Costa Rica’s Business Environment

Costa Rica can be seen as a model of progress in many respects. Due to its consistently rising economy during the last quarter of a century, it is now regarded as an upper-middle-income nation. The approach of opening up to foreign investment and gradually liberalizing commerce led to this development.

By establishing its Green Trademark via initiatives such as Payments for Environmental Services (PES), Costa Rica has been an international pioneer in environmental policy, effectively advocating for the preservation of forests and wildlife. The nation showed remarkable fortitude in the face of fiscal and social crises exacerbated by the COVID-19 epidemic; as a result, the economy performed admirably in 2021 and 2022. As of right now, the country presents many opportunities for entrepreneurs and businesses from overseas.

What are the Key Legal Requirements for Forming a Company in Costa Rica?

Those wishing to start and run their own enterprises will find Costa Rica’s business-friendly climate to be excellent. But there are also certain legal requirements to keep in mind. You must:

• Choose a company structure. Based on your company’s unique requirements, choose one of the presented options (more on that below).
• Get a digital signature certificate. This certificate is mandatory when setting up an offshore corporation to streamline paperwork.
• Reserve your company’s name with Costa Rica’s National Registry. This will make sure it’s unique and complies with all legal criteria.
• Register the company itself. Pay the registration fee and submit the articles of incorporation, business bylaws, and shareholder agreement to the National Registry to register the company.
• Acquire any needed licenses and permissions. A business license and occupancy permit are two examples of extra licenses and permits that may be necessary depending on the kind of business.
• Get on the tax rolls. All taxes, including income, VAT, and corporate, must be registered with Costa Rica’s Tax Administration.
• Fill out the Ultimate Beneficial Owner (UBO) Declaration. It discloses the personal details of shareholders with substantial ownership.
• Register with the Costa Rican Social Security Department to be recognized as an employer. This is the final step.

What Types of Business Structures Are Available in Costa Rica?

In Costa Rica, the three most prevalent types of legal entities available for those who want to complete Costa Rica company formation are:

1. Corporation/Joint Stock Company (S.A). Those need a public document, two shareholders at the very least, and the establishment of a board of directors.
2. Limited Liability Company (S.R.L).  Very similar to S.A., with the exception that a general manager must be appointed.
3. Branches of Foreign Companies. Establishing a foreign company branch requires a public deed and a power of attorney; this is a complicated and expensive process best suited for bigger businesses.

Step-by-Step Guide to Registering a Company in Costa Rica

Here are the things you need to do to establish a company on the Costa Rican soil:

1. Pick a business setup: To choose the right entity type for your company, you need to go to a lawyer.
2. Sign-off on proper documentation: Get the articles of incorporation and powers of attorney ready and get them notarized.
3. Submit the articles of incorporation to the National Registry: Submit this form no later than one business day to ensure your registration is valid.
4. Register as a taxpayer in Costa Rica: Fill out a D-140 form with information about your business, including its name, fiscal location, and economic activities.
5. Submit a UBO declaration: It’s a requirement for all entities with legal personality, maintaining records on an exclusive register.
6. Sing up with the Costa Rican Social Security Agency: This is the next required step.
7. Applying for insurance: Applying for both national and occupational risk insurance is the last stage.

Necessary Documentation and Compliance Requirements

These things are necessary in order to register a business:

• Copy of the identification document. Please ensure that all partners or legal representatives provide a copy of their identity document.
• Certificate of Commercial Registration. Provide a copy of the Certificate of Commercial Registration issued by the National Registry.
• Corporate mission. Provide a comprehensive explanation of the company’s corporate purpose.
• Fiscal address. Provide the fiscal address of the business, which must be in Costa Rica.
• Tax Identification Number (NIT). The company’s NIT is also required for compliance.

Also, make sure you pay the costs that are linked to the registration procedure.

Overview of the tax System for Businesses in Costa Rica

Establishing a legal entity in Costa Rica necessitates planning commercial operations in compliance with the primary statutes governing tax-related matters. Income earned outside of Costa Rica is not subject to taxes; rather, taxes are based on the location of receipt. Capital gains, value-added tax, and royalty income are all subject to taxes in addition to income tax. Companies are required to keep accurate financial records and submit reports no later than 75 days after the end of the accounting period, regardless of the amount of profit they have made.

Understanding Labor Laws and Employment Regulations in Costa Rica

Companies doing business in Costa Rica would do well to familiarize themselves with the country’s employment rules and labor laws. 

An employment contract is a crucial part of any recruiting process since it covers important matters including the need for all workers to have one. It is crucial for firms to accurately categorize personnel in order to avoid expensive fines for misclassification. Therefore, following classification criteria is essential. Furthermore, businesses should be patient since getting the necessary work permits for international workers may be a lengthy procedure. In order to ensure that enterprises achieve the defined standards, compliance with mandated employee benefits is not up for discussion. 

Costa Rica does not follow an at-will employment paradigm, which makes employment contracts more binding than in other countries. Strict restrictions control the security of sensitive information, and the country’s data privacy laws are strong. Equal Opportunities Law and other anti-discrimination statutes make it illegal to participate in discriminatory practices. Businesses involved in secret negotiations may rest easy knowing that non-disclosure agreements are legally protected in Costa Rica.

Cultural Nuances and Business Etiquette in Costa Rica

When doing business, Costa Ricans place a premium on being humble, modest, and kind. Building trust is essential, and once connections are created, lucrative transactions tend to follow. The laid-back culture values adaptability and tolerance. The local business etiquette is to dress nicely and use basic language in English meetings.

Pros and Cons of Different Business Entities

Corporation/Joint Stock Company (S.A):

• Benefits: Popular and long-standing, appropriate for a wide range of companies.
• Downsides: Requires a board and controlling agent, potentially more complex.

Limited Liability Company (S.R.L):

• Benefits: Decreased complexity in management, adaptable funding needs.
• Drawbacks: S.A. standards must still be met.

Branches of Foreign Companies:

• Advantages: Well-suited for bigger businesses.
• Negative: Not advisable for SMEs due to complexity and expense.

Depending on the demands and size of the company in Costa Rica, it is important to understand the pros and cons of each business entity. This will assist in making an educated selection.

Conclusion

With its consistently growing economy, environmental leadership, and ability to overcome problems, Costa Rica is the epitome of development. It is a paradise for businesses because of its welcoming atmosphere, open procedures, and liberal labor regulations.

Interesting Related Article: “Why You Should Hire A CPA For Your Small Business “