How to get residency, set up a company and investment opportunities in Costa Rica
Located in the continental Caribbean between Panama and Guatemala, with just over 51,000 sq km and almost 5 million inhabitants. Costa Rica is often called the Switzerland of Central America, because of its pleasant lifestyle, its lack of army, its stable democracy and its impressive natural beauty. Costa Rica is considered the most developed country in the region.
It is said that its name “Rich Coast” was given by Cristopher Columbus due to the great amounts of gold and jewels that its locals possessed. But nowadays, it is not gold what attract more than 2.5 million visitors per year, it is its endless natural parks, its gorgeous beaches and its cozy and charming people. Apart from being a well-known top tourist destination, it has become one of the preferred spots for Americans expats to settle, particularly for retirees, and invest in real estate. As we will see, Costa Rica is a place to consider for tax residency, in addition to a considerably positive business climate, a favorable tax environment for international business and the existence of several free trade areas. Keep reading to know about the different options to immigrate and get residency in Costa Rica, living, incorporating a company, investment incentives, real estate, banking and taxes.
Residency in Costa Rica, Visas & Citizenship
Temporary Residency in Costa Rica
The temporary residence permit in Costa Rica may be granted to foreigners entering the country as executives / managers / technical personnel of recognized entities, athletes, religious, correspondents and personal press agencies, scientists, professionals, specialized technicians, investors, rentiers and retirees, among others. Next, we will focus on the last three categories mentioned.
- Rentista Visa (Rentier): It is required to prove a monthly income of at least USD 2,500 from a guaranteed source for two years. It includes the applicant, his / her spouse, and children under 25 years of age or older with disabilities. Additional income will be required for another class of dependents.
In most cases, applicants usually make a bank deposit of USD 60,000 at a local bank and obtain a commitment letter from the bank that at least USD 2,500 per month will be made available to the depositor. Rentistas are required to contribute to La Caja Costarricense de Seguro Social (C.C.S.S.) (Social Security Fund), acquiring a seguro voluntario (voluntary insurance). The cost will depend on the income received, but it is around 9-10% of the stated monthly income.
The permit may be renewed every two years on condition that he/she still meet the requirements, i.e. make another deposit or prove a source of income. For renewal, it must be proved that the income has been received within the country and he or she has been stayed at least 4 months per year, continuous or discontinuous.
Rentista Visa holders may establish a business or work on their own, but may not work as employees.
- Inversionista Visa (Investor): To qualify for residency as an investor, it is required to make an investment of at least USD 200,000 and submit several certifications and documents that demonstrate such investment. Qualifying investments may be:
- Productive projects or projects of national interest.
- Real estate.
- Stocks or securities.
- Forest plantations (required investment: USD 100,000).
Dependents may be included. The required stay is 6 months per year, continuous or discontinuous. Investors may not work as employees, but they can establish their business and earn income from their investments.
- Pensionado Visa (Pensioner): A permanent monthly income of USD 1,000 will be required for a lifetime pension, such as social security, annuities, retirement funds, military pensions or other guaranteed retirement benefits. There is no minimum age to qualify and may include the spouse, children under 25 years or older with disabilities.
The visa has a duration of two years renewable, demonstrating that the income has been received in the country and that the right to receive the annuity is still valid. The permanence in the country is required at least 4 months per year that can be continuous or discontinuous.
Holders of a pensioner visa are obliged to contribute to the Costa Rican Social Security.
Work as employee is forbidden but the holder can establish his/her business/investment and obtain profits from it.
General requirements for obtaining residency in Costa Rica
Temporary residence permit applying procedures can be initiated at any Costa Rican consulate or embassy abroad or at the Direccion General de Migracion y Extranjería in San José. In addition to submitting all documentation and specific certifications of income or investments, applicants must present a receipt of payment of the USD 50 application fee, receipt of CRC 2.50 payment for each passport sheet and CRC 125 when filing the application. It is necessary to present proof of registration of fingerprints, issued by the Ministry of Public Security, proof of consular registration, birth certificates, criminal record certificate issued in the country of origin or in the place of the last 3 years of Residence and original and copy of a valid passport with a valid visa stamp. All documents must be legalized or apostilled. In the case of initiating the procedures in the territory a fee of USD 200 will be applied for the change of the visa status. The documents must be legally translated into Spanish by an official translator and valid for 6 months from the date of issue.
The immigration authorities reserve the right to approve the application. Initially it must be resolved within a maximum period of 90 days. But the reality is that the process can be extended for more than 6 months and even a year, so it is recommended that the passport has enough validity not to expire during the process.
