Frequently Asked Questions about tax matters in Costa Rica

Transcription

1 . in Costa Rica

2 1. CINDE All rights reserved. The information presented herein is considered to be correct as of the time of publication. Please note that the contents of this report are based on information collected in good faith from public and proprietary sources. Therefore, the CINDE Research Department does not accept any responsibility for any losses or damage produced as a consequence of using this report, whether in electronic or printed format. Table of Contents 1. What is the fiscal period in Costa Rica for income tax purposes? Is it possible to request a special period? What requirements must be met to be able to use a special fiscal period? What does a company have to do to change its fiscal period? What books does a company have to authenticate? What books does an individual have to authenticate? What is the sanction that is applicable for filing a declaration after the due date? What sanction is applicable for filing an informational declaration after the due date? 6 8. Is applicable or paying a declaration late? How does the taxpayer pay the sanctions? May invoices be issued in dollars? What are the requirements for registering a foreign individual? What is the statute of limitations? What are the company's obligations with the Ministry of Finance when it is set up? What happens if the taxpayer does not report a change in the fiscal domicile and changes locations or houses? Are taxes deductible? If I do business outside Costa Rica, do I have to declare that income in Costa Rica? Made a taxpayer ask for an extension to the period for filing declarations? May a taxpayer consult the General Taxation Department on any matter and what are the requirements? Who signs the tax declaration? May I use the credit card vouchers as valid vouchers for a deduction? How may I find out if I have any outstanding balances with the tax authorities? May losses be carried forward? What fiscal obligations do I have if I am a member of the free trade zone regimen? 13 2

3 24. Either standards or rules that regulate transfer pricing in Costa Rica? With which countries are there agreements about double taxation and information exchange? May a deadline extension be requested if I did not file the declaration on time? Are there any fiscal or monetary limits for taking money out of Costa Rica? What is the tax on paying dividends to the parent company? Are there any rules on undercapitalization in Costa Rica? Are expenses abroad deductible in Costa Rica? May declarations be filed and paid digitally? When sending executives to Costa Rica and paying them for their work done there. Do they have any obligation to declare taxes?"

4 1. What is the fiscal period in Costa Rica for income tax purposes? Is it possible to request a special period? The fiscal period for income tax is one year beginning on October 1 each year and ending on September 30 of the following year. The Income Tax Law states that special periods of a general nature may be requested when justified with different beginning and ending dates based on the branch of the business and without prejudice to any fiscal interests. Legal Basis: Article 4 of the Income Tax Law and Ruling DGT-R dated August 12 th, What requirements must be met to be able to use a special fiscal period? Being one of the following is necessary to be able to use a special fiscal period: Institutions or enterprises in the Public Sector (which must mandatorily set the budget period to run from January 1 to December 31). National air company or related company. Political parties and religious institutions. Union organizations, foundations, associations declared to be in the public interest and cooperatives with calendar-year closes. Mutual associations authorized by the Housing Mortgage Bank to operate within the National Housing Financial System. Entities dedicated to the financial and stock markets, savings and loan cooperatives (regulated by SUGEF). Companies dedicated to growing bananas. 4

5 Companies dedicated to planting and industrializing rice in the husk. Subsidiary companies. The fiscal period for rice planting and industrialization activities will be July 1 of one year to June 30 of the following year; for subsidiaries according to the parent company and for the remaining activities it will be a calendar year, i.e., from January 1 to December 31. Insurance companies use a calendar year period. The change in fiscal period must occur prior to beginning the fiscal period by using form D 140, which is supplied free of charge by the Tax Administration offices. Legal Basis: Article 4 of the Income Tax Law, Law 7092 dated April 21 st, 1988, and reforms thereto, Ruling Number dated August 12 th, 1997, published in La Gaceta Number 171 dated August 12 th, What does a company have to do to change its fiscal period? To change the fiscal period, if the company is engaged in any of the activities that are authorized to opt for a different fiscal period, the company may request that the period be changed by means of form D-140 prior to the beginning of the fiscal period. Legal Basis Ruling dated August 12, What books does a company have to authenticate? Companies may authenticate their company books in the Public Registry. Legal Basis Articles 252 and 263 of the Code of Commerce. 5

