Franchises, as all companies with economic activity, must comply with the tax obligations established for the development of this activity, and the obligations for the specific activity that is being evolved.

A franchised company in Costa Rica that has to make monthly royalty payments (payments for the use of the franchise) to a company domiciled in another country, will be subject to a withholding of 25% for remittances abroad; while if the payments are made to companies domiciled in Costa Rica, a maximum withholding of 10% of the gross sales obtained during the corresponding fiscal period will be made.

Additionally, it must be taken into consideration that the payment of the royalty includes the Value Added Tax (VAT) for the use of the trademark in a specific territory, whether the payment is made to a company domiciled in Costa Rica or abroad. The tax must be paid by the Costa Rican taxpayer that receives the service and any deductible expenses must be supported by electronic invoices.

Regarding the income tax, it is important to point out that the income received by the company for the granting of the franchise is considered as income from capital gains; and therefore a 15% tax will be applied to the amount of gross sales made, without the possibility of deduction.

If you require legal advice on this matter, in ERP Lawyers we have a team of experts who can guide and assist you in this matter. We invite you to contact us at info@erplawyers.com