Business Incentive Programs in Costa Rica

Main Incentives for Companies Establishing Operations in Costa Rica

1. The Export Contract and its Incentives

The export contract was created as a tool to coordinate the benefits granted to companies exporting non-traditional products. Beneficiaries are defined as:

- producers-exporters

- traders

- suppliers

INCENTIVES

Exemption from import or local taxes (proportional to third market exports of non-traditional products) on raw materials, packing goods and components related to the export product.

- Exemption from import or local taxes (proportional to third market exports of non-traditional products) on machinery, equipment and spareparts that are directly related to the export product

The Export Contract incentives expire on September 30, 1996.

The export contract incentives are to be requested at the Technic Secretary of the National Investment Council located on the second floor of the Center of Foreign Trade (CENPRO).

2. Temporarily Admission

Temporary admission is known as the customs regulation which allows the entry within the national territory under suspension of all taxes, of certain merchandise destined to be re-exported to foreign markets. Merchandise must be subjected to provisional storage for transformation, reparation, reconstruction, mounting and assembly processes, or to be transformed into goods, machinery or general transport equipment of greater technological and functional complexity.

The normal time limit for imported goods, to remaln in the country is three months for samples and models, six months raw materials and other components used in the process, and five years for machinery and equipment. These terms can be renewed.

The benefits of this system are granted a period of five years, automatically renewed with the approval of the National Investment Council.

Application forms are sold at the Export and Investment Promotion Center (CENPRO).

3. Free Zones

Export Free Zones are the mainstay of Costa Rica's export and investment strategy. The Free Zones are, by definition, areas of customs and fiscal extra-territoriality. These are designated facilities for carrying on economic operations based on imported inputs and raw materials, manufacturing, assembly or marketing of products or services for their subsequent export.

Ease of operation, fiscal incentives, monetary and exchange facilities, excellent communications, electricity, access to basic services and highly educated labour force, make up a firm foundation for the dynamic development of companies established under the Free Zone status.

Some of the advantages of operating in the Free Zones of Costa Rica are:

- 100% exemption from taxes on capital and assets.

- Exemption from taxes on profits.

- Independent management of foreign currency.

- Streamlined processing of documentation required r installation and operation.

The Export Free Zone Corporation provides investors with centralized services to carry out established necessary procedures. The Corporation is located in the Center of Foreign Trade. Other factors that make Costa Rica a grand opportunity for investment and installation are:

- The geographical location of the country, right in the middle of the Western Hemisphere.

- The productivity of its labour force. Historically, education has always been a national priority. School is compulsory and free up to the highschool level. That is the reason why Costa Rica has the highest literacy rate in the Third World, 94%. Costa Ricans are highly disciplined people, they learn fast and they have excellent working and administrative capacities.

4. REFORESTRY INCENTIVES - LAW 7174

Forestry laws have been established by the government in order to promote the conservation and development of natural resources. The Forestry Bureau has developed several systems in order to promote reforestation projects and conservation of existing natural forest.

4-1 Forestry trust Certificate

The certificates are negotiable bonds used for tax payments, with a nominative value of $120,000.00 per reforested hectare. Any individual or legal entity involved in a reforestation project is also eligible for the following additional benefits:

a) Exemption from land taxes, for land registered under the Forest Regime Incentive System.

b) Exemption from land taxes, for non-cultivated lands (as established by Agrarian Law 2825).

c) Protection against land squatters on empty lots.

The amount of the Forestry Trust Certificate per hectare will be allocated on a yearly basis. It is applicable to cover establishment and maintenance expenses of a planted forest. During the first five years the certificate is allocated as follows: 50% for year 1, 20% for year 2, 15% for year 3, 10% for year 4, and 5% for year 5.

4-2 Reforestation programs

This system is geared towards those who have ongoing reforestation projects or who wish to reforest with their own resources. Those who reforest without the benefits of the Forestry Trust Certificate can enjoy the above mentioned benefits (points a, b and c), plus the following;

- Exemption from land taxes and from income taxes derived from sales of plantation products.

- Those who freely submit to forestry management of specific farms will be protected by an approved forestry management plant.

4-3 industrialization and transport of wood

Those industries wishing to reorganize or to increase their efficiency according to the policy of the Forestry Bureau, will enjoy the following benefits:

a) Priority as to approval and endorsement of loans.

b) The Forestry Bureau will facilitate exports of the industrial production.

c) if companies invest in training, they will be exempted from paying the training compulsory lee to the National Training Institute.

5. INCENTIVES FOR TOURISM Infrastructure LAW 6990 Incentives are granted to the following activities:

1. Hotel services

2. Local and international air transport of tourists.

3. Vehicle rental to local and foreign tourists.

4. Tourist aquatic transportation.

5. Inbound tourism activities for travel agencies exclusively dedicated to this activity.

Upon request and approval, some of the benefits granted to the above mentioned activities are exemptions from tax and surtax on the import or purchase of essential goods, and advanced depreciation of assets.

OTHER ADVANTAGES FOR FOREIGN INVESTORS

TRADE AGREEMENTS: there is a bilateral free trade agreement between Costa Rica and Panama and Mexico. Bilateral trade agreements are on their way with Colombia and Venezuela. Preliminary conversations have been held with Chile to establish bilateral trade agreements.

Among others, these bilateral free trade agreements grant benefits related to customs and non-customs duties in order to facilitate imports to the signing countries under favorable conditions, thus guaranteeing exports to those specific markets.

GENERALIZED SYSTEM OF PREFERNCES (GSP)

Generalized systems of preferential customs duties are mechanisms used by most of the developed and market-oriented countries in order to grant access to their markets. Products subject to these preferential systems are wholly or partially manufactured in developing countries, including some agricultural and sea related products.

Costa Rica has GSP benefits granted by Japan, Canada, the European Community, Australia, Austria, New Zealand, Norway, Sweden, Switzerland, Bulgaria, Slovakian Republic, Hungary and Poland. Preferences include products that most developing countries do not yet export, either because they do not produce them or because their industry is still oriented to their local markets. In this case, the generalized preferences are an incentive to local and foreign investment for promoting industrialization processes in the beneficiary countries.

CARIBBEAN BASIN INITIATIVE (CBI)

The Caribbean Basin Initiative II is a unilateral concession granted by the United States for most products imported from beneficiary countries, including Costa Rica. One of the main advantages of this Initiative is its indefinite time limit, which improves the access conditions to the US market, thus granting security to the exporters. The list of products and preferential benefits broaden specially for those industries with intensive workmanship, thus promoting investment in our country.

TREATIES ON PROMOTION AND RECIPROCAL Protection OF INVESTMENTS

This treaty is a great supporting tool to Costa Rican policy of investment promotion since if offers security and confidence to German investors. It Is also a guarantee to the investor who, according to the legal framework, can invest in Costa Rica and enjoy the same protection granted to Costa Ricans and to citizens of other countries. The treaty establishes rules in case of expropriation and compensation, free transfer of payments related to the investment, the use of international arbitration courts, etc.

In addition to this treaty with Germany, Costa Rica is in the process of negotiating treaties with other countries.

SUMMARY OF ADVANTAGES FOR PRODUCING IN AND EXPORTING FROM COSTA RICA

- Peace and democracy.

- No army.

- Fiscal incentives and local exemptions.

- Regional incentives.

- Low cost and highly qualified labour force.

- Good access by air, sea and land transportation.

- Proximity and access to important international markets through agreements, conventions and bilateral and multilateral treaties.

- Access to raw materials.

- Streamlined investment procedures.

- Simple and streamlined import and export procedures.

- Official participation in important international exhibitions and commercial missions to main international markets.

- Excellent electricity, water, telecommunications, insurance, banking and health services.

- Well located free zone parks.

- Infrastructure suited to export and tourism needs.

- Excellent weather and geographic location.

- Adequate recreational areas.

- Protected national parks and reserves with great variety of flora and fauna.

- Public and private centers for technical and academic education.

- Well organized and active chambers and private associations that participate in the definition of development policies.

- Timely and updated information about the country.

- Special immigration status for investors, executives, technicians and their families.

- Highly experienced private consultants.

- Public and private specialized laboratories to support quality production.

- International prestige and recognition of Costa Rican products.

- Open support to private development initiatives that promote employment, technology transfer, national income, social and economic development and the preservation of the environment.

IMMIGRATION PROCEDURES

CENPRO offers a support program to investors through the immigration category of: RESIDENT INVESTMENT VISA.

RESIDENT INVESTMENT VISA

Residence as an investor can be requested by foreign investors who can prove having invested no less than US$ 200.000 in the country or US$ 50.000 in activities declared as high priority by the Executive Branch.

For this immigration category, CENPRO's responsibility is to endorse the application; it is the National Immigration Council who will grant or deny the requested status.

CENPRO is the official agency for the promotion of exports and investments. It was founded by Law 4081 in February 1978 to promote non-traditional exports to third markets and local and foreign investments that involve export development activities. CENPRO is the operative branch of the Ministry of Foreign Trade.

Following its export and investment promotion task, CENPRO offers its services to export companies, potential exporters, foreign and local investors, foreign importers, trading companies, cooperatives, associations, chambers, local and foreign consultants, international organizations, embassies, universities, governmental institutions, foreign and local diplomats, and any interested party.

CENPRO is an export information bank providing its users with a wide range of data related to the export potential of the country, incentive systems granted to exporters, rules and procedures for exports and imports of raw materials and components, and foreign trade statistics. If offers information and guidance to investors interested in doing business in Costa Rica. In addition, CENPRO provides information on international markets, ranging from prices and regulations to international contacts.