6 5. What books does an individual have to authenticate? An individual must keep accounting records but is not required to authenticate books. Legal Basis: Article 251, of the Code of Commerce. 6. What is the sanction that is applicable for filing a declaration after the due date? The sanction for filing a tax declaration after the due date is one-half of a base salary. Legal Basis: Article 79, Tax Standards and Procedures Code. 7. What sanction is applicable for filing an informational declaration after the due date? The sanction for filing an informational declaration late is 2 base. Legal Basis: Article 83, Tax Standards and Procedures Code. 6

7 8. What sanction is applicable for paying the taxes due in a declaration late? For late payment of taxes, a sanction is applied of 1% per month or fraction of a month. Legal Basis: Article 89, Tax Code. 9. How does the taxpayer pay the sanctions? Sanctions are paid using form D-116, "Sanction Payment for Administrative Infractions," which is available in the EDDI-7 help program. 10. May invoices be issued in dollars? Invoices should be issued in colones and may indicate the equivalent amount in foreign currency on the side. Legal Basis Official Document Number DGT-1106 dated May 31, What are the requirements for registering a foreign individual? The requirements for registering a foreign individual are the following: 7

8 Fill out form D-140, "Application for Registration, Data Modification and Unregistering Taxpayers" at your local Tax Administration office. This form is available at webpage and three copies should be printed. Present the original of your current identification document (DIMEX or passport). If you use a passport as an identification document, the Tax Administration will assign a special identification number (NITE), which must be used for identification at all times with tax documents until you have a DIMEX. Note: If the process is being done by a third party, he or she must provide identification and present a power of attorney that authorizes him or her to carry out the process. Likewise the third-party must provide an original current identification document (DIMEX or passport) or authenticated photocopy and the person that you authorize must provide identification. 12. What is the statute of limitations? The statute of limitations for determining tax obligations is four years. This period may be extended to ten years for taxpayers or people in charge of paying taxes who have not been registered with the Tax Administration or for those who may be registered but who have filed declarations that are considered to be fraudulent or have not filed their sworn statements. Legal Basis Article 59 of the Tax Standards and Procedures Code and any reforms thereto. 13. What are a company's obligations with the Ministry of Finance when it is set up? 8

9 When a company begins for-profit activities, it must fulfill formal, material duties, including: Register as a taxpayer, file declarations for those taxes, and pay them by the deadline. Issue authorized invoices. Book and special record keeping. File the pertinent informational declarations. Keep its records with the Tax Administration up to date. Legal Basis: Article 8 of the General Sales Tax Law, Article 11 of the Bylaws to the Income Tax Law, and Article 128 of the Tax Standards and Procedures Code. 14. What happens if the taxpayer does not report a change in the fiscal domicile and changes locations or houses? The taxpayer must report any change in domicile; otherwise, he or she would be committing an administrative infraction, which is sanctioned by 50% of one base salary for each month or fraction of a month up to a maximum of three base salaries. Legal Basis: Articles 78 and 128 of the Tax Standards and Procedures Code. 15. Are taxes deductible? To determine the income tax, taxes and fees that affect goods, services, and negotiations in the company's usual line of business, or activities carried out by individuals are deductible, with the exception of income tax and sales tax, the selected consumption tax, and specific consumption 9

