Costa Rica payroll and tax overview.

Costa Rica is a democratic Central American country bordered by Nicaragua to the north and by Panama to the south, with the Caribbean Sea running along its eastern coastline and the Pacific Ocean along its west. With stable political, social security, and economic systems, Costa Rica offers a relatively high standard of living compared to its regional neighbours and has made significant progress in addressing access to education, healthcare, and utilities amongst its population. After a historic focus on agriculture, Costa Rica’s economy has grown to encompass numerous industries, helping the country develop its influence on the global stage. Today, tourism, electronics, IT, and the medical export and manufacturing industries play an important role in Costa Rica’s economic profile: the country has a GDP of over $60 billion with predicted growth rate of around 2.5% for 2021. Costa Rica is a member of the UN, the IMF, and the WTO, and has numerous free trade agreements with other Central and South American countries, the United States, Canada, and the EU. In 2019, Costa Rica was ranked 74 on the World Bank’s Ease of Doing Business Survey.

Foreign Direct Investment 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.

Registrations and Establishing an Entity in Costa Rica

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

Corporations (Sociedad Anónima)

or

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:

1. Shareholder Assembly Acts

2. Board of Directors Minutes

3. Shareholder Registration

Business Banking in Costa Rica

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.

What Are the Working Days and Working Hours in Costa Rica

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.

Basic Facts about Costa Rica

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

The Costa Rica tax year runs from 1 January to 31 December.

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 in Costa Rica

All individuals in employment, corporations and businesses, domiciled or not in the country, are subject to income tax. Income tax rates for individuals and companies is calculated depending on gross income on a progressive scale. Income tax ranges from 10% to 30% for companies and from 10% to 25% for individuals.

Social Security in Costa Rica

Social security fees are paid between the employer and the employee. The division is made as follows:

• Employees pay 10.5% of their own salary
• Employers pay 26.5% of their employees´ salary

This payment is made once a month to the Caja Costarricense de Seguro Social, the Instituto Nacional de Seguros (National Insurance Institute) and different retirement funds. The employer must deduct the percentage varying according to the employee, and adds it to their own payment at the end of the month.

Reporting in Costa Rica

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.

New Employees in Costa Rica

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 in Costa Rica

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.

Payroll in Costa Rica

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. Payroll reports must be kept for five years.