LatinAlliance specialists runs down for the global media in economies and business intelligence: The Business Year, all the crucial information investors should know when setting up in the country.
Simpler and Cleaner
Costa Rica has a strategic and privileged location for doing business, with a local population of educated and welcoming people dedicated to attracting and developing big and small businesses alike. With a tendency to simplify and digitalize governmental processes, Costa Rica is looking to keep setting up and developing businesses easy.
Living in Costa Rica
Costa Rica’s Constitution states that locals and foreigners have the same rights by law. There are no legal restrictions to foreigners or nationals to own land, except for: a) Maritime Zones: foreigners cannot own 100% of the land; and b) agricultural lands reserved for smaller farmers and social/agricultural developments.
Most properties are titled and registered in the National Registry, which is almost completely digital. Certificates of Property Ownership, Certificates of Corporate Incorporation, and land surveys can be obtained online, at any time.
Deciding where to live in Costa Rica depends on the reason for moving here. Most expatriates find it difficult to choose between the city, the mountains, or the beach. Owning real estate also has an impact on the buyer’s immigration category. Costa Rican Immigration Law recognizes tourist and transit passengers as non-residents and makes no difference between residents and citizens regarding access to the health system and other benefits. Tourists have a right to access emergency services but not social security benefits.
Non-residents may purchase land and other assets in Costa Rica; however, to open bank accounts they must become residents.
Residents are divided between those with a permanent status and those with a temporary permit to stay in Costa Rica. Those with a temporary student visa, investors, and retirees may overstay the permitted 90-day period. When applying for resident status, foreigners may request that their dependents (direct family members) may be able to remain in Costa Rica as residents as well. All forms and requirements of residency status are listed in the Costa Rican Immigration Ministry website. If all documents are properly submitted to the Immigration and Naturalization Department, the process may take from 11 to 12 months. By filing the required documents in the authorities, the foreigner will be allowed to stay in Costa Rica beyond the 90-day tourist visa period. Permanent Residence status is attained after having a temporary visa for more than three years, which allows a person to stay in the country indefinitely with the freedom to work in the country.
Setting up a Business
Business may be conducted by individuals or by companies. Costa Rican Law recognizes different forms of legal entities, which include:
- A) Corporations (Sociedad Anónima): This is the most common form of business entity; it is a stock corporation, which entails a three-member (minimum) board of directors. The company must be incorporated by two stockholders, who can be corporations or individuals. There are no restrictions for foreigners, hence they may hold the legal representation of the corporation and be stockholders. Nevertheless, if no nationals appear in the board of directors a Resident Agent must be appointed, whose responsibilities consist on receiving notifications on behalf of the company and sending them to the foreign legal representative.
- B) Limited Liability Companies (Sociedad de Responsabilidad Limitada): Usually these companies are seen as a more accessible form of incorporation for small and medium-size businesses, allowing partners to limit their liability. Usually, only one general manager is required to represent and manage the company, hence this company does not have a board of directors.
- C) Other forms: The Costa Rican Commercial Code, article 5, recognizes other forms of incorporation and business registration, which are less used but viable alternatives for foreigners to invest or simply to register permits or intellectual property in Costa Rica.
As a positive and easier way to invest in companies, recent legislation has been approved to protect and develop the minority investors in any form of corporation.
Before launching certain products, such as food, cosmetics, pharmaceuticals, biomedics, and natural supplements, they must be approved and registered in Costa Rica. The Health Ministry is responsible for the approval and supervision of new products and the conditions and limitations to import to Costa Rica. The registration is valid for a period of five years; hence, we suggest beginning the registration process at least six months before the registration expires.
Owners of products can register them under their corporate or personal name, and commercialize through authorized distributors, allowing the owner to retain ownership of the product’s registration.
If the registration process is done with certain expertise, the registration in one country may allow for simpler registration in the other Central American countries through the implementation of treaties and best practices.
