Costa Rica Offers Export Tax Incentives

by Amanda Banks, Tax-News.com, London

24 July 2001

The Costa Rican government intends to implement export tax incentives that would lower taxes for local businesses that do not benefit from the Free Trade Zone or Export Promotion law in order to comply with World Trade Organization (WTO) rules. Due to take effect in 2003, the incentives are expected to pass through Costa Rica's Congress by the end of this year.

Foreign Trade Minister Tomás Dueñas told the local media last week that the incentives are in line with WTO rules. The current Free Zone incentives only offer tax benefits to qualifying export companies which is considered discriminatory by the WTO. Costa Rica could face trade sanctions if the government did not fulfill the WTO criteria.

In a trade policy review of Costa Rica, conducted by the WTO in June 2001, the organisation concluded that since its previous Review in 1995, Costa Rica had promoted the expansion of export-oriented manufactures through special fiscal regimes, notably of electronics under the free zone regime.

However, despite efforts to generate linkages between export-oriented activities and the rest of the domestic industry, spillovers have so far been limited. Moreover, fostering those activities has disadvantaged other industries not enjoying the same privileges. Apart from the special fiscal regimes, measures to promote industrial production have focused on small and medium size enterprises.

According to reports from the Tiko Times, under the government's proposals, taxes on dividends will be abolished. And although manufacturing firms operating within the free trade zone will continue to be exempt from paying tax on imported raw materials, a new system of "returns" on sales tax for capital-goods purchases would be formed.

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