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Damalion Costa Rica desk

Doing business in Costa Rica

Popular for its outstanding business climate based on a distinguished democratic tradition, and economic stability, Costa Rica is a country committed to economic growth and social development, and this has steered its economy towards diversification. 

Costa Rica has ranked among the highest in the Political Stability index in Latin America, it has enjoyed decades of economic stability throughout its democracy, and it also has a favored geographic position in America. 

All these with a couple of other incentives are some of the reasons foreign investors and entrepreneurs remain attracted to this country. 

Benefits of doing business in Costa Rica 

  • Costa Rica has trade policies that facilitate and consolidate the country’s integration into the international economy – this is quite advantageous to investors 
  • With a young, qualified, and bilingual workforce, a literacy rate of over 97%, and free education, Costa Rica has one of the strongest educational systems in all of the Latin American region. 
  • Costa Rica’s quality of life is high, it is also one of the safest countries in Latin America, with an excellent medical care system. 
  • Costa Rica is a bridge that unites the Americas – South, North, and Central. It also has access to both the Pacific and Caribbean sides, and this provides logistics solutions for importers and exporters. 
  • Costa Rica has a stable government and democratic traditions, which have made it a leader in the Latin American region for international business. 
  • Costa Rican poses no restrictions on re-investments, it has also achieved international standards for intellectual property rights protection. 
  • Additionally, Costa Rica is frequently attributed with sustainable development and friendly environmental policies and this has placed it among the ideal countries to invest in sustainability.
LEGAL SYSTEM

The Costa Rican legal system can be categorized as a Romano-Germanic style of law which is derived mainly from the Napoleonic Code. It closely acknowledges the Civil Law system and not a federal system. 

Its political and legal structure includes three main branches: Legislative, Executive, and Judicial. 

Entity choice in Costa Rica 

Although there may be some nominal restrictions depending on the particular field of the investment, e.g, maritime zone investments, in Costa Rica, there are no restrictions regarding foreign investment. There are also no limitations on doing business with certain nations. 

Entrepreneurs and investors looking to do business need to establish a company in Costa Rica. Outline next are the main types of business structures investors can establish in Costa Rica: 

  • Corporation (Sociedad Anónima), 
  • Limited Liability Company (Sociedad de Responsabilidad Limitada), 
  • Limited Partnership (Sociedad en Comandita Simple), 
  • General Partnership (Sociedad en Nombre Colectivo), 
  • Individual Limited Liability Company (Empresa Individual de Responsabilidad Limitada), 
  • Joint Stock Company (Sociedad en Comandita por Acciones), and 
  • Joint-Venture (Sociedades de Hecho) (this is not expressly included in the Costa Rican law, but is accepted as valid for the business association). 

The most common ones are: 

Sociedad Anonima (Anonymous Society) 

This is the most used corporate structure in Costa Rica. It is similar to a corporation in the U.S. 

Features 

  • It requires a minimum of two shareholders, three board members, and a resident agent for its establishment 
  • It can have any amount of capital divided into as many shares as the investor needs. 
  • Its shares are characterized by physical documents and more than one of them can be encompassed in a certificate. 
  • Its legal representatives are responsible for any actions taken against the interest of the company and its shareholders. 
  • It requires three corporate books and three accounting books. 

Sociedad de Responsabilidad Limitada (Society of Limited Responsibility) 

This business structure is a simpler form than the Sociedad Anónima, and is comparable to a limited liability company in the U.S. 

Features 

  • It only requires two people to be shareholders, also no board of directors, and usually, no resident agent is required, for its establishment. 
  • Its shares cannot be transferred to non-shareholders without the prior approval of other shareholders. 
  • Its administration only requires one individual (the Manager). 

Branches 

Any foreign entity may establish a branch in Costa Rica, which is an expansion of a foreign corporation. 

Features 

  • It is considered the same as the parent company and carries out the functions of the parent company but can function independently 
  • It must have a registered office address in Costa Rica 
  • The parent company must register a Shareholders agreement in the Costa Rican National Registry. 
  • It must appoint a Legal Representative in the country for the company ́s businesses. 

