Many dream of opening a small, beachside restaurant in a tropical destination somewhere near the equator. With a view of endless sea and an open-aired bungalow as an office, it’s hard to imagine a more ideal career.
But the paperwork and planning that go into designing a tropical paradise is sometimes unexpected. No matter where you are or what kind of business you’re in, being an entrepreneur is always risky.
In the United States, the Small Business Administration estimates that only half of all businesses survive at least five years. In Costa Rica, the rate is probably lower.
Some of the most common reasons for failure are the lack of sound business planning, insufficient capital and starting for the wrong reasons. Therefore, before you get too excited about opening that café in Costa Rica, make sure you have a business plan, enough start-up cash and that you know exactly what you are getting yourself into.
Here is a list of what you should consider before opening a business in Costa Rica:
Acquiring Costa Rican residency is no easy task. Unless your business requires more than $200,000 in capital investment, you’ll be looking for more complicated ways to get residency (through marriage, through a $200,000 home purchase, or through investments.) Most business owners remain ‘perpetual tourists, which means they leave every 30 to 90 days to renew their visa.
Note: The actual number of days between “Visa Runs” depends on what country you are from (North Americans and Europeans typically get 90-day stamps).
It’s also important to consider that even if you own a business, you are not allowed to work in it, as this is seen as taking away a job from a local.
As long as you are slightly removed from day-to-day operations and don’t get caught busing tables, you can avoid expensive legal suits.
Structuring Your Business
There are a number of legal structures to choose from (general partnership, limited partnership, corporation, etc.) and the best one depends on the type of business you are looking to start. If you are unfamiliar with Costa Rican law, it’s best to consult a local lawyer. By far, the most common business structure is the “Sociedad Anonima” which offers many of the same benefits and protections that a North American or European corporation has. The costs of forming a corporation vary widely, but a safe bet is that you will spend between $300 and $1,000 to have it formed and registered with the Registro Publico (Public Registry).
Opening a Bank Account
Costa Rican banks require an extraordinary amount of documentation and patience. To open an account, the prerequisites can be quite overwhelming, and more often than not, frustrating for those accustomed to less paperwork, better customer service, and efficient operations. There are plenty of private and public banks to choose from. Some international banks with a strong market share include Citibank, HSBC, and Scotiabank.
These banks generally offer English-speaking tellers and the lines are considerably shorter than in the public banks. Public banks, on the other hand, have more ATM machines and offer state-insured deposits. Opening an account can and must be done, but plan on it being a tedious process.
Once the business structure is formed and the bank account opened, you’re ready to start with the Costa Rican government. More often than not, this means you will need to go to the local municipal office to obtain a “Uso de Suelo.” Along with this document, you’ll get a list of paperwork you need from various other government bodies (this depends on the type of business). If you don’t speak Spanish, you will need to hire a local to help you navigate this process.
Find a Good Accountant
Paying taxes and keeping up with records can be complicated.
For that reason, foreign business owners and locals alike typically hire an accountant to manage their files with the government. The accountant will file all appropriate paperwork and will make visits to the tax administration on your behalf. If you find a good accountant, he or she can save you money in the long term. It’s best to connect with someone upfront.
Things Are Not What You’d Expect
Opening a business in Costa Rica will probably take longer and cost more than what you plan for. Because supplies are trucked in on narrow mountain roads and because the country’s small population of 4.5 million can’t support mass purchasing, you’ll be paying a premium on imported foods, construction material, furniture, technology, etc. Not only will mounting a business be expensive, but it will also take a while. Costa Rican construction workers are notorious for not showing up. You might set a date and a time, and despite assuring you a thousand times that they will be there, the work day will pass and they will never show up. Eventually, they will be there for work, but on their own time. After all, it’s Pura Vida, right?
Here are a few Web sites offering good tips: