Costa Rica is a beautiful country with many great opportunities for entrepreneurs. If you are thinking about starting your own business, Costa Rica may be the perfect place to open up shop. The cost of living in Costa Rica is lower than in many other countries and there are many resources and information available to help you get started. At the same time, Costa Rica has a fantastic business environment and is open to foreign investment. So before you make any decisions; read some of the most important points to consider.
Why Start a Business in Costa Rica?
One of the things that you will need for your new Costa Rican business is local company registration in order to open bank accounts, apply for permits, open utilities, or sign contracts. There are two kinds of companies available in Costa Rica: one with a limited duration (Anonymous Society or S.A.) and another type which can remain open indefinitely called SRLs (Society of Limited Responsibility).
The process involved in setting up these entities is similar but it's important to understand there are benefits associated with each one so make sure you do enough research before jumping into anything. For instance, if you are looking at starting an online business, it might make more sense to open up an anonymous society.
Visa Requirements for Working as a Foreigner
In Costa Rica, you can find high quality of life and low cost of living if you own your house or apartment. This is one reason why ex-pats are attracted to the country: they enjoy their privacy without having to pay huge amounts each month. However, owning property in Costa Rica has its downsides (watch out for taxes) since you cannot use it as collateral during a loan process unless you have permanent residency status which means that mortgage rates will be much higher than other types of loans and credit cards.
In order to live legally in Costa Rica with this type of visa, international visitors must apply for temporary residence first before applying for permanent residence. Temporary Residence is a six-month status that will allow you to open bank accounts, sign contracts, and open utilities in your name within the first three months of residency but not commercial property or real estate investments yet.
You can apply for this visa if you are retired from an overseas job that pays $1000/per month minimum or you have at least $100,000 USD on deposit in Costa Rica as proof of income. Permanent Residency (PR): After two years of temporary visa living in Costa Rica, it's possible to become eligible to receive PR status by making additional deposits into a Costa Rican bank account totaling over $200k with monthly deposits adding up to about 75% of their salary per year. Then, after three years of PR status, it's possible to open a Costa Rican business and receive citizenship.
Wages in Costa Rica
Another reason to start your own business is that wages are typically low here. Therefore, even if you do obtain permanent residency (which can take years) and are able to work for someone else, most jobs don’t pay what you would expect. At least in relation to your home country’s standards. Many workers in Costa Rica, even skilled ones like plumbers or dental assistants, make only around $850 per month on average which is about the same as working at a fast-food restaurant back home. Costa Rica has been able to maintain a decent standard of living for its residents due to Costa Rica’s beneficial climate, lack of pollution, and beautiful scenery.
The Costa Rican government also invests a lot in education which helps the country remain competitive with other countries when it comes to employment opportunities so there are plenty of jobs available if you can find them! The job market is growing quickly here but many Costa Ricans prefer working at home rather than abroad since they would have less time with family or friends otherwise.
You might be thinking that Costa Rica sounds like the perfect place to start your business because wages are low – this isn't entirely true either, especially compared to other Latin American countries like Colombia where salaries are more on par with what people earn back home. Costa Rica's high unemployment rate means that most Costa Rican business owners are willing to work for less than they would earn elsewhere in order to have a shot at making their dreams come true and owning their own company too.
Some Costa Ricans also believe that working from home is the best way to make money since you can save more of your income as opposed to what you might spend on things like rent, transportation costs, or food while commuting into an office every day (you'd be surprised how much some workers pay just so they don't have to commute). These factors contribute towards Costa Rica’s low wages but it doesn’t mean there aren’t jobs available with higher salaries either if you know where to look. The Costa Rican government is also investing more in Costa Rica's infrastructure, including public transportation and highways which should help decrease commute times too.
In the last decade, Costa Rica has increased its technical education programs to include courses on robotics and other forms of automation that will likely lead to a higher demand for skilled workers as well so at least Costa Ricans are learning how to adapt to time changes. This globalization trend has also led to an increase in younger Costa Ricans speaking English fluently too since it’s becoming harder for older generations who learned Spanish first (i.e., from their parents) instead of English like many do today). In fact, there’s been growing interest by both governments and citizens alike about bilingual education over the past few years.
