Costa Rica is the oldest continuous democracy in Latin America with moderate but falling economic growth rates (4.2 percent in 2016, 3.4 percent in 2017, 2.7 percent in 2018) and moderate inflation (2 percent in 2018) providing a stable investment climate. The country’s relatively well-educated labor force, relatively low levels of corruption, physical location, living conditions, dynamic investment promotion board, and attractive free trade zone incentives also offer strong appeal to investors. Costa Rica’s continued popularity as an investment destination is well illustrated by strong yearly inflows of foreign direct investment (FDI) as recorded by the Costa Rican Central Bank, reaching an estimated USD 2.7 billion in 2017 (4.7 percent of GDP) and USD 2.1 billion in 2018 (3.6 percent of GDP).
Costa Rica’s technology and tourism sectors serve as “clusters” of economic growth in which each new exporter, service provider, sector employee, or university course of study adds depth to the sector as a whole and makes it more attractive for new entrants. Costa Rica has had remarkable success in the last two decades in establishing and promoting an ecosystem of export-oriented technology companies, suppliers of input goods and services, associated public institutions and universities, and a trained and experienced workforce. A similar transformation took place in the tourism sector, now characterized by a plethora of smaller enterprises handling a steadily increasing flow of tourists eager to visit despite Costa Rica’s relatively high prices. Costa Rica is doubly fortunate in that these two sectors positively reinforce each other as they both require and encourage English language fluency, openness to the global community, and Costa Rican government efficiency and effectiveness. Costa Rica’s ongoing accession to the OECD has also pushed the country to address its economic weaknesses through executive decrees and legislative reforms in a process that began in 2015.
The Costa Rican investment climate is nevertheless threatened by a high and persistent government fiscal deficit capable of squeezing domestic credit and forcing government budget cuts, a complex and often-inefficient bureaucracy, high energy costs, and basic infrastructure – ports, roads, water systems – in need of major upgrading. The Costa Rican business sector is feeling particularly buffeted in 2018 and 2019 by an unusual number of new requirements or challenges, stemming from the government’s anti-money laundering (AML) initiatives and continued efforts to address the fiscal imbalance through increased taxes. On the AML side, companies must register their beneficial ownership in a dedicated data base, banks will soon be using a single centralized Know-Your-Customer database to vet companies and individuals, and companies in industries identified as susceptible to money laundering activity will have their own registry and heightened reporting requirements. All retail businesses must now accept credit cards or other alternative digital payment and all income tax reporting entities must now issue electronic invoices through a system controlled by the tax authority. On the fiscal front, tax calculations change in a number of ways in 2019, including a sales tax previously applied just to goods replaced by a Value Added Tax of up to 13 percent that applies to services as well; modified tax brackets; an increase in the tax of dividends from cooperatives; and an expansion and increase of the capital gains tax.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||48 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2018||67 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||54 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country (USD M USD, stock positions)||2017||19,924||http:/data.imf.org/CDIS|
|World Bank GNI per capita (USD)||2017||11,120||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Costa Rica actively courts foreign direct investment (FDI), placing a high priority on attracting and retaining high-quality foreign investment. There are some limitations to both private and foreign participation in specific sectors, as detailed in the following section.
The Foreign Trade Promotion Corporation (PROCOMER) as well as the Costa Rican Investment and Development Board (CINDE) lead Costa Rica’s investment promotion efforts. 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. CINDE and ICT are strong and effective guides and advocates for their client companies, prioritizing investment retention and maintaining an ongoing dialogue with investors.
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 – see #7 below “State Owned Enterprises, first paragraph) 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). Properties in the Maritime Zone (from 50 to 200 meters above the mean high-tide mark) may only be leased from the state and with residency requirements. In the areas of medical services, telecommunications, finance and insurance, state-owned entities dominate, but that does not preclude private sector competition. Costa Rica does not have an investment screening mechanism for inbound foreign investment, beyond those applied under anti-money laundering procedures. U.S. investors are not disadvantaged or singled out by any control mechanism or sector restrictions; to the contrary, U.S. investors figure prominently among the various major categories of FDI.
Other Investment Policy Reviews
The OECD accession process for Costa Rica beginning in 2015 has produced a series of changes by Costa Rica and recommendations by the OECD; within that context the OECD in April 2018 published the “OECD Economic Surveys Costa Rica 2018.” http://www.oecd.org/countries/costarica/oecd-economic-surveys-costa-rica-2018-eco-surveys-cri-2018-en.htm .
In the same context, the OECD offers a number of recent publications relevant to investment policy: http://www.oecd.org/countries/costarica/ . As of April 2019, Costa Rica has passed 12 of the 22 technical bodies required for OECD accession, with the Investment Committee being one of the ten that remain.
Costa Rica’s single-window business registration website, crearempresa.go.cr , brings together the various entities – municipalities and central government agencies – which must be consulted in the process of registering a business in Costa Rica. 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). Crearempresa is rated 17th of 32 national business registration sites evaluated by “Global Enterprise Registration” (www.GER.co ), which awards Costa Rica a relatively lackluster rating because Crearempresa has little payment facility and provides only some of the possible online certificates.
Traditionally, the Costa Rican government’s small business promotion efforts have tended to focus on participation by women and underserved communities. The women’s institute INAMU, vocational training institute INA, MEIC, and the export promotion agency PROCOMER through its supply chain initiative have all collaborated extensively to promote small and medium enterprise with an emphasis on women’s entrepreneurship. In 2019, INA will launch a network of centers to support small and medium enterprises based upon the U.S. Small Business Development Center (SBDC) model.
