Contact the Central American Group if you want to establish a manufacturing facility under the Free Zone Regime in Costa Rica.
Arias Law Firm provides valuable services for coordinating a free zone project in Costa Rica
The Central American Group: Hello, and welcome to another episode of the podcasts that the Central American Group produces. We make recordings with professionals from Central America in various disciplines in which we talk about the region’s economy. Today, we will discuss coordinating a free zone project in Costa Rica. Today we have a very knowledgeable individual from the Arias Law Firm in that country. Her name is Laura Perez. Laura, how are you today? Could you introduce yourself and tell us a little bit about the organization that you represent?
Laura Perez: Sure. Thank you very much, Steve, for having me. It’s great to be here. So, yes, I have been working at Arias for a long time. I coordinate activity in two law firm areas: government affairs and special tax regimes. The most famous and popular one of them is Free Trade Zone program. It’s a law firm that has been operating in Central America for more than 80 years. We have a lot of experience supporting companies in the foreign direct investment world, setting up operations here.
I began my professional career at Cinde, the Costa Rican investment promotion agency, and then at Amcham, the American Chamber of Commerce. I now have more than 15 years of experience supporting companies establishing manufacturing facilities under the Costa Rican free zone regime. So, it’s a pleasure to be talking to you today.
The Central American Group: Thank you very much for joining us. I know you will impart a lot of helpful information to our listeners. So let’s start with a few questions. First of all, if a company wants to begin coordinating a free zone project in Costa Rica, how long does it take from when they get the idea till they’re up and running?
Laura Perez: Sure, Steve. This is a ubiquitous question that we get. So, a reasonable estimate would be between four to six months. I will explain shortly what is included between those four to six months. And specifically, manufacturing operations, which is the focus today, could take more than a year and a half. And that’s because of the construction part of it.
Let’s go back to the four to six months of establishing your legal entity, Free Zone Application, and main permits. During those first six months, we worked with the company to understand what they wanted to do in Costa Rica and how the project looked. For instance, is it a service or a manufacturing operation, and what will it do? You need to determine that and establish a clear view of what you want to do. Then we incorporate the legal entity, which is a reasonably straightforward process. It’s straightforward. Then the next step in coordinating a free zone project in Costa Rica is engaging in the Free Zone approval process, which entails getting the main permits. It consists of the municipal license, commercial license, and keys that have to do with Social Security, which is very important here in Costa Rica.
The Central American Group: But again, for manufacturing operations, that could go up to a year and a half because of construction. Something significant to know for the free trade zone. It’s the set of incentives the Costa Rican government offers for certain operations. And it’s a regime that is attached to a specific space. To apply to the free trade zone, the company has to know where its operations will be and where it will operate. That’s something that is very, very important.
Additionally, I would say that that takes four to six months to establish, let’s say, the legal entity and obtain Free Trade Zone main permits. And again, we need to take into consideration construction for manufacturing operations. So when coordinating a free zone project in Costa Rica, these things must be kept in mind.
The Central American Group: That would lead me to believe, given what you said, that one of the services that the Arias law firm offers to people looking to do this is that it leads them through the actual Free Zone application process. Would that be correct?
Laura Perez: Exactly. That is correct. In the first month, we sit down with the client and discuss the project and how to design it. We determine what it is going to look like. Then we incorporate the legal entity. We understand if we need environmental permits, and we register the company before the tax authority after that. Once the company has already chosen the space where they’re going to be, we go into the approval process of the Free Trade Zone application, which has different stages. The first stage is a stage that is done before Procomer, which is the Free Trade Zone authority. And basically, they grant the status. What a company gets is an executive agreement that gives it benefits. And then the second stage is an approval process that a company goes through with Customs. This is where they grant the applicant its free trade zone, H code, or Customs Auxiliary. That allows the company to manage its inputs and use the free trade zone benefits. A company needs both of those approvals to operate. Getting them is integral to coordinating a free zone project in Costa Rica.
And once these things are obtained, the company is ready from a regulatory perspective to have its Free Zone Regime benefits. Then, after that, we get the regular permits, and that’s where those, let’s say, four to six months come into play. And in parallel, if you’re a manufacturing company, we help you. We support you with everything that has to do with supporting you during construction alongside key advisors like the staff of the industrial park that you choose and the environmental consultant.
The Central American Group: I think that it’s essential to mention that the Free Trade Zone regime in Costa Rica is made for manufacturers. But Costa Rica has targeted specific types of manufacturers eligible for the program. So it’s not just any manufacturing firm. Would that be correct?
Laura Perez: That is partially correct, Steve because the country is divided into two regions when you enter the Free Zone Regime. If you want to be in the Greater Metro Area (GMA), you want to operate inside the greater San Jose area, which most companies use. You need to be part of specific sectors that the country has defined. And I’m going to tell you the two most popular are medical devices, which we have a massive cluster of. The other one is advanced manufacturing. So, anything that fits into both categories can operate inside the Greater Metro Area. If you want to do something else under the Free Zone Regime, you can do it, but you need to go outside the Greater Metro Area. And like I always tell everyone when I talk about this, most companies operate inside the Greater Metro Area. That’s where we have the vast majority of companies because of the access to the talent pool, the services, and the proximity to the airport. So, most companies, services, and manufacturing operate inside the greater metro area.
