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Costa Rica: Law of Offshore

Export Incentive Regimes

There is a rather confusing tangle of legal regimes which offer tax benefits to businesses involved in exporting; this section lays out some of the rules governing export incentive regimes, but professional advice is necessary in assessing which regime might be appropriate in any given case.

Export contracts and the Temporary Admission regime ceased to be offered by the Costa Rican authorities from 1996. The sections below therefore detail the incentives that were offered by these regimes at that time.

Export contracts were created in order to bring together the advantages granted by different laws to export companies. The applicable legislation is Laws 7092 and 6955, and the decree 15828-11. The administration and the exporter signed a contract for a pre-determined period, usually 10 years. The export contract granted some or all of the following incentives:

  • Special port tariffs;
  • Simplified procedures;
  • Exemption from import duties;
  • Accelerated depreciation;
  • Tax Credit Certificates, issued by the government to the exporter of non-traditional goods according to the amount of foreign currency generated by such exports.

Applications for export contracts were to be sent initially to the Promotora de Comercio Exterior (Foreign Trade Promoter). A National Investment Council was created to approve export contracts and coordinate with other government entities the benefits granted under each contract. An application needed to contain at least the following information:

  • Business plan;
  • Description of the machinery, equipment, and spare parts to be employed;
  • Description of the proposed activities;
  • Financial and credit references;
  • Organization chart;
  • Export program;
  • Number of employees, nationality, positions, and average annual salary;
  • Production targets for a normal year of operation;
  • Overhead costs breakdown including salaries, property leasing, royalties, interest and commissions on loans, depreciation of assets; Production costs breakdown including raw materials, packaging, spare parts, fuel, electricity, etc.

The approval process took between 3 and 4 months.

The Temporary Admission Regime allowed storage and processing in bonded areas according to regulations issued by the General Customs Administration, as recommended by the National Investment Council. The applicable legislation was Laws 7092 and 6955 and decree 14418-H. There was complete exemption from taxes on the materials covered by Temporary Admission, as well as on some or all local inputs to the processing that took place. The coverage of Temporary Admission was described as follows:

  • Goods to be exported after undergoing a process of reparation, reconstruction, mounting, assembly, or incorporation into complex technological systems, or to be used in transportation and other equipment;
  • Samples, patterns, and other similar articles to be used for demonstration and sales purposes;
  • Equipment and spare parts needed in processing;
  • Temporarily imported raw materials for processing and onward exportation;
  • Machinery and equipment used in processing, although not imported, may be included in the benefits when used by a company that exports 100% of its production to third markets, at the discretion of the National Investment Council.

Temporary Admission concessions were normally granted for a period of five years. There were time limits for temporary admission:

  • 3 months for samples and similar articles for demonstration, teaching and exhibition purposes;
  • 6 months for raw material, intermediate products, tags, or other types of materials used for production;
  • 5 years for machinery, equipment, spare parts, or other equipment used for establishing a company.

The beneficiary was responsible for damage or losses of imported goods and had to pay customs duties on them.

Applications were to be made to the General Customs Administration and to contain full details of the goods to be covered, the eventual products and their destination, employment details, and the amount of capital investment, along with financial references.

Export Processing Zones (Free Zones) are areas where imported goods can be stored for production, assembly, processing and manufacturing, for later exportation to markets outside Central America. The following types of activity are permitted:

  • Export processing industries that produce, process, and assemble for export or re-export to third markets outside Central America;
  • Export commercial businesses that handle, pack, or distribute non-traditional goods or exports and re-exports;
  • Related businesses and industries which provide the necessary services to export processing companies, in order to operate, administrate, and maintain these zones;
  • Industries and companies that build, repair, and provide maintenance to ships for export and re-export;
  • Entities or companies that are dedicated to scientific investigation for the improvement of the technological level of industrial or agro-industrial activity and the country's foreign commerce;
  • Management companies which have concessions for the management of Free Zones.

The exchange of imported and manufactured products, raw material, machinery, and equipment among the companies under the Free Zone System is allowed.

See Offshore Legal and Tax Regimes for details of the tax benefits available to Free Zone companies, many of which are being phased out as a result of Costa Rica's WTO commitments.

Free Zone companies located in certain specified development areas by the Ministry of National Planning and Economic Policy, have traditionally received a grant of 15% of the total amount of the previous year's salary bill. This bonus will be for a five-year term and will be decreased by two points per year, finishing in the fifth year.

Free Zone companies receive assistance with the training of employees coordinated by the National Aprenticeship Institute ("Instituto Nacional de Aprendizaje"), which can also assist in the recruitment of personnel. Advice and assistance is also available in regard to the housing and educational needs of the employees and their families, with the coordination of the respective public institutions.

Free Zone companies, except trading companies, can sell 40% of their production locally, with the previous approval of the Corporation and the Ministry of Economy, Industry, and Commerce. Such production will be subject to the same taxes as any other merchandise that enters into the country, but not local sales taxes.

Agreements to operate in a Free Zone, and operating contracts, are signed with the Free Zone Corporation, which applies various reporting requirements.

Applications need to contain the following information:

  • General description of the applicant;
  • Detailed description of production;
  • Services and facilities required;
  • Environmental impact assessment;
  • Corporate documents and some notarised certificates relating to capitalisation, juridical status etc;
  • Cash flow and production projections;
  • Banking references (and a deposit of US$5,000).

The approval process normally takes 2 months.



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