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Can I Start a Business in Costa Rica? 10 Important Questions to Ask

 After several decades of tepid growth, Costa Rica has become one of the most promising economies in Latin America. A number of foreign investors have launched businesses in the country, as they try to capitalize off the many opportunities available. In fact, foreigners reportedly invested $2.2 billion launching businesses in Costa Rica during 2014. However, aspiring business owners will face their share of challenges as foreign entrepreneurs. You will need to carefully navigate various legal and logistical barriers to stay in business.

Here are 10 questions you must answer before starting a business in Costa Rica:

1. Can I start a business with as a foreigner?

Costa Rica is generally welcoming towards immigrants that would like to start businesses; however, there are some restrictions that foreigners must be aware of.

You must be in Costa Rica legally.

You don't need to be a long-term resident of Costa Rica to start a business, but you must be in the country legally. At the very least, you need a temporary tourist visa, which is provided to you after you enter the country (you need a valid passport to receive it). Keep in mind that tourist visas are only valid for 90 days. Of course, this is insufficient if you intend to stay to operate your business for more than a couple of months. Keep in mind that you may have difficulty getting your visa renewed, so it’s best to apply for a temporary or permanent residency.

You may not be able to work at your own business.

Ironically, it can actually be easier to start a business in Costa Rica than it is to get a job. This means that foreign entrepreneurs can't do many of the tasks required to run their own business without a work visa. You can handle most of the administrative duties, but must hire a local to do  the labor unless you receive a work visa. You can apply for one through your local embassy.

2. Will I need a lawyer?

You should never do business in Costa Rica without the aid of a knowledgeable lawyer. There are approximately 25,000 lawyers in the country, but only a handful will probably prove to be a good fit. Here are some tips to choose a lawyer that can help you start your business:

Try to minimize language barriers.

Some Costa Rican law firms have extensive experience working with U.S. based businesses. The one you choose should have a team of competent lawyers that are fluent in English.

Look for a specialist.

Because there are fewer lawyers in Costa Rica than there are in the U.S., you may have a hard time finding one that specializes in specific industries. Some lawyers specialize in serving import/export businesses, agricultural firms and other major industries.

Make sure your lawyers are local.

There are seven provinces in Costa Rica, all of which have their own laws. Look for a local attorney that understands the legal framework of the province you will be operating in.

Take your time looking for an attorney. Costa Rica laws can be confusing for foreign business owners, so it's important to find a lawyer that understands them.

3. How hard is it to create a bank account?

Every business needs a reliable bank account to write checks and store their money. Unfortunately, opening a bank account in Costa Rica is easier said than done. Here’s what you need to know:

Choose between private and state owned banks.

There are approximately 20 private banks in Costa Rica, along with a number of state-owned banking institutions. The state run banks tend to have longer lines, but better security and more favorable user agreements.

Provide important documentation.

Provide several documents to open a bank account in Costa Rica including:

  • A government issued photo ID

  • Proof of income

  • A utility bill or rental agreement as proof of residency

Get organized and collect your documents ahead of time to avoid long wait times at the bank.

Make the minimum deposit.

All Costa Rica banks have minimum deposit requirements; usually at least $500.

4. What permits will I need?

Depending on the type of business you run and the jurisdiction you'll be operating in, you may need to secure permits for your Costa Rican business.

Start by going to the local municipal office and file a Uso de Suelo. This document stipulates the urban planning requirements that you need to meet. It also outlines additional licenses you will need and the agencies that issue them. Your municipality may also require a historical record for any property founded before 1995.

Unfortunately, these documents are almost always provided in Spanish. Consult with a bilingual attorney if you are not fluent in Spanish with a native understanding of the language.

5. What taxes will I need to pay?

The saying goes that there are are only two guarantees in life: death and taxes. Unfortunately, you can't avoid taxes when you start a business in Costa Rica. Here are some of the taxes Costa Rica businesses must pay:

  • 17% employer Social Security tax.

  • 30% corporate income tax (assuming that you are operating a corporate entity).

  • 5% property transfer tax.

  • 25% property tax for land.

  • 17% employee paid Social Security tax.

As a general rule, it’s best to retain an accountant to help you keep track of taxes and other financial matters.

6. How do Costa Ricans buy?

You can’t market to the locals without understanding the factors that influence their buying decisions. Customs in Costa Rica are very different than United States, so it’s beneficial to seek guidance from a local marketing consultant who can clue you into some of the customs and best practices.

Here are some of the differences you need to be aware of:

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Costa Rica has an IDV of 15, which means it . Even if you have an MBA or CPA certificate from the United States, you may struggle with these different accounting practices.

Tax laws in Costa Rica are also obviously very different than the United States. Your best bet is to work with a qualified accountant to balance the books.

8. What legal structure should I choose?

Most of the same legal structures that are available in the United States are also available in Costa Rica; for example, you can choose between a sole proprietorship, limited partnership and corporation.

Corporations are usually preferable for foreign business owners. You may not be very familiar with the different liabilities you'll face running a business in Costa Rica, but you can significantly reduce their risk by forming as a corporation. Of course, the tradeoff is that you have to pay the 30% statutory corporate tax. However, that is usually a worthwhile tradeoff for foreign investors.

If you have an existing corporation in the United States, you can use the same entity to operate in Costa Rica. However, it's usually better to set up a separate corporation locally and to use your main company as a holding company.

9. Is Costa Rica favorable to foreign businesses?

Costa Rica was once an isolated country. However, they’ve since realized that recognized opening the doors to foreign investors can boost job creation and stimulate the local economy.

The country has become
much more open to accepting foreign direct investment after the debt crisis struck in the 1980s. Rather than relying on a few exports to other countries, they are actively working with foreign global businesses to grow the economy.

Further, Costa Rica became much more favorable to foreign business in 2007, when it passed the Central American-Dominican Republic Free Trade Agreement (CAFTA-DR). This agreement opened up industries that were previously owned by the state to foreign businesses.

However, there is still a fair amount of red tape that must be dealt with. Work closely with local government officials to understand the process.

10. What opportunities exist in Costa Rica?

In previous years, the Costa Rican economy was primarily dependent on agriculture, though the economy has since changed significantly. Manufacturing and technology are now booming industries; in fact, Costa Rica is the only country in Latin America where most foreign direct investment is being allocated to the manufacturing center.

Carefully research the local economy and market needs to fully understand the opportunities before establishing a business. Doing so ensures your future venture in this new culture will be as successful as possible.

Have you ever gone through the process of starting a business in Costa Rica? What was your experience? Feel free to share your thoughts in the comments below: