TAX ON CORPORATIONS & COMMERCIAL ENTITIES

Costa Rica New Tax on Corporations and Commercial Entities

The Corporate Tax Law Law (number 9024) will come into effect on April of this year 2012, despite of the present inconsistencies in the wording and some key aspects of its interpretation, which will have to wait for additional regulations. The new legislation was published in the Official Gazette, on Tuesday December 27t,h, 2011.

For tax payment purposes, the Law differences between active and inactive companies. Companies registered before the Tax Authorities as taxpayers are considered active and those companies that do not carry out commercial activities and are not registered as taxpayers before the Tax Authorities (companies which sole purpose is to have assets) are considered inactive.

A 50% rate according to the monthly "Clerk 1" base salary (annually established in the Republic’s Ordinary Budget) is applied to active companies and a 25% rate is applied to those inactive. Currently the monthly base salary is C360,600, therefore, the tax due would be C180,300 (approximately $350) for active companies and C90,150 (approximately US$175) for inactive ones. Since the Act will be enacted on April 1st, 2012, the amount to be paid for the year 2012 shall be prorated (9 months), and therefore active companies should pay C135,225 (approximately US$265), and inactive ones C67,612.50 (approximately US$135).

The companies will have a three month period, starting on April 1st, to be dissolved without paying this tax, or to transfer their assets out of the companies with our having to pay transfer tax (these companies have to show that they have been inactive before the Tax Authority for at least 2 years). Merging several companies in order to minimize the payment has also been included as an option in the Law, and there will be a 6 months term to do this without having to pay additional taxes.

Those companies that do not cancel the tax during the corresponding period of payment, will be subject to the same penalties and fines established in the Tax Code on Standards and Procedures in case of lack of payment of other taxes such as Income Tax and the General Sales Tax. It is important to take into consideration that the legal representatives will be joint and severally liable for the lack of payment of such tax. Nevertheless, a twenty-four month period is established once the Law comes into effect so that those legal representatives that wish to resign to their posts could execute this through written communication at the registered social domicile

Tax experts warn that some inconsistencies in the Law should be resolved, for example, if the assets of a company's legal representative may be seized due to nonpayment of this Tax; the definition of active and inactive companies; and if this tax is deductible from income taxes. Some delay on the actual application of this Law could take place, due to these inconsistencies.