How to Hire Employees in Costa Rica: Costs and Checklist

Costa Rica is a country that is placed in Central America, near countries as Nicaragua, Colombia, Panama y Ecuador. Costa Rica has an effective capacity for social mobility that allows it to achieve high general progress in relation to the distribution and size of its economy. It also is the fiftieth richest country in the world according to data from the International Monetary Fund and one of the most stable in America, obtaining generally favorable results in all development and competitiveness indices.

Talking about their culture, they are very rich in sculptures, paints, music and sports, so their culture is very wide, and it’s a nice thing to explore.

Costa Rica is a country where 5 213 362 people live. It is not very big talking about the extension of the country but is very rich talking about their people, their culture and their economics.

In Costa Rica, the entity that controls the work and employment is the Costa Rican Ministry of Labor and Social Security.

Remote work in Costa Rica

• Requirements for Costa Rica’s Remote Work Visa

Basically the only requirements are proof of minimum stable income of $US3,000 per month ($4,000 for a family) for the previous year and proof of health insurance for the year you’re applying for.  There will also be a significant fee for the visa, but the amount is yet to be determined, and it’s not clear whether it’s an application fee or only charged once you are granted admission.

The visa became law in October 2021, but it took some time to work out the kinks, and they start processing visas in July 2022.  There are a couple of other requirements listed below that may prove difficult for some, but since the process is fairly simple and an acceptance or denial is guaranteed in two weeks, the easiest way to find out if you qualify is probably to simply apply.

The law was written with a steady paycheck in mind.  The law does allow for proof by bank statement vs paycheck, but many most digital nomads have variable income and depending on when projects pay out might have $10k, $0 and $8k income for a three-month period.  That would be triple the required amount, but the way the law is written would not qualify.

“Stable” may prove problematic as well, since qualifying workers may not have a long term contract or position within a corporation.

Another technicality that may cause some techno expats difficulty is the requirement to prove a year of prepaid health insurance.  Most coverage is paid monthly, or quarterly at most.

Hiring employees legally in Costa Rica

• Steps to Create a Company in Costa Rica

Check name availability

When you want to create a company in Costa Rica, the name of your company must be unique and not be confused with brands or other companies registered in the country; for that, the availability in the National Registry database must be checked. The consultation is free and can be done easily on the Registry page.

Choose the type of company

The type of company you choose should be in accordance with your needs and those of the business you want to develop. The most used in the country are the Stock Company, made up of shareholders, and the Limited Liability Company, made up of quota holders. The difference between them lies in the responsibility that the shareholders have on the obligations of the company.

Select a partner and representatives

To create a company in Costa Rica, you have to select a partner and representatives. For any of the two companies mentioned above, a minimum of two partners is needed; however, once the company is incorporated, a single person could be the owner of all the shares.

In addition, if the Limited Company is chosen, you must also appoint a Board of Directors in which the shareholders can also participate. In the case of the SRL, the administration is done through a Manager and as many managers and sub-managers as desired can be appointed.

Sign the Constitution Act

The constitution of the company is done by means of a Notary Public. For this, having fulfilled the previous steps, it is only necessary for the shareholders to present themselves with the corresponding identification document. Also, this can be done through an apostilled power of attorney if it was granted in another country.

Payment of duties, stamps and taxes

Once the articles of incorporation have been signed, the Notary will enter the platform to register the company and make the payments due by means of a card or bank deposit. In addition to the amounts indicated at that time, once the company is established, the tax on legal persons must be paid, so it must be included in this item.

If the steps are carried out carefully, once the registration form is submitted, the creation of your company in Costa Rica can be approved the same day.

Register the company with the Ministry of Finance and other institutions

To start business operations, the company must have the Unique Taxpayer Registry. This step is simple and immediate. By creating an account on the ATV portal of the Ministry of Finance, you can register your company and receive the registration certificate in less than 5 minutes. According to the area in which the company is developed, it must have municipal permits or licenses.

Regarding social charges:

An individual’s share of social security contributions is 10.5% of total remuneration, which, in the case of salary, is deducted from the individual’s payroll payment.

A self-employed individual’s participation in the social security system is determined by the Social Security Authority on the basis of the general reference of income determined by the Board of Directors by type of worker, unless the Social Security Authority determines that the self-employed individual’s income is greater than said reference, in which case, the individual’s contribution to social security will be determined on the basis of this adjusted income reference. A self-employed individual’s contribution to the social security regime can range from 10.5% to 18.62%, depending on one’s classification and income reference. All salaried and self-employed workers are obligated to contribute to the social security regime.

Regarding the employment contract:

The employment contract is a contract that a person signs to provide work or services under the direct supervision of another person and in exchange for remuneration of any kind or form. The existence of this contract between the worker who provides the services and the person who receives them is presumed.

Employment contracts can be both oral and written. Verbal contracts are provided in some specific cases (agricultural labor, temporary employment and piecework when the value does not exceed a certain limit). Written contracts are provided in most cases.

