COSTA RICA - A FREE TRADE ZONE PARADISE
by Tom Rosenberger
Costa Rica has created one of the most attractive investment environments in Latin America. Foreign direct investment in Costa Rica is currently $530 Million dollars per annum (approximately 5% of GNP).
CORPORATE PRESENCE IN COSTA RICA
Many large foreign corporations have established plants and regional operations in Costa Rica since 1995 , including Intel, Panasonic, Glaxco Smith Kline, Pfizer, Alcatel, Roche Pharmaceutical, Wal-Mart, Syngenta, L 3 Communications, Intertec, APL Logistics, Exactus, Alterra Partners, Align Technology, Cypress Creek Technologies, ArthroCare, Abbott Labs, Wrangler, Seton Corporation, ALCOA, Conair, Kimberly Clark, Levi Strauss, Hanes, PPC Industries, Weststar Medical, Medex Medical, AMACAI Information Corporation, Hoffman La Roche, Panasonic, Bourns Trimpot, ITT Canon, Micro Technologies, Baxter Health Care, Boston Scientific, Merck Sharpe and Dome, along with financial giants CitiBank, HSBC, and ScotiaBank.
Costa Rica's Free Trade Zones
Costa Rica's Free Trade Zones have been designated by the government for companies to locate, utilizing the countries labor force and resources to produce goods and services. Free zones are considered extraterritorial for customs and fiscal purposes.
These special installations are used for economic operations based on the use of imported raw materials and inputs for the manufacture, assembly or marketing of products and services which will subsequently be exported. They offer a series of tax incentives, rapid and simplified customs procedures, unrestricted handling of foreign currency, and a wide range of support services, including post offices, banks, couriers, messengers, daycare centers, employment, medical and other services.
Tax Benefits of the Free Zone Regime
• 100% tax exemption on raw materials, components and intermediate products.
• 100% tax exemption on machinery, equipment, parts and tools.
• 100% tax exemption on exports.
• 100% tax exemption on work vehicles.
• 100% tax exemption on capital repatriation and profits.
• 100% tax exemption on local sales and consumption taxes.
• 100% tax exemption on capital, assets, real estate transfer and municipal taxes
and patents during the first 10 years of operation.
• Customs on-site
• Up to 25% of production can be sold on the local market as an import substitution.
Other Free Trade Zone Incentives
The Free Trade Zone law is comprised of an incentive and benefit package granted by the Costa Rican government for those companies that perform new investments in the country and comply with certain requisites. Among these basic requisites are to perform an initial capital investment of at least $150,000 if installation occurs in an industrial park, or $2,000,000 for those companies wishing to install outside the parks (manufacturing plants only).
Corporate Real Estate
There are numerous options for installing company operations in Costa Rica. There is an excellent distribution of basic public services, road network, productive infrastructure of services, import and export facilities, which are always found nearby.Companies can choose to establish themselves in an industrial park, which have been authorized as Free Trade Zones, or outside these zones (in national customs territory).
If a company decides to install outside the parks, they can also be designated to operate under this free trade zone regimen, and receive the corresponding incentives, with flexible localizationFree Trade Zone Parks
Free Trade Zone Parks have land and buildings managed by a private company, which are especially designed to provide companies with services such as customs, health, security, maintenance, childcare, garbage collection, and other benefits, including the presence of similar companies, suppliers and others who can provide required services.
The main Free Trade Zone Parks are located near the country's main airport (Juan Santamaria International Airport), at a mere average distance of 7 km.
Companies that can benefit from these options include:
Companies that manufacture, process and assemble goods to be exported or re-exported.
• Companies that only delivery, re-pack or re-distribute non-traditional goods to be exported or re-exported.
• Companies that export services to companies or individuals established abroad or under the Free Trade Zone Scheme.
• Companies that manage parks dedicated to company installation under the Free Trade Zone scheme.
• Research organizations. Companies dedicated to research and technology improvement.
• Companies dedicated to the operation of piers, dry or floating docks construction, and ship repair and service.
