Setting up a subsidiary in Costa Rica offers various advantages, such as starting work in the country and protecting both the subsidiary and the parent company.
To establish a subsidiary in Costa Rica, the parent company needs to follow the setup process while the subsidiary obtains all the necessary permits and licenses to operate legally. Once established, the subsidiary will operate freely under Costa Rican laws and regulations.
Overall, establishing a subsidiary in Costa Rica offers various benefits, and understanding the process is crucial for expanding your business operations in the country. This article will guide you on the essentials you should consider for a subsidiary company formation in Costa Rica.
What are the Types of Subsidiaries in Costa Rica?
The Costa Rican subsidiary system is usually of two types – Sociedad de Responsabilidad Limitada (SRL) and Sociedad Anónima (SA). The SA and SRL models mainly apply to foreign businesses and are the most common forms.
An SRL, the equivalent of a limited liability company (LLC) in the US, is the more popular of the two as it offers many benefits for companies looking to expand internationally.
How to Set Up Subsidiaries in Costa Rica?
Opening a subsidiary in Costa Rica is smooth and simple, requiring only a few steps. Listed below are the required steps:
- Submit a notarized document to the Mercantile Registry and request a corporate identification number.
- Verify your company’s proposed trade or commercial name with the Public Registry through a Public Notary.
- Publish an announcement in the Costa Rican legal newspaper La Gacenta proclaiming your formation.
- Pay all due revenue stamps and registry rights at any Banco de Costa Rica branch office.
- Engage a local lawyer or an Employer of Record (EOR) service provider to set up a corporation in the country. It will ensure that your subsidiary complies with local laws and regulations. It typically takes a few months and between US $300 and US $1000.
- The subsidiary must submit an express declaration of submission to Costa Rican law.
- Validation of all documents by the Consulate of Costa Rica in the parent company’s origin country, followed by registration in Costa Rica to obtain the local legal certificate.
Benefits of Setting Up a Costa Rican Subsidiary
Setting up a subsidiary in Costa Rica can offer companies great economic opportunities in expanding their business ventures. Here are some potential advantages of establishing a Costa Rican subsidiary:
- Limited liability ensures the subsidiary can protect its assets in case of legal or financial issues.
- Establishing a local presence in Costa Rica can improve its credibility and reputation in the region, as well as provide access to local markets, resources, and talent.
- Tax incentives for foreign companies setting up subsidiaries, including exemptions or reductions in income tax, value-added tax (VAT), and customs duties, depending on the type of business and location.
- A stable political and economic environment and a skilled and educated workforce.
- Access to FTAs with various countries, including the United States, provides access to international markets and reduces tariffs on exports and imports.
Documents to Prepare When Opening a Subsidiary in Costa Rica
Registering your subsidiary with the Public Registry is essential since your subsidiary in Costa Rica will be under a foreign company. You will receive a legal identification number required to practice business in the country post-registration. Keep the below-mentioned list of documents ready to set up your subsidiary in Costa Rica:
- Corporate Identification Number (CIN)
- Business name
- Certified copy of the company’s certificate of registration/incorporation
- Company governance structure
- Licenses and permits
- Tax registration
- Memorandum stating the rights and powers of directors
- Certified copy of the company’s constitution
- Memorandum of appointment of the local representative or power of attorney
What Business Forms Can Costa Rican Subsidiaries Take?
Costa Rican businesses can take two forms- i) subsidiary and ii) Branch. Once established, a Costa Rican subsidiary is considered a separate legal entity independent of its parent company.
However, a branch of a parent company is subject to certain limitations as they do not work as resident offices of their parent company. The parent company remains liable for the legal implications of its branch office in Costa Rica.
The subsidiaries themselves can be of two types – Sociedad de Responsabilidad Limitada (SRL) and Sociedad Anónima (SA).
Costa Rican Subsidiary Laws
SRL
According to the Commercial Code (CC), Law No. 3284, Costa Rican SRLs must:
- Have a minimum of two shareholders
- Have a minimum of one director
- Have one manager or chairman
- $1 paid-up capital to complete the incorporation process
- A physical address
- Have own accounting system, management structure, and share capital
- Have an in-country bank account
- Appoint a registered agent if none of the directors are Costa Rican residents.
- A minimum share capital of CRC200 is required, expressed in multiples of CRC100.
SA
The Corporations Commercial Code (CC), Law No. 3284, also mandates that SAs (corporations) must:
- Have a minimum of two stockholders.
- Have a minimum of four directors, including a President, Secretary, Treasurer, and Comptroller.
- Keep its registered office open to the public during specific hours.
- No minimum or maximum share capital is necessary.
