You just moved to our beautiful country and you are finally ready to start your own business? Perhaps you spotted a lack of something in a community, such as a product or service that was not being provided yet? Just like in every other country, there are different rules and parameters in Costa Rica that stipulate how foreigners may operate a business legally. The most common business structure is with the owner working, and with one employee on payroll. It is important to remember that non residents of Costa Rica are allowed to manage and own the business but not to perform any duties or tasks in the business.
Understanding employment laws in Costa Rica will save you a lot of time and energy. Per example, if you are not a legal permanent resident, you are prohibited to work in your business as a front-line person. So, if you own a smoothie shop per example, you are entitled to hiring, firing and training employees, but not making smoothies and selling them at the counter. This is a very typical mistake foreigners have done for years in Costa Rica with the hopes of “not getting caught”. And in return and because of random immigration employment checks, they have had their businesses shut down with penalties. It is mandatory to have at least one employee on "Seguro Social", commonly called CAJA, per business you operate. It is important to remember that if you are the owner of a business and an immigration agent stops by and catches you serving clients, you would then be at risk of deportation and other severe penalties. These employment laws, just like in every other country, are designed to ensure the rights or the working citizens and legal residents of Costa Rica. Here are the things to consider and steps to follow when a non resident wants to start a business.
First, your business should operate under the name of a corporation in order to protect yourself as owner from any liability. Every country has different procedures, but if you are an American or Canadian, this would be like an LLC, LTD or S.A. in North America. One advantage is that the process to form a corporation is faster and simpler than in other countries. A key element during this process is to hold on to a trustworthy attorney to assist you through the time this will take, as well as ensuring all legal requirements are properly executed. The attorney will be in charge of opening the corporation for you and registering the shareholders with Banco Central of Costa Rica.
Second, you will need a business permit with the municipality where your business will be located. The rates vary from a province to another, requirements as well. If you will own a restaurant, bar or any type of business where you will serve food and alcohol, you will also need a health permits from the Ministry of Health, permit to handle aliments, and also a liquor licence. An attorney will be able to assist through the process.
Third, you will have to hire employee(s) to work for you and register with Seguro Social. The employee(s) can only be hired full time. The employee(s) have to fall in one of the category below: a) Costa Rican citizen b) Legal permanent resident (Short/long term tourist visas do not count) c) Having an annual work permit.
Once you have a legal staff hired for your business, it is important to acknowledge and understand your duties as an employer. Here are the most relevant employment laws related to employee benefit requirements:
- Social security benefits: There are payments to be done to the Costa Rican Social Security Fund (CCSS, commonly called CAJA). The employee as well as the employer are both required to pay fees over the employee’s salary. These payments cover fees for healthcare coverage and retirement benefits. As of October 2019, the amount that the employers are required to pay is a 26.33% of the gross salary and the employee only pay a 9.34%, totaling a 37.67% of the employee’s earnings that has to be paid to CCSS every month. The responsibility to collect the employee’s portion from their salary for their social security payments lays on the employer. Simple example: if your employee earns US $100, you will be paying US $35.67 to social security from which US $26.33 is your portion and $9.34 is the employee's portion. Some employers end up paying all of it for their employees as a bonus.
- Vacation: In contingency to the amount of time worked, all employees will enjoy a certain number of vacation days per year. More specifically, 2 weeks of PAID vacation per every 50 consecutive weeks of work.
- Aguinaldo: The aguinaldo is a Christmas bonus. The sum to be paid is calculated based on the employee’s monthly salary between the first day of December and the last day of November to complete a 12 month cycle. This bonus payment has to be done during the first 20 days of December.
Fourth, register or ask a certified accountant to register your business with Ministerio de Hacienda (The Revenu). Depending on your type of business, you may have to charge IVA (13% sales tax) and provide electronic invoices. You will also have to keep up with your accounting and payments so your choice of accountant will be very important. You will have to send your incomes and expenses every month to that firm or accountant and pay a monthly fee to have it handled.
Fifth, open a bank account for your corporation. You will need some documents from your accountant, such as certification of incomes. It is always smarter to have a separate bank account under the name of your corporation so if you get audited, transactions are easier to track down and there's less grey zone. It is also easier if you are going to have a credit card machine.
Let’s all embrace the system of the country where we are managing our businesses and respect the laws that protect its residents. By educating yourself and make sure you know what you are getting into, you will start on the right foot and ensure your success from day one. If you have any doubts or questions, feel free to contact us!