Costa
Rica Introduction
Costa Rica's economic policy encourages information
technology operations, and the country has a good
telecommunications system. There are already a
number of Internet Service Providers in Costa
Rica, and a substantial software development sector,
with clear interest being shown in continuing
offshore e-commerce development.
Costa
Rica's Internet infrastructure was historically
slow and erratic, but plans were put in place
to introduce a cheaper, faster and more reliable
service called "Internet 2".
The
new service came courtesy of the Costa Rica Electricity
Institute (ICE), which announced in February 2001
the imminent arrival of new data transmission
infrastructure that made Internet 2 available
across the country by the end of the year.
The
new Internet service was made possible by the
arrival of Costa Rica's "spur" of an
undersea fiber-optic strand, known as Maya Cable.
The cable allows the country to connect to the
Internet at faster speeds than the previous, satellite-based
system, and it is independent of the telephone
line.
Internet
2 began as a pilot project linking existing copper-wire
data transmission infrastructure with new digital
data "routers" capable of transmitting
video, data and voice digitally, via Maya Cable.
In
May, 2006, Costa Rica's state-run telecommunications
provider signed a deal with Global Crossing, the
US internet and telecommunications firm, which
aimed to significantly enhance the Central American
country's internet capacity.
Global
Crossing announced plans to extend its core network
to Costa Rica through the extension of its Pan
American Crossing (PAC) system via the Unquí
cable landing point in Esterillos.
Costa
Rica's connection to PAC, which runs along the
west coast of Central America from Panama to Los
Angeles, would give the country access to Global
Crossing's global IP network delivering services
in more than 600 cities in 60 countries.
Following
the signing ceremony for the landing agreement,
ICE and RACSA immediately announced that they
would purchase 24 STM-1 Private Lines, the equivalent
of 3.732 Gbps of bandwidth, from Global Crossing.
One STM-1 is equivalent to 155.52 Mbps of bandwidth.
"Latin
America continues to be an integral part of our
global strategy, and we're building on our successes
in this region by extending our core network to
Costa Rica," commented John Legere, CEO of
Global Crossing.
"This
agreement provides ICE/RACSA with a robust solution
for worldwide connectivity from the Pacific coast,
and enables the delivery of seamless, premier
IP solutions to Costa Rican based businesses and
end users taking advantage of all the benefits
of world-class Global Crossing network,"
he said.
"We
expect the direct national connection of Global
Crossing's global network to enhance Costa Rica's
position as a premier location for manufacturing
facilities and contact centers of multinational
corporations," he added.
The
improved Internet structure was expected to bring
increased direct investment to Costa Rica within
a year of implementation.
In
March, 2008, ICE announced that the country's
connection to PAC would take place by July 2008,
delivering a further boost to the speed and reliability
of internet communications in Costa Rica.
In
addition to PAC and Maya, Costa Rica is connected
to the world via a further undersea cable, Arcos,
which runs through the Caribbean.
See
below for specific information on e-commerce in
Costa Rica, or go to Offshore-e-com.com
for an extensive analysis of the commercial possibilities
and the legal background.
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Costa
Rica Facilities
ISP
and Hosting Services
Telecommunications
services remain a government monopoly in Costa
Rica, with Grupo ICE and Racsa providing most
Internet services. Other ISP's operate, but their
legal status is unclear.
Applications
The
development of Costa Rica's e-commerce infrastructure
enabled numerous companies - mainly US-based -
to establish online gaming operations in the region.
However, this US connection was scuppered to a
large extent by the introduction in October 2006
of the US Unlawful Internet Gambling Enforcement
Act. For more detail on this, see below.
In
May, 2001, Sportingbet.com, the Channel Islands-based
bookmaker, acquired Betmaker.com, a Costa Rica-based
internet gambling site, in a deal worth about
GBP15m. The acquisition gave Sportingbet.com a
toe-hold in the US online gambling market.
Meanwhile,
in February, 2003, Costa Rica's government announced
that the economy ministry would establish a registry
of online gambling companies, and would charge
each one between 10m and 24m Colons (US$26,000
to $63,000) according to the number of persons
employed.
The
initiative followed congressional legislation
that established taxes targeted at gaming companies.
In December, 2002, provisions to tax casinos and
online betting operators were approved in the
National Assembly by a margin of 45 to 5.
Slot
machine operators had protested that plans to
tax them between US$250 and $300 per slot machine,
per month would drive smaller operators out of
business, and in the event the rate per machine
was reduced to US$20. Computer terminals used
to place bets were to have been charged US$1,000
per month, but this was revised down to $500.
The
increase in Government attention came at a bad
time for the gambling industry, which was at that
point under threat from the looming United States
legislation seeking to prevent US citizens from
utilising offshore gambling services.
Fearing
that online gambling operations based offshore
could act as a conduit for money launderers and
financiers of terrorism, the Bush administration
has led a crackdown on foreign operators in the
US. The Unlawful Internet Gambling Enforcement
Act, passed by Congress in 2006, effectively shut
down the US industry for these companies by prohibiting
the use of payment instruments by financial institutions
to handle the processing of any form of internet
gambling that is illegal under US federal or state
law.
Betonsports
and 12 individuals were indicted in 2006 by a
federal grand jury. Charges include racketeering,
mail fraud and facilitation of gambling across
state and national boundaries. Trading of Betonsports
stock in London was suspended on July 18th at
the company's request.
Founder
Gary Kaplan and British CEO David Carruthers were
among those indicted. Carruthers, 48, was arrested
in July 2006 as he changed planes in a Dallas
airport. At a hearing in August, Carruthers pleaded
not guilty to the charges of fraud and racketeering
in St Louis.
The
company announced on 11th August that BetOnSports
would no longer accept bets from US customers,
and that it would refund customer money when it
became available.
