Hire in Costa Rica with Confidence
Our workforce compliance guide to Costa Rica covers everything you need to compliantly hire, onboard, manage and pay independent contractors in Costa Rica.
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Our workforce compliance guide to Costa Rica covers everything you need to compliantly hire, onboard, manage and pay independent contractors in Costa Rica.
Worksuite offers a whole range of professional services and compliance tools, making it easy to compliantly engage independent contractors in Costa Rica.
We work with the best legal partners in Costa Rica to create contract templates that are compliant with local laws to protect you and your contractors from fines and penalties.
Our bespoke onboarding workflows and screening questioners will help you determine the worker status in compliance with Costa Rican law, based on which you can decide to engage a worker as a contractor or full-time worker—all without needing to set up your business entity.
Any business hiring in Costa Rica should understand the important legal distinction between who classifies as an independent contractor and who can be hired as an employee. Fines or penalties may be issued to businesses hiring independent contractors under the guise of employment.
Understanding the distinctions between employees (empleado) and independent contractors (contratista independiente) is critical to be compliant in Costa Rica. It is important to work with a partner like Worksuite to ensure you put in place an engagement framework that accurately classifies freelancers as independent contractors for you and lets you know when freelance talent must be engaged as an independent contractor or employed directly. This is critical to avoid legal, financial, and other penalties.
The primary sources of employment law include:
Beyond the Civil Code, the hiring of independent contractors is not regulated by any specific employment laws.
Hiring practices are similar to many other countries. Candidates will typically submit a CV and a cover letter. Hiring steps include one or more rounds of interviews and (possibly) assessments.
Mandatory details to contain in the contract include:
Upon selecting the successful candidate, Costa Rican law requires the employer to generate three copies of the contract: one for the employer, one for the employee, and one for the Employment Bureau of the Ministry of Labor and Social Security. All employment contracts must be in Spanish.
Independent contractors can be hired directly or via an intermediary, such as a staffing agency or umbrella company. Independent contractors may be found via word of mouth, job boards, social networks, industry bodies, or other forums. Although hiring practices vary, an independent contractor may be asked to provide a CV, portfolio, and references and possibly sign an NDA. Regardless, a written independent contractor agreement (acuerdo de contratista independiente) is necessary, although this does not have to be in Spanish.
The three most common categories of an independent contractor are:
Employees are subject to income tax which is withheld at source. Employees are not required to submit any tax filing documents. Companies must file their income taxes by 31 March following the preceding tax year using the Income Tax Return form D-101. Employers can file income taxes at the Ministry of the Treasury’s online portal and pay taxes via bank transfer.
Independent contractors file and pay their own income taxes and social security contributions. There may also be additional municipal taxes applied as a percentage of net income or net sales.
Tax returns must typically be filed by mid-December after the tax year ending on 30 September. Taxes are then paid in installments by the last working day in March, June, and September. As with employees, contractors can file income taxes at the Ministry of the Treasury’s online portal and pay taxes via bank transfer.
For contractors operating on a self-employed basis, the personal income tax rate ranges from 10% (annual taxable income of CRC 3.8 million to 5.7 million) to 25% (income of CRC 19.1 million and above). Taxes are paid in installments using estimated projections based on the average of the past three years. There are no local income taxes for self-employed individuals. Self-employed contractors must contribute to the mandatory social security regime, which ranges from 10.5% to 18.6% of their income.
Contractors operating as a business are subject to a progressive corporate tax rate, which ranges from 5% (on the first CRC 5.3 million) up to 30% on income of CRC 112.2 million and above.
The tax year runs from 1 October to 30 September. Employees are subject to income tax which is withheld at source by the employer and is paid directly to the Ministry of Finance on a monthly basis. The national personal income tax rate is progressive and ranges from 10% (annual taxable income of CRC 10.4 million to 15.2 million) to 25% (income of CRC 53.3 million and above). There are no local income taxes for employees.