I agree with you that if you want to do that, you need to belong to strategic sectors that the government has defined. Choosing whether to be inside or outside the Greater Metro Area is integral to coordinating a free zone project in Costa Rica.
The Central American Group: So, on the one hand, you’re helping companies, taking them through the application process. But also, regarding construction, you mentioned that understanding the timeline is very important and key to the project. What do you mean specifically by that?
Laura Perez: Yeah, sure, Steve. What happens is that if you’re going to be, for example, the operation of a service, it’s pretty straightforward. You go into a space that is already fitted out and is already a Free Zone space. You only worry basically about your free trade zone application. But if you’re manufacturing, it’s different because what happens is that you need to go through the entire process of construction. The project is divided into design, permitting, construction, and fit-out. And depending on where you’re going to go, this can take more or less time. So, for example, The Green Park operates inside the Greater Metro Area. The park, therefore, has already gone through some stages of this process with some of its existing buildings. So, in this case, for example, design and permitting is something that they have already done. So, when coordinating a free zone project in Costa Rica, companies can save time depending on the park they choose if they choose a park that has already invested. But basically, what happens is that the design process, in general, can take up to two months. Permitting can take around four months, construction takes approximately six months, and fit-out takes four months. So, if you add all those months, it’s like a year and a half.
But again, if you choose a key ally when coordinating a free zone project in Costa Rica, you can save around six months. So, as you can see, the free trade zone process runs parallel to all these construction matters. So that’s why it becomes key to understand and correctly time construction because the process will be driven by it and not by the Free Zone application approval per se. So that’s something that’s going to happen in parallel.
The Central American Group: When you get into a situation where a company uses a clean room, does that change the process or the time frame? Where does this fit when you coordinate a free zone project in Costa Rica?
Laura Perez: Yes, it’s prevalent for medical device companies to have clean rooms. And in Costa Rica, we have a lot of companies that use clean rooms, and we have a lot of unique companies with the knowledge required to build clean rooms. And usually, we tell our clients that if they’re going to have a clean room, you need to add one more month to fit out. So instead of four months, you need to add one, which will be five months. And it’s something to take into consideration. So, yes, it makes a difference.
The Central American Group: Now, for companies that are in a hurry, what, in your estimation or what from your experience, can speed up the process?
Laura Perez: Okay, so many things can speed up the process. Number one is to choose excellent advisors who handle Free Zone applications. That’s key to do that and to be sure you’re dealing with people who know what they’re doing. So that’s the number one thing. The second thing is that if you choose a park, for example, The Green Park, again. I’m using them as an example. If it’s a park that has already invested in its own infrastructure, you can save a lot of time, a minimum of six months, in the case I explained. And so that’s also something significant. And the other thing that saves time is knowing what you want. How do you want your operation in Costa Rica to look?
You go through a process in which you understand what you can do, et cetera. But once you decide, at some point, you need to determine how the operation will look. So, it would be best if you were very clear about employment and investment, what it is that you’re going to do, how many people you will employ, and how much money you’re going to commit, and, again, know what exactly you are going to do. These considerations are crucial when coordinating a free zone project in Costa Rica.
If you have that clear and straightforward vision, that will make the process much easier.
The Central American Group: Do you see potential roadblocks, and how can you avoid them?
Laura Perez: Okay, so the first roadblock that we see, and it’s not a roadblock, it’s like a stopper, is choosing the space. Companies sometimes struggle to choose a space, taking a lot of time with this consideration. This can stall the process. And the problem with that is that you cannot present your Free Zone application if you haven’t chosen the space in which you’re going to operate. So, I would tell people, if you’re going to take your time, go ahead, take your time, but you cannot rush the process later on. That is key to continuing everything else. So, choosing the space is definitely one thing. The second thing is understanding that you need to have an excellent advisor and that you need to have a good person assigned from the company to the project. Because the review process is before the Free Zone Authority, especially the technical approval by Procomer, it’s a back-and-forth of questions regarding what the company will do, what the activity will be, and how you will manufacture using a process. And if you have someone from the corporate side who can quickly answer the questions and is a decision-maker, the process can run much faster.
I would say those are the things that can help.
The Central American Group: Okay, well, I think that in a relatively short amount of time, we’ve covered some pretty important points. Our experience with our podcasts is that after listening to them, people often have questions that arise from what they’ve heard. So if somebody has a question and wants to ask you, how can they get in touch?
Laura Perez: Absolutely, Steve. We will be delighted to answer any questions. They can reach out to my email, which is email@example.com. Please feel free to email me, and I will be more than glad to answer any questions anyone listening can have.
The Central American Group: In addition to that, if it’s okay with you in the podcast transcript, we will include a link to your LinkedIn page if you have one. Would that be okay?
Laura Perez: That’s okay. I have one, and please go ahead and do that, Steve.
The Central American Group: Thank you very much for joining us today. This discussion has been very informative. We hope and wish you success throughout the next year and the ones after that.
Laura Perez: Thank you very much, Steve. We wish you precisely the same thing, and we hope to have a lot of companies operating under the Free Zone Regime here in Costa Rica.
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