~ Raw material import tax exemption, including fuel 100%
~ Machinery and Equipment import tax exemption 100%
~ Income tax exemption 100% for 8 years, 50% following 4 years (terms extended to 12 & 6 years in less developed zones)
~ Repatriated Profit exoneration. 100%
~ Sales or Added Value Tax exemption 100%
~ Asset tax exemption 100% for 10 years
~ Municipal tax exemption and other fees. 100% for 10 years
~ Local sales limitation (corresponding tax payment) Up to 25% in manufacturing; and 50% for services
~ Foreign currency management restriction None
~ Local purchase requirements None
The telecommunications sector provides for dedicated Internet Access, digital point-to-point links, transportation networks with fiber and wireless digital technology (Frame Relay), leased channels using satellite facilities (RACSASAT), VSAT networks, and X.25 networks. Telecommunications services in Costa Rica are provided on a nationwide basis by two companies: ICETEL (a Telecommunications division of the Costa Rican Institute of Electricity) and Radiográfica Costarricense, S.A. (RACSA).
The transportation sector offers 3 to 5 days shipping time from Costa Rica to Miami by sea, (Crowley, Maersk, Sealand, Evergreen and others), daily cargo flights to United States (DHL, UPS, FEDEX, commercial flights), with 26 consolidated cargo airlines and 24 world cargo shipping lines, ports in both the Atlantic and Pacific oceans, with only 2 hours driving time in either direction from San Jose. The main international airport is only 10 miles from San Jose
In recent years, Costa Rica's Technology Solution sector has emerged as one of the most dynamic industries in Latin America, enjoying explosive growth. There are now more than 300 companies in Costa Rica ranging from small to large developing software companies serving local and international markets, offering high quality products. Companies in the local industry include ArtinSoft, Sysde, Lidersoft, Codisa, Exactus, and TecApro.
Costa Rica also hosts important global players in this industry, such as Intel, Microsoft, Unisys and Oracle, who have designed and developed strong strategic alliances with local software producers. Intel, currently the largest multinational with operations in Costa Rica, has started developing software through its Latin American Engineering Services Group (LAES), which is based in the country
Shared Services and Back Office
Costa Rica offers a cost-effective location for shared services offshore operations, offering a skilled bilingual labor force and a telecommunications infrastructure
An Educated Workforce
Between 1993 and 2002, over 10,100 university degrees in the field of engineering were granted, reflecting the demand for qualified workers by both foreign and local companies. Costa Rica enjoys a high literacy rate (94.9%) that compares favorably to other developing nations:
The economic, political and social stability of Costa Rica has enabled it to achieve a high level of success in alluring foreign investors. A recent World Bank Survey for Global Governance Indicators placed Costa Rica first within Latin America for political stability and the absence of violence.
This measure includes several indicators, such as the likelihood of the government in power being destabilized or overthrown by unconstitutional and/or violent means, as well as measures that assess the threat of domestic violence and terrorism.
Costa Rica enjoys worldwide recognition as a stable democracy during its 115 years history. Its respect for political and peace processes have been further enhanced by the abolition of the military in 1949. International acknowledgment was received in 1987 when then President Oscar Arias Sanchez was awarded the Nobel Peace Prize. He is once again president of the nation and the countries main proponent of the new CAFTA trade treaty with the USA.
Trade liberalization allowed exports to increase as a percentage of GDP from 30% in 1980 to the current 50% rate. It has been accompanied by structural changes that have led to productivity growth, diversification of the economy, and higher levels of foreign investment. Costa Rica is one of the most stable economies in Latin America. After the last economic crisis 25 years ago caused by external debt, it has maintained a yearly current average growth rate above 7.9%, resulting in a per-capita income level of $5,031 for 2006. Costa Rica has since benefited from excellent access to global capital markets, which is reflected in recent sovereign debt qualifications:
FITCH Ratings BB
Standard & Poor's BB
Source: Risk qualifiers, January, 2006
Costa Rican software-developing enterprises are presently producing many generic applications, such as custom-made programming, and have been successful in even the most demanding of markets, where they effectively compete in quality, price, and services.
