As part of its export strategy, its promotion of investment, and to incentivize the development of economic activities, the State of Costa Rica has proposed the establishment of a Free Trade Zone (FTZ) in part of its territory, which as a stimulus for its establishment will bring with it tax benefits and incentives.
What businesses can operate in the FTZ?
There are essentially four activity areas that are considered under regulations to access this special trade system.
- Service companies where at least 50% of said services are exported.
- Those companies or organisations that carry out scientific research.
- Those companies or strategic sectors which are located outside of the Greater Metropolitan Area (GAMA, in Spanish).
- Those important service provider companies where 40% of their sales go to other companies within the Free Trade Zone.
What activities cannot be done in the Free Trade Zone?
- Exploration or extraction of fossil fuels.
- Production or trade of weapons and ammunition that contain depleted uranium.
- Companies that engage in the production or trade of any type of weapons.
- Companies that engage in the production of electric energy, except for self-consumption.
- Banking, financial, and insurance entities.
- Individuals or legal entities engaged in providing professional services.
Benefits for businesses
Costa Rica has decided on a range of benefits for those companies operating in the Free Trade Zone. These will be standardised according to the types of operations that said company undertakes. There is a difference for those companies that are located outside of the Greater Metropolitan Area (GAMA, in Spanish), who will have access to improved conditions.
Those companies within the GAMA have the benefit of enjoying 100% tax exemption for a limitless time, which includes customs duties on imports and exports, royalty and fee withholding taxes; interest taxes, sales tax on the local purchase of goods and services, and stamp duties. On the other hand, for a period of 10 years, once a 3-year grace period has ended, or the company has initiated operations (whichever happens first), it will be exempt from property transfer tax.
In terms of Income Tax, for the first few years there will be a 100% exemption, and over the following 4 years there will be a 50% exemption.
Any company that wants to operate within the Free Trade Zone must make a new minimum initial investment, guaranteed by new fixed assets subject to depreciation and real estate. The company will have a term of three years to comply with the following conditions once the entry application has been submitted:
Minimum investment for companies within the Greater Metropolitan Area:
- Within the Industrial Park: $150,000.00
- Outside of the park: This is extraordinary, and this may only be granted when the specific conditions of the project require that the company be established outside of the park, with a minimum investment of $2,000,000.00.
Minimum investment for companies outside of the Greater Metropolitan Area:
- Within the Industrial Park: $100,000.00.
- Outside of the park: This is extraordinary, and this may only be granted when the specific conditions of the project require that the company be established outside of the park, with a minimum investment of $500,000.00.
Minimum investment exclusively for those manufacturing companies categorised as Megaprojects:
those companies with a minimum initial investment of $10,000,000.00 in fixed assets subject to depreciation. Regardless of their location, there is a limited time of 8 years to complete and maintain the project.
Remarks on minimum investment:
- That the assets are owned by the Free Trade Zone applicant and acquired by them as of the date of the application to operate in said Free Trade Zone.
- In the case of fixed and moveable assets, these must be new or used assets sourced overseas or new assets obtained within the country.
- Fixed assets subject to a trust guarantee, whose trustor and/or trustee is a beneficiary of the Free Trade Zone, providing that they are duly registered in the accounts of the beneficiary.
- Properties and property enhancements made to owned or leased property.