By
Garland M. Baker
Special to A.M. Costa Rica
The tax news coming out of the
government for the last several
months is complicated and confusing.
Most people do not understand what
is going on. Ticos do not comprehend
the technical verbiage of the laws.
Most expats cannot make sense of the
gibberish because many of them do
not read or speak the Spanish
language.
Here is a concise summary focusing
on the two tax policies in the news,
Law 9416 and Law 9635.
“Ley para Mejorar la Lucha contra el
Fraude Fiscal,” in English the law
to better fight tax fraud, is the
first one. It was approved two years
ago on Dec. 14, 2016. It is pretty
simple really. Every organization of
any type or purpose must register
with the government through the
central bank every year so the
powers that be know who has what and
where it is. There are some
exceptions to registration, mostly
governmental and public
institutions. It’s pretty obvious to
figure out why. If the tax police
think someone has too much and they
did not pay tax on what they have,
they will most probably take it
away.
Last Friday was the starting date
for registration. The government
said its employees and systems were
ready to allow everyone to signup as
required. Many were skeptical that
this was true. Whatever the case,
Sept. 1 is the new date. In a
last-minute press conference,
officials said “Business people are
not happy with all the requirements,
and some feel an extension may help
them accept and prepare better for
the new rules.”
The second, the legislation to
strengthen public finances, referred
to as “Ley 9635, Fortalecimiento de
las Finanzas Públicas” or just the
“plan fiscal” in Spanish, passed the
legislature in December last year.
It changed four significant items in
the tax code:
1.) The law replaced sales
taxes with a value-added tax. This
begins July 1.
2.) Income tax filing
requirements and dates changed
beginning July 1.
3.) Payments to public
employees become varied starting
Dec. 4.
4.) Law 9635 mandates fiscal
responsibility by the government,
and this rule starts Jan. 1.
Here are the highlights of each
change directed toward expats and
not the general public. In no way is
this summary meant to be a complete
review of this elaborate law.
1.) Before the changes, sales
taxes had two targets: products and
services. All products carried sale
tax, except for the exceptions. All
services did not, again, except for
the exceptions. Under the new plan,
everything will now be subject to a
value-added tax, except for very few
exclusions. The tax rate will remain
at 13 percent for now. However, the
International Monetary Fund is
pushing the government to increase
the tax to 15 percent.
2.) Most people are going to
hate this one, especially expats
happily living their retired lives
in Costa Rica without paperwork.
Income tax returns are now due for
all organizations. Title II,
Article 2, Section A of the law
states active, inactive, non-profit,
social and every entity considered
to be doing some activity must file
a tax return.
The tax year is changing to a
calendar one, Jan. 1 to Dec. 31,
instead of a fiscal year Oct. 1 to
Sept. 30. Active companies will have
to file two returns this year during
the changeover. New tax rates and
thresholds take effect this year
too. Business people should consult
their accountants for exact
information.
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A.M.
Costa Rica wire
services photo
3.) Law
9635’s section on
payments to public
employees does not
affect expats much. It
has to do with
payments to
professionals. Special
pay is authorized for
individuals with a
particular education
or preparation who are
hired by the
government, and they
are prohibited from
working for the
public. Some examples
are attorneys,
notaries, public
accountants,
topographers, and
other licensed people.
The money is paid to
make up for lost
opportunities.
4.) Section Four of
the law affects
everyone because it
puts pressure on the
government to run a
better shop. Law 9635
gives the tax
department until 2021
to put things into
order, specifically to
put together “the
necessary technology”
to control the
“health” of public
finances. The quoted
items are direct
translations from the
law, and seems to be
vague. Anyone living
in Costa Rica for a
long time knows that
vagueness usually
turns into
bureaucratic bickering
in the legislature and
that nothing ever gets
done.
There it is. The
bottom-line to two
intrusive tax laws
that make many people
unhappy, especially
many expats who were
living their
retirement out in
Costa Rica without too
much to worry about,
especially details.
To sum up the summary,
Law 9416 takes the
“anonima” (anonymous)
out of “sociedad
anonima” (anonymous
society). The concept
of which goes as far
back as the 15th and
16th centuries to
promote investment in
transatlantic
exploration. The term
later became
synonymous with a
corporation where
investors were allowed
to remain secret.
Along the same
concept, many of these
corporations were set
up by notaries over
the years to allow
foreigners to invest
in Costa Rica. Those
investments were
crucial to Costa
Rica’s growth and
success in the modern
world over the past 50
years.
Those same investors
are now talking about
leaving and going
home.
Law 9635 translates
into more funds for
the government that
notoriously wastes
money and less for
everyone else. More
taxes, more controls,
and less to say about
it.
The two pieces of
legislation work
together and
compliment each other.
One mandates more
money to be paid, and
the other one gives
the tax people ways to
collect it, or else.
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Editor's note: Garland
M. Baker is a 47-year
resident and naturalized
citizen of Costa Rica.
His team solves problems
for expats. Reach him at
info@crexpertise.net.
Baker has undertaken the
research leading to his
articles in conjunction
with A.M. Costa Rica.
Find the collection at http://crexpertise.info.
A free reprint is
available at the end of
each piece. Copyright
2019, use without
permission prohibited.
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