10 taxes and special fees that are applicable to them, when the individuals or companies are taxpayers. Legal Basis: Articles 8 and 9 of the Income Tax Law. 16. If I do business outside Costa Rica, do I have to declare that income in Costa Rica? The event that creates income tax is the receipt of income coming from any Costa Rican source. Income is understood to be revenue or benefits from a Costa Rican source, revenue coming from services provided or goods situated or used in the National Territory. As a consequence, if the revenue is generated by activities carried out outside the country, but it is not revenue from a Costa Rican source, there is no obligation to declare it. Moreover, if indicating "activities outside Costa Rica" refers to sales from exports, this income is actually taxable. Legal Basis: Article 1 of the Income Tax Law, number 7092, dated April 21, 1988, and any reforms thereto. 17. May a taxpayer ask for an extension to the period for filing declarations? The deadline for filing declarations is defined by law and only the law may modify them so it is not possible to grant an extension to the deadline for filing tax declarations. 18. May a taxpayer consult the General Taxation Department on any matter and what are the requirements? The Tax Administration offices have Taxpayer Service areas where taxpayers and citizens in general may ask questions about information on tax matters. For confidential information, the question must be asked in person and identification must be provided by the individual; information for a company may be requested by the company's legal representative. 10

11 Likewise, Article 119 of the Tax Standards and Procedures Code states that it is possible for taxpayers to consult the Tax Administration about applying the standards to a concrete, current situation. The requirements for processing the consultation are: a) Provide an example of the concrete, current situation using exact data. b) Explain clearly and precisely all of the elements that make up the situation that is the reason for consultation. c) Indicate the name of the interested party or parties. d) Indicate the affected tax (es) including the pertinent fiscal periods. e) Express the consulting party's well-founded opinion. f) The document where the consultation is set forth must be a true copy of the original; the Tax administration employee who receives the document must provide a receipt by stamping the seal of the office and indicating the date of receipt with the employee's full name, both on the copy that must be returned to the interested party and on the original. These questions may also be asked via at consultaart119@hacienda.go.cr. This address is provided exclusively for accepting questions, so they must fulfill the following requirements: a) Both the document containing the question and the used to submit it must be digitally signed by the party asking the question. b) For questions asked on behalf of companies, the document containing the consultation must be signed digitally by the consulting party's legal representative or proxy. c) For the consultation to be processed, a current legal incumbency document must be provided, which must be signed digitally by the notary that bears witness to its validity. Certifications of legal incumbency issued by the National Registry must be scanned and sent as attachment documents. 11

12 d) Since 119 consultations that may be filed by are to be expedited, consultations submitted by electronic media must indicate that it is an electronic medium that is safe and feasible for receiving notifications. Legal Basis: Article 119 of the Tax Standards and Procedures Code and Ruling DGT , dated August 16, Who signs the tax declaration? The tax declaration must be signed by the taxpayer or the legal representative of companies, or in their absence, a proxy with a legitimate power of attorney to sign. 20. May I use credit card vouchers as valid vouchers for a deduction? Vouchers are not accepted by the Tax Administration as vouchers that backup purchases, therefore, vouchers that are properly authorized by the Tax Administration must be issued. Legal Basis: Article 8 of the Income Law, and Rulings DGT-13-97, DGT 22-97, and DGT How may I find out if I have any outstanding balances with the tax authorities? You must go to any Tax Administration office with your identification and ask about the status of your account or you may authorize another person to request the status of your account on your behalf. This authorization must be authenticated by an attorney. Taxpayers who file their declarations via Digital Taxation as large taxpayers and large territorial companies may look up their status directly in the system. 12

13 22. May losses be carried forward? If industrial and agricultural companies have losses, the losses are accepted as a deduction in the following three periods for industrial companies and the following five periods for agricultural companies. Legal Basis: Section g) of Article 8 of the Income Tax Law. 23. What fiscal obligations do I have if I am a member of the Free Trade Zone Regimen? In conformity with the Free Trade Zone Law, number 7210, dated November 23, 1990, Article 19 establishes the following obligations: a. Keep track of and annotate, in books and specific records authorized by the Corporation, the company's transactions related to the goods that are tax exempt as authorized by the Ministry of Finance. They will be subject to inspection by the Corporation and the fiscal authorities. b. Provide any reports that are requested to the competent authorities about how the items that are imported under the auspices of the Free Trade Zone Law are used and provide any pertinent vouchers to the authorities when the authorities request them. c. Provide or lend to the official organization, free of charge, samples of the items that are produced to be displayed in international expositions in which the country participates. 13

