As the readers may recall, this Tax Bill was taken to the Supreme Court since the Congressman Walter Cespedes from Unidad Social Cristiana Party had doubt about any negative impact of this law regarding the Constitutional Rights, but under sentence 2011-12611 issued on September 21st, 2011, the Supreme Court said (3 judges voted this bill down) there were none of the Constitutional Rights has been jeopardized.

So, now?

The Tax Bill goes back to the Congress, it needs to be voted again in order to become law, and it seems that is going to be approved since most of the Lawmakers already said that they will be voting positive this bill.

Actually, the Government is already counting on the forecasted ¢37,000 millions (around US$74 million) per year that they think they are going to collect and use to improve security in Costa Rica (Yeah Right!) thanks to this law which charges ¢158,000 (around $316) to active corporations and ¢79,000 ($158) to dormant corporations.

What is next?

The bill will goes back to the Congress but it is almost a fact that is going to be approved, so the Micro and Small Corporations, the only exception to the rule when it comes to the payment of this tax, have to get registered at the Economy Ministry and also those who want to de-register their dormant corporations at the Registro Publico, which means between $200 to $300 in attorney fees.

To rent or buy this one hour video with Costa Rica Tax Expert Randall Zamora, please visit our Video On Demand page here.

So, this means that if the bill becomes law, after that day you will have 6 months to dissolve your dormant corporation, by dormant I mean those corporations which are empty and hold absolutely no assets (vehicles, real estate, etc) since if you dissolve a corporation which holds the title of a property for instance, you will have to transfer that property to an individual, you don’t want to do that for liability purposes, and pay again the attorney fees plus transferring taxes.

Why is this not going to work?

Unless the Lawmakers review the Costa Rican Trading Commerce Law and realize that if a corporation reports losses for more than 50% of the Stock Equity, then the corporation has to be dissolved unless the stock holders get together agree to increase the Equity Stock or to absorbed the losses and enter the minute in the Legal Books of the Corporation, this is not going to work.

So, for instance if a dormant corporation has a ¢10,000 (around $20 which is the standard) in Equity Stock and pays ¢79,000 ($158) for this tax there will be a loss of $138, which is more than 50% of the Equity Stock, so technically speaking, the corporation will be broke after the first year of this law!

This means that the Costa Rican Administration will lose a big portion of tax payers therefore a big portion of the forecasted US$74 million, not to mention the huge amount of corporations that are going to be dissolved within the first six months of this law.

I’d rather give $200 one time fee to my attorney to dissolve my dormant corporation and re-invest the US$200 into the economy, than give $158 to the Government on a yearly basis and see that money get wasted, so that – in my opinion – is why this is not going to work.

Having said this, it looks like the younger sister of the already famous and failed Luxury Property Tax Law, is probably going to be just another failure, another headache and one more tax that the Tax Administration will not be able to manage properly.

Written by Randall Zamora who is the President and CEO of CostaRicaABC.com, former CFO and Head of Accounting Department of multinational companies like Four Seasons Resort Costa Rica, active member of the Interamerican Accounting Association, Pro Bono Local Partner of The World Bank and contributor to their yearly publication “Doing Business Report.”

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Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.