Costa Rica


ESSENTIAL FACTS

LOCATION: 10 00 N, 84 00 W
Costa Rica’s four borders are Caribbean Sea, the North Pacific Ocean, Nicaragua and Panama. Its terrain features two active volcanoes.

POPULATION: 4,133,884

CURRENCY: Costa Rican colon (CRC)

LANGUAGE: Spanish (official), English

CLIMATE: Costa Rica’s climate is tropical and subtropical, depending on elevation; its dry season is from December to April and its rainy season is from May to November.

EDUCATION: 96 percent of those over age 15 can read and write.

PUBLIC HOLIDAYS: Independence Day, 15 September (1821)

HISTORY AND GOVERNMENT

HISTORY
Costa Rica first became an organized Spanish colony in 1563, located in the highlands in the center of the country. It became an independent country in 1821, and remains a strong country with a thriving agricultural economy as well as economic stimulus from tourism and electronics industries. In 1948, Costa Rica dismantled its military and made way for a much more politically stable environment.

POLITICAL SYSTEM
Costa Rica is a democratic republic headed by a president and two vice presidents, all elected by popular vote. The president chooses his or her cabinet. Its legislature is a unicameral Legislative Assembly.

JUDICIAL SYSTEM
The Costa Rican legal system is based on Spanish civil law system. The Supreme Court, a panel of 22 judges elected by the Legislative Assembly, reviews law and is the highest court in the land.

COMMERCE AND TRADE

COMMERCIAL ACTIVITY
Agriculture: Bananas, pineapples, coffee, melons, ornamental plants, sugar, corn, rice, beans, potatoes; beef; timber
Industry: Microprocessors, food processing, medical equipment, textiles and clothing, construction materials, fertilizer, plastic products

TRADE PRACTICES
Exports: Bananas, pineapples, coffee, melons, ornamental plants, sugar; seafood; electronic components, medical equipment to the US, Netherlands, China, UK, Mexico
Imports: Raw materials, consumer goods, capital equipment, petroleum, construction materials from the US, Venezuela, Mexico, Ireland, Japan, Brazil, China

FREE TRADE ZONE
Almost 1,000 companies operate in Costa Rica’s Fee Trade Zone, including marine construction companies, exports, packaging, and all manner of trading. The country’s convenient location in the geographic center of the Americas has helped make it thrive as a Free Trade Zone.

Although Costa Rica’s 12 Free Export Zones offer total tax-exempt status, it has pledged to the World Trade Organization to dissolve these Zones over a number of years.

BANKING, FINANCE AND INVESTMENT

FINANCIAL FACTS
Costa Rica remains arguably the most economically stable economy with the most educated population; although poverty holds steady at 20 percent, its stability as well as the many financial incentives for foreign investors has kept Costa Rica on the short list for many offshore companies. Its approval of the CAFTA Agreement will improve foreign investment activity, which will in turn help the government tackle its rising debt.

Fiscal year: Calendar year

STOCK MARKET
Thirty brokerages operate on the Bolsa Nacional de Valores SA (BNV), which was founded in 1976. The market value of publicly traded shares: $1.478 billion as of 2005. It’s overseen by the General Securities Superintendence.

MEMBERSHIPS
BCIE, CACM, FAO, G-77, IADB, IAEA, IBRD, ICAO, ICC, ICCt, ICRM, IDA, IFAD, IFC, IFRCS, ILO, IMF, IMO, IMSO, Interpol, IOC, IOM, IPU, ISO, ITSO, ITU, ITUC, LAES, LAIA (observer), MIGA, NAM (observer), OAS, OPANAL, OPCW, PCA, RG, UN, UN Security Council (temporary), UNCTAD, UNESCO, UNHCR, UNIDO, Union Latina, UNWTO, UPU, WCL, WCO, WFTU, WHO, WIPO, WMO, WTO

FOREIGN INVESTMENT
Companies that wish to import pieces to be assembled and then export them as finished products enjoy excellent incentives, including exemption of import duties for the pieces as well as integral machinery; also, the products exported are not subject to any income tax.

LABOR

LABOR LAWS
Although the rates vary greatly, employers pay accident insurance on each employee.

BENEFITS/PENSION
Twenty-two percent of an employee’s gross salary is paid by the employer into a social security fund.

BUSINESS

BUSINESS ENTITIES
An offshore stock corporation in Costa Rica has more requirements in order to incorporate than in most offshore financial centre jurisdictions, although the only filing or reporting to be completed is a tax return.

Costa Rica Foreign Corporations that redomicile in Costa Rica must still abide by the law under which they were originally incorporated, but Costa Rican tax laws apply instead of those of the home country. If the Foreign Company is a subsidiary or branch, keep in mind that withholding taxes apply only to branches.

In addition to these two popular types of business entities, there are many others that fit a variety f financial activity. However, as in the cases of Limited Liability Companies and Sole Proprietorships, there are different procedures and regulations that should be addressed to the incorporator before proceeding. Also, others are subject to close supervision by the Costa Rican Central Bank.

TAXATION

PERSONAL TAXATION
Income from a foreign source is 100 percent tax exempt. Filing and the rate at which individuals are taxed depend on whether their income is derived from salary or commission, fundamentally. Salaried individuals are taxed on a sliding scale up to 15 percent; profits are taxed at a sliding scale rate up to a maximum of 25 percent.

Please check back at this section for updates on Costa Rican fiscal reform measures that might change personal tax status for citizens, residents and foreigners.

CORPORATE TAXATION
There are no taxes paid by corporations on income earned outside of Costa Rica. Also, there are no taxes paid on capital gains. Capital transfer taxes are around 3 percent.

OTHER TAXATION/DUTIES
Inheritances, gifts, and employment bonuses are exempt from personal taxation.

Sales tax on products nationwide is 13 percent, twice: At import and at time of sale. Services are not taxed.

DOUBLE TAXATION
There are no double tax treaties. Costa Rica has investment protection treaties with Chile, France, Germany, Romania, Switzerland and the UK.