The Free Zone Regime of Costa Rica offers attractive fiscal benefits

The Free Zone Regime of Costa Rica is an engine of job generation

Regarding employment, the Free Zone Regime of Costa Rica is one of the country’s most important sources of job creation. Added to this is that the salaries paid within the zones are increasingly more competitive, given that the average wage is considered to be 1.2 times higher than that earned by a private sector worker. Likewise, the sustained growth of these companies has meant that, increasingly, the levels of sophistication of the processes for developing their products and services have also permeated both the foreign and domestic suppliers of this sector of the economy.

Beneficiary companies of the Free Zone Regime of Costa Rica enjoy very attractive tax incentives, some of which are unlimited. However, some are limited in time.

The activities authorized in the Executive Agreement of each beneficiary company of the law provide that they may enjoy exemptions without a time limit, such as 100% exemption on value-added tax and import tariffs on equipment, machinery, furniture, and raw materials, among others, and 100% exemption on remittances abroad. The exemptions limited to 10 years are the municipal license tax, real estate tax, and the tax on the real estate transfer. Finally, the most relevant exemption, income tax, will depend on the location and classification of the company.

Fiscal benefits are granted inside and outside of the GAM

As an example, service companies, marketing companies, park management institutions, and processing companies of section F Megaproject (more than 100 employees and investment of $10 million) located within the Greater Metropolitan Area (GAM) enjoy an exemption from the income tax of 100% the first eight years once the Free Zone Regime of Costa Rica is granted, 15% the following four years and 30% beginning the 12th year after the regime is granted. It should be noted, however, that companies’ benefits may be continued or “reclocked” by making further investments in their operations located within a free zone.

The same type of companies established outside the GAM enjoy an income tax exemption of 100% for the first 12 years and 6% for the next six years to complete a 30% tax starting in year 18. Companies processing Section F installed in the GAM that produce, assemble, or process goods will be subject to a rate of 6% from the start of productive operations for the first eight years and 15% for the next four years. The reclocking of fiscal benefits outside of the GAM can be achieved, just as is the case inside the GAM, by reinvesting in operations.

The legislature intended to attract investment to create sources of work and develop productive supply chains. In exchange, a regime of tax incentives was created to benefit companies with operations established under the Free Zone Regime in Costa Rica.

A global minimum income tax for multinationals is to be levied

Now, the Organization for Economic Cooperation and Development (OECD) and G20 countries have taken the lead in creating a new tax model that would be applicable globally. For this purpose, it created Pillar 2, which establishes a minimum global tax of 15% effective rate on the worldwide income of multinational companies with more than 750 million euros in consolidated sales.

Said tax may be collected in the country where the income is generated, the country of its parent company, or any subsidiary of the company in the same group. Countries must create appropriate legislation for these purposes to collect it, additional or complementary. Costa Rica does not escape this because tax matters are exclusive of law, so the country’s legislators must agree to determine if Costa Rica will join the countries that already have this legislation. Such is the case of Japan, Qatar, and other countries that are in the process of implementing or creating regulations for 2024 (Germany, Italy, France, Ireland, Australia, and New Zealand, among others). Of course, the State must always ensure that it strengthens and promotes the Free Zone Regime of Costa Rica’s development model, the benefits of which are widely known and a proven success for the country.

In summary, the Free Zone Regime of Costa Rica strategically tailors fiscal benefits to both the Greater Metropolitan Area and regions beyond. This dual approach supports the growth of businesses within the capital and catalyzes regional development, fostering a balanced economic landscape across the country. The combination of tax exemptions, reduced tariffs, and infrastructure support positions Costa Rica as an attractive destination for businesses seeking fiscal advantages within a dynamic and geographically diverse environment.