Costa Rica is the oldest continuous democracy in Latin America with moderate but falling economic growth rates even before the Covid-19 pandemic with 3.5 percent average yearly GDP growth 2016 to 2018, 2.2% in 2019 (-4.5% in 2020) and moderate inflation. The country’s well-educated labor force, relatively low levels of corruption, physical location, living conditions, dynamic investment promotion board, and attractive free trade zone incentives offer strong appeal to investors. Costa Rica’s continued popularity as an investment destination is well illustrated even in the pandemic year 2020 with inflow of foreign direct investment (FDI) as recorded by the Costa Rican Central Bank at an estimated USD 1.7 billion down from 2.75 billion in 2019 (2.8 percent of GDP down from 4.3 percent).
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, with 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. A 2019 study of the free trade zone (FTZ) economy commissioned by the Costa Rican Investment and Development Board (CINDE) shows an annual 9 percent growth from 2014 to 2018, with the net benefit of that sector reaching 7.9 percent of GDP in 2018. This sector has been booming while the overall economy has been slowing for years.
The Costa Rican investment climate is threatened by a high and persistent government fiscal deficit, underperformance in some key areas of government service provision, including health care and education, high energy costs, and deterioration of basic infrastructure. The ongoing Covid-19 world recession has decimated the Costa Rican tourism industry. Furthermore, the government has very little budget flexibility to address the economic fallout and is struggling to find ways to achieve debt relief, unemployment response, and the longer-term policy solutions necessary to finalize a stabilizing agreement with the International Monetary Fund (IMF). On the plus side, the Costa Rican government has competently managed the crisis despite its tight budget and Costa Rican exports are proving resilient; the portion of the export sector that manufactures medical devices, for example, is facing relatively good economic prospects and companies providing services exports are specialized in virtual support for their clients in a world that is forced to move in that direction. Moreover, Costa Rica’s accession in 2021 to the Organization for Co-operation and Development (OECD) has exerted a positive influence by pushing the country to address its economic weaknesses through executive decrees and legislative reforms in a process that began in 2015. Also in the plus column, the export and investment promotion agencies CINDE and the Costa Rican Foreign Trade Promoter (PROCOMER) have done an excellent job of protecting the Free Trade Zones (FTZs) from new taxes by highlighting the benefits of the regime, promoting local supply chains, and using the FTZs as examples for other sectors of the economy. Nevertheless, Costa Rica’s political and economic leadership faces a difficult balancing act over the coming years as the country must simultaneously exercise budget discipline as it faces Covid-19 driven turmoil and an ever increasing demand for improved government-provided infrastructure and services.
|TI Corruption Perceptions Index||2020||42 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2020||74 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||56 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||USD 1.5bill||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||USD 11,700||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 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.
PROCOMER and 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, PROCOMER, 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, which began in 2015, resulted in a wide swath of legal and technical changes across the economy that should help the economy function in a more just and competitive manner. Toward that goal, the OECD will continue to monitor Costa Rican progress in a number of areas and will publish periodic progress updates and sector analysis that may be useful to prospective investors. A comprehensive review of the Costa Rican economy was published by the OECD at the conclusion of the accession process, which offered valuable insights into challenges faced by the economy, “OECD Economic Surveys Costa Rica 2020: https://www.oecd.org/countries/costarica/oecd-economic-surveys-costa-rica-2020-2e0fea6c-en.htm . In the same context, the OECD offers a review of international investment in Costa Rica: https://www.oecd.org/countries/costarica/OECD-Review-of-international-investment-in-Costa-Rica.pdf .
Additionally, in recent years the OECD has published a number of reports focused on specific aspects of economic growth and investment policy – several of these reports are referenced elsewhere in this report. For the index of OECD reports on Costa Rica, go to https://www.oecd.org/countries/costarica/3/ .
