Q COSTA RICA – On Thursday, March 16, legislators approved in second and final debate the “tax on corporations” bill. Thus, owners of corporations, starting in July, must start paying the tax and continue to be liable for any accumulated debt of the previous law.
When will the law take effect?
Following Thursday’s approval, the bill must now be signed by President Luis Guillermo Solis and followed up with publication in the official government newsletter, La Gaceta.
As confirmed by Casa Presidencial (Government House), the process will be finalized by the end of this month.
According to the text of the approved bill, the law goes into effect three months following publication in La Gaceta, thus, the payment of the tax would start in July.
Given that the tax goes into effect mid-year, the amount of the tax for 2017 calendar year is only half of the normal tax payable.
What is the the amount of the tax?
The tax payable for 2017:
- Inactive corporations and active corporation, but with no reported income, is ¢31,965 colones (15% of a base salary)
- Corporation with gross income less than ¢50,880,000 colones, the tax payable is ¢63,275 (25% of a base salary)
- Corporations with gross income between ¢50,880,000 and ¢118,720,000 colones, the tax is ¢63,930 (30% of a base salary)
- Corporations with gross income above ¢118,720,000 colones, the tax payable is ¢106,550 colones (50% of a base salary)
The amounts are based on the “base salary” of an administrative assistant of the Judiciary in 2017.
Starting in January 2018, the full amount of the tax is payable.
Now, for the harsh reality. For those who have not paid their past tax on corporations, any outstanding amounts continues to be delinquent and accrues fines and interest. However, the new bill calls for if the delinquent debt is paid within three months of the date the law goes into effect, no fines or interest will apply on the delinquent amounts.
Where will the tax collected go?
The bill establishes that 90% of the tax collected will be allocated to the Ministerio de Seguridad Publica (MSP) – Ministry of Public Security – to be invested in the physical infrastructure of police stations, purchase and maintenance of police equipment, citizen security and the fight against crime.
The other 5% will be allocated to the Ministry of Justice* to run the prison system.
The Ministro de la Presidencia – Chief Of Staff, Sergio Alfaro, said the approval of the Corporations tax is “good news because it guarantees the proper financing of the police forces that people deserve. Costa Rica deservers a properly equipped police, with a number of officers that is according to the population and the territory and be prepared to fight the challengs that society requires.”
Will this law also has its constitutionality challenged?
Unlike the previous tax on corporations bill introduced in 2010 by the previous administration, and struck down in 2015 by the Constitutional Court, this bill has endured discussion at the Comisión de Asuntos Hacendarios (Finance Committee) level and a consultation with the Constititional Court, who agreed, by a majority of the justices, that there is “no procedural defect” in the bill.
Editor’s note. This tax is important to many foreigners given that many choose to own property (land, autos, etc.) in a corporation and thus, though the corporation has no economic activity (income), the tax on corporations is payable, failing, the asset can be seized for non payment.
Legal mumbo jumbo. The information contained in this report is not represented as being a legal opinion on tax matters in Costa Rica or elsewhere. The information reported if from sources such as Elfinanciocr.com and others the Q deems reliable media. Questions and concerns regarding the the subject should be addressed to a lawyer.
* In Costa Rica, the Ministry of Justice (Ministerio de Justicia y Gracia) is not the judiciary, that authority belongs to the Ministerio de Publico.
Sources: Elfinancierocr.com; Casa Presidencial; Ministerio de Hacienda