New Tax Breaks Further Expand Business Prospects In Costa Rica

Author:TMF Group
Profession:TMF Group

Costa Rica's free trade agreements are the most advanced in Central America. More tax breaks have just been granted to extend its commercial attractions - but companies need to keep up-to-date with a growing phalanx of regulations.

Changes to Costa Rica's Free Zone Regime law, which allow domestic and foreign companies to expand the tax-free services they offer, have recently worked their way through the country's legislature.

After public consultation, a new bill includes amendments to the services category (Category C in Free Zone Law), effectively eliminating the local sales ceiling previously set at 50%.

Costa Rica offers the region's most secure political environment, with a robust legal and banking infrastructure underpinning the country's considerable appeal to investors and multinational corporations.

The Free Trade Zone Regime (FTZR) is the mainstay of the country's export and investment strategy. Essentially, it is a set of tax incentives and other benefits granted by the Costa Rican government to investing companies who comply with strict local regulation. The regime, governed by the Free Zone Regime Law No 7210 and associated regulations, aims to boost foreign direct investment and trade and employment opportunities for Costa Ricans.

Qualifying companies are exempt from sales and excise taxes on purchases of goods and services and from all municipal taxes and licences for ten years. This is complemented by significant exemptions from profits taxes.

However, these concessions are time limited: for companies located inside the Gran Area Metropolitana Ampliada (GAMA) - a prime area within the Central Valley - the exemption is 100% for up to eight years and 50% for the following four. Outside the GAMA, the exemption is 100% for up to 12 years and 50% for the following six.

Who qualifies?

Companies must be active in one of the following areas: handling, processing, manufacture, production, repair and maintenance of goods; repackaging and redistribution of goods; and providing services for export or re-export. They must comply with the requisites and obligations in Law No. 7210, its amendments and regulations.

They must provide a minimum initial investment of US$150,000 in fixed assets (US$100,000 for those outside the GAMA) and establish their operations in specific industrial parks.

Exceptionally, companies may set up all or part of their operations outside these parks, but higher investment and a more arduous approval process is...

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