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
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.
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