Individuals who own companies face a Catch-22 situation when they decide what they will do with the D-175 tax form.
A November 10, 2024 article explained how this year’s tax form D-175 is a sting operation, of sorts, by Tributación Directa, the Costa Rican tax authority. The idea is to catch all those companies not currently on the tax rolls.
The conclusion, after several tax seminars, discussions with tax attorneys and a special meeting with a tax guru, is that form D-175 also represents a Catch-22. A Catch-22 is a “damned if you do, damned if you don’t” scenario and comes from Joseph Heller’s World War II novel of the same name.
There are currently around 308,000 companies listed at the Registro Nacional, the nation’s registry, but only about one-third as many on the tax rolls. That leaves over 200,000 companies as potential taxpayers. Most of these companies only exist to hold property.
Most owners believe these companies are exempt from the normal tax process because they are not operating businesses.
However, the fact is, no company registered at the Registro is exempt, and all companies need to file tax returns. Costa Rica just has not been on top of its tax collections to insure that all companies are registered with them. It is estimated by the tax experts that Costa Rica only has the resources to police about 3 percent of all the companies inscribed as taxpayers, in other words, about 3,000.
Here lies the Catch-22. If you decide not to file the form D-175, there is a good probability you will not be caught. However, if you are, there is a fine of 76,500 colons,$185, plus interest and penalties. Also, during the time you have not filed you will not be able to make any transfers and/or changes to your company at the national registry. For some people, this is not a problem since they have not made changes since the original creation of their company and do not care to do so in the future.
If you do file by the Dec. 31 deadline, you will then need to complete the process, which means you will need to file forms D-140, Declaration of Inscription, and D-110, Misc. Payments, to pay the Education and Culture Stamp next year. If you do not file these forms, there is a good chance of being caught if they are cross-referenced with the form D-175.
Actually, most people are now caught for some tax infraction because of the cross-referencing of the form D-150, Sales and Payments Reporting Form, and the D-101, Income Tax Form. This process of cross-referencing a master tax database was taught to the Costa Rican government by the U.S. Internal Revenue Service.
A good rule is to comply with tax authorities at every step. It allows for a better night’s sleep if nothing else. More importantly, most people making up the international community are guests in Costa Rica, and all law should be respected and obeyed. In addition, Costa Rica is currently re-organizing its tax structure to include a powerful new tax police.
It is better to get started with the process of legitimizing your tax responsibilities today, versus have one of those new officials visit you in the future.
There are also benefits to filing D-140 and becoming fully signed up with Tributación Directa. The most important is being able to obtain totally legalized books from the tax authority which enables a company to be fully up-to-date with the registry process. Many companies over the years have been lost to the unscrupulous because they are not properly registered.
