Costa Rica

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Key Corporate Features

General Information

Although explored by the Spanish early in the 16th century, initial attempts at colonizing Costa Rica proved unsuccessful due to a combination of factors. It was not until 1563 that a permanent settlement of Cartago was established in the cooler, fertile central highlands. The area remained a colony for some two and a half centuries. In 1821, Costa Rica became one of several Central American provinces that jointly declared their independence from Spain. In 1838, Costa Rica proclaimed its sovereignty and independence.

Costa Rica is between Panama and Nicaragua. With 51,000 sq km, 4 million people, no army, volcanic mountain ranges and a sub-tropical climate, the country's beaches and beautiful scenery spell tourism. The ex-Spanish colony has been peaceful and stable since 1948. The culture and language are Spanish, but English is widely spoken in business. The local currency is the Costa Rican Colon (CRø ).

TThe country's liberal constitution has a separation of powers between executive, legislative and judiciary. The legal system is based on a Civil Code and a Commercial Code. There is high literacy, a well-educated, skilled work-force, and reasonably business-friendly legislation which is less bureaucratic than in some Civil Code countries. GDP per head is $8,000 at purchasing power parity; inflation is 10%, unemployment 6,4% and growth in 2002 was 2,5%.

The economy was traditionally based on agricultural exports and tourism. In the last 20 years the Government has introduced a host of export incentives including Free Zones; as a result manufactured exports have shot up. The most famous investor is Intel which generated $2 billion of exports from its chip plant last year. In 2002 the country had a trade deficit of $1,7 billion.

Costa Rica has territorial taxation (i.e. it taxes only local income ) and no offshore regimes as such except for the Free Zones. For domestic companies taxation is significant, and high social insurance charges make employees increasingly expensive. For incoming investors the tax bill is very low indeed, and the sophisticated business environment is attractive. The country has no international tax treaties but does have an exchange of information treaty with the US, its main trading partner and the source of most of its incoming investment. Banking secrecy is relatively good.

San José, the capital of Costa Rica, with 1 million inhabitants, has its own silicon valley to rival the more famous one in California. According to the Economist Intelligence Unit, San José is the city with the best quality of life in Latin America, The study also highlights Costa Rica as the country with the longest uninterrupted democracy government.

In a context of sustainable development Costa Rica is ranked 9th out of 142 countries in the Environmental Sustainability Index (World Economic Forum, 2002 ).

Company Information

The mostly used types of company for international holding, trade and investment are the "Sociedad Anónima" (SA), in which shareholders are not liable for the actions of the company and the "Sociedad de Responsabilidad Limitada" (SL or LLC), which is also recommended.

The procedure to incorporate is not complicated: by presenting to the Commercial Registry the articles of incorporation duly notarized by a Costa Rican Notary Public who creates a Public Deed for registration. The language of legislations and corporate funds is Spanish.

There are a few restrictions on trading: certain minimum capital and other regulations for banking, financing, investment funds, fund management, and pension funds. There are certain monopolies controlled by the state, i.e. insurance, telecommunications and electricity.

A registered office is not required, but the company should have a registered street address in Costa Rica or abroad. A name approval is required. It should be done at incorporation. Previous searches of names are recommended. There are certain name restrictions: a name that is similar to or identical to that of an existing company.

NEW: The language of the name is not limited, company names and trademarks may now be recorded in any language. Certain clauses in contracts of adhesion must be written in Spanish. All documents written in any other language must be translated for purposes of judicial claims.

The following suffixes denote limited liability: all Costa Rican corporations must end with the suffix S.A., Sociedad Anónima, Ltda, Limitada, SRL, or Sociedad de Responsabilidad Limitada. Disclosure of beneficial ownership to authorities is required for certain government procurement activities and for certain businesses in which a minimum of Costa Rican ownership share capital is required.

The time to incorporate ia about 4 weeks. Shelf companies are available. The companies are "clean", that is to say, they have never traded nor engaged in any transaction whatsoever. The local currency is the Costa Rican Colon (CRø), the actual value: 1$ is ab. 460 CRø. There are no exchange controls. The type of law is civil law based on Roman law. The principal corporate legislation is the Commerce Code, Law 3284 of April 30, 1964.

Compliance

The normal authorized share capital is CRø10,000.00 divided into 10 shares of CRø1,000.00 each. The share capital may be expressed in any currency. All share capital must be suscribed by the shareholders, minimum 25% of the issued capital must be paid up. The share capital may be paid for with cash, securities, moveable, real estate and services.

The following classes of shares are permitted: common shares and preferred or special shares. All shares must be nominative; bearer shares are not allowed. Preferred or special shares may have limitations or restrictions on voting, but voting cannot be limited for issues decided upon by extraordinary shareholders meetings (i.e. amendment of articles of incorporation, mergers, acquisitions, share capital increase, change of address to a foreign country).

A Costa Rican corporation does not pay any income tax on profits earned abroad and without any link to Costa Rica. An Education and Culture tax in the amount of US$ 30,00 has to be paid in March of every year by every corporation. There are no annual license fees payable.

There is no requirement to file financial statements, unless local income is generated. Only natural persons may act as directors and the minimum number of directors is three. They may be of any nationality and need not be residents of Costa Rica. The directors must be at least a President, Secretary and Treasurer.

The shareholders must appoint a Controller-Internal Auditor, who will control and audit the actions of the directors; the Controller protects the interests of the shareholders. If the directors of the company do not have their domicile in Costa Rica, a resident agent must be appointed. The resident agent must be an attorney with an office in Costa Rica.

To incorporate the company, the minimum number of shareholders is 2. After the company is recorded, the shareholders required may transfer their shares to only one shareholder. Natural persons or companies may be shareholders.

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