By
Garland M. Baker
Exclusive to A.M. Costa Rica
One has to wonder if the powers
that make the tax laws in Costa Rica
think about the logistics of
enforcing them. Another interesting
question is whether or not the
government cares anymore about all
the people who came to the country
over the past 40 years to retire and
invest here.
In an interview with Kevin
Chavarria C.P.A., a professional who
gives lectures about the new tax
laws, the question was put to him:
“Does Costa Rica care about all the
retirees, and other little investors
making this country their home?”
He replied without hesitation.
“No, it does not care anymore.” He
went on to add “The government likes
to spend money. To get the money it
needs, it needs more taxes, and it
is most cost-beneficial to past laws
to get them and to find big
companies to invest here and tax
them and not worry about
individuals, families, and
retirees.”
The government actions of late
reflect this must be the case.
Complying with the rules and
regulations of Law 9416 (the law to
better fight tax fraud) is going to
be a hardship for many people, but
especially older retired expats,
most of which have not kept up with
the technology required to comply
with the law like digital signatures
and online filing. Add to the mix
the fact that now they will also be
required to pay capital gains on
their investments in Costa Rica to
comply with Law 9635 (legislation to
strengthen public finances, called
in Spanish the “plan fiscal”) and
you end up with some pretty unhappy
people.
The legislature and tax department
has a “just deal with it or get a
big fine attitude,” which is not
helpful to most taxpayers who as a
general rule want to pay their
taxes. As with most new laws, the
government leaves the interpretation
and execution up to lawyers to
educate their clients. The problem
with that plan is that many legal
professionals do not have a clue
about what is going on either.
The problem is that Costa Rica is
not upfront with the people it
enticed to come to the country with
its “retire in paradise” promotions
of years past. The truth is that old
legislation is not working because
professionals here have a “get away
with it if you can attitude.”
The truth is that the country does
spend lots of money as Chavarria
said in his interview. Most of the
money comes from loans making the
situation worse.
Here are some interesting facts to
understand the situation better:
Law 9416 requires all companies in
Costa Rica to register with the
government and file a yearly tax
return. That law is so the country
can collect transfer and capital
gains taxes outlined in Law 9635.
They work together.
There were approximately 575,000
different types of companies on the
books in 2017. Now there are around
337,000. The other 237,000 were
defunct and most of them liquidated
by Law 9024 (the first yearly tax
registration law).
|
Out of the remaining
companies, there are
an estimated 74,000
behind with Law 9428
(the second tax
registration law)
and in jeopardy of
termination.
Most of
the company entities
in good standing are
not actively doing
business but hold
assets (an estimated
75 percent). When
those assets move to
another person by
transferring the
company, the country
loses out on the
transfer taxes
mandated by Law 6999
of 1985 and Law 9069
of 2012. Why so?
Because some
notaries do not do
their part by
enforcing the laws
and cheat the
country. Actually,
and they will tell
you, it is not their
responsibility to do
so.
So Law
9416 came to life to
catch tax cheats
moving assets
without paying
transfer taxes by
using company
structures to do so.
If all legal
entities have to
register every year
with the government
at the central bank,
the administration
will know what
sells, and it will
get its money for
transfer and capital
gains taxes.
Expats
need to understand
and were not told
that the new laws
were required to
modify old ones that
were not working and
to close loopholes.
Unclear
is if the government
of Costa Rica
appreciates the
logistics of what it
is attempting to do.
Does it understand
how many of those
estimated
150,000-plus
companies that are
only holding assets
are owned by
foreigners who are
not in Costa Rica
and do not return
very often? Or they
are owned by older
people who do not
understand the
complexities or are
not aware of what
they need to do.
Everyone likes
good public
infrastructure,
services, and
safety. It takes
taxes to pay for
these. Costa Rica is
notorious for
wasting and spending
too much money. It
is also well known
for those trying to
circumvent the rules
and cheat on
permissions, taxes
and other
things. If the
country could find a
balance between the
cheating and overly
complicated legal
and tax structure,
things would
undoubtedly
improve.
There
was a time the
country begged for
investment from
retired people
through retirement
and resident
programs. Not so
now. It is more
interested in big
business.
If the
past is any guide,
the country tends to
swing between
extremes. Maybe it
will find a happy
place somewhere in
the middle as time
passes.
--------------
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.ltd.
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.
|