14 d. Execute an Operations Contract with the Corporation. e. Provide reports related to the levels of employment, investment, national value added, or other items that are indicated in the Executive Decree admitting the company to the Regimen. Compliance with this obligation is mandatory to be able to enjoy the incentives included in this law. f. Use the customs declarations, security tapes, and other instruments that are required by law or due to regulations to document or track your operations. g. Park management companies, companies that are members of the Free Trade Zone Regimen outside an industrial park and satellite plants must establish the necessary controls related to merchandise entering and exiting the premises, procurement and other standards that are set forth in the applicable laws and bylaws. h. Comply with the other obligations and conditions that are imposed on the members in the Executive Decree admitting the company to the Free Trade Regimen, the Bylaws to the Free Trade Zone Law, and the operating contracts that are signed with the Corporation. i. When a company is admitted to the Free Trade Regimen under various classifications included in Article 17 of the Free Trade Law, the company must keep separate books for each activity. Legal Basis: Article 19 of the Free Trade Law. 24. Are there standards or rules that regulate transfer pricing in Costa Rica? In Costa Rica, there is no law that establishes specific rules on income taxes that regulate transfer pricing. However, the law does have a principal that is established in the Tax Standards and Procedures Code, Article 8 that empowers the Tax Administration to 14

15 interpret the standard that regulates the event that generates tax obligations in these cases. Likewise, the law contains Interpretative Guideline number 20-03, and Decree Number H, published in La Gaceta Number 176 on September 13, With which countries are there agreements about double taxation and information exchange? Costa Rica has already signed and approved agreements with the following countries: Tax Information Exchange Agreements (TIEAs) Country Status Argentina Approved by LA (9,007 Law) Australia Approved by LA (9075) Law Canada Approved by LA (9,045 Law) Denmark Approved by LA (9,202 Law) Ecuador Start legislative process (Exp. 19,122) Faroe Islands Approved by LA (9,198 Law) Finland Approved by LA (9,197 Law) France Approved by LA (9,012 Law) Greenland Approved by LA (9,200 Law) Guernsey Start legislative process (Exp. 19,510) Netherlands Approved by LA (9,040 Law) Iceland Approved by AL (9,196 Law) Mexico Approved by LA (9,033 Law) Norway Approved by LA (9,201 Law) South Africa Start legislative process (Exp. 18,673) Sweden Approved by LA (9,203 Law) USA Approved by LA (7,194 Law) CAAM Approved by LA (9,118 Law) Source: Ministry of Treasury. March, Note: LA = Legislative Assembly. Central American Convention on Cooperation and Customs Tax 15

16 El Salvador Guatemala Honduras Country Nicaragua Source: Ministry of Treasury. March, Note: LA = Legislative Assembly. Status Approved by LA (8,880 Law) Approved by LA (8,880 Law) Approved by LA (8,880 Law) Approved by LA (8,880 Law) Agreement for the Avoidance of Double Taxation (DTA) Country Status Germany Start legislative process (Exp. 19,122) Mexico Start legislative process (Exp. 19,449) Spain Source: Ministry of Treasury. March, Note: LA = Legislative Assembly. Approved by LA (8,888 Law) In addition, Costa Rica is a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes. In this sense, the Government has approved a Fiscal Transparency Law. 26. May a deadline extension be requested if I did not file the declaration on time? No extension to the deadline for filing the text declaration may be requested. Take into account that the deadline for filing declarations is provided for in the law and the Administration may not extend the deadline. 27. Are there any fiscal or monetary limits on taking money out of Costa Rica? 16

