A Costa Rica Limited Liability Company (LLC) is popular with foreign investors. While the most common corporation in Costa Rica is a “Sociedad Anonima” (“SA.” or “S.A.”), foreigners find Costa Rica’s Limited Liability Company known as a “Sociedad de Responsabilidad Limitada” using the abbreviation “S.R.L” or “SRL” after its company name a very attractive legal entity.
Background
Costa Rica is a small country located in Central America whose Spanish name is translated into English as “Rich Coast”. Its formal name is “Republic of Costa Rica” and has an estimated population of 4.5 million with its largest city being the capital of San Jose where over 1 million reside.
Its political system is a democratically elected unitary presidential constitutional republic. Most companies operate under its “Commercial Code of Costa Rica”.
A Costa Rica corporation is known as (Sociedad Anonima or “S.A.”) which is similar to a limited liability corporation, or LLC, in the United States. For this type of corporation formed in Costa Rica, typically the abbreviation S.A. follows the company name, much like the LLC initials follow companies like this formed in the United States.
Costa Rica Benefits
A Costa Rica LLC has several benefits including:
• Tax Exempt: Costa Rica is a territorial tax country so all income earned outside its territory is not subject to corporate or income taxes. However, U.S. citizens and others from countries taxing global income must declare all income to their tax authorities.
• Limited Liability: LLC members’ liability is limited to their contributions.
• Two Members: A minimum of two members are required to form a LLC.
• Freedom to Conduct Business: Costa Rica LLC’s can engage in any type of lawful business anywhere in the world.
• No Minimum Authorized Capital: Costa Rica LLC’s are not required to declare a minimum authorized capital.
• Suitable for Small Companies: A LLC requires less paperwork to register than a formal corporation with less management structure.
• Mergers: A LLC can merge with foreign companies or corporations and choose whether to continue as a LLC.
Company Name
Costa Rican LLC’s must select a company name which does not resemble other Costa Rican company or corporation names.
The LLC must include at the end of its company name either the Spanish “Sociedad de Responsabilidad Limitada” or the abbreviation “S.R.L” or “SRL”; or the same translated into any language as set forth in its Articles of Incorporation. For example, the English “Limited Liability Company” or abbreviation “L.L.C.” or “LLC” is acceptable.
Office Address and Local Agent
A local office address is required for a LLC along with a local registered agent.
Membership
A minimum of two members are required to form a LLC.
There are no shareholders or share certificates found with typical corporations. Stocks are called quotas and their Quota Certificates (if issued) are merely informative and do not represent the actual quota a member has in the SRL. The real record of member quotas is the Quota Holder Registry Book. All members are required to pay at least 25% of the capital subscribed contribution.
Transferring quotas to third parties (outsiders) requires a Quota Assignment Agreement. However, before any quota transfer can occur, the other quota holders have the right of first refusal before the sale (transfer) can be completed. In other words, in order to sell or transfer quotas to outsiders, all of the other quota holders have the right to purchase them first. The acceptance of the sale or transfer must occur during a quota holder meeting which is recorded in the Quota Holder Assembly Log.
Manager
The LLC is governed by at least one manager who does not have to be a member (quota holder) and there is no limit on the number of managers. The manager is the judicial and extrajudicial representative or the LLC. However, if the manager does not reside in Costa Rica, then a local Registered Agent must be appointed to accept service of process and other official notices.
Limited Liability
A LLC has limited liability for its members (quota holders). The LLC’s liability is limited to its assets. The quota holders’ liability is limited to their contributions made to the LLC.
Authorized Capital
Costa Rica LLC’s are not required to declare a minimum authorized capital.
Taxes
Costa Rica is a territorial tax country so all income earned outside its territory is not subject to corporate or income taxes. However, U.S. citizens and others from countries taxing global income must declare all income to their tax authorities.
In regards to income earned inside its territory, Costa Rica considers LLC’s as a taxable corporation which must register with the government’s Tax Administration. Annual filings of tax declarations are required. However, if the income is less than $50,000 USD then the LLC will be classified as a small LLC only subject to a 10% tax rate. Those over $50,000 USD are taxed at a 30% rate.
Public Records
While the public has access to public records online in Costa Rica’s National Registry, neither the LLC’s members (quota holders) or managers names are part of the public records maintaining privacy for them.
Accounting and Audit Requirements
The LLC is required to maintain five types of legal books which include three accounting books and two administrative books. The accounting books are: (1) Balances, (2) Mayor, and (3) Diario (Daily). The administrative books are: (4) Quota Holders Assembly Book and (5) Assembly Book.
In regards to record keeping of members, the LLC must maintain two types of records: (1) member meetings minutes and (2) registry of membership.
Annual General Meeting
Annual general LLC meetings are required within three months of the closing of every fiscal year. Meetings can be held in any country.
Time Required for Registration
Registering a LLC in Costa Rica can take up to two weeks.
Shelf Companies
Because LLC’s are so unique; no shelf LLC’s are available.
Conclusion
A Costa Rica LLC has several benefits including: tax exemptions, limited liability, only two members to form a LLC, no minimum authorized capital, freedom to conduct any type of business, easy mergers with foreign entities, and suitable for small companies.
