Expanding to Costa Rica is an exciting strategic move for businesses, but there are necessary factors to consider that are key to success. One such factor is how to set up Costa Rica payroll in compliance with local laws.

Taxation rules in Costa Rica

Costa Rica’s Social Security System is commonly known as the Caja , formally the Caja Costarricense de Seguro Social (CCSS). It generally provides covered employees with healthcare, sick leave benefits, disability benefits or pensions, and retirement pensions under CCSS rules. The employer is required to register all employees and generally contribute 26.67% of each employee’s gross salary through the CCSS/Caja system. Employees must contribute 10.67% of gross salary to CCSS, typically withheld by the employer through payroll.

Employers also need to make sure employees are registered to pay personal income tax. Costa Rica uses a progressive income tax scale for employment income, with a top marginal rate of 25%. Lower brackets are taxed at lower rates, and an exempt threshold applies at the bottom of the scale. Companies also use a progressive scale for corporate income tax that fluctuates based on profits. Depending on annual gross income, companies may qualify for reduced corporate income tax rates. Companies above the applicable threshold generally owe 30% on taxable income.

Costa Rica payroll options for companies

There are 3 main payroll options in Costa Rica:

  • Internal: Operating an internal payroll can help larger companies demonstrate their commitment to Costa Rica. However, companies will need a bigger budget to hire a full HR team.
  • Costa Rica payroll processing company: A processing company is a solution to outsourcing payroll, but you will still be responsible for compliance.
  • G-P: By partnering with and Employer of Record like G-P, companies can expand their global footprint without the hassle of entity setup and management. With G-P, all employees will be paid punctually and compliantly so employers can focus on other key aspects of their business.

How to set up payroll in Costa Rica

Before setting up payroll for direct employees, companies typically need a local legal presence or registration, such as a subsidiary or registered branch. Companies that do not establish a local entity may use an Employer of Record or another compliant local employment arrangement. The process to set up a subsidiary can take weeks or months, depending on where the company is incorporated and the type of entity chosen. However, it’s a necessary step before hiring employees, running payroll, and starting operations in Costa Rica.

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