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INSIDECOSTARICA.COM | COSTA RICA  NEWS |           Wednesday 12 October 2011

Costa Rica's Plan To Tax Free Trade Zones Worries Foreign Companies Like Intel
Over 60,000 Costa Ricans are employed by free-trade zone companies

Costa's Rica's plans to tax foreign-owned companies operating in free-trade zones may threaten overseas investment in the Central American nation, said Intel Costa Rica's general manager. 

The proposed taxation of free-trade zone businesses is part of a Plan Fiscal (Tax Plan) presented by government of Laura Chinchilla to the Legislative Assembly last month, following a pact with the opposition party, the Partido Accion Cuidadana (PAC).

Most foreign companies that operate in the free-trade zones now pay no income taxes. Under the plan, companies may face a tax rate of as much as 15% on investments made after 2015 while current investments would remain exempt.

Intel, one the largest foreign company in Costa Rica, has been investing in Costa Rica since 1997 when it built a us$300 million semiconductor assembly and test plant as the country's free-trade zone regime helped attract other multinational companies.

The world's biggest chipmaker decided against a large investment in Costa Rica in 2010 due to “uncertain fiscal policies,” Michael Forrest, Intel Costa Rica's general manager, said yesterday. Intel is the largest revenue-earning company in the Costa Rican economy.

“Intel makes future investments on a long-term horizon, and one of the things we consider very seriously is fiscal policy stability and consistency,” said Forrest, who participated in panel discussion of foreign business owners and managers in San José. “If there are fluctuations and instability of fiscal policies in certain countries, those countries are removed from investment consideration.”

The Plan Fiscal is a priority of presidenta Laura Chinchilla's government as its seeks to trim a budget deficit that's estimated at about 5% of gross domestic product.

According to the Coalición Costarricense de Iniciativas de Desarrollo - Costa Rican Investment Promotion Agency, known as CINDE - the 256 free-trade zone companies earned us$2.865 billion in 2010, or about 8% of GDP. Over 60,000 Costa Ricans are employed by free-trade zone companies.

CINDE is the Costa Rican Investment Promotion Agency, a government approved agency whose mission is "to contribute to the country’s development through the attraction of Foreign Direct Investment."

Forrest also noted the rising costs of electricity and utilities in Costa Rica.

“When you look at the utility rates of what we pay here in Costa Rica versus what our sister companies pay in Malaysia, Vietnam or China, it is significantly higher here in Costa Rica than in the rest of the world,” Forrest said.

The other problem is that Costa Rica's currency which has been weakening lately.

Advantages of Duty Free Trade Zones to Companies Interested in Costa Rica
Costa Rica recognizes the needs of multinational companies establishing operations, and many years ago instituted regulations for operation under the Duty Free Trade Zone Regimen.

Investment incentives are available for activities directly related to the export of services and/or products from Costa Rica the Duty Free Trade Zones offer companies the widest range of benefits currently available in the country, including:

- 100% exemption on import duties on raw materials, components and capital goods.
- 100% exemption on corporate income tax.
- 100% exemption on export taxes, local sales and excise taxes, and also taxes on profit repatriation.
- 100% exemption on capital taxes.
- No restrictions on capital/profit repatriation or foreign currency management.
- Expedited on-site Customs clearance.
- Possibility to sell to exporters within Costa Rica.

Many international companies set up in industrial parks set up as free trade zones, like Coyol, Ultrapark, Propark,  while in some cases like Intel, Panasonic, Sylvania, to name a few, the location of their plant and operations is defined as a free trade zone.



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