On 20 December 2016, Costa Rica enacted the Law Against Tax Fraud (the Law). The Law creates a registry of ultimate beneficiary owners and provides the tax authorities with more tools to collect and oversee tax compliance in Costa Rica.
Registry of ultimate beneficiary owners
The Law creates a registry of shareholders and ultimate beneficiary owners of all legal entities in the country. The registry will be managed by the Central Bank of Costa Rica. An entity’s legal representatives must submit truthful and accurate information to the registry.
The Law defines “ultimate beneficiary owner” as any individual who has a substantive influence or direct or indirect control over a legal entity, in such way that the individual has: (1) the majority of the shareholders’ voting rights; (2) the right to name or remove the entity’s administration, direction or supervision bodies; or (3) the right to control the entity according to its articles of association. Substantive participation is defined as owning more than a determined percentage of shares (i.e., percentage between 15%-25%, to be determined by the Tax Authorities (TA)).
Private escrows have the obligation of reporting the parts, beneficiaries and nature of the escrow agreement. The provided information is confidential and should only be used for complying with the obligations of the TA and the Costa Rican Drug Institute.
According to the Law, the TA can access the information for the following purposes: (1) performing tax control and tax collection actions; (2) preparing risk management plans; (3) exchanging information according to international agreements; and (4) carrying out tax inspections.
The ultimate beneficiary owners have the following rights: (1) the right to claim that the TA, the Costa Rican Drug Institute or the Central Bank are using the provided information for unlawful purposes; (2) the right to request confirmation regarding their own data in the database; (3) the right to request the correction of inaccurate information; (4) the right to obtain confirmation from public officers about the confidentiality of the information; (5) the right to demand that the TA, the Costa Rican Drug Institute and the Central Bank apply the technical and administrative measures to ensure that the database is secure and used according to the Law.
Failure to provide the information required may result in a penalty of 2% of the entity’s net income in the previous tax period. If non-compliance persists, the National Registry will not issue certifications for the entity nor register agreements in favor of the non-compliant entity. Additionally, the Law includes specific sanctions for public officials who disclose or misuse the information provided by the entities.
Before 1 January 2019, entities must keep the information available and must provide it to the TA within three days, if requested. If security, confidentiality and traceability requirements are met before 1 January 2019, the information must be provided as established by the Law. After 1 January 2019, entities must submit the information as required by the Law.
Digital invoicing and credit/debit cards
All taxpayers must book transactions digitally and issue digital invoices. This process will be directed by the TA.
In addition, all individuals and businesses offering goods or services to the public must accept credit and debit cards to receive their payments.
As an incentive for tax compliance, the Law authorizes the TA to return 1% of sales tax paid by final consumers through electronic means.
The Law allows the TA to establish an electronic mailbox to receive and send documents, such as requests and letters.
Procedures against public offices
Taxpayers that require licenses, permits, authorizations, tax exemptions or have to contract with the Central Government or any governmental agency must be up-to-date with their tax obligations.
To issue a municipal license, local authorities (i.e., municipalities) must verify that the individual or entity requesting the license is registered as a taxpayer before the TA.
Sanctions to third parties
The Law establishes sanctions for tax advisors (e.g., lawyers, accountants) who are considered responsible for the non-payment of taxes or for providing false information about the taxpayers.
General sales tax
The lease of immovable assets for a period not longer than one month is subject to sales tax.
Information available to the TA
The TA will have access to data held by the Superintendence of Financial Institutions (SUGEF, for its acronym in Spanish), regarding the identity of bank account holders (i.e., entity’s representation, domicile, legal capacity, occupation, corporate purpose and identity information of individual clients).
When the TA submit an information request authorized by a court ruling, financial institutions must submit the information requested by the TA.
Appraisals and expert opinions made by financial institutions to authorize loans are considered “foreseeable relevant information for tax purposes” and may be requested by the TA without a previous authorization from a judge. Financial institutions must inform their clients about information requests made by the TA.
Statute of limitations
The Law establishes that the computation of the statute of limitations starts on the first day of the month following the established date for tax payment. Before the Law, the computation of the statute of limitations started on 1 January of the year following the established date for tax payment.
The TA’s right to impose penalties must be exercised within four years as of the day following the taxpayer’s infraction.
Upon receiving a tax fraud claim, the public prosecutor has a five-year deadline, starting on 1 January of the year following the charges, to submit the criminal charge.
The Law makes certain amendments to rules related to penalties. Specifically, the Law modifies the penalty for failure to comply with TA control actions. If a taxpayer is under a tax examination and partially complies with providing the required information or provides information that does not match the requested information, the taxpayer will be treated as committing an infringement. The Law reduced the minimum penalty for taxpayers that fail to fully comply with the information requirements from 10 base salaries to 3 base salaries.
The Law also modifies the penalties for failure to provide information required by the TA. The Law adds subsections a), b) and c) to Section 83 of the Tax Code to regulate penalties applicable to taxpayers and third parties that provide only part of the required information or provide information that does not match the requested information. The minimum penalty for taxpayers and third parties that fail to fully comply with the required information is reduced from 10 base salaries to 3 base salaries.
A new chapter on collection procedures allows the TA to request a seizure of the taxpayer’s property, when it determines that there is a risk that the property may be transferred in order to avoid tax payment. The TA is authorized to receive—before appraisal—immovable and movable goods from taxpayers, as payment of tax obligations. The TA is also authorized to proceed with the electronic auctioning of the collected assets.
Tax debt certifications issued by the TA collection’s office are deemed enforceable titles.
EYG no. 00329-171Gbl