Costa Rica

Bureau of Economic and Business Affairs
Report
July 5, 2016

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Executive SummaryShare    

Costa Rica, located in Central America, has had a generally favorable investment climate for many years. Foreign direct investment (FDI) is high and has been a significant contributor to Costa Rica’s economic growth. Nevertheless, challenges to the country's competitiveness, including rising operating costs, a complicated legal environment, excessive bureaucratic red tape, and infrastructure deficiencies, are fueling caution on the part of investors.

Costa Rica’s continued popularity as an investment destination is well illustrated by historic FDI which climbed steadily from the year 2000 (USD 409 million) to 2008 (over USD 2 billion), reaching a high of over USD 3 billion (6.2 percent of GDP) in 2013 before dropping slightly to USD 2.75 billion in 2014 and 2.85 billion in 2015.

In recent decades the Costa Rican government through its investment promotion agency CINDE has focused on attracting relatively high-tech manufacturers and service companies that demand skilled labor, introduce new technologies and often run robust corporate social responsibility (CSR) programs. CINDE has focused on attracting and retaining investment in specific areas, currently services, advanced manufacturing, life sciences, light manufacturing and the food industry. In addition, the Tourism Institute (ICT) attends to potential investors in the tourism sector.

Despite decades of FDI and trade liberalization, the Costa Rican economy is not as advanced as this investment and export-led development might suggest.

  • A high and persistent government fiscal deficit threatens to squeeze domestic credit, force intemperate government budget cuts, and impact investor confidence.
  • The legal system, while solid and generally uncorrupt, can be very slow and frustrating for investors.
  • Invasion and occupation of private property by squatters, who are often organized and sometimes violent, does occur in Costa Rica. The Costa Rican police and judicial system have at times failed to deter or to peacefully resolve such invasions.
  • Much of Costa Rica’s basic infrastructure – ports, roads, water systems - needs major upgrading and generally lacks a clear path for financing needed improvements.

Public infrastructure concessions in Costa Rica have been contentious in recent years while the government’s fiscal constraints limit public financing as a realistic option. In a significant step forward for port infrastructure, Dutch-based APM Terminals broke ground in early 2015 on its long-delayed USD 1 billion mega port concession on the Caribbean coast. Meanwhile, in the Central Valley a new form of public-private-partnership based on a trust (“fidiecomiso”) structure administered by a bank is currently being tested for the expansion and operation of one major highway.

Table 1

Measure

Year

Index or Rank

Website Address

TI Corruption Perceptions index

2015

43 of 168

transparency.org/cpi2015/results

World Bank’s Doing Business Report “Ease of Doing Business”

2015

58 of 189

doingbusiness.org/rankings

Global Innovation Index

2015

51 of 141

globalinnovationindex.org/content/page/data-analysis

U.S. FDI in partner country ($M USD, stock positions)

2015

1,503

Central Bank of Costa Rica. See Section #17 or this report for address.

World Bank GNI per capita

2014

10,120

data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign InvestmentShare    

Attitude toward Foreign Direct Investment

Costa Rica actively courts foreign direct investment (FDI), placing a high priority on attracting and retaining high-quality foreign investment. The Foreign Trade Promotion Corporation (PROCOMER) as well as the Costa Rican Investment and Development Board (CINDE) lead Costa Rica’s investment promotion efforts. Costa Rica has continued an ambitious program of negotiating, signing, and ratifying free trade agreements, all of which encourage greater openness to foreign trade and investment. Costa Rica together with El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic, is a signatory to the U.S. – Central America – Dominican Republic Free Trade Agreement (CAFTA-DR). CAFTA-DR, which entered into force in Costa Rica January 1, 2009, has improved the investment climate by strengthening the protection of intellectual property rights, providing a mechanism for arbitration, opening the insurance and telecommunications sectors to competition, and assuring access to markets in other CAFTA-DR economies. Agreements with Chile, Canada, CARICOM (Caribbean nations), Panama, China, Peru, Singapore, Mexico, the European Union, and the European Free Trade Association are in force, while an agreement with Colombia is awaiting final approval by the Colombian legislature to enter into force.

Other Investment Policy Reviews

Costa Rica’s investment policy reviews by international financial institutions over the last several decades tend to be positive but qualified by a list of problems that need immediate attention, for example underfinanced infrastructure, lax intellectual property rights (IPR) enforcement, slow environmental permitting and (until recently) very little appropriate sewage treatment. Currently, Costa Rica’s persistent and growing government budget deficit is of particular concern.

The Organization for Economic Cooperation and Development (OECD) completed a comprehensive investment policy review in September 2013: http://www.researchandmarkets.com/reports/2686091/oecd_investment_policy_reviews_costa_rica_2013. In 2014, Costa Rica became the 45th country to adhere to the OECD Declaration on International Investment and Multinational Enterprises. OECD accession talks for Costa Rica have begun; within that context the OECD in February 2016 published the “Economic Assessment of Costa Rica 2016”: http://www.oecd.org/economy/surveys/economic-survey-costa-rica.htm.

The World Trade Organization (WTO) completed its most recent trade policy review in September 2013: http://www.wto.org/english/tratop_e/tpr_e/s286_e.pdf.

Laws/Regulations on Foreign Direct Investment

The Costa Rican Judicial System is made up of the Civil, Administrative, and Criminal Court structure. The judicial system generally upholds contracts, but caution should be exercised when making investments in sectors reserved or protected by the Constitution or by laws for public operation. Investments in state-protected sectors under concession mechanisms can be especially complex due to frequent challenges in the constitutional court of contracts permitting private participation in state enterprise activities. Furthermore, independent government agencies, including municipal governments which grant construction permits, can issue permits or requirements that may contradict the decisions of other independent agencies, causing significant project delays.

Costa Rica’s commercial code details all business requirements necessary to operate in Costa Rica. The laws of public administration and public finance contain most requirements for contracting with the state.

Investors must exercise caveat emptor (buyer beware) since many firms operate in the informal sector of the economy. Appropriate due diligence should include confirming a company’s registry and formal participation in the Costa Rican economy, such as paying taxes and registering all workers with the Social Security system.

Costa Rican websites useful to help navigate laws, rules and procedures include that of the investment promotion agency CINDE, http://www.cinde.org/en (labor regulations), the export promotion authority PROCOMER, http://www.procomer.com/ (incentive packages), and the Health Ministry, https://www.ministeriodesalud.go.cr/ (product registration and import/export). In addition, the solicitor general’s office (www.pgr.go.cr/SCIJ) compiles relevant laws.

Business Registration

Costa Rica’s single-window business registration website “crearempresa.go.cr” brings together the various entities – municipality and central government agencies – that must be consulted in the process of registering a business in Costa Rica. The website “Global Enterprise Registration” www.GER.co ranks the crearempresa.go.cr website as 10th of the 26 single-window business registration portals evaluated globally. A new company in Costa Rica must typically register with the National Registry (company and capital registry), Internal Revenue Directorate of the Finance Ministry (taxpayer registration), National Insurance Institute (INS) (basic workers’ comp), Ministry of Health (sanitary permit), Social Security Administration (CCSS) (registry as employer), and the local Municipality (business permit).

