Impact of new tax laws in Costa Rica?
 

With Costa Rica moving towards taxation on world wide income to residents, like Canada and the US, where does that leave companies like IwantU and others established there?

Certainly the primary advantage for locating there was the tax-free status on International type businesses like dating sites and online casinos.

ouch that is going to hurt, whats the %?

It is 30%, the proposed tax law reform has passed a second reading in their parliment.

http://www.tax-news.com/asp/story/st...toryname=22685

Hahahah tax laws enforced in Costa Rica. It's a good idea for the country and all, but since they can't even replace the man hole covers people steal and sell for scrap metal, or enforce existing domestic tax laws, I doubt they'll be able to enforce any new tax laws.

Regardless if they can enforce them or not, really most countries have trouble doing so, but I'd hate to be a test case and end up in jail there.:(

You have to understand how Costa Rica works. It's not really an issue.

There are also a ton of other countries that still do not tax world wide income, so I'm not sure where the appeal to still be in Costa Rica as a resident would be.

Would a company like IwantU start paying hefty taxes or just move to a tax free jurisdiction? I think it would cost alot less to just move.

Are you a resident? If you are a perpetual tourist the new taxes don't apply to you anyhow.

The ex-pay community seems to be up in arms against this, saying this will kill foreign investment.

I mean ex-pat community..typo

And it will. there are still countries that dont have that law. that is a major mistake.

Form offshore corporation in a tax haven and have your company work as a consulting type firm earning minimal income...

At least that's what I "would" do. lol.

As a Costa Rican resident you would be still taxed on the income of your offshore corporation, hence the 'worldwide income' meaning.

Sounds like they just went totally nuts dreaming of massive revenues again :1orglaugh Greed always was an achilles heel.

Meanwhile almost all counties in Latin America operate on a geo-based tax system, so there's plenty of choice.

Most countries in Latin America tax world wide income. I can only think of Panama and Belize which still tax on a territorial basis.

The Carribean nations mainly tax on a territorial basis, and many European countries as well.

My point being, why risk it now operating in Costa Rica when there are so many alternatives?

With Panama south of Costa Rica and Nicaragua north and where both of these countries don't tax worldwide income, Costa Rica is obviously going to feel the pinch if only because they just lost a fair amount of cash being injected into the local economy and will lose any aspect of offshore biz that they did have. (Not that CR is an actual real offshore)

Can't remember em all, but Guatemala, Paraguay, Uruguay and Bolivia have the same tax system as Costa Rica has now.

A fair number of Caribbean countries rely ecomomically in being "offshore" where no local taxes apply. Many would go bust if they never offered offshore services. We have facilities in a few of the islands and sure would not be there if there were taxes applicable.

Agree.. there are plenty choices. For IWantU, simply move across the border to Panama. I'm sure they will not be alone in this.

Bottom line.. tho never checked, you can bet the motivator behind this action is not the Costa Rica govt, but the OECD, - everyone's favorite financial advisor where it ends up costing all round. :winkwink:

I agree. They should move to the States. Specifically, the Southeast Gulf region. :2 cents:

Mmmm.. Thought so! It is most probably OECD - they sit on their asses in Paris and decide what is best for other countries. Not one member of this org was actually elected by anyone - ironic! :1orglaugh


http://www.oecd.org/document/19/0,23..._1_1_1,00.html

You got a sense of humor Holly!!! :1orglaugh

Disclaimer: I'm no lawyer, so these are just my own thoughts (and not those of IwantU!):

1) Political corruption is still VERY strong here in Costa Rica. With the number of sportsbooks here and the cash going around, I think it's highly unlikely this will pass anytime soon or at all...

2) It's Costa Rica. Even if it does pass, it could take years to be enforced.

3) From that link, I think it's important to note this:

"However, foreign individuals living in Costa Rica who can prove that their income has already been taxed in another jurisdiction, or are able to show that income is to be invested in the country, would be exempt under recent amendments."

We are becoming ISO-certified as well as hoping to employ up to 140 local Costa Ricans by the end of this year (we're renovating a new building beside us as we speak to fit more employees) and doing things to keep the government happy here.

However, we shouldn't have any problems proving we've been taxed in, say, Panama - thus becoming exempt.

There are other loopholes that exist as well to avoid Costa Rican jurisdiction :)

So I for one, am not worried about it.

Totally agree Varius :thumbsup

Can ya imagine the govt actually attempting to implement a real tax system here??? :winkwink: They forgot how much that costs and how much they are going to lose in the local economy before it becomes a reality.

Meanwhile.. I got an open manhole 50 yards down the main road with a flag stuck in it to stop cars/people falling into it - it needs repairing. But it can wait another six months - after that, I'll gladly bribe them to repair it. :1orglaugh

The sportsbooks have a special deal, maximum tax of $46k US per year. They are the only exempt companies as far as I know.

