tax becomes law and amount is raised instantly A service of A.M. Costa Rica
tax becomes law
and amount is raised instantly
For CR Business
(Dec. 28, 2011) The ink was not even dry on the president's signature
on a new
corporation tax when word arrived that the amount was going up 14
President Laura Chinchilla signed the measure Tuesday, Dec. 27. The law
says that the tax will be 50 percent of what is called a base salary.
This is the monthly pay of an auxiliar administrativo 1 who works
in the Poder Judicial. The idea was to link the amount, like in many
laws, to a figure that would be increased with inflation as the salary
of a mid-level employee was increased.
This is the same base salary referenced in a number of traffic and tax
When the president signed the bill, the base salary was 316,200
colons or about $622. So the tax on corporations, which is expected to
go into force April 1 would have been $311. However, some increase was
expected because salaries usually are increased every Jan. 1 and July 1.
But a 14 percent hike was not expected. The Consejo Superior del
Poder Judicial approved the increase, which will take effect Jan. 1.
The new base salary is 360,600 colons or about $709. That means
the corporate tax will be $354.50 or 180,000 colons when it takes
effect April 1.
No mention of the jump in the base salary was made during the last day
of legislative discussion when the law received final approval.
Lawmakers probably did not know about the change. Ms. Chinchilla never
mentioned it either, but the increase means another small windfall for
the Ministerio de Gobernación, Policía y Seguridad
Pública, which gets 95 percent of the tax money.
Of course, there are ways around the tax. The law specifically
exempts small- and medium-size enterprises, known as PYMES, an acronym
based on the Spanish phrase. The designation is awarded by the Ministerio
de Economía, Industria y Comercio if the
company meets certain requirements. The designation applies to firms
with a small workforce and moderate incomes.
An inactive corporation, that is one without economic activity, only
will be assessed half the tax or about 90,000 colons, according to the
law. That is about $177.
Then, too, some expats will seek to disband their corporation and do
business or hold property in their own names. The law allows this and
even eliminates the need for some stamps and fees to do this. But there
is a catch.
As Garland Baker pointed out in July,
corporation is costly, too, because the process requires the assistance
of a notary. He said this in A.M. Costa Rica:
“The proper way to close an inactive company is to go before a notary
and change the constitution. Most companies are constituted for
99 years. The notary would change the constitution of the company
to only a few months into the future. Once past, the company
would be, in theory, dead. The books then should go to the tax
department for cancelation.
“Sounds easy, but this process is expensive. Here is an
estimation of the costs:
“A notary will charge around 20,000 colons ($40) for writing the change
into the minute book and 60,000 colons ($120) to notarizing the
act. To change the constitution of a company requires publication
in “La Gaceta,” the official newspaper, which costs between 7,000 and
8,000 colons (up to $16). To file the paperwork costs about
65,000 colons ($130).
“Add it all up and the result is 153,000 colons or three hundred and
six dollars. A lot of money just to kill and inactive company.”
Corporate owners have six months to complete the process, under the law.
Baker also warned about the dangers of expats holding property in their
own name. One reason is the need for an expensive probate process if
the expat dies holding property.
The tax in 2012 will be prorated for the remaining nine months and the
first tax will be just 75 percent of the stated amount. The money must
be paid within 30 days, that is by April 30. Subsequent tax payments
will be due Jan. 1 each year and have to be paid by the end of that
month. Those amounts will be increased, too, as the base salary is
The text of the new tax law can be found in the Dec. 27 digital edition
of the La Gaceta. It appears that the text was published even before
President Chinchilla actually signed the bill to make it a law. It is HERE.
The text is linked to “Alcance Digital Numero 111-A PDF” which can be
found in the right hand column.