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The Other Side of the Coin: What Duty Free Zones Give to Costa Rica

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Contributed by Arias & Muñoz
08 December, 2014


Jobs, production chains, and transfers of knowledge and technology are some of Costa Rica’s gains from these regimes.

Exemptions from import and export duties, sales tax, income tax (partial or total, depending on the activity), municipal taxes and taxes on remittances to abroad…approximately 12 basic exemptions are granted to companies under the duty-free zone regime.

The State grants incentives and benefits to domestic and international companies making new investments in Costa Rica in the duty-free zone regime if they fulfill the requirements and obligations established by Law 7210 and its regulations.  

This has led to an exponential increase in criticism, since the list of exemptions and benefits for companies under the duty-free zone regime is misinterpreted as being more extensive and therefore providing more benefits to investors than the country receives from them. 

The public opinion’s perception is, however, mistaken. For every dollar exempted for duty-free zone companies the country obtained a benefit of US $6.30, revealed the “Duty-Free Zone Balance: Net Benefit of the Regime for Costa Rica 2006-2010” prepared by the Commercial Intelligence department.

The study, conducted by the Costa Rican Promoter of Foreign Trade (PROCOMER), found that the benefit to the country from 2005 to 2010 was 6.2% of Costa Rica’s gross domestic product (GDP).

Another example of what the duty-free zones give to the country can be seen in the growth of employment.

During the 2007 and 2008 economic crisis, the decline in employment was estimated at 1%, while in 2010 approximately 58,012 jobs were reported. 

Considering that for this same year 256 duty-free zones were reported, it could be estimated, roughly speaking, that each duty-free zone generated approximately 226 jobs – and this is in spite of the fact that the duty-free zone law does not require its beneficiaries to maintain a minimum level of employment. 

It should be highlighted that the duty-free zones help Costa Rica combat medium- and short-term unemployment, generating jobs with each new entrant to the regime.  

In addition, the average salary paid by companies in the duty-free zones in 2010 was 1.6 times the national average in the Costa Rican private sector.

Due to the nature of duty-free zone operations, the companies need supply chains to be maintained, generating service chains. For example, it is estimated that the beneficiaries of this regime purchased approximately US $1,080 million in services and goods domestically in 2010. 

So, in exchange for the accumulated investment, paid income tax and paid PROCOMER fee, the duty-free zones benefit the country with wages, social security payments, and domestic spending on goods and services.  But the story does not end here.

There are other economic and social benefits deriving from these operations that represent added value for Costa Ricans, such as, for example, training and transfer of technology, knowledge and business culture.  

It is certainly no secret that the companies under the regime receive preferential treatment, but neither should it be a secret that these companies have resolved major problems for the country and given it short-, medium- and long-term gains.


Vivian Chacón

Associate, Arias & Muñoz

vchacon@ariaslaw.co.cr




 

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