The World Bank’s “Doing Business” evaluation for 2016, http://www.doingbusiness.org, states that business registration takes a total of 9 steps in 24 days, where most of those steps are simultaneous or take one day, while the municipal business license might take 15. In contrast the World Bank in its website “investing across borders” http://www.iab.worldbank.org for 2014 states that 14 procedures and 63 days are needed to establish a foreign-owned limited liability company in Costa Rica. Notaries are a necessary part of the process and are required to use the “crearempresa” portal when they create a company.

The investment promotion agency CINDE attends to potential and current investors in a set of specific economic activities (see next section), while the Tourism Institute (ICT) attends to potential investors in the tourism sector. Neither agency limits its service to investments above a certain size or potential payroll.

Micro, small, and medium enterprises are differentiated by activity and defined according to a formula that gives 60% weight to the number of employees, 30% weight to income, and 1% weight to assets. For example, a service firm with 4.5 employees, USD 80,000 annual net revenues and nominal assets would barely qualify as “micro” enterprise. Promotional programs tend to be focused on particular kinds of small enterprise, for example those owned by women, youth, or artisans. Several programs focus on supply chains. Foreign-owned companies have the same opportunities available to them as their locally-owned counterparts.

The World Bank “Investment Across Borders”

http://iab.worldbank.org – This “Investment Across Borders” site provides a useful overview of Costa Rican practices as they impact the investment climate.

Industrial Promotion

Costa Rica’s dynamic and well-respected investment promotion agency CINDE has had great success over the last several decades in attracting and retaining investment in specific areas, currently services, advanced manufacturing, life sciences, light manufacturing, and the food industry. In addition, the Tourism Institute (ICT) attends to potential investors in the tourism sector. These targeted industries can be found with the following key words as defined in https://new.export.gov/industries: Services, Aerospace and Defense, Industrial Equipment and Supplies, Health Technologies, Food Processing and Packaging, and Travel.

Costa Rica’s chief industrial strategy in recent years has consisted of focusing investment promotion and aftercare efforts in these particular business sectors in order to encourage the formation of overlapping business clusters which in turn have led to synergies that encourage other similar companies to invest in Costa Rica.

Limits on Foreign Control and Right to Private Ownership and Establishment

Costa Rica recognizes and encourages the right of foreign and domestic private entities to establish and own business enterprises and engage in most forms of remunerative activity. The exceptions are in sectors that are reserved for the state (legal monopolies) or that require participation of at least a certain percentage of Costa Rican citizens or residents (electrical power generation, transport services, professional services and aspects of broadcasting). In the areas of medical services, telecommunications and insurance, state firms operate but that does not preclude private sector competition.

All businesses must be registered in the national registry, thereby becoming national companies that may have national or foreign owners. The investment requirements for foreign and national persons and companies are identical. Businesses may be established starting from nothing, acquired, merged with, or taken over in much the same way as is done in the United States. Foreign partnerships with local businesses are quite common. Costa Rica’s one discriminatory limitation to foreigners’ control of land applies to the 200 meter strip of land along the coast defined as the Maritime Terrestrial Zone; concessions in this zone cannot be given to foreigners or foreign-owned companies. Water, ground transport, and freight services likewise are limited to majority national ownership. Mass media and advertising agencies are subject to some limitations to foreign participation. The state also exercises some monopoly control in some economic sectors as referenced below in the Competition from State-Owned Enterprises in the section: Information and Communication; Energy; Health Technologies.

Privatization Program

Costa Rica does not have an active privatization agenda.

Screening of FDI

Costa Rica does not have a formal mechanism for screening foreign investment. Such investment is expected to comply with local law and practice.

Competition Law

Several public institutions are responsible for consumer protection as it relates to monopolistic and anti-competitive practices. The “Commission for the Promotion of Competition” (COPROCOM), a semi-autonomous agency housed in the Ministry of Economy, Industry and Commerce, is charged with investigating and correcting anti-competitive behavior across the economy. SUTEL, the Telecommunications Superintendence, shares that responsibility with COPROCOM in the Telecommunications sector. Both agencies are charged with defense of competition, deregulation of economic activity, and consumer protection. COPROCOM is considered to be underfunded and weak; the February 2016 OECD “Economic Assessment of Costa Rica” emphasizes the need to reform COPROCOM in order to assure regulatory independence and sufficient operating budget - http://www.oecd.org/economy/costarica-stronger-and-more-inclusive-growth-will-require-new-reforms.htm .

2. Conversion and Transfer PoliciesShare    

Foreign Exchange

There are no restrictions on receiving, holding or transferring foreign exchange. There are no delays for foreign exchange, which is readily available at market clearing rates and readily transferable through the banking system. Dollar bonds and other dollar instruments may be traded legally. Costa Rica’s current floating exchange rate regime represents an 8-year transition from a crawling peg (1983-2006), through a crawling band regime to the current regime announced January 31, 2015. The Central Bank has pledged to intervene, if necessary, to smooth any exchange rate volatility; the Bank has sufficient international reserves for such actions. The exchange rate has stabilized around 530-550 colones/USD with smooth daily fluctuations.

No restrictions are imposed on capital gains, royalties, or capital except when these rights are otherwise stipulated in contractual agreements with the government of Costa Rica. However, Costa Rican sourced rents and benefits remitted overseas, including royalties, are subject to a withholding tax in accordance with Title IV of the Income Tax Law No. 7092 at rates varying from 10 to 25 percent.

The Costa Rican government in late 2013 adopted a new set of transfer pricing regulations consistent with international norms which has addressed many of the concerns of companies in Costa Rica engaged in international trade. As of early 2016, the Costa Rican authorities are still working through implementation of the regulation.

The Costa Rican government and Central Bank have struggled to find ways to limit the entry of short-term investment funds without negatively affecting capital flows associated with longer-term investments. A law passed in 2013 gives the Central Bank a wide range of tools in order to better control short-term investments (reference Efficient Capital Markets and Portfolio Investment). Nevertheless, current global financial conditions have reduced the pressure of short term investment funds.

Remittance Policies

Costa Rica does not have restrictions on remittances of funds to any foreign country; however, all funds remitted are subject to applicable withholding taxes that are paid to the country's tax administration. The default level of withholding tax is 30 percent, with royalties capped at 25 percent, dividends at 15 percent, professional services at 15 percent, transportation and communication services at 8.5 percent and reinsurance at 5.5 percent. By Costa Rican law, in order to pay dividends, procedures need to be followed that include being in business for the entire fiscal year and paying all applicable local taxes. Those procedures for declaring dividends in effect put a timing restriction on them. Exceptions to the withholding tax include payment of interest to multilateral and bilateral banks that promote economic and social growth, which pay no withholding tax, and companies located in free trade zones, which pay no dividend withholding tax plus other tax benefits. Spain has a double-taxation tax treaty that lowers the withholding tax on dividends paid by a Spanish company while a similar treaty with Germany is pending.

The Law for Development Banking passed in November 2014 went into effect on May 31, 2015 and eliminated the provision allowing foreign banks registered with the Central Bank of Costa Rica to be exempt from withholding taxes. The change is designed to motivate banks to either register as financial entities within Costa Rica or stop lending to Costa Rican businesses. Industry observers indicate that some foreign banks have already reduced their level of business activities due to the new tax treatment.