Interested in company registration in Costa Rica? Contact your Damalion expert now.

BANKING

Central Bank 

The Central Bank of Costa Rica (BCCR – Banco Central de Costa Rica) is the central bank of Costa Rica. 

The BCCR is an independent institution whose main purpose is to retain the external and internal stability of the national currency and guarantee its free conversion to other currencies. In addition to providing banking services to the Costa Rican Government and financial institutions, it also facilitates a stable system of financial efficiency and intermediation. 

Commercial banks 

The Costa Rican financial system is composed of several banks, including two state-owned and 11 private commercial banks, one worker’ and one state-owned mortgage bank among others, all under the oversight of the Superintendence of Financial Institutions (SUGEF – Superintendencia General de Entidades Financieras), which is, in turn, a semi-independent division of the Central Bank. 

The SUGEF is also in charge of ensuring the stability, solidity, and efficient operation of the national financial system. 

Banking account in Costa Rica 

If you’re contemplating moving to and living in Costa Rica long-term, a bank account will be a beneficial asset. It will save you from a lot of financial liability, in addition to providing financial convenience. 

To open a bank account in Costa Rica, you need to start the process by choosing an appropriate bank and bank account. Banks in Costa Rica fall into two sectors: government-owned and private banks. And the one chosen will depend on your requirements and situations, as policies on who can open a bank account in Costa Rica vary from bank to bank, e.g, Costa Rican private banks require you to have lived in the country for a specific amount of time before you can open an account. 

After selecting the appropriate bank and account, next is preparing the required documents which vary from bank to bank in Costa Rica. 

If you are a Costa Rican resident, you will generally require an ID, minimum deposit, proof of address, proof of income, and three months of bank statements from your current bank. Note that there are fees for some financial transactions, and if you’re a foreign national without residency, Costa Rica banks may exact limits on your account. 

Do you need help opening a bank account in Costa Rica? Contact your Damalion expert now.

IMMIGRATION

Costa Rica is often regarded as one of the world’s happiest countries, and this has made many expats choose and settle down there. Spectacular beaches, a comfortable way of life, and friendly locals all participate in the country’s popularity, and this has made a lot of foreigners immigrate there. But as a foreign individual looking to immigrate and live in this beautiful country, a residence permit is required. 

Costa Rican residency 

Every foreigner who wants to stay in Costa Rica for a period surpassing 90 days must acquire a Costa Rica residence permit, irrespective of their nationality. This residence permit enables the holder to stay in the country long-term for the goal of working, retiring, or joining a relative, among others. 

Types of residence permits in Costa Rica

Temporary: 

A Costa Rican temporary residence permit is issued for individuals looking to stay in Costa Rica temporarily and usually with the endgame of getting a permanent residency. The subcategories of Costa Rica temporary residence permits include: 

  • Pensionado (for retirees) 
  • Rentista (for rentiers) 
  • Inversionista (for investors) 
  • For workers (Specialized independent workers and Workers in relation to dependency) 
  • For scientists, professionals or interns, and specialized technicians, and for 
  • Athletes and religious workers 

Permanent: 

this permit is issued for either individuals who have a Costa Rican family member that’s related by blood, or for individuals who have lived in Costa Rica for a minimum of three years under a temporary residence permit. 

Costa Rica residence permits for Retirees, Rentiers, and Investors 

Out of the temporary residence permits, the most commonly issued are the Pensionado (for retirees), Rentista (for rentiers), and Inversionista (for investors) visas. 

  • Pensionado residence visa in Costa Rica 

To qualify for this type of visa, the applicant must make a certain minimum amount per month from an eligible retirement plan or pension source and it must be paid in Costa Rica. 

  • Rentista residence visa in Costa Rica 

To qualify for this type of visa, the applicant must prove to have a stable income of a certain amount per month from an outside source (e.g., investment) and will continue to have it for a minimum of two years. For rentista residency, the applicant must also prove his/her continuing income every five years. 

