Payroll in Costa Rica can be complicated with changing regulations, different tax structures, and hiring procedures for employees.
Corporate Tax and Entity Setup
The corporate tax rate in Costa Rica is 30%, but reduces to 10-20% based on the amount of income generated. The tax year runs from October 1 – September 30th each year, and tax returns must be filed by December 15th to avoid late fees or penalties.
Companies must submit a D140 Declaration of Inscription to the Ministry of Finance in Costa Rica before beginning operations in the country. Any company hiring employees in Costa Rica must register with the Social Security Administration. Foreign companies can establish a branch office in Costa Rica by registering a Shareholders’ Agreement that declares the branch is bound by Costa Rican law.
Labor and Payroll Considerations:
As of March 11, 2020 Costa Rica has updated their leave policy due to the coronavirus (COVID-19) outbreak.
- Disability due to health alert COVID-19: It is included within the concept of disability that those cases that are in an investigative or probable condition, that the insured may suffer from the disease COVID-19 for the granting of disability, by the team of treating health, the following special provisions must be followed:
- It is an exceptional and temporary disability, the maximum term of which will be established in the health order.
- It will be based on the home isolation health alert issued by the competent authority of the Ministry of Health.
- For the purposes of granting the disability, the health order may be presented by the insured, relatives, interested person or by officials of the Ministry of Health, so that the disability is expedited by the Treating Doctor of the Fund in an expedited manner.
- Payment of this disability is subject to the requirements and conditions established in the Health Regulations. For the cases already declared, the application will be retroactive from the issuance of the sanitary order.
- The Article 2 of the same regulation was modified was well: In no case will an incapacity be granted to a healthy person, even if it is to care for a sick patient, except in cases where the validity of article 10 of the Health Insurance Regulations is maintained
- Instituto Nacional de Seguros: Salaried workers who become infected with Coronavirus in the exercise of their job duties will be covered by the INS workplace risk policy. The coverage is only activated when the worker became infected during his work, meaning there must be a causal link between the infection and the job. To request coverage under the Policy, the employers of the worker must present the Notice of Accident and Occupational Disease, which can be done virtually.
- If the working person dies, their spouse will receive for 10 years an annual income equivalent to 30% of the working person’s salary. If the person leaves a dependent minor, they will receive 20%, if there are two, 30% and if there are more than two, 40% (until they reach the age of majority or until age 25 if they demonstrate studies).
- These measures will continue until there are no changes in the epidemiological situation or in the national guidelines for surveillance of Coronavirus infection.
Standard sick leave policy in Costa Rica
- In accordance with the laws of Costa Rica, employers must pay at least 50% of the employee’s salary for the first three days of the employee’s sick leave. The Social Security Administration pays the other 50%.
- From the fourth day of sick leave forward, Social Security pays 60% of the salary and the employer is not obligated to pay anything to the employee. The employee must submit a medical certificate to the Social Security Administration to receive payment.
- Employee contracts are required and must be written and signed by employer and employee.
- In cases where there is no written employment contract, employees can argue that there was an implied agreement in place.
Minimum wage laws in Costa Rica depend on the skill and education level of the employee. Collective Bargaining Agreements are uncommon in the private sector of Costa Rica. Termination notice depends on the employee length of service, except in cases of just cause termination.
Key labor form changes were made in 2017 to add more protections against employment discrimination due to unionization and economic reasons. New labor dispute cases must be expedited, with oral hearings instead of the former process of written testimony. There have also been changes to the process of initiating a legal strike to make it easier for employees.
Foreign workers only receive a work permit if the job they are applying for cannot be done by a Costa Rican citizen. Work permits are valid for 1 year, and foreign workers must also obtain a permanent residency permit.
Managing payroll and compliance in Costa Rica can be challenging, but Blue Marble provides you with technology, customized reporting, and in-country expertise to let you simplify your operations. Reduce compliance risks and operate more effectively in Costa Rica with Blue Marble – click here to learn more.