Costa Rica Expertise LLC

By Garland M. Baker
Special to A.M. Costa Rica

The 2004 tax year was full of surprises. One major surprise was that the tax filing deadline for Form D.101 Version 2 was Dec. 15 instead of the normal Dec. 31. Tributación Directa, the tax collecting agency, and its parent, the Ministerio de Hacienda, the treasury department, did little to announce the change. The earlier date was not on their Web sites, which continue to work erratically.

Historically, the tax deadline for filing and paying income taxes was Dec. 31. An obscure change in the law moved the date to two and one-half months after the close of a company’s fiscal year. Most businesses use Oct. 1 to Sept. 30 as the fiscal year.

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The deadline now falls on Dec.15. If that date falls on a weekend, the following Monday is the filing date. This fact has been published only in obscure places. For the past two years, Tributación gave extensions until Dec. 31, leaving most filers to believe that this is the traditional deadline.

A.M. Costa Rica has reported the incorrect deadline from time to time based on incomplete information from Tributación Directa.

The new tax lottery is another major surprise. The last tax lottery was in 1994. To participate one needs to put five invoices in an envelope and deposit it in any Banco Credito Agricola branch. The prizes make the process worth the effort. The top prize is 5 million colons.

The objective is to catch tax cheaters. This is a legal sting using private citizens to catch all those businesses not giving clients true invoices or cash register receipts. Twenty-eight businesses are being closed in December and 350 more have been notified of closure because they have been caught using incorrect or unapproved receipts.

Tributación Directa also has given its army of tax collectors marching orders to find all those that should be on the tax roles and aren’t.

Literally, hundreds of militia have crawled the streets of San José and the surrounding Central Valley to gather the tax intelligence needed to fine those not filling out the proper tax forms this year.

Costa Rica makes a lot of money in tax penalties, especially from the small contributors. Since there are so many ways to avoid paying legitimate taxes, the country has decided to fine people to death.

Here is an explanation of the taxes due:

• Employee withholding, paid each month, is required on salaries and wages over the exempt tax threshold. For 2005 this amount is 367,000 colons a month or about $800.
• Sales tax is paid the 15th day of the month following the month in which it is collected.
• A simplified tax report, filed four times a year, is used by very small businesses where taxes are assessed based on what is purchased and not on invoices or sales receipts. Corner supermarkets called pulperias in Costa Rica are examples of very small businesses. Tourist shops and small bars can also qualify for this easier tax system.
• Income tax partial payments are required to pre-pay tax obligations just like in almost every country of the world. The quarterly amount is calculated based on a company’s previous year’s taxes. Fines are heavy for those who do not make partial payments.
• The Timbre de Educación y Cultural, or education and culture tax is the biggie for all corporate taxpayers by March 31. This tax MUST be paid by everyone who has a corporation and is based on a company’s net capital. It is not very much, but most people forget about it and are fined heavily.
• Tax Summaries are reported on Form 150 and Form 151. Form 150 is where employers report withholding on their employees and it is balanced and compared with what employees file. Form 151, due Nov. 30, is where businesses report revenue from other businesses, purchases from suppliers and professional services and balances with other companies and individuals reporting the same information.
• Wheel Tax is the infamous marchamo tax everyone knows about and must be paid every December to drive a vehicle in Costa Rica. The tax also applies to most boats, airplanes and other types of vehicles.
• Income Tax. Everyone knows what this is. In this world, nothing can be said to be certain, except death and taxes, said Benjamin Franklin.

This article wasn’t meant to be interesting, just factual. Anyway, how interesting can taxes be? Stay ahead of the tax game for 2005.

Garland M. Baker has been a resident of Costa Rica since 1972 and is now a naturalized citizen. He provides multidisciplinary professional services to the international community. Reach him at [email protected] Baker has undertaken the research leading to these series of articles in conjunction with A.M. Costa Rica. Copyright 2004, use without permission prohibited.

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