The World Bank’s “Doing Business” evaluation for 2018, http://www.doingbusiness.org , states that business registration takes nine steps in 22.5 days. Notaries are a necessary part of the process and are required to use the Crearempresa portal when they create a company. Women do not face explicitly discriminatory treatment when establishing a business.
The Costa Rican government does not promote or incentivize outward investment. Neither does the government discourage or restrict domestic investors from investing abroad.
2. Bilateral Investment Agreements and Taxation Treaties
Costa Rica has bilateral investment treaties (BITs) in force with Argentina, Canada, Chile, China, the Czech Republic, France, Germany, South Korea, the Netherlands, Paraguay, Qatar, Spain, Switzerland, Taiwan and Venezuela. Treaty texts are on the COMEX website (http://www.comex.go.cr/Tratados ). The investment chapter of CAFTA-DR includes all aspects of a BIT thereby making a separate BIT with the United States unnecessary. United Nations Conference on Trade and Development (UNCTAD) (http://investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu ) features a parallel list of both signed investment treaties and those entered into force.
Costa Rica has in-force free trade agreements (FTA) with five groupings of countries. The Central American Free Trade Agreement CAFTA-DR is with the United States, Nicaragua, Honduras, El Salvador, Guatemala, and Dominican Republic. The European Union Association Agreement with Central America is with all EU members, Guatemala, Honduras, El Salvador, Nicaragua, and Panama. The European Free Trade Association (EFTA) free trade agreement is with Iceland, Liechtenstein, Norway, Switzerland, Panama and Guatemala. The free trade agreement with the Caribbean nations of CARICOM is with Trinidad and Tobago, Guyana, Barbados, Belize, and Jamaica. With Costa Rica’s March 2019 ratification of the South Korea Central American Free Trade Agreement between South Korea, Costa Rica, El Salvador, Honduras, Nicaragua and Panama, that FTA is now in force between Costa Rica and South Korea. Costa Rica also has individual FTAs with Canada, Mexico, Panama, Colombia, Peru, Chile, China, and Singapore. Costa Rica in recent years has slowed the pace at which it has negotiated and signed new free trade agreements.
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 and expected to enter-into-force (EIF) during 2019. Costa Rica has active bilateral or regional tax information exchange agreements with 16 other jurisdictions, 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 . Of those 16 agreements, two (Germany, Spain) are “Double Tax Conventions” that address overlapping tax obligations in addition to simple information exchange. Costa Rica is also a party to the OECD “Convention on Mutual Administrative Assistance in Tax Matters,” which entered into force in August 2013: http://www.oecd.org/tax/exchange-of-tax-information/Status_of_convention.pdf .
In accordance with its international commitments to address the use of corporate tax havens, the Costa Rican government in 2013 adopted a new set of transfer pricing rules, followed by their implementation regulations [DGT-R-44-2016 published by the internal revenue department (DGT) of the Finance Ministry] in September 2016. Large transnational companies must declare and justify the transfer-pricing methods they are using in a manner consistent with international norms.
3. Legal Regime
Transparency of the Regulatory System
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.
Rule-making and regulatory authority is housed in any number of agencies specialized by function (telecom, financial, health, environmental) or location (municipalities, port authorities). Tax, labor, health, and safety laws, though highly bureaucratic, are not seen as unfairly interfering with foreign investment. It is common to have Professional Associations that play a regulatory role. For example the Coffee Institute of Costa Rica (ICAFE), a private sector organization, promotes standardization of production models among national producers, roasters and exporters, as well as setting minimum market prices.
Costa Rica is a member of UNCTAD’s international network of transparent investment procedures (http://www.businessfacilitation.org ). Within that context, the Ministry of Economy compiled the various procedures needed to do business in Costa Rica: https://costarica.eregulations.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 basis justifying the procedures.
Accounting, legal, and regulatory procedures are transparent and consistent with international norms. The Costa Rican College of Public Accountants (Colegio de Contadores Públicos de Costa Rica -CCPA) is responsible for setting accounting standards for non-regulated companies in Costa Rica and adopted full International Financial Reporting Standards. For more, see the international federation of accountants IFAC: https://www.ifac.org/about-ifac/membership/country/costa-rica .
Regulations must go through a public hearing process when being drafted. Draft bills and regulations are made available for public comment through public consultation processes that will vary in their details according to the public entity and procedure in question, generally giving interested parties sufficient time to respond. The standard period for public comment on technical regulations is 10 days. As appropriate, this process is underpinned by scientific or data-driven assessments.
Regulations and laws, both proposed and final, for all branches of government are published digitally in the government registry “La Gaceta”: https://www.imprentanacional.go.cr/gaceta/ . The Costa Rican American Chamber of Commerce (AmCham – http://amcham.co.cr ) and other business chambers closely monitor these processes and often coordinate responses as needed.
The government has mechanisms to ensure laws and regulations are followed. The Comptroller General’s Office conducts operational as well as financial audits and as such provides the primary oversight and enforcement mechanism within the Costa Rican government to ensure that government bodies follow administrative processes. Each government body’s internal audit office and, in many cases, the customer-service comptroller (Contraloria de Servicios) provide additional support.
