Relevant changes proposed by the draft titled: "Regulation Requirement for the Authorization Procedure to Receive Donations Deductible from the Donor´s Gross Income Tax Return"

January 22, 2016

Tax Flash

In pursuance with the provisions of section 174 of the Costa Rican Tax Code on January 11th, 2016 the Ministry of Finance, published on their website the regulation draft titled "Requirement Regulation for the Authorization Procedure to Receive Donations Deductible from the Donor´s Income Tax Return" for the purpose of informing all citizens and allowing them consult on its regard.

The main purpose of this regulation is to establish governing guidelines that specify what type of requirements each entity should turn over, in order to obtain authorization to receive donations, which would be deductible from the donor´s income tax return. In this sense, the main changes proposed are summarized hereafter:

  • Differentiates between the legal entities that must request authorization to receive donations to the tax authorities, and those that may refrain from the proceeding.
  • Includes new requirements to register as a beneficiary with the tax authorities such as:

a) The obligation to be registered as a taxpayer with the General Tax Administration, also the beneficiary must be up to date with all its formal and material tax obligations, and its social security contributions.

b) Submit to the local tax administration the D408 form titled "Application for Authorization or Renewal to Receive Donations" in which the beneficiary must provide information of the legal entity such as its legal representative, the company name, the fiscal address of the entity, indicate place to receive service of process, provide information regarding projects to execute, in the case of authorization renewal provide information of donations received during the last two years and projects implemented during the last five years, among others.

c) The D408 must be accompanied by a copy of the identity card of the undersigned, original or copy of the financial statements of the entity which must be signed by the legal representative and responsible private accountant.

d) The associations or foundations for social work, scientific or cultural purposes considered of public interest must also provide a certified copy of its charter and statutes that must recite that the entity is of public interest, and indicate the current conformation of the members who compose it.

  • Establishes the obligation to any authorized association or foundation to maintain an auxiliary to register received donations, which should specifically contain:

a) The date of the donation.

b) Name and identification number of the donor.

c) Amount of donation.

d) Type of donation (cash or kind) for cash donations, specify the type of contribution (transfer, cash, check, other) in the case of gifts in kind, it is necessary to specify the type and amount of assets .

  • With regard to receipts given out by the beneficiary, to be considered valid it must contain:

a) Social denomination, identification number and tax domicile of the entity authorized to receive donations.

b) Full name and identity card number of the person authorized by the entity to extend the receipt. *(This was not required before).

c) Full name and identification card number of the person or entity making the donation.

d) A detailed description of the goods, professional services or amount of money received, specifying the unit value and total value of the received amounts.

  • Specifies that the authorizations to receive donations will be valid for one year, renewable for equal periods of time.
  • The Tax Administration will publish on its web site, a list of the entities authorized to receive tax deductible donations which will be updated once a month. Those who make donations to entities not included in the list, may not deduct the donation from the income tax return.
  • The regulation allows the Tax Administration to later require the beneficiaries and donors to file information returns, with the identification information of each of the donors and / or recipients of the donation (beneficiary), who have made or received grants during the fiscal period to which the information return relates to.
  • The powers of control of the Tax Administration is expanded to the point where it is authorized to dictate  the suspension of the authorization, which must be issued in a motivated resolution issued for that purpose, which may be opposed by the beneficiary with all the resources of the law.
  • Within the transitional period, it indicates special dates in which all entities with generic authorizations that have no expiration date should apply for a new authorization, to do so they must present all the new requirements which may be filed by email or in physical in the local Tax Administration.

The project is currently under consultation, however, of all the proposed changes we find particularly relevant the new authorization requirements, the obligation for the beneficiary to maintain an auxiliary with donor information and the obligation for both donors and beneficiaries to file information returns which will allow the Tax Administration for new cross-checking that me display significant irregularities.

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