Costa Rica Tax & Business Guide - Deloitte

Basic facts
Population 4.3m Inflation 13.8% (2005)
Main languages Spanish (official), English GDP per head US$4,600*
Currency Colon (CRC) GDP growth 4.1% (2005)*
Economic communities WTO
GDP sources 8.4% agriculture, 30.4% industry, 61.2% services
*Economist Intelligence Unit.
Political environment

Costa Rica is a presidential democracy with a strong Legislative Assembly. Two major political parties have shared power for the past 50 years, although other political forces have recently gained a presence in Congress.

A former president, Oscar Arias (1986Ò90), took office on May 8th 2006.
Foreign trade and investment
Exports US$7.1bn (2005)* Imports US$9.0bn (2005)*
*Economist Intelligence Unit.

Leading export markets: The US, Netherlands and Guatemala.

Major exports: Industrial and manufactured products, bananas and coffee.

Trade focuses on the US. Increasing integration should boost trade with Central America.

Costa Rica offers one of the regionÌs most open investment climates. There are no investment-screening mechanisms, and any technology may be imported if sanitation and conservation requirements are met. There are no legal restrictions on capital or profit repatriation. Registration at the Banco Central de Costa Rica (the Central Bank) is not required, but capital exceeding US$50,000 must be registered.
Business and financing
Business forms Stock corporation, partnership, limited partnership

The most common form of organisation for foreign investors is the stock corporation (sociedad an€nima, or SA). Other forms, such as partnerships and limited partnerships, are available but infrequently used. The limited liability company (sociedad de responsibilidad limitada, or SRL) is subject to fewer controls than the SA and requires less financial disclosure, but the ownership limitations of the SRL are unpopular. Branches are rare.
Labour environment
Unemployment rate 6.6% (2005) Minimum wage By sector
*Economist Intelligence Unit.

About 15% of the labour force is organised under Ïsolidarity associationsÓ.

Costa RicaÌs minimum salary is based on a cost-of-living index, which is adjusted by the National Salaries Council on a semi-annual basis. Monthly minimum wages for the private sector range from CRC 72,586 for domestic employees to CRC 285,635 for university graduates.

At least 90% of a companyÌs workforce must consist of nationals (variable by 10% in certain conditions) and no less than 85% of total payroll must be paid to nationals.
Taxation
Corporate tax
Main rate 30% Branch profits tax 15%

Companies engaged in business in Costa Rica are subject to tax at 30% only on Costa Rican-source income, regardless of their place of incorporation or management. Dividends received are not included in taxable income.
Individual tax
Progressive rates up to 25%

Individuals, regardless of residence, are subject to income tax on Costa Rican-source income at progressive rates. Employment income is taxed by withholding tax at progressive rates to 15%.
Capital gains
Gains are taxed as income (limited scope)

Capital gains of companies and individuals are taxed as income, but the scope of gains subject to taxation is limited. Gains from the transfer of movable and immovable property are not taxed, unless such transactions are carried out on a habitual basis.
Indirect tax
Standard rate 13% Other rates 5%

The general sales tax applies to most transactions. Exempt items include food, educational supplies, books, medicine and inputs for the construction of dwellings. The 5% rate applies to the supply of electric power to dwelling houses. Registration is compulsory for businesses, but a simplified regime is available for small businesses.
Tax administration and compliance
Tax year Corporations: corporate year; Individuals: year to September 30th

Taxpayers are required to file a self-assessment return within two months and 15 days of the end of the tax period. Companies must make three advance payments of tax during the year. Employment income is taxed by way of withholding. Individuals receiving non-employment income must file a return of this income.
Additional tax information
Withholding taxes Dividends 15%, Interest 15%, Royalties 25%
Tax treaties Costa Rica has concluded one tax treaty with Spain (not yet in effect) and an information exchange treaty with the US.
Dividends Dividends are exempt for companies but subject to 5% or 15% withholding tax for individuals.
Revenue protection There is no specific transfer-pricing or anti-tax-haven legislation.
Groups There are no provisions for group taxation.
Incentives Forestry; export promotion; industrial promotion; tourism.
Other taxes Excise taxes, Equity tax Import duties, Annual tax on vehicles, Boats and planes tax, Property tax, Municipal business or franchise tax, Property transfer tax.