Many Ticos and expats believe the law that assesses a yearly tax on companies in Costa Rica is dead because of a recent Sala IV ruling that found parts of it unconstitutional. Some people are still years behind in their payments and are not a bit worried.
They should be. The law is still alive. The Registro Nacional still has the right to dissolve any company with three consecutive periods in arrears. The agency has the power to assess any past due amounts against any assets of the company.
For those unfamiliar with the tax, it is called the Impuesto a las Personas Jurídicas or Ley 9024. The tax started on April 1, 2012. It is now 3 years old, but four years of taxes are due at this time because as of Jan. 1 of each year, the whole year is due and payable.
Costa Rica’s constitutional court, the Sala IV, found only articles 1, 3 and 5 of the law unconstitutional in a decision Jan. 28. These articles were the heart of the legislation:
Article 1, created the tax on all mercantile, limited companies and foreign branches in Costa Rica.
Article 3, set the tax amount and divided the payment into two types, one for active and another for inactive companies. Inactive entities pay 50 percent less than active ones.
Article 5, set the sanctions and fines for not paying the tax.
Now the not-so-funny part. The Sala IV said the creation, the amount and the sanctions to enforce it were illegal, but the country could still collect the illegal taxes due from April 1, 2012 to next Dec. 31.
Quizzing several legal professionals about the subject found they knew very little about the matter. Some of them did not even know about the Sala IV ruling. One CPA in an interview Saturday said he felt the law was dead. However, he also thought no one has to pay the past due amounts either, which is not the case.
In fact, the law is still in effect, and Article 6 is its bite. It reads as follows in English:
Non-payment of the tax imposed by this law for three consecutive terms shall be grounds for dissolution of the corporation, sole proprietorship, limited liability company or branch of a foreign company or its representative. The National Registry will send the notice of dissolution to the official newspaper, in accordance with Article 207 of the Commercial Code, and shall cancel the registration and entry of assets.
Debts arising from this tax constitute a legal mortgage or preferential preferred lien, respectively, in the case of real estate or personal property owned corporations, individual limited liability companies or branch of a foreign company or its representative.
Note the last three critical words, or its representative. This means if the national registry cannot collect what is due for the tax against assets, it can go against any legal representative personally: Not just for the tax but also for interest, collection expenses and attorney’s fees.
An active company that has not paid its taxes from the beginning of the law owes roughly 900,000 colons today or around $1,700. An inactive company owes roughly half that amount or 450,000 colons or around $850. When calculating collection costs for a debt in Costa Rica it is customary to estimate an additional 50 percent over and above the amount due.
Most legal professionals do agree about one thing. The national registry will not wait much longer to take action on collecting what is due now that the Sala IV has made a ruling.
One attorney estimated 275,000 out of the 575,000 estimated mercantile companies registered in Costa Rica are defunct. They are part of an estimated 420,277 companies currently behind on the tax, as reported by the Banco de Costa Rica in 2014.
The tax department wants its past-due money and more in the future. Will the legislature amend the current law? Will it be fixed by 2016? Will another new law replace the old one?
Attorney Allan Garro of Garro Law believes the law will be fixed but in Tico time. He said in an interview that he recently had a conversation with an important Costa Rican businessperson and politician. The contact said to him that no one is really doing anything about the matter at this time. Garro added that as things happen in this country, lawmakers will probably do something at the last moment. The country does not want to lose this money source.
In reality, it will probably not be very hard for the legislature to fix what is broken. The only reason the Sala IV found articles 1, 3 and 5 unconstitutional is due to a technicality. Those particular parts of the legislation were not properly published after changes had been made to them.
So, Law 9024 created the assessment on companies in Costa Rica. The meat and potatoes of the law creating the tax, amount and fines were found unconstitutional due to a technicality.
However, the highest court of the land says everyone still has to pay the illegal tax, and if they do not, their assets can be auctioned off by the national registry.
Garland M. Baker, a certified international property specialist, is a 45-year resident and naturalized citizen of Costa Rica. His firm’s team provides multidisciplinary professional services to the country’s international community. Reach him at email@example.com. 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 free reprint is available at the end of each article. Copyright 2015, use without permission prohibited.