Equity-based compensation

Typical forms

What are the prevalent forms of equity compensation awards in your jurisdiction? What is a typical vesting period? Must the arrangements be offered to a broad group of employees, or can the employer select the participants?

The use of equity compensations is linked to multinational companies whose shares are quoted on international stock exchanges, given that the purchase and sale of shares in the Costa Rica stock exchange is very limited. The most common form of compensation among these companies is the stock option plan, related to variables such as organisational profits and performance evaluation. The number of shares granted will depend on the position of the person within the organisation - his or her seniority, etc. The consolidation periods are variable, depending on the importance of compensation as a tool for staff retention.

Must equity-based compensation be granted by the company’s board of directors (or its committee) or can the authority be delegated to officers or employees of the company? Are there limitations or requirements that apply to delegation?

The decision to grant compensation can be delegated, partially or totally, by the board of directors to any internal body of the company of lower hierarchy. There is no law regulating that delegation.

Tax treatment

Are there forms of equity compensation that are tax-advantageous or disadvantageous to employees or employers?

In accordance with the criterion of the General Taxation Office of the Ministry of Finance (Resolution No. DGT-CI-06-11 of 4 March 2011) with respect to the stock option plan, the difference between the price at market value and the price at which the workers acquire the shares constitutes a profit on which income tax must be paid. There are no equity compensations modalities that have a tax treatment different from the one already explained.


Does equity-based compensation require registration or notice? Are exemptions, or simplified or expedited procedures available?

There are no exemptions, simplified or accelerated procedures available for equity compensations, notably the stock option plan.

Withholding tax

Are there tax withholding requirements for equity-based awards?

The only requirement for application of tax payments to equity compensations, especially the stock option plan, is the existence of a difference between the price at market value and the price at which the worker acquires the shares and that it constitutes a gain for the latter. The employer is required to apply the tax, as withholding agent (article 23 of the Law on Income Tax).

Inter-company chargeback

Are inter-company chargeback agreements between a non-local parent company and local affiliate common? What issues arise?

Inter-company chargeback agreements between a non-local parent company and a local affiliate are common. The Income Tax Law does not establish tax liens for these transfers of capital when the transfer occurs between a foreign parent company and a local subsidiary; nor for agreements related to the stock option plan.

Stock purchase plans

Are employee stock purchase plans prevalent or available? If so, are there any frequently encountered issues with such arrangements?

Stock option plans are used as part of the benefits granted to employees, especially in listed companies, which form the large majority of those participating in the market.

The problems that these plans have presented are related to their consideration, or not, as salary and its impact, especially in the payment of employment benefits at the end of the contract or other rights that are calculated during the term of the contract, on the salaries received, as happens with holidays or the Christmas bonus.

This benefit has been analysed in Resolution No. 94-2008, of 13 February 2008 in the Second Chamber of the Supreme Court of Justice, which considered that they lack a salary nature, given that:

(a) the reward is potential, possible and unsafe, (b) it can generate losses or profits, (c) there is no regularity, (d) it is variable according to the supply and demand of the market, (e) the gain is variable, (f) it is not necessarily of a food nature, (g) it is convertible, and (h) the profit depends on speculation.