A lot is happening on the tax front in Costa Rica. The news is not so good for locals and expats alike. All is not lost. There are a couple of facts related to taxes that are actually good news.
Most have already read about the proposed doubling of the tax on transferring real estate and the creation of a capital gains tax. One item that is particularly frightening for expats is the proposed 15 percent levy on money entering the country.
If the government does not want retired people to come here, they should place signs at the airports that state, ìWe welcome tourists. Please spend a lot of money in Costa Rica. People considering retirement, be forewarned you will be taxed to death.î
Scarier, the tax police desire even more power to catch tax dodgers. One of many things they want is the ability to ask doctors, dentists, lawyers and any other professionals about private client data.
Is it not true that client-professional information is confidential? In fact, not all of it is so. For example, if a person goes to see a lawyer about a divorce the professional might have to study property transactions that occurred during the marriage by doing studies at the Registro Nacional. Any information regarding the breakup would be considered privileged but not necessarily what assets are owned by the client. If the tax police show up requesting more details about the real estate, the lawyer could be forced to give it to them.
There have already been actual cases in tax court enforcing this scenario and professionals have lost. Of course, it was tax court. It will be interesting to see what the Sala IV will decide in the future about this privacy issue.
Enough with the bad news. Here are two items that are good. At least for now.
The Registro Nacional is trying to get out of collecting Law 9024 taxes on the companies three years past due as required by the original law. Better known to most as the impuesto a las personas jurÌdicas or the company assessment tax. They do not want to go to the major legal expense it would take to collect them.
Many expats believe the country would just take over the assets in the delinquent entities. That was never true. Costa Rica is a social democracy, and according to the law, a judicial collection process must take place. This would entail publishing edicts in the newspaper, serving legal representatives of a court collection, and going to court. Besides being expensive, it would take years.
What the Registro really wants is the tax back in place. The Sala IVís ruling of Jan. 28 found articles 1, 3 and 5 of Law 9024 unconstitutional. This sent a serious shock to the officials in charge of the governmentís coffers.
Many company operators just stopped paying the tax after the decision. These articles were the heart of the legislation.
The good news for now is the tax is not back in place. The legislature is dragging its feet to reinstate it and the Registro does not want to spend the money to go after what it is required to collect. This said, it is important to note that any company owing Law 9024 taxes cannot transact paperwork at the Registro like a property transfer.
In the past, it was almost everyoneís practice to pay education and culture taxes every year on any type of legal company structure in Costa Rica whether it be active or inactive. This is done on form D-110 in the month of March.
A retired expatís recent visit to TributaciÛn Directa found his company free of these taxes. He was perplexed as to why because he had never paid them and his company was five years old.
He asked the person assisting him, ìwhy is my company free of having to pay education and culture taxes?î The young man on the other side of the counter said, if a company was never registered with the tax agency on a D-140 form and it is inactive, it is not required to pay the tax.î
The expat could not believe his ears, looked up the law, and found to his amazement: Articulo 2 of Ley 5923 ñ the law that created the tax ñ states that all mercantile companies registered must pay the tax. But, Articulo 7 of the same law says it is based on tax returns filed on form D-101 at the end of each year. In other words, no tax return no tax.
Still confounded, the expat asked three attorneys. They all said they pay the tax for their clients on both inactive and active companies. The retiree went back to Tributacion Directa and asked for further clarification. A supervisor there admitted the law is confusing but explained that Articulo 2 creates the tax on all companies based on the table in Articulo 8. However, Articulo 7 states the calculation is based on income tax returns. Inactive companies are not required to file those documents, so they pay no education and culture taxes.
Those with inactive corporations can take heart they will save anywhere between 750 and 9,000 colons on their education taxes in the future by not having to pay them each year. Good news considering they will need every cent they have to pay tax levies on everything else they have.
Those who are not sleeping at night worried they will be carted away for not paying Law 9024 taxes on some old company need not worry for the near future. No one seems to know what is going on with them.
Garland M. Baker, a certified international property specialist, is a 45-year resident and naturalized citizen of Costa Rica. His firmís team provides multidisciplinary professional services to the countryís 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.