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 (Procuraduria General) is frequently a participant in its role as the government’s attorney.
The review and enforcement mechanisms described above have kept the regulatory system relatively transparent and free of abuse, but have 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. The Legislative Assembly generally provides sufficient 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 the court may take longer.
International Regulatory Considerations
While Costa Rica does consult with its neighbors on some regulations through participation in the Central American Integration System SICA (http://www.sica.int/sica/sica_breve.aspx ), Costa Rica’s lawmakers and regulatory bodies habitually refer to sample regulations or legislation from OECD members and others. Costa Rica’s commitment to the OECD accession process accentuated this traditional use of best-practices and model legislation. Costa Rica regularly notifies all draft technical regulations to the WTO Committee on Technical Barriers in Trade (TBT).
Legal System and Judicial Independence
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 does not constitute legal precedent but can be persuasive if used in legal proceedings. For example, the Chambers of the Supreme Court regularly cite their own precedents. 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 (Procuraduria 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.
The Costa Rican Judicial System is comprised 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.
The legal process to resolve cases involving squatting on land can be especially cumbersome. Land registries are at times incomplete or even contradictory. Buyers should retain experienced legal counsel to help them determine the necessary due diligence regarding the purchase of property.
Laws and Regulations on Foreign Direct Investment
Costa Rican websites are useful to help navigate laws, rules and procedures including 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 State Litigator’s office (www.pgr.go.cr – the “SCIJ” tab) compiles relevant laws.
Competition and Anti-Trust Laws
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 OECD has repeatedly emphasized the need to reform COPROCOM in order to assure regulatory independence and sufficient operating budget. The government’s draft law to strengthen COPROCOM and give it more autonomy has faced considerable opposition.
Expropriation and Compensation
The three principal expropriating ministries in recent years have been the Ministry of Public Works – MOPT (highway rights-of-way), the Costa Rican Electrical Institute – ICE (energy infrastructure), and the Ministry of Environment and Energy – MINAE (National Parks and protected areas). Expropriations generally conform to Costa Rica’s laws and treaty obligations, but there are 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; (e) provision that upon full deposit of the calculated amount the government may take possession of land despite the former owner’s dispute of the price; and (f) provisions providing for both local and international arbitration in the event of a dispute. The expropriations law was amended in 1998, 2006, and 2015 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 act in a way acceptable to the affected landowners. However, there are currently several cases in which landowners and government differ significantly in their appraisal of the expropriated lands’ value; in those cases, judicial processes took 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.
ICSID Convention and New York Convention
In 1993, Costa Rica became a member state to the convention on International Center for Settlement of Investment Disputes (ICSID Convention). Costa Rica paid the awards resulting from unfavorable ICSID rulings, most recently in 2012 regarding private property belonging to a German national within National Park boundaries.
Costa Rica is a signatory of the convention on the Recognition and Enforcement of Arbitral Awards (1958 New York Convention). Consequently, within the Costa Rican legal hierarchy the Convention ranks higher than local laws although still subordinate to the Constitution. Costa Rican courts recognize and enforce foreign arbitral awards. Judgments of foreign courts are recognized and enforceable under the local courts and the Supreme Court.
Investor-State Dispute Settlement
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.
Under Chapter 10 of the CAFTA-DR agreement, Costa Rica legally obligated itself to answer investor arbitration claims submitted under ICSID or UNCITRAL, and accept the arbitration verdict. To date there have been two claims by U.S. citizen investors under the provisions of CAFTA-DR. Extensive documentation for both cases is filed on the Foreign Trade Ministry (COMEX) website: http://www.comex.go.cr/tratados/cafta-dr/ , under “documentos relevantes”. No local court denies or fails to enforce foreign arbitral awards issued against the government.
In some coastal areas of Costa Rica, there is a history of invasion and occupation of private property by squatters who are often organized and sometimes violent. 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 were evicted, requiring expensive and potentially dangerous vigilance over the land.
International Commercial Arbitration and Foreign Courts
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 arbitration cases until 1998, the year the local arbitration law #7727 was enacted. A 2011 law on International Commercial Arbitration (Law 8937), drafted from the 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 rules of local arbitration centers, must be resolved within 155 days after the complaint is served to the defendant; if the case does not fall under such arbitration centers’ rules then the award must be rendered within two months of final statements of the parties. 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 examine the award, but only on procedural matters and never on the merits. Under the UNCITRAL Law for International Arbitration, proceedings may be held in English and foreign attorneys are authorized to serve as arbitrators. The following arbitration centers are in operation in Costa Rica:
- Centro de Conciliacion y Arbitraje. Costa Rican Chamber of Commerce
- Centro de Resolución de Controversias. Costa Rican Association of Engineers and Architects
- Centro Internacional de Conciliación y Arbitraje. Costa Rican American Chamber of Commerce (AMCHAM)
- Centro de Arbitraje y Mediación/Centro Iberoamericano de Arbitraje (CIAR). Costa Rican Bar Association.
Beyond such arbitration options, law #7727 also facilitates courts’ enforcement of conciliation agreements reached under the law. Some universities and municipalities operate “Casas de Justicia” (Justice Houses) open to the public and offering mediation and conciliation at no cost. Law #8937 empowered local arbitration centers, beginning with that pertaining to the Engineers and Architects’ Association, to implement Dispute Board regulations, as a method to address construction disputes.
