Mergers and Acquisitions in Costa Rica: For Investors

Mergers and Acquisitions in Costa Rica: A Legal Guide for Investors

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Mergers and acquisitions in Costa Rica aren’t primarily governed by the Commercial Code — Costa Rican legal scholarship itself acknowledges that its statutory treatment of corporate combinations is thin and imprecise. The real regulatory bottleneck sits elsewhere: merger control before COPROCOM, the competition authority, which has operated under a mandatory pre-closing approval regime since 2019. Closing a deal without the required clearance isn’t a theoretical risk — it can mean the transaction is legally suspended, or a serious penalty after signing. This guide covers the available deal structures, when the notification duty kicks in, and the other fronts — labor, tax, due diligence — that determine whether a transaction closes cleanly.

Overview of M&A in Costa Rica

Costa Rica’s Commercial Code regulates mergers in a handful of articles, and treats acquisitions as a concept with essentially no dedicated statutory framework — domestic legal scholarship describes the commercial-law treatment of the topic as vague and insufficient. In practice, this doesn’t mean transactions happen in a legal vacuum: it means the real risk analysis shifts to other bodies of law — competition, labor, tax, corporate registry — that are, in fact, far more developed and stricter.

Anyone negotiating a merger or acquisition in Costa Rica without this full map tends to underestimate the single most common thing that stalls or adds cost to a deal: merger control.

The three deal structures

An M&A transaction in Costa Rica typically takes one of three forms:

Choosing among these three is not just a matter of form — it determines which liabilities the buyer inherits, which contracts require the counterparty’s consent to assign, and how exposed the buyer ends up to contingencies it didn’t know about at closing.

Dissolution effects in a merger

Article 220 of the Commercial Code defines a merger as two or more companies combining into one, and sets out an effect that’s easy to overlook during planning: dissolution reaches all companies involved if the merger is carried out by forming a new entity, or all but one if one of them survives to absorb the others. The company that dissolves ceases to exist as an independent legal person — with direct consequences for contracts, licenses, permits, and employment relationships held in its name.

Merger control: the real bottleneck

Since Law No. 9736, the Law Strengthening Costa Rica’s Competition Authorities (September 5, 2019), any economic concentration meeting certain criteria must be notified to, and cleared by, the Commission for the Promotion of Competition (COPROCOM) before closing — not after.

The two concurrent tests

The notification duty is triggered only when a territorial test and an economic test are met at the same time:

• Territorial test: at least two parties to the transaction have carried out activities with impact in Costa Rica during the two prior fiscal years.
• Economic test: gross-sales or productive-asset thresholds are met, calculated both individually and jointly among the parties and their affiliates.

Both thresholds must be met at the same time, together with the territorial test. Since the base salary can be adjusted, always confirm the current figure at the time of the transaction.

Knowing the figure is only the starting point. The threshold alone doesn’t say what counts as “affiliated companies” for the combined calculation, how a productive asset is valued versus one that isn’t, or how gross sales are computed when the transaction involves complex corporate structures or parties spanning more than one jurisdiction. That’s where most mistakes happen — not in failing to know a threshold exists, but in miscalculating it for the specific deal at hand.

The two-phase procedure

Once notified, COPROCOM reviews the transaction in up to two stages:

1. Phase one (30 calendar days): determines whether the concentration poses risks to the competitive process.
2. Phase two (up to 90 additional calendar days): only if phase one identifies risk, a deeper review of the transaction’s effects on the relevant markets follows.

Why this isn’t a theoretical risk

Before Law 9736, merger control in Costa Rica was ex post — reviewed after the deal had already closed. A real case illustrates the point: in 2007, Mabe acquired Atlas Eléctrica; once the transaction was completed in 2008, COPROCOM concluded it produced anticompetitive effects and imposed corrective measures along with a fine exceeding US$2 million. Under today’s ex-ante regime, that same scenario wouldn’t end in a post-closing fine — it would end with the transaction suspended before it could ever close, which can be just as costly, or more so, in terms of deal certainty for both sides. This is exactly why the purchase agreement itself needs to plan for the wait — closing conditions tied to COPROCOM clearance, price-adjustment mechanisms, and provisions that protect the buyer if the target’s business changes while approval is pending.

Additional sector-specific approvals

Depending on the transaction’s sector, COPROCOM isn’t the only authority involved:

• Telecommunications: all concentrations in the telecommunications market require prior notification to the Superintendencia de Telecomunicaciones (SUTEL), regardless of whether the general thresholds are met.
• Financial sector: when the concentration involves entities regulated or supervised by the financial-system superintendencies, COPROCOM must first receive the reasoned opinion of the National Council for the Supervision of the Financial System (CONASSIF) before ruling.

Essential due diligence

Before closing under any of the three deal structures, a serious legal due diligence process in Costa Rica should cover, at minimum: corporate standing and good standing certificates, existing contracts and their change-of-control clauses, labor contingencies, tax compliance, active or potential litigation, and — frequently underestimated — the treatment of employee and customer personal data that transfers along with the deal. One front that most traditional due diligence never covers is criminal exposure: since Law No. 9699, a company’s criminal liability transfers to the buyer in a merger or acquisition — see the detail in our criminal due diligence guide.

Labor continuity in the transaction

A merger or acquisition does not erase existing employment relationships. What the Labor Code regulates here is called employer substitution (sustitución patronal, Article 37): a change of employer does not affect existing employment contracts to the worker’s detriment, and those contracts continue with the new owner of the business.

There’s a nuance that’s easy to miss, and it’s exactly where the risk concentrates: the former employer remains jointly and severally liable with the new one for labor obligations arising before the substitution — but only for six months. After that period, liability falls solely on the new employer, unless the former employer failed to notify staff of the substitution through the General Labor Inspectorate, in which case joint liability continues. In practice, this six-month window is also when employees with dormant wage or unpaid-overtime claims tend to come forward — precisely because they know two employers are on the hook at once, and that the new owner has both the financial strength and the operational need for continuity to resolve it quickly.

Overlooking this in the deal structure is one of the most frequent sources of post-closing contingency — for the detail on severance, notice, and final settlement calculations in this context, see our guides on severance in Costa Rica and termination for cause.

Basic tax considerations

The chosen structure also drives the transaction’s tax treatment: an asset deal can trigger capital gains taxed differently than a share deal, and a merger by absorption has its own tax-continuity regime for the surviving company. This analysis needs to happen alongside the corporate structuring and closing timeline — not after they’ve already been fixed.

Typical transaction timeline

1. Confidentiality agreement and preliminary terms.
2. Legal, financial, and tax due diligence.
3. Structure selection (merger, share deal, or asset deal) based on due diligence findings.
4. Assessment of the COPROCOM notification duty — and, if applicable, filing the notification before any act of execution.
5. Negotiation of the definitive agreement, including representations, warranties, indemnities, and price-adjustment mechanisms.
6. Closing, once all required regulatory clearances have been obtained.
7. Post-closing integration, including updating registries, contracts, and the workforce structure.

What This Means for U.S. Investors

A U.S. buyer acquiring a Costa Rican company isn’t just subject to Costa Rican law — three additional layers matter specifically because the buyer is American, and none of them are optional to think through.

CAFTA-DR: treaty protections behind the deal

Costa Rica is a full party to CAFTA-DR, and Chapter 10 (Investment) gives a U.S. investor national treatment, most-favored-nation treatment, and access to an investor-state dispute settlement mechanism — a real, binding arbitration route that exists independently of Costa Rica’s domestic courts. This isn’t theoretical: in David Aven v. Costa Rica, U.S. investors brought a real estate dispute under Chapter 10, and the tribunal ultimately ruled in Costa Rica’s favor on the merits (the case turned on environmental regulation, not investor rights being disregarded). That outcome is actually useful context — it shows the mechanism is real and gets used, but it is a genuine legal process with real substantive limits, not a guarantee that title or backstop for any dispute a U.S. investor might have.