The Costa Rica electronics industry has maintained a constant growth rate, both vertical and horizontal, for the past thirty years. Fluorescent light starters, electric devices, switches, electronic components, telecommunications equipment, and modular circuits are but a few of the country's electronic export offerings. The industry has focused itself on specific market segments.
The plastic products industry in Costa Rica has grown stronger and more sophisticated over the years, producing finished and semi-finished articles of synthetic resins and compounds.
Costa Rica's pharmeceutical industry uniformly maintains high standards of good manufacturing practices; it strictly complies with the controls established by the country's health authorities, thereby guaranteeing consumers safe and therapeutically effective medicines.
Costa Rica's exports from the garment and dressmaking industry include not only finished products such as clothing, leather goods, and products for industrial use, but also the production of threads, fabrics, apparel for different age groups, and accessories such as zippers, buttons, costume jewelry, brand name labels, and makeup.
Costa Rica's exports in the area of metal mechanics comprise precision mechanical components, dies, industrial equipment, agro-industrial machinery, concrete mixers, safes and strong boxes, refrigerators, metal furniture, vehicle accessories, costume jewelry, and component parts for the aerospace industry.
Fishery and Aquaculture
Fishery is one of the sectors with the most significant growth percentages in export statistics in the country in the last few years. This is a direct result of several species, now in great demand in North American and Asian markets. Examples include tuna, shark, dorado, snapper and shrimp.
The almost endless array of consumer products Costa Rica exports includes coffee, bananas, sugar, preserves, jellies, heart of palm, concentrated tropical fruits, macadamia nuts, jalapeño peppers, food pastas, tropical sauces, tuna, and canned sardines.
Plants, Flowers and Foliage
There has been an explosive growth in recent decades in the area of living ornamentals, foliages, flowers, and plants. The United States, Japan, and Europe, whose consumers demand high quality, have been Costa Rica's major export destinations.
Bananas, pineapples, cantaloupes, watermelons, mangos, yucca, ginger, yam, malanga, other roots and tubers, vegetables and greens, produced both with conventional and organic methods, have been important products in the international marketplace, for both fresh food consumption and raw ingredients.
Exotic fine woods flourish in Costa Rica under a strict program of forest and woodlands conservation and management, enabling Costa Rica to produce articles of wood that are among the most highly coveted in the world.
Costa Rica offers an incredible richness and diversity in the highly creative artisan crafts that it exports. Talented Costa Rican artisans design and craft elegant wood articles such as jewel boxes, cigar boxes, picture frames, articles for the office, and tools, to give only a few examples.
This has been the most dynamic segment in the services sector in Costa Rica during the last few years. Customer service call center companies are able to find within Costa Rica's labor force the quality and the language skills that enable them to provide first-class services worldwide.
Costa Rican Society:
Costa Ricans are friendly and are welcoming to foreigners. It is a very polite society. For information about cultural adaptation visit;
Productivity and wages:
This educated, versatile and productive workforce is accessible at competitive rates that currently range from $1.80 to $4.11 (per-hour, with full benefits).
Current Trade Agreements:
Costa Rica has current trade agreements with the Dominican Republic, Chile, Canada, Mexico, CARICOM (Caribbean), Panama, Central America, and a pending free-trade agreement with United States
• Costa Rica, one of the most beautiful nations in the world and has an excellent location at the center of the Americas
• The time zone of Costa Rica is the same as the central time of the USA. A direct flight from San Jose takes 2 ½ hours to arrive in Miami.
There are seven customs points for trading purposes. These are located at the borders with Panama and Nicaragua, at the main Atlantic & Pacific ports, at the Juan Santamaria International Airport, and at other strategic points in the country.Since 1995, dozens of large foreign electronics firms have established plants in Costa Rica.
The positive business environment, low operational costs and an abundance of natural resources are the primary reasons why investment opportunities in Costa Rica continue to grow.
