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Clearing Up the Confusion in Costa Rica’s Investment Outlook

Here at Gap Investments we have been receiving questions and concerns from potential and existing lenders regarding the recent changes affecting investing in Costa Rica. Most of these seem to indicate that news outlets and other information sources are doing a wonderful job — at creating confusion!

Let’s clear up the confusion (and worry) by explaining the recent changes and their common misconceptions. As always, ask us any question you like by contacting us.

You may be wondering… why have so many new laws and regulations have been passed in Costa Rica in the past year? A few of these include (click on any one to read more):

We published an article detailing some of these changes called So Far in 2019: A Digest.

Why is the government making so many changes? There are two major reasons, the first being the most crucial:

  • The Costa Rican government balance sheet needs to improve. The government has been running large budget deficits for nearly a decade. While the debt-to-GDP ratio isn’t considered very high by global standards, public debt is difficult to service in Costa Rica due to higher interest rates and lack of access to international funding sources (which will get us to reason #2). The changes implemented in July have already shown results in improving public finances.
  • Costa Rica is close to joining the OECD (Organization for Economic Co-operation and Development), an intergovernmental organization with the aim to stimulate economic progress and world trade. It is considered an exclusive club of wealthier, developed countries, and will allow Costa Rica access to economic and political resources never before available.


Value Added Tax (VAT)

We went into a bit in the introduction to the Value Added Tax (VAT – known as IVA in Spanish) in the So Far in 2019 article. When it comes to interest payments, there is no VAT. I’ll repeat this because it’s the MOST common misconception we see:

VAT is not applied to interest payments.

Passive Income Tax Reforms

This year’s fiscal reform includes updates to the taxation of passive income, which includes capital gains, interest and rental income. As lenders the primary concern is taxation of interest, which is now taxed at a flat 15% rate regardless of amount, with some exceptions. Passive income tax is reported and paid monthly.

At Gap Investments we offer lenders assistance in mitigating and legally reducing the impact of taxation of their investments. Contact us now to set up a consultation!

SUGEF Registration

Going forward, banks in Costa Rica are gradually going to start asking account holders in the lending business to show proof of SUGEF registration as part of their periodic Know Your Customer (KYC) updates.

SUGEF (Superintendencia General de Entidades Financieras) is the financial regulatory agency. The goal of this new regulation is for banking regulators to monitor potential money laundering and terrorist financing. Although we recommend you make SUGEF registration a priority, this does not prevent you from lending money today.

One question that should be asked is, what are the benefits of being registered? Once your registration is processed, this helps immeasurably when it comes time to prove source of funds, such as when performing international transfers.

Note that SUGEF registration details are private and not shared with anyone. None of those details are in any way automatically sent to any other country. They are managed by SUGEF, and SUGEF only, in order to perform their regulatory function with respect to the financial industry.

At Gap Investments we offer prospective lenders assistance in registering themselves with SUGEF. Contact us now to set up a consultation!

Shareholder Registry

As of September 2019, the Costa Rican government is gradually creating a database of shareholders and beneficial owners of Costa Rican companies. Why are they doing this? One of the primary reasons is to meet the requirements to join the OECD.

The Shareholder Registry is not public, and is not shared with anyone. It is a private registry with the government only, and can only be made available via court order due to a local or international investigation. It is not automatically sent to any other country.

We did the submission for our company (Grupo GAP LLC SRL, 3-102-753653) earlier this month and we found it quick and simple. That being said, the user interface is daunting for non-experts, and is only available in Spanish.

Note that while companies with registration numbers starting in 0 and 1 had to do this by September 30 or face fines, there’s been a moratorium on fines due to the delays in obtaining a Firma Digital at the last minute. So don’t worry, but we suggest you make it a priority.

At Gap Investments we offer our lenders assistance with the Shareholder Registry. Contact us now to set up a consultation!

Bank Secrecy

Remember that Costa Rica has bank secrecy, in that bank account information is not automatically shared with authorities, but can be made available to investigators through a court order. That being said, Costa Rica is also compliant with the OECD’s CRS (Common Reporting Standard) rules, as well as the Foreign Account Tax Compliance Act (FATCA).

You can read more about Costa Rica’s CRS and FATCA obligations, as well as Tax Information Exchange Agreements (TIEA), here:

We’re Happy to Help

If you would like to clear the confusion and really understand the new rules and how to make them work for you, contact us now by using the contact form or directly at +506-4001-6413 (mobile / WhatsApp).

–Jeffrey Alami, Loan Analyst, Grupo GAP LLC SRL

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