Regarding remittances sent primarily by individuals back to their families of origin, a June 2015 report by the Costa Rican Central Bank (BCCR) finds total remittances at USD 602 million in 2014, with 78% of that amount originating in the United States. Costa Rica is also a significant source of remittances, totaling USD 296 million sent from Costa Rica in 2014. Of that sum, 79% was destined for Nicaragua and 11% for Colombia. From 2007 to 2013, remittances to Costa Rica as a percent of GDP have been relatively low, varying from just over two percent in 2007/08 down to 1.2 percent for 2014.

In 2013, the costs associated with sending remittances between the U.S. and Costa Rica continued to drop compared to previous years. An Inter-American Development Bank (IDB) 2013 study cites that in the CAFTA-DR region, the transfer costs of smaller wire transfers (below USD 200) on average ran about USD 10.14, representing a 3.9 percent drop in cost from 2012. Transfer costs of medium value remittance (USD 500) showed an even greater drop of 17.8 percent from 2012.

The Costa Rican government is actively involved in detecting and preventing money laundering, while significant problems remain. Costa Rica is a member of the Financial Action Task Force on Money Laundering in South America (GAFISUD), a Financial Action Task Force-style regional body. An assessment of Costa Rica’s anti-money laundering regime is included in the State Department’s annual International Narcotics Control Strategy Report Vol. II, which addresses Money-Laundering and Financial Crimes- http://www.state.gov/j/inl/rls/nrcrpt/2015/vol2/239067.htm.

3. Expropriation and CompensationShare    

The three principal expropriating ministries in recent years have been the Ministry of Public Works - MOPT (rights-of-way), the Costa Rican Electrical Institute – ICE and the Ministry of Environment and Energy - MINAE (National Parks and protected areas). Expropriations have generally conformed to Costa Rica’s laws and treaty obligations, but there have been allegations of expropriations of private land without prompt or adequate compensation.

Article 45 of Costa Rica’s Constitution stipulates that private property can be expropriated without proof that it is done for public interest. The 1995 Law 7495 on expropriations further stipulates that expropriations require full and prior payment. The law makes no distinction between foreigners and nationals. Provisions include: (a) return of the property to the original owner if it is not used for the intended purpose within ten years or, if the owner was compensated, right of first refusal to repurchase the property back at its current value; (b) a requirement that the expropriating institution complete registration of the property within six months; (c) a two-month period during which the tax office must appraise the affected property; (d) a requirement that the tax office itemize crops, buildings, rental income, commercial rights, mineral exploitation rights, and other goods and rights, separately and in addition to the value of the land itself; and (e) provisions providing for both local and international arbitration in the event of a dispute. The expropriations law was amended in 1998 and then again in 2006 to clarify and expedite some procedures, including those necessary to expropriate land for the construction of new roads.

There is no discernible bias against U.S. investments, companies or representatives during the expropriations process. Costa Rican public institutions follow the law as outlined above and generally have acted in a way acceptable to the affected landowners. However, there are currently several sets of cases in which landowners and government differ significantly in their appraisal of the expropriated lands’ value; in those cases, judicial processes have taken years to resolve. In addition, landowners have on occasion been prevented from developing land which has not yet been formally expropriated for parks or protected areas; the courts will eventually order the government to proceed with the expropriations but the process can be long.

Invasion and occupation of private property by squatters, who are often organized and sometimes violent, occurs in Costa Rica. The Costa Rican police and judicial system have at times failed to deter or to peacefully resolve such invasions. It is not uncommon for squatters to return to the parcels of land from which they have been evicted, requiring expensive and potentially dangerous vigilance over the land.

4. Dispute SettlementShare    

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts

Costa Rica uses the civil law system. The fundamental law is the country’s Political Constitution of 1949, which grants the unicameral legislature a particularly strong role. Jurisprudence or case law is only persuasive. The civil and commercial codes govern commercial transactions. The courts are independent, and their authority is respected. The roles of public prosecutor and government attorney are distinct: the Chief Prosecuting Attorney or Attorney General (Fiscal General) operates a semi-autonomous department within the judicial branch while the government attorney or State Litigator (Procurador General) works within the Ministry of Justice and Peace in the Executive branch. Judgments and awards of foreign courts and arbitration panels may be accepted and enforced in Costa Rica through the exequatur process. The Constitution specifically prohibits discriminatory treatment of foreign nationals.

Monetary judgments can be made in USD but paid in the local Costa Rican currency.

The legal process to resolve cases involving squatting on land can be especially cumbersome. Land registries are at times incomplete or even contradictory. The Public Registry of Costa Rica is very effective with nationwide information on-line and in real time. However, rural records or the Cadastral Plans (Planos Catastrados) can be outdated and create land and boundary conflicts. Potential buyers should confirm the validity of their land title. Expropriation and related legal proceedings concerning lands within the Leatherback Turtle National Park boundary have been ongoing since 2004 (reference; International Arbitration). Buyers should retain experienced legal counsel, to help them determine the necessary due diligence regarding the purchase of property.

Bankruptcy

The Costa Rican bankruptcy law, addressed in both the commercial code and the civil procedures code, is similar to corresponding U.S. law, according to local experts. Title V of the civil procedures code outlines creditors’ rights and the processes available to register outstanding credits, administer the liquidation of the bankrupt company's assets, and pay creditors according to their preferential status. As in the United States, penal law will also apply to criminal malfeasance in some bankruptcy cases.

Investment Disputes

Disputes between investors and the government grounded in the government’s alleged actions or failure to act – termed investment disputes - may be resolved administratively or through the legal system. While statistics of investment disputes involving U.S. persons aren’t available, the number of investment disputes in Costa Rica appears to be roughly commensurate with Costa Rica’s high level of foreign direct investment (reference: Openness to Foreign Investment section). Two investment disputes in Costa Rica have been elevated to international arbitration, Aven et al versus Costa Rica and Spence, Berkowitz et al versus Costa Rica. Extensive documentation for both cases is filed on the Foreign Trade Ministry (COMEX) website: http://www.comex.go.cr/tratados/vigentes/cafta/Casos.aspx.

International Arbitration

Costa Rica is a member state to the convention on International Centre for Settlement of Investment Disputes (ICSID convention), which provides a forum for international arbitration in investment disputes. Costa Rica is also a member of the World Bank Multilateral Investment Guarantee Agency (MIGA). Private energy producers have included international arbitration clauses in their contracts.

Chapter 10 of CAFTA-DR allows investors to submit any dispute to international arbitration under either the ICSID convention or UNCITRAL Model law (United Nations Commission on International Trade Law). The arbitration process under CAFTA-DR is designed to be open and transparent; hearings and documents are public, and amicus curiae submissions are authorized. The CAFTA investment chapter includes a provision that allows tribunals to dismiss frivolous claims and award attorney’s fees and filing costs. Arbitration awards specify monetary amounts to be paid to the prevailing party.

