How Costa Rica’s crackdown on corruption is the key to is increasing success

According to global anti-corruption organisation Transparency International, Costa Rica

Ranks as the 48th most corrupt country in the world in 2018- out of a total of 180. Despite performing better than a number of other Central or South American nations, its score of 56 out of a possible 100 points shows that there is still a lot of work to be done.

As the country continues its bid to cement its name as a hub for business and investment in a number of sectors, its laws and regulations are coming under increasing scrutiny. But this is all for the best.

Where once there was a lack of transparency, particularly in matters relating to taxation and the behavior of corporate entities, now things are changing and it is hoped that this will increase more of the right kind of businesses to the region.

According to an article published by Transparency International on April 4, this important turning point came in 2018.

Under Costa Rican law, any company, that declares losses or zero profits, or has no income generated in Costa Rica, is not required to pay any corporate income taxes. Fair enough you might think, but this does however leave the way open for unscrupulous actors to manipulate their accounting to evade taxation. This avoidance results in the tax burden being shifted onto members of the public who rely on tax revenue paid to the government to fund vital public services. The report states that this “culture of tax evasion” encourages corruption whilst allowing companies to operate with no monitoring and few legal ramifications.

Then, last year two citizens and members of empowerment movement “Territorios Seguros” filed a Freedom of Information request wit the Costa Rican Ministry of Finance. They asked for information relating to those businesses that had reported zero profits, or losses over the last decade. The authorities denied the request, in violation of the law but in November 2018, the Costa Rican Constitutional Court ruled in favour of the citizens and the information was released.

Transparency International described this as a “historic moment for accountability and transparency in Costa Rica”.

The ruling of the court coincided with unpopular tax hikes implemented by the new government. The list that was published the day after the new tax laws were implemented showed countless businesses including some with billions in assets and sales that had not paid any taxes for years.

But as a result of this “scandal”, Costa Rica and its citizens are at an important crux. Members of the public are now demanding more from those in power as well as advocating for better tools to allow the Tax Administration to avoid evasion and avoidance.

This will ultimately benefit the country as a whole. It will not just be members of the public, not involved in business that will benefit, but it will also pose as an attractive incentive to the “right kind of businesses”. Those investors and international entities that are looking for a respected and well regulated jurisdiction will flock to the country, wooed by a combination of a favourable business environment, and a sterling reputation.

At Fast Offshore, we are not preoccupied with quantity over quality and we hold integrity at the heart of everything we do. We have the experience in supporting all aspects of opening and running a business in Costa Rica and are the experts when it comes to providing compliant services, we do so by adhering to best practices and legal guidelines. By following a strict code of professional and legal ethics locally and throughout our network of partners, we strive to promote best practices and we do not engage in any advice that would constitute as being illegal.

We believe that true success is based on honesty and transparency, nothing more and nothing less. Contact us here to find out more about our full portfolio of services.