Post Incorporation Compliance
Post-incorporation compliance refers to the ongoing legal and regulatory requirements that a subsidiary business in Costa Rica must fulfill to maintain its status as a legal entity. Some of the key compliance requirements for a subsidiary in Costa Rica include the following:
- Annual corporate filings: Costa Rican law requires corporations to file an annual report with the Mercantile Registry, providing information about their directors, legal representatives, and shareholders.
- Tax compliance: Subsidiaries must register with the tax authorities and comply with all applicable tax laws and regulations. This includes paying taxes on income earned in Costa Rica and filing tax returns on time. They must file an Income Tax Return form D-101 for any economic activity generating income within the territory of the country.
- Employment compliance: A subsidiary in Costa Rica must follow labor laws and regulations, along with providing appropriate contracts, and benefits to employees. Maintaining accurate records of employee hours, wages, and benefits is also important.
- Accounting compliance: Subsidiaries maintain accurate financial records and comply with local accounting standards. This includes preparing financial statements, keeping track of expenses, and maintaining appropriate documentation for all transactions.
- Regulatory compliance: Depending on the industry in which the subsidiary operates, there may be additional regulatory compliance requirements. For example, if the subsidiary operates in the healthcare industry, it may need to comply with patient privacy and data security regulations.
A subsidiary in Costa Rica needs to work with a team of legal advisors to ensure compliance with all applicable laws and regulations.
Taxes on Subsidiaries in Costa Rica
Subsidiaries in Costa Rica are subject to a variety of taxes. Here is an overview of key taxes that may apply to subsidiaries in the country:
- Corporate income tax: Subsidiaries in Costa Rica are subject to a 30% corporate income tax. However, small companies whose gross income does not exceed 122,145,000 Costa Rican colones (approximately $208,000) may be eligible for special regulations.
- Capital gains tax: Capital gains tax in Costa Rica is set at a rate of 15%. The tax is applicable to residents and non-residents who have earned capital gains from a source in Costa Rica.
- Withholding tax: Non-resident companies operating in Costa Rica are subject to withholding tax on certain types of income, such as dividends and interest payments. The rate of withholding tax varies according to the type of income and the tax treaty between Costa Rica and the non-resident company’s native country.
- Value-added tax (VAT): Costa Rica has a VAT system that applies to most goods and services sold in the country. The standard VAT rate is 13%, but there are reduced rates for certain products and services.
Costa Rica has a competitive tax system relative to other OECD countries, but it is important to ensure compliance to avoid penalties or legal issues.
Tax Incentives for Businesses Setting Up a Subsidiary in Costa Rica
The Costa Rican financial year begins on October 1 and ends on September 30. Corporations and individuals must file their tax returns by February 15. A subsidiary business in Costa Rica enjoys several credits, tax exemptions, and deductions, which include:
- Entities established in a free zone enjoy exemption from import duties on goods, income tax (0-15%), VAT, export tax, real estate transfer tax, selective consumption tax, and WHT on payments abroad, including the discretionary use of foreign currency generated abroad.
- Companies can apply to the Free Trade Zone Regime and can enjoy exemptions up to 100% on certain taxes. For instance, companies established in Costa Rica are exempted from import tax. Additionally, if a subsidiary imports raw materials or products assembled or transformed in the country receive import tax exemptions.
The Costa Rican tax regime may change from time to time. Therefore, seeking professional advice to grasp foreign tax laws is a must. It is easier for foreign companies to comprehend with the assistance of professionals well-versed in Costa Rican corporate laws.
Other Important Considerations
There are various important factors to consider when establishing a subsidiary in Costa Rica. Here are some key points of the subsidiary system in Costa Rica:
- The applicable laws for setting up a subsidiary in Costa Rica depend on the type of entity chosen.
- Shelf companies are available in law firms for a higher price, which is already incorporated and ready to go.
- The Costa Rican Code of Commerce establishes three other business forms, which include Sole Proprietorship Companies, Partnerships, and Collective Name Companies. No specific capital requirements are imposed for these entities.
- Businesses can employ only 10% of foreign nationals of their entire workforce.
While planning to integrate a foreign subsidiary in Costa Rica, you must consider other legal necessities. Thoroughly acquaint yourself with the latest Costa Rican employment rules and regulations to avoid violations and penalties. In addition, it is crucial to either know Spanish or appoint lawyers speaking the language to translate the legal documents for you.
How Can Multiplier’s Employer of Record Help You Hire & Expand in Costa Rica?
Overall, a subsidiary business in Costa Rica offers many benefits for foreign companies looking to expand into the country, including limited liability protection and the ability to operate independently.
Partner with Multiplier to onboard your employees for your Costa Rican subsidiary. To establish your global team in Costa Rica, you must know the local labor laws and regulations to maintain compliance. Our Employer of Record (EOR) services help you grow your team in Costa Rica, send employment contracts within minutes, and release payroll in local currency on time.
Talk to our experts to learn more.