What global businesses need to know about doing business in Costa Rica
Costa Rica might not be the first country you’d think of for a Latin American expansion, but think again: it’s a relative economic success story compared to some other countries in the region.
In 2024, its GDP was forecast to reach around $88billion, nearly six times what it was as recently as 2000. Much of this growth has been driven by an influx of foreign manufacturing and healthcare firms setting up factories in the country, most notably Intel’s plant for assembling and testing computer microprocessors which opened in 1998. This has helped industry, and services like tourism, replace agriculture as the primary driver of the economy, which was previously based around exporting crops such as bananas, coffee and sugar.
Costa Rica has a well-educated and literate workforce among its population of just over five million, but it retains many highly specific cultural characteristics from a payroll perspective. This guide sets out the basics of running payroll in Costa Rica.
Getting Started with Payroll in Costa Rica
Setting up a business in Costa Rica is simpler than it is in many other developing countries. However, all legal and financial activities need to be conducted in Spanish, and many parts of the set-up process still have to be conducted in person rather than online. As a result, working with local business and payroll expertise is strongly recommended, as this will help smooth out any obstacles that crop up along the way.
The first step is to register with the Public Registry and choose the company structure: most foreign companies opt to form as a corporation (S.A.) or a limited liability company (S.R.L). There are no minimum capital requirements for either an S.A. or an S.R.L. Then an in-country bank account can be opened, either with a public (insured) or private bank.
After incorporation, a company can then register with the Ministry of Finance for tax purposes, the Social Security Fund and the National Insurance Institute, as well as obtaining any municipal permits required.
Employment Considerations
Written employment contracts are not mandatory in Costa Rica, but due to government concerns about undocumented workers, they are strongly recommended. Although collective bargaining is permissible in Costa Rica, it is rarely seen outside the public sector.
Foreign workers must apply for a work permit to operate in Costa Rica, and the application has to be made in Spanish. The initial application fee is around CRC 102,000 (approximately £160; $200; €195) Although it takes as much as a year to process, foreign workers can start working as soon as the application is submitted while they wait for the decision to be made.
The maximum working week in Costa Rica is relatively long at 48 hours, with many workers doing six eight-hour shifts from Monday to Saturday. Anyone working night shifts (between 7pm and 5am) is limited to a maximum of 36 hours per week. Overtime is capped at four hours per day and is paid at a minimum of 150% of the normal rate, and at least 200% on public holidays. It is commonplace to provide a 45-minute lunch break and two 15-minute coffee breaks during the day.
Probation periods are generally three months, and there is no notice period applicable during that period. Notice periods start at a week after three months, rising to 15 days after six months, and a month after a full year’s service has been completed.
Compensation, Bonuses and Severance
Minimum wage levels in Costa Rica vary considerably, depending on the level of skill required in the job and even the level of the employee’s education. Furthermore, the rates are reviewed every year and so it can be incredibly difficult to keep track of who should be earning what.
As a guide, as of February 2025, the monthly minimum wage for a generic unskilled worker is CRC 367,108.55 (approx. £575; $725; €690), while the rate for a graduate technical worker is CRC 784,139.53 (approx. £1,230; $1,550; €1,480).
All employees are entitled to the 13th-month bonus, known as Aguinaldo, which should be paid at some point within the first 20 days of December.
Severance and termination rules vary by industry, so it’s important for companies to check their specific regulations. In general, severance pay is one week’s salary after three months of service, two weeks after six months, and approximately 20 days for each year of service thereafter. Employees should also be paid for their unused paid leave days and a pro-rata portion of their Aguinaldo bonus.
Tax and Social Security
Like many countries, Costa Rica levies income tax on a progressive scale. The first CRC 929,000 per month (approx. £1,450; $1,830; €1,760) are exempt, beyond which the following four bandings apply:
- Beyond CRC 929,000 up to CRC 1,363,000 (approx. £2,140; $2,690; €2,580): 10%
- Beyond this up to CRC 2,392,000 (approx. £3,750; $4,730; €4,530): 15%
- Beyond this up to CRC 4,783,000 (approx. £7,500; $9,450; €9,050): 20%
- Beyond CRC 4,783,000: 25%
Corporation tax runs at 30% for companies with annual gross income over CRC 119,629,000 (approx. £187,000; $236,000; €226,000). Companies with gross income smaller than this are subject to progressive rates of 5%, 10%, 15% and 20% depending on the level of profit. VAT in Costa Rica runs at 13%, with a selection of exemptions and reduced rates for certain goods and services.
The low income tax rates are counterbalanced by relatively high social security contributions, but they help fund a healthcare system considered very good by regional standards. Social security payments (abbreviated to CCSS) are 26.67% of gross salary from the employer and 10.67% from the employee.
Holidays and Leave
Costa Rica has a total of 13 days of public holidays each year, employees receive paid time off for 11 of them. Employees should receive an unpaid day off for the other two: the Feast of Our Lady of the Angel in August, and Army Abolition Day in December.
Paid leave entitlement starts at one day per month for the first 50 weeks of employment. After this, they receive 14 days per year.
Maternity leave entitlement in Costa Rica is four months, one before the birth and three after it. Paternity leave is eight days: two for each of the four weeks after the birth. Both types of leave are fully paid, and covered 50/50 by social security and the employer.
Medically certified sick leave is paid by employers for the first three days at 50% of salary. After this, it’s paid by social security at 60% of normal rate up to the end of the 26th week of absence.
Employees are also entitled to three days of paid bereavement leave, if a member of their immediate family passes away, and one day of leave if they’re getting married.
A Better Payroll Solution
While Costa Rica is an attractive option for a Latin American expansion, there are many cultural specifics to take into consideration. The variations in minimum wage across different professions, and the need to conduct administrative affairs in Spanish, means that having access to local expertise is crucial.
Working with a global payroll provider can give you access to experienced payroll professionals who understand the ins and outs of Costa Rica – as well as connecting you to leading solutions and technology for multi-country payroll.
This guide is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional. Click here to see more country payroll guides from CloudPay.