  • Inversionista residence visa in Costa Rica 

To qualify for this type of visa, the applicant must invest a minimum of US$200,000 in Costa Rica, either in an operating business, real estate, or projects which are of federal interest. 

Costa Rica permanent residency status 

After two years of temporary residency in Costa Rica, a foreign national can apply for permanent residency and ultimately citizenship. Costa Rican permanent residency can also be applied for if the foreign nationals marry a Costa Rican citizen or have first-degree family members who are Costa Rican citizens.

TAX REGIME

The primary authority on tax-related issues is the Ministry of Finance, and this authority is divided into the General Customs Administration and the General Tax Administration. 

Any legal entity established in Costa Rica, all natural persons domiciled in Costa Rica, and all permanent establishments or branches in Costa Rica are subject to tax. But taxation of individuals in Costa Rica is based on the principle of territorial. This indicates that only income originating from Costa Rican sources is liable to income tax. Taxpayers won’t have to pay taxes on their Social Security income, investment income, pension, etc. 

Types of tax in Costa Rica 

  • Personal income tax 

Personal income tax (Impuesto de Renta) is imposed on income from business activities conducted in Costa Rica. This tax only concerns individuals who have a job or business in Costa Rica. The tax rate is progressive and it ranges from 0-25%. 

  • Corporate income tax 

This tax applied to companies that generated profit in Costa Rica and from Costa Rican sources. The corporate income tax rate in Costa Rica is 30%. 

  • Capital gains tax 

Capital gains from the sale of assets in Costa Rica are taxable at a 15% rate. 

  • Withholding tax 

Earnings and interest payments in Costa Rica are charged withholding tax at the rate of 15%, while royalties are charged at the rate of 25%. 

  • Value Added Tax (VAT) 

VAT in Costa Rica is applied to all sales of goods and services in the country. Its standard rate is 13%, but there is a reduced rate of 4%, 2%, and 1% on some goods and services. VAT in Costa Rica must be reported during the first 15 days of every month. 

  • Property tax 

There is property tax (land, buildings, and further permanent structures) in Costa Rica, which is charged at the rate of 0.25% on the evaluated value which is determined by the municipal authorities. 

  • Real estate transfer tax in Costa Rica 

This tax in Costa Rica is initiated with the transfer of the property and is charged at the rate of 1.5% of the evaluated tax value of a property. 

Double tax treaties 

There is not a large network of double tax treaties in Costa Rica, except with Germany, Mexico, and Spain. 

Some, e.g. Mexico, are under negotiation and have not yet entered into force. 

On the other hand, Costa Rica has signed Tax Information Exchange Agreements with the following jurisdictions: Argentina, Canada, Denmark, Australia, Ecuador, Faroe Islands, Finland, El Salvador, France, Greenland, Guatemala, Guernsey, Holland, Honduras, Iceland, Norway, South Africa, Mexico, Nicaragua, South Korea, Spain, and Sweden.

INTELLECTUAL PROPERTY

Costa Rica is committed to the protection of intellectual property and it has managed to solidify global standards for intellectual property rights protection. It follows standard practice in terms of the intricacy, cost, and steps involved in maintaining the protection of intellectual property rights. The country also acknowledges the major multilateral conventions and treaties for the security and enforcement of patents, trademarks, copyrights, and other forms of intellectual property rights. And being a member of WIPO (World Intellectual Property Organization) Costa Rica implements all the agreements and treaties it has signed. 

Some of the rights acknowledged and protected by Costa Rican Intellectual Property Laws include the following: 

Patents 

  • A patent grants the sole right to an invention and grants licenses to third parties approving the use of the invention. 
  • Patents are granted to new inventions, that have a creative level and are liable for industrial application. 
  • In respect of patent protection for inventions, Costa Rica is a member of the Patent Cooperation Treaty. 
  • The Registry of Industrial Property is the eligible authority to register patents in Costa Rica. 
  • The length of protection of a patent in Costa Rica is 20 years. 

