Costa Rica Companies

General Introductory & General Tax Information

Costa Rica is classified a tax haven for a number of reasons despite the absence of the zero tax regime that exists in a typical tax haven. As with quite a few other jurisdictions, Hong Kong for example, Costa Rica does not distinguish between non-residents and residents where business activities are concerned for tax purposes. And local corporate taxes are low; equipping both onshore and offshore business entities with a favorable business environment.

In Costa Rica, Government ownership of the banking sector until 1996 was a major factor which has hindered the emergence of offshore banking while an offshore insurance sector remains inexistent because of the state’s control of insurance. Consequently, finding balance between state monopoly of these key business areas while wanting to establish favorable conditions for both local and international business was achieved by setting up free trade zones where companies offering different types of services benefit from low taxes and other incentives. Free trade zones serve principally customs duty and tariff purposes but also fall under the laws of Costa Rica with regard to the exemptions given to companies, collection of benefits and areas where business can be established. There are also Free Trade Sub-Zones which were specially introduced for businesses that are incapable of functioning in an FTZ which normally require a minimum investment of US $2 million.

Among the incentives granted to companies within an FTZ are:

• 8 to 12 tax holiday period of zero income tax on profits, starting once trading operations have begun, and an additional 50% exemption on tax for another 4 to 6 year period
• Zero tax on Value Added tax (VAT) and sales tax as well as a selective consumption tax regime for 8 to 12 years, including an additional 50% exemption on tax for another 4 to 6 year period
• Zero tax on customs duties on machinery, raw materials and equipment for 8 to 12 years, including an additional 50% exemption on tax for another 4 to 6 year period
• No withholding tax on funds paid to non-residents
• In addition to the 12 year tax holiday, an extra 4 year tax holiday was given for companies that remained in operation for over 4 years and increased their investments in Costa Rica

Costa Rica Offshore Business Entities:

• Costa Rica Banks
• Costa Rica Trusts
• Costa Rica Limited Liability Corporation
• Costa Rica Stock Corporation
• Costa Rica Foreign Corporation
• Costa Rica Sole Proprietorship
• Costa Rica Limited Partnership
• Costa Rica General Partnership
• Costa Rica Collective Corporation
• Costa Rica Public Limited liability Company

Costa Rica Banks

Main Features:

• Costa Rican banks are governed by the Organic Law of the National Banking System No. 1644 of 1953 (amended by law No 7558 of 1995)
• The Central Bank is responsible for regulating financial institutions, under the supervision of the Superintendent of Financial Entities
• Offshore banks do not undergo strict regulations are other institutions but may soon be included into the Central Bank’s scope of regulated entities
• The 15% withholding tax to which interests payments are normally subjected in Costa Rica is not a applicable to offshore banks
• Loans exceeding 20% of a bank’s capital cannot be made to any single customer
• Banks must have a capital of at least 9% of all issued loans
• Any bank or credit institution accepting deposits from the public must be duly licensed by the Central Bank and have a capital of at least 300,000,000 Costa Rican Colon (CRC)
• There is no exchange of information between Costa Rican banks and external governments or entities other than the local Central Bank; exchange of information between Costa Rican and US authorities is governed by the relevant exchange of information agreement between both countries

Costa Rica Trusts

Main Feature:

• A trust can be created in Costa Rica under articles 633-662 of the Commercial Code which governs the administration, capabilities, structure and activities of a trust

Costa Rica Limited Liability Corporation

Main Features:

• The liability of members is limited to the value of capital that remains unpaid
• LLCs are governed by the Commercial Code
• Costa Rica LLCs must have two subscribers for incorporation purposes then a sole shareholder can be named
• An LLC must not have a corporate shareholder
• LLCs differ from stock corporations in that they can be run by a manager to whom extensive powers of attorney are granted; stock corporations are managed by directors

Costa Rica Stock Corporation

• The stock corporation is a commonly used business entity in Costa Rica
• For incorporation purposes there must be two subscribers
• Stock corporations must appoint a fiscal agent, a resident agent, a registered office and at least 3 directors who may be resident or non-resident or a combination of both
• There is no minimum share capital and minimal reporting requirements
• The issued capital is subject to stamp duty, hence it is often recommended to keep the amount of capital issued as low as possible so as to minimize incorporation costs
• Upon incorporation at least 25% of the issued share capital must be paid-up
• Once constituted the corporation can name a sole shareholder
• Shares may not be issued to the bearer and must be at par value
• Both preference and deferred shares can be issued
• Shareholder meetings can take place in any country if this is provided for in the articles
• Stock corporations are subject to filing tax returns whether or not it is liable to taxes

Costa Rica Foreign Corporation

Main Features:

• Foreign corporations generally conduct their business activities by establishing subsidiaries or branches in Costa Rica
• Upon incorporation registration, branches are required to present an authenticated resolution of the shareholders
• Branches are liable to withholding tax on remittances to the parent company
• Subsidiaries undergo a more lenient registration procedure than branches and enjoy more tax incentives as well
• Redomiciled subsidiaries are subject to the laws of the original country of constitution as well as those applicable in Costa Rica, such as taxation

Costa Rica Sole Proprietorship

Main Features:

• The proprietor’s liability is limited to the value of his capital investment
• The ownership of a sole proprietorship must be in the hands of an individual and not a corporate entity
• Costa Rican sole proprietorships differ from the typical sole proprietorship formed in common law jurisdictions and combine features of limited partnerships and limited liability companies, making it a corporate entity with its origins in Liechtenstein and not applied in many jurisdictions
• Sole proprietorships are administered by a manager to whom extensive powers of attorney are given
• Profits are only allocated through dividends if a trading profit was realized for a given year

Costa Rica Limited Partnership (Sociedad Comandita)

Main Features:

• Costa Rica limited partnerships must have at least 1 general partner with unlimited liability
• There must also be at least 1 limited partner with limited liability with reference to the sum of his capital contribution that is unpaid
• If there are several general partners, they are jointly and severally liable for the partnerships debts and obligations
• A limited partner who is actively involved in the management of the partnership will assume unlimited liability

Costa Rica General Partnership

Main Features:

• The liability of the partners of a general partnership is unlimited
• Each partners is paid his share of profits in proportion to the percentage of equity he owns

Costa Rica Collective Corporation

Main Features:

• This corporate structure is no longer used and had a similar structure with the general partnership found in common law countries.

Costa Rica Public Limited liability Company

Main Features:

• Costa Rican Public Limited Liability Companies are governed by the Law 7201 of 1990 and supervised by the Central Bank
• These business entities are identified for their ability to trade stocks freely on the stock exchange
• Upon incorporation the share capital must be at least 50,000,000 CRC
• The company must have a minimum of 10 shareholders