Costa Rica Urged To Remain Competitive In Tax And Labor Markets

by Mike Godfrey, Tax-News.com, Washington

04 October 2004

Costa Rica needs to boost the number of English speakers in its workforce and ensure that tax rates remain competitive if the country is to increase levels of foreign direct investment, experts have concluded following the release of a UN report.

According to the United Nations 2004 World Investment Report 2004, Costa Rica received $577 million in foreign investment last year, down from $662 million in 2002.

However, despite four consecutive years of declining foreign investment flows to Latin America and the Caribbean, FDI to Costa Rica has remained more or less stable, with the country consistently ranking in the top five Latin American countries in the FDI league.

Moreover, this year the Central Bank is expecting foreign investment to increase to $585 million.

Nevertheless, according to Tomas Gilmore, director of the Costa Rican Investment Board, the country needs an “aggressive plan” with “concrete steps” to improve its investment climate.

With an emphasis in this year’s UN report on a shift to services in the global economy, Gilmore noted in a Tico Times report that it is essential that Costa Rica remains attractive to multinational firms by improving the quality of its workforce, particularly with improvements in the teaching of English, the international business language.

Gilmore also believes that the continuing delay in implementing the country’s long waited tax reform package is creating a climate of uncertainty in the investment arena that is holding back potential contributors to the Costs Rican economy.

Under the plan, corporate income tax would gradually be reduced from 30% to 25%, and special tax breaks would also apply to small and medium-sized businesses in the hi-tech sector or located in under-developed areas. However, some argue that this rate will still be too high to attract foreign investors.

Whilst the plan has finally reached the floor of the Legislative Assembly, it could still take a number of weeks or months to pass.

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