Employers must register with the Social Security Administration (Caja Costariciense de Seguridad Social, or CCSS), which manages all social security.
Payer’s Withholding / Reporting Requirements for Independent Contractors:
There are no legally mandated methods of paying employees. If employers send their employees’ electronic payslips, the employee must provide a written (i.e., email) confirmation of receipt.
There are no legally mandated methods of paying independent contractors. In addition to the national currency, the Costa Rican Colón (CRC), US dollars are also commonly used for payment.
Workers rights include:
There is no legal minimum wage; pay rates are typically established via collective bargaining agreements.
There are no statutory workers’ rights for independent contractors.
The key statutory benefits include:
Employers can also offer additional benefits at their own discretion.
Independent contractors’ benefits are governed by the contract.
Employees are paid every month directly into their bank account.
Independent contractors are paid according to the terms of their contract. They are not paid by payroll in most cases and must submit an invoice to the client in order to receive payment.
The primary sources of employment law include:
Hiring practices are similar to many other countries. Candidates will typically submit a CV and a cover letter. Hiring steps include one or more rounds of interviews and (possibly) assessments.
Mandatory details to contain in the contract include:
Upon selecting the successful candidate, Costa Rican law requires the employer to generate three copies of the contract: one for the employer, one for the employee, and one for the Employment Bureau of the Ministry of Labor and Social Security. All employment contracts must be in Spanish.
Employees are subject to income tax which is withheld at source. Employees are not required to submit any tax filing documents. Companies must file their income taxes by 31 March following the preceding tax year using the Income Tax Return form D-101. Employers can file income taxes at the Ministry of the Treasury’s online portal and pay taxes via bank transfer.
The tax year runs from 1 October to 30 September. Employees are subject to income tax which is withheld at source by the employer and is paid directly to the Ministry of Finance on a monthly basis. The national personal income tax rate is progressive and ranges from 10% (annual taxable income of CRC 10.4 million to 15.2 million) to 25% (income of CRC 53.3 million and above). There are no local income taxes for employees.
Employers must register with the Social Security Administration (Caja Costariciense de Seguridad Social, or CCSS), which manages all social security.
There are no legally mandated methods of paying employees. If employers send their employees’ electronic payslips, the employee must provide a written (i.e., email) confirmation of receipt.
Workers rights include:
There is no legal minimum wage; pay rates are typically established via collective bargaining agreements.
The key statutory benefits include:
Employers can also offer additional benefits at their own discretion.
Employees are paid every month directly into their bank account.
Beyond the Civil Code, the hiring of independent contractors is not regulated by any specific employment laws.
Independent contractors can be hired directly or via an intermediary, such as a staffing agency or umbrella company. Independent contractors may be found via word of mouth, job boards, social networks, industry bodies, or other forums. Although hiring practices vary, an independent contractor may be asked to provide a CV, portfolio, and references and possibly sign an NDA. Regardless, a written independent contractor agreement (acuerdo de contratista independiente) is necessary, although this does not have to be in Spanish.
The three most common categories of an independent contractor are:
Independent contractors file and pay their own income taxes and social security contributions. There may also be additional municipal taxes applied as a percentage of net income or net sales.
Tax returns must typically be filed by mid-December after the tax year ending on 30 September. Taxes are then paid in installments by the last working day in March, June, and September. As with employees, contractors can file income taxes at the Ministry of the Treasury’s online portal and pay taxes via bank transfer.
For contractors operating on a self-employed basis, the personal income tax rate ranges from 10% (annual taxable income of CRC 3.8 million to 5.7 million) to 25% (income of CRC 19.1 million and above). Taxes are paid in installments using estimated projections based on the average of the past three years. There are no local income taxes for self-employed individuals. Self-employed contractors must contribute to the mandatory social security regime, which ranges from 10.5% to 18.6% of their income.
Contractors operating as a business are subject to a progressive corporate tax rate, which ranges from 5% (on the first CRC 5.3 million) up to 30% on income of CRC 112.2 million and above.
