Active and Inactive Companies: Implications for the Tax Agency

Costa Rica is renowned for its rich biodiversity and stable political climate. In recent years, this combination has fostered foreign investment and the formation of new businesses from investors and entrepreneurs from all over the world. Costa Rica as all countries has an intricate tax system and to navigate the business environment effectively, it is crucial to understand the legal and tax implications in Costa Rica.

One very important point that expats and business owners must understand is that all corporations, regardless of type, are classified as “Active” or “Inactive”. Therefore, this blog aims to explain what the difference is and how it impacts company ownership, since companies depending on their classification are required to meet specific obligations, such as filing monthly and annual tax returns and maintaining an up-to-date registry. The Tax Agency is in charge of categorizing companies as either Active or Inactive. Here is what you need to know.

What is an Inactive Corporation?

Inactive corporations are those that, while legally registered before the National Registry, do not engaged in any business activities. It is increasingly common for corporations to be used for non-business purposes, such as holding and protecting assets, generally for the purchase of real estate. However, since the enforcement of the Law to Strengthening Public Finances (“Ley de Fortalecimiento de las Finanzas Públicas”) in 2018, these companies must comply with several requirements:

• Filing the D-140 form with the Tax Agency; This form is used for the enrollment, modification and unenrollment of taxpayers.
• Paying corporate tax
• Paying culture and education stamps
• Filing the final beneficiary ownership declaration with the Central Bank
• Filing the D-195 form with the Tax Agency

Let’s zoom in on the D-195 Form

The D-195 form is a descriptive declaration for inactive companies, that includes: (i) selecting a reason from a pre-listed set for not performing economic or business activities; ii) declaring any recorded and/or unrecorded assets; iii) declaring non-registrable assets, iv) declaring cash balances and/or accounts receivable; v) declaring assets or rights abroad; vi) declaring club memberships or similar; vii) declaring intangible assets (or others); viii) declaring short- or long-term debts; ix) declaring debts to supervised entities and other creditors.

What is an Active Corporation?

An Active corporation is a company engaged in business operations. These companies generate revenue and contribute to the economy by providing jobs, making investments, and producing goods and services. Obligations for active corporations before the Tax Agency depend on various factors, including the type of activity, revenue, and company size. Active corporations must file tax returns, vat tax returns and fulfill their fiscal responsibilities, ensuring transparency and accountability.

In conclusion, the landscape of active and inactive corporations in Costa Rica provides a comprehensive view of the country’s economic vitality and Government’s interest to keep a strong tax system. Active corporations drive growth, innovation, and employment, significantly contributing to national finances, while inactive corporations passively contribute under the Law on Strengthening Public Finances by serving a vehicle to protect national and foreign investments.

Understanding these dynamics is essential to leverage the opportunities and challenges in the Costa Rican market. For further insights into these dynamics, please contact Hillary Cruz Chaves at hcc@quatro.legal.

Disclaimer: The information provided in this blog post is for general informational purposes only and is not intended to constitute legal advice. While we strive to ensure the accuracy and timeliness of the content, laws and regulations are subject to change. For the most accurate and up-to-date information, please contact our office directly. Some images may be AI generated.