The right to solve disputes through arbitration is guaranteed in the Costa Rican Constitution. For years, the practical application was regulated by the Civil Procedural Code, which made it ineffective with no arbitrations until 1998, the year the local Arbitration Act #7727 was enacted. A 2011 law on International Commercial Arbitration (Law 8937), drafted from the United Nations Commission on International Trade Law (UNCITRAL model law version 2006), brought Costa Rica to a dual arbitration system, with two valid laws, one law for local arbitration and one for international arbitration. Under the local act, arbitration has to be conducted in Spanish and only attorneys admitted to the local Bar Association may be named as arbitrators. All cases brought before an arbitration panel, under the local law, must be resolved within 155 days after the complaint is served to the defendant. Parties can withdraw their case or reach an out-of-court settlement before the arbitral tribunal delivers an award. If the award meets the review criteria, the losing party has the option to request that the Costa Rican Supreme Court to examine the award, but only on procedural matters and never on the merits. Under UNCITRAL Law for International Arbitration, proceedings may be held in English and foreign attorneys are authorized to serve as arbitrators. Several arbitration centers are in operation and authorized to administer both local and international arbitrations, including one at the Costa Rican - American Chamber of Commerce.

ICSID Convention and New York Convention

In 1993, Costa Rica became a member state to the convention on International Centre for Settlement of Investment Disputes (ICSID Convention). Under chapter 10 of CAFTA-DR entered into force (EIF) January 2009, Costa Rica has legally obligated itself to answer investor arbitration claims submitted under ICSID and accept the arbitration verdict.

Costa Rica is a signatory of the convention on the Recognition and Enforcement of Arbitral Awards (1958 New York Convention).

Duration of Dispute Resolution – Local Courts

Litigation can be long and costly in the Costa Rican court system. U.S. companies have cited the unpredictability of outcomes as a source of rising judicial insecurity in Costa Rica. The legal system is significantly backlogged, and civil suits may take several years from start to finish. Some U.S. firms and citizens have satisfactorily resolved their cases through the courts, while others have seen proceedings drawn out over a decade without a final resolution.

5. Performance Requirements and Investment IncentivesShare    

WTO/TRIMS

Costa Rica has been a World Trade Organization (WTO) member since 1995 and does not maintain any Trade-Related Investment Measures (TRIMS) inconsistent with the guidelines.

Investment Incentives

Four investment incentive programs operate in Costa Rica: the free trade zone system, an inward-processing regime, a duty drawback procedure, and the tourism development incentives regime. These incentives are available equally to foreign and domestic investors. These incentives include tax holidays, training of specialized labor force and facilitation of bureaucratic procedures. Costa Rica’s Foreign Trade Promotion Authority (PROCOMER) is in charge of the first three programs and companies must choose one or the other; as of early 2016 over 370 companies are in the free trade zone regime, about 80 in the inward processing regime, 10 in duty drawback. The Costa Rican Tourism Board (ICT) administers the tourism incentives; over 1,000 tourism firms have been declared as such with access to incentives of various types depending on the firm’s operations. The free trade zone regime is based on the 1990 law #7210, updated in 2010 by law #8794 and attendant regulations, while inward processing and duty drawback derive from the General Customs Law #7557. Tourism incentives are based on the 1985 law #6990, most recently amended in 2001.

Individual companies are able to create industrial parks that qualify for free trade zone (FTZ) status by meeting specific criteria and applying for such status with PROCOMER. Companies in FTZs receive exemption from virtually all taxes for eight years and at a reduced rate for some years to follow. Established companies may be able to renew this exemption through additional investment. In addition to the tax benefits, companies operating in FTZs enjoy simplified investment, trade, and customs procedures, which provide a convenient way to avoid Costa Rica’s burdensome business licensing process. Call centers, logistics providers, and software developers are among the companies that may benefit from FTZ status but do not physically export goods. Such service providers have become increasingly important participants in the free trade zone regime.

The Inward Processing Regime suspends duties on imported raw materials of qualifying companies and then exempts the inputs from those taxes when the finished goods are exported. The goods must be re-exported within a non-renewable period of one year. Companies within this regime may sell to the domestic market if they have registered to do so and pay applicable local taxes. The drawback procedure provides for rebates of duties or other taxes that have been paid by an importer for goods subsequently incorporated into an exported good. Finally, the tourism development incentives regime provides a set of advantages, including duty exemption for some purchases, to tourism operators who sign a tourism agreement with ICT.

While Costa Rica does not impose requirements that foreign investors transfer technology or proprietary business information or purchase a certain percentage of inputs from local sources, the Costa Rican agencies involved in investment and export promotion do explicitly focus on categories of foreign investor who are likely to take such actions while encouraging local supply chain development and cooperation with local universities.

Research and Development

Due to overriding budget constraints, the Government of Costa Rica does not have significant investment funds to finance or subsidize research and development programs. The few available research funds are managed by public universities and the council of rectors CONARE, who have shown themselves to be eager to work with U.S. and foreign firms and universities as opportunities arise.

Performance Requirements

While Costa Rican export authorities place a high priority on maximizing the amount of local content that large multinational enterprises (MNE) incorporate into their export product, efforts to that end have been cooperative rather than coercive. The export promotion agency PROCOMER operates an export linkages department focused on increasing the percentage of local content inputs used by large MNEs; one recent program is dedicated to helping small and medium enterprises (SME) obtain international certifications such as ISO9000.

While the procedures necessary to obtain residency in Costa Rica are traditionally long and very bureaucratic, immigration officials believe that an immigration law that took effect in March 2010 and Costa Rica’s accession to the Apostille Convention, in effect as of December 2011, make the process less burdensome. In any case, existing immigration measures do not appear to have inhibited foreign investors’ mobility to the extent that they affect foreign direct investment in the country.

Data Storage

Costa Rica does not require Costa Rican data to be stored on Costa Rican soil. With entry into force of Law Number 8968 - Personal Data Protection Law and its corresponding regulation - in 2014, companies must notify the Data Protection Agency (PRODHAB) of all existing databases containing the personal information of individuals outside the company. The notification requirement likewise applies to employee databases maintained, used or accessed by third parties. Data bases pay an annual registration fee of USD 200 per database. A number of U.S.-based companies hold aspects of the law to be unworkable, among them the provision that PRODHAB will act as a “super user” who can access those databases whenever it chooses, the need for explicit written consent by the data subject, and the registry of data bases. PRODHAB has maintained an active dialogue with its regulated entities and does not appear to have yet acted on all aspects of the law.

6. Protection of Property RightsShare    

Real Property

Investment in Costa Rican real estate requires care and due diligence; some U.S. real estate investors have found it difficult to obtain clean title, have suffered adverse possession by squatters or have found themselves working with unscrupulous lawyers. Landowners must demonstrate a continued presence on and control over their land. Secured interests in both chattel and real property are recognized and enforced. Mortgage and title recording are mandatory. The laws governing investments in land, buildings, and mortgages are generally transparent. However, there are continuing problems of overlapping title to real property and fraudulent filings with the National Registry, the government entity that records property titles. While title guaranty is not a service traditionally offered in the country, several reputable companies offer title guaranty and related services.

