Who has to pay the new corporate tax?

January 27, 2012

On April 1, Law No. 9024, “Tax on Corporations,” will enter into force. Although the law levies a new tax on Costa Rican corporations, it allows U.S. citizens (as well as any other individual) to resign their current positions in Costa Rican companies that could be affected by the Foreign Account Tax Compliance Act (FATCA) and other related provisions. 

Law No. 9024 establishes a tax on all commercial corporations, branches or representatives of foreign corporations and sole proprietorships that are registered or will be registered with the National Registry. 

The corporate tax year runs from Jan. 1 to Dec. 31 of each year, and the new tax must be paid within the first 30 calendar days after Jan. 1 of each year; however, for 2012, the deadline is April 30.

The tax rate varies depending on whether taxpayers are active entities or not. Accordingly, taxpayers that do not conduct commercial activities and are inactive will pay a sum equivalent to 25 percent of a monthly base salary, while all those that are active should pay an equivalent of 50 percent of a monthly base salary. 

For the 2012 fiscal period, the tax will be paid proportionally (over a nine-month period); therefore, the amounts payable will be 135,225 ($264) for active corporations and 67,613 ($132) for inactive corporations (the “inactive” status is under analysis by the Tax Administration and new regulations are expected).

On the other hand, corporations, branches, representatives or sole proprietorships that will be registered in the future must pay the tax at the time of filing the articles of incorporation at the National Registry.

Corporations, subsidiaries, representatives of foreign corporations, and sole proprietorships that dissolve before July 1 do not have to pay the tax. 

Also, legal representatives of corporations will be jointly liable for non-payment, but have one year to resign their positions at the National Registry.

How is Law No. 9024 related to FATCA and other provisions? Readers may recall that on March 18, 2010, U.S. President Barack Obama signed FATCA into law, requiring foreign financial institutions (FFIs) and non-financial foreign entities (NFFE, or any non-U.S. entity that is not a financial institution) to report information to the Internal Revenue Service regarding ownership or participation by U.S. citizens of bank accounts and corporations. That regulation will apply regardless of whether U.S. persons hold assets in U.S. or non-U.S. securities, or via entities in which they have a direct or indirect holding.

FFIs or NFFEs that fail to disclose this information will be subject to a 30 percent withholding tax imposed on payments (including interest, dividends, rents, salaries, wages or other periodic gains and income, as well as gross proceeds) derived from sources within the U.S., to uncooperative institutions and customers. 

Other related regulations require the reporting of entities in which U.S. taxpayers are directors, representatives, or hold similar positions.

As mentioned above, U.S. taxpayers may take advantage of regulations contained in Law No. 9024 in order to resign their positions as representatives of Costa Rican companies. Moreover, in order to avoid tax contingencies derived from the obligations imposed by FATCA and related laws in the U.S., as well as Law No. 9024, it is strongly advisable for U.S. citizens to revise their participation and ownership in such entities and bank accounts.

–Alonso Arroyo & Sophia Murillo

 Alonso Arroyo is a partner at BLP Abogados and leads the firm’s tax practice division. Sophia Murillo is an associate of tax practice at BLP Abogados.

See more at www.blpabogados.com.

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