THE COSTA BUSINESS

Costa Rica 2017 | EXECUTIVE GUIDE | REVIEW: DOING BUSINESS

A quick look at what it takes to get set up in business in Costa Rica, and what makes it such an attractive place to invest.

Costa Rica has enacted an important number of trade liberalizations over the past two generations that have made it one of the most interesting places to do business in Latin America. Not only did exports surge from the 30% of GDP in 1980 to over 50% in 2015 (including goods and services), real GDP has experienced a CAGR 5.3% since 1991, and the overall poverty rate has been reduced from 40 to 20%. Inflation has also been reined in, at barely 0.8% in 2015. Of course, a great deal of this growth and micro- and macro-economic stability has been driven by smart government policies, beginning with the free trade zones created under law No. 7210 (known as the "Free Trade Zone Law"). Law No. 7210 provides a series of fiscal incentives, including 100% exemption from virtually all taxes and government financing to train local employees, which are available to companies that comply with the specified investment and employment requirements.

As a member of the World Trade Organization, Costa Rica also has a number of preferential trade agreements with important regional and global economic players. As an extension of the Caribbean Basin Initiative (CBI) and the Preferred Generalized System GSP, the country has access to the United States through the Caribbean Basin Trade Partnership Act (CBTPA). It also has free trade agreements with Mexico, Canada, Chile, the Dominican Republic, the Caribbean community (CARICOM), the US, China, Singapore, and the EU, in addition to customs unions with Nicaragua, El Salvador, and Guatemala. FDI also accounts for a huge proportion of the country's manufacturing capacity. Between 1996 and 2005, for example, fully 68% of FDI inflows went to the manufacturing sector, compared to only 21% in Argentina and 28% in Brazil. By far the largest source of said FDI is the US, which accounts for 78% of FDI in Costa Rica and chiefly has interests in computer chip manufacturing, petroleum refining and distribution, agriculture, utilities, cement, and fertilizers.

The government has taken smart, bold measures over the past two decades to ensure the country remains an attractive place to not only invest, but also in which to live and make a living. It has continued to pass legislation to expand private-sector investment in energy, telecommunications, roads, ports, and airports. An early staple of this was the 1998 Public Concessions Law, which defined the ways in which foreigners could invest in Costa Rica's public sector. To bolster this effort, it set up the Costa Rican Investment Promotion Agency (CINDE), a private non-profit organization created to guide investors and companies in establishing operations in Costa Rica. Of these concessions, several stand out in particular for their successful efforts to boost the country's export market: the export contract, the free zone, and the temporary admission system, each of which include tax exemptions or expedited customs clearance services.

What's more, Costa Rican law and regulations do not discriminate between nationals and foreigners in the conduct of business with the exception of national security-related sectors of the economy such as utilities, telecommunications, energy generation, and insurance. There are no legal regulations related to labor, health, tax, or safety that inhibit the flow of investment.

Setting up an actual business in Costa Rica is very straightforward. As regulated by the Code of Commerce, Law N° 3284, enacted on April 30, 1964, there are four kinds of commercial societies (i.e. businesses) that one can create: a General Partnership; an Ordinary Limited Partnership; a Limited Liability Company; or a Corporation. To create any of the above, one needs simply to draft an incorporation deed with a public notary that contains the new company's by-laws and the appointment of its administrators; issue shares in accordance with the shareholders' contributions; pay the registration fees (based on the company's capital); and submit the incorporation deed to the Public Registry. Once this final step is done, the company is assigned a corporate identification number and it is good to go.