Once approved the application, it will be granted a temporary resident card (DIMEX), which normally has a validity of two years, renewable if requirements are still met.
If you want to immigrate to Costa Rica, get started applying now at passports.io/costa-rica.
Permanent Residency in Costa Rica
Once a foreigner has legally resided in Costa Rica with any temporary residence permit for 3 or more years, he or she may apply for permanent residence. Permanent Residency in Costa Rica allows working as an employee for a Costa Rican employer and the minimum requirement of annual stay is to visit the country once a year for 72 hours. Once the application is approved, it will be issued a permanent resident card (DIMEX), which must be renewed every 5 years. Permanent residence is individual and does not include dependents.
Foreigners who have a first-degree relationship with a Costa Rican citizen, either spouse or child, may also apply for the permanent residence visa.
Although not indispensable, legal assistance is recommended to carry out all residency application. Either temporary or permanent. To ensure the approval of such application, overcome any bureaucratic obstacles that may arise and not to extend deadlines. At Flag Theory we have access to qualified immigration attorneys who can smooth your way to Costa Rican residency, contact us at [email protected] for further information.
Costa Rican Citizenship
After 7 years living legally with a temporary or permanent residency visa, a foreigner may apply for citizenship by naturalization. Citizenship by naturalization gives the right to obtain the Costa Rican passport. Dual citizenship is de facto allowed, naturalized citizens are not usually required to renounce to previous citizenship. In addition to 7 years of residency visa, to apply for naturalization is required a proof of residence, clean criminal record background, proof of professional career or proof of income, knowledge of spoken, read and written Spanish, pass a test about Costa Rican history and values and 2 witnesses that can testify the applicant conduct and livelihood.
2 years of legal residency will be required if a foreigner is married to a Costa Rican citizen, or 5 years for Spanish or certain Latin American nationals.
Visa Requirements for Costa Rican citizens
In terms of travel freedom, the Costa Rican passport is considerably valuable, ranking 31st worldwide according to Henley & Partners’ Visa Restrictions Index.
Costa Rican citizens may travel visa-free or visa upon arrival to 134 countries and territories, including the Schengen area and the rest of European countries, Turkey, Latin America, Japan, South Korea, Hong Kong, Singapore, Malaysia, Indonesia and South Africa. In addition, an eVisa is available to travel to India or Australia.
Tourist Visa in Costa Rica
Costa Rica has a considerably open visa policy. Citizens of almost hundred countries and territories can visit and stay up to 90 days in Costa Rican visa-free. Including, Schengen area, Canada, United States, Russia, Australia, UAE, Qatar, Turkey, South Africa, Japan, South Korea, Taiwan, Malaysia, Philippines and Latin America (except Cuba, Colombia, Ecuador and Dominican Republic), among others. Holders of certain multiple-entry visas or residence permits of US or Canadian may enter visa-free. Sometimes immigration officials ask for departure tickets to allow the entry.
Foreigners as tourists may not work as employees by a Costa Rican employer, but may own businesses, vehicles or property. There is a departure tax at all land borders of USD 7 and USD 29 for departures from the airport.
The perpetual tourist is and has been a widespread practice. Leaving Costa Rica for 72 hours every 3 months and accumulating stamps in the passport. Although technically not illegal, authorities have begun in recent years to deny entry to foreigners who have abused of it. If you have business, property or important ties with the country it is advisable to apply for a residency visa.
Living in Costa Rica
About Costa Rica
Costa Rica can boast active volcanoes, rainforests, more than 1,300 km of coastline with heaven beaches, lush hills and an exclusive wildlife. More than 50% of its territory is covered by forests, more than 25% are protected reserve or natural park, it gathers more than 5% of the world’s species and has one of the richest indices of biodiversity in all the planet
The climate is tropical and is divided into two seasons, the rainy season (called the green season), from May to November and the dry season (summer) from April to October. Being November, December and January the coolest months, especially in the most continental area. The average annual temperature is between 21ºC and 27ºC.
Costa Rica is considered the Central American country with the best human development indexes and the most consolidated democratic system. According to World Report and US News, Costa Rica ranks 36th worldwide, and the best Central American nation considering compliance of human rights, business freedom and quality of life. Ahead of Panama (37) and Guatemala (52).
The official language is Spanish. Although, communicating in English is viable, especially in the more touristy coastal areas, such as Quepos, where there are large American expats communities. In addition to Afro-Caribbean English-speaking communities. Speaking a little bit of Español can obviously make life easier, especially to interact with taxi drivers, bus drivers, house cleaners, gardeners and in general to deepen connection and relationship with the locals.
