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Costa Rica: Country and Foreign Investment

Executive Summary

San José, the capital of Costa Rica, with around 1m inhabitants, has its own silicon valley to rival the more famous one in California.

Costa Rica is between Panama and Nicaragua. With 51,000 sq km, more than 4 million people, no army, volcanic mountain ranges and a sub-tropical climate, the country's beaches and beautiful scenery spell tourism. The ex-Spanish colony has been peaceful and stable since 1948. The culture and language are Spanish, but English is widely spoken in business. The currency is the colon, standing at 540 to the dollar.

The country's liberal constitution has a separation of powers between executive, legislative and judiciary. The legal system is based on a Civil Code and a Commercial Code. There is high literacy, a well-educated, skilled work-force, and reasonably business-friendly legislation which is less bureaucratic than in some Civil Code countries. GDP per head is USD12,800 (2012 est) at purchasing power parity; inflation is 4.5% (2012), unemployment 7.8% (2012) and growth in that year was 5%.

The economy was traditionally based on agricultural exports and tourism. In the last 20 years the Government has introduced a host of export incentives including Free Zones; as a result manufactured exports have shot up. The most famous investor is Intel which generates $2bn of exports from its chip plant annually.

Costa Rica has territorial taxation (ie it taxes only local income), although a move towards worldwide taxation has been under consideration for several years. There are no offshore regimes as such except for the Free Zones. For domestic companies taxation is significant, and high social insurance charges make employees increasingly expensive. For incoming investors the tax bill is very low indeed, and the sophisticated business environment is attractive. The country has traditionally had no international tax treaties, but it now has an exchange of information treaty with the US, its main trading partner and the source of most of its incoming investment, and has begun to negotiate DTAs with several countries. Banking secrecy is relatively good.

Costa Rica is a member of the Central American Free Trade Area (CAFTA) which came into operation in December, 2008.

 

 

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