Beachfront property in Costa Rica faces a unique set of circumstances. Almost all beachfront is public property for a distance of 200 meters from the mean high tide line, with an exception for long-established port cities and a few beaches such as Jaco and Playa Grande. The first 50 meters from the mean high tide line cannot be used for any reason by private parties. The next 150 meters, also owned by the state, can only be leased from the local municipalities or the Costa Rican Tourism Institute (ICT) for specified periods and particular uses, such as tourism installation or vacation homes. Concessions in this zone cannot be given to foreigners or foreign-owned companies. Investors should exercise caution and obtain qualified legal counsel before purchasing property, particularly near beachfront areas. Potential investors in Costa Rican real estate should also be aware that the right to use traditional paths is enshrined in law and can be used to obtain court-ordered easements on land bearing private title. Disputes over easements are particularly common when access to a beach is an issue.

Intellectual Property Rights

Costa Rica is a signatory of many major international agreements and conventions regarding intellectual property. Building on the existent regulatory and legal framework, CAFTA-DR required Costa Rica to further strengthen and clarify its IPR regime, with several new IPR laws added to the books in 2008. Prior to that, the GATT agreement on Trade Related Aspects of Intellectual Property (TRIPS) took effect in Costa Rica on January 1, 2000. Costa Rica in 2002 ratified the World Intellectual Property Organization (WIPO) internet treaties pertaining to Performances and Phonograms (WPPT) and Copyright (WCT). In August 2009, Costa Rica modified its WPPT commitments in a way consistent with its international obligations by notifying the WIPO of its reservations to Article 12 of the Rome Convention and Article 15.1 of the WIPO Performance and Phonograms Treaty (WPPT). These reservations together with a subsequent modification of Costa Rican law - currently under legal challenge by rights’ holders - exempt Costa Rican over-the-air broadcasters from payment of “neighboring rights” to music performers and producers.

Costa Rica's Customs agency, housed under the Finance Ministry, confirms that no statistics on the seizure of counterfeit goods are made public. They keep all such statistics internal and private. In December 2014, the Costa Rican-American Chamber of Commerce (AmCham) launched a website, www.mercadoilegal.com, which allows for the reporting of tips on counterfeit merchandise. The anonymous tips are then shared with the Finance Ministry for action and enforcement.

In 2016 Costa Rica remained on the Watch List in the United States Trade Representative’s (USTR) annual Special 301 Report. The USTR has noted that IPR enforcement with respect to copyright piracy and trademark counterfeiting required greater priority and resources.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

Resources for Rights Holders

Contact at Mission:

John Reed Payne
Economic Officer
Embassy San Jose
506-2519-2000
SanJoseTradeLeads@state.gov

Local lawyers list can be found at: http://costarica.usembassy.gov/attorney.html.

Country/Economy resources:

  • Costa Rican American Chamber of Commerce (AmCham): http://www.amcham.co.cr/
  • The U.S. Embassy in Costa Rica (Consular Section) maintains an extensive list of legal service providers, including some firms engaged in intellectual property law. This list does not represent an endorsement on the part of the U.S. government: http://costarica.usembassy.gov/attorney.html).
  • The Department of Commerce also maintains a list of Business Service Providers that includes law firms specializing in IPR, under the Business Service Provider tab at: http://redirect.state.sbu/?url=www.export.gov/costarica.

7. Transparency of the Regulatory SystemShare    

Costa Rican laws, regulations, and practices are generally transparent and foster competition in a manner consistent with international norms, except in the sectors controlled by a state monopoly, where competition is explicitly excluded. Publicly-traded companies adhere to International Accounting Standards Board standards under the supervision of SUGEVAL, the stock and bond market regulator.

Tax, labor, health, and safety laws are not seen as interfering with investment decisions. When applying environmental regulations, the Costa Rican organization that reviews environmental impact statements has been slow in issuing its findings, causing delays for investors in completing projects.

There are several independent avenues for appealing regulatory decisions, and these are frequently pursued by persons or organizations opposed to a public sector contract or regulatory decision. The avenues include the comptroller general (Contraloria General de la República), the Ombudsman (Defensor de los Habitantes), the public services regulatory agency (ARESEP), and the constitutional review chamber of the Supreme Court. The State Litigator’s office (Procurador General de la República) is frequently a participant in its role as the government’s attorney.

The process has kept the regulatory system relatively transparent and free of abuse, but it has also rendered the system for public sector contract approval exceptionally slow and litigious. There have been several cases in which these review bodies have overturned already-executed contracts, thereby interjecting uncertainty into the process. Bureaucratic procedures are frequently long, involved and can be discouraging to new investors.

A similarly transparent process applies to proposed laws and regulations. The Legislative Assembly generally provides ample opportunity for supporters and opponents of a law to understand and comment upon proposals. To become law, a proposal must be approved by the Assembly by two plenary votes. The signature of ten legislators (out of 57) is sufficient after the first vote to send the bill to the Supreme Court for constitutional review within one month, although in reality the court may take longer. Regulations must go through a public hearing process when being drafted.

Costa Rica is a member of UNCTAD’s international network of transparent investment procedures [http://www.businessfacilitation.org]. Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name, and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time and legal bases justifying the procedures.

8. Efficient Capital Markets and Portfolio InvestmentShare    

There are no controls on capital flows in or out of Costa Rica or on portfolio investment in publicly-traded companies. However, a law adopted in 2013 allows the Central Bank, in coordination with the executive branch, to discourage short-term investments through the imposition of taxes on interest earned by foreign non-residents on Costa Rican bonds and also provides for a special reserve requirement of up to 25 percent of the value of those bonds. Government officials have said this instrument will be used very carefully and selectively. Larger investors often arrange their financing abroad where rates tend to be lower and lending limits are higher. Foreign investors are able to borrow in the local market, but they are also free to borrow from abroad. Some capital flows are subject to a withholding tax (reference Conversion and Transfer Policies).

Within Costa Rica, long-term capital is scarce. Favorable lending terms for USD-denominated loans compared to colón-denominated loans have made USD-denominated mortgage financing popular and common, even for locals. As an alternative to encourage long-term credit, since 2005 the government has published the value of Development Units (Unidades de Desarrollo), an inflation-adjusted index value that may be used to denominate debt transactions. In addition, many local-currency loans have variable rates tied to the basic passive interest rate calculated from banks’ cost of funds and published regularly by the Central Bank. There is a small secondary market in commercial paper and repurchase agreements. The securities exchange (Bolsa Nacional de Valores) is small and is dominated by trading in government bonds. Stock trading is of limited significance and involves less than 20 of the country’s larger companies, resulting in an illiquid secondary market. However, the securities exchange is actively promoting programs in several promising areas including currency contracts, small stocks, and venture capital.

Money and Banking System, Hostile Takeovers

The three state-owned commercial banks - Banco Nacional, Banco de Costa Rica and BanCredito- plus the bank-like entity Banco Popular, all have significant advantages over their private competitors. As state-owned entities these banks enjoy de-facto deposit insurance which is not provided to private banks and cannot be forced into bankruptcy. Government entities prefer to work with government-owned banks. Nevertheless, credit is generally allocated on market terms, although the state-owned commercial banks are expected to participate actively in activities deemed to be of public interest. A development bank structure began functioning in 2009 and mandates that 17 percent of resources from private banks’ checking and savings accounts be destined to SMEs. A bank may develop its own program of development lending or cede the funds to an administering bank, but mandated conditions (including a very narrow lending margin and a regulatory requirement that standard risk metrics apply to these loans) have limited the program’s impact. Costa Rica hosts a large number of smaller private banks, credit unions, and factoring houses. Nevertheless, the four public banks are still dominant, accounting for well over 50 percent of the country’s financial system’s assets.

