Owning and Operating a Business in Costa Rica
Costa Rica Business 101: Owning and Operating a Business in Costa Rica and What Employers Need to Know. So, you’ve moved to the land of pura vida and are ready to launch your small business. Maybe you saw a need in the community, such as a lack of bagels (crazy, right?) and you want to open a bagel shop. Or, perhaps, you are more on the technical side and wish to provide services rather than a product.
Like all countries, there are laws and regulations in Costa Rica governing how foreigners may legally operate a business.
This article addresses one of the most typical business structures, one with employees.
You may own and manage the business,
but not perform tasks or duties.
Starting a business with employees
The first step for any business in Costa Rica is forming a corporation under which the business will operate. This is important to protect the business owner from liability. Every country has its own lingo, but if you’re from the U.S. this would be similar to an LLC.
The process to form a corporation is simpler in Costa Rica than other countries — and faster. The key is to retain a reputable attorney to guide you through the process and ensure all legal requirements, such as registering the corporation in the National Registry, are properly followed. (Additional details were published in the Howler’s June 2018 LegalEase article, “Corporations in Costa Rica.”)
Next, understanding employment laws here is critical. If you are not a legal Costa Rican Permanent Resident, you are not legally allowed to work in your business as a front-line person. You may own and manage the business, but not perform tasks or duties.
Using our bagel shop example, the business owner may hire, fire and train shop employees but not make the bagels and sell them at the counter.
Expats have made the mistake of trying to slide under the radar of this law, counting on not being “caught.” Some have had their businesses shut down with penalties when immigration officials conduct random employment checks.
In another example, if you own a B & B and are caught making breakfast for your guests when an immigration agent pops by, you run the risk of deportation, among other severe penalties. Like most countries in the world, the Costa Rican employment laws are designed to protect the rights of the working citizens of this country.
Some of the legal requirements to work here are:
You must either be a citizen of Costa Rica or have legal Permanent Residency. This does not include being in the country on a Tourist Visa, even long-term.
You have an annual work permit.
Once legal employees are hired for the business, it is important to understand your requirements as an employer. Not all the employment laws can be covered in this article. We will focus on one of the most important, relating to employee benefit requirements.
Social Security Benefits
These are payments to the Costa Rican Social Security Fund (CAJA). Both the employee and the employer are required to pay CAJA fees. This includes payments for the retirement benefits for the employee and for healthcare coverage.
Employers are required to pay 26.33 percent of the employee’s salary to CAJA and employees must pay 9.34 percent. It is the employer’s responsibility to collect the employee’s portion from salary amounts. In total, the employer pays CAJA a total of 35.67 percent of the employee’s earnings.
For example, if your employee earns $100 USD, you must pay $35.67 to CAJA, from which $26.33 is your share and $9.34 is the employee’s.
Depending on the amount of time worked, an employee will have a certain number of paid vacation days per year. The employee has the right to receive two weeks of vacation per work period of 50 consecutive weeks.
This is a Christmas bonus, which must be paid within the first 20 days in December.
The aguinaldo is calculated according to the employee’s average monthly salary between December 1 and November 30 (12-month cycle preceding December 1).
Like all countries, the labor laws in Costa Rica are extensive. Future Howler articles will cover more of them. In addition, we will look at other types of businesses, such as those with no employees.
The biggest takeaway for Howler readers is that it’s important to follow the laws in the country where you’re residing. Obtain reliable legal advice to ensure you are compliant. Ignorance of the law is no excuse. We should all embrace a system that protects the residents of the country where we operate a business.
Read more about owning and operating a business in Costa Rica here!
Howler Costa Rica Legal Ease Articles
Applying for Costa Rica Residency
Tax Time, Corporations and Property Owners
Corporate Tax Update
Power of Attorney in Costa Rica
Annual Tax Over Costa Rica Corporations
Due Diligence, Purchasing a Vehicle in Costa Rica
Costa Rica Income & Sales Tax
Purchasing a Condominium
Buying a Business