CENPRO trains and offers assistance in international trade to producers, exporters, potential exporters, governmental staff and students.

CENPRO also organizes and coordinates local participation in international exhibitions and commercial missions, as well as missions of foreign businessmen interested in buying Costa Rican products or investing in the country.

CENPRO is the official contact point between importers and foreign investors and the country, and between producers and local exporters and the international markets.

To attain its goals, CENPRO is divided into one administrative and four technic divisions.

I. Export Promotion

This Division specializes in the gathering, selection, analysis and distribution of commercial information. As a complement, this division has three programs for the support of producers and exporters:

Commercial Attaches, Immigration Procedures for the Investor, and Training and Technic Assistance in International Trade.

This division has the following programs:

A. Commercial Information

It is responsible for giving assistance on commercial topics related to products, markets, prices, international demands, etc.

1. Technic support to exporters.

2. International demands.

3. information on products and markets.

4. Exportable supply.

5. Elaboration of the Official Export Directory of Costa Rica.

B. The National Statistics Center (CENEX)

It is a computerized information system specialized in foreign trade. It offers the following information and services:

- Behavior of traditional and non-traditional products.

- Statistical information on commercial exchange of products, by economic sector, area and country.

- World statistics on imports and exports.

- Exportable supply by company, showing company profile and short and long-term supply.

- Behavior of the main world markets.

- Macro-economic statistics and economic indicators.

- Access to international data bases such as those of the European Economic Community, the Organization of American States and the International Trade Center. Through these there is access to information on international prices, lists of importers, laws and regulations in international markets, marketing studies and world statistics.

C. Integrated System of Investment Services -S'S'

This system allows CENPRO to offer adequate and competitive attention to investors, local and foreign businessmen, public and private institutions and general public, regarding information on financial, customs, ports and tax services, brands and registers, insurance, immigration procedures, incentives, environment, water, energy and construction services, socio-economic profile of Costa Rica, communications and transportation.

D. Documentation Center

It is the largest foreign trade documentation center in the country. If offers information on the following:

- Import duties and regulations for Costa Rican products in international markets.

- Selected commercial literature from books and journals.

- Directories of local and foreign companies.

- Product and market studies and research.

- Foreign trade local and international incentive systems.

- Design, package and packing.

- International transport of cargo.

- Transport and credit insurance, etc.

- Quality control and regulations.

- Duty nomenclature and correlations.

E. Program of Commercial Attachés

Through this program, CENPRO is linked to the Costa Rican embassies and commercial offices abroad, thus promoting exports and foreign investment.

F. Training and Technic Assistance in Foreign Trade - PROCEX

This specialized training program counts with both local and international experts. The program extends to all regions of the country and includes a wide range of issues related to international trade. Its goals are attained by seminars, conferences and visits to production sites.

II. Foreign Trade One-Stop Office

All documentary procedures for import and export are processed by this division. It is surprising how the country was able to simplify and centralize export and import procedures in such a way, that today it is possible to go through the process in approximately 4 minutes, making these procedures among the shortest in Latin America.

The One-Stop Office offers the following services:

1. Assistance on export procedures and required documentation.

2. Assistance on import procedures and required documentation.

3. Processing of import and export documentation.

4. Certification of processing operations.

5. Export and import statistics.

6. Sale of export and import required documentation.

7. Descentralized service in customs offices in the country.

8. Centralization of import exemptions included in Export Contracts and import exemptions processed by the Industrial Director of the Ministry of Economy, Industry and Commerce. Once the system is fully automatized, other exemption processes will be included.

9. Centralization of procedures derived from bilateral commercial agreements that Costa Rica has signed and will sign in the future.

III. International Exhibitions and Commercial Missions

This division is in charge of planning, organizing and coordinating the participation of Costa Rican companies in international well known commercial events. These international opportunities allow businessmen to have practical and effective ways of making contacts, selling, assessing the trends in the international markets, and promoting exports and Costa Rican products.

In a periodic and successful way, Costa Rican non-traditional products are exhibited in Germany, France, Holland, The United States, Canada and other countries.

This division is also in charge of coordinating and receiving international missions of businessmen searching for Costa Rican products.

IV. Export Incentives

This division is in charge of all related to the Secretariat of the National Investment Council (CNI). It provides assistance to exporters and investors about the incentives granted by the Export Contract. Export Contracts are agreements signed between private applicants and the Government of Costa Rica which grant attractive fiscal incentives.

According to the Export Contract regulations, this division receives, examines and recommends applications for tax exemptions to the Ministry of Treasure.

This division also offers assistance on the Temporary Admission or Draw-Back System, specially regarding requirements and benefits.