Consolidated total assets of the country’s public commercial banks were approximately USD 25 billion in December 2014, while consolidated total assets of the eight private commercial banks were approximately USD 12.8 billion and consolidated total assets of the credit unions and lending houses were USD 4 billion, for combined assets of all bank groups (public banks, private banks and others) of approximately USD 42 billion as of December 2014. The banking sector is healthy, with non-performing loans in the 2014 period reported as 1.2% of total loans; the state-owned banks had a higher but still healthy 1.7% average.

Costa Rica’s national council for the supervision of the financial system (CONASSIF) oversees Costa Rica’s financial sector and consists of four principal components. The country’s general superintendent of financial institutions (SUGEF) regulates banks and other financial institutions. The general superintendent of securities markets (SUGEVAL) oversees the securities exchange. The general superintendent of pensions (SUPEN) oversees pension funds. The superintendent of insurance (SUGESE) oversees all insurance operators. Legal and accounting systems are transparent and consistent with international norms. Many well-known accounting firms in Costa Rica are affiliated with large U.S. firms.

Costa Rican banks have not shown themselves to possess takeover defenses designed to prevent foreign capital from entering the market, as evidenced by the relatively high number of bank ownership transactions by foreign bank groups in the past 15 years in Costa Rica. The largest (state owned) banks are not subject to takeover in any case while private banks have changed hands or merged as determined by their owners. The Costa Rican financial regulatory system does not appear to have presented a significant obstacle to this merger and acquisition activity.

9. Competition from State-Owned EnterprisesShare    

Beyond the electricity and petroleum (Energy & Mining) sectors, the country has a generally open international trade and investment regime. Electricity generation and distribution remains firmly in the control of the state-owned National Electricity Institute (ICE), while retail energy distribution is also dominated by ICE with significant participation by municipal utilities and rural electrical cooperatives. Electricity generated privately must be distributed through the public entities and is limited to 30% of total electrical generation in the country: 15% to small privately-owned renewable energy plants and 15% to larger “build-operate-transfer” (BOT) operations. Petroleum imports are monopolized by the state petroleum company RECOPE.

Sectors in which state-owned enterprise holds a significant market share are the banking sector, which was opened to private competitors in 1995, the insurance and telecommunications sectors. State-owned banks as of April 2016 control well over 50 percent of the country’s banking assets (reference Efficient Capital Markets and Portfolio Investment). Following market opening in 2009, ICE is still a major player in the telecoms (Information and Communications) sector but is now down to a 61% market share in mobile telephony from its previous monopoly position. See statistics compiled by the telecoms regulator SUTEL: (https://estadisticastelecom.sutel.go.cr). The state-owned insurance provider National Insurance Institute (INS) has likewise been adjusting to private sector competition since 2009 and in 2015 registered just 81% of total insurance premiums paid; 13 insurers are now registered with insurance regulator SUGESE: (http://www.sugese.fi.cr/mercado_seguros/aseguradoras/index.html). Both the insurance regulator SUGESE and telecom regulator SUTEL have won praise for successfully managing market transitions although in both markets new market entrants continue to point to unfair advantages enjoyed by the incumbent operator.

Costa Rica is not a party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO). Private sector advocates have called attention to the fact that government agencies overwhelmingly choose ICE as their telecom services provider despite a full assortment of private sector telecom companies.

OECD Guidelines on Corporate Governance of SOEs

The OECD indicated that Costa Rica’s State Owned Enterprises (SOE) appear to be managed in a manner consistent with OECD guidelines: http://www.oecd.org/daf/ca/oecdguidelinesoncorporategovernanceofstate-ownedenterprises.htm. However, the February 2016 OECD Economic Assessment of Costa Rica recommended improving corporate governance of SOEs in line with those guidelines, noting the pervasive influence of SOE’s in key sectors of the economy with particular note of the dominance of state-owned commercial banks.

SOE’s in Costa Rica follow a sector model, with little centralized control of SOE operations. Each state-owned enterprise has its own independent board of directors and internal operating regulations and procedures. Board members are generally appointed by the Council of Ministers, presided over by the President of the country who must approve the final decision. Some SOE boards have members appointed by private organizations. In the case of SOE boards with representatives from such private organizations - professional associations, unions, chambers of commerce, associations - the bylaws of each SOE outline the process whereby representatives are elected.

The comptroller general’s office (which reports directly to the Legislative Assembly) exercises fiduciary oversight and supervision of all public entities, including the state-owned enterprises. Large SOE’s such as the oil importer RECOPE and the electrical and telecoms operator ICE are subject to annual independent audit. Costa Rica’s state-owned enterprises do not appear to take direct orders from the Executive Branch; nevertheless, the state-owned enterprises clearly strive to fulfill their role as publicly-owned entities. Costa Rican SOE’s do not appear to have an unfair advantage in judicial disputes in which they are party.

Sovereign Wealth Funds

Costa Rica does not have a Sovereign Wealth Fund.

10. Responsible Business ConductShare    

Corporations in Costa Rica, particularly those in the export and tourism sectors, generally enjoy a positive reputation within the country as engines of growth and practitioners of Responsible Business Conduct (RBC). The Costa Rica government actively highlights its role in attracting high-tech companies to Costa Rica; the strong Responsible Business Conduct (RBC) culture that many of those companies cultivate has become part of that winning package. Large multinational companies commonly pursue RBC goals in line with their corporate goals and have found it beneficial to publicize RBC orientation and activities in Costa Rica. Many smaller companies, particularly in the tourism sector, have integrated community outreach activities into their way of doing business. There is a general awareness of RBC among both producers and consumers in Costa Rica.

The Government of Costa Rica maintains and enforces laws with respect to labor and employment rights, consumer protection and environmental protection. Costa Rica has no mineral extraction industry with its accompanying issues. Costa Rica encourages foreign and local enterprises to follow generally accepted RBC principles such as the OECD Guidelines for Multinational Enterprises (MNE) and maintains a national contact point for OECD MNE guidelines within the Ministry of Foreign Trade (see http://www.oecd.org/investment/mne/ncps.htm).

Beyond that, some Costa Rican government agencies have taken the principals of public-private partnership to heart by working with private companies in addressing specific social issues. For example, the NGO “Aliarse” (http://www.aliarse.org) specializes in helping its member companies to effectively coordinate with government, community groups and other companies. The Ministry of Labor has recently coordinated closely with the private sector in developing an employment program “My First Job – Mi Primer Empleo.” Many Central America Regional Security Initiative (CARSI) grantees, Centro Cultural Costarricense Norteamericano (www.centrocultural.cr), Refugee Education Trust (RET)(www.theret.org ), Boy with a Ball (www.boywithaball.com ), Hogar Siembra (‎www.hogarsiembra.org ), Costa Rica –U.S.A. Foundation (www.crusa.cr), and Fundación Omar Dengo (www.fod.ac.cr ) are coordinating with companies such as SC Johnson, Phillip Morris, DHL, Cargill, Cisco Systems, IBM, Western Union, and Microsoft to leverage community programs in a way that advances their activities. CARSI is a U.S. government funded initiative.

