COSTA RICA: DOUBLE TAX TREATIES

Costa Rica Double Tax Treaties

Costa Rica has traditionally not been a party to any double taxation treaties. However it has signed an exchange of information treaty with the United States with a view to promoting the necessary interchange of tax information and to ensure that the correct level of taxation is levied in both countries as well as to eradicate tax evasion.

In April, 2006, however, as the country mulled a controversial switch from a territorial tax system to one where it would collect tax on worldwide income, it emerged that the authorities had begun negotiations with several countries to avoid the double taxation of income.

By 2009 Double Taxation Agreements has been signed with Spain, Germany and Romania, but these are awaiting ratification. Negotiations are continuing with Israel, South Korea, Switzerland and Canada.

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Costa Rica Other International Agreements

Mutual Assistance Treaties: Other than the exchange of information treaty signed with the United States Costa Rica has no mutual assistance treaties with any other countries. The banks do not share any banking information with the tax department or with any other Government departments other than the central bank. Civil and criminal implications attach to the disclosure of any information received by a lawyer and disclosed without proper authority.

Free Trade Agreements: In 2004 Costa Rica concluded negotiations to participate in the US-Central American Free Trade Agreement CAFTA). The agreement was ratified in a popular referendum in October, 2007, but problems over the legal basis of the agreement, which had been accepted by all other parties, delayed final implementation until December, 2008.

United States Trade Representative (USTR) Susan C. Schwab made a statement on December 23 regarding the entry into force of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) for Costa Rica, saying: "With the President’s issuance of a proclamation to implement the CAFTA-DR for Costa Rica as of January 1, 2009, I am very pleased to be able to celebrate the entry into force of this important multi-country agreement."

“We have worked closely with Costa Rica, as we have with our other CAFTA-DR partners, to ensure they meet their obligations and responsibilities under the agreement. Costa Rica is now ready to join the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua in putting the agreement into force, ensuring that the benefits of this agreement continue to spread. US trade with CAFTA-DR partners, and among CAFTA-DR partners, has increased as the countries have put the agreement into force," she continued, adding:

“I greatly appreciate the diligent effort by [Costa Rican] President Arias and his government to adopt legislation and regulations to implement Costa Rica’s commitments under the CAFTA-DR. This step marks an important milestone in our relationship with Costa Rica, building on our strong economic and political partnership. With the addition of Costa Rica, this important regional free trade agreement will be in effect, as of January 1, 2009, for all of the countries that signed the agreement.”

Under CAFTA, 80% of US exports of consumer and industrial goods will become duty-free in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic, immediately, with remaining tariffs phased out over 10 years.

The government of President Oscar Arias faces an uphill battle in its quest to pass a package of 13 laws required as part of the CAFTA agreement, especially the more controversial parts that will open the state telecommunications and insurance monopolies, with opposition lawmakers likely to demand concessions such as increased farm subsidies.

In August 2007, it was announced that President Arias was to sign a free trade agreement with Panama which will reduce tariffs on most industrial and agricultural goods traded between the two countries over the next decade.

The agreement aims at the removal of tariffs on 93% of industrial and agroindustrial products, although barriers on certain industrial goods are not scheduled to phase out completely for eleven years, while some agricultural products will have schedules for reduction of duties as long as 16 years.

The agreement also opens up Costa Rica's monopolistic telecoms market to Panamanian operators, although the the Instituto Costarricence de Electricidad will be able to offer services in Panama.

While not nearly as controversial as the much-debated CAFTA, the FTA with Panama nonetheless sparked demonstrations from anti-trade agreement protestors in Costa Rica.

Bilateral Investment Treaties: Costa Rica has bilateral investment treaties already in effect with countries including: Canada, Chile, Great Britain, France, Spain, Germany, Switzerland and Taiwan, Korea, Venezuela, Paraguay, Argentina, the Czech Republic and the Netherlands.

Treaty negotiations are also at various stages with Bolivia, Ecuador, Belgium, Luxembourg, Finland, Poland Austria, Barbados, Brazil, Denmark, United States of America, Greece, Ireland, Jamaica, Italy, Norway, Peru, Portugal, Romania, Sweden and Uruguay.

In November, 2005, Kenneth Valley, Trinidad & Tobago's trade minister, and Manuel Gonzalez Sanz, his Costa Rican counterpart, signed a comprehensive bilateral free trade deal under which will eventually eliminate tariffs on all goods traded between the two nations.

