Costa Rica’s Free Trade Zone Incentives
Overview
Costa Rica does not have a specific law governing foreign direct investment. Both local and foreign investors receive equal treatment and protection. Foreign investment is subject to the same national laws as local investment. In addition to external incentives like the Caribbean Basin Initiative (CBI) and Generalized System of Preferences (GSP), Costa Rica offers the following investment incentives: Free Trade Zones and the Inward Processing Regime.
Free Trade Zones
Free Trade Zones are primarily areas for offshore tax and customs operations. They are designated areas with no resident population, authorized by the Executive Branch. The Free Trade Zone regime grants incentives and benefits to companies making new investments in the country, in accordance with Act 7210 and its regulations.
Beneficiary firms can engage in handling, processing, manufacturing, production, repair, and property maintenance services for export or re-export, as well as Free Zone park management.
Requirements
The basic requirement for this incentive scheme is a minimum initial investment in new fixed assets. This amount must be at least US$\$150,000 for companies setting up in an industrial Free Zone and US$\$2,000,000 for companies outside industrial zones.
Eligible Companies
The following types of companies can enter the system:
- Export Processing Industries: Engaged in the production, processing, or assembly of goods for export or re-export.
- Export Trading Companies (non-producers): Engaged in handling, packing, or redistributing traditional export goods.
- Industries and Utilities: Cases where services are exported to individuals or legal entities located abroad, or to companies benefiting from the Free Zone System, provided the service is directly linked to the beneficiary’s process. (Banking, financial, or insurance companies in a Free Zone may not benefit from the scheme.)
Benefits of Free Trade Zones
Some incentives that beneficiaries of the Free Zone System can enjoy are:
- Exemption from all taxes and consular duties on imports of:
- Raw materials
- Manufactured or semi-processed products
- Components and parts
- Packaging materials
- Machinery and equipment
- Accessories and spare parts
- Goods for administrative activities
- Goods for cooking, furniture, equipment, and medical care for employees
- Fuels, oils, and lubricants
- Exemption from all taxes and consular duties on imports of motor vehicles required for operations, including:
- Chassis cabs (1-2 tons cargo capacity)
- Trucks
- Pick-up trucks (1-2 tons cargo capacity)
- Vehicles with a minimum capacity of 15 passengers
- Exemption from sales and use tax on purchases of goods and services
- Exemption from all taxes associated with the export or re-export of products
- 10-year exemption from the commencement of operations:
- Tax on capital and net assets
- Municipal taxes and licenses
- Taxes on remittances abroad (applies to marketing)
- Exemption from taxes on profits and other taxable income, including dividends:
- Companies in “more developed” areas: 100% exemption for 8 years, then 50% for the next 4 years
- Companies in “less developed” areas: 100% exemption for 12 years, then 50% for the next 6 years
Note: The exemption terms are subject to international commitments signed and ratified by Costa Rica.
Other Eligible Entities
- Business managers of Free Zone parks
- Companies engaged in scientific research to improve industrial or agribusiness technology
- Companies that operate shipyards and floating dry docks for vessel construction, repair, or maintenance
While this regime primarily targets export-oriented companies, it allows a percentage of production to be sold in the local market (25% for processing companies, 50% for service companies). Goods and services entering the domestic market are subject to applicable taxes and customs procedures for similar imports.