The capital and political, economic, cultural and social center is San José. Located in the center of the country, in the plateau named Valle Central (Central Valley). San José is a cosmopolitan city of just over 330,000 inhabitants, with great colonial architectural influence, palpable in historic neighborhoods like Barrio Amón. San Jose combines commercial blocks of department stores, markets, colonial mansions converted into art galleries, restaurants and hotels, cathedrals, traffic, fast food outlets, museums, abundant parks and outdated residential buildings and several more modern skyscrapers.
Although Costa Rica is one of the safest countries in Central America, and crime in the country is normally related to drug trafficking. Common sense is primordial to avoid robbery, such as not sleeping in public areas, do not carry visible valuables as jewels or relation with oddly friendly strangers, especially in the less touristy neighborhoods.
Apart from San José, Costa Rica has a few more metropolitan cities. The most important is Alajuela, where the Santamaría international airport. Located just 11 miles from San Jose. It is known for its Mercado Central (central market), where people from other cities, including the Josefinos go to buy fresh grocieries as meat and fish. Alajuela is notably quieter than the busy San Jose, it is a small town and convenient for its closeness to several interesting claimed places.
Playa Jacó is the closest beach to San Jose, and is one of the most tourist destinations. 4 km of beach known for their optimal conditions for water sports such as surfing.
Quepos is another of the busiest tourist areas, besides having the largest port area. Located on the Pacific coast about 150 km from San José, besides beach, nightlife and leisure and entertainment, it is 7 km away from Manuel Antonio, one of the most impressive national parks in the country.
Regarding transport, there is no rail network and public transport is limited to buses, which do not stand out for their efficiency. Having an own vehicle is considerably necessary.
An important fact is that Costa Rica lacks a standardized and efficient address system. So often the location is described by distance to points of interest. Postal codes are not widely used and most people use post boxes, which may have long waiting lists.
About health, Costa Rica has a public healthcare system, La Caja. As I mentioned above, residency visa holders are obliged to contribute, even if they have private insurance. The system has its shortcomings and there may be long waiting lists, but infrastructure and medical assistance is quite good. Private healthcare is quality and has several modern medical hospitals and clinics. Actually, Costa Rica is a medical tourism top destination.
The educational level of the country is high. Its public system is one of the best, if not the best in the region. There are also high quality international schools. Public higher education is also among the best in Central America, and proof of this is the large number of students from neighboring countries who come to study.
Costa Ricans or Ticos tend to be spontaneous, friendly, hospitable and with a great sense of community. As in many tropical countries they have a relaxed pace of life and away from the hustle and bustle. Or as they call it: Pura Vida.
Cost of living in Costa Rica
Costa Rica is considerably more expensive compared to other Central American countries. Mainly due to taxes on imported products and consumer products, some monopolistic structures, inefficiency and backwardness in the infrastructure sector, inflationary accumulation, exchange rate stability and high prices of goods regulated by the Government.
Renting an apartment in San Jose ranges from USD 400 per month for a furnished one bedroom apartment in a decent neighborhood up to USD 2,000-3,000 to luxury homes or apartments. Normally for about USD 1,000 a month you can find three bedroom apartments in a central neighborhood. In other localities, you may be able to find affordable apartments for USD 200 in non-touristic rural areas or luxury beachfront villas for more than USD 5,000 per month.
For a three-people house, the electricity bill would rarely exceed USD 100 and the water USD 15. Satellite TV usually costs about USD 60-70 per month and internet broadband and mobile 3G, between USD 30 and USD 60.
Regarding the groceries, the monthly budget will vary greatly depending on where and origin of what is bought. Supermarkets can be up to 30% more expensive than local markets or local grocery stores. Import products such as cheese or some meats are very expensive. The monthly budget for a person, without exceeding and without abusing of imported food may be around USD 250-300.
A three-course dinner in a mid-range restaurant can cost from USD 15 to USD 30 per person. However, there are also small restaurants, called Sodas, where you can eat for around USD 5. Alcohol is expensive, a local draft beer in a bar costs from USD 2 to USD 3 and prices soar on night avenues. Being significantly more expensive in the most touristy areas.
Regarding transportation, buying a car is considerably expensive, and may cost more than double that in the United States. Insurance is affordable and gasoline is usually cheaper than other countries in the region. Public transportation is affordable, a bus ticket costs less than USD 1 and a mile in a taxi costs around USD 1.