11. Political ViolenceShare    

Since 1948, Costa Rica has not experienced significant domestic political violence. There are no indigenous or external movements likely to produce political or social instability. However, Costa Ricans occasionally follow a long tradition of blocking public roads or ceasing port operations for a few hours as a way of pressuring the government to address grievances; the traditional government response is to react slowly, thus giving the grievances time to air. This practice on the part of peaceful protesters can cause logistical problems.

12. CorruptionShare    

Costa Rica has laws, regulations, and penalties to combat corruption, though the resources available to enforce those laws have been limited. These laws extend to family members of officials and contemplate conflict-of-interest in both procurement and contract award. A series of high-profile corruption cases in previous years involving directors of state-owned enterprises as well as two ex-presidents have helped emphasize that even senior official may be prosecuted on corruption charges. Allegations of lower-level corruption are common, and some prosecutions have resulted.

The attorney general (Fiscal General de la República), state litigator (Procuraduria General de la República), comptroller general (Contraloría General de la Republica), and ombudsman (Defensoría de los Habitantes) work together in an effort to combat corruption. The comptroller general, the Organization of Judicial Investigation (OIJ), and the public prosecutors' office investigate allegations of corruption. The comptroller general is responsible for approving or rejecting public contracts, auditing results, and detecting instances of corruption.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Costa Rica ratified the Inter-American Convention Against Corruption in 1997. This initiative of the Organization for Economic Cooperation and Development (OECD) and the Organization of American States (OAS) obligates subscribing nations to implement criminal sanctions for corruption and implies a series of follow up actions: http://www.oas.org/juridico/english/cri.htm. Costa Rica also ratified the UN Anti-Corruption Convention in March 2007. As part of its OECD Action Plan, Costa Rica should sign onto the OECD Anti-Bribery Convention.

In addition to these existing structures and safeguards, the Government of Costa Rica is implementing several initiatives centered on greater transparency in government. As a member of the Open Government Partnership (OGP), Costa Rica has been developing websites for many of its government offices with data sets of interest to civil society.

While U.S. firms have not identified corruption as a major obstacle to doing business in Costa Rica, some have made allegations of corruption in the administration of public tenders and in approvals or timely processing of permits. Developers of tourism facilities periodically cite municipal-level corruption as a problem when attempting to gain a concession to build and operate in the restricted maritime zone.

Acts of bribery, including those directed against government officials, are criminal acts punishable by imprisonment. Public officials convicted of receiving bribes are subject to prison sentences up to ten years, according to the Costa Rican Criminal Code (Articles 340-347). Entrepreneurs may not deduct the costs of bribes or any other criminal activity as business expenses. In recent years, Costa Rica has seen several publicized cases of firms prosecuted under the terms of the U.S. Foreign Corrupt Practices Act for corrupt acts committed to the detriment of Costa Rican institutions.

Resources to Report Corruption

Contact within government Anti-Corruption Agency:

Name: Lic. Ronald Víquez Solis
Title: Procurador Director de la Área de la Ética Pública, PGR
Organization: Procuraduria General de la Republica (PGR)
Address: Avenida 2 y 6, Calle 13. San Jose, Costa Rica.
Telephone Number: 2243-8330, 2243-8335
Email Address: RocioCHT@PGR.go.cr

Contact within Civil Society:

Name: Evelyn Villarreal
Organization: Costa Rica Integra
Tel: 2519-5344; 2519-5861
Email Address: crintegra.vice@gmail.com

13. Bilateral Investment AgreementsShare    

Costa Rica has bilateral investment treaties (BITs) in force with Argentina, Canada, Chile, the Czech Republic, France, Germany, Korea, the Netherlands, Paraguay, Qatar, Spain, Switzerland, Taiwan, and Venezuela. The National Assembly ratified Costa Rica’s BIT with China in March 2016. The investment chapter of CAFTA-DR includes all aspects of a BIT thereby making a separate BIT with the United States unnecessary.

Bilateral Taxation Treaties

Costa Rican and U.S. tax authorities currently coordinate under the terms of two agreements, a Taxation Information Exchange Agreement (TIEA) signed in 1989 and a U.S.-Costa Rica intergovernmental agreement titled “Agreement between the Government of the United States of America and the Government of the Republic of Costa Rica to Improve International Tax Compliance and to Implement FATCA” signed in December 2013. Costa Rica has active bilateral or regional tax information exchange agreements with 15 other countries, in addition to a number of signed agreements that are not yet in force; see the Global Forum on Transparency and Exchange of Information for Tax Purposes for the full list: http://www.eoi-tax.org/jurisdictions/CR#agreements. Costa Rica is also a party to the OECD “Convention on Mutual Administrative Assistance in Tax Matters,” with Entry-Into-Force in August 2013: http://www.oecd.org/tax/exchange-of-tax-information/Status_of_convention.pdf.

14. OPIC and Other Investment Insurance ProgramsShare    

The Overseas Private Investment Corporation (OPIC) offers both financing and insurance coverage against expropriation, war, revolution, insurrection and inconvertibility for eligible U.S. investors in Costa Rica. OPIC can provide insurance for U.S. investors, contractors, exporters, and financial institutions. Financing is available for overseas investments that are wholly owned by U.S. companies or that are joint ventures in which the U.S. firm is a participant.

In Costa Rica, OPIC’s 2015 portfolio exposure totaled USD 117 million across 12 projects in sectors including finance, construction, utilities, and leasing.

U.S. investors should be aware that OPIC, in accordance with statutory requirements, may not support projects that would result in the closing of a U.S. operation, the reduction of a U.S. workforce, or be in a sector that has experienced significant U.S. job loss in the past decade. The Government of Costa Rica approves prospective OPIC-insured projects taking into account possible balance of payments and labor issues. Costa Rica is a member of the Multilateral Investment Guarantee Agency, a member of the World Bank group.

In the event that OPIC should pay an inconvertibility claim, the local currency accepted by OPIC would be made available, pursuant to the bilateral agreement providing for the OPIC program, to fund the U.S. Embassy in Costa Rica. U.S. Embassy yearly expenses in local currency are calculated to be roughly USD 10 million.

15. LaborShare    

The Costa Rican labor force is relatively well-educated compared to other countries in Central America. The country boasts an extensive network of publicly-funded schools and universities while Costa Rica’s national vocational training institute (INA) and private sector groups provide technical and vocational training.

The rapid growth of Costa Rica’s service, tourism, and technology sectors has stimulated demand for English-language speakers and prompted the Costa Rican Government to declare English language and computer literacy to be a national priority at all levels of education. Several public and private institutions have also been active in Costa Rica’s drive to English proficiency, including the 60-year-old U.S.-Costa Rican binational center (the Centro Cultural Costarricense Norteamericano), which offers general and business English courses to as many as 5,000 students annually, and receives U.S. government funding. In 2010, the Peace Corps initiated a program in Teaching English as a Foreign Language and maintains an active program. While the presence of companies such as Procter & Gamble, Western Union, and a growing number of call center operators and business process outsourcing (BPO) companies has drawn down the supply of speakers of fluent business and technical English, the pool of job candidates with English and technical skills in the Central Valley has been sufficient to meet current demand.

