Legal entities registered in the Mercantile Registry of Costa Rica might once again be subject to the annual tax that was previously ruled unconstitutional by the Constitutional Chamber of the Supreme Court of Justice of Costa Rica. Entities that might be affected by the annual tax should continue to monitor the progress of the bill.

On May 16, 2016, the Committee on Financial Affairs of the Costa Rican Congress published in the Official Gazette the endorsement of a bill that would reinstate, with some modifications, the annual tax on legal entities.¹ It is an important step in the legislative process, allowing the bill to now be formally discussed in Congress in order to become a law.

Background

The annual tax on legal entities originally entered into force in April 2012. The Constitutional Chamber of the Supreme Court of Justice of Costa Rica later ruled that the tax was unconstitutional in January 2015. As a result, the tax was no longer effective beginning January 1, 2016. (For more information, see Tax Alert 2015-213 {}.)

Proposed annual tax

If enacted, the bill would reinstate the annual tax, with some changes, requiring all business entities and branches registered in the Mercantile Registry of Costa Rica to pay an annual tax by January 31 of each year.

Under the bill, the tax rates would be as follows:

1. Legal entities registered in the Mercantile Registry but not registered as income taxpayers (i.e., do not have an active trade or business) would be subject to a tax equal to 15% of a base salary (e.g., Costa Rican colon ¢63,600 for 2016).²

2. Legal entities registered as income taxpayers whose gross income reported in the prior fiscal year is less than 120 times a base salary would be subject to a tax of 25% of a base salary (e.g., Costa Rican colon ¢106,00 for 2016).

3. Legal entities registered as income taxpayers whose gross income reported in the prior fiscal year is between 120 and 279 times a base salary would be subject to a tax of 30% of a base salary (e.g., Costa Rican colon ¢127,200 for 2016).

4. Legal entities registered as income taxpayers whose gross income reported in the preceding fiscal year is equal or higher than 280 times a base salary would be subject to a tax of 50% of a base salary (e.g., Costa Rican colon ¢212,000 for 2016).

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ENDNOTES

¹ In Spanish: Impuesto a las Personas Jurídicas

² For year 2016, the base salary is Costa Rican colon ¢424,200.