Foreign companies seeking to establish their presence in Costa Rica can choose between branches and subsidiaries. There are several similarities between them, however, there are more differences that can determine the course of action for most overseas enterprises.
| Quick Facts | |
|---|---|
| Applicable legislation (home country/foreign country) | The branch must adhere to the foreign country’s legislation. |
|
Best used for |
Specific activities regulated by law. |
|
Minimum share capital (YES/NO) |
There are no minimum share capital requirements for this type of entity. |
| Time frame for the incorporation (approx.) | 4-6 weeks. |
| Documents to be filed by the parent company |
– information about the foreign company; – a Certificate of Good Standing; – details about the activities and share capital of the foreign business; – details of the local representative. |
| Management (Local/Foreign) |
The management can be foreign. |
| Legal representative required (YES/NO) |
Yes, a Costa Rican branch requires a local representative. |
| Local bank account (YES/NO) |
Yes, it is mandatory to have a local bank account in Costa Rica. |
| Independence from the parent company |
The branch office depends entirely on the parent company. |
| Liability of the parent company | The foreign entity is fully liable for the branch office’s debts and obligations. |
| Corporate tax rate |
30% on the income generated in Costa Rica + an additional 15% on remittances. |
| Annual accounts filing requirements |
Branches must file annual accounts and financial statements in accordance with Costa Rican laws. |
| Possibility of hiring local staff (YES/NO) |
Yes, a Costa Rican branch can hire local workforce. |
| Travel requirements for incorporating branch/subsidiary (YES/NO) |
No, there is no need to travel to Costa Rica during the first stages of incorporation. |
| Double tax treaty access (YES/NO) | Yes, Costa Rica has signed several double tax agreements. |
Below, our company formation agents explain how to open a branch in Costa Rica in order to help you establish if this is the right expansion option for you. Should you want to move here to run your business, we can also offer support in immigration to Costa Rica.
Table of Contents
Procedure to set up a branch office in Costa Rica
The establishment of a Costa Rican branch is the same as for all other types of companies, and implies:
- drafting the registration paperwork;
- reserving a trading name;
- securing a legal address in Costa Rica;
- opening a local bank account;
- registering the branch with the Companies Register;
- obtaining a tax identification and a VAT number;
- obtaining the license to operate.
By comparison with other legal forms, such as the private limited liability company, the branch is significantly easier to register due to the simplified documentation.
If you want to open a business in Costa Rica, you can rely on our local agents for support.
Documents for opening a branch in Costa Rica
As mentioned above, the documents needed to create a branch in Costa Rica are far simpler compared to any other type of company. The papers need to be drafted and filed by the parent company and consist in:
- a certificate of good standing of the parent company obtained in its country of registration;
- information about the parent company’s activities and share capital;
- a decision regarding the decision to set up the branch and the appointment of a company officer;
- a power of attorney through which the officer will represent the foreign business through the branch in Costa Rica.
Please note that any document issued in a foreign language (other than Spanish) must be translated and apostilled before filed with the Companies House. You can let our company registration professionals in Costa Rica handle the incorporation of the branch.
Here is our infographic on branch incorporation in Costa Rica:
Management of a branch in Costa Rica
The management requirements for a branch office are quite simple in Costa Rica, as this type of enterprise only needs a director who does not need to be a resident of this country. The parent company or any other business can also act as a director.
When the management is ensured by a foreigner, the branch must appoint a local representative to maintain the relationship with the authorities and business associates.
If you need guidance in establishing a branch, you can rely on our Costa Rican agents.
Representative agent requirements for Costa Rican branches
Foreign companies setting up branch offices in Costa Rica must also appoint one person to act as a representative and liaison with the local authorities. The person can be a Costa Rican resident or employee from the headquarters in the home country of the parent enterprise who is transferred here.
When appointing such a representative, the following documents must be presented to the Trade Register:
- his/her full name;
- a copy of the valid passport or ID, depending on the nationality of the agent;
- a Costa Rican residential address;
- details about the function occupied by the agent;
- an acceptance letter through which the agent agrees to the position offered.
It is also customary for foreign companies to use dedicated representative agent services, as agreed by Art. 18 paragraph 13) and Art. 232 C. in the Commercial Code.
If you need guidance in meeting the requirements for opening a branch correctly, you can rely on our local advisors. Also, should you decide to transfer an employee from the headquarters, we can assist in applying for a Costa Rican residence permit on behalf of the foreign representative.
Capital requisites for a branch office
The Company Law does not stipulate for a minimum or maximum amount of money to be deposited as a share capital for a Costa Rican branch. However, Art. 226 Paragraph b in the Act stipulates that the amount established by the parent company must be deposited in the national currency of this country.
An important aspect to consider is that given the sectors in which a branch can operate, the share capital may represent a significant amount of money. Also, it should be noted that the parent company is required to set up a Costa Rican bank account for the deposit of the capital and day-to-day financial operations of the entity.
You can rely on us for detailed information about the capital requirements for any type of company, and most importantly for bank account opening services, a procedure that can be quite lengthy.
What you need to know about Costa Rican branches
The branch office has a few unique characteristics that you will need to consider before choosing it. These are:
- the branch does not have a legal personality, meaning it is not a company per se, as it is controlled entirely by the parent company;
- this type of entity cannot engage in other activities than its parent company, unless there is special derogation in this sense;
- the branch does not have liability for debts and obligations it incurs, but the controlling company does.
Even if controlled by the parent company, a Costa Rican branch office must adhere to the rules of this country. Also, this type of entity is usually employed in regulated sectors, such as banking, cases in which the license must be obtained from the National Bank or other similar organizations, depending on the industry.
Tax aspects when opening a branch in Costa Rica
From a taxation point of view, the branch will be subject to the corporate tax on the income it generates in Costa Rica. From this point of view, here are the main taxes to consider:
- the income tax on corporate income of 30%;
- the value added tax of 13%, 8% or 4%, depending on the services or products sold;
- withholding taxes of 15% can also apply to various types of income.
It is also useful to note that branch offices can obtain tax reliefs, deductions, or reductions under Costa Rica’s double tax treaties.
Employment requirements for a branch in Costa Rica
Once established, the branch must respect the laws of Costa Rica, including when it comes to employment. From this point of view, the parent company has two options:
- to hire locally sourced workforce;
- to transfer employees from the home country.
Hiring foreign employees from other sources is quite difficult in this country, however, if you need assistance you can rely on our lawyers in Costa Rica for advice and support.
How long does it take to open a branch in Costa Rica?
Generally speaking, the company formation procedure in Costa Rica is divided into several steps, in the case of a branch, the following being the most important from a duration point of view:
- the incorporation of the branch with the Trade Register takes about 10 business days to complete;
- the opening of the bank account, however, takes around 4 weeks;
- the two procedures imply a waiting period of about 6 weeks.
If you want to launch a branch in Costa Rica, contact us. We can also help you immigrate to Costa Rica.