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What to know about the new tax on companies

February 29, 2012

As many of you may already know, on Dec. 22 the Legislative Assembly approved Law 9024, which establishes new taxes on all Costa Rican companies. What not everyone seems to understand is that this tax is in addition to all previously existing taxes – for example, it is not associated with land tax, income tax or the tax on luxury houses, and it does not replace them – and that if you own a Costa Rican company, whether currently active or not, your company is liable for payment of the new tax, and you personally may be responsible for it too.

Henry Lang

Henry Lang

Why? Basically because all companies registered with the Commercial Registry that have not been officially dissolved are covered by this tax, and because their legal representatives – those with powers of attorney to act on their behalf – are jointly liable for payment of the tax.

Although one might think there is no risk in not paying the tax and just letting go of a company that is not being used and never will be, this assumption is not correct. In fact, tax authorities have the legal right to collect the tax, and any penalties for nonpayment, from the company’s legal representatives.

So, payment of this tax in due course should be of imminent concern, not only in the case of companies owning assets – as such assets can be affected if the government initiates collection procedures for the tax – but also for those who appear as their representatives and have their own personal assets to worry about.

Furthermore, even for companies whose plazo social, or duration, has expired – although it is our opinion that this should be considered valid proof of dissolution and therefore the tax should not apply to these companies – preliminary opinions from the authorities indicate that companies in this condition will still be within the scope of the new corporate tax, and the only way for them to be considered not liable would be to formally dissolve them.

Regarding dissolution – which requires a shareholders meeting, registration and several formal requirements – it is important to bear in mind that this course of action is advisable only in the case of companies that hold no assets and have no activity and that the owners do not wish to ever use again. In the case of companies holding assets, unless such assets are transferred prior to the dissolution – and the law has provided a transfer tax break to do that – the only safe alternative is to pay the tax.

That’s not all there is to consider. The law differentiates between companies that are inactive and those that are active with the Tax Administration; the yearly tax payment is about $300 for active companies and $150 for inactive ones. (This first year, companies pay a prorated amount for April to December only, due April 30; thereafter, the full amount will be due every January.) Although these amounts may not seem significant to some, the consequences of not paying – interest, penalties and other punitive measures imposed by the government – are serious enough to affect the company’s assets and its legal representatives.

Furthermore, the Tax Administration seems to be considering as active even companies that at some point in the past either filed tax statements showing zero income or made any type of tax statements or filings, even though they never formally registered as generators of income or taxpayers (normally, filing form D140). In these cases, it is very important to consult the Tax Administration databases; if the company is active in these databases, a tax unregistration process, which is different from dissolution and must precede it, must be actively pursued.

More specific rules for payment of the new tax will be covered in the regulations for the new law, which are expected to be issued in the coming weeks. In the meantime, it is strongly advisable that all company owners determine the status of each of their companies and take any remedial actions – dissolution, transfer of assets and unregistration with the Tax Administration, among others – that may be suitable for their specific situations.

For more legal advice, contact Lang & Asociados at 2204-7871 or visit www.langcr.com.

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