This year the tax department, known officially as Dirección General de Tributación, and loosely as Tributación Directa, had a surprise for many expats and Ticos alike. The government institution changed inactive companies that pay the lower company tax assessment created by Law 9024 to active without any warning.
Active companies pay twice as much as inactive ones, a matter of some $200. This has outraged the affected. One expat in La Garita is downright furious. He said in a telephone interview, “My company has been inactive for 10 years. It has never had an activity. What gives the tax authority the right to double my taxes without reason or notification?”
Attorney Allan Garro of Garro Law is mad too. His expat and Tico clients have called him outraged and wanting answers. He had none to give them, so he sent staffers to the tax department and Registro Nacional to ask questions. They got to the bottom of the problem, and the result is a shock.
“An update to our computer system and general reorganization of things in 2013, included inputting old tax declarations from as far back as 2006, could have kicked some companies in to an active status,” workers at Tributacion Directa said to Garro’s legal assistant.
To clean up old paperwork, probably found in some forgotten building, the tax people have created a nightmare for budget strapped people who want to pay their taxes.
Of course, there is no notice of this anywhere in the press. More outraging is there is nothing published that is easy to find on how to fix the over assessment.
“I contacted the tax department personally, and they assured me a mistake like this does not happen,” said Kevin Chavarria of KCPATAX in a telephone interview. Well, it does happen. Studying some companies affected by this assault on their tax integrity, a reporter discover old tax forms showing up when they did not show up before 2013.
Dirección General de Tributación tidied up their mess. Now, what do good tax-paying people do to fix the pickle this cleanup has caused for them? Is there a fix? Yes, there is, but it takes time. Remember, living in Costa Rica takes patience. Lots of it.
Option 1: Grit teeth, pay the over assessment and file the D-140 form with the tax department and the tax will return to normal – maybe – next year. No one really likes this option.
The form D-140 is the document one files to register or unregister a company, and make it or change it to active or inactive status. Active entities produce revenue of a commercial nature. Inactive ones do not. Holding assets like property in a company is not a commercial endeavor in Costa Rica. Companies doing so should be inactive and pay the lower tax.
Option 2. Do not pay the tax. In an obscure section of the Registro Nacional’s Web site in Spanish is directive D.R.P.J. 001-2013. This explains how to change a company from active back to inactive and pay the lower tax. This is the procedure:
Step 1. File a D-140 form with Dirección General de Tributación as an inactive company. It is very important to indicate on this form the company requesting relief never had any commercial activity or it ended such activity on a specific date.
Step 2. Write a written request to the Dirección del Registro de Personas Jurídicas department of the Registro Nacional to include: A. Full name, address, occupation, and marital status of petitioner. B. Full name, identification number and petitioner’s legal authority in the company requesting consideration. C. Attach a copy of the D-140 form from Step 1 and a letter from the Registro Único Tributario department at the tax office stating their computers were in error. This is located in the Don Bosco office next to Jardines del Recuerdo.
Step 3. Sign the letter in Step 2 and have it notarized by a Costa Rican notary.
Step 4. File the petition with the Dirección del Registro de Personas Jurídicas at the Registro Nacional.
Option 3. Pay the tax and fight to get the over payment returned as indicated in circular DGRN-0008-2012.
Steps. The same as in Option 2 but request the return of the money instead of the reduction of the tax. This must be done within three years of paying the tax.
Here is an interesting question. Computers are not to blame for this blunder but their programmers. These workers take orders from managers and other higher ups. The local press recently stated the countries expenses are up 11 percent while revenue is up only 4 percent. Costa Rica spends much more than it makes. Is this really an error or did someone make a conscious decision to input the very old paperwork to cause this hassle so taxpayers owning companies pay more tax.
Based on the numbers obtained from the Registro Nacional by the La Nacion newspaper in a recent article, the tax is a total failure. The country is collecting only a small percentage of the amounts forecasted. More than half of the registered companies owning the assessment are dead.
Is this really a mistake and everyone should grin and bear it, or is there more to the story?
Garland M. Baker is a 44-year resident and naturalized citizen of Costa Rica who provides multidisciplinary professional services to the international community. Reach him at firstname.lastname@example.org. Baker has undertaken the research leading to these series of articles in conjunction with A.M. Costa Rica. Find the collection at http://crexpertise.info, a complimentary reprint is available at the end of each article. Copyright 2014. Use without permission prohibited.