The following are some of the multi-national companies with regional operations in Costa Rica:
Intel, Panasonic, Glaxco Smith Kline, Phizer, Alcatel, Roche Pharmaceutical, Wal-Mart, Syngenta, L 3 Communications, Intertec, APL Logistics, Exactus, Alterra Partners, Align Technology, Cypress Creek Technologies, ArthroCare, Abbott Labs, Micro Technologies, Wrangler, Seton Corporation, Tec Latina S.A., Calcetería Pirámide, MBT (Degussa Construction Chemicals), Trenzame, ALCOA CSI, Conair, Kimberly Clark, Cartex, Levi’s Strauss, Hanes, Camtronics, AFA Corporation, OPAMEX, Sawtek Remec, EMC Technology, Merrimac/Multimix Microtechnology, Panduit, Xeltron, PPC Industries, Weststar Medical, Medex Medical, AMACAI Information Corporation, Hoffman La Roche, Panasonic, Bourns Trimpot, ITT Canon, Micro Technologies, Hitronics, Magnéticos Toroid, Teradyne, Hutchings, Ryan Ingeniería, CPP VITEC Group, Baxter Health Care, BostonScientific, Cytyc Surgical Products, De Royal Científica de Latinoamérica, GlaxoSmithKline, Hospira, Inamed, Merck Sharp and Dohme, The Medtech Group, CASINEX, Del Oro, S.A., Dole, FRUCTA, Sábila Industrial, Smurfit, TAISUCO, Terrapez, TICOFRUT as well as financial giants, CitiBank, HSBC and ScotiaBank.
The following communities are where most of these companies offices are located and their employees live and play:
Belén: Famous for the Intel microprocessor production facility and the North American style Cariari Country Club housing development and located approximately five miles north of San Jose, this neighborhood has as its centerpiece, the Cariari Country Club, with its beautiful golf course. Located just off the highway from Juan Santamaria International Airport, you can find many top hotels here including Melia Cariari, the Ramada Herradura as well as good restaurants and the American International School. This is a great high-end neighborhood. Just across the highway is Real Cariari- a major shopping mall with a great merry-go-round inside. Just to the west of the Cariari subdivision is San Antonio de Belen. More commonly known as Belen, this is a laid back town that has experienced rapid growth since Intel built their huge microprocessor plant in 1996 and before that Panasonic and Kimberly Clark opened manufacturing plants herel. You can also find a variety of housing available here in all price ranges as well as the luxurious San Jose Marriott Hotel. Belen consists of three primary villages, La Ribera where the Marriot Hotel is located, La Asunción which is near the expressway that connects the international airport to the capital of San Jose and San Antonio, the center of the community where the municipal government offices are located.
Escazú: Here the ultra modern Plaza Roble Office Complex is home to international corporate giants like Microsoft, Citibank, 3 Com, L.L. Bean, Nescafe, AEC Electronics CTT Corporation and Alcon. This is an extremely popular neighborhood with foreign residents and in fact as you drive around Escazu and see the variety of stores and restaurants such as Outback Steakhouse, Hooters, Tony Roma's, Fridays, McDonalds, KFC, and such, you have to blink twice to make sure you're not back in the USA. Blended in with all the USA based franchises is the CIMA Hospital and Medical Tower (a state of the art facility ), Multiplaza - Costa Rica's largest mall, Price Smart (Yep! Just like back in the states), the Intercontinental Hotel, Marriott Courtyard and the Comfort Hotel. Here you can find palatial estates, high-rise penthouses, luxury rental accommodations such as Villas del Rio, ambassador's homes and mixed right in you will also find simple local homes.
Many of the finest homes in this area are owned by wealthy Costa Ricans who enjoy the beauty of the area and the convenience of having everything from great restaurants, top notch shopping malls, state of the art medical facilities, office buildings and great nightlife and entertainment nearby. This neighborhood is also home to the exclusive Costa Rica Country Club which offers golf and tennis for its members.Many private, bi-lingual schools are also located here or nearby. Known as the Beverly Hills of Costa Rica, this area's popularity is going strong. The upscale neighborhoods of Trejos Montealegre and Bello Horizonte are both located here as well. Check this area out.
