Our guide to Payroll in Costa Rica

Doing Business in Costa Rica

Investing in Costa Rica

Costa Rica is one of the most attractive countries in Latin America in which to conduct business. Not only is Costa Rica a naturally beautiful country with vast rain forests and coastlines, it also has a relatively stable economy and political environment. Since abolishing the Army in the late 1940’s, the country has been governed peacefully and democratically, earning it the nickname “Switzerland of Central America”.

Foreign Direct Investment (FDI) has contributed highly to the country’s economic growth for several years now, hence Costa Rica is very welcoming of new businesses from abroad. Costa Rica benefits from a relatively well-educated workforce compared to other Central American countries, with the literacy rate at 86%. Although Spanish is the national language, English is widely spoken due to Costa Rica’s booming tourism industry.

Basic Facts about Costa Rica

General Information

Full Name: Republic of Costa Rica

Population: 5.048 million (World Bank, 2019)

Capital: San José

Major Languages: Spanish

Monetary Unit: Costa Rican Colón (₡)

Main Exports: Bananas, tropical fruits, coffee, medical instruments & rubber tires

Internet Domain: .cr

International Dialling Code: +506

How to say

Hello: Hola

Good Morning: Buenos Días

Good Evening: Buenas Noches

Do You Speak English? Habla Inglés

Good Bye: Despedida

Thank You: Gracias

See You Later: Hasta Luego

Dates & Numbers

Dates are usually written in the day, month and year sequence. For example, 1 July 2019 or 1/7/19.

Numbers are written with a comma as the decimal point, for example three thousand would be written 3.000,00.

Registrations and Establishing an Entity

There are two main types of business entities in Costa Rica:

• Corporations (Sociedad Anónima)
• Limited Liability Companies (Sociedad de Responsabilidad Limitada)

Corporations (Sociedad Anónima)

Often referred to as S.A., a corporation must be governed by a board of at least three directors. These three members must take the roles of President, Secretary and Treasurer and all capital within the business is divided into shares. Once registered, the corporation can have any number of shareholders, regardless of their citizenship. Should the legal representative not live in Costa Rica, an attorney must be appointed as the resident agent to receive notifications on behalf of the company.

Limited Liability Companies (Sociedad de Responsabilidad Limitada)

This type of entity is often popular with foreign investors. Companies will have to appoint one director and two shareholders in order to proceed and they can be of any nationality. They must have a registered office in Costa Rica and maintain all statutory and accounting records in Spanish at the registered office address.

The personal assets of investors are fully protected for both corporations mentioned above.

Once a corporation has been opened, it is necessary to be registered with the Public Registry (Registro Publico).

All Costa Rican companies must keep three legal record books:

• Shareholder Assembly Acts
• Board of Directors Minutes
• Shareholder Registration

Banking

It is mandatory in Costa Rica to have an in-country bank account in order to run business.

Banks are typically open Monday to Friday from 9 am to 3 pm. Banks located within malls are often open on Saturdays from 9 am to 12 noon.

Working Week

Working hours vary across the country, however working hours normally extend to eight hours a day with no more than 48 hours worked a week.

Provided the work will not affect the health of an employee, some employers extend working hours to nine hours a day, this is common in the retail industry.

Employment Law

Holiday Accrual and Calculations (Costa Rica)

Full-time employees are entitled to two weeks (14 calendar days) of paid vacation for every 50 weeks of continuous service.

If employment ends before completing 50 weeks, the employee is entitled to one day of paid vacation for each month worked.

Public Holidays

Costa Rica distinguishes between mandatory paid and non-mandatory public holidays.

Mandatory Paid Public Holidays

Employees must receive pay even if they do not work, and double pay if they do:

• New Year’s Day (January 1)
• Maundy Thursday
• Good Friday
• Juan Santamaría Day (April 11)
• Labor Day (May 1)
• Annexation of Guanacaste (July 25)
• Mother’s Day / Assumption (August 15)
• Independence Day (September 15)
• Christmas Day (December 25)

Non-mandatory Public Holidays

These days are generally unpaid unless worked or unless company policy states otherwise:

• Virgin of Los Ángeles Day (August 2)
• Army Abolition Day (December 1)

Public holidays only move to Monday when expressly determined by government decree.

Maternity Leave

Female employees are entitled to four months of paid maternity leave, normally one month before and three months after birth.

Payment is split 50% by the employer and 50% by the Caja Costarricense de Seguro Social (CCSS).

Paternity Leave

All biological fathers, in both public and private sectors, are entitled to eight paid days of paternity leave, taken as two days per week during the first four weeks after birth.

The payment is shared 50% by the employer and 50% by CCSS.

Sickness Leave

For certified sick leave:

• Days 1–3: 50% paid by employer + 50% paid by CCSS
• From day 4 onwards: CCSS pays 60% of salary, and the employer has no further obligation unless enhanced benefits apply

National Service

Costa Rica has no national military service. The army was abolished in 1948, and national security is maintained by the police and coast guard.

