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Hiring in Costa Rica

Hiring employees compliantly in Costa Rica means doing it yourself or using an Employer of Record like Global Expansion. You should be careful using independent contractor agreements in Costa Rica so that you don’t run afoul of employment laws. To hire an employee compliantly and offer them mandatory benefits and compliant agreements, you can:

(a) Establish your own new legal entity, banking, accounting and payroll service in Costa Rica or

(b) use an Employer of Record like Global Expansion who can handle all of the details for you.

Need assistance hiring in Costa Rica? Contact us about our International EOR  Service

Labor Laws in Costa Rica

Employment laws in Costa Rica are uniquely suited to the country’s way of life, and crucial to understand if you want to employ local talent in this country. Get the details on Costa Rica employment laws and Costa Rica policies here.

Employee Probation Period

  • The Costa Rican Labor Code has a specific provision that covers “Domestic Employees”. 
  • It provides a 30-day probationary period where either party may terminate the relationship without and severance responsibility.

Annual Leave in Costa Rica

  • The annual leave has a minimum length of (12 working days) 14 calendar days. 
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Holidays in Costa Rica

Costa Rica celebrates eleven national public holidays as well as additional public holidays that vary by state:

New Year’s Day 1st January
Holy Week  
Maundy Thursday 9th April
Good Friday 10th April
Juan Santamaria Day 11th April
Labor Day 1st May
Annexation of Nicoya 25th July
Virgen de los Angeles 2nd August
Assumption of Mary 15th August
Independence Day (of Costa Rica) 15th September
Christmas Day 25th December
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Maternity Leave Costa Rica

  • Pregnant employees are entitled to 1 month of prenatal leave and 3 months of post natal leave . 
  • Leave can be extended by 3 months for medical reasons. 

Paternity Leave Costa Rica

  • Fathers holding public sector jobs are entitled to eight days of paid paternity leave.

Sick Leave in Costa Rica

  • Employers must pay at least 50% of the employee’s salary for the first three days of the employee’s sick leave. 
  • The Social Security Administration (CCSS) pays the other 50%. 
  • The CCSS pays a percentage of the salary from the fourth day of the sick leave up to 52 weeks with no obligation on the part of the employer to pay salary during the remaining period of sick leave. 

Working Hours in Costa Rica

  • In Costa Rica, there are Normal Working Days (Jornadas Ordinarias Normales) and Special Working Days (Jornadas Especiales o de Excepcion).
  • Both types of work days can be subdivided into day and nightshifts.  The maximum hours one may work are 8 hours per day and 48 hours per week 

Overtime in Costa Rica

  • Overtime is paid at time and a half, or the hourly wage plus an additional 50%
  • Employers may require no more than four hours of overtime, for a total of twelve working hours per day.

Termination of Employment in Costa Rica

  • In Costa Rica, to terminate an employee for cause, the cause must be based on one of the grounds set forth in Article 81 of the Labor Code. 
  • The termination must be well substantiated as the employer carries the burden of proof that the termination was for cause.  
  • The employer will only be liable for the payment of wages, proportional vacation time and Christmas Bonus.
  • Employees that are fired or laid off without cause are entitled to severance pay, which is paid on the last day of employment. 
  • If an employer terminates the employee without cause then the employee must be compensated with severance which is referred locally as “Prestaciones Laborales”
  • The duration of notice period for termination ranges from 1 week to 1 month depending on an employee's length of service

Notice Period in Costa Rica

  • Duration of notice period is as follows:-
    • For an employment period of more than 3 months but less than 6 months, required notice period is 1 week
    • For an employment period of more than 6 months but less than 1 year, required notice period is 2 weeks; and
    • For an employment period of one year or more, 1-month notice is required.
  • Notice period is provided in writing but if the contract is verbal, the employer may give verbal notice before two witnesses
  • If a party fails to provide notice period, payment in lieu of notice is obligatory.
  • Amount of payment is equivalent to the salary that he/she would have earned during the notice period.

Severance in Costa Rica

  • If an employee is terminated without cause by the employer or if the employee quits for cause, they are entitled to severance pay.
  • If the employee has worked with the employer for more than three months but less than six months, then they are entitled to the equivalent of seven days’ wages.
  • If the employee has worked from six months to one year they are entitled to fourteen days of wages.
  • If the employee has worked for more than one year then the following schedule applies for each year worked:

Years Worked

Days Paid

1

19.5

2

20

3

20

4

21

5

21.24

6

21.5

7

22

Costa Rica Salary and Wages

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13th/14th Month Salary in Costa Rica