Outcomes in local courts do not appear to favor state-owned enterprises (SOEs) any more or less than other actors. SOEs can sign arbitral agreements, but must follow strict public laws to obtain the permissions necessary and follow correct procedures, otherwise the agreement could be voided. Once SOEs find themselves in arbitration, they are subject to the same standards and treatment as any other actor.
The most frequently heard complaint about Costa Rican court process is that litigation can be long and costly. U.S. companies cite 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 satisfactorily resolved their cases through the courts, while others see proceedings drawn out over a decade without a final resolution. Commercial arbitration has consequently become an increasingly common dispute resolution mechanism.
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. The Costa Rican system also allows for successive alternatives to full bankruptcy: “convenion preventivo” or arrangement with creditors; “administracion por intervencion” or administration through judicial intervention; “reorganizacion con intervencion judicial” or reorganization through judicial intervention; and finally bankruptcy. As in the United States, penal law will also apply to criminal malfeasance in some bankruptcy cases. In the World Bank’s “resolving insolvency” ranking within the 2018 “Doing Business” report, Costa Rica ranked #134 of 190 (http://www.doingbusiness.org/rankings ).
4. Industrial Policies
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, and 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 may choose only one of the three. As of early 2019, 453 companies are in the free trade zone regime, 90 in the inward processing regime, and 10 in duty drawback.
The Costa Rican Tourism Board (ICT) administers the tourism incentives; over 1,000 tourism firms are declared as such with access to incentives of various types depending on the firm’s operations (hotels, rent-a-car, travel agencies, airlines and aquatic transport). 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.
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 were 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 – local and customs taxes – for construction and equipment to tourism companies, especially hotels and marinas, which sign a tourism agreement with ICT.
Foreign Trade Zones/Free Ports/Trade Facilitation
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.
PROCOMER and CINDE are traditionally proactive in working with FTZ companies to streamline and improve law, regulation and procedures touching upon the FTZ regime. Current initiatives include a proposal suggested by the OECD to eliminate the current requirement that service firms in FTZ regime may sell no more than 50 percent into the local market, and a proposal to work with the Customs agency to simplify the procedures that FTZ companies must follow to recycle or donate materials.
Performance and Data Localization Requirements
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. However, the Costa Rican agencies involved in investment and export promotion do explicitly focus on categories of foreign investor who are likely to encourage technology transfer, local supply chain development, employment of local residents, and cooperation with local universities. The export promotion agency PROCOMER operates an export linkages department focused on increasing the percentage of local content inputs used by large multinational enterprises; one recent program is dedicated to helping small and medium enterprises (SME) obtain international certifications such as ISO9000.
Costa Rica does not have excessively onerous visa, residence, work permit, or similar requirements designed to inhibit the mobility of foreign investors and their employees, although the procedures necessary to obtain residency in Costa Rica are often perceived to be long and bureaucratic. Existing immigration measures do not appear to have inhibited foreign investors’ and their employees’ mobility to the extent that they affect foreign direct investment in the country. The government is responsible for monitoring so that foreign nationals do not displace local employees in employment, and the Immigration Law and Labor Ministry regulations establish a mechanism to determine in which cases the national labor force would need protection. However, investors in the country do not generally perceive Costa Rica as unfairly mandating local employment. The Labor Ministry prepares a list of recommended and not recommended jobs to be filled by foreign nationals. Costa Rica does not have government/authority-imposed conditions on any permission to invest.
Costa Rica does not require Costa Rican data to be stored on Costa Rican soil. With entry into force of law #8968 ‒ Personal Data Protection Law and its corresponding regulation ‒ in 2014, companies must notify the Data Protection Agency (PRODHAB) of all existing databases from which personal information is sold or traded. The notification requirement applies in some cases to employee databases maintained, used, or accessed by third parties. Databases pay an annual registration fee.
Costa Rica does not require any IT providers to turn over source code or provide access to encryption. The regulation associated with law #8968 did originally mandate that PRODHAB be given “super-user” privileges in databases registered with the agency, but that requirement was never acted upon and was reversed by a new regulation effective December 2016.
Costa Rica does not impose measurements that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the economy/country’s territory. The measures that do apply under the data privacy law and regulation are equally applicable to data managed within the country.
5. Protection of Property Rights
The laws governing investments in land, buildings, and mortgages are generally transparent. Secured interests in both chattel and real property are recognized and enforced. Mortgage and title recording are mandatory and the vast majority of land in Costa Rica has clear title. 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. In addition, squatters do have rights under Costa Rican law such that legally purchased and registered property if left unoccupied long enough and under certain circumstances may revert to the person occupying the land rather than the registered owner. 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. Costa Rica is ranked 47th of 190 for ease of “registering property” within the World Bank 2018 Doing Business Report.
Foreigners are subject to the same land lease and acquisition laws and regulations as Costa Ricans with the exception of concessions within the Maritime Zone (Zona Maritima Terrestre – ZMT). 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. 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, is the Maritime Zone and 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.
Intellectual Property Rights
Costa Rica’s legal structure for protecting intellectual property rights (IPR) is quite strong, but enforcement is sporadic and does not always get the attention and resources required to be effective. As a result, infringement of IPRs is relatively common in both physical and online markets. 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).
The Ministry of Foreign Trade (COMEX) and Costa Rica’s National Registry agreed in 2017 to amend the country’s treatment of geographic indicators (GI) to require that any GI identify a generic term in a compound name. On February 27, 2019, through Executive Decree 41572-JP-COMEX, Costa Rica’s updated GI decree entered into force.
