Private Investing in Costa Rica: What You Need to Know

Are you considering private investing in Costa Rica but feeling uncertain due to recent tax-related law changes? You’re not alone. At Gap Investments, we’ve received questions and concerns from potential and existing lenders, and we want to clear up any confusion.

Here’s what you need to know about the recent changes and their common misconceptions:

Reasons for the Changes

In 2019, Costa Rica passed several new laws and regulations due to two significant reasons:

1. The Costa Rican government’s balance sheet needs to improve. They have been running large budget deficits for nearly a decade. The changes implemented in July 2019 have already improved public finances.
2. Costa Rica is close to joining the OECD (Organization for Economic Cooperation and Development), an intergovernmental organization that stimulates economic progress and world trade. Joining this exclusive club of wealthier, developed countries will allow Costa Rica access to economic and political resources never before available.

Tax Changes in Costa Rica

We wrote a blog article detailing some of the new laws, including:

• Value Added Tax (VAT)
• Passive Income Tax Reforms
• SUGEF Registration
• Shareholders Registry

Let’s take a closer look at each of these changes.

Value Added Tax (VAT)

Regarding the interest payments of equity loans, there is no VAT. This is the most common misconception. You do not have to pay VAT/IVA taxes on your received interest payments.

Passive Income Tax Reforms

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

SUGEF Registration

Private lenders should register with SUGEF (Superintendencia General de Entidades Financieras), the financial regulatory agency. This new regulation aims for banking regulators to monitor potential money laundering and terrorist financing.

Although we recommend prioritizing SUGEF registration, it does not prevent you from lending money today. Once your registration is processed, this helps immeasurably when it comes time to prove a source of funds, such as when performing international transfers.

Shareholder Registry

On September 1, 2019, the Costa Rican government began collecting details on the identity of shareholders and beneficial owners of Costa Rican companies. The Shareholder Registry is not public and is not shared with anyone. It is a private registry with the government and can only be made available via court order due to a local or international investigation. We registered our company (Grupo GAP LLC SRL – 3-102-753653) and found it quick and simple. At Gap Investments, we offer our lenders assistance with the Shareholder Registry.

Bank Secrecy

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

Conclusion

At Gap Investments, we understand that recent changes in Costa Rican law may be causing confusion and concern among potential and existing lenders. We hope this article has provided a better understanding of the changes and their impact on private investment in Costa Rica. If you have any questions or would like assistance with the registration process, please do not hesitate to contact us today to learn more.

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

-Written by Glenn Tellier (Founder of Grupo Gap)

[email protected]

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Frequently Asked Questions

What is the primary reason for the recent tax-related law changes affecting private investing in Costa Rica?

The recent changes aim to improve the Costa Rican government’s balance sheet, as they have been running large budget deficits for nearly a decade. The changes implemented in July have already improved public finances.

What is the OECD, and why is Costa Rica interested?

The OECD (Organization for Economic Cooperation and Development) is an intergovernmental organization that aims 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.

What are some of the new laws that were passed in Costa Rica in 2019 affecting private investing?

Some new laws passed include the Value Added Tax (VAT), Passive Income Tax Reforms, SUGEF Registration, and Shareholders Registry.

Is VAT applied to interest payments on equity loans in Costa Rica?

No, VAT is not applied to interest payments on equity loans in Costa Rica. This is a common misconception.

What is the taxation rate for passive income, such as interest and rental income, in Costa Rica?

Passive income is now taxed at a flat 15% rate regardless of the amount, with some exceptions.

Should private lenders in Costa Rica register with SUGEF (Superintendencia General de Entidades Financieras)?

Yes, private lenders should register with SUGEF, the financial regulatory agency, to comply with new regulations to monitor potential money laundering and terrorist financing. Although it’s recommended to make SUGEF registration a priority, it does not prevent you from lending money today.

What are the benefits of being registered with SUGEF?

Once your registration is processed, this helps immeasurably when it comes time to prove a source of funds, such as when performing international transfers.

Is the Shareholder Registry public, and is the information shared with anyone?

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

Article by Glenn Tellier (Founder of CRIE and Grupo Gap)