Payer’s Withholding / Reporting Requirements for Independent Contractors:
There are no legally mandated methods of paying independent contractors. In addition to the national currency, the Costa Rican Colón (CRC), US dollars are also commonly used for payment.
There are no statutory workers’ rights for independent contractors.
Independent contractors’ benefits are governed by the contract.
Independent contractors are paid according to the terms of their contract. They are not paid by payroll in most cases and must submit an invoice to the client in order to receive payment.
The Costa Rican Labor Code defines the existence of an employee-employer relationship as involving an “individual labor contract” between the parties. Under Section 18 of the Labor Code, an individual labor contract is defined as a contract “in which a person commits to give another person or entity his services or to undertake a piece of work, under permanent dependency and immediate or delegated direction of such other entity or person, and in exchange for a payment of any kind or form.”
As in many other countries, the degree of subordination (i.e., “permanent dependency and immediate or delegated direction”) is the key criterion when determining if the relationship is an employment relationship (involving a labor contract) or a non-labor relationship between an independent contractor and a hiring company.
Additionally, under the principle of contrato realidad (reality contract), if what purports to be a non-labor contract is proven to effectively be a labor/employment relationship, the employer company may suffer legal and financial penalties (including payroll taxes). It is therefore important to leverage an employment service partner like Worksuite when hiring in Costa Rica to ensure that independent contractors fall under the correct working relationship with your business.
Who is an Independent Contractor?
The factors that differentiate an independent contractor from an employee are largely the same as in other countries. In essence, individuals are generally considered to be independent contractors if they:
There are three main categories under which independent contractors operate in Costa Rica:
There are two main types of contracting model for working with independent contractors in Costa Rica.
A. Direct engagement of the contractor as a self-employed sole trader or registered via their own company. Under this model, the hiring company engages directly with the independent contractor and establishes a contract for services. The hiring company then pays the contractor directly, following the terms of the contract.
B. Third party. These companies come in two forms, and both are specially designed to vet and engage freelancers compliantly as either contract employees or independent contractors on your behalf.
Companies hiring independent contractors in Costa Rica should avoid making payments directly through their payroll system. Beyond these guidelines, there are no specific legal requirements related to paying contractors in Costa Rica. The contract should stipulate the preferred payment method agreed upon by both parties.
The tax year currently runs from 1 October to 30 September. Employees are not required to submit any tax filing documents, as they are subject to income tax which is withheld at source by the employer and is paid directly to the Ministry of Finance on a monthly basis. The national personal income tax rate is progressive and ranges from 10% (annual taxable income of CRC 10.4 million to 15.2 million) to 25% (income of CRC 53.3 million and above). There are no local income taxes for employees.
Independent contractors file and pay their own income taxes and social security contributions. For contractors operating on a self-employed basis, the personal income tax rate ranges from 10% (annual taxable income of CRC 3.8 million to 5.7 million) to 25% (income of CRC 19.1 million and above). Taxes are paid in installments using estimated projections based on the average of the past three years. There are no local income taxes for self-employed individuals.
Contractors operating as a business (i.e., a limited liability company or a corporation) are subject to a progressive corporate tax rate, which ranges from 5% (on the first CRC 5.3 million) up to 30% on income of CRC 112.2 million and above. There may also be additional municipal taxes applied as a percentage of net income or net sales. Tax returns must typically be filed by mid-December for the preceding tax year, while taxes are typically paid in June, September, and December. As a business, contractors are subject to VAT at 13%.
Employers must register with the Social Security Administration (Caja Costariciense de Seguridad Social, or CCSS), which manages all social security. For each employee, the employer pays around 27% of gross wages towards social security contributions, and the employee pays around 10%. Self-employed contractors must also contribute to the CCSS regime, paying between 10.5% to 18.6% of their income. There is no specific tax levied on commercial transactions when paying contractors.