Online piracy is another major concern for the country with poor enforcement of online IPR infractions and lengthy notice and takedown procedures. On February 8, 2019, Costa Rica passed and published in La Gaceta, Executive Decree #41557-COMEX-JP with modifications to the existing regulation on Internet Service Providers -ISP’s- (Executive Decree #36880-COMEX-JP) that significantly shorten the 45 days previously allowed for notice and takedown of pirated online content. Amendments of Articles 12 and 13 of the regulation effectively create an expeditious safe harbor system for ISP’s in Costa Rica without requiring new legislation or changes to the General Law of Public Administration.
During 2018, the Registry of Industrial Property implemented a series of tools to support the services provided by the Patent Office. As of December 3, 2018, the Patent Office began accepting electronic filing of international applications through ePCT-filing. Since 2016, Costa Rica has been a member of the Cooperation Systems on Aspects of Operational Information and Industrial Property (PROSUR), and as part of its activities has implemented a pilot program of Accelerated Patent Procedure, PPH by its acronym in Spanish.
While Costa Rica is not listed in the Notorious Market Report, it is and has been listed in the USTR’s Special 301 Watch List since 1995. However, the 2018 Special 301 Report noted that Costa Rica has taken steps to increase intragovernment coordination on IP matters resulting in a significant increase in the number of criminal investigations and prosecutions. The Costa Rican government does not release official statistics on the seizure of counterfeit goods, but the Chamber of Commerce compiles the following from Costa Rican government sources: http://observatorio.co.cr/. Costa Rica’s Economic Crimes Prosecutor investigated 75 cases as of September 2018, on pace for a similar number to the 99 cases investigated in 2017. As in years past, prosecutors ultimately dismissed a number of cases due to lack of interest, collaboration, and follow-up by the representatives of trademark rights holders. The Costa Rican government continues to publish statistics on IPR criminal enforcement at http://www.comex.go.cr/estad percentC3 percentADsticas-y-estudios/otras-estad percentC3 percentADsticas/ .
Costa Rica has made less progress on implementing a systematic solution to ensure that government entities use licensed software. Only one person currently compiles and tracks the data, stalling the effort to fully monitor compliance.
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:
Attention: Investment Climate Statement
Embassy San Jose, Costa Rica
- 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: https://cr.usembassy.gov/u-s-citizen-services/attorneys/).
- 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://www.export.gov/costarica .
Observatory of Illicit Trade: http://observatorio.co.cr/
6. Financial Sector
Capital Markets and Portfolio Investment
The Costa Rican government’s general attitude towards foreign portfolio investment is cautiously welcoming, seeking to facilitate the free flow of financial resources into the economy while minimizing the instability that might be caused by the sudden entry or exit of funds. The securities exchange (Bolsa Nacional de Valores) is small and is dominated by trading in bonds. Stock trading is of limited significance and involves less than 20 of the country’s larger companies, resulting in an illiquid secondary market. There is a small secondary market in commercial paper and repurchase agreements. The Costa Rican government has recently explicitly welcomed foreign institutional investors purchasing significant volumes of Costa Rican dollar-denominated government debt in the local market. The securities exchange regulator SUGEVAL is generally perceived to be effective.
Costa Rica accepted the obligations of IMF Article VIII, agreeing not to impose restrictions on payments and transfers for current international transactions or engage in discriminatory currency arrangements, except with IMF approval. There are no controls on capital flows in or out of Costa Rica or on portfolio investment in publicly-traded companies. However, law #9227 adopted in 2014 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. The Central Bank has never used the powers given it by law #9227, and within the context of OECD-recommended reforms the Costa Rican government has committed to abrogating it. Some capital flows are subject to a withholding tax (see section on Foreign Exchange and Remittances).
Within Costa Rica, credit is largely allocated on market terms, although long-term capital is scarce. Favorable lending terms for USD-denominated loans compared to colon-denominated loans have made USD-denominated mortgage financing popular and common. Foreign investors are able to borrow in the local market; they are also free to borrow from abroad, although withholding tax may apply.
Money and Banking System
Costa Rica’s financial system boasts a relatively high financial inclusion rate, estimated by the Central Bank at 75 percent (the percentage of adults over the age of 15 holding a bank account). As part of an ongoing financial inclusion campaign, the Costa Rican government in early 2016 began allowing non-resident foreigners to open what are termed “simplified accounts” in Costa Rican financial institutions. Resident foreigners have full access to all banking services.
The banking sector is healthy. Non-performing loans have risen over the past year but remained low at 2.14 percent of total loans as of December 2018; the state-owned banks had a higher 3.12 percent average. The country hosts a large number of smaller private banks, credit unions, and factoring houses, although the four state-owned banks are still dominant, accounting for just under 50 percent of the country’s financial system assets. Consolidated total assets of the country’s public commercial banks were approximately USD 27 billion in December 2018, while consolidated total assets of the eleven private commercial and cooperative banks were over USD 20 billion Combined assets of all bank groups (public banks, private banks and others) were approximately USD 58.1 billion as of December 2018.
