Special Corporate Tax Form Hides Real Motive

by Garland M Baker on November 10, 2003

Have you ever read that the police sent out letters or placed classified ads offering some phony promotion to catch criminals or parking ticket violators? This year Costa Rica’s tax form D-175 is a sting operation of sorts, too.

For many years, in fact since the beginning of transferring property began in Costa Rica, a company could be created and a property could be placed in that company so when the property was sold again, only the company needed to be signed over to the new owner. The sale could be done rapidly and without payment of trasnfer taxes. This kind of company is referred to as an inmobiliaria or a company holding real estate.

However, very few of these entities ever signed up with the tax department, the Tributación Directa. There are an estimated 308,000 companies listed at the Registro Nacional, the national registry. But a far fewer number are listed with the tax department, and the country wants to fix this anomaly so it will be able to collect more taxes in the future.

Here’s the catch: Most inmobiliarias generally do not have to file any tax returns because they are not operating businesses because they were just created to hold property. But this tax year all companies must file Form D-175 by Dec. 31 or be subject to a fine of 76,500 colons or roughly $185.

The fine is not the only sanction. The most important one is that companies that do not file Form D-175 will no longer be able to make any movements at the national registry. This means you will not be able to transfer a property when you want to sell it and/or make any changes to the company holding the property like adding, amending, or deleting partners, changing powers of attorney or directors, etc.

Why is this a trap? Well the International Monetary Fund has been working very hard for over 10 years to get Costa Rica to collect its taxes. In the most simplistic of terms, if Costa Rica doesn’t improve its tax collections, the monetary fund could withhold future loans and loan guarantees. Actually, Costa Rica has done a pretty good job of getting its tax house in order but needs to get inmobiliarias on the books to complete the job.

This does not mean big tax revenues now because only companies with equity more than 35 million colons will need to pay a one-tenth percent tax. Most properties held in companies have a very small book value and will not be over the minimum.

But wait. Look into the future for a moment. Once the tax department finally has all these companies inscrito or registered, they will begin to collect additional taxes like the Timbre de Educación y Cultura (Stamp of Education and Culture) which needs to be paid by all registered companies each year.

Also, if you read over the future law projects on the Tributación Directa Web site, other taxes are being proposed.

The wisest move for someone here is to file the form and bring a company up-to-date with the tax people. Benjamin Franklin once wrote to Jean-Baptiste: “In this world nothing is certain but death and taxes.” No one likes big tax penalties and interest.

Deadlines for Filing Corporate Forms

Form Purpose Date
D-150 Withholding summary Dec. 1
D-151 Clients/vendor summary Dec. 1
D-154 Credit card transaction summary Dec. 1
D-101 Income taxes Dec. 15
D-121 Vehicle property taxes Dec. 31
D-175 Special one-time fiscal tax Dec. 31

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