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Loose Laws in Costa Rica

A U.S.-bound air passenger was found to be carrying nearly $10,000 in counterfeit $100 bills Wednesday, but he was allowed to leave after police confiscated the funny money.

The incident took place at Juan Santamaría airport. The Policía Aeroportuaria of the Fuerza Pública said they found 95 fake bills in the pocket of the 34-year-old traveler. He was identified by the last name of Modia. Police officers sought the expertise of workers at a bank at the airport. Some of the bills had the same serial number, police said.

The man is a U.S. citizen originally from Cuba, police said.

Police could not hold the man or his female companion because there is a flaw in Costa Rica’s law. So although the pair missed their flight, they were allowed to leave later without the bills. They headed to Miami Thursday.

The $9,500 was below the limit that would have required reporting in an international flight if the bills were authentic.

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IRS reaches Costa Rica

The U.S. Internal Revenue Service announced last week a new initiative to crack down on citizens who are hiding money offshore.

The crackdown extends to those U.S. citizens who have control of overseas corporations, what the IRS calls an entity. Many expats in Costa Rica fall into that category if the total amount in bank accounts is $10,000 or more at any time in the year.

U.S. citizens face complex tax requirements overseas. For example a citizen has to file a report with the IRS if they transfer personal property, like a home, into a foreign corporation.

Nevertheless, the IRS is less than aggressive in trying to inform or help U.S. citizens. The U.S. Embassy in San José does not have a full-time IRS agent in residence.

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IRS in Costa Rica

IRS Winning friends among local bank officials!
The sign of things to come: Banco Cuscatlan now requires citizens or resident aliens of the United States to fill out a W9 form for personal accounts at the firm’s banks in Costa Rica.

Why?  Because Citigroup bought Grupo Cuscatlan from Corporación UBC Internacional S.A. for $1.51 billion in cash and stock. Grupo Cuscatlan has operations in El Salvador, Guatemala, Costa Rica, Honduras and Panamá.

Most United States citizens are familiar with a W9 form.  It is an Internal Revenue Service form used to obtain a person’s taxpayer identification number.   In the case of individuals, the identification is the Social Security number.

The purpose of the form is to acquire information from taxpayers for the United States government’s tax collection efforts.  A web version of the form that can be filled out online and printed can be found HERE!

The bank is also requiring account holders to sign a form that states the following:

“The undersigned hereby authorizes Banco Cuscatlan de Costa Rica, S.A. to report, on an annual basis, the information on the account holder and his or her account(s) and any interest earned on such product(s) or account(s) held in Banco Cuscatlan de Costa Rica S.A. to the United States Internal Revenue Service and to withhold any United States tax.”

This is just another scary story of the transparency phantom stalking bank information.

Recently, an expat sold his home in Costa Rica.  He almost put the proceeds of the sale in his Cuscatlan personal account.  There is no capital gains tax in Costa Rica but there is in the United States.  In theory, the bank could withhold money and send it to the United States government as backup withholding to cover taxes due.

If United States expats do not fill out the form, their personal accounts can be closed and/or the bank can withhold as much as 30 percent of any moneys in the accounts.  The deadline for compliance is the end of this January.

Many expats believe their money in Costa Rica is safe from their home country’s tax authorities.  Some countries do not required the payment of taxes on holdings or gains from investments in Costa Rica.  The United States does.  No matter where a United States citizen goes, he or she owes taxes on the money he or she makes on investments.

Many expats from the United States try to hide their gains here by using companies to hold assets.

Some go as far as to use Costa Ricans to hold their stock to hide their profits.  Those that do
have no control over their assets, and some take a beating from white-collar thieves.

This kind of reporting to the United States is just the start.   Cuscatlan is just taking the lead because it is a United States banking institution. GE Consumer Finance purchased 49.99 peercent of BAC San José in May 2005, and since that purchase, the bank has scrutinize accounts very closely.  The bank continues to close many questionable accounts held by expats before the purchase.

HSBC recently purchased Banex.  HSBC Bank USA has close ties with the Costa Rican subsidiary and probably will be requiring the same forms as Cuscatlan very soon.

All these facts mean the accounts once used by expats to hide money in Costa Rica are almost gone.  Most banks, even the ones not mentioned here now, require any new customer to fill out a form or sign an agreement that permits the bank to give information about the account and the account holders to any authority, including the U. S. Internal Revenue Service.

The best practice when living and investing in Costa Rica is to be on the up and up with all ones business dealings.  This includes paying one’s taxes to Costa Rica and the home country.  It makes for a better nights sleep.

By Garland M. Baker
Special to A.M. Costa Rica

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Money exchange

Most banks have ATM machines (cajero automatico in Spanish); most are part of the country’s ATH (A Toda Hora) or Red Total networks and can accept international cards.  Check with your home bank for transaction charges and if your PIN needs to be converted for use here.  Most times it does not. Lines of epic proportion form at state banks (Banco Nacional, Banco de Costa Rica, Bancredito, Banco Popular) but all offer currency exchange.  If you do choose to go to one of the state banks, you might want to bring a book to read as the line can be long.  Private banks (BAC San Jose, Scotiabank, Banex, Banco Cuscatlan, Banco Interfin) have much more tolerable waits, but not as many branches.  If you are in the Central Valley you should have no problem finding one of the private banks as there are so many.