business gets the license to operate, granted by the local municipal government, you will have to pay, on a quarterly basis (March, June, September, December) a tax must be paid based on the gross revenue of the corporation.
For the first year of operation and as a part of the list of requirements the licensee will have to forecast the gross revenues and that will be the business license calculation basis for the first year, then on January, the due date changes from one area to another, but quite often the due date is the 15; the business license tax return must be filed and that will be the basis for the new year payments.
Education & Culture Stamp:
This is a yearly tax, and its calculation basis is the net equity of the corporation reported in the previous income tax return; the deadline to pay this tax, that the maximum amount can be $17.40, is March 31st.
Every time a company pays dividends to its shareholders it must retain a tax, called income tax in the source, of 15% if the tax is paid to another corporation then this will be a tax free income for the receiving corporation. This tax must be paid back to the government within the next 10 working days after the month’s end.
Foreign Benefits Payment Tax:
This is another branch of the income tax in the source that taxes all the foreign individuals or companies that rendered some service in Costa Rica to a local company, if the service is provided out of the country then the tax does not apply, and can go from 2% to 30% depending on the concept of the payments where franchises and royalties are in the lowest rate; services rendered by individuals in the middle with 15% and services rendered by a corporation are in the higher rate.
This tax must be paid back to the government within the next 10 working days after the month’s end.
The above mentioned taxes are the most common ones when it comes to corporations, whether this is a local company or as a branch of a foreign company with headquarters in another country.
Costa Rica Taxes Video Interview: To watch this short video, please click on the small white triangular Play button in the middle of the screen below and allow a few seconds for the video to begin.
PS. These videos were filmed in the Santa Ana Country Club, a luxury condo project where they are still building tennis courts and another swimming pool so please forgive us because at times you will hear some construction machinery in the background.
It’s very important to keep accurate records and make sure all your tax matters are up to date, keep in mind that in Costa Rica there are fines when you don’t pay your taxes on time and in extreme cases, they can even close down your business.
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Written by Randall Zamora who is the President and CEO of CostaRicaABC.com, former CFO and Head of Accounting Department of multinational companies like Four Seasons Resort Costa Rica, active member of the Interamerican Accounting Association, Pro Bono Local Partner of The World Bank and contributor to their yearly publication “Doing Business Report.”
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