The Free Zone Regime is a system of tax exemptions designed to encourage the production of products and services with a high value-added component. So far, the main industries to take advantage of the incentives are near shore” service call centers and medical device manufacturing.
The law is also aimed at research and development.
The main incentive is an exemption from corporate income tax for eight years. The usual rate for a larger business is 30 percent. For an additional four years the rate is reduced by half, and this can be extended further with what the government calls significant reinvestment.
Businesses operating under the free zone rules have absolute freedom from import taxes on materials used for manufacturing, and also can’t be subject to any export duties, though those are not a factor in Costa Rica in any case. There are no restrictions on capital movements.
Smaller companies must export 75 percent of their production and have a minimum investment of $150,000. Manufacturing companies with no export requirement pay a preferential 6 percent corporate tax rate.
For full freedom, an investment of $10 million and a staff
of 100 or more is required. Land is not included in the calculation. The investment must be completed in eight years. The large companies also can take tax credits for training and infrastructure improvements after the tax exemption ends.
Most companies have set up in established free zone business parks with existing infrastructure, but with a minimum investment of $2 million the facility can be located elsewhere.
The business parks themselves are largely located in the southernmost part of Heredia province in Barreal and Lagunilla de Heredia. This is about 15 minutes from the Juan Santamaría international airport.
There are other incentives for companies in non-strategic industries and for operations outside the central metropolitan area.
The call center industry benefits from being much closer to the United States than are the principal competitors, in this case India and the Philippines. Costa Rica also has the advantage of its location in the U.S. central time zone.
The government has recently started to emphasize English teaching, and the first crop of high school graduates with English skills are the main labor pool for the service operators. Many workers are university students studying information technology.