PostHeaderIcon Tax Haven Costa Rica

With a variety of corporate structures to choose from, tax incentives and friendly business laws, as a tax haven Costa Rica offers endless opportunities to the international investor.

The main focus of the Costa Rican government has been to promote the country as a near shore haven (nearshoring) rather than an offshore jurisdiction. With this concept, the aim has been to create an environment which is conducive to business and capable of generating benefits for local and foreign investors with interest in Costa Rica. Costa Rica is strategically located in Latin America and provides easy access to and from the US with regular scheduled direct flights from Europe, South and Central America. For US companies, tax haven Costa Rica represents an ideal location for outsourcing and nearshoring while being a suitable offshore jurisdiction for European offshore companies which operate in the dollar zone.

Though much thought and strategic planning were harnessed to create the image of a hub for international business rather than that of an offshore tax haven, Costa Rica can very much be considered a tax haven because of a highly competitive corporate legislative framework through which numerous fiscal incentives are made available to investors. For instance, Costa Rica does not have an offshore regime but enables corporations to operate as offshore companies and at the same time does not distinguish onshore from offshore companies. In other words, all Costa Rica companies, despite the legal structure they may take as proprietorships, corporations, LLCs or anonymous societies, are capable of conducting business locally or offshore. For various reasons, the S.A. or Sociedad Anónima is the most popularly used corporate structures due to its setup as a limited liability company, flexible structure and minimal disclosure requirements.

To further support this neutral onshore/offshore environment, Costa Rica’s tax regime is structured on a territorial basis whereby taxes are only levied on activities which are carried on within Costa Rica. Consequently, on a Costa Rica company whose goods and services are supplied only to markets outside Costa Rica no taxes are imposed as the source of income is not Costa Rica. All Costa Rica companies are therefore required to file tax forms to determine the source of income and calculate taxes owed, deductions to be made and exemptions due.

As early as 1980, tax haven Costa Rica implemented regimes for special fiscal treatment under which companies which intended to supply their products principally to foreign markets and satisfied the fixed-asset investment regulations could operate. In 1982, the first free trade zone was established and afterward further extended through a system whereby an offshore company which operated in a free trade zone could operate in a trade zone industrial park in order to manufacture goods. Free trade industrial parks are usually privately owned and located in the Metropolitan Area or are found not too far away from the international airport.

The Costa Rica Free Trade Zone regime is a viable option which allows both local and foreign companies to establish manufacturing plants and production sites on Costa Rican soil provided that all goods and services are produced strictly for export. Under this regime, tax exemptions are available to tax haven Costa Rica offshore companies for at least eight years. Other incentives granted to Costa Rica offshore companies which operate in free trade zones include full tax exemption from exchange control regulations, full tax exemption on capital gains, export and import duties on raw materials and capital assets, income tax and repatriated profits. Moreover, facilities are in place for quick customs clearance, while it is possible to sell or trade with other exporters based in Costa Rica as well as to sell up to 25% of goods and 50% of services to the domestic market. As a tax haven Costa Rica sets no limit on the amount of capital which can be transferred for an investment in any foreign currency, registration requirements for investments are flexible and international standards for protecting intellectual property rights are adhered to.

Currently trade accounts for about 50% of tax haven Costa Rica’s gross domestic product, thanks to the government’s forward looking policies on free trade as a stimulant for economic growth. Since 1991, real gross domestic product has experienced a compound annual growth rate of 5.3% and through structural changes a greater level of economic diversification was achieved. Poverty in tax haven Costa Rica is now measured to below 18% compared to 45% in the last quarter of a decade.

Politically, tax haven Costa Rica was rated number one for political stability and absence of violence by a survey conducted by the World Bank in 2008 for Global Governance Indicators.