Country report Cost Rica

Economic overview

Although it is a relatively small country, which has just over 5 million inhabitants, Costa Rica has no equal in terms of political stability and wealth of human resources.

Today, Costa Rica is distinguished by a population with relatively high levels of public education and a per capita GDP that grew more than $ 3,000 between 2010 and 2020.

The economy of Costa Rica seems to have completed the process of transformation and diversification of its economy, first mainly agricultural, boasting important industrial activities, primarily in the medical-pharmaceutical sector. The success of the country in recent decades has been supported by the favorable context in terms of human development, making the country unique in its subcontinent, sharing very little with neighboring countries. Furthermore, the economic prospects for the next few years are positive, with an estimated average GDP growth of 3.3% in the 2021-2023 horizon, according to the provisions of the International Monetary Fund.

Main sectors of industry

The country is a leader in sectors such as environmental protection (the only tropical country that has decided to reverse deforestation), electrification (access to the electricity grid for 99.5% of families while America Central varies 70-83% according to the CEPAL), access to water (97%, while Central America varies from 85% to 94%), health (10.1% expenditure compared to GDP, the highest in Latin America, except Paraguay) and education (6% GDP, while Central America is 2.9% to 4.6%), among others.

Costa Rica has always been the country with fewer inequalities but in recent years a real turnaround has begun to be felt: growth has not been the same for everyone and employment has weakened in sectors with low-skilled labor .

The most important sectors for the economy are tourism, agriculture and information technology. In particular, the IT sector has attracted important foreign investments, also thanks to the free trade zones, transforming Costa Rica into a technological hub of the area. The economic recovery of the USA, a key trading partner for Costa Rica, could positively affect the country’s economic conditions.

Manufacturing production is an important engine of growth, particularly in the high technology sector, together with tourism which always contributes massively to the economic development of Costa Rica.

Unlike many Central American countries, where the agricultural sector occupies a predominant position in production, Costa Rica has a developed industrial sector, which contributes significantly to the formation of GDP. The agricultural sector plays an important role in every way, especially for its contribution to exports (bananas and coffee).

The services, which in the aggregation of the various components (trade, catering, hotels, transport, communications, finance, insurance and business services), have gradually acquired greater weight in the economic structure of the country, especially as regards the development of the free zone , and the “maquila” areas intended for production for foreign markets.

Taxation for businesses in Costa Rica

In Costa Rica there is a taxation system based on the principle of territoriality. This means that individuals and companies, whether resident or not, are taxed only on Costa Rican income and profits.

According to the principle of territorial taxation, residents and non-residents are taxed on Costa Rican income. Residents are subject to profit tax, while non-residents are subject to withholding tax. Income from internal sources are, for example, income deriving from the use of capital, goods or rights, portrayed or used in the country, income originating from civil, commercial, banking, financial, industrial, agricultural, forestry, fishing or mining activities . However, it is envisaged that any other income not expressly contemplated by the law as being Costa Rican sources, of any nature, provided that it derives from activities carried out in the territory of the State, is subject to taxation in Costa Rica. 

Without prejudice to the application of the rules that expressly provide for income from internal sources, the law considers as having the same source, for example, the remuneration that the State pays to its representatives abroad, the remuneration paid to the crew of ships or aircraft as long as they are registered in the State, regardless of nationality, from the domicile or the place where the traffic is carried out, or the income obtained by persons not domiciled in Costa Rica for the production, distribution and intermediation in the country of cinematographic films and for radio and television

A company is considered resident if it is incorporated into another or has a fixed place of business in Costa Rica. A territorial tax system is also in force in the corporate sphere. Resident companies and are not taxed on Costa Rican source income. Resident companies are subject to profit tax and non-residents are subject to withholding tax. Branches and permanent establishments of foreign companies are taxed in the same way as if they were controlled.

Some special rules apply to companies. In particular, the carry-over of losses is allowed with the following limitations: for three consecutive years for stable industrial companies; for five consecutive years for newly established companies; for five consecutive years for agricultural enterprises. The determination of losses is subject to the judgment of the Administration which will always validate that they are duly accounted for as deferred losses. The methods of depreciation of fixed assets are that of the straight line and that of the sum of the years. The method used, chosen by the taxpayer, must in any case take as a basis the useful life of the asset estimated in years. Companies are also subject to an additional 10% tax on the forward carryover of investment losses or deductions used to reduce taxable income.

Investing in Costa Rica

An excellent investment is undoubtedly the purchase of properties (apartments in recidence with swimming pool starting from $ 55,000) to be rented to the many tourists with decidedly interesting annual returns (on average from 3% to 4% per year already deducted. management costs).

Great potentials are present, again thanks to tourism, in the catering sector: here the investment potentials are enormous.

Interest that mainly involves products such as oil, wine and cheeses in particular in the area of ​​the capital San Josè.

But when it comes to working and investing in Costa Rica, we cannot avoid mentioning two really interesting sectors: that of the manufacturing industry and that of construction.

There are so many foreign companies that have decided to focus on this country, in particular those of the so-called advanced manufacturing, particularly that of high technology.

According to official data from our Ministry of Foreign Affairs, there are currently over 200 foreign companies active in the country.

Also thanks to a series of tax incentives, free zones and industrial parks.

The potential offered by the construction sector is also excellent, as we said.

To be taken into consideration both for public international tenders and for the private sector.

Costa Rica is involved in many large infrastructure improvement projects, not only related to transport and roads, but also in the renewable energy sector and waste disposal.