  • Yes (Mandatory) 
  • There is a statutory requirement to pay the 13th month salary.
  • This is called 'Aguinaldo'. The Aguinaldo is usually paid between the 1st and the 20th of December.
  • Failure to pay will result into a fine.
    There is no evidence that there is an obligation to pay the 14th month.
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Income Tax in Costa Rica

  • Resident and nonresident individuals, regardless of their nationality, are taxed on their income earned in Costa Rica. Foreign-source income is not taxed.
  • For individuals domiciled in Costa Rica, any income obtained within the boundaries of Costa Rica is considered as Costa Rican-source income and is taxable. Costa Rican-source income is understood to be any income derived from assets used, goods located, or services rendered within Costa Rican territory.
  • Non-residents are liable only for the applicable withholding taxes (WHTs), depending on the nature of the local income.
  • Income derived from self-employment or from a trade or business is subject to taxation.
  • The following salary tax rates will apply for tax year 2023.

Annual taxable income (CRC)

Tax on excess (%)

Over

Not Over

0

941,000

0

941,000

1,381,000

10

1,381,000

2,423,000

15

2,423,000

4,845,000

20

4,845,000

 

25

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Social Security in Costa Rica

  • Social Security in Costa Rica is the responsibility of the Caja Costarricense de Seguro Social (CCSS or Caja).
  • Eligibility for social security does not depend on a person's country of origin. 
  • It is mandatory for all citizens, residents and temporary permit holders.
  • The employer must contribute 26.67% of the gross wages paid to its employees. 
  • Employed individuals contribute 10.67% of wages. 
  • The contribution rate ranges from 10.67% to 18.62% for the self-employed. 

Contribution

Group 1083

Social Security Contribution

Employer

Group 1083

26.67%

Employee Group 1083 10.67%
Self-employed Group 1083 10.67%vto 18.62%*

*depending on one’s classification and income reference

Immigration Costa Rica

  • Depending on their country of citizenship, individuals may be required to apply for and obtain an entry visa before traveling to Costa Rica. 
  • A Costa Rican consulate overseas grants the visa.
  • Even though Costa Rica offers temporary residence permits for foreigners wanting to live in the country for longer than three months, they do not automatically allow the holder to work. 
  • Only Costa Rican citizens or Permanent Residence holders are allowed to work in Costa Rica without prior authorization.
  • Thus, once you are in Costa Rica, you have to apply for a work permit at Costa Rica’s Immigration Department.
  • A Costa Rica work permit falls under the “Special Category” of immigration permits, along with a student permit.
  • This means that it will allow the holder to work and remain in the country under the conditions set by the Ministry of Labor and Social Security.
  • The government of Costa Rica grants a work authorization to foreign employees who have special knowledge or experience in a certain field. 
  • The granting of a work authorization is subject to certain rules that must be checked on a case-by-case basis because the rules may vary. 
  • The main criterion applied by the Ministry of Labor is that persons in the local work force cannot be displaced by the hiring of foreigners. 
Need assistance hiring in Costa Rica? Contact us about our International EOR  Service

Type of Visa/ Permit

Documentation

Validity

Eligibility

Costa Rica Work Permit
  • Work permit application form
  • A letter of application, including:
  • The reason you’re applying
  • Your full name, nationality, birth place and birth date
  • Passport number
  • Place and date of arrival in Costa Rica
  • Exact address in Costa Rica
  • Your occupation/profession
  • Your contact information
  • A Statement from your employer
  • Registration Documents and the Legal Constitution of the hiring company
  • Proof the company hiring you is registered.
  • Proof that the worker insurance has been paid (Statement of Insurance Company)
  • Proof of income/sufficient financial means.
  • Certificate of police clearance from your country.
  • Proof of registration with a Costa Rican consulate.
Varies (depends on a case by case bases)
  • The government of Costa Rica grants a work authorization to foreign employees who have special knowledge or experience in a certain field. 
  • The main criterion applied by the Ministry of Labor is that persons in the local work force cannot be displaced by the hiring of foreigners. 
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Value Added Tax (VAT) in Costa Rica

  • Standard VAT rate of 13% applies to all transactions that take place in Costa Rica, unless an exception applies (such as a reduced rate, the zero rate or an exemption, or a reason to treat the transaction as outside scope of VAT).
  • Reduced rates of 4%, 2%, and 1% are applicable on certain goods and services such as private health services and private education services

VAT

Standard Rate

Group 1083

13%

Reduced Rate Group 1083 4%
Reduced Rate Group 1083 2%
Reduced Rate Group 1083 1%
Zero Rate Group 1083 0%
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Mandatory Benefits in Costa Rica

  • These are mandatory benefits as postulated by law
  • These include probationary period, annual leave, public holidays, sick leave, maternity leave, paternity leave, overtime pay, notice period, severance pay and13th month pay.
  • Statutory benefits also include social security benefits
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Mandatory Benefits overview