Costa Rica’s Central Bank performs the functions of a central bank while also providing support to the four autonomous financial superintendencies (Banking, Securities, Pensions and Insurance) under the supervision of the national council for the supervision of the financial system (CONASSIF). The Central Bank developed and operates the financial system’s transaction settlement mechanism “SINPE.” In addition to managing all transaction settlement between banks, SINPE allows all financial institutions to offer clients the opportunity to transfer money to and from accounts with any other account in the financial system. Such direct bank transfer has become a common means of payment in the country.
Foreign banks may establish operations in the country under the supervision of the banking regulator SUGEF and as such are subject to the same regulatory burden as locally owned banks. The Central Bank has a good reputation and has had no problem in maintaining sufficient correspondent relationships. Costa Rica is steadily improving its ability to ensure the efficacy of anti-money-laundering and anti-terrorism-finance and was removed from intensive monitoring by the Financial Action Task Force in 2017. The Costa Rican financial sector in broad terms appears to be satisfied to date with the available correspondent banking services.
Cyber currencies are currently legal in Costa Rica, but Costa Rica’s Central Bank has taken a cautious approach to them in general, warning Costa Ricans that such currencies do not enjoy any formal backing. The financial authorities have also noted that cyber currencies are a potential avenue for money laundering.
Foreign Exchange and Remittances
No restrictions are imposed on expatriation of 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 (see below). When such remittances are paid to a parent company or related legal entity, transfer pricing rules and certain limitations apply.
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. Euros are increasingly available in the market. Costa Rica has a floating exchange rate regime in which the Central Bank is ready to intervene, if necessary, to smooth any exchange rate volatility.
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 25 percent from July 1 2019, transportation and communication services at 8.5 percent, and reinsurance at 5.5 percent (different withholding taxes also apply for other types of services). By Costa Rican law, in order to pay dividends, procedures need to be followed that include being in business in the corresponding fiscal year and paying all applicable local taxes. Those procedures for declaring dividends in effect put a timing restriction on them. Withholding tax does not apply to payment of interest to multilateral and bilateral banks that promote economic and social growth, and companies located in free trade zones pay no dividend withholding tax. Both Spain and Germany have double-taxation tax treaties with Costa Rica, lowering the withholding tax on dividends paid by companies from those countries.
Sovereign Wealth Funds
Costa Rica does not have a Sovereign Wealth Fund.
7. State-Owned Enterprises
Costa Rica’s state-owned enterprises (SOEs) are commonly known by their abbreviated names. They include monopolies in petroleum-derived fuels (RECOPE), lottery (JPS), railroads (INCOFER), local production of ethanol (CNP/FANAL), water distribution (AyA), and electrical distribution (ICE, CNFL, JASEC, ESPH). SOES have market dominance in insurance (INS), telecommunications (ICE, RACSA, JASEC, ESPH), and finance (BNCR, BCR, BanCredito, Banco Popular, BANHVI, INVU, INFOCOOP). They have significant market participation in parcel and mail delivery (Correos), and ports operation (INCOP and JAPDEVA). Six of those SOEs hold significant economic power with revenues exceeding 1 percent of GDP: ICE, RECOPE, INS, BNCR, BCR and Banco Popular. Audited returns for each SOE may be found on each company’s website, while basic revenue and costs for each SOE are available on the General Controller’s Office “Sistema de Planes y Presupuestos” https://www.cgr.go.cr/02-consultas/consulta-pp.html . The Costa Rican government does not currently hold minority stakes in commercial enterprises.
No Costa Rican state-owned enterprise currently requires continuous and substantial state subsidy to survive. Many SOEs turn a profit, which is allocated as dictated by law and boards of directors. Financial allocations to and earnings from state-owned enterprises may be found in the “Sistema de Informacion de Planes y Presupuestos (SIPP)” within the General Controller’s Office (CGR) site: https://cgrweb.cgr.go.cr/pr02/f?p=150220:2:::NO:::
U.S. investors and their advocates cite some of the following ways in which Costa Rican SOEs competing in the domestic market receive non-market-based advantages because of their status as state-owned entities.
Electricity generated privately must be distributed through the public entities (including rural electricity cooperatives not strictly classified as SOEs) and is limited to 30 percent of total electrical generation in the country: 15 percent to small privately-owned renewable energy plants and 15 percent to larger “build-operate-transfer” (BOT) operations.
Telecoms and technology sector companies have called attention to the fact that government agencies overwhelmingly choose SOEs as their telecom services providers despite a full assortment of private-sector telecom companies. The information and telecommunications business chamber (CAMTIC) has been advocating for years against what its members feel to be unfair use by government entities of a provision (Article 2) in the public contracting law that allows non-competitive award of contracts to public entities when functionaries of the awarding entity certify the award to be an efficient use of public funds. CAMTIC asserts that since 2016, the government has used Article 2 in 135 separate instances for a total contracted amount of over USD 400 million in information and communications technology (ICT) goods and services.
– The state-owned insurance provider National Insurance Institute (INS) has been adjusting to private sector competition since 2009 but in 2018 still registered 72 percent percent of total insurance premiums paid; 13 insurers are now registered with insurance regulator SUGESE: (https://www.sugese.fi.cr/SitePages/index.aspx ). New market entrants point to unfair advantages enjoyed by the state-owned insurer INS, including a strong tendency among SOE’s to contract their insurance with INS.
Costa Rica is not a party to the WTO Government Procurement Agreement (GPA) although it is registered as an observer. Costa Rica strives to adhere to the OECD Guidelines on Corporate Governance for SOEs (www.oecd.org/daf/ca/oecdguidelinesoncorporategovernanceofstate-ownedenterprises.htm ).