Trademarks 

  • A trademark is any sign which distinguishes the goods or services provided by one person or firm, from others that are of the same class. 
  • Trademarks shouldn’t generate confusion over another trademark that is already registered. It also must not be generic pertaining to the goods or services that it includes. 
  • To protect the goods or services, they must be trademarked. Trademarks in Costa Rica are registered before the Trademark Department of the Industrial Property Registry. 
  • Trademarks in Costa Rica consent to protection for ten years, and it is subject to renewal. 

Registered designs 

  • Industrial design refers to drawings or models which can be lines and colors or models. 
  • The Registry of Industrial Property is the eligible authority to register industrial designs in Costa Rica. 
  • Designs are insured for five years but unregistered designs are not protected. 

Copyright 

  • Copyright in Costa Rica covers literary and artistic works including books, films, music, plays, novels, etc. 
  • Copyrights safeguard the author or owner of the rights related to these artistic works. 
  • Copyrights are recognized to authors by mere aspects of their creation. 
  • Copyrights include moral and patrimonial rights and are registered by the Costa Rican Public Registry at the Copyright Registry. 
  • Copyright protection has a length of 70 years starting from the death of the author.
LABOR AND EMPLOYMENT

Employment law is governed by the Ministry of Labor and Social Security in Costa Rica, but the central body of law regulating employment relationships in this country is the Labour Code. The Code involves any employment relationship that is enforced in Costa Rica, and the rights granted to employees under the Labour Code cannot be relinquished. 

Types of Costa Rica employment contracts 

Employment contracts are mandatory in Costa Rica. These contracts must be in the local language. It must also entail the terms of the employee’s payment, benefits, and termination requirements. 

The main types of employment contracts in Costa Rica are the following: 

  • Indefinite employment contract: this type of contract has an unspecified duration and only ends when the employer and employee mutually agree, or when one of them has the right to terminate the agreement unilaterally. 
  • Fixed-term contract: this type of employment contract is created for a limited period and only under circumstances that need such an agreement. This type of contract cannot last longer than one year. 

Employment benefits in Costa Rica 

  • Working hours: working days in Costa Rica are classified into day shifts (8 hours per day; 48 hours per week), night shifts (6 hours per day; 36 hours per week), and mixed shifts (7 hours per day; 42 hours per week). 

Certain employees can work longer than the eight-hour daytime maximum, but should not work longer than 12 hours per day. 

Employees can work overtime but employers may require no more than four hours of overtime per day. Over time is subject to extra payment. 

Leave under Costa Rican employment law 

  • Maternity and paternity leave: pregnant employees are given 4 months of paid maternity leave(one month before the birth of the child, and three months after). This duration can be extended at the request of a registered medical professional. There is no mandatory paternity leave in Costa Rica but fathers holding public sector jobs are given eight days of paid paternity leave. 
  • Vacation: the Costa Rica labor code provides employees with two weeks of vacation for every 50 weeks of employment. These vacation days must be regular working days. 
  • Sick leave: the length of sick leave is specified by the social security fund (known as the Caja – this system also provides employees with free health care, disability pensions sick leave, and retirement benefits ), and this is based on the employee’s ailment. That social security fund will cover half of the employee’s salary during their first three days of leave and the employer will cover the rest. But from the fourth day onwards, the fund will cover 60% of the employee’s salary, and the employer will be under no legal obligation to handle the rest. 
  • Bereavement: there is no specific law regarding bereavement leave in Costa Rica. This must be negotiated between the employee and employer. 
  • Severance pay: the termination of employment in Costa Rica must be justified. And if employees are laid off without cause, they will be entitled to severance pay.

Are you ready to enter the Costa Rican market?

Your Damalion expert is here for you. We provide integrated market entry and additional support to investors, entrepreneurs, and corporations throughout the world, not limited to Latin America only. 

We also provide several integral business solutions, including compliance, entity management, accounting, taxation, payroll support, and many more across the world. 

If you wish to learn more about our services and how we can assist you in making your Costa Rican company a success, contact us today.

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