Moratorium or Suspension of the Payment of Municipal Patents
On May 20th, 2020, Mr. Carlos Alvarado, President of Costa Rica, signed a Law that seeks to alleviate local taxpayers as well as the financial management of the municipalities affected by Covid-19.
It is a law that gives taxpayers the ability to request an extension on the term to pay the municipal patent tax or, if their economic activity has ceased, to suspend the patent. You can request an extension for various tax obligations, such as the payment for water and garbage collection, as well as a reduction of the rent of municipal premises. In addition, a sales tax moratorium will apply to alcoholic beverages on Class B Licenses, that is, those granted to discotheques, canteens, dance halls, and bars.
Municipal patent tax
Natural or legal persons engaged in the exercise of any type of commercial activity are obliged to pay the Municipality a patent tax, according to the Law. The extension on the term to pay the municipal patent tax will be granted to any type of business.
To opt for the moratorium on the payment of municipal patent taxes, you must fulfill the following requirements:
- Show that the gross income of your business went down by 20%, in relation to the same tax period of 2019. You must present a certification from a Public Accountant that shows the reduction in income.
- Pay all debts corresponding to tax periods prior to the declaration of national emergency. If you have a payment agreement, try to be up to date.
- Sign an affidavit that will be delivered to you by the Municipality.
- Present the value added tax (VAT) declarations of the last three months.
- Present the sanitary closure order issued by the Ministry of Health in light of the emergency caused by the pandemic.
Suspension of municipal patents
If you want to opt for the suspension of your municipal patent, you can suspend it for a maximum total period of 12 months, and the payment of your patent taxes will be suspended during that period. When you want to reopen the business, you just have to reactivate the patent, you do not have to start the process from scratch.
Other taxpayer obligations
Municipalities can provide a moratorium on the payment of different municipal obligations, including garbage collection, road cleaning, water bills (in the case of municipal aqueducts), construction taxes and fees charged to properties in the maritime land zone.
To opt for the moratorium on the payment of municipal taxes, the following requirements must be met:
1- Show that you were affected by the Covid-19 crisis due to the reduction of your work hours or the suspension of your work contract, through a formal document issued by your employer indicating the reduction of your work hours, the suspension of your contract, or your dismissal.
2- Show that you underwent an income reduction of at least 20% through the 2020 declarations of the value added tax (VAT).
The municipalities that administer commercial spaces may apply a 50% reduction in the rent of commercial premises and sections. The reductions in rents are valid until December 2020.
The Municipal Council will make sure that the rent reduction is granted to companies that demonstrate that they were significantly financially impacted by the crisis. It is left at the discretion of each municipality what documentation is requested to establish the decrease in income as well as the subsequent determination of how much the rent will be reduced.
The moratorium will last a maximum of three periods, with the possibility of an extension for three more months if the Municipality has the budget and if the economic reality of the Canton warrants it. Each taxpayer or lessee of the municipal premises must make the payments on the date determined by the moratorium plan and the reduction of the rate, since if the taxpayer does not fulfill his obligations, will pay surcharges, interest and penalties corresponding to the period in which benefit was granted.
Note: This law does not contemplate a moratorium on the Real Estate Tax, a tax that must be paid by landowners.