The inpatriates under the Free Trade Zone Regime
By: Manrique Blen, Senior Manager, Deloitte Costa Rica
The foreign employees working locally (inpatriates) bring knowledge and experience to the companies operating under the Free Trade Zone Regime. However, it is more an exception than a rule to have in place labor, fiscal and migratory internal policies harmonized and applied exclusively to this group of workers.
Let´s start with the migratory side, where the most sensitive topic is time. Ordinary procedures are not fast and an inpatriate could wait for months before getting a work permit. Nevertheless, companies under the Free Trade Zone Regime could be registered under the category of Recognized Companies, which will allow them to carry out the procedures in shorter terms, with faster approving resolutions and with simplified procedures.
Most foreign workers enter our country with a tourism visa, which doesn´t allow them to work for a Costa Rican company. If there is an employee - employer relationship with a foreign person who works in the country, a work permit is needed.
Usually, companies resort to stays or temporary residence in order to fulfil this obligation. The decision on the type of permit to ask for will depend mainly on the type of work, duration and place of payment. It is of great importance to consider that the stay is not always the best choice, specially if the person comes to our country with the family and a local bank account is needed to make the payments.
Let´s talk about taxes now. According to the law on Income Tax, a person will have tax obligations in the country due to the income generated within the national territory, regardless of the time of stay, the nationality, the type of migratory permit or place of payment. If a local labor relationship exists, the wage tax should be applied, no matter the kind of migratory permit held.
The total amount, 100% of the income that the inpatriate generated working in the country must be reported, even if a part of it is paid abroad. To comply with this requirement, many companies use the mirror payroll, through which the local company reports the taxes for all the income, while the wage is deposited in a foreign bank account by another company of the group.
The Social Security also has its peculiarities, given that jurisprudence has excluded of the base to calculate, those benefits targeted to have a similar lifestyle to the one the employee had in the country of origin (housing, transportation, travels, etc).
And, what about the work? The relation with inpatriated workers is also regulated by our Labor Code and the applicable regulations, including but not limited to, vacations, the Christmas bonuses, permits and more.
As you can see, inpatriates´ world is not a footnote, but a whole chapter in the policies that Human Resources should have in its horizon.