Costa Rican social security costs about 9-11% of the monthly income, capped up to certain amounts. Private medical care is relatively affordable, but it has more resources and is of more quality. Costa Rica has become in recent years a destination of aesthetic medicine, which is considerably cheaper than in Europe or North America.
Any electronics, such as smartphones or laptops, and household appliances, are substantially more expensive than in Europe or the United States due to import duties.
Finally, a monthly income around USD 2,000-2,500 per person, in Costa Rica you may live considerably well, without worries, but without great luxuries.
Incorporate in Costa Rica
The Costa Rican legal system is based on Spanish Civil Law. In Costa Rica, there is no limitation on non-resident when it comes to establishing a business.
The tax system is based on the principle of territoriality. Therefore, only income from activities within the territory is subject to corporate income tax. Income derived from abroad, irrespective of their nature, are usually exempt. This makes it an interesting tax environment, to establish, among others, companies conducting offshore activities as the holding of shares or investments, possession of intellectual property rights, e-commerce, custody of movable and immovable property, professional services, inheritance management, international trade or brokerage of capital markets. There are no capital controls in Costa Rica.
Types of corporation in Costa Rica
The two main corporate structures in Costa Rica are the Sociedad Anónima, equivalent to a corporation, and the Sociedad de Responsabilidad Limitada, similar to a closed corpoation.
Sociedad Anónima (S.A.)
Equivalent to a corporation, it is the most common corporate form in Costa Rica. Capital is divided into shares. The shares may be registered, with no par value, preferred shares, redeemable shares and shares with or without voting rights. They may be denominated in any currency and may be freely traded and transferred unless their bylaws indicate otherwise. Bearer shares are not allowed.
The liability is limited to the assets of the Company and to all the contributions made by the shareholders. Usually the minimum capital requirement is CRC 10,000 (≈USD 20). The value of each share must be 25% paid-in at the time of its incorporation.
The corporation must be constituted by a minimum of two individuals or legal entities, but after the constitution all the shares may be transferred to a single owner. It is administered by a board of directors that must have at least three members: president, secretary and treasurer, who may be nonresidents. In addition, it is necessary to designate a comptroller, who will be responsible individually for the fulfillment of the obligations of the law, the social pact and the statutes.
The Board of Directors and Shareholders must meet at least once a year, anywhere.
Nominee shareholders and directors may be allowed. The details of the shareholders and directors may not be publicly disclosed.
If the corporation is wholly constituted by a nonresident, it is required a resident agent, who must be a duly registered attorney.
The corporation must keep accounting books, but there may be no requirement to file accounts. Annual returns are mandatory, but foreign source income should not be reported. It may be required to prepare financial statements, but filling is not required. Audits are not usually required. Re-domiciliation is permitted.
Certain activities such as banking, insurance, insurance, reinsurance, fund management, collective investment schemes, trusteeship, require authorization from the relevant state supervisory bodies.
Sociedad de Responsabilidad Limitada (S.R.L.)
Similar to a closed corporation. The capital is divided into quotas and the liability of the partners is limited to their contributions. A minimum of two partners, individual or corporate, is required for the incorporation of the company. But after the constitution all the quotas can be ceded to a single person. The negotiation or transfer of quotas requires the approval of the rest of the partners. The entity is managed by one or more administrators. No minimum capital is required, but this must be denominated in colons (CRC).
Incorporating a company in Costa Rica usually takes three to four weeks. The cost will depend on the allocated capital, but could be around CRC 570,000 (≈ USD 1,000). Shelf companies are available.
Invest in Costa Rica
Economic Situation in Costa Rica
The Costa Rican economy is considerably stable with an annual real growth of between 3% and 5% over the last 5 years. That is 4.3% in 2016. Costa Rican Central forecasts a 4.1% growth for this year (2017).
Costa Rica has traditionally been an inflationary economy, being 4% and 5% on average during last 5 years. Last 2016 was 3.7% and it is expected that inflation will be within these parameters of 3% (-/+ 1%) in 2017.
The interest rate established by the Central Bank is currently 2.25%, but it may increase to curb pressures on an increase in inflation.
Costa Rican public accounts are deficient. 2016 closed with a fiscal deficit of 4.9% and according to the Central Bank, it will increase to 5.7% in 2017. The public debt now accounts for more than 40% of gross domestic product.
Regarding the external sector, the trade deficit closed at 3.5% in 2016, a reduction of 1 percentage point comparing to the previous year. Although with the expected increase in the price of oil and other raw materials, the forecasts of the Central Bank of Costa Rica indicate a deficit increase to 4.3% by 2017. More than half of Costa Rican exports are manufactured products, and agricultural, such as fruits, nuts and coffee, to a lesser extent.
The official currency is the Colon (CRC). The exchange rate is determined freely in the currency markets, although the Central Bank has the right to participate to avoid violent fluctuations. Last year’s history shows a depreciation trend of the currency against the US dollar.
The main sectors are tourism, high technology industrial manufacturing, agriculture, forestry and fisheries. Costa Rica is the most visited country in Central America, with around 25% of tourism market share. Americans account for about 40% of all tourists.
Costa Rica participates in the Central American Common Market (CACM) and has free trade agreements in force with the European Union, Canada, Caribbean, Chile, China, the United States, Central America, the Dominican Republic, Peru, Singapore and Panama.
Investment Opportunities in Costa Rica
In Costa Rica, there are more than 270 multinational hi-tech companies including Intel, Amazon, HP Enterprise, P & G, Boston Scientific, St. Jude Medical and Abbott. The World Economic Forum ranked Costa Rica as the first Latin American country in innovation, sophistication of the production process, availability of engineers and quality of researchers. The country has a competitive business climate and has a qualified and bilingual workforce. Minimum wages are set at around USD 600 per month for non-qualified personnel up to USD 1,100 per month for university graduates.
In Costa Rica, there are usually no restrictions on foreign investment, with certain exceptions. The import, refining and distribution of oil and its derivatives or the distillation of alcohol are State exclusive right. Some activities may be subject to concessions or licenses such as financial services, insurance services, railways, sea and air ports, postal services, energy services and telecommunications. In sectors such as industry, agriculture, trade or lending to institutions there is no limitation on foreign investment.
There are 7 free trade areas, where there is an exemption from import duties on certain goods and certain exemptions from taxes, depending on the activity and category of imported goods. The companies that may request join the free trade system are:
- Industrial business that assemble products of export or re-export outside Central America.
- Business that engage trading, re-packaging or re-export.
- Plastic, clothing, construction, textiles and packaging materials business.
- Companies offering services, such as back office, regional office, call center, human resources office or office of digital technology.
- Companies offering services of reconstruction, repair and maintenance of shipyards to cargo ships carrying exports.
- Companies and individuals who carry out scientific research to improve technological and agroindustry activities.
- Companies producing medical devices, biotechnologies and pharmaceuticals
- Certain processing industries that produce, process or assemble goods, regardless of whether they export them or not.
- Companies that are in the metal, automotive, manufacture of electronics, electronic services or aerospace fields.
It may be required a minimum investment, depending on the geographical location, the activities to be performed and whether these will be within an industrial park.
Companies entering the free trade zone may be exempt from import taxes, sales taxes, export taxes, excise taxes, property transfer taxes and withholding taxes on payments to nonresidents and Income Tax exempt during the first 8 years of operation and 50% in the next 4 years.
There are also several investment incentives for tourism companies. As the exemption of income tax exemption for 6 years, customs taxes for the importation of products necessary for the development of the activity, (as long as these are not similar to others produced in the country), accelerated depreciation of goods, among others.
To qualify partially or totally for these incentives, certain requirements must be met and the applicant company must previously be classified as a tourist company by the ICT (Tourism Institute).
Invest in Real Estate in Costa Rica
In Costa Rica, foreigners, irrespective of their immigration status, have the same rights as Costa Ricans when it comes to buying real estate, whether land or buildings. With the sole exception of the Maritime-Land zones subject to concessions, which foreigners can not normally opt for.
The Costa Rican real estate market is quite mature and offers many options. Since 2013, sales of real estate boosted, increasing 14% over the previous year, and demand has been maintained since then. Due to popularity as a retirement destination, baby boomers who have chosen it as their permanent vacation destination and economic growth and access to home mortgage credit. The market is heavily dependent on the US economy as Americans represent the largest number of foreign buyers in the country. About 100,000 Americans live in the country and more than 1 million visit it every year.
According to Encuentra24.com, in the capital, San José, the average price of housing has increased 6.2% year-on-year, being 3.6% for condominiums, leaving behind the 0.4% of the previous year. Currently, according to estimations, the average price is USD 1,200 per sq. m., being USD 1,685 for the condominiums.
The price is significantly higher in the Central Valley area, which includes San Jose, Alajuela, Heredia and Escazú and on the Pacific coast than in the southern region, such as the Osa peninsula. Where you can still find beachfront condominiums for just over USD 150,000 in areas like Playa Langosta, Playa Grande or Drake Bay, among others. Villas can also be found for around USD 200,000.