Statistics published by the National Statistics Institute INEC show the unemployment level at 9.6% in 2015 while youth unemployment is 24.3% among 15-24 year-olds; the percentage of 15-24 year-olds that neither work nor study is 20.5%. Informal employment in the working population is estimated at 43% and has tended to increase in recent years.

Costa Rican labor law and practice allows some flexibility in alternate schedules but is nevertheless based on a 48-hour week made up of 8-hour days. Workers are entitled to one day of rest after six consecutive days of work. The labor code stipulates that the workday may not exceed 12 hours. Costa Rican labor law requires that employees released without cause receive full severance pay, which can amount to close to a full year’s pay in some cases. Use of temporary or contract workers for jobs that are not temporary in nature in order to lower labor costs and avoid payroll taxes does occur, particularly in construction and in agricultural activities dedicated to domestic (rather than export) markets. No labor laws are waived to attract or retain investment - all labor laws apply in all Costa Rican territory, including free trade zones.

Costa Rican law guarantees the right of workers to join labor unions of their choosing without prior authorization. Unions operate independently of government control and may form federations and confederations and affiliate internationally. The vast majority of unions are located in the public sector, including state-run enterprises. Based on 2014 statistics, 52 percent of government employees are in a union as compared to under 3 percent in the private sector. Costa Rica currently has 75 collective bargaining agreements for public sector entities and 27 agreements within the private sector.

In the private sector, many Costa Rican workers join “solidarity associations,” under which employers provide easy access to saving plans, low-interest loans, health clinics, recreation centers, and other benefits. A 2011 law solidified that status by giving solidarity associations constitutional recognition comparable to that afforded labor unions. Solidarity associations and labor unions coexist at some workplaces, primarily in the public sector. Business groups claim that worker representation by solidarity associations provides for better labor relations compared to firms with workers represented only by unions. However, labor unions allege that private businesses use solidarity associations to hinder union organization in contravention of internationally recognized labor rights while permanent workers’ committees have displaced labor unions on collective bargaining issues.

The Ministry of Labor has a formal dispute-resolution body and will engage in dispute-resolution when necessary; labor disputes may also be resolved through the judicial process. The law provides for protection from dismissal for union organizers and members and requires employers found guilty of anti-union discrimination to reinstate workers fired for union activities. However, the labor courts are backlogged and the legal process can be lengthy.

On January 25, 2016, President Solis signed the new Labor Code of Procedures that modernizes the 1943 Labor Code; the new law will enter into force on July 26, 2017. Changes include updated definitions of whether a strike is legal or illegal and how the authorities respond; a faster legal process for processing claims; prohibition of discrimination and expansion of individual rights for the poor and pregnant; and procedural improvements including expanded precautionary measures, sanctions, and a ten-year statute of limitations. This new law if fully implemented will largely address International Labor Organization (ILO) reservations to Costa Rican labor law and practice.

16. Foreign Trade Zones/Free Ports/Trade FacilitationShare    

Free trade zones operate near the port cities of Limon/Moin (Caribbean) and Puntarenas (Pacific) as well as in various central valley locations. The benefits, primarily fiscal, are described in the section entitled Performance Requirements and Investment Incentives.

The Costa Rican Ministry of Foreign Trade has a staff position, Trade Facilitation Director, responsible for all aspects of Trade Facilitation including the Customs and Border Modernization initiative. A Customs Mutual Assistance Agreement (CMAA) between Costa Rican Customs and the United States Customs and Border Protection (CBP) was signed in May 2015. Currently, Costa Rica is in the process of ratifying the agreement. Costa Rica was part of Phase 1 of the Pathways for Prosperity Trade Facilitation pillar and a public-private sector group of stakeholders meets regularly at the U.S. Embassy to discuss trade facilitation issues.

17. Foreign Direct Investment and Foreign Portfolio Investment StatisticsShare    

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Preliminary figures from the Central Bank of Costa Rica show 2015 foreign direct investment (FDI) in Costa Rica totaling USD 2.85 billion, up from USD 2.75 billion in 2014 but down from the 2013 high point of USD 3.09 billion. The portion of annual FDI in Costa Rica originating from the United States has historically oscillated around 50% and in 2015 came to USD 1.50 billion or 53% of the total. For details and historical data see the Costa Rican Central Bank website cited below.

Costa Rica’s incoming FDI as a percentage of Gross Domestic Product (GDP) has been consistently high for years and was 5.4% in 2015. As detailed elsewhere in this report (#1 Openness to Foreign Investment, #5 Performance Requirements, #10 Investment Incentives, #15 Labor), this annual flow of investment dollars is more than just a balance-of-payments phenomena and represents many individual investment decisions by technologically relatively advanced companies to establish or increase a presence in Costa Rica.

 

Host Country Statistical source*

USG or international statistical source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

Economic Data

Year

Amount

Year

Amount

 

Host Country Gross Domestic Product (GDP) ($M USD)

2015

$52,899

2014

$49,550

www.worldbank.org/en/country

Foreign Direct Investment

Host Country Statistical source*

USG or international statistical source

USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country ($M USD, stock positions)

2015

$1,503

2014

$955

http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

Host country’s FDI in the United States ($M USD, stock positions)

N/A

N/A

2014

$-92

http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

Total inbound stock of FDI as % host GDP

2015

5.4%

N/A

N/A

N/A

* Costa Rican statistical source is Central Bank of Costa Rica, 2015:

GDP– http://indicadoreseconomicos.bccr.fi.cr/indicadoreseconomicos/Cuadros/frmVerCatCuadro.aspx?idioma=1&CodCuadro= 2999

FDI– http://indicadoreseconomicos.bccr.fi.cr/indicadoreseconomicos/Cuadros/frmVerCatCuadro.aspx?idioma=1&CodCuadro= 2185

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data

From Top Five Sources/To Top Five Destinations (U.S. Dollars, Millions)

Inward Direct Investment

Outward Direct Investment

Total Inward

24,381

100%

Total Outward

2,035

100%

United States

14,060

58%

United States

474

23%

Spain

1,863

8%

Panama

370

18%

Mexico

1,368

6%

Guatemala

249

12%

UK

979

4%

Nicaragua

237

12%

Panama

723

3%

Netherlands

224

11%

"0" reflects amounts rounded to +/- USD 500,000.

Source: IMF Coordinated Direct Investment Survey, 2014


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets

Top Five Partners (Millions, U.S. Dollars)

Total

Equity Securities

Total Debt Securities

All Countries

1,234

100%

All Countries

263

100%

All Countries

971

100%

United States

475

39%

Panama

152

58%

United States

402

41%

Panama

177

14%

United States

73

28%

UK

119

12%

UK

124

10%

China, PR

19

7%

Netherlands

54

6%

Netherlands

56

5%

UK

6

2%

France

39

4%

Luxembourg

41

3%

Brazil

5

2%

Luxembourg

39

4%

Source: IMF Coordinated Portfolio Investment Survey, 2014.

18. Contact for More InformationShare    

Contact Point at Post for Public Inquiries