Costa Rica: Inactive companies and tax obligations

Traditionally, corporations have been used in Costa Rica as means to organize both the corporate and the family´s patrimony. Prior to the Public Finances Strengthening Act, such property-owning corporations did not hold any lucrative activities or were taxpayers of Income tax.

However, a reform introduced by this Act approved on December 2018, classifies these corporations as contributors to this tax and are referred to as inactive companies. However, no tax-paying obligation other than complying with formal duties is generated.

Therefore, it must be clarified that no tax has been imposed on inactive companies. What is new is that compliance obligations were created for these companies, such as registration before the Tax Administration and submittance of a Declaration.

Once the information has been submitted, the Tax Administration may decide upon verifying the origin of funds – based on crossed information from its databases – and it may require additional information through the procedures determined by law. However, under no circumstance will the Tax Administration make any collections or charges automatically. Should there be any questioning, the Tax Administration must initiate an administrative proceeding to fully verify any company´s fiscal status.
 
What are the tax obligations that inactive companies must fulfill?
 
  1. Once the legal entity has been registered before the National Registry, it must submit the D-140 form within 10 working days to record the updated data regarding the legal representative, fiscal address, and economic activity code “960113 legal entities incorporated locally that do not develop an economic activity of Costa Rican source”. The Tax Administration on its own initiative will register the entity under code 960113.
  2. Submittance of D-101 form states the assets, liabilities, and corporate capital. This is the same form for the Income Tax. This declaration must be submitted annually within the two months and 15 calendar days after the tax period has expired, that is, no later than March 15.
  3. Annual payment of the Legal Entities Tax in January.
  4. Annual payment of the Education and Culture Legal Stamp.
  5. Annual submittance of the Transparency and Final Beneficiaries Declaration in April.
 
An inactive company must not issue electronic invoices. The company cannot request to be unsubscribed as taxpayer of the income tax while its legal status is in force.
 
What type of documents should the company keep?
 
  • Shareholders Assembly Book, with a duly signed record approving the shareholder´s contributions.
  • Shareholders Registry Book fully updated and signed with the corresponding share certificates.
  • Carry out an inventory of banking accounts, financial investments, real estate, and movable properties, as well as other rights owned by the company, with the corresponding acquisition documents.
  • Identify the company´s liabilities with detailed information on data and situation of each credit operation and its corresponding contracts.
  • Updated accounting as per the IFRS.
 
What are the penalties for incompliance?

The Tax Administration will try to prove the origin of funds to acquire the corporate assets in an auditing process. If the company does not have the supporting information, the Administration may determine an unjustified patrimonial increase.
 
Consortium Legal has an inter-disciplinary tax team that is ready to help you to check your tax status in this situation or if the Tax Administration requests information.

To that end, you may contact us at: tributario@consortiumlegal.com
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