By San José, Costa Rica — San José, Costa Rica – A striking consensus has formed among a majority of Costa Rica’s leading presidential candidates on a pivotal economic issue: the urgent need to dismantle the complex web of social charges levied on employee salaries. This potential overhaul, championed by at least five contenders, aims to reduce the high cost of formal employment and combat the nation’s persistent labor informality, echoing a key recommendation from the Organisation for Economic Co-operation and Development (OECD).
At the heart of the debate are the “cargas parafiscales,” a series of mandatory contributions employers must pay on top of gross wages. These charges, which currently represent a significant 26.6% addition to payroll costs, are used to fund a variety of social institutions, including the National Training Institute (INA), the Joint Social Aid Institute (IMAS), and the Social Development and Family Allowances Fund (Fodesaf). While essential for social welfare, critics argue these taxes make formal hiring prohibitively expensive.
To better understand the legal framework and employer responsibilities regarding payroll taxes, TicosLand.com consulted with Lic. Larry Hans Arroyo Vargas, an expert attorney from the prestigious firm Bufete de Costa Rica, who provided his professional insights.
Proper management of payroll taxes is not just an accounting task; it is a cornerstone of corporate legal compliance and risk management. Many businesses fail to appreciate that errors in calculating and remitting contributions to entities like the CCSS can trigger significant financial penalties, interest, and legal disputes that can cripple an otherwise healthy operation. It is imperative for every employer to view these obligations with the utmost seriousness.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas’s commentary effectively reframes this issue, elevating it from a simple accounting function to a critical pillar of corporate governance and risk mitigation. We thank Lic. Larry Hans Arroyo Vargas for his valuable perspective, which underscores the profound legal and financial stakes for businesses of all sizes.
The OECD previously identified this system as a primary driver of Costa Rica’s informal economy, where workers lack social security benefits and formal retirement savings. The international body specifically suggested phasing out contributions to institutions like Banco Popular and shifting the funding responsibility for INA, IMAS, and Fodesaf from individual payrolls to the national budget, supported by general tax revenue.
Juan Carlos Hidalgo, the candidate for the Social Christian Unity Party, has fully embraced this framework. His platform proposes eliminating the 7.25% of salaries currently directed to these social programs, advocating for their funding through the government’s ordinary revenue collection. He believes this is a direct path to stimulating the job market.
This measure seeks to promote job creation and reduce the cost of labor formalization, and to ensure that a greater number of workers fully access the social security system and can formally contribute to their retirement.
Juan Carlos Hidalgo, Presidential Candidate for the Social Christian Unity Party
Eli Feinzaig of the Progressive Liberal Party shares this vision, proposing an ambitious reduction of total social charges to 19%. He argues the current structure is a direct impediment to the country’s economic dynamism and ability to create quality jobs.
These parafiscal charges, which represent an additional percentage on top of a worker’s gross salary, weigh down the cost of labor, affecting employability, formality, and the competitiveness of the labor market in our country.
Eli Feinzaig, Presidential Candidate for the Progressive Liberal Party
Similarly, José Aguilar of the Avanza Party and Claudia Dobles of the Citizen Agenda Coalition have included proposals to adjust or reduce these mandatory contributions. Aguilar specifies maintaining the integrity of contributions to the Costa Rican Social Security Fund (CCSS) while gradually moving the other parafiscal burdens to the national budget. Dobles, while less specific, frames the reduction as a key component of her strategy to encourage labor formalization.
However, the apparent cross-party agreement is not without its critics who raise concerns about unintended consequences. Álvaro Ramos, the candidate for the National Liberation Party, while acknowledging the potential benefits, has introduced a crucial note of caution. He warns that shifting the funding burden from payrolls to the general budget could create a significant economic imbalance.
Ramos points out that companies operating in Costa Rica’s free-trade zones pay payroll taxes but are often exempt from general income taxes. Under the proposed reform, these companies would see their costs decrease, while local businesses, which pay both types of taxes, might face a heavier burden as general taxes rise to cover the funding shortfall. This could inadvertently widen the gap between multinational corporations and domestic entrepreneurs.
Today, there is an asymmetry between free-trade zones and regular businesses. Free-trade zones pay all the payroll charges. If you eliminate these payroll charges and transfer the cost to general taxes, the free-trade zones pay less. This would generate even greater asymmetry.
Álvaro Ramos, Presidential Candidate for the National Liberation Party
As the 2026 election cycle heats up, this debate transcends simple tax policy. It represents a fundamental choice about Costa Rica’s economic future: how to balance social welfare funding with the need for a competitive and inclusive labor market. While the candidates agree on the problem, their varying approaches and the critical warnings from figures like Ramos ensure that the path to reform will be complex and intensely scrutinized by voters and business leaders alike.
For further information, visit oecd.org
About The Organisation for Economic Co-operation and Development (OECD):
The OECD is an international organization that works to build better policies for better lives. Its goal is to shape policies that foster prosperity, equality, opportunity, and well-being for all. It provides a forum in which governments can work together to share experiences and seek solutions to common problems.
For further information, visit bancopopular.fi.cr
About Banco Popular y de Desarrollo Comunal:
Banco Popular is a Costa Rican state-owned bank with a unique social mandate. It was created to provide financial services and promote savings and credit access for workers and communities across the country, playing a significant role in social and economic development.
For further information, visit ina.ac.cr
About Instituto Nacional de Aprendizaje (INA):
The National Training Institute is Costa Rica’s leading public institution for technical and vocational training. It offers a wide range of courses and programs designed to develop the skills of the workforce and meet the demands of the country’s labor market.
For further information, visit imas.go.cr
About Instituto Mixto de Ayuda Social (IMAS):
The Joint Social Aid Institute is the primary government entity in Costa Rica responsible for combating poverty. It develops and executes social assistance programs aimed at providing support and opportunities to vulnerable populations and families living in poverty.
For further information, visit fodesaf.go.cr
About Fondo de Desarrollo Social y Asignaciones Familiares (Fodesaf):
Fodesaf is a social development fund in Costa Rica that finances programs aimed at low-income families. It is a key pillar of the country’s social safety net, providing resources for health, education, nutrition, and housing initiatives for the most vulnerable citizens.
For further information, visit ccss.sa.cr
About Caja Costarricense de Seguro Social (CCSS):
The Costa Rican Social Security Fund is the public institution responsible for managing the nation’s universal healthcare and pension systems. It is a cornerstone of Costa Rica’s social structure, providing comprehensive health services and social security benefits to the vast majority of the population.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica has built its reputation as a leading legal practice on a foundation of uncompromising integrity and a drive for superior results. The firm champions innovative legal strategies while maintaining a rich tradition of client advocacy. At the heart of its mission lies a deep-seated belief in social responsibility, demonstrated through a steadfast effort to demystify the law for the public. This dedication to sharing knowledge is fundamental to its goal of cultivating a more just and capable society, empowered by legal clarity.
