Setting up and running a business in Costa Rica will require five basic steps to start with:
- Establish a corporate entity to run the business.
- Get Licenses.
- Register with the Costa Rican tax authorities.
- Register as an employer with the universal health care system.
- Take care of your banking needs.
Step 1 - Incorporation
A proper legal entity should be the first step when setting a business in Costa Rica. There exist several types of corporate entities under the Code of Commerce of Costa Rica. The most common are:
Sociedad Comandita: Limited Partnership
This "personal" type of entity is rarely used in the turnover of business in Costa Rica, perhaps because of the way liability is structured amongst the partners.
Sociedad de Responsabilidad Limitada: Limited Liability Company
This is simpler than a corporation (sociedad anónima); since it can be managed with only two partners. Liability is limited to the sum of shares participation and shares cannot be sold to third parties without the consent of the remaining shareholders.
Sociedad Anónima: Corporation
The most widely used entity in Costa Rican business. Has a minimum of two founding shareholders, their liability is limited to the sum of share subscription. It's managed by a board of directors (president, secretary, and treasurer) and has an auditor in charge of the due diligence. The shares may be sold to the public (IPO) and it may issue any kind of shares.
No matter which type suits you, the entity you form to manage the business should have a functional banking set up with a first order Costa Rican bank (Polk's Directory).
Step 2 - The Business License
The business license (patente comercial) is obtained from the licensing department (departamento de patentes) of the Municipality where the business is to operate. Although different municipalities may have their own forms, it's a standardized procedure. Below we illustrate the procedure at the Municipality of San José:
- a) Fill out a standard form for business license called "Business License Affidavit" (Declaración Jurada de Licencia Municipal): applicant identification, business description, location, estimate of sales, inventories, lease price, institutional checklist (requirements according to activity), signature by applicant and by owner of the facilities where the business is to be located, or a copy of the property lease contract.
- b) The Affidavit has to be sealed by the Revenue Administration for registration purposes.
- c) A Soil Use Certificate from the Municipality Zoning Department (Certificado de Uso de Suelo): Property owner identification, property description, use and purpose requested, to be supplied with a title report and an official survey of the property.
- d) Supply a copy of the corporation registration card and a notarized certificate of incorporation (personer?a jurídica).
- e) Sanitary permit by the Health Center nearest to the business. This is a standard inspection to verify the cleanliness of the facilities: sewage and waste waters, garbage disposal and such conditions. This inspection is due when the application is for a business where public health is concerned i.e. restaurants, bars, clinics ...
- f) If the operation is staffed supply a copy of the Labor Risk Insurance policy or if not staffed an "exoneration" or clearance letter by the insurance company Instituto Nacional de Seguros.
- g) A clearance from the Municipality Taxes Department on the status of the owner of the facilities (to verify that the owner does not owe any tax to the Municipality: real estate tax, garbage collection, public street lights and other if applicable).
- h) Legal Tax Stamps (timbres, on a small amount).
- i) Business License Tax: A provisional Municipality Business License Tax has to be paid within 5 working days after submission. The Municipality Business License Department will send an inspector to the location to verify the information supplied and to define the appraisal for Municipal Business License Tax purposes, such a tax ranges from five thousand colones (US$20 dollars approx.) to one hundred thousand colones (US$300 dollars approx.) per year.
- j) Once the tax is paid the Municipality Business License Department will approve the license and issue the license certificate to be displayed at the premises of the business.
- k) The term of application and license: can range from 2 to 4 weeks.
The commercial license will have a yearly renovation fee to be paid at the License Department.
Note: Additional requirements apply for video rentals, financial entities, mills, security companies, drug stores, parking lots, private schools and universities, bars and restaurants, hotels, casinos, day care gardens, beauty parlors, private universities, health clinics, spas, marinas, and others, as requested by the competent government authority on each case.
Note: For a bar, discothéque or night club a liquor license is necessary. These licenses are classified as national liquors, foreign liquors, and mixed licenses, even though recent court case law (jurisprudence) has regarded them all to be equal. Their issuance by the local municipality is limited to the number of habitats and in most cases is auctioned. It is possible to lease them from an existing business person or operating business. Their price may reach up to several tens of thousand of dollars depending on the particular situation.
Step 3 - Costa Rica Revenue Administration
Register with the Costa Rican Revenue Administration (Dirección General de Tributación Directa). The law requires that the business registers with the Revenue Administration (Registro Unico de Contribuyente) where the business is to operate or where the company is addressed, under the corresponding tax - payer category: corporate assets tax (assets with value higher than US$100.000), income tax (compounded, once a year), sales tax (13%, every month) or simplified regimen (régimen simplificado). A competent tax accountant should be hired to consult on this issue since there are different aspects and criteria to consider when registering the business. Registration is done by filling out the standard forms (D-140) issued by the Revenue Administration and sold at the banks, together with the company papers (same as required for the business license).
Step 4 - Social Security
To register the company as an employer under the Costa Rican Social Security System (Registro Patronal bajo la Caja Costarricense del Seguro Social) and to obtain an official numbered payroll form to pay social security insurance. Unlike the United States, Costa Rica uses a universal, compulsory social security system (somewhat similar to those in Canada or Scandinavia) which requires each business to register as an employer and to a social security payroll monthly. Under this system, all employees working for any term of time for the business must be reported in the payroll and percentages from their salary are paid by the employer and the employee (22% and 9% respectively). Underreporting or failure to report an employee could result in serious employer liability involving audit inspection, seizure of assets and administrative and judicial proceedings by the Social Security Administration.
Step 5 - Banking
In Costa Rica, the bank system is divided into state-owned banks and private banks and financial companies. State banks are Banco Nacional, Banco de Costa Rica, Bancredito y Banco Popular. Savings with these banks are guaranteed by the State under the constitutional statute. However, some private banks offer consolidated guarantees and manage a prestigious client list. Amongst first order private banks are: Banco Interfin, BAC San José, and Banco Banex. All these banks have general banking services such as checking accounts, offshore accounts, money market accounts, CD's and credit card issuance and affiliation (as a commercial establishment). Other international banks doing business in Costa Rica are Citibank, Scotia Bank and other regional banks such as Bancrecen and Cuzcatlan.
C R LAW Ltd. Mission Statement: Our mission is to provide international investors and inbound residents, moving to or doing business in Costa Rica, with secure and efficient Legal Service Solutions.
Service: C R Law Ltd. will provide and produce all services and documents necessary for the effective planning, application, and achievement of your Municipality Business License in the Republic of Costa Rica. Feel free to contact us for further information and assistance.