Costa Rica does not have a privatization program and the markets that have been opened to competition in recent decades – banking, telecommunications, insurance and Atlantic Coast container port operations – were opened without privatizing the corresponding state-owned enterprise(s).
8. Responsible Business Conduct
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 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 Costa Rican government 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 ).
Some Costa Rican government agencies took the principles of public-private partnership to heart by working with private companies in addressing specific social issues. For example, since 2003 the Foundation Paniamor (www.paniamordigital.org ) is the designated lead agency in Costa Rica guiding the network of 428 (through December 2018) tourism-related businesses which are signatories to the “Code of Conduct” an initiative of the Costa Rican Tourism Board (ICT). The purpose of this code is to organize and direct the private sector’s work against the sexual commercial exploitation of children and adolescents.
Costa Rica has laws, regulations, and penalties to combat corruption. Though the resources available to enforce those laws are limited, Costa Rica’s institutional framework is strong, such that those cases that are prosecuted are generally perceived as legitimate. Anti-corruption laws extend to family members of officials, contemplate conflict-of-interest in both procurement and contract award, and penalizes bribery by local businessmen of both local and foreign government officials. 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 saw several publicized cases of firms prosecuted under the terms of the U.S. Foreign Corrupt Practices Act.
Costa Rica ratified the Inter-American Convention Against Corruption in 1997. This initiative of the 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, has been a member of the Open Government Partnership (OGP) since 2012, and as of July 2017 is a party to the OECD Convention on Combatting Bribery of Foreign Public Officials.
The Costa Rican government has encouraged civil society interest in good governance, open government and fiscal transparency, with a number of NGO’s operating unimpeded in this space. While U.S. firms do not identify 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.
Resources to Report Corruption
Contact within government Anti-Corruption Agency:
Armando López Baltodano
Procurador Director de la Area de la Etica Publica, PGR
Procuraduria General de la Republica (PGR)
Avenida 2 y 6, Calle 13. San Jose, Costa Rica
Telephone: 2243-8330, 2243-8394
Contact at “watchdog” organization:
Evelyn Villarreal F.
Asociación Costa Rica Íntegra
Telephone: (506) 8355 3762
Email 1: firstname.lastname@example.org
Email 2: email@example.com
10. Political and Security Environment
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 for a few hours as a way of pressuring the government to address grievances; the traditional government response has been to react slowly, thus giving the grievances time to air. This practice on the part of peaceful protesters can cause logistical problems.
Crime increased in Costa Rica in recent decades and U.S. citizen visitors and residents are frequent victims. While petty theft is the main problem, criminals show an increased tendency to use violence. Please see the State Department’s Travel Advisory page for Costa Rica for the latest information — https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/costa-rica-travel-advisory.html
11. Labor Policies and Practices
The Costa Rican labor force is relatively well-educated. 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. According to the National Statistics Institute (INEC), as of December 2018, informal employment rose significantly from 41 percent in 2017 to 44.9 percent of total employment in 2018; 37.7 percent of the economically active population in the nonagricultural sector is in the informal economy. The overall unemployment rate was 12 percent in 2018 while youth unemployment (between 15 and 24) reached 31.7 percent that year.
Several factors influenced Costa Rica’s labor market during 2018, including deceleration of the economy stemming from nation-wide public sector strikes, a drop in consumer confidence which reduced consumption, and the conflict in Nicaragua, which affected regional trade. The Labor Ministry described the labor market in 2018 as a paradox: while the unemployment rate rose, the number of individuals employed also rose. Costa Rica has invested heavily in education and training, but the government recognizes it needs to focus on getting better results from its investment. The government announced in November 2018 the creation of the National Qualifications Framework for Vocational Education and Training, a strategy to organize vocational education and to standardize and raise the quality of education.
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. In August 2018, the government announced an “Alliance for Bilingualism,” a public-private initiative to increase English teaching in the country. Several public and private institutions are also 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 numerous multinational companies operating shared-services and call centers draw 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 is sufficient to meet current demand.
The government does not keep track of shortages or surpluses of specialized labor skills. Foreign nationals have the same rights, duties, and benefits as local employees. The government is responsible for monitoring that foreign nationals do not displace local employees in employment. Labor law provisions apply equally across the nation, both within and outside free trade zones. The Immigration Law and the Labor Ministry regulations establish a mechanism to determine in which cases the national labor force would need protection. The Labor Ministry prepares a list of recommended and not recommended jobs to be filled by foreign nationals.
There are no restrictions on employers adjusting employment to respond to fluctuating market conditions. The law does not differentiate between layoffs and dismissal without cause. There are concepts established in the law related to unemployment and dismissals such as the mandatory savings plan (Fondo de Capitalizacion Laboral), as well as the notice of termination of employment (preaviso) and severance pay (cesantia). 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. Although there is no insurance for workers laid off for economic reasons, employers may establish voluntarily an unemployment fund.
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. 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 developed in the public sector, including state-run enterprises. “Permanent committees of employees” informally represent employees in some enterprises of the private sector and directly negotiate with employers; these negotiations are expressed in “direct agreements,” which have a legal status. Based on 2018 statistics, 90.4 percent of government employees are union members as compared to 3.2 percent in the private sector. In 2018, the Labor Ministry reported 112 collective bargaining agreements, 80 with public sector entities and 32 within the private sector, covering 10.1 percent of the working population. The Ministry reported a total of 155 “direct agreements” in different sectors (agriculture, industry and transportation) during 2018. The government continued in 2018 with the renegotiation of collective labor agreements in the public sector that began in 2016.
