The Costa Rican Tax Law was modified in 2019 by way of Law number 9035 called “The Law to Strengthen Public Finances”. This law imposes new rules and reporting obligations on Costa Rican corporate entities beginning in 2021 that have been deemed “INACTIVE” by the tax authorities. This in turn creates new compliance obligations for all companies that currently operate as holding companies with no economic activity.
The reason this becomes so relevant now is that this same law allows the tax department to apply a presumption of taxable income to establish the tax basis of the taxpayer. It has been common in the past to have a holding company that simply holds assets such as a home or a car for example without the company actually having any economic activity or having to justify where the money came from to purchase those assets. Since that asset does have a valuation then the rationale is that the company has to justify how it acquired that asset.
Any unjustified increase in the equity of the company could authorize the Tax Department to consider that increase in equity as an increase in the income of the taxpayer. This concept in Costa Rica is known as presumptive income and it is taxed at that rate of 30% of the amount of income attributed to the tax payer without considering the possibility of any deductions.
As such, Inactive companies will have to file a Sworn Declaration of Assets of Inactive Companies” known as form D-135 (Declaración Patrimonial para Personas Jurídicas Inactivas) This filing must include any variations in the value of the corporation’s assets and any corresponding liabilities and capital on a yearly basis. This law is applied in conjunction with the new Capital Gains tax passed into in 2020.
What does this all mean to you as an owner of a Costa Rican entity that is simply an inactive holding company?
It certainly will require you to engage an accountant to ensure compliance.
It imposes the following three obligations.
1) The company must file a shareholder disclosure and beneficial owner form with the Central Bank of Costa Rica. The purpose of this is for the tax department to have a registry of all the current shareholders of Costa Rican entities or foreign entities registered in Costa Rica.
2) Register the company with the Tax Department. If the company has not been automatically or voluntarily registered with the tax department or if there are changes in information to the corporation, then the taxpayer must file a Form D-140 with the tax department to register or update the company information with the tax department.
This includes the obligation to provide the tax department with the basic information of the company, including address, activity, responsible etc. The plan is to consolidate taxpayer information in one database.
The Tax Department automatically uploaded to the database from the National Registry companies’ registration all companies on that database. All companies deemed inactive were assigned a tax code number 960113, which means that it is a “National corporation registered in the country that does not develop commercial activities from a Costa Rican source”.
3) Annual report of Changes in the value of Assets, Liabilities, and Capital. To control unreported commercial activity and/or Capital Gains. The tax department has developed form D-135, which must be filed by all corporations by March 30, 2021.
So how do you comply ?
The Tax Department online portal is called ATV. The only way to have an account with ATV is if the taxpayer has (1) local identification card or residency card (2) applies for a taxpayer identification number (NITE) and you have a digital signature card. If for any reason you cannot get access to ATV then you must have an authorized person or accountant to access the account to do your filings.
As such, if you are the owner of a Costa Rican corporation and that company has any assets titled to its name you will need to ensure that you are compliant with the new laws to avoid any tax pitfalls in the future.
