The stock corporation is the most commonly used corporate entity and the sole proprietorship is an interesting concept if only because it is so far removed from the sole proprietorship of a common law jurisdiction. 

Even though Costa Rica is a civil law jurisdiction trusts are permitted. The tax laws do not discriminate between onshore and offshore operators and as such the concept of a tax exempt company does not exist

The international regulatory authorities which seek to curtail the activities of offshore centers consider a non discriminatory taxation system as one of the factors that defines a reputable and well regulated tax haven. Article 227 of the Commercial Code makes provision for the migration of a foreign company to Costa Rica and for the re-domiciliation of a Costa Rica company to a foreign country upon the presentation of a shareholders' resolution. 

Migration does not entail the dissolution of the corporation in its country of origin or the incorporation of a new company in Costa Rica. The law of the foreign corporation must permit its re-domiciliation.

Note that all corporate filings must be in Spanish.

The limited liability company (sociedad limitada) limits the liability of the members to the value of the unpaid capital. It is governed by section 104(a) of the Commercial Code. Although at incorporation the company must have 2 subscribers a sole shareholder is subsequently permitted. 

Corporate shareholders are not permitted.

The principal difference between a limited liability company and a stock corporation lies in the level of administration. Instead of being run by the directors the limited liability corporation can be managed by a manager with broad powers of attorney and so in this respect resembles a common law partnership. By contrast the administration of a stock corporation is subject to very detailed rules (see below).

Limited liability companies are however not very popular.

The stock corporation (sociedad anonima) is the most popular form of business organization and has the following characteristics:

It must have 2 subscribers at the time of incorporation; thereafter a single shareholder is permitted; corporate shareholders are permitted;

Shareholder meetings must be held annually and can be held anywhere in the world provided that provision is made for this in the articles;

There is no minimum share capital requirement, however at least 25% of the issued capital must be paid up on incorporation;

Shares of no par value are not permitted; preference and deference shares are permitted;

The stock corporation must have a registered office, a fiscal agent, a resident agent (who is a local lawyer) and a minimum of 3 directors (resident or non-resident) one of whom (the President) has power to manage the company; directors' meetings can take place anywhere if the articles pemit it.

The President is assisted by a secretary and a treasurer and unlike a common law jurisdiction his authority to act on behalf of the company comes through the issue by the shareholders of a power of attorney in his favor which defines what he can and what he cannot do .The fiscal agent is basically an accountant and his duties are to keep an eye on the board of directors and to report directly to the shareholders .The fiscal agent and his immediate relatives cannot be the directors.

These requirements are burdensome by the standards of offshore common law jurisdictions and have the effect of pushing up the administrative costs of a stock corporation. Three sets of minute books and accountancy records must be maintained. One set is for the use of the directors, one is for the shareholders and the third must be kept in the registered office.

Reporting requirements are minimal. The company must file a tax return irrespective of whether it is liable to pay tax on its income.

Incorporation is relatively quick for a civil law jurisdiction taking some 4 weeks in all. Since stamp duty is payable on issued share capital the practice is to keep the value of issued share capital low thereby keeping the costs of incorporation to a minimum.

A Public Limited Liability Company is a stock corporation whose shares can (unlike private companies) be openly and freely traded on the stock exchange. Law 7201 of 1990 was passed to allow for the creation of these corporate entities.

The minimum share capital of a Public Limited Liability Company is 50 million colons and it must have at least 10 shareholders. A Public Limited Liability Company remains under the permanent supervision of the Central Bank

Foreign corporations can operate in Costa Rica either through a branch or a subsidiary. 

A branch must register under article 226 of the Commercial Code by presentation to the companies registry of a shareholders' resolution whose authenticity has been verified by the Costa Rican consul in the foreign corporation's domicile.

No such procedure applies when a foreign parent wishes to incorporate a subsidiary (ie as a stock corporation, see above). Subsidiaries receive more favorable tax treatment than branches, which suffer withholding tax on all remittances to their parent.

If a foreign company uses the re-domiciliation procedure rather than creating a new local subsidiary, it will remain subject to the laws of its original domicile as regards its articles, although Costa Rican law will apply in various respects, including of course taxation.

In Costa Rica the sole proprietorship ("empresa individual de responsabilidad limitada") is a far cry from the sole proprietorship of a common law jurisdiction. It could be said to have the characteristics of both a limited liability company and a limited partnership and the English translation of its name would seem to suggest that it is a limited liability company.

The concept originated in Liechtenstein but has been adopted by very few countries.

Under the Commercial Code of Costa Rican law a sole proprietorship is an enterprise with one owner whose liability is limited to the value of his share capital in the business. By way of exception where the sole proprietorship has been involved in fraud the personal assets of the owner can be seized to satisfy any judgment entered against the business where the assets of the latter are not sufficient to meet the creditors' claim.

The profits of a sole proprietorship can only be distributed by way of dividend where a trading profit has been made in that year. A sole proprietorship is run by a manager who has been granted broad powers of attorney and so is much simpler and cheaper than the running of a company. The owner of a sole proprietorship must be an individual and cannot be a legal entity such as a limited company.

A limited partnership has a minimum of one general partner whose liability for the debts of the partnership is unlimited and a minimum of one limited partner whose liability for the debts of the limited partnership is limited to the amount of his unpaid capital. 

Where there is more than one general partner all are jointly and severally liable for the debts of the limited partnership. By way of exception if a limited partner actively participates in the management of the limited partnership he will have unlimited liability for the debts of the limited partnership.

