Good news and bad news in corporate tax proposal

A proposed new draft of a tax on corporations does not contain an exemption for registered small and medium enterprises.

The draft, which was introduced Dec. 2 by the Solís administration, instead sets up a sliding scale in which firms with higher incomes pay 60 percent and smaller companies pay just 30 percent of a judicial base salary. Inactive corporations pay 15 percent.

The base salary of a judicial office worker in 2016 will be 424,200 colons, according to the Poder Judicial. That’s about $798. This is an amount that frequently is cited in laws in Costa Rica for taxes and fines. That roughly adjusts the amount based on inflation.

Based on this amount, firms that have gross incomes of 106 million colons, 250 times the base salary and about $200,000, or more will pay 60 percent, which is  254,520 colons or around $479. Smaller companies that are doing business and are listed as taxpayers would be assessed half that.

Inactive companies that are not listed as taxpayers would pay 63,630 colons or about $120.

The previous law, passed Dec. 23, 2011, exempted companies registered with the Ministerio de Economia, Industria y Comercio as Pymes, the Spanish acronym for pequeña y mediana empresas,

Expats who hold assets in inactive corporations would be winners if this version of the bill is passed. The previous law said inactive corporations would pay just half the tax, which then was about $300.

The earlier law suffered criticism from those who said a small company was being taxed the same as an industrial giant like Intel Corp.

The preface of the bill, signed by President Luis Guillermo Solís, said that after eight years since the original bill was presented to lawmakers the financial crisis confronting the country has sharpened and the financial deficit has reached levels that require drastic and urgent measures.

However, the proceeds of the bill do nothing to reduce the financial crisis. Just 5 percent of the money collected goes to the Ministerio de Justica y Paz to pay for its agency that runs the prisons. The rest goes to the Ministerio de Seguridad Pública to pay for its security programs, according to the bill.

The draft of the bill, No. 19.818, voids the previous law, No.  9024, but then it says money owed by corporations under that law still must be paid. However, no interest or fines will be charged.

The new draft does not contain a provision that allows company owners to walk away from a firm without responsibility for paying the tax. The previous law allowed this for a time.

The draft also repeats the threat that the Registro Nacional will dissolve a company if it fails to pay the tax for three years in a row.

This draft is at least the third that has been presented to lawmakers after the courts voided critical parts of the previous law. That took place because the legislative staff did not advertise major changes in the drafts being considered in 2011.

This entry was posted in Costa Rica News. Bookmark the permalink.