How to Start A Small Business in Costa Rica: Legal Process and Taxes

With Costa Rica’s tourist economy booming, international expat communities expanding, and an educated, often bilingual population of locals, it’s an amazing time to be able to start a small business here as a foreigner. Working for yourself is a rewarding experience anywhere, but being an entrepreneur in one of the most gorgeous tropical destinations is many people’s definition of paradise. Plus you can feel good about contributing to the local economy in a place where large corporations haven’t completely taken over, and you’re creating jobs for locals. But we’re not going to lie; it takes hard work, dedication and patience to first get through the legal process, and then grow a thriving business. 

If you’re dreaming of opening a business in Costa Rica but the details seem daunting – take a deep breath, you’ve come to the right place. After legalizing our business here and helping countless other small businesses succeed with our branding and marketing services, we’ve decided to share our experience and break it all down into the basic steps to starting a small businesses in Costa Rica.

We’re going to discuss two things: first the boring but necessary legal process and taxes. Then in part two, the more fun and creative process of coming up with your business concept, and the branding and marketing process.

If you prefer to watch our video on the same topic, check it out below! Otherwise, keep reading…

THE LEGAL PROCESS FOR NON-RESIDENTS

It’s important to start by noting that you do not need to be a permanent resident to start a business in Costa Rica. With just your 90-day tourist vista, you can become a business owner. The catch is that you cannot work in that business doing things that a local employee could do. The idea behind letting foreigners start businesses here is to create jobs for locals, not take them away. So for example, if your business exists in a physical location and requires a cashier or waiter, you must hire someone who is legal to work in the country for that position. You are allowed to manage your business, so if you operate digitally or just have an office, and you ARE your business (as in, your skillset is what you are selling), you will be fine. Think designers, photographers, architects, real estate agents, property managers, etc. There are definitely some blurry lines here, so we recommend consulting your lawyer about your specific case to be sure you’re not breaking the rules.

Which brings us to the legal process.

STEP 1: HIRE A LAWYER

To start a business, you will have to hire a lawyer to form a corporation for you. There are two types of corporations, a Sociedad Anónima (S.A.), or more common for small businesses, a Sociedad de Responsibilidad Limitada (S.R.L.) , which is like an LLC. Your lawyer will recommend which is best for you. You will need to choose a unique name for your Sociedad de Responsibilidad Limitada, and your lawyer will begin the process by checking the country’s registry (registro) to see that it is available, and there is nothing already registered that is too similar. Once a name has been chosen, your lawyer will write up your paperwork, defining who is a shareholder in the company, and all the legal specifications around your business. Then it is presented and approved by the Public Registry, signed by you, and a notice will be sent to the official Costa Rican newspaper, La Gaceta for publication. When you’re in the registry, you will have a tax number, or “cédula de persona jurídica”, beginning with 3-102 for an S.R.L. This whole process with the lawyer will cost between $500 – $900.

STEP TWO: HIRE AN ACCOUNTANT:

This is required in Costa Rica, you can’t do your own official accounting. The accountant will first create a projection for your first year’s cash flow, or “flujo de efectivo” based on the estimates you provide. This can be a bit difficult to predict as a new business, but it is just used when you are opening a bank account to give them an idea of how your account will be used. So your accountant will create this and register your company as a taxpayer, then give you all the documents you need to open a bank account at one of the Costa Rican banks. The tax registration will be a document that says “Registro Único Tributario” with a header from the “Ministerio de Hacienda de Costa Rica“. The initial work done by your accountant for the cash flow and tax registration will cost around $250.

STEP THREE: OPEN A BANK ACCOUNT

Banco Nacional de Costa Rica is one of the most popular choices for business owners to bank with, and recommended by us. You bring all your paperwork from the lawyer and accountant to the bank, along with your passport of course, and they will create an account for you. You can have an account in Costa Rican Colones (CRC) or U.S. Dollars, or both. Surprisingly, A LOT of business is done in US dollars here, so it’s a good idea to have both. In a few days you should have your account’s debit card, and if you want to use online banking, ask the bank teller for the information you need to set up your account. It’s not quite like online banking in the U.S. yet, but it’s definitely useful to have. Making transfers and things like that are not as easy because of the site’s security, and you have to request a token in person to be able to add your “favorites” to your list of recipients. You can also pay bills online, which is a wonderful convenience if you have ever had to pay bills in person here, waiting in long lines each month at the bank and electric company. 