Currently the gross rental income is considerably good, between 6% and 8%.
Although the expectations of the real estate market are positive for this year, there may be a price correction in the near future. Even so, there are interesting opportunities for buying land in old and neglected areas likely to be eventually redeveloped, or in the Pacific south coast, such as Sierpe de Osa, Playa Guapil or in continental areas such as Lake Arenal where you can find Villas for just over USD 100,000.
In Costa Rica rentals can be freely negotiated between owner and lessee. If the rent is set on colons (CRC), the parties can agree on an annual rent increase that should not exceed 15% of fixed rent price, unless inflation certified by the Government exceeds 15%. In contracts denominated in foreign currency, such as dollar, annual increases set on contracts are not allowed. There is no legal limit to set up security deposits, although they are usually the amount of one month. Advance payments are limited to one month’s rent. Contracts must have a minimum duration of three years. In case of non-payment, an eviction process should not take more than a year, where it can be tried to collect unpaid rent.
Real estate properties are subject to a municipal property tax that can be up to 0.25% of the value assessed by the municipality. The sale of real estate property is subject to the transfer tax, which is 1.5% of the sale value or tax amount, whichever is greater. Capital gains are normally not taxable, unless the sale of real estate constitutes the habitual activity of a company or individual.
Costa Rican Capital Market
The Bolsa Nacional de Valores is the stock exchange of Costa Rica. Despite being the largest capital market in Central America, it is considerably smaller compared to other markets. With slightly more than 50 registered issuers and a capitalization of 5% of GDP. Companies looking to raise capital may have difficulty trying to gain access as there is not much liquidity compared to most major global stock markets. In addition, initial public offers and activity are scarce due to the country’s consolidated banking industry and the relative ease with which companies can obtain a loan. The most popular traded stocks are Atlas Electrica, the country’s largest electronics company, and Florida Ice and Farm, a food and beverage company. Last year market’s behavior has been positive, with an increase of almost 20% of the global value of the market.
Parallel in Costa Rica there is the Mercado Alternativo para Acciones (MAPA) a venture capital market so that SME can obtain funding through equity and can attract “sophisticated” investors. MAPA operates on a private offer basis so that any company can negotiate privately with its investors, without requiring the authorization of the General Superintendence of Securities.
Regarding the sovereign bond, recent evaluations of Moody’s rated Ba2 with negative Outlook (Feb 2017), and BB with stable Outlook by Fitch (Jan 2017). The 10-year government bond currently yields nearly 5% return.
Banking in Costa Rica
The Costa Rican Banking System is made up of the Central Bank of Costa Rica, three state banks (Costa Rican National Bank, Banco de Costa Rica and Banco Crédito Agrícola de Cartago) and 11 private banks.
State-owned banks guarantee deposits in full and often have many branches and ATMs. Private banks are more efficient, offer more deposit profitability, have better customer service and usually employ bilingual staff, but accessibility is lower, especially in rural areas.
Most banks offer CRC and USD accounts, and some banks may open accounts in EUR. More than a third of bank deposits and loans in Costa Rica are in US currency. Currently, can be found banks that pay interest rates of 7% -8% for fixed-term deposits in CRC. For dollar deposits rates are somewhat lower.
Opening a bank account can be a laborious process. The know your customer requirements vary dependent on the bank, but usually are: DIMEX (residency card), proof of residence, proof of income, and in the case of US citizens fill out the corresponding IRS forms. In the case of foreigners, it is normally required to provide documentation of the legal provenance of the funds. Bank deposits required to open the account are small, usually USD 25 or USD 100.
The requirements for corporations also vary according to the institution, but usually are: a certification of legal status, a certified copy of the company’s constitution, certification prepared by a lawyer that describes exactly who are the shareholders and their participation in the company, certificate of origin of funds, utility bill, copy of id card or DIMEX for residents of the company representative or registered agent and fill in the KYC forms.
Most banks are reluctant to open accounts to foreign individuals without a residence permit or who are not in the process of obtaining residence. There is a simplified account option for nonresident foreigners and tourist but the maximum allowable balance is USD 1,000.
The anti-money laundering regulation requires banks to ask companies involved in international transfers in excess of USD 50,000 to indicate the source of the funds and to report transactions of more than USD 10,000 in the case of individuals.
Banks in Costa Rica have an acceptable online service and mobile banking is widely extended.
There are several e-commerce bank account options. Credomatic Bank is the most popular, but requires a deposit of USD 50,000 as insurance. Another bank to consider is Scotiabank.