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 participation in permanent committees and/or solidarity associations provides for better labor relations compared to firms with workers represented only by unions. However, some labor unions allege that private businesses use permanent committees and solidarity associations to hinder union organization while permanent workers’ committees displace labor unions on collective bargaining issues in contravention of internationally recognized labor rights.
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 Ministry of Labor regulations establish that conciliation is the mechanism to solve individual labor disputes, as defined in the Alternative Dispute Resolution Law (No. 7727 dated 9 December 1997). The Labor Code and ADR Law establish the following mechanisms: dialogue, negotiation, mediation, conciliation, and arbitration. The Labor Law promotes alternate dispute resolution in judicial, administrative and private proceedings. The law establishes three specific mechanisms: arbitration to resolve individual or collective labor disputes (including a Labor Ministry’s arbitrator roster list); conciliation in socio-economic collective disputes (introducing private conciliation processes); and arbitration in socio-economic collective disputes (with a neutral arbitrator or a panel of arbitrators issuing a decision). The Labor Ministry also participates as mediator in collective conflicts, facilitating and promoting dialogue among interested parties. 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.
The law provides for the right of workers to conduct legal strikes, but it prohibits strikes in public services considered essential (police, hospitals and ports). Strikes affecting the private sector are rare and do not pose a risk for investment. Public sector labor unions paralyzed government services with strikes in September 2018 to protest against a fiscal reform bill that became law in December 2018. The government enforced the law by lifting blockades and clearing port entrances to guarantee the free transit of citizens and goods. Labor courts declared most of the strikes in the public sector illegal and most workers returned to work after four weeks (except for teachers’ union, which continued to strike for three months).
Child and adolescent labor is uncommon in Costa Rica. The government has implemented a strategy to eliminate any remaining child labor by 2020 through programs to encourage school attendance, awareness campaigns on social media, increased inspections by the Labor Ministry, and improvements to child care in targeted areas. Between 2011 and 2016, employment by minors under 15 fell by 76 percent from 34,494 to 8,071, or 1.1 percent of the population, according to Department of Labor reporting.
Chapter 16 of the U.S.-Central American Free Trade Agreement (CAFTA-DR) obliges Costa Rica to enforce its laws that defend core international labor standards. The government, organized labor, employers organizations, and the International Labor Organization signed a memorandum of understanding to launch a Decent Work Program for the period 2019-2023, which aims to improve labor conditions and facilitate employability for vulnerable groups through government-labor-business tripartite dialogue.
In December 2018, the government enacted a law to cut the fiscal deficit which amends and regulates legal provisions on public sector employment. There are several bills pending before the National Assembly, including a reform to provisions regulating strikes, a bill expanding the list of essential services in which employees are prohibited from striking, and a bill facilitating internships, apprenticeships, and vocational education.
12. OPIC and Other Investment Insurance Programs
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. company is a participant.
In Costa Rica, OPIC’s 2018 portfolio exposure totaled USD 151 million across 15 projects in financial services, real estate/construction, and utility sectors. OPIC continues to be active in Costa Rica. For more information, see OPIC’s master list of projects by year: https://www.opic.gov/opic-action/all-project-descriptions . Costa Rica is a member of the Multilateral Investment Guarantee Agency, a member of the World Bank group.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2018||$60,126||2017||$57,286||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||2017||$19,924||2017||$19,924||IMF CDIS data available at http:/data.imf.org/CDIS|
|Host country’s FDI in the United States ($M USD, stock positions)||2017||$117||2017||$117||IMF CDIS data available at http:/data.imf.org/CDIS|
|Total inbound stock of FDI as % host GDP||2017||63.2%||2017||62.5%||UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx|
* For 2017 GDP in dollars with National Accounts exchange rate, the Costa Rican Central Bank (BCCR) is “Host Country Statistical Source”. http://indicadoreseconomicos.bccr.fi.cr/indicadoreseconomicos/Cuadros/frmVerCatCuadro.aspx?idioma=1&CodCuadro= percent202999
* For 2017 US FDI stock in Costa Rica, and Costa Rican FDI stock in the US, the Costa Rican Central Bank (BCCR) is “Host Country Statistical Source
* For “Total Inbound Stock of FDI as percent host GDP”, local statistical source is BCCR. GDP for 2017 was USD 58,174.6 million; total Inbound FDI stock in 2017 was USD 36,742.7.
Table 3: Sources and Destination of FDI
Costa Rica’s open and globally integrated economy receives FDI principally from the United States followed by Europe and Latin America. Costa Rica’s outward FDI is more regionally focused on its neighbors Nicaragua, Guatemala and Panama, with the U.S. and Colombia following.
|Direct Investment From/in Counterpart Economy Data – 2017|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||36,743||100%||Total Outward||3,023||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Stock Positions. IMF’s Coordinated Direct Investment Survey (CDIS) site: (http:/data.imf.org/CDIS)
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||1,816||100%||All Countries||1,017||100%||All Countries||799||100%|
14. Contact for More Information
Investment Climate Statement
Embassy San Jose, Costa Rica