Costa Rica

In most cases, the place where a company is incorporated is regarded by Costa Rican authorities as the corporate residence.

Permanent establishment (PE)

According to Costa Rica's tax system, a PE is understood as any site or fixed place of business in which it is developed, totally or partially, the essential activity of the non-resident.

The following are considered PEs:

• Administrative centres.
• Branches.
• Agencies.
• Offices.
• Factories.
• Workshops.
• Mines, quarries, and any other place of extraction of natural resources.

A PE also includes:

• The works, a construction, or an installation or assembly project, or inspection activities related to them, but only when such works, project, or activities continue for a period or periods that total or exceed, in total, more than 183 days in any 12-month period that begins or ends during the fiscal year considered.
• The provision of services by a company, including the services of consultants, through its employees or other personnel hired by the company for that purpose, but only in the event that activities of that nature continue (in relation to the project or with a related project) during a period or periods that total or exceed in total more than 183 days in any 12-month period that begins or ends during the fiscal year considered.

The Tax Administration also applies the criteria of the Organisation for Economic and Co-operation and Development (OECD) to determine when an entity can be considered a PE of a company in a determined state. Accordingly, the Tax Administration takes into consideration the following conditions to determine the existence of a PE:

• The existence of a business centre (i.e. facilities such as an office or business centre or, in certain cases, machinery).
• Said business centre must be permanent (i.e. must be established in a determined place with a significant level of permanence).
• The company must develop its essential activity through this permanent centre (i.e. the persons who depend in a way or another on the company [the staff] must develop the company's business inside the country on which the permanent centre is located).

Note that the Costa Rican Tax Administration uses these OECD criteria to support and base its administrative resolutions; consequently, they hold a significant importance for the Costa Rican tax system. Regarding these criteria, the OECD has established as a generally accepted principle that a company will be treated as the owner of a PE in a determined state if a person acts on behalf of that company under certain circumstances, even if they are not in the presence of a permanent business centre in said state. These circumstances are as follows:

• The person must be an agent on behalf of the non-domiciled company: A dependent agent, individual, or company, under an employment regime or outside of this, that, due to the nature of its activities or to the scope of its faculties, involves the non-domiciled company in commercial activities of certain significance.
• The person or local company must be a dependent agent with enough faculties to celebrate and subscribe agreements on behalf of the non-domiciled company. The faculties of the person or local company must be sufficient to involve the non-domiciled company in business activities inside the country on which the person or local company are situated.
• The agent must be authorised to negotiate all elements and details of agreements on which the non-domiciled company is involved and obligated, even if said agreement is signed by another person in the country on which the non-domiciled company is located. In other words, it isn't simply a mere authorisation to sign the agreement.
• The faculty to subscribe agreements must include those agreements that are part of the main commercial activity of the company.
• The agent must take risks on behalf of the abroad domiciled company.
• The agent must act according to detailed instructions or general control of the abroad domiciled company.
• The concept of PE under this context implies that this agent uses its authority on a repeated basis and not only on isolated cases. The faculties must be exercised regularly in the country on which the agent is located, a characteristic that is determined according to the real commercial situation. A person or company whose activities are limited to the following conditions and circumstances does not form a PE:
  • Its activities consist only in storage, expose, or delivery of goods and merchandise that belong to the company domiciled in another country.
  • Its activity consists only in purchase of goods or merchandise or compiling information for the abroad domiciled company.
  • Its activity consists only in developing any other auxiliary or preparatory activity for the company.
• To consider a person as a PE of a company in a state, it must be determined if the activities that this person develops are, by themselves, an essential and significant part of the activities of the company as a whole, which is why every case must be studied and analysed according to its own particular circumstances.