Individuals who own companies in Costa Rica are facing a real "Catch-22" when deciding what to do about the D-175 tax form.
As explained in a previous article (Nov. 10th), this year's tax form D-175 is somewhat of a "sting operation" by the Tributación Directa, Costa Rica's tax authority. The main goal is to bring all those companies not currently on the tax rolls into compliance.
After numerous tax seminars, discussions with tax attorneys, and a special meeting with a "tax guru," the consensus is that Form D-175 truly presents a "Catch-22" scenario. This term, coined by Joseph Heller's World War II novel, describes a "damned if you do, damned if you don't" situation.
The Scope of the Problem
Currently, there are approximately 308,000 companies listed at the Registro Nacional, the nation's registry. However, only about one-third of these are on the tax rolls. This leaves over 200,000 companies as potential taxpayers, most of which exist solely to hold property (often referred to as inmobiliarias).
Many owners mistakenly believe these companies are exempt from normal tax processes because they aren't operating businesses. However, the truth is no company registered at the Registro Nacional is exempt; all companies need to file tax returns. Costa Rica simply hasn't had the resources to ensure all companies are registered with them. Tax experts estimate that Costa Rica can only effectively monitor about 3% of all inscribed taxpayers – roughly 3,000 companies.
The Catch-22 Explained
Here's where the Catch-22 lies:
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If you decide not to file Form D-175: There's a good probability you might not be caught, given the limited policing resources. However, if you are, you face a fine of 76,500 colones (approx. $185 USD) plus interest and penalties. More critically, during the period of non-filing, you will be unable to make any transfers or changes to your company at the national registry. For some, who don't anticipate any changes or sales, this might not seem like an immediate problem.
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If you do file by the December 31st deadline: You will then need to complete the registration process, which means you'll likely need to file Form D-140 (Declaration of Inscription) and Form D-110 (Misc Payments to pay the Education and Culture Stamp) next year. Failure to file these subsequent forms significantly increases your chance of being caught, especially as tax authorities increasingly use cross-referencing with other forms like D-150 (Sales and Payments Reporting Form) and D-101 (Income Tax Form). This cross-referencing capability was even taught to the Costa Rican government by the U.S. Internal Revenue Service.
The Wisest Course of Action
A sound general principle is to comply with tax authorities at every step. This, if nothing else, allows for a better night's sleep. More importantly, many members of the international community are guests in Costa Rica, and all laws should be respected and obeyed. Furthermore, Costa Rica is currently reorganizing its tax structure and is introducing a more powerful new tax police.
It is far better to begin the process of legitimizing your tax responsibilities today than to have one of those new officials visit you in the future.
Benefits of Compliance
There are also significant benefits to filing D-140 and becoming fully registered with Tributación Directa. The most important is the ability to obtain totally legalized books from the tax authority, which ensures your company is fully up-to-date with the registry process. Over the years, many companies have been vulnerable to unscrupulous actions because they were not properly registered.
The information provided is for informational purposes and does not constitute legal or financial advice. Consult a qualified Costa Rican professional for your specific situation. ©2004-2025 Costa Rica Expertise. Free use permitted with attribution (CC BY 4.0). 1031127 XX!