17 For fiscal purposes, there are no limits on taking money out of Costa Rica. However, take into account that Law 8204 exists in Costa Rica, which is called the "Law on Narcotics, Psychotropical Substances, Unauthorized Drugs, Associated Activities, Money Laundering, and Financing Terrorism." 28. What is the tax on paying dividends to the parent company? When they are regional offices, branches, and other permanent establishments belonging to entities that are not domiciled in the country but that do business in the country, one hundred percent (100%) of the available income that is credited or remitted to the parent company is subject to paying a fifteen percent (15%) tax on the indicated credit or remittance, as pertinent. In these cases, the representatives of regional offices, branches, or permanent establishments must withhold and pay to the Tax Authorities, on behalf of the parent company, the previously indicated tax. Legal Basis: Article 19 of the Income Tax Law. 29. Are there any rules on undercapitalization in Costa Rica? There are no rules on undercapitalization in Costa Rica. 30. Are expenses abroad deductible in Costa Rica? 17

18 In conformity with the Income Tax Law, number 7092 dated April 21, 1988, and any reforms thereto, specifically Article 9, section d), expenses caused abroad are not deductible, except in those cases that are expressly authorized by the Income Tax Law. 31. May declarations be filed and paid digitally? Starting October 4th 2015, the tax declarations that were presented through Tributacion Directa (Direct Taxation), must be done through the online system ATV ( Virtual Tax Administration). In this first stage, the tax returns presented through Tributacion Digtal are not included. This evolution from the site Tributacion Direct@ simplify the presentation of online declarations, with a 24/7 service (all year round), and incorporates a validation system, control and easy access. ATV continues with the banking connectivity system, so that this first stage doesn t require current account debit. Since it is an online system, you can log in from any device with internet, inside or outside the country, it does not require any program or software installation, nor any version update. Also, it works in the following internet browsers: Internet Explorer, Mozilla Firefox, Safari y Google Chrome. The new system also reduces the process of preparation and presentation of returns, and incorporates a random password called Virtual Smart Card (Tarjeta Inteligente Virtual -TIV), which allows to authorize another person to present tax declarations on behalf of the taxpayer. In this way, the responsible before the tax authorities, has absolute control over who is presentig the declarations on his/her behalf. Also, it has an electronic mailbox where the taxpayer will be able to monitor the people he/she authorizes, acknowledgement of receipt and any other arrangements done. Through ATV you will be able to present declarations of the traditional and simplified tax regime, for the income tax, sales, retenciones en la fuente and solidarity tax. The EDDI-7 system will remain in force for the preparation of the forms: oficial payment receipt (D.110), autoliquidación of penalties for administrative infringement (D.116), settlements and payment of the immovable property direct transfer (D.120) and the declaration of the tax for the motor vehicle, aircrafts and ships transfer (D.121) If a taxpayer does not posses computer equipment or internet access, The Tax Administration has Tax Booths where the taxpayer may use this resource and have the support of qualified officials, they are also available in the Community Smart Centers (CECI) located in public libraries, city halls and Tax Assistance Centers (NAF), installed in public universities. 18

19 32. When sending executives to Costa Rica and paying them for their work done there, do they have any obligation to declare taxes?" A foreign person that develops activities in the national territory, receives earnings with Costa Rican source. If they have to declare or not depends on the time they have been in the country. If the person is in Costa Rica involved in for-profit activities but is not an employee for a period of more than six months, he or she must file declarations as an individual with for-profit activities because he or she is considered to have established a domicile in accordance with Article 5 of the bylaws to the Income Tax Law. If that person has remained in the country for a shorter period, the party making payment must withhold 15% of the payments made as tax on remittances abroad, in conformity with Article 26 of the aforementioned law. Moreover, if the person works as an employee, he or she must be subject to the labor laws. Consequently the tax treatment is as an employee so the employer must withhold the pertinent percentage tax based on the amount of the person's income. It is important to remember that, regardless of the place where the payment is coming from, what causes taxes is that income is generated from a Costa Rican source. Legal Basis: Articles 25 and 56 of the Income Tax Law, and Articles 5 and 26 of its bylaws. 19