The deal removed tariffs on 90% on goods traded between the two nations immediately, while tariffs on all remaining goods were set to be removed over the coming four years.

"This agreement with Costa Rica is a pioneering effort providing the opportunity for us to develop access, investment, and dispute settlement among others," Minister Valley observed.

The deal also aimed to provide Costa Rica with access to the Caribbean Community (Caricom), which is in the process of establishing a free market, and of which Trinidad was one of the first participants.

"We export more to the Caribbean than all of South America and look forward to Trinidad & Tobago influencing other countries to get on board," Mr Gonzalez Sanz stated.

In March 2009, anewly reached 'open skies' air transport agreement with Canada was announced.

"This new agreement is a win-win for Canada's air travel industry and consumers", commented Canada's Transport Minister, John Baird, who added:

"This announcement is another example of our Government's commitment to forming partnerships with other countries, offering competitive airline prices to travellers and boosting our economy."

Canada's Trade Minister Stockwell Day continued:

"This agreement will bring Canada and Costa Rica to a new level of economic co-operation."

"It will help create new jobs for our economy, expand market potential for our businesses and build connections for our citizens. This agreement is a another demonstration of our government's commitment to further engagement with the Americas."

The Canada-Costa Rica air transport agreement - which was officially concluded on February 17 - allows airlines to operate own–aircraft and code-sharing scheduled air services between any bilateral city–pair.

Code-sharing is a type of air service which allows an airline to sell seats in its name on the flights of another airline. This agreement also allows airlines greater flexibility in scheduling and pricing of flights. In conjunction with these services, airlines will also be permitted to sell services between each other's country and third countries.

In April 2009, the first round of negotiations for a Free Trade Agreement (FTA) between Singapore and Costa Rica were concluded.

The talks took place in Singapore between April 20-22, and focused on drawing up a package of measures to liberalize trade in goods and services, as well as looking at ways to simplify customs procedures and promoting reciprocal investment.

The two countries have also expressed hope that the FTA will reduce the technical barriers to trade that currently exist between the two countries.

The next round of negotiations on the matter was due to be held in Costa Rica at the end of that year.

"Satisfactory progress" has been made at the third round of negotiations for a Free Trade Agreement (FTA) between China and Costa Rica, it has been announced.

The announcement was made by Chinese officials after commercial delegates from both countries met in Costa Rica between June 15-17 for the third round of trade talks.

According to China's Chief Negotiator, Zhu Hong, this round of talks has resolved several issues in time for the fourth meeting to be held in September.

"The Costa Rican side has promised us that the offer will be better in the coming round," Zhu announced, adding:

"We had a good discussion on almost all the issues like services, commercial defense, controversies solutions, commercial values and other issues of cooperation."

FTA discussions between the two countries began in June 2007, making Costa Rica the third Latin American country to date to enter into trade agreement negotiations with China.

In November 2009, Argentina signed a tax information exchange agreement with Costa Rica, in an effort to tighten up on undeclared bank accounts held offshore by Argentine residents.

"With the signing of these accords we take a quantum leap in the fight against tax evasion and fraud, and it is a way of enhancing the transparency of international trade," stated the head of the Argentine tax agency (AFIP), Ricardo Echegaray.

The agreement signed provides for the exchange of information on request, which includes information held by banks, other financial institutions, and any person acting as an agency or in a fiduciary capacity, and information associated with ownership of companies. It also envisages the possibility of tax authorities conducting overseas audits.

China and Costa Rica concluded the sixth and final round of negotiations towards a free trade agreement on February 10. The three-day meeting focused on finalizing a list of products that will be exclusive of trade tariffs, and rules that will govern intellectual property.

On the conclusion of the year-long negotiations, Fernando Ocampo, Costa Rica's Chief Trade Negotiator, said to reporters that the agreement would bring great opportunities for Costa Rican exporters. Upon the agreement’s entry into force, exports from Costa Rica will be given priority treatment, with exemptions from pre-existing trade tariffs for all products but sugar. Under the agreement, tariffs will be removed on 58% of Chinese goods.

Bilateral trade has been going from strength-to-strength since the two countries established diplomatic ties in June 2007 when Costa Rica reversed its longstanding allegiance with Taiwan to establish trade ties with mainland China. Since then, trade has increased markedly, amounting to USD3.18bn in 2009.

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