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LOWTAX OFFSHORE

COSTA RICA: DOUBLE TAX TREATIES


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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.

Director of the Revenue Service Francisco Fonseca said at that time that negotiations towards double taxation avoidance agreements with Israel, South Korea and Switzerland were in their early stages. Similar agreements with Canada and Spain were also being negotiated.

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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: President Bush signed the Central American Free Trade Agreement (CAFTA) in August, 2005, after its approval by Congress. The main aim of the agreement is the lifting of tariffs and trade restrictions between the United States and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. According to recent statistics, the CAFTA area has a combined economy of $57 billion, and approximately $20 billion worth of trade takes place between the CAFTA nations and the US.

CAFTA was signed by Costa Rica, along with four other Central American nations, in June, 2004. However, there has been much debate in Costa Rica as to the merits of CAFTA- for more information, see below.

CAFTA, will eliminate tariffs and duties on around 80% of manufactured goods and 50% of agricultural products exported from the United States to Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. Tariffs on all other goods, with the exception of American sugar and a few Central American agricultural goods, will be phased out over a longer period.

Applauding the pact, the US National Association of Manufacturers said: “This is the highest-quality trade agreement yet.”

“Not only does it eliminate tariffs on 80 percent of US manufactured exports immediately, but it also sets new standards for intellectual property protection, anti-corruption measures, open distribution channels, and other issues that are important for US companies,” observed NAM Vice President for International Economic Affairs, Frank Vargo.

In October 2007, after a great deal of to-ing and fro-ing on the issue, a referendum on whether Costa Rica should participate in CAFTA was held, and the 'yes' campaign secured a narrow victory.

The United States government welcomed the referendum result, with US Trade Representative Susan Schwab observing at the time that:

"We are pleased that Costa Rica will be joining the other CAFTA-DR countries in reaping the benefits of greater regional economic integration and market opportunities that the CAFTA-DR provides We look forward to working with the Government of Costa Rica as it completes the necessary steps to implement the agreement, so that the CAFTA-DR can enter into force for Costa Rica as soon as possible."

After a heated debate over the merits of CAFTA, which culminated in a huge street demonstration by the 'no' campaign on the eve of the referendum, voters eventually decided to ratify the agreement by a slender margin, with a reported 51.58% voting in favor and 48.42% voting against.

The government of President Oscar Arias also 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.

Meanwhile, earlier that year (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.

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