As far as being taxed in Panama, there would have to be a double tax treaty there and Panama dosent have any of those as they don't have taxes for foreign companies to begin with. Double tax treaties only exist with countries that have taxes plus to comply with the tax laws you would generally need to establish a major presense in that country to justify it being your headquarters, so after all that expense you might as well move to Panama.

I think your best bet is to try to make a special deal with the government and/or threaten to leave and take your business to another jurisdiction.

Warchild, your ICQ is not getting my messages.

Email me. pual - eva /at/ paulmarkham.com

Shit!! Is that why all the man hole covers disappear??? :1orglaugh :1orglaugh

Our accounting is well set up and any new regulatations will NOT affect our position and location. We have moved to Costa Rica for several other reasons that make it worthwhile for us to remain here, no matter how the Tax laws change.

Moreover, the new regulation has not been approved yet. If you know Costa Rica, you know that things take time here :)

Cheers

Update on Costa Rica taxation...

Sala IV (court) has objected to the new tax proposals in several ways, but also including comment that these would violate the Constitution.

At this time the proposed laws are dead and a new admin is taking over govt shortly.

As part of the process for this new tax regime, the bills need to be passed to Sala IV to check that the proposed laws are not breaching the constitution blah before a final hearing in the legislature.

Sala 4 has objected to the tax laws as proposed and among the reasons are.. the measures proposed by the legislature to "limit debate" are unconstitutional. There was little or no consultation with other parties - ie banks and others with an interest.

Now... don't smirk at this one. :1orglaugh

Another element proposed within the tax law would permit citizens to electronically file tax returns - but, Sala 4 has pointed out that this would allow tax authority employees to examine citizens files and article 24 of the Constitution states that the right to privacy for written, verbal and other communications is invoilable. :1orglaugh :1orglaugh

That's what I call a true democracy :winkwink:

:winkwink:

Let's just say that there are real implications for any Americans seeking the tax shelters they think Costa Rica provides without some real assistance from professionals in that field. I'd suggest you do some research into the TIEA that CR signed with the US.

Panama's a better bet. :)

Didn't seem like anything would happen too drasticly over night down there.

Yeah, this debate is for another day seeing how the tax bill got shot down by the supreme court (Sala IV). At any rate, I wouldn't suggest that companies planning to operate here use Costa Rica as their banking option -- they should use Costa Rica for what it's best for. It would be advisable to form a local corporation simply for the purposes of paying for Costa Rican operations, such as office location, employees, and token management fees for the owners of the company in question.

The idea is to have funds for the expenses in Costa Rica, and the profits being generated by another entity in some tax haven -- a technique that is used by a good chunk of Fortune 500 companies. I figure if it's good enough for a multi-billion dollar multi-national company, it's good enough for me.

Agree John. Costa Rica is not an "offshore" in the true sense - it already has a tax system of sorts, but one that is geo-based (ie a person living in CR where the source of funds is elsewhere, may bring whatever funds they like into the country and this is tax free) whereas businesses operating within the domestic market are required to pay taxes.

Is there such a thing as a tax shelter for US citizens whether they live in the US or elsewhere? There remains the IRS reporting requirement for disclosure on an annual basis.

Costa Rica has an Exchange of Information Treaty only with the US on taxation re US citizens - they have no arrangements, MAT's or EIT's with any other nation.

Agree jalami!

Costa Rica is a place to live - a playground, and not necessarily a base for core operations - It's a great environment for "lifestyle".

Hell.. if ya don't actually need a formal "office" here, - the "staff" can be paid direct from an external entity and have the benefit of no taxes locally as well. :)

Tho... got to agree with the core principle of method of trading/structure you outlined above.

You might want to learn about how CAFTA works. It's most likely going to be ratified through CA this year -- I think its only missing one CA country -- at which point the US government will have their fingers in every pie down there.

Casino and sportsbook owners should be looking for Plan C, as in see your way the hell outta there before the shit hits the fan if they haven't already.

Casino operations already have laws and taxation in Costa Rica. The applicable law is that of Costa Rica and the courts here sure as hell are not going to listen to the US government with or without CAFTA.

The only problem is with US casino operators where they still hold US citizenship and "apparently" subject to the laws of the US wherever they reside. For anyone else, there is little problem.

BTW.. It's amazing the benefits of having US net casinos with native Americans as partners. :winkwink:

True, if you don't need any particular full-time staff in your operation, you could rent an office or work from home and just handle everything externally from a financial point of view. I would imagine that at some point years in the future, you're gonna want to declare some income brought in to explain local expenses.