Tax & Social Security

The Costa Rica tax year runs from 1 January to 31 December for individuals and corporations.

The key legislative authorities in Costa Rica are:

• Costa Rican Social Security Fund (Caja Costarricense del Seguro Social)
• National Insurance Institute (Instituto Nacional de Seguros)
• Ministry of Finance (Ministerio de Hacienda)

A person must be licenced in order to make any tax and/or social security filing on behalf of a client.

Income Tax

Costa Rica applies a territorial income tax system, under which only income generated within Costa Rican territory is subject to tax, regardless of the taxpayer’s nationality, residence, or domicile.

Income tax rates for individuals and companies are progressive, depending on income level.

Corporate Income Tax

(Applicable to companies with gross income up to CRC 119,629,000)

Companies exceeding the gross income threshold are subject to a flat corporate income tax rate of 30%.

Individual Employment Income Tax (Monthly)

Tax Credits (Monthly)

These tax credits are applied directly against monthly income tax withholding by the employer.

Social Security

Social security contributions in Costa Rica are paid jointly by the employer and the employee and are calculated on the employee’s gross salary.

• Employees contribute approximately 10.5% of their salary
• Employers contribute approximately 26.33% of the employee’s salary

Social security contributions are paid monthly to the Caja Costarricense de

Seguro Social (CCSS) and include mandatory payments to the Instituto Nacional de Seguros (INS) and legally required pension and social funds.

The employer is responsible for withholding the employee contribution, adding it to the employer’s own contribution, and remitting the total amount to the respective institutions within the statutory deadlines.

Reporting

Monthly

Tax reports must be submitted before the 15th of each month.

Social Security contributions must be paid from the 26th to the 6th of the following month.

Payroll

It is legally acceptable in Costa Rica to provide employees with online payslips, however employees must reply via email confirming that the payment was received.

Reports

Payroll reports must be kept for five years.

Payslip Example

Local language example:

New Employees

An employer must report any new employees to the Social Security Office within the first eight day of employment. The first 30 days of employment is generally used as a probation period whereby the employer or employee can terminate employment without any notice. Probation periods should last no longer than three months.

An employer must issue an employment contract listing the terms of employment and it should be signed by both the employer and employee and sent to the government within 15 days of employment.

The employment contract must cover the following information:

• Names, nationality, age, sex and marital status
• Address of the contracting parties;
• Identity card number;
• Accurate detail of the worker’s residence;
• Duration of the contract;
• Working hours;
• Salary to be received by the worker and details related to the form, period and place of payment;
• The quantity and quality of the material, the state of the tools and the employer’s tools, if any, that will be provided to execute the work;
• The place or places where the service must be provided or the work executed;
• Other stipulations to which the parties agree;
• The place and date of the conclusion of the contract.

Leavers

An employer must always have reasonable cause (disobeying company regulations, stealing etc.) to dismiss an employee on the spot. The employer must provide the employee with a dismissal letter clearly stating why they were dismissed.

If the employer does not have reasonable cause to dismiss an employee or if the employee quits for a reasonable cause, the employee is entitled to severance pay, this is paid on their final day of employment.

If an employee has worked for a company for more than three months but less than six, they are entitled to seven days’ worth of wages.

If an employee has worked for a company from six months to one year they are entitled to 14 days’ worth of wages.

If an employee has worked for a company for more than one year, the following schedule applies:

The Social Security Office and the company’s pension operator must be notified of any leavers.

Employee Benefits

Expenses

Many employers offer additional benefits to their employees, including vehicle allowance, education payments and bonuses. These all vary depending on the company and the payment of additional benefits is reported in the monthly form submitted to the Social Security Office.

Thirteenth Month Bonus

Article 1 mandates that every private employer must provide its workers with an annual economic benefit equal to one month's salary, regardless of employment type or salary payment method. Article 2 specifies that this benefit should be calculated based on the average of ordinary and extraordinary salaries earned in the twelve months preceding December 1 of the relevant year, excluding any sums received for this benefit.

Visas & Work Permits

Obtaining a work permit in Costa Rica typically takes 3-8 months. The process involves submitting an application with various documents, including a completed application form, an apostilled birth certificate, a criminal background certificate, proof of sufficient funds, and employer statements.

Applicants must first contact a Costa Rican consulate to begin the visa process, submit the necessary documents, and potentially attend an interview. Once approved, the visa is valid for 12 months, and the applicant has 60 days to enter the country.

Family members can be included in the application with additional documentation such as proof of relationship and birth certificates. Changing employers requires notifying immigration authorities, securing a new job offer, and reapplying for a work permit with the new employment contract.

All legal records must be maintained in Spanish and stored at the company’s registered office. Corporate benefits and severance obligations are tightly regulated. Payroll providers and legal representatives must be licensed to file returns on behalf of employers.

Further Information

For more information, or assistance with Costa Rica Tax inquiries please contact: gi@activpayroll.com

About This Payroll and Tax Overview

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.