By: Garland M. Baker B.
Exclusive to A.M. Costa Rica
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The new tax legislation requiring investors to pay capital gains in Costa Rica is a hard pill to swallow for many expats. Here is another pain from the legislators that will make many lives uncomfortable.
It is all about Ley 9416, approved two years ago on Dec. 14, 2016. The law mandates the registration of all shareholders and beneficial owners of all legal entities, except for ones under the control of these governmental institutions:
• Superintendencia General de Entidades Financieras (SUGEF – overseer of financial institutions);
• Superintendencias General de Valores (SUGEVAL – overseer of financial markets);
• Superintendencia General de Pensiones (SUPEN – overseer of pension funds);
• Fideicomisos publicos (public trusts).
It includes, but is not limited to, these legal structures:
• Sociedad anonima (S.A);
• Sociedad de responsabilidad limitada (S.R.L. also known as L.L.C.);
• Sociedad civil (S.C. is also known as a civil society);
• Surcusal (branch of a foreign corporation);
• Asociación (association of any type, include non-profit);
• Fideicomiso (trust, except for public trusts).
Ley 9416 mandated the Banco Central (Costa Rica’s central bank) to have the system in place by last Jan. 1. The bank will hold all this information for investigative purposes to be used by the tax department and the drug enforcement agency.
Required registration begins March 1, based on the last digit of an entity’s cédula (identification) number per the following schedule: In March, entities ending with the cédula number 0 must register. In April, entities with cédulas ending in 1 must do so. May is the deadline for entities with cédulas ending in 2, and so on until December, when entities with cédulas ending in 9 must file.
Now for the hard part. Only certain people with specific representation or powers-of-attorney can do the registering.
• S.A. – only the president;
• S.R.L.—any manager with legal representation;
• S.C. – only the administrator;
• Surcusal – only representative with full power-of attorney;
• Asociación – administrator with full power-of attorney;
• Fideicomiso – trustee
The registering party must also have a firma digital or digital signature registered with the Banco Central. Only Costa Ricans and people with a legal residency who have a DIMEX number can obtain a digital signature in Costa Rica.
So, how do retired expats or other people without legal residency who hold property in a company in Costa Rica register? They have to go to a public notary and assign a special power-of-attorney to someone else who does qualify to sign them up. This process is somewhat of an expensive endeavor, especially for retired folks watching their budgets.
How often is the registration required? Every year! Yes, annually, a correctly authorized individual will have to fill out the paperwork at the Banco Central for every legal entity in Costa Rica.
Of course, the fines for not filing the information are bank breaking. From three to one-hundred minimum salaries. The current legally established minimum salary is 446,200 colons, or about $750. In U.S. dollars, that translates into penalties of from $2,250 to $75,000 for non-compliance.
According to the original law and the specific regulations that apply to the law, the Banco Central should be ready for the registration to begin. It is not, according to the press. Moreover, according to the El Financiero newspaper owned by La Nacion, only five percent of people in Costa Rica have a digital signature as of last September.
What should expats and others do since it does not appear the country is prepared to implement Ley 9416?
Everyone should check and see if their company is up-to-date. If it not, they should consult a notary as soon as possible and update it with correct information. Here is a checklist:
• Is the legal address right?
• Are the representatives accurate?
• Are the identification numbers for the representatives current?
• Is the registered agent information up-to-date?
• Does a legal representative have a digital signature?
• By-laws should be reviewed and updated, if necessary.
A person should be selected to file the paperwork with the Central Bank, and that person needs to acquire a digital signature. Most banks in Costa Rica provide the service. The process usually requires the payment of a fee and an appointment. They are valid for two years.
For those entities that do not have a person with sufficient rights to get a digital signature, another person must be selected as the representative. It could be an attorney, but does not need to be one. Anyone with a Costa Rican cédula or resident with a DIMEX number can obtain the digital document as long as they are in good standing with the government.
Why this law? The Costa Rican government is trying its best to keep the international powers that be happy, so they will continue to lend the country money. It all comes down to Costa Rica adhering to the rules set forth by the members of the global financial system. The country has always been a heavy borrower, but recently, its expenses have far outgrown its income. The debt was an estimated 65 percent of gross domestic product in 2017 and estimated to go much higher without fiscal reforms.
Over recent years, the country has implemented some pretty tough new tax laws. The question is whether the state can actually achieve and, more importantly, maintain what it is legislating. Ley 9416 will be a great test because it is complicated to set up, establish compliance and enforce.
Article first published in A.M. Costa Rica on February 4, 2019.