Costa Rica's Costa Rican government also continues to promote Costa Rican businesses and the “Costa Rican brand” which means there will be plenty of opportunities for business owners in Costa Rica as well. Since Costa Ricans continue to want to work closer to home, it makes sense that many Costa Rican workers are starting their own companies instead of working somewhere else too (although some still go abroad or elsewhere if they can).
This may seem like a lot of information but we've only scratched the surface on what you should know when setting up your company here! Luckily there are more detailed resources out there from ex-pats who have already gone through this process so I'd recommend checking those out before doing anything yourself too.
Steps for Starting a Business in Costa Rica
1. Pick a Business Structure
Costa Rica has been known as the most stable democracy in Latin America with no military or political ties to any other country. Costa Rican citizens are considered very friendly and welcoming people too so if you're interested in starting your own business here, they'll help you every step of the way.
Much like other countries, Costa Rica has different business structures that vary in terms of complexity, number of people involved, and liability protection. There are a handful of different types, but here are the two most common Anonymous Societies ("Sociedad Anónima") or S.A.
This business form is similar to a corporation in the United States. To form an S.A., you need several people, including at least two shareholders, three board members, a controller, and a resident agent (attorney). The duties can overlap in some cases but it's not uncommon for Costa Rican businesses to have multiple directors instead of just one like they do in the States One interesting thing about Costa Rica’s corporate tax structure though is that Costa Ricans pay 35% on their first $25k USD income and then 15% after that while foreigners only pay 25%. This means if your company makes less than $25k each year, most companies won’t owe anything in taxes which isn't too bad. Another perk Costa Rica offers to foreign-owned businesses is that owners pay only 50% of their capital gains.
2. The other most common type of business in Costa Rica is the Sociedad de Responsabilidad Limitada (Limited Liability Society) or SRL.
SRLs are very similar to LLC s in the United States but they're more complicated to set up and there's a minimum number of shareholders you need before it gets approved by your fiscal agent which can be difficult if you don't know anyone here already. This structure also requires at least three board members, an accountant, and two directors who must all reside within Costa Rica as well so keep that in mind too when starting this type of company.
3. Board Members vs Directors
A director’s duties include managing the day-to-day operations while the Board oversees major decisions and makes sure the company is able to fulfill its legal obligations. Directors must be at least 18 years old while board members can be between 21-75 (must still reside in Costa Rica).
One of the biggest differences, though, is that a director isn’t required to live within Costa Rica like they would with an SRL but they do have more responsibilities than a board member. A director also has unlimited liability so they're responsible for any debts or damages their company may incur whereas directors are only liable up to what they invested into the business For example if your LLC uses your car as part of its operations and then gets sued because you hit someone else on accident - even if it wasn't your fault - they’ll be responsible for paying the damages.
What's even worse is that directors have to file a special form with their fiscal agent every time they leave or join your company so they can't just jump around from one LLC to another without anyone noticing unless they make them anonymous first (which you shouldn't do in Costa Rica). Directors also have fewer responsibilities than board members and don’t need any meetings like they would if they were on an SRL but they do have some duties that come into play when it comes down to certain financial decisions, which we'll get more into later. So before deciding whether you want someone as a director or a board member, you'll want to know what they're going to be responsible for when they're in charge.
4. Both Directors and Board members must also have a Resident Agent
A resident agent is a person who represents your company before Costa Rican authorities so they need to reside within the country. Even though they don't need to live here too, directors are still required by law to declare their residency as well because they might not hold any shareholders meeting or vote on certain decisions - even if they can legally do those things anyway - it just makes more sense logistically (and protects them legally). SRLs only require one director while an SSA requires at least three board members so once they leave or join your company, there will be a meeting to fill their spot before the fiscal agent can formalize it.
5. Board Member Responsibilities and Roles
The Board is responsible for major decisions that affect the business as a whole like approving budgets, hiring key employees (like directors), fixing salaries of certain positions, etc. but they don't have any responsibilities outside of those mentioned above. They're basically just another check-and-balance measure in case something goes wrong with how things are being run within the company.