Costa Rica, as a member of the World Intellectual Property Organization (WIPO), has made a great effort to enforce and guarantee intellectual property rights. The average registration time of intellectual property, without oppositions, is four months, one of the shortest in the Central American region. To be able to enforce the rights inherent to an intellectual property owner, it has become increasingly important to adequately protect a company’s intellectual property portfolio, as a means of preventing third parties from taking advantage of others’ hard work and dedication. Proper registration and monitoring of your intellectual property portfolio can assure businesses that their patents, copyrights, and trademarks are fully protected internationally or locally against any improper use.
Under the principle of territoriality, Costa Rican Income Tax legislation states that any entity or individual residing or conducting business in Costa Rica is subject to taxes. Nonetheless, foreign source income and capital gains are exempt from taxes.
Under Costa Rican law, any transfer of company stock of a company that owns real property that represents more than 50% of the capital stock is considered as an indirect transfer of property and subject to pay transfer taxes. Dividends are subject to taxation, except when the shareholder is another corporation.
Traditionally Costa Rica is not a party to double taxation treaties, especially because the reigning principle is that of territoriality. Nonetheless, in 2010 a global income treaty with Spain came into force and last year a similar treaty came into force with Germany. Costa Rica has also signed an exchange of information treaty with the US to promote the necessary and adequate interchange of tax information and to ensure the correct level of taxation in both countries. Negotiations with Israel, South Korea, Switzerland, France, and Canada are advancing.
Solving International Disputes
As part of the process of consolidating an appropriate climate for the development of FDI, Costa Rica has taken steps to adopt the necessary legal framework. The FTAs signed by Costa Rica include rules on investment and dispute settlement, and among them alternative dispute resolution regulations. It is also member of Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965; the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention of 1958, which allows the recognition and enforcement of foreign awards in 157 countries; and the Inter-American Convention on International Commercial Arbitration, also known as Panama Convention of 1975, which recognizes the enforcement of awards in 19 countries on the American continent. It has also adopted alternative dispute settlement regulations that follow international standards and is based on the United Nations Commission for International Trade Law (UNICTRAL) Model Law on International Commercial Arbitration of 1985 with amendments as adopted in 2006. In addition, main and reputable business professional entities, such as the Chamber of Commerce of Costa Rica, AMCHAM, and the Federated Association of Engineers and Architects of Costa Rica have created arbitral institutions, to which private individuals can refer to settle their disputes.Also, the court system is arbitration friendly.
The privileged geographic position of Costa Rica; adequate business infrastructure, including hotels and meeting facilities and in the near future two of the biggest convention centers of the region; international connections; trained personnel; and “happy people,” contribute to make it an ideal place for business as well as a place to solve any international disputes that may arise.
Other Reasons to Invest:
Costa Rica’s political stability, democratic regime, educated and trained workforce, and tradition of respect to the rule of law and human rights are additional conditions for an appropriate business climate.
Costa Rica has taken the political decision to start a process of adhesion to become part of the OEDC, and this decision is contributing to the modernization and implementation of measures that guarantee first-world standards, in those areas where the country needs improvement.
Among the key efforts are fiscal reform that aims for a healthy economy. Education policies, reform in academic programs, the enactment of more technical colleges, and careers are amongst the most important reforms to come as well as the elimination of red tape for many processes to modernize and expedite most of the steps for business development in the country.
In sum, Costa Rican authorities have a clear understanding that we are in a globalized world and, to be a key player, we must complete such processes, advance, and make the necessary adjustments in public policy in that direction. Sanitary registry, intellectual property, accounting procedures, compliance, corporation and corporation bookkeeping, bookkeeping, and billing are all up to world standards and can be processed electronically or online.
Costa Rica is on the verge of electing a new President, this election it is not expected to change or stop the current trend toward development; on the contrary, the people are looking forward to a new leader that will further Costa Rica’s position as a top player in the world economy.