Costa Rica is committed to AEOI by 2018, has signed TIEAs with 21 jurisdictions and has an Intergovernmental Agreement (IGA) Model 1 with the United States to participate in the FACTA.
Taxes in Costa Rica
Corporate Income Tax
Resident and non-resident entities are subject to corporate income tax on a territorial basis. This means that it is only taxable income from Costa Rican-source. Income accrued outside the country, including trading income, dividends, interests, royalties and capital gains, are usually not subject to taxation, therefore a Costa Rican incorporated company which its business is totally carried out internationally may be corporate tax-free.
Income tax is imposed in Costa Rican-source net profits of Costa Rican incorporated companies and permanent establishments of foreign companies. Non-resident entities are subject to withholding tax.
The standard corporate income tax is 30%.
Companies whose gross income does not exceed CRC 52,634,000 (≈ USD 93,500) are taxed at a 10% rate, companies whose gross income is between 52,634,000 (≈ USD 93,500) and CRC 105,872,000 (≈ USD 188,000) are taxed at a 20% rate.
Dividends received by resident entities from resident entities are exempt from tax. Those received from foreign entities are considered offshore in nature and therefore not subject to taxation.
Capital Gains are not usually taxable income. Except when the gains are the normal business activity of the company or the gain is derived from the sale of depreciable assets when their sale price is higher than their book value.
Inventories may be stated using the compound average-cost, first in first out, retailer or specific identification methods.
Dividends and Interests paid to non-resident entities or individuals are subject to a withholding tax of 15%. Dividends paid by listed companies are subject to a reduced rate of 5%. Payments on interests between financial entities are subject to a reduced rate of 5.5%.
Payments to non-resident entities or individuals on royalties, as patents, trademarks, franchises or formulas are subject to a withholding tax of 25%. Technical service and management fees are also subject to 25% withholding tax.
Income remitted by a branch to its foreign head office is subject to a final withholding tax of 15%.
Costa Rican has a tax treaty to avoid double taxation with Spain and Germany (in force since Jan 2017) that reduce withholding taxes to 5% on dividends, where the recipient holds at least 20% of the capital equity of the paying company, 12% on all other dividends, 5% on interests of loans of at least 5 years, and 10% on other interests and royalties.
Losses may be carried forward three years for industrial companies and 5 years for agricultural companies. Loss carrybacks are not allowed.
Transfer pricing rules are based on the OECD guidelines. Transfer pricing methods used may be: comparable uncontrolled price, resale price, cost plus, profit split and transactional net margin methods. Entities subject to transfer pricing rules must maintain documents, companies defined as large must file an annual transfer pricing information return. Advance pricing agreements for three years may be available, where taxpayer and tax authorities may agree to the price of related-party transactions in advance.
There are no thin capitalization rules in Costa Rica.
Controlled Foreign Companies
There are no CFC rules in Costa Rica.
There is a municipal tax on Costa Rican-source net income that ranges from 0.15% to 0.35%.
Industrial, processing and service companies established in the Free Trade Areas may be exempted of import duties, sales tax, export tax, consumption tax, property transfer tax, and withholding tax on payments to non-residents, and exempted of Corporate Income Tax during their first 8 years of operation and 50% exempted the next 4.
Companies importing semi-manufactured materials to assembly in Costa Rica and export finished products may be exempted of import duties on raw materials and machineries.
Certain companies in the tourism sector may import certain tourism service-related goods duty free and may be exempted of property and income taxes for a certain period.
Personal Income Tax
Residents and non-residents are subject to tax on their Costa Rican-source income.
An individual is considered tax resident when he or she has been more than six months in a tax year in the country.
Gross employment income, net profits from the carrying on of a trade or profession, rental income. Income from investments in form of dividends and interests are subject to a withholding tax on source of 15% and 5% respectively. Capital Gains are usually not taxable, except those from the gains of depreciable assets and those gains that represent the habitual activity of the taxpayer. Foreign-source income is not taxable.
Individuals in Costa Rica are subject to a personal income progressive tax. Tax rates are different for fixed salaries and for profit-generating activities, such as self-employment.
Self-employed: Annual income below CRC 3,517,000 (≈ USD 6,200) is tax exempt. Income from CRC 3,517,000 (≈ USD 6,200) to CRC 5,251,000 (≈ USD 9,300) is subject to 10 % tax. Income from CRC 5,251,000 (≈ USD 9,300) to CRC 8,760,000 (≈ USD 15,500) is subject to a 15% tax. Income from CRC 8,708,000 (≈ USD 15,500) to CRC 17,556,000 (≈ USD 31,100) is taxed at a 20% rate. Excess is taxed at a 25% rate.
