Realities of new corporation tax begins to sink in

Expats who hold a vehicle or a home by means of a corporation are unhappy because they will have to pay a special tax between April 1 and April 30. The amount this year could be as much as $240 on an active corporation. Next year the bite will be more because corporation owners will have to pay for a full year.

Suppose, however, someone owns 200 or 300 corporations. Some lawyers have that many because they created the legal entities for resale. Some expat developers set up large subdivisions with 100 or more lots with each lot owned by a separate corporation, usually a sociedad anonima or a limited liability entity.

Others who provide legal and financial services for foreigners also have responsibility on the corporations. The new law that went on the books before the first of the year says they are responsible for paying the tax.

These situations can mean thousands of dollars in taxes or thousands of dollars in Registro Nacional and lawyer fees simply to kill the corporation.
The law says that if the tax is not paid three years in a row, the Registro can move to abolish the company and snag any assets to pay the accrued taxes and the fees for making the entity inactive. Among other fees, the Registro has to advertise the action in the official La Gaceta newspaper.

Some constitutional court cases are expected. Some argue that the Registro is not the appropriate agency to collect a tax. So far there have been no reports from the court of cases that have been filed on this topic. Others cite the cases of individuals who face thousands in taxes as examples of disproportionality.

And professionals who do business with expats point out that many foreigners own corporations here but may not have visited the country for several years.

They are unaware of the new tax, and there has been no government effort to alert them.

The tax in 2012 will be prorated for the remaining nine months and the first tax will be just 75 percent of the stated amount. The money must be paid within 30 days, that is by April 30. Subsequent tax payments will be due Jan. 1 each year and have to be paid by the end of that month. Those amounts will be increased, too, as the base salary is raised.

The text of the new tax law can be found in the Dec. 27 digital edition of the La Gaceta. It isHERE. The text is linked to “Alcance Digital Numero 111-A PDF” which can be found in the right hand column

As a news story pointed out in July, disbanding a corporation to avoid the tax is costly because the process requires the assistance of a notary. That story is HERE!

And lawyers warn that holding assets as personal possessions rather than in a corporation can subject the survivors of an expat to lengthy probate procedures here.

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