In
the wake of the Congressional passage in October
2006 of the US Unlawful Internet Gambling Enforcement
Act, gaming firm Sportingbet announced that it
had sold its US-facing sports betting and casino
business to Jazette Enterprises Limited for $1.
Sportsbook.com,
the US operation, announced that it would operate
from offices in Dublin, Antigua, Vancouver and
Costa Rica.
Sportingbet
went on to announce that it would retain its Paradise
Poker business, but had ceased taking deposits
from US resident customers.
The
US online gaming ban has been a subject of much
controversy, and US laws have been the subject
of a challenge under World Trade Organisation
rules by the Caribbean country of Antigua &
Barbuda, a major offshore gaming domicile which
relies on the industry for much of its income.
The
Costa Rican online gambling sector, along with
the gaming industries in many other countries,
suffered another blow in mid-2007, when it was
announced that under rules which came into force
on September 1, gambling websites based in jurisidictions
other than those which had met strict new regulatory
standards (initially just the Isle of Man and
Alderney) were banned from advertising in the
UK.
In
January, 2008, judicial authorities in New York
announced that twelve individuals had been charged
with gambling and money laundering offences relating
to the operation of a Costa Rica-based gambling
website and call centre that served sports books
in the US.
Michael
J. Garcia, the US Attorney for the Southern District
of New York, and Mark J. Mershon, Assistant Director-in-Charge
of the New York Office of the Federal Bureau of
Investigation, announced the unsealing of an indictment,
filed in Manhattan federal court, alleging that
from December 2005, Carmen Cicalese operated an
internet website and telephone call center, known
as a wireroom, in Costa Rica which charged United
States-based sports bookies weekly fees of approximately
$15 to $30 for each gambler that the bookie registered
with the 'Cicalese Wireroom'. In return, registered
gamblers were able to place bets on sporting events
at odds set by the Cicalese Wireroom via a toll-free
phone number, and through various websites maintained
by the Cicalese Wireroom, including datawager.com
and betwestsports.com.
The
indictment stated that the Cicalese Wireroom did
not itself take an interest in the outcome of
these wagers; paying winners and collecting from
losers was the responsibility of the bookies.
US
bookies are said by the authorities to have paid
the fees owed to the Cicalese Wireroom to representatives
of the Cicalese Wireroom in the United States.
It is then thought that the collectors, or 'runners,'
in turn transferred the money back to the Cicalese
Wireroom in various ways, including by using couriers,
debit cards, and electronic funds transfers. According
to prosecutors, on one occasion, the Cicalese
Wireroom used a Pakistan-based "hawala"
money transfer organization to move money collected
from United States bookies.
The
Cicalese Wireroom is believed to have serviced
several hundred bookies, each of whom had registered
numerous gambling customers, and received millions
of dollars in revenue. All twelve defendants were
charged with gambling and with conspiracy to engage
in gambling.
In March, 2008, Costa Rica reached a compensation
settlement with the United States over its gaming
legislation,
accepting a US offer of greater access to other
service markets, including research and development,
storage, technical testing and analysis, in compensation
for the closure of the US online gaming market
to Costa Rican operators.
This
agreement is supposedly very similar to the deal
that Washington struck with the European Union
late in 2007 which, according to the European
Commission, provides EU service suppliers with
new trade opportunities in the US postal and courier,
research and development, storage and warehouse
sectors. Costa Rica's Foreign Trade Minister Marco
Ruiz, was quoted in a written statement as welcoming
the agreement with the US. “The
agreement has been satisfactory for the country,”
he stated.
Internet
banking was late in coming to Costa Rica but arrived
in 2001 courtesy of Interfin Bank's Inter Banca
site which offered online request forms, general
information, and corporate and personal banking
services via the Internet, as well as other providers
including Credomatic and Banco Nacional.
Online
banking services are also provided by various
international banks with Costa Rica-based operations.
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Costa Rica Offshore Activities
The natural bonding of the Internet and Offshore
stems from the fact that both, of their nature,
manage to avoid tax. Businesses which can operate
on the Internet without, so to speak, touching
ground in a high-tax jurisdiction will naturally
migrate to offshore jurisdictions; while businesses
that already have offshore existence will find
it highly convenient to be able to use the Internet
to trade with their high-tax customers without
having to make a landing in their countries.
By
locating websites in Costa Rica to carry out functions
previously based in high-tax jurisdictions such
as sales and marketing, treasury management, supply
of financial services, and most of all, the supply
of digital goods such as music, video, training,
software etc, businesses can take advantage of
low rates of taxation for increasingly substantial
parts of their operation.
In
many countries, the distribution of goods from
a warehousing facility does not constitute the
carrying on of a trade or business in that jurisdiction,
so that even for physical goods, in many case
it will be possible to avoid a permanent establishment
(taxable presence) altogether in many high-tax
jurisdictions where trading activities currently
take place.
A
company operating an e-commerce facility in Costa
Rica will very probably choose to locate in one
of the Free Zones (see
Offshore Legal and Tax Regimes) and will therefore
have minimal local taxes to pay.
For information about the impact of e-commerce
on a number of the main offshore activities which
take place on the island, click
on a link below to go to our specialist E-commerce
site Offshore-e-com.com
Sales and Distribution of Physical Products
Sales
and Distribution of Digital Products
Banking
and Financial Services (including Investment
Funds)
Corporate
Support Functions
To
see an analysis of the current state of legal
and tax issues surrounding offshore e-commerce,
click
here.
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Costa Rica Case Studies
This section will
contain case studies of e-commerce solutions applied
to offshore business activities carried out from
Costa Rica. The case studies will be developed
in association with 
partners. Contact us
to learn more.
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