Employees: Monthly income below CRC 792,000 (≈ USD 1,400) is tax-exempt. Monthly income from CRC 792,000 (≈ USD 1,400) to CRC 1,188,000 (≈ USD 2,100) is taxed at 10%. Excess is taxed at 15%.
In the case of the employees, tax must be withheld at the source by the payer or agent of retention and make the declaration within the first fifteen calendar days of the following month.
Self-employed whose income is derived from professional services, brokerage, commissions (sales) or fees may elect to deduct up to 25% of their gross income without itemizing the expenses or may elect to itemize the expenses incurred.
There is a family tax credit of CRC 17,880 (≈ USD 30) per year for each child and CRC 26,640 (≈ USD 47) per year for the spouse
Social Security Contributions
Employers and employees must contribute to the C.C.S.S. (Social Security) at a 26.33% and 9.34% of employee monthly salary, respectively. Self-employed contributes 9.5%.
A Sales Tax of 13% applies to all stages of merchandise of goods and services. Sales on lands, building, exports, basic foodstuffs, certain medicines and veterinary products are exempt.
Selective consumption tax
Certain imported goods considered non-essential, as cigarettes, alcohol beverages, cosmetics and certain motor vehicles, are subject to a selective consumption tax ranging from 5% up to 100% of the CIT value.
Most imported products are subject to customs duties, with limited exceptions, up to 70%. More information here.
Municipalities applies a property tax up to 0.25% of the assessed value
Transfer of real estate properties are subject to 1.5% of the sale value or its tax value, whichever is greater. A 2.5% tax apply to the transfer of movable property.
There is a stamp duty of 0.5% on the economic value of documents for corporations.
There are no capital duties, inheritance, gift and net wealth taxes in Costa Rica.
Costa Rica has concluded Tax Information Exchange Agreements (TIEa) with Argentina, Australia, Canada, Denmark, El Salvador, Faroe Islands, Finland, France, Greenland, Guatemala, Guernsey, Honduras, Iceland, Mexico, Netherlands, Nicaragua, Norway, Sint Marteen, South Africa, Sweden and United States. Besides the double tax conventions (DTC) in force with Germany and Spain. There is a DTC treaty with Mexico, but still not in force. Further information at incorporations.io/costa-rica.
Despite the fact that there are much more advantageous residence programs in neighbor countries, especially for retirees, and that the cost of living is one of the highest in the entire region. Costa Rica has something that continues to attract thousands and thousands of people to settle in the country. In any case, immigration policy is considerably open and despite the bureaucratic obstacles that can be discouraging, the pecuniary requirements are quite acceptable and in three years can be applied for permanent residence and in seven years eventually the citizenship (5 for Spanish).
Getting residency in Costa Rica is an option to consider from the tax point of view. Costa Rica has a tax system based on the principle of territoriality. Making it an interesting destination for digital nomads looking for a warm charming tropical spot to set their base camp. Where all income obtained abroad are free of taxes. The same reasoning applies international business companies, with the possibility of being almost or totally corporate tax-free. For those looking for investment opportunities, Costa Rica has a stable economy, steady growth and has several free trade areas, with considerable tax incentives available for several sectors.
On the real estate market, it is much more mature than others of the region, like Panama, which may be a priori more interesting. But despite there may be inflated-price areas, there are plenty of options and some opportunities, especially in the south Pacific coast of the country.
Regarding banking, Costa Rica is not an offshore financial center. There have been notable efforts by the government in recent years to erase Costa Rica from the tax haven black list, limiting non-residents bank account opening, increasing requirements, concluding information exchange agreements and anti-money laundering regulations. Opening a bank account by a non-resident is complicated, and even for residents is a slow process and needs a lot of patience, KYC requirements can be daunting.
Remember that you can get started immigrating or incorporating a company in Costa Rica at incorporations.io/costa-rica or passports.io/costa-rica. If you have already decided to improve your freedom, privacy and wealth through internationalization, they may be helpful our jurisdiction comparison tools for offshore incorporation, second passport/residency and offshore banking: incorporations.io / passports.io / bankaccounts.io. Or joining our PT Society, a network with valuable offshore actionable information for investors and entrepreneurs. If you need personalized advisement to be assured to make the best decisions, you can apply for our consulting services or contact us at [email protected].
This article is not intended to be legal advice, you can contact us and we may refer you to a qualified lawyer, who can give you the proper advice according to your personal and corporate circumstances.