The following information must be present in an employment contract: full name, nationality, age, sex, marital status and address of the parties, the number of identity documents, if the parties are required to carry them; an exact description of the worker's residence; the duration of the contract or expression must be for an indefinite term, for a particular job or for a single payment; the time of the working day and the hour when remuneration should be paid; the salary, method, place and time of payment; the places where the service will be provided or the work will be performed; other terms agreed by the parties; the place and date of conclusion of the contract; the signatures of the parties, having two witnesses who can legitimately replace the person who does not know or cannot read and write.

The employment contract is drawn up in triplicate, with one copy for each party and a third copy that the employer will submit to the Employment Office of the Ministry of Labor and Social Security within a period of fifteen days from the conclusion, modification or renewal of the contract. Pursuant to article 6 of the Labor Code, all orders and instructions in the workplace must be in Spanish, which means that all documents related to employment, including the employment contract, must be signed in Spanish.

Fixed term contracts

Costa Rican labor law prohibits the hiring of workers with a fixed-term contract for permanent tasks. The general duration of fixed-term contracts is 12 months. This duration is 60 months if the job requires special technical preparation. A fixed-term contract may be renewed if the service provided is still extraordinary, it is not the permanent activity of the company and the objective reasons (at the time of contracting) persist.

The employment contract may be concluded for a defined time (temporary), indefinite time (permanent) or to perform a specific task.

Trial Period

The trial period in Costa Rica is 3 months. It is understood, as provided in the Labor Code. The termination of an indefinite-term contract can be arranged in the first three months without any obligation of notice or payment due to it. For domestic workers, the trial period is also three months.

Warning for employeers

• Before hiring a foreign person, employers must verify their migratory status in the national territory, so that the foreign personnel to be hired must have a legal status in the country and also be expressly authorized to work.
• According to the Immigration and Foreigners Law 8,764, there are different categories and migratory conditions, some are granted with free condition, which allows the foreign person to work without any impediment in the country. Others are subject to restricted conditions, which means that they are granted under specific conditions, that is, to work with a specific employer, or without permission to work. Therefore, it is important for the employer to seek advice before hiring foreign personnel.
• The fact that the foreign person to be hired does not have a legal status in the country is not an obstacle or impediment for their hiring, because the interested company can arrange a work permit and/or temporary residence that enables their hiring.
• Companies can also transfer to our country the human resources of foreign companies, as long as prior to or parallel to the hiring, they request the corresponding work and temporary residence permit.
• The immigration legislation in our country has facilitated the paperwork and procedures so that companies, when they need it, can hire foreign people with a technical or advanced professional profile.
• An example is the Regulation for the Registration of Companies and Immigration Regulation of their Personnel (Executive Decree No. 3.6576-G-COMEX) that allows multinational companies, companies in free zones, companies with contracts with the Government and among others, to enjoy of benefits in the hiring of foreign personnel.
• This regulation establishes a recognition to the company which guarantees preferential treatment and a single window for those companies that meet certain requirements.
• The professional profile of the foreigner must be the following: Representatives, Managers, Executives, Specific Professionals, Specialized Technicians and Scientists, who have a high national or international business knowledge, in technological equipment and/or markets, with academic training and/or work history (experience).
• Regardless of the immigration status of foreign personnel or if their work permit is in process, the employer has the obligation to include them in the company's payroll from the first day they started work and take care of paying their employee-employer fees to the employer. Costa Rican Social Security Fund (CCSS).
• The company, when hiring a foreign person, must also assess their remuneration, because the Immigration and Aliens Law establishes that the salary to be earned must be 25% higher than the minimum salary established for the position to be held.
• It is important to also keep in mind that foreigners have the same individual and social duties and rights as Costa Ricans, with the exceptions and limitations established by the Political Constitution and the laws.
• Immigration legislation establishes sanctions and fines for those employers who hire or keep hired undocumented foreign personnel without legal status in the national territory and without express permission to work.
• The penalties could range from $1,400 to approximately $10,000, depending on the seriousness of the facts and the number of migrants in an irregular situation.

Holidays (non laboral days)

Taxes in Costa Rica

For employer:

• 30% - Corporate tax rate
• 9.25% - Health & Maternity
• 5.25% - Basic Pension Scheme
• 0.25% - Banco Popular Employer Fee
• 5.0% - Family Assignations
• 0.5% - Social Aid: (IMAS)
• 1.5% - INA
• 0.25% - Contribution from Banco Popular Employer
• 3% - Labor Capitalization Fund
• 0.5% - Complementary Pension Fund
• 1% - National Insurance Institute
  

For employee:

• 5.5% - Medical and maternity contribution
• 4.0% - Disability, old age, and death benefits

Employee income taxes

• 0% - Up to CRC 817,000 ($1319.28)
• 10% - CRC 817,001 to 1,226,000 ($1319.28 - $1979.72)
• 15% - CRC 1,226,000 to CRC 2,103,000 ($1979.72 - $3395.88)
• 20% - CRC 2,103,000 to CRC 4,205,000 ($3395.88 - $6790.15)
• 25% - Over 4,205,000 ($6790.15)