Common Reporting Standard (CRS) regimen
Costa Rica has made important steps to comply with the CRS developed by the OECD.
The first step was the reform through Law No. 9296 of 18 May 2015 to article 106 quater to the Code of Tax Rules and Procedures through which the procedure called ‘Procedure to request financial information for the exchange with other jurisdictions by virtue of an international agreement’ empowers the Costa Rican Tax Administration to implement the automatic exchange of information that is foreseeably relevant for tax purposes in cases in which an international agreement for the exchange of tax information is executed.
Taking into consideration that Costa Rica acceded to the Convention on Mutual Administrative Assistance in Tax Matters through Law No. 9118 of 7 February 2013, and by virtue of the adhesion of Costa Rica to the Declaration on the Automatic Exchange of Information in Matter Prosecutor of the OECD, signed in May 2014, Costa Rica has implemented the Standard for the Automatic Exchange of Financial Information in Tax Matters as the tool through which Costa Rica will exchange information automatically with other jurisdictions, annually.
Because one of the core issues that the OECD has recorded in the Multilateral Agreement between Competent Authorities on the Automatic Exchange of Information on Financial Accounts is the implementation of the ‘Standard for the Automatic Exchange of Information on Financial Accounts in Tax Matters’ or ‘Common Reporting Standard for Financial Accounts’, known as the Common Reporting Standard (CRS), which establishes that the financial institutions of the countries committed to the exchange of information that is the subject of the mentioned Convention must apply the due diligence procedure to identify the financial accounts that will be subject to the report, and in order to comply with the aforementioned international agreement, the Ministry of Finance of the Government of Costa Rica issued Resolutions No. DGT-R-006-2017 and No. DGT-R-006-2018, referring to the due diligence in the supply of information of the financial and non-financial entities for the automatic exchange of tax information according to the OECD CRS rules.
In these resolutions, the Costa Rican tax authorities define the individuals, terms, procedures, and compliance deadlines that must be complied with by entities required to provide the information foreseeably relevant for tax purposes referred to in the financial accounts that they must report, as established by the CRS. The obligation of the institutions of the financial system to submit to the Tax Administration the information referring to the accounts and payments according to the Standard for the Automatic Exchange of Information on Financial Accounts in Tax Matters, adopted by the Council of the OECD, is established and indicates the general requirements of the obligation to report by Costa Rican financial institutions, with respect to each foreign account, the general due diligence requirements, the review procedures for pre-existing accounts of individuals, review procedures for new accounts of individuals, review procedures for pre-existing entity accounts, review procedures for new entity accounts, special due diligence rules, and a series of definitions.
Tax information exchange agreements (TIEAs)
Costa Rica has a TIEA with the United States (US), effective since 12 February 1991, whereby both countries agree to exchange information, from and/or in relation to public and private entities and individuals, at the request of the party's corresponding authority in relation to any tax relevant issue.
In April 2018, with the objective of meeting the current standard of fiscal transparency established by the OECD with respect to the exchange of information for fiscal purposes and mutual assistance, the governments of Costa Rica and the United States signed a new information exchange agreement between both countries. The agreement was signed but must be submitted to the Legislative Assembly for ratification.
Under this agreement, both countries will offer assistance through the exchange of information in order to determine, settle, and collect taxes, as well as to collect and execute tax claims, or to investigate or prosecute tax matters. All this information will be treated confidentially between both parties.
This new agreement shows the commitment of Costa Rica to carry out an effective exchange of information in accordance with the standards of the Global Forum of Transparency and Exchange of Information of the OECD.
Currently, Costa Rica has valid TIEAs with Argentina, Australia, Canada, Denmark, Ecuador, El Salvador, Faroe Islands, Finland, France, Greenland, Guatemala, Guernsey, Holland, Honduras, Iceland, Mexico, Nicaragua, Norway, South Africa, South Korea, Spain, and Sweden.
In addition, Costa Rica also signed, in 2013, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, thanks to which Costa Rica can exchange tax information with all the countries that have this convention in force; currently, 117 countries have signed it.
Foreign Account Tax Compliance Act (FATCA) agreement
In November 2013, Costa Rica`s Treasury Department and the Deputy in charge of negotiations of the US embassy in Costa Rica signed an intergovernmental agreement (IGA) in which they committed to share financial information, with the objective of guaranteeing transparency in financial transactions that US citizens perform in Costa Rica, with the aim of justifying and supporting the application of the policy established in the FATCA Law. The IGA will allow Costa Rica`s financial entities to comply with the provisions established in FATCA. The IGA was chosen under Model 1, in which each entity must submit a report to the Treasury Department, and it will be this entity that oversees the transfer of information to the United States Treasury Department.
By means of Law No. 9296 of 18 May 2015, a vehicle by which the IGA can be implemented in Costa Rica was created. Under such Law, the Tax Code was modified to include an article 106 quater in which the obligation was established for financial entities (and any other entity that, even without being classified as such, runs any type of financial activity) to provide the Tax Administration with all the information of its clients that is foreseeably relevant for tax purposes and that is required for the implementation of international instruments that contemplate the exchange of information on tax matters in any of its modalities. Thus, such financial information may be transferred by the Tax Administration to jurisdictions with which international instruments have been subscribed that contemplate the exchange of information on tax matters.
In order to obtain said information, the judicial authorisation procedure contained in article 106 ter of this Code, or the authorisation established in article 615 of the Commercial Code of Costa Rica, will not be required.
By means of Law No. 9416 of 14 November 2016, penalties were established for those financial entities that fail to comply with the provision of the pertinent information, and it was also established that said information must be handled in a confidential manner by the tax authorities.
Free-trade bilateral treaties
Costa Rica is a full member of the Central American Common Market, which guarantees free trade among the countries of the area. It also has a free-trade bilateral treaty in force with Canada, the Caribbean Community (CARICOM), Chile, China, Colombia, the Dominican Republic, the European Free Trade Association (EFTA), Mexico, Panama, Peru, and Singapore. The US-Central American-Dominican Republic Free Trade Agreement (CAFTA-DR) entered into force on 1 January 2009. Additionally, there is a free commerce and cooperation agreement with the European Union (EU) in force since 2013. These agreements aim to provide favourable conditions for the exchange of merchandise between contracting parties.