  • Probationary period

  • Annual Leave

  • Public Holidays

  • Maternity Leave

  • Paternity Leave

  • Sick Leave

  • Overtime Pay

  • Notice period

  • Severance Pay

  • 13th month pay

  • Social Security Benefits

Payments And Invoicing

  • Employers are responsible for withholding income taxes and social security contributions from employees’ salaries on a monthly basis. 
  • Employees are not required to file an annual income tax return if their only source of income is employment compensation. 
  • Nonresidents are not required to file tax returns if they are only subject to income tax withholding at source. 
  • The ordinary fiscal year runs from 1 October to 30 September. Returns must be filed, and any tax liabilities due must be paid, no later than 15 December. 
  • However, in certain specific circumstances, taxpayers may elect to file using a calendar tax year (1 January to 31 December). 
  • Self-employed individuals and individuals with a trade or business must make advance quarterly tax payments.

Payroll Accrual in Costa Rica

Country Accruals Additional Information

Caja

34.50%

Maternity

4 months

Christmas Bonus

8.33%

Vacation

5.31%

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Description

The Social Security system, known as the Caja, provides employees with free health care, sick leave, disability pensions and retirement benefits.  It is mandatory for all employers to register employees with the Caja. Total contributions amount to roughly 26.5% of the salary by employers, and 10.5% by employees.

Payroll Accruals Additional Information

    Employment Accruals
Annual Leave Two weeks for every 50 weeks of work is the annual paid leave for all employees. This equals 3.8% (2/52 weeks) of annual income
Maternity Leave Pregnant employees are given 1 month of paid maternity leave before the birth of the child, and 3 months after birth.
Employers are required to pay 50% of the salary for all four months of leave, and the Social Security Administration pays the remaining half.
This equals 50% of 33.33% of annual income
Paternity Leave Fathers holding public sector jobs are entitled to eight days of paid paternity leave. This equals 2.2% (8/365 days) of annual income
Sick Leave Employers must pay at least 50% of the employee’s salary for the first three days of the employee’s sick leave.
The Social Security Administration pays the other 50%.
This equals 50% of 0.82% of annual income
Overtime Overtime is paid at time and a half, or the hourly wage plus an additional 50%
Employers may require no more than four hours of overtime, for a total of twelve working hours per day.
Normal hourly rate is around 14,750 CRC. Overtime is paid at a additional 7375 CRC.
Severance If the employee has worked with the employer for more than three months but less than six months, then they are entitled to the equivalent of seven days’ wages.
If the employee has worked from six months to one year they are entitled to fourteen days of wages.
This equals 1.92% of annual income
13th Month Pay Employees in Costa Rica are entitled to a 13-month salary called ‘Aguinaldo’, which is based on one month of an employee’s salary and must be paid within the first 20 days of December each year. This equals 8.33% (1/12 months) of annual income
Social Security Social security contributions are levied on salaries, at a rate of 26.33% for the employer This equals 26.33% of annual income

Accrued Benefits in Costa Rica

Christmas Bonus %

Based on one month bonus

8.33%
Christmas Bonus Over Vacations % 0%
Severance per Year%

Employees are entitled to seevrance pay that equals 19.5 days of pay after completion of one year of employment (5.34% of annual salary)

5.34%
Vacations %

Two weeks for every 50 weeks of work is the annual paid leave for all employees (2.74% of annual salary)

2.74%
Notice %

Employees are entitled to 30 days of notice period for one year of service or more (8.24%)

8.24%
Christmas Bonus Over Notifications % 0%
Vacations Plus %

Note that vacation is calculated with the average of the salary of the previous 50 weeks including any bonuses.

 

Total percentage of Salary (yearly)

The total employment accruals as a percentage of salary per anum are equal to 24.75%.

24.75%

Why use Global Expansion to hire in Costa Rica

Establishing a branch office or subsidiary in Costa Rica can be time-consuming, expensive and complex. With such a robust labor market in place, one must pay great attention to detail when structuring employment because Costa Rica labor laws are complex.

The company also has a responsibility to comply with specific employment practices dictated by Costa Rica law to maintain its good standing as an equal opportunity employer.

Global Expansion makes it easy for you to expand into Costa Rica. We'll help you hire your candidate of choice, handle HR matters and payroll, and ensure that you comply with local laws without the burden of setting up a foreign branch office or subsidiary. In addition, you'll have complete control and direction over your employees.

We enable you to stay in control of everything. Our Costa Rica Global Professional Employer Organization (PEO) and Employer of Record (EOR) solution provides you with peace of mind to focus on running your company and the security to enter new markets.

 

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