6. Board Member vs Shareholder
A shareholder, on the other hand, doesn't have any responsibilities outside of their financial investment so they only need to show up for voting meetings. In most cases (unless they have some kind of special rank within your company), they can easily be substituted by another member if they're not able to make it but you still need at least one person present in order for anything official to get done during that meeting. If a director or board member isn't available either, whether they're out being sued because someone else hit them and their car while doing something totally unrelated or just busy with work - then shareholders are allowed to vote themselves in as board members or directors and vice versa (if a shareholder can't make it to the meeting, they can also be substituted by another member but they'll have to inform their fiscal agent beforehand).
Although they're different from shareholders because of their more active role within your company's decision making process, all three positions are required for Costa Rican companies regardless if you decide on forming an S.A., SRL, LLC, etc. So these kinds of precautions will need to get taken care of before anyone gets too comfortable with their new position at the top.
7. Anonymous Society ("Sociedad Anónima") or S.A.
This business form is similar to a corporation in the United States. To form an S.A., you need several people, including at least two shareholders, three board members, a controller, and a resident agent (attorney). The duties can overlap in some cases so , for example, a shareholder also can be a board member .
8. Both Directors and Board members must also have a Resident Agent
A resident agent is the person who represents your company before Costa Rican authorities so they need to reside within the country. Even though they don't need to live here too, directors are still required by law to declare their residency as well because they might not hold any shareholder meeting or vote on certain decisions - even if they can legally do those things anyway - it just makes more sense logistically (and protects them legally). SRLs only require one director while an SSA requires at least three board members so once they leave or join your company, there will be a meeting to fill their spot before the fiscal agent can formalize it.
Board Member Responsibilities and Roles Board members are responsible for major decisions that affect the business as a whole like approving budgets, hiring key employees (like directors), fixing salaries of certain positions, etc; but they don't have any responsibilities outside of those mentioned above. They're basically just another check-and-balance measure in case something goes wrong with how things are being run within your company . However, they still need to keep track of their own benefits and time off too so they’ll need to file quarterly reports on what they have done or haven't done each quarter along with their own expenses.
If they decide to take a break for a while and they still have "shares", they can temporarily transfer them over to another member but they’ll need the board's approval first.
A shareholder, on the other hand, doesn't have any responsibilities outside of their financial investment so they only need to show up for voting meetings. In most cases (unless they have some kind of special rank within your company), they can easily be substituted by another member. In case, they're not able to be substituted they still need at least to inform their fiscal agent ahead of time.
9. Decide on a Legal Name In Costa Rica
A legal name can be the same name you call your business or it can be something completely different. For example, if you open a restaurant, the legal name may not have anything to do with the name on the sign. Some names are even a series of numbers or special dates written out. The Legal name cannot be too similar to an existing business in the government database and depending on what kind of business is being started you will likely need to apply for a variety of licenses and permits.
10. Get Business Licenses and Permits
Depending on the type of business you're opening, there are a few different licenses and permits that you may need to apply for. For example, if you're opening an office in Costa Rica then there are some free government services (such as this one) that allow foreigners to set up their own business without needing any help from brokers or lawyers. Licenses and permits are available for a variety of industries including real estate, travel agencies, restaurants, and bars.
11. Shareholder Declaration and Digital Signature
Each year, it is mandatory to make a declaration of your business’ shareholders and/or beneficial owners to the Central Bank. Along with this requirement, you will need something called a digital signature ("firma digital"). The digital signature is a card that is used to electronically sign documents and can be applied for at an approved bank by providing your passport and a photo. Digital signatures are used to authenticate the authenticity of information in documents, but they can also be applied for state benefits like filing taxes or checking balances on accounts.
At the end...
There are other important factors in starting a business in Costa Rica, like taxes, corporate taxes, other taxes and electronics invoicing that we will talk about in one of our upcoming blogs. We hope this post gets you started on opening your business in Costa Rica and we wish you much success.
Founded in 2012 by Allan Porras, 4Geeks is a global revenue growth firm for Fortune 500, Global 2000 and fast-growing SMBs. Provides product development and B2B growth marketing services, to clients in multiples industries including eCommerce, Retail, Healthtech, Banking & Fintech, Startups & B2B SaaS, Marketing and Real Estate.