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New Corporate Tax Law Coming Into Effect in September 2017

Most expats who come to Costa Rica choose to use corporations to protect their assets from liability.  These expats set up something called ‘inactive corporations,’ meaning that they do not generate any revenue or pay income or sales taxes, but they do hold assets like vehicles and properties to keep them as legally separate entities in case of legal action against the owner.  This is not mandatory in Costa Rica, but it is advised as a precautionary measure.

On the 22nd of March of this year, Corporate Tax Law #9428 was approved, requiring all active and inactive corporations to pay annual taxes.  It is a successor to Corporate Tax Law #9028 of 2011, which was declared unconstitutional in January of 2015.

The new tax is set to be implemented on the 1st of September for 2017 and will be prorated for this year. Banco de Cost Rica will begin collections in July.

The tax is calculated to be between 15-30% of the current base salary of a government employee, which at present is said to be 426,200 colones.  Annual payments will therefore start at $115 USD at the bottom of the scale (see below for chart with tax brackets).  Inactive corporations (the majority of corporations held by expats for assets such as properties and vehicles) are likely to pay just the minimum sum.

Business owners in Costa Rica will have something called ‘active corporations’, meaning that they file tax returns on generated income.  Their corporate tax is slated to be slightly higher, although still one of the lowest in the region, including the US and Canada.

Corporation holders can find out if their company is active or not by checking the Ministry of the Treasury website here.

Payments for 2017 will have to be paid in full by the close of 2017 to avoid interest charges.  The 2018 full payment will be due by January 30th and new corporations will be required to pay the tax within 30 days of registry.

Those who want to continue to use their corporation must have up-to-date payments for the three consecutive years of 2012-2015.  If not, their corporations are set to be deactivated by the government.

The new Corporation Tax Law will have the following grace periods:

 

1.     Corporations owing back taxes are allowed 3 months from the date the law comes into effect for payment, meaning back taxes are owed by December 1st, 2017 to avoid paying late fees or interest.  Past due corporate taxes in Costa Rica constitute a legal preferred mortgage situation in which the government can dissolve the corporation and put a lien on a corporations assets  based on Article 6 of Law 9024.  This is also a provision in the new law 9428, Article 7.
Note: Having a corporation dissolved by the government does not mean absolution to debt for unpaid back taxes.

2.     Corporations that choose to move their assets into another corporation or into a personal name will be exempt of property transfer taxes in year 1.  This can be done without the need to clear the title of debts and/or liens, so long as there is no provision in the contract that states that a transfer cannot occur without the consent of the creditor.  Although the transfer tax will be waived, legal fees for the transfer still apply.

3.     Board members of the corporation can resign with the National Registry and have two years to file their resignation without penalty.  Whereas the old law holds representatives and officers of the corporation personally responsible for the payment of past-due taxes, the new law adds that shareholders are now also liable.

 

Money from the new Corporate Tax Law will be designated for use in public security (90%), the prison system (5%), and an organized crime task force (5%).

2017 Corporation Taxes Chart

*Calculated based on 550 colones to $1USD exchange rate

*Chart from Pacific Coast Law Costa Rica