Costa Rica's Business Income Tax Stands at 30%

Registering and operating a company in Costa Rica involves several key steps and considerations. The process begins with deciding on the business structure, which can be a corporation (Sociedad Anónima – S.A.), a limited liability company (Sociedad de Responsabilidad Limitada – S.R.L.), or a branch of a foreign company. The S.A. structure is the most commonly chosen due to its simplicity, requiring only a public document with shareholder-signed bylaws and an appointed board, with a minimum of two shareholders but no capital requirement. The S.R.L. structure is similar but requires the appointment of a General Manager. Foreign company branches, while possible, are generally not suitable for small and medium-sized enterprises (SMEs) due to their complexity and cost.

Legal requirements for company registration in Costa Rica include choosing a unique business name, having at least two shareholders, designating a local, educated, and licensed attorney as a resident agent, defining the company’s principal operations and corporate mission, opening a business bank account with a minimum capital transfer of $400, and registering a fiscal address within the country. Additional documentation includes official identification of the shareholders, an official affirmation of the company’s principal activities, mission, and strategy, and minimum initial capital to be registered.

The taxation policies for companies in Costa Rica include a business income tax of 30%, which can vary based on size, industry, and total revenue. Certain firms may be eligible for preferential tax treatment or other breaks. Value-Added Tax (VAT) is applied to the sale of goods and services at a general rate of 13%, with some exclusions and discounted rates. Businesses are required to register for VAT and remit the collected VAT to the tax authorities periodically. Additional taxes and levies may include social security contributions, local taxes, and withholding taxes on profits and interest.

The costs associated with registering and operating a company in Costa Rica include initial and continuing registration fees, legal fees, compliance costs, rent, utilities, and wages. These costs can vary significantly based on the size, industry, and region of the business. It is advisable to consult with a professional agency to get a closer estimate of these expenses.

The labor laws in Costa Rica impose several duties and considerations on local businesses. Employment contracts for full-time work must be in writing and comply with stringent requirements. Incorrectly categorizing employees can lead to expensive fines, as seen in the recent Uber misclassification case. Employers must provide mandatory benefits such as social security payments and various types of leaves. Termination of employment involves severance compensation and notice periods, with no at-will employment. Strong anti-discrimination policies and data privacy laws also influence the dynamics between employers and employees. Non-disclosure agreements must meet specific requirements to be legally binding.

Operating a business in Costa Rica offers several advantages, including a low cost of living, a highly trained labor force, and a vast entrepreneurial network. These factors make it easier for startups to get off the ground and encourage business growth. However, companies may face challenges such as complying with regulations and overcoming bureaucratic red tape. Despite these obstacles, Costa Rica remains an attractive location for businesses aiming for development and success.