Heredia: Has recently been made popular by its sprawling free zone office complexes that have attracted hundreds of new English speaking employees to international companies like Abbott Labs, Alcatel, Arthrocare, Exactus, Intaco, Intertec, L3, Medex Medical, Pfizer, PPC Industries, Roche, Syngenta, Wal Mart, Westar Medical, Hewlett Packard, DHL and satellite offices for Intel's big manufacturing facility in neighboring Belen.This town is on the outskirts of San Jose and offers all the green areas and views Costa Rica is famous for with all the local flavor and a variety of housing options from inexpensive simple homes to multi-million dollar mansions. Definitely something for everyone here. Heredia is nice and cool and as you go higher up into the mountains in areas such as El Castillo, home to the beautiful La Condesa Hotel and several upscale residential developments, San Rafael and Barva.
This area is located 25-30 minutes from San Jose and offers a beautiful rural environment with plenty of homes and lots available.
Santa Ana: Just West of Escazu and south of Belen is Santa Ana which is home to the giant Forum Office Complex where multi-national companies such as Proctor & Gamble, Cisco Systems, Unisys, Esso Standard Oil, Bristol-Myers Squibb, KPMG, Chiquita Brands, Sardimar, IBM-GBM, Hewlett Packard, Kraft Foods, Maersk Sealand, and Western Union chose to open their Latin American hubs.This area has seen the tremendous growth in this direction as the city extends itself outward. A big push has come from the beautiful highway that begins at La Sabana and currently ends at Ciudad Colon, eventually this highway leads you to the Central Pacific beaches when the Ciudad Colon-Caldera highway project is completed, this will put the ocean about forty five minutes from the central valley. Santa Ana is a great place to live as it offers a warm, dry climate year round.
Here again you will find a good mixture of Costa Ricans and foreigners enjoying life to the fullest in one of Costa Rica's favorite neighborhoods. "Downtown" Santa Ana; however, retains its local small town flavor and is very much like the majority of small towns in Costa Rica with a church opposite a park and soccer field at the center of town. Santa Ana also has an interesting variety of restaurants including a great Tex-Mex restaurant downtown that is one of the most popular places on this side of town. Located a half-block north of the main church in Santa Ana, it serves up Tex-Mex cuisine in a lively atmosphere. Nearby is the luxurious Alta Hotel which also has an excellent restaurant. Definitely a boom area as the city grows westward.
Alajuela is the second largest city in Costa Rica and the first to host several free zones that are home to mid-size Latin companies. Located about 30 minutes out of San Jose and home to Costa Rica's major airport. As you pass the airport and head east past downtown Alajuela you will very quickly encounter the real feel of Costa Rica with lots of coffee farms, an oxcart or two, horses and lots and lots of green areas and spectacular views.
Again plenty of homes and lots available for every budget and taste. As in most of Costa Rica, outside of gated developments and a few neighborhoods, you will find housing varies greatly with expensive homes often built near more modest residences and most neighbors seem to get along just fine.
For North American corporations considering relocation to Central America, Costa Rica has become the ‘it’ place offering first-class business incentives, low operating costs, and a true free zone paradise.
Author : Tom Rosenberger. With more than 25 years homebuilding experience 15 of which have been in Costa Rica, construction consultant Tom Rosenberger knows the ins and outs of building and remodeling a home in Costa Rica.
A Free Gift To You - Key Documents With 25 Years Of Experience: As part of his 'Build Your Own Home in Costa Rica - Key Documents' Tom offers his customers several informative documents, including a Land Acquisition and Home Building report, which outlines the process one can expect when purchasing property and building a home in this country. Other documents include a construction cost spreadsheet, payment schedule, and list of construction specifications. You can see Tom's story and key documents by clicking here.
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