How to hire employees in Costa Rica: Pros and Cons

How to hire employees in Costa Rica: Pros and Cons

Culture
Marketing Team
Marketing Team Aug 17 2021 • 5 min read
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Costa Rica has become a hub for service providers to take advantage of this trend, by offering the necessary local services and expertise.

The country ranks among the most competitive in Central America according to World Economic Forum’s competitiveness index, with an overall score that ranges from 0.75 (rank 29) in infrastructure sub-index to 0.84 (rank 24) on institutions sub-index; it is also ranked 46th worldwide out of 140 countries evaluated by WEF’s Global Competitiveness Index 2017 report, placing it as one of Latin America's more developed economies along with Chile or Uruguay.

Pros of hiring in Costa Rica

Education System

Costa Rica has developed one of Latin America’s best education systems in terms of quality and access to schooling. Costa Rica ranks among the top countries on international numeracy tests (e.g., TIMSS) for students from grades four to nine.

The literacy rate is around 98%, thanks in part to a program that makes books available free of charge throughout the territory; it also offers many higher education opportunities at competitive rates even when compared with other nations within Central America or South America―and all this without charging tuition fees!

Culture

Costa Rican culture places great importance on family ties and considers "family" as an entity that includes parents, children, grandparents, grandchildren, and more distant relatives too. This means that your employees will likely be more content and productive in the workplace if you maintain a family-friendly work environment.

Fiscal Advantages

Besides these advantages, Costa Rica also offers other potential benefits for investors such as low costs of living, measured by purchasing power parity (PPP); excellent climate; high levels of safety; very stable institutions with an efficient regulatory framework to promote investment; no restrictions on repatriating profit or capital; and it is one of only four countries that have signed all 12 treaties on intellectual property rights protections set forth by the World Trade Organization. All this makes it a great place to do business!

In addition, Costa Rica provides fiscal advantages like no other country in Central America such as exemption from income tax during the first three years for companies with few employees, and no withholding tax on dividends.

Costa Rica is the oldest democracy in Central America, providing political stability that has helped the Costa Rican economy grow at an average of about 25% per year since 2011 to date.

Thanks to its stable and competitive business environment, Costa Rica has emerged as one of the main destinations for multinational companies to relocate their regional offices.

Labor Laws

In addition, Costa Rican labor laws are among the most flexible in Latin America with strict regulations about hiring employees from abroad that guarantee access to qualified talent without being cumbersome or complex. It is a perfect destination if you want your company’s headquarters outside North America but close enough so it can manage international operations efficiently.

Proximity to the U.S, Europe, Asia-Pacific regions

The country's advantages also include proximity to the U.S., Europe, Asia-Pacific regions; favorable tax system (zero income taxes on profits); low crime rates (less than 40% of other countries in Central America); the high quality of life index according to Economist Intelligence Unit, and a well-developed logistics infrastructure.

World-class services at affordable rates

The last factor is the most important one for many companies looking to move their headquarters abroad: Costa Rica offers world-class services at affordable rates without sacrificing quality.

The country ranks second in Central America according to International Living's retirement index with an overall score of 76 out of 100 points on the personal freedom sub-index; it provides not only high-quality healthcare but also excellent cultural life thanks to its natural beauty and variety of options when it comes to entertainment or sports activities (even if some may seem unusual), as well as great weather conditions that make you feel like summer never ends, surrounded by lush green mountains and crystal clear beaches where tropical forests meet long white sand shores, plus inexpensive real estate prices and low cost of living.

The World Bank Group’s report, in the past year, economies in Latin America and the Caribbean have improved their ease of doing business, carrying out 25 reforms that help foreign companies to register and comply with labor market regulations efficiently.

For instance Costa Rica has been able to simplify its tax system by reducing rates on imports or creating a national sales tax called IVA (Impuesto de Valor Agregado), which replaced CREE (Contribución Especial para la Educación). Additionally, it also reformed its pension system so that private-sector workers are now not required to contribute anymore if they don't want to; this reform is supposed to benefit about 700 thousand people who are currently covered by occupational schemes and has been praised as a success

Cons of hiring in Costa Rica

The only downside I see about investing in Costa Rican businesses is the lack of local knowledge and the difficulty with the hiring process. Hiring employees in Costa Rica can be a daunting process.

The country is known for its high standards and expectations, which are difficult to meet without local knowledge and experience. An International PEO is the answer for businesses that want to hire locally but don't have the time or resources.

International PEO

For these cons, you should find experienced local partners that will help you with the hiring process in Costa Rica. In this case, an International PEO will take care of your local talent; from preparing the job offer to terminating an employment relationship. All the hiring processes are prepared and organized in compliance with local labor laws and regulations.

For better employee engagement and retention, with an International PEO, you can offer them additional and outstanding benefits such as:

- Assistance in filling out job applications

- Preparation of the contract review process (contracts are provided by the staffing partner).

- HR support for pre-employment assessments or interviews.

- Assistance with HR policies and procedures.

- Pension benefits or retirement plans.

- Assistance with payroll.

- Payment of social security contributions and taxes (including for expatriates).

And to top it off, an International PEO will provide the following services at a fraction of what you would pay on your own:

- Health insurance; life coverage.

- Car leasing.

An International PEO offers a wide variety of Company Tax and Legal Services that are tailored to your needs. With their expertise, you will be able to take advantage of Costa Rica's tax-free zone regime and the beneficial fiscal incentives such as:

- The possibility for 100% foreign investment in certain sectors.

- No need for repatriation of profits and dividends.

- Tax credits for research and development expenses.

- No withholding taxes on interest, dividend, or royalties payments to non-residents of Costa Rica (except those paid to residents).

- Discretionary tax deduction system which provides a special rate of 25% with no restrictions in the deductions that can be made by firms operating in the free zone.

- Nonprofit entities are exempt from taxes on income and capital provided they do not engage in commercial activities; if they carry out these types of operations, 95% of their profits will be subject to taxation at a rate that is lower than what would apply under usual tax rates for private companies.

- A special regime for the sale of real estate to non-residents.

- A regime for taxation on capital gains that is more favorable than what applies under Costa Rican tax law, as it allows exemptions from withholding taxes and exemption from income tax when realized through long term financial investments in shares or units of companies whose registered office is located within a free zone.

In conclusion

Ultimately, an International PEO is the perfect partner for your company's HR needs in Costa Rica. They provide all of the necessary services to help you out and work with you so that cost doesn't become an issue. As long as international companies are hiring in Costa Rica, there will always be employees for them.

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