In Costa Rica, employers have significant responsibilities towards the Caja Costarricense de Seguro Social (CCSS), also known as "The Caja". This is the country's social security system, which is in charge of public healthcare and pensions. Employers are obligated to make substantial contributions to the CCSS on behalf of their employees.

Contribution Rate

The standard employer contribution rate to the CCSS is 26.67% of the employee's gross salary.

Breakdown

The 26.67% employer contribution is allocated across various CCSS programs:

• SEM (Seguro de Enfermedad y Maternidad): Healthcare and maternity benefits (5.5%)
• IVM (Invalidez, Vejez y Muerte): Disability, old age, and death benefits (9.17%)
• Riesgos del Trabajo: Occupational hazard insurance (varies based on industry risk)
• Other Programs: FODESAF (family benefits), Banco Popular (housing support), and others.

Other Mandatory Contributions

Employers also have to contribute to other institutions:

• Banco Popular y de Desarrollo Comunal: Employers contribute 0.5% of the employee's gross salary to this institution, which offers social development programs and financial support.
• Instituto Nacional de Aprendizaje (INA): Employers are required to contribute 1.5% of the employee's gross salary to INA, a vocational training institute.

Responsibilities of Employers

Employers have several responsibilities:

• Registration: Employers must register with the CCSS.
• Calculation and Payment: Employers must accurately calculate all social security and other mandatory contributions and remit them to the respective entities on time.
• Record-Keeping: Employers must maintain detailed records of employee salaries, deductions, and payments to relevant institutions.

Additional Notes

Consider using specialized payroll services to ensure compliance with calculation and payment requirements. Also, while contribution rates have remained relatively stable, it's important to stay informed of legislative changes that may affect them.

Costa Rica uses a progressive income tax system, meaning higher income earners pay a higher percentage of their income in tax.

Progressive Tax Rates

The latest income tax brackets can be found on the website of the Ministerio de Hacienda (Ministry of Finance).

Salary Deductions

Employers withhold income tax from employee salaries each month and remit these deductions to the tax authorities.

Caja Costarricense de Seguro Social (CCSS)

Costa Rica's social security system (CCSS) provides healthcare and pension benefits. Employees contribute a portion of their salary towards these programs.

Contribution Rate

The standard employee contribution rate for CCSS is 9.5% of gross salary.

Breakdown

The 9.5% is allocated as follows:

• SEM (Seguro de Enfermedad y Maternidad): Healthcare and maternity benefits (5.5%)
• IVM (Invalidez, Vejez y Muerte): Disability, old age, and death benefits (4%)

Other Possible Deductions

Employees may authorize their employers to make deductions for:

• Savings plans
• Loan repayments
• Union fees
• Other purposes agreed upon between the employer and employee

Responsibilities of Employees

Employees must furnish their employers with accurate personal information for tax and social security calculations. While employers deduct taxes at the source, it's recommended for employees to file an annual income tax return for any necessary adjustments.

In Costa Rica, VAT is referred to as Impuesto al Valor Agregado (IVA) and the standard rate is currently 13%.

Taxable Services

Most services provided within Costa Rica are subject to VAT. This encompasses a broad spectrum of professional, technical, personal, recreational, and other services. Services for export, where the benefit of the service is primarily enjoyed outside of Costa Rica, may be eligible for a 0% VAT rate.

VAT Rates

The majority of services are subject to the standard 13% VAT rate. A limited number of services, such as educational services and some private healthcare services, are taxed at a reduced 4% VAT rate. Exported services and certain other specifically defined services may qualify for a 0% VAT rate.

Invoicing and VAT

VAT-registered businesses are required to charge VAT on their invoices for taxable services. Invoices must clearly display the business's VAT identification number (cedula jurídica) and the amount of VAT charged.

VAT Registration

Businesses providing taxable services may need to register for VAT with the Ministerio de Hacienda (Ministry of Finance). Specific registration thresholds are based on income.

VAT Filing and Payment

Businesses registered for VAT are required to file monthly VAT returns and pay any VAT due to the tax authorities.

Important Notes

Be aware of VAT rules for non-resident providers of digital services, which are often handled via withholding by credit card issuers or online platforms. Consider seeking assistance with VAT compliance from a tax advisor in Costa Rica, especially for niche services or unusual business models.

Costa Rica offers a variety of tax incentives aimed at attracting foreign investment and promoting economic growth. These incentives can significantly reduce the tax burden for businesses operating in the country.

Free Trade Zones (FTZs)

Companies operating within FTZs can potentially enjoy exemptions from various taxes, including income tax, import duties, export taxes, selective consumption tax, real estate transfer tax, and withholding tax on payments abroad. Qualifying activities include manufacturing, services (including tourism, call centers, software development, and research and development), logistics, and international trade.

Drawback Regime

Businesses that import semi-manufactured materials for assembly in Costa Rica and subsequent export as finished products can benefit from duty-free imports of these materials and machinery.

Investment Outside the Greater Metropolitan Area (GMA)

Companies investing in certain regions outside the GMA can receive even more generous incentives, such as full exemption from VAT on local purchases of goods and services, full exemption from taxation of remittances made abroad, and extended 10-year exemption from real estate transfer tax and municipal business license tax.

Additional Incentives

Costa Rica also offers tax credits for research and development activities, special incentives for tourism-related investments, and tax benefits for businesses that implement environmentally sustainable practices.

Important Considerations

To qualify for tax incentives, businesses typically must meet specific requirements regarding investment levels, job creation, and industry sector. Companies must apply for tax incentives through the Costa Rican Investment Promotion Agency (CINDE). It's essential to understand and comply with the terms and conditions of any tax incentives received.