Starting a business in Costa Rica: 5 common questions

The absolutely predominant for-profit types of entities in Costa Rica are:

• The sociedad anónima or S.A., which is comparable in other jurisdictions to a corporation or an AG (“Aktiengesellschaft”)
• The sociedad de responsabilidad limitada or S.R.L./Ltda., akin to a limited liability company or GmbH (“Gesellschaft mit beschränkter Haftung”)

Competent counsel will take some time to understand your needs and those of your partners and help determine which structure is the best fit. Of course, there are nuances to each once, but as a whole both entities serve the same purpose and work in similar ways. Most shareholders will never tell the differences between a sociedad anónima and a sociedad de responsabilidad limitada. By way of comparison:

• Both are highly flexible and customizable. For instance, you can determine how much leeway (or not) is allowed to the principals, where and how to hold general meetings, what kind of activities it will undertake, etc.
• Both can conduct the same kind and scope of business
• Both have no minimum capital requirement
• The SRL has a simpler structure, which makes it more attractive for ventures that are less complex and more tightly held as long as it is properly set-up!

No, the partners do not have to be in Costa Rica to initiate the process. While a few additional steps might be required (although nothing too complicated!), foreign parties can begin the process via proxy or directly at the nearest Costa Rican Consulate.

That said, if the company principals do not have a permanent residence in Costa Rica, the law requires appointment of a Resident Agent (usually the same attorney that handled incorporation). Resident Agents are entrusted with receiving notifications from public offices, as well as usually provide miscellaneous services required during the year required on behalf of the company.

Of course, this particular subject is too broad to cover in a few short lines. However, all companies, regardless of the type of entity or nature of the business that they conduct, must pay the follow yearly taxes:

• • Education and Culture Tax: Due at the end of March of every year. The rate varies from about $2 to $20, depending on the company’s registered capital
  • Yearly Legal Persons Tax: Due on the last day January of every year.* The rate varies from about $125 to $400, depending on the company’s income. Read more about it here.

* The first year must be paid within 30 days of incorporation.

Depending on whether the company conducts lucrative business and has economic activity, it will be required to file tax declaration pertaining to income taxation, pay monthly sales taxes or other applicable taxes. Furthermore, distribution of dividends to shareholders in Costa Rica is subject to a flat 15% withholding tax.

In our experience, what takes the longest is compiling all of the information from the investors to set-up the company (either sociedad anónima or sociedad de responsabilidad limitada), clearing up the name for availability and determine the particulars for registration. Once the paperwork is executed, incorporation should take just a few days.

Once duly registered, a company in Costa Rica is free to enter into contracts and acquire assets, such as vehicles and real estate. That said, most companies do not engage in actual business or have no further economic activities and, thus, do not require permits to operate or have no pecial tax obligations.

When the owners are ready to begin lucrative business, additional administrative procedures might be required depending on the types of activity that it will engage in.

Normally, as a first step, the entity will have to register as a tax payer. This step can be done via proxy if the principals are not located in Costa Rica. Further information is available from the official Ministerio de Hacienda website.

Other requirements may include:

• Registration as an employer with the Caja Costarricense del Seguro Social (entity in charge of managing social security)
• Acquiring labor risk insurance for employees
• Applying for a business license with the local municipality
• Requesting a sanitary permit with the Health Ministry