By the A.M. Costa Rica staff

The General Directorate of Taxation, of the Ministry of Finance, on Friday, issued resolution No. DGT-R-55-2019, known as List of Non-cooperating Countries. This list includes the U.S. Virgin Islands and other countries not approved by the Ministry. Any operations registered by Costa Rican companies there cannot be included in financial statements and fiscal reports.

For example, an American citizen who has a company registered in Costa Rica, and who purchases goods or acquires services in the U.S. Virgin Islands will not be able to report the expenses for those purchases in financial statements. This may directly affect its profits.

This is because the U.S. Virgin Islands is a country that has no agreement with the Ministry of Finance.

According to the Ministry, the decree applies to countries or governments in which the utility tax rate is less than 40 percent of the rate established in Costa Rica.

The tax rate on profits is regulated by Law No. 6826, or the Income Tax Law.

This prohibition applies in all countries or regions with which Costa Rica has not signed information exchange agreements. The U.S. Virgin Islands is one of these places, according to the Ministry of Finance

"For the Ministry of Finance, one of the main fiscal risks is the erosion of the tax base through the transfer of benefits to territories with a tax rate significantly lower than what we have in our country," said Nogui Acosta deputy minister of finance. "Add to this a lack of agreements that allow us to exchange information with these countries, to verify the declared operations.”

This resolution meets the provisions of subsection K of Article 9 of the Income Tax Law, incorporated by Law 9635 (Strengthening of Public Finance). Article 12 of its regulation say:

"They are not expenses deductible from gross income, those that correspond to operations carried out, directly or indirectly, with persons or entities residing in countries or territories qualified by the Tax Administration as non-cooperating countries. Unless it is proven that the expense responds to any operation or transaction made. "

According to the Ministry, in addition to the U.S. Virgin Islands, the restriction on those transactions applies to buying goods or paying for services, in Bosnia and Herzegovina, North Korea, Cuba, Eritrea, Guadeloupe, Iraq, Norfolk Islands, Kyrgyzstan, North Macedonia, Maldives, Martinique, Montenegro, Oman, Palestine, French Polynesia, Saint Peter - Miquelon, Timor-Leste, Uzbekistan, Wallis, and Futuna.

According to the Ministry of Finance, the prohibition of registering operations in these places will be effective as of October 1st, after it is published in the official newspaper, La Gaceta.

According to the U.S. Virgin Islands, this territory is an unincorporated organized territory of the United States. Although they are US citizens, they cannot vote in the United States presidential elections.

The US Virgin Islands are located between the Caribbean Sea and the Atlantic Ocean, 80.5 km east of Puerto Rico. The territory consists of four main islands: Saint Thomas, Saint John, Saint Croix, and Water Island, as well as a dozen small islands. Its capital is Charlotte Amalie.

80 percent of the population is of African origin, 15 percent are white (American and European), while 5 percent of the population is of Puerto Rican origin.

More information about this new regulation can be found at the Ministry by phone at (506) 2539-4647 or (506) 2284-5000.

 

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Do you believe this to be an effort by the Ministry to stop tax fraud?   We would like to know your thoughts on this story. Send your comments to: news@amcostarica.com

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