Published.: January 03rd, 2020
 

As of the 2020 fiscal period, inactive companies must submit the income tax declaration before March 15, 2021. This declaration is made on form D-101 and for this, all companies must be registered in the Single Tax Registry.

According to the Ministry of Finance, these measures, incorporated into Law 9635, are fundamental tools that promote transparency and serve as a cornerstone in the fight against tax fraud and money laundering. For this reason, legal entities that do not engage in profit-generating activities are only required to report information related to assets, liabilities, and equity in form D.101 (Income Tax Return).

In a press release, the Minister clarified that the corporate income tax, applicable to businesses and individuals engaged in economic activities, is levied on profits derived from such activities. It is incorrect to state that if share capital does not match equity, the latter will be taxed, as has been mistakenly claimed in some social media messages. The official also emphasized that Costa Rica does not impose a wealth tax, only an income tax.

Regarding the clause on unjustified increases in equity, this provision applies in the context of a tax audit when there is no consistency between the value of the assets owned and the taxpayer’s economic activity. In the case of legal entities with no profit-generating activity that show an unjustified increase in equity, the taxpayer may prove that the funds used to acquire the asset had already been subject to income tax or were not taxable. For example, if an individual with only wage income uses their savings to buy a car registered under a corporation established solely for that purpose, those resources have already been taxed through income tax, thus justifying the purchase. Therefore, there is no reason for concern if taxpayers can provide documentation proving that taxes were already paid or that the income is non-taxable.

Some key points:

  • The D-135 form (Equity Declaration for Inactive Legal Entities) was eliminated and replaced by form D-101 (Income Tax Return).
  • If an inactive corporation holds investment funds in a financial institution, it must file the D-101 return corresponding to its share capital.
  • An inactive corporation may sell real estate, provided that it complies with the payment of Capital Income Tax and Capital Gains and Losses Tax, when applicable.
  • Assets of a corporation must be reported at historical cost, meaning the original acquisition value of the asset.
  • Exchange rate differences arising from assets related to the taxpayer’s ordinary business activities are taxable under Gross Income.
  • To file the income tax return for inactive legal entities, the share capital may be reported as the registered value in the Public Registry, but only for assets under the company’s name.
  • If an inactive corporation transfers a property to its shareholder at the same value for which it was acquired, no gain or loss arises. However, transfer taxes still apply.
  • When movable or immovable property is sold, the applicable Capital Income or Capital Gains and Losses Tax must be paid.
  • If a corporation is active only in Real Estate Capital Income and has partial payments already uploaded in the system, it may request their removal.
  • If a trust engages in economic activity, under the Income Tax Law, it must file the corresponding return.
  • When a shareholder provides all the funds to purchase a property registered under an inactive corporation, it must be recorded as donated capital. This means the recipient did not use their own taxable income to acquire the asset.
  • The deadline to file the declaration of capital gains or losses, especially regarding real estate and movable property, is within 15 calendar days of the taxable event. If taxable events occur periodically throughout the year, the declaration may be filed quarterly or annually, depending on regulations.
  • Corporations with real estate capital income must file monthly returns. However, if they engage in additional substantive economic activity, they must also file the D-101 return.
  • If an inactive corporation reports equity higher than what was declared for the Transparency Registry (RTBF) or Corporate Tax, the equity must be declared in the fiscal year in which it was generated. For equity generated before 2020, prior returns must be amended to correct inconsistencies.
  • A corporation that was active and became inactive during 2020 must file form D-101 as active for the period in which it operated and then update its status to inactive in the RUT via the ATV system.
  • If a company was dissolved in the Registry and deregistered via the ATV, but still appears as registered in the Tax System, it must complete the liquidation process with the National Registry. Once the Registry updates its database, shared with the Ministry of Finance, the company will be automatically removed from the Taxpayer Registry.
  • Condominium management corporations are not subject to Income Tax.
  • Civil corporations that do not engage in profit-generating activities will be automatically registered under activity 960113 and must update their tax domicile and legal representative information using the modification form. They must also be registered as electronic invoice recipients (not issuers) and use their fiscal domicile data as their economic activity domicile.
  • A foreigner residing abroad who is the sole representative of an inactive corporation must request a NITE assignment via email to direccionrecauda@hacienda.go.cr, attaching a clear image of their valid passport.

Information extracted and summarized from the Ministry of Finance website, Q&A section of the related briefing.