Although Costa Rica is not an offshore financial center in the traditional sense its favorable tax regime means that it could have been classified as a tax haven some decades ago. However it was not until fairly recently that the Government became aware of its tax haven potential and began actively to both legislate for and market this sector of economic activity.

Costa Rica has many characteristics which give it a distinct advantage over other offshore jurisdictions including (as with Hong Kong) a perceived onshore jurisdictional status, very low taxes and a fiscal policy which does not discriminate between residents and non-residents for tax purposes.

Offshore activity is now flourishing in Costa Rica and a number of well known companies have set up operations there, but the industry is as yet only in its infancy.

A significant offshore banking industry does not as yet exist principally because the industry was only released from the shackles of state control in 1996. The lively domestic banking industry is described below.

There is no offshore insurance industry since the insurance sector remains under state control with significant political resistance being mounted against its privatization

The country's biggest low-tax sector is grouped around the Free Zones  and other export incentive programmes. 

The state banking monopoly ended in 1995 and there are now some 25 private commercial banks and 3 public banks in Costa Rica. Banking matters are governed by law No 1644 of 1953 as amended by law No 7558 of 1995 (known as the Organic Law of the National Banking System).

Financial institutions in Costa Rica are regulated by the Central Bank, through the General Superintendant of Financial Entities (SUGEF). The revised legislation reduced the reserve liquidity requirements to 15% of the value of the balance sheet, prohibits loans to an individual customer which exceed 20% of a bank's capital and specifies that a bank's capital cannot be less than 9% of its loans.

Finance and credit companies that take deposits from the general public require a license from the central bank and must have a minimum capital of 300 million colons.

Costa Rica has strict banking secrecy laws. The banks do not share any banking information with the tax department or with any other Government departments other than the central bank.

This general rule is qualified by an exchange of information agreement signed between the United States and Costa Rica.

A combination of strict secrecy laws, the country's offshore status and legislative changes aimed at increasing competition and efficiency will probably result in major growth in the banking sector in the near future.

There are no special forms for offshore or low-tax operation in Costa Rica

Costa Rica does not distinguish between onshore and offshore businesses as such. The basis of taxation is territorial, with both residents and non-residents paying tax on Costa Rican income, and not on foreign-source income.

However, the Government has increasingly sought to make a virtue out of the country's low-tax regime, and there are a number of special regimes offering tax privileges to particular sectors, which are described in this section.

Businesses in (Free Zones) have a number of tax privileges. Originally these concessions were offered only to industrial or agricultural companies, but they have now been extended to a wide range of processing and service activities.

  The main incentives are:

full exemption from income tax on profits for a period of 8 to 12 years from the commencement of trading, and 50% exemption for a further period of 4 to 6 years;

exemption for the same period from customs duties on raw materials, machinery and equipment;

exemption for the same period from VAT and other sales taxes including selective consumption tax;

exemption from withholding tax on payments to non-residents;

new legislation passed at the end of 1999 offers a 4-year extension of the 12-year 100% tax exemption to companies that have operated in a free zone for more than 4 years and that have reinvested profits in Costa Rica.

There are a number of related schemes offering tax privileges to exporters which stop short of giving the full range of benefits outlined above. These include the Drawback regime, Export Contracts, and the Temporary Admission scheme.

A number of sectors involved in the tourist business receive tax incentives under the Incentives to Tourist Development Law 1985:

All business entities engaged in the running or construction of hotels are exempted from import duties on goods imported for the purposes of their trade, purchase (sales) taxes on supplies (excluding those payable on the purchase of vehicles and fuels) and the .25% annual rates tax. They also benefit from accelerated depreciation allowances.

All business entities engaged in the air transportation of tourists are exempted from import duties on goods imported for the purposes of their trade and purchase taxes on supplies required for the operation of airplanes. Furthermore they can purchase their fuel at favorable prices and are entitled to accelerated depreciation allowances.

Businesses engaged in maritime transportation of tourists are exempted from import duties and purchase taxes on goods imported for the purposes of the construction of marinas, bathing resorts and aquariums. Furthermore they are entitled to accelerated depreciation allowances and are exempted from all taxes relating to the purchase of a boat with the exception of import duty.

All business entities engaged in car rentals are entitled to a 50% reduction in all taxes relating to vehicles imported for rental.

For an agreed period forest development businesses are exempted from income tax on business profits and the annual rates tax of .25% of the value of the land.

Although there are no exchange controls as such in Costa Rica, currency received by resident corporations or individuals has to be sold through a Costa Rican bank; and capital imported for investment purposes needs to be 'registered' in order to ensure eventual problem-free repatriation.

Enterprises taking advantage of one or other of the investment incentive regimes described above are free of these restrictions to a greater or lesser extent.

Since there is no offshore sector as such in Costa Rica, there are no limitations on the types of activity that can be carried on by companies taking advantage of Costa Rica's low-tax regime.

Restrictions are placed on foreign investment in the state-owned monopolies of telecommunications, alcohol distilleries, insurance, newspapers, radio, television broadcasting, electricity and petroleum refining in all of which industries foreign participation is either forbidden or alternatively required to be part of a joint venture with a Costa Rican majority shareholding partner .

Beachfront development concessions also require local participation with the requirement that 50% of the capital must come from nationals and that foreigners wishing to be joint partners must have resided in Costa Rica for at least 5 years.

The advantages of the Export Processing Zones are of course limited to their physical extent, although there has been some 'spread' of these Zones into adjacent Industrial Parks, particularly for processing and service companies.