IMPORTANT NOTE: There are a lot of banking scams that happen in this country, so it is VERY IMPORTANT to remember to NEVER give out any bank info to anyone over the phone or email. A common scam is to get a call or email from someone pretending to be from the bank, and if they are able to obtain enough info from the unsuspecting account owner, often their accounts are drained in minutes. If you are aware of this, you will have nothing to worry about.

Now you have a bank account in your company name and are ready to start doing business!

STEP FOUR: LICENSES, HEALTH INSPECTIONS, INSURANCE and EMPLOYEES

Depending on the type of business you have, (if it operates in a physical location) you’ll also have to get some further permissions from the municipality that your business is located in, including a business license to operate there, a health certificate, insurance with INS (Instituto Nacional de Seguros) and if you plan on hiring employees you’ll need to register with the Caja, the social security system here.

So the entire legal process will cost you somewhere around $1,000, and take a month or two, depending on how quickly things are approved and how motivated you are to complete the steps. Getting things done quickly here is always a challenge and requires a lot of checking in and being proactive! The process can be confusing, especially if your Spanish is not great, so expect to pay a little more if you will be hiring lawyers and accountants who speak English and are helping you through the extra steps of the process like the health certificate and business license. It’s usually worth the convenience. 

TAXES AND INVOICING

Your accountant will take care of submitting your taxes for you, but make sure you document everything well throughout the year, and save all your expense receipts. The tax year is from October to September of the following year. So you will have October and November to submit everything to your accountant from the previous tax year, then in December they submit your taxes to the government and when it comes back they let you know how much you owe in taxes. That is due by the end of January. Your tax rate is between 10% and 30%, depending how much your company earns yearly.

Facturas Electronicas

It is now required that all businesses use electronic receipts, or “facturas electronicas”, instead of paper receipts. So you will be handling all your invoicing digitally. To do this you’ll have to register on the Ministerio de Hacienda’s online portal, the Administración Tributaria Virtual (ATV). Every invoice you create will be sent to the Hacienda at that time instead of all at once at the end of the year. There is a free “factura electronica” option in your portal, but it is a little clunky. Many private software developers have created paid options that are much more user friendly, ( just Google “factura electronica Costa Rica” to find one that works for you ) so which you decide to use depends on how many invoices you’ll be writing each year and how patient you are.

Getting all this set up will take time and patience, so block out a day to handle the set up and head straight to happy hour after! There are step by step guides (in Spanish) on the Ministerio site that are a huge help, and you will need to stay organized and save various passwords, pins, cryptographic keys, etc.

UPDATE: New VAT Taxes

As of July 2019 there are new “IVA” (Impuesto sobre el Valor Agregado) taxes in effect. It basically takes the place of the old 13% sales tax, but now applies to services as well. There are many nuances and you should do research or speak to an accountant to find out about your industry or specific business. IVA taxes are paid monthly thorough the Hacienda’s website.

Resources:

Details directly from the Ministerio de Hacienda (in Spanish)

Howler Magazine overview article (in English)

UPDATE: Declaration of Shareholders

Another new law in effect as of September 2019, is officially declaring that you are a shareholder of a corporation. You need to go through a process of obtaining a digital signature, and you are only able to do this if you are a resident. If you are not a Costa Rican resident but are a shareholder in a corporation, you will need to give Power of Attorney to your lawyer so they can handle this for you.

That covers the basics of the legal process and taxes for corporations in Costa Rica. We hope this helps as a general guide. To continue reading about starting a small business in Costa Rica, check out Part 2, Your Business Plan and Marketing Strategy to learn what works in Costa Rica and how to make your business succeed in this market.