Bill on Incentives for MSMEs Would Strengthen this Sector in Costa Rica

    The initiative seeks to create incentives that promote formality, innovation and productive scalability of MSMEs

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     Micro, small and medium-sized enterprises (MSMEs) could benefit from new instruments to support their processes of formalization, chaining and innovation of their production processes, with the advancement of file No. 23,197, “Law of Incentives for the formalization and development of the MSMEs in Costa Rica”, which aims to establish incentives in Costa Rican institutions to generate a better environment for the development and operation of micro, small and medium-sized businesses, through which 33% of total employment in the private sector is generated and impact more than 35% of the country’s GDP.

     This proposal was presented in June of the previous year by the representative of the Republic, MonserratRuíz; in conjunction with the Latin American Center for Innovation and Entrepreneurship (CELIEM) based on data from the National Institute of Statistics and Census (INEC).  Regarding informality, especially in household microenterprises, it was evident that 57.7% are not registered in any public entity, 81.3% do not have any type of formal accounting, 90% do not have accounting By simplified regime, 73.9% do not have a stamped invoice, 77.7% do not have an electronic invoice, and 70.8% do not have any sales receipt.

    INEC has also indicated that 63.3% of microenterprises do not have social security. This scenario, and added to other analyzes such as that carried out by the OECD, confirms that the costs of social security and the procedures for incorporation into formalization constitute one of the main causes that affect the high informality that exists in the country.

      Given this panorama, the purpose of this bill is to recognize this reality, and propose a series of actions that, through incentives in Costa Rican institutions, generate a better environment for the development and operation of micro, small and medium-sized businesses. It also takes up recommendations and observations that in tax, social security and incentive matters have been raised in different spaces to strengthen, from the institutional level, a favorable ecosystem for promoting productive development.

    Very happy

      “We are very happy with the progress of this bill; it seems to us that the analysis carried out by the Economic Commission of the Legislative Assembly on this project allows us to not only address an essential issue such as the generation of incentives that facilitate the reduction of business informality in the country, but also establish incentives that favor the linkage processes of MSMEs with large companies, as well as the promotion of innovation processes in value chains, thereby exceeding the vision of incentives linked to the exemption of tax burdens, to define incentives linked to production, which could contribute to reducing the productivity gaps that we have between micro and small companies with large companies and favor the scalability of MSMEs. We hope that the initiative will advance satisfactorily in the Legislative Plenary and will soon become the Law of the Republic,” explained Luis Álvarez, executive director of CELIEM.

    The text aims to specifically establish the following essential aspects:

      1) Incorporate all microenterprises with up to 5 employees, without distinction of economic activity, into the simplified tax contribution regime, as long as they are registered with the Ministry of Economy, Industry and Commerce (MEIC) or with the Ministry of Agriculture and Livestock ( MAG); and use electronic invoice.

      2) Generate incentives for innovation and the formation of human capital in micro, small and medium-sized companies, by deducting income tax from research and development expenses carried out by micro, small and medium-sized companies duly registered with the MEIC or the MAG.

      3) Promote the linkage of MSMEs with large companies and those that are in special regimes, establishing tax incentives for large companies or special regimes on technology transfer, development of product/service innovations, or management processes of quality and environmental management for micro, small and medium-sized companies that are part of their value chain, which must be duly registered and in active condition before the MEIC or the MAG.

      4) Strengthen the special security contribution regime for entrepreneurs and microenterprises that register for the first time or resume economic activity, by establishing by law a special social security contribution regime that applies for a period of five years for ventures and microbusinesses (with no more than five collaborators)

      5) Provide the MEIC with economic resources to strengthen the Costa Rican Business Information System (SIEC), a technological platform that supports the SME registry.

      CELIEM highlights, based on its history in business support, as well as the studies it has carried out, the importance of advancing this type of policies that enhance the growth and productive scalability of these companies, as well as the involvement of large companies through its transfer of knowledge to this sector which leads the majority of our business park.

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