Costa Rica: Offshore Legal and Tax Regimes
Tax Treatment of Offshore Operations
See Domestic Corporate Taxation for the general principles of Costa Rican corporate taxation, which also apply to entities taking advantage of special low-tax regimes.
Businesses in Export Processing Zones (Free Zones) have traditionally benefited from a number of tax privileges. Originally these concessions were offered only to industrial or agricultural companies, but were extended to a wide range of processing and service activities. The main incentives have traditionally been:
- full exemption from income tax on profits for a period of 8 to 12 years from the commencement of trading, and 50% exemption for a further period of 4 to 6 years;
- exemption for the same period from customs duties on raw materials, machinery and equipment;
- exemption for the same period from VAT and other sales taxes including selective consumption tax;
- exemption from withholding tax on payments to non-residents;
- legislation passed at the end of 1999 offered a 4-year extension of the 12-year 100% tax exemption to companies that have operated in a free zone for more than 4 years and that have reinvested profits in Costa Rica.
There were also a number of related schemes offering tax privileges to exporters which stop short of giving the full range of benefits outlined above. These include the Drawback regime, Export Contracts, and the Temporary Admission scheme. See Foreign Investment Incentives for brief details.
Costa Rica is a member of the WTO, and will need to eliminate Free Zone fiscal privileges for manufacturing companies by 2015.
A number of sectors involved in the tourist business have traditionally received tax incentives under the Incentives to Tourist Development Law 1985. Incentives have included:
- All business entities engaged in the running or construction of hotels receiving exemption from import duties on goods imported for the purposes of their trade, purchase (sales) taxes on supplies (excluding those payable on the purchase of vehicles and fuels) and the 0.25% annual rates tax. They also benefit from accelerated depreciation allowances.
- All business entities engaged in the air transportation of tourists receiving exemption from import duties on goods imported for the purposes of their trade and purchase taxes on supplies required for the operation of airplanes. Furthermore they can purchase their fuel at favorable prices and are entitled to accelerated depreciation allowances.
- Businesses engaged in maritime transportation of tourists receiving exemption from import duties and purchase taxes on goods imported for the purposes of the construction of marinas, bathing resorts and aquariums. Furthermore they are entitled to accelerated depreciation allowances and are exempted from all taxes relating to the purchase of a boat with the exception of import duty.
- All business entities engaged in car rentals receiving a 50% reduction in all taxes relating to vehicles imported for rental.
For an agreed period forest development businesses have traditionally been exempted from income tax on business profits and the annual rates tax of 0.25% of the value of the land.