Tax on legal entities returns
A new Law that taxes the existence of legal entities was recently approved.
The new tax will be due once a year by all local legal entities and branches of foreign legal entities that are registered before the Costa Rican Public Registry on January 1st of each year, and by all new legal entities upon registration. The amount each entity has to pay will depend on whether it is registered as a taxpayer or not, and if it is, on the gross income it earned in the previous tax year.
The Law is expected to enter into force soon but the exact date is uncertain and depends on the publication of the Law’s complementary regulations.
The tax will be due three months after the publication of said regulations and the amount will be proportional to the time that is left in that calendar year. The following year, all entities that are registered on January 1st will have 30 days to pay the full tax and every new entity will have to pay the tax when its articles of incorporation are filed before the Public Registry. In that case, the amount due will be proportional to the time left in the year of the filing.
The tax is calculated using a standard “base salary” as a reference point, and is therefore automatically adjusted every year. The following chart reflects the amount of the annual tax for each category of entity, using the base salary for 2017.
|Entity classification (depends on previous year’s gross income)||Annual tax (using 2017 base salary*)|
|Entity not registered as a taxpayer||¢63,930 or $115.61 USD** (15% of base salary)|
|Taxpayer with gross income below 120 base salaries (¢51,144,000 or $92,484.63 USD**)||¢106,550 or $192.68 USD** (25% of base salary)|
|Taxpayer with gross income between 120 and 280 base salaries (¢119,336,000 or $215,797.47 USD**)||¢127,860 or $231.21 USD** (30% of base salary)|
|Taxpayer with gross income above 280 base salaries||¢213,100 or $385.35 USD** (50% of base salary)|
* The base salary to be used can be found in article 2 of Law 7337. For 2017 it is ¢426.200.00 or $770.71** (circular N° 230 issued on 12-22-2016 published in Judicial Bulletin N° 7 on 1-10-2017)
** Using exchange rate of 553 CRC per 1 USD
Not paying the tax promptly will generate joint and several liability for the entity’s directors, interests and fines of 1% of the tax due for each month or fraction of a month of delay, up to 20%. Additionally, entities in arrears will face several restrictions such as not being able to purchase certifications or register changes before the Public Registry and not being able to sell goods and services to any government office. Finally, if an entity fails to pay its tax for three consecutive years, it may be dissolved.
If having to pay this tax makes you question the need for an existing entity, it is important to consider whether it is worth dissolving it. The Law includes provisions that facilitate liquidating entities and may reduce the costs of transferring property that currently belong to an entity.
Also, if you are occupying an unwanted position on the board of an entity, you may want to consider resigning to that position to avoid becoming jointly and severally liable for that entity’s future unpaid taxes.