FCPA exposure travels with the deal

A U.S. buyer’s own Foreign Corrupt Practices Act exposure doesn’t stay home. Since 2018, the Department of Justice’s Corporate Enforcement Policy explicitly extends to mergers and acquisitions: a buyer that conducts robust pre-acquisition anti-corruption due diligence, and promptly discloses and remediates anything it finds, can substantially reduce its risk of enforcement over the target’s pre-closing conduct. A buyer that skips this step — or that only starts asking questions after closing — carries that risk forward with essentially no protection. This runs in parallel with the target’s own Costa Rican corporate criminal exposure under Law No. 9699, discussed above: for a U.S. buyer, a single well-structured due diligence process should cover both fronts at once, not treat them as separate exercises.

Notarization, powers of attorney, and closing logistics

The underlying purchase agreement itself is a private contract and does not require notarization to be binding between the parties. What does require a Costa Rican notary public are the formalities that make the deal effective against third parties and the public registry: share transfers, updates to corporate books, and any powers of attorney used to sign on behalf of parties who aren’t physically present — including, where applicable, the power to file the COPROCOM notification itself. In practice, this is exactly where U.S. buyers run into friction — the individuals with signing authority are often based abroad, and the exact closing date is frequently uncertain until COPROCOM clearance comes through. The practical fix is to prepare powers of attorney, apostilles, and any required legalizations well in advance of an expected closing window, rather than scrambling once a closing date becomes firm.

Common mistakes

• Assuming the transaction doesn’t require COPROCOM notification without checking the current year’s thresholds.
• Taking execution steps — integrating teams, changing authorized signatories, public announcements — while COPROCOM clearance is still pending.
• Treating labor continuity as a back-office administrative matter rather than its own legal risk workstream.
• Locking in the deal structure before due diligence is complete, instead of letting the findings inform the decision.

How AG Legal helps

Nuestro servicio: when we represent the buyer, our objective is that the risks identified in this guide — labor contingencies, inherited criminal liability, regulatory delays — sit contractually with the seller, not with you. That includes:

• Negotiating specific indemnities for each contingency uncovered during due diligence.
• Structuring price-retention mechanisms (escrow or holdback) until identified risks are resolved.
• Conditioning closing on COPROCOM clearance and on the absence of material adverse changes.
• Assessing the COPROCOM notification duty and preparing the filing.
• Legal, labor, and regulatory due diligence ahead of closing, including the criminal exposure front (Law 9699) and FCPA.
• Coordinating the transaction’s labor aspects together with our labor law team.
• Post-closing corporate structuring, including compliance with ongoing corporate obligations.

Frequently Asked Questions

What M&A deal structures exist in Costa Rica?

Mainly three: merger by absorption (two or more companies combine into one), a share deal (the buyer acquires corporate control), and an asset deal (the buyer acquires specific assets without absorbing the entire company).

When must a transaction be notified to COPROCOM?

When a territorial test (at least two parties with impact-generating activity in Costa Rica over the prior two fiscal years) and an economic test (individual and combined gross-sales or asset thresholds, set annually by COPROCOM) are both met at the same time.

Can the transaction close while COPROCOM is reviewing the notification?

No. Under Article 95 of Law 9736, a concentration that must be notified cannot be executed before COPROCOM’s clearance. Doing so is a serious offense, which escalates if the premature execution produces real anticompetitive effects.

How long does the COPROCOM process take?

A first phase of 30 calendar days to determine whether there’s a competitive risk, and, only if risk is identified, a second phase of up to 90 additional calendar days for the in-depth review.

What happens to employees in a merger or acquisition?

Employer substitution applies (Article 37, Labor Code): contracts continue with the new owner. The former employer stays jointly liable with the new one for pre-substitution obligations, but only for six months — unless staff were never notified of the change.

Do regulated sectors like telecommunications or financial services follow different rules?

Yes. Telecommunications concentrations require prior notification to SUTEL regardless of the general thresholds, and transactions involving financial-system entities require CONASSIF’s prior opinion before COPROCOM rules.

Recommended reading

• Companies in Costa Rica: S.A. vs. S.R.L.
• Criminal Due Diligence in Costa Rica: The Hidden Risk When Buying a Company
• Costa Rica Severance Calculator
• Termination for Cause in Costa Rica

This article is for informational purposes only and does not constitute legal advice for any specific case. COPROCOM’s notification thresholds are updated annually; always confirm the current figure before making decisions based on this content.