Starting on April 1st of 2012, most corporations, partnerships, limited liability companies and other business entities -both foreign and domestic- that are registered in Costa Rica will be obligated to pay a new tax based on a new law published on December 27th, 2011 in the judicial news daily La Gaceta. The new law, number 9024, is entitled Taxation on Business Entities.

The only business entities exempted from this new assessment are the micro companies defined by Decree 26426 of the Ministry of Economy, Industry and Commerce (MEIC), and those that are formally dissolved within three months from the enactment of the law. Active and inactive business entities must comply with the new law, although the amount that must be paid is assessed differently.

The new law is considered to be part of a greater effort from the Executive and Legislative branches to excise more taxes in order to trim down an inflating deficit. This effort has been a politically-charged issue that has been written about on the pages of the Wall Street Journal and our own publication. Tax and revenue consulting firms from abroad were brought in to advise President Laura Chinchilla’s administration on the matter, something that set off a wave of protests and challenges against the new law. Objections to the comprehensive fiscal reform point out that the current administration is out of touch and should not be listening to the advice of Wall Street-connected tax pundits in Washington. Protestors made this point very clear on “Costa Risa”, a short film that has logged tens of thousands of views on the social video sharing network YouTube. Some political analysts are drawing comparisons to the Tea Party movement in the United States, a comparison that’s underscored by nascent -yet strong- ties to the international Libertarian Movement.

Here’s a translation of the official press release on this matter. It is not intended to be legal advice, and thus we strongly recommend that you consult an attorney who is a member in good standing of the Colegio de Abogados for any questions regarding this and other changes in our laws.

On Tuesday December 27, 2011, in Official Dispatch #111-A of the La Gaceta #249, the Law of Taxation on Business # 9024 was published. The law states that all corporations, as well as any foreign business entities, their representatives or registered agents, and also limited liability companies that are currently or hereafter registered in the National Registry are subject to this tax.

 Business entities that are registered as inactive with Tributación (the National Tax Authority) shall pay an amount equal to 25% of the basic monthly salary under Article 2 of Law #7337, and the companies in active status must pay an amount equal to 50% (¢90,150 and ¢180,300, respectively). 

As for the tax, it is declared that if the business entity is already registered, payment shall be made within 30 days of the calendar year, using the form documents and conditions established for the purpose of taxation. If the business entity is being enacted for the first time, the tax must be paid when submitting the legal registration documents, along with the appropriate legal stamps and registration fees.

The law provides various penalties for non-payment of tax: Among them, all business entities will now be subject to rules imposed by the Code of Tax Rules and Procedures. Furthermore, the National Registry will not issue certificates of legal status, nor will it accept filings of any documents on behalf of business companies that aren’t up-to-date on their tax payments. Non-payment of the new taxes for three consecutive terms shall be grounds for summary dissolution of the business entity, and the legal representatives and business principals will jointly be liable for failure to pay the taxes, which means that the tax authority shall pursue and attempt to collect these amounts from the business entities as well as from the registered agent.

 The only companies exempt from this tax are the micro and small enterprises registered as such with the Ministry of Economy, Industry and Commerce (MEIC) and the companies dissolved within three months from the entry into effect of this law. This act shall take effect three calendar months after the first day of the month following its publication, April 1, 2012.

Note: The new law contains many other clauses and provisions not mentioned above. For more information, contact your attorney and download the official PDF from the Costa Rica Government.