The World Trade Organization (WTO) conducted its 2019 “Trade Policy Review” of Costa Rica in September of that year. Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries’ trade and related policies are examined and evaluated at regular intervals: https://www.wto.org/english/tratop_e/tpr_e/tp492_e.htm .
The United Nations Conference on Trade and Development (UNCTAD) produced in 2019 the report Overview of Economic and Trade Aspects of Fisheries and Seafood Sectors in Costa Rica: https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2583 .
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). Legal fees are the biggest single business start-up cost, as all firms registered to individuals must hire a lawyer for a portion of the necessary paperwork. Crearempresa is rated 17th of 33 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 National Institute for Women (INAMU), National Training Institute (INA), the Ministry of Economy (MEIC), and PROCOMER through its supply chain initiative have all collaborated extensively to promote small and medium enterprise with an emphasis on women’s entrepreneurship. In 2020, INA launched a network of centers to support small and medium-sized enterprises based upon the U.S. Small Business Development Center (SBDC) model.
Within the World Bank’s “Doing Business” evaluation for 2020, http://www.doingbusiness.org , Costa Rica is ranked 144/190 for “starting a business”, with the process taking 10 days.
The Costa Rican government does not promote or incentivize outward investment. Neither does the government discourage or restrict domestic investors from investing abroad.
3. Legal Regime
Transparency of the Regulatory System
Costa Rican laws, regulations, and practices are generally transparent and meant to foster competition in a manner consistent with international norms, except in the sectors controlled by a state monopoly, where competition is explicitly excluded. 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://tramitescr.meic.go.cr/ . Accounting, legal, and regulatory procedures are transparent and consistent with international norms. The stock and bond market regulator SUGEVAL requires International Accounting Standards Board for public companies, while the Costa Rican College of Public Accountants (Colegio de Contadores Publicos de Costa Rica -CCPA) has adopted full International Financial Reporting Standards for non-regulated companies in Costa Rica; 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. 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 on proposals. To become law, a proposal must be approved by the Assembly by two plenary votes. The signature of 10 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.
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 Republica), 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.
Costa Rica is transparent in reporting its public finances and debt obligations, including explicit and contingent liabilities. The Ministry of Finance provides updates on public debt through the year, with the debt categorized as Central Government, Central Government and Non-Financial Sector, and Central Bank of Costa Rica: https://www.hacienda.go.cr/contenido/12519-informacion-de-la-deuda-publica
The following chart covers contingent debt as of December 31, 2020: https://www.hacienda.go.cr/docs/60088ea554e11_12-2020%20Resumen%20Deuda%20Contingente%20publicar.xlsx
The General Controller’s Office produced the following 2019 report on unregistered debt, summing to 1.27 percent of GDP: https://cgrfiles.cgr.go.cr/publico/docs_cgr/2019/SIGYD_D_2019015487.pdf
The review and enforcement mechanisms described above have kept Costa Rica’s 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.
Furthermore, Costa Rica’s product market regulations are more stringent than in any other OECD country, according to the OECD’s 2020 Product Market Regulations Indicator, leading to market inefficiencies. Find this explanation as well as a detailed review of the regulatory challenges Costa Rica faces in the September 2020 OECD report on regulatory reform: https://www.oecd.org/countries/costarica/enhancing-business-dynamism-and-consumer-welfare-in-costa-rica-with-regulatory-reform-53250d35-en.htm
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 OECD standards and practices through the ongoing OECD accession process has 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. The primary criminal investigative body “Organismo de Investigacion Judicial” OIJ, is a semi-autonomous department within the Judicial 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 addresses the full range of civil, administrative, and criminal cases with a number of specialized courts. 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. Regulations and enforcement actions may be, and often are, appealed to the courts.
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 (“essential info”), 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 Antitrust Laws
Two public institutions are responsible for consumer protection as it relates to monopolistic and anti-competitive practices. The “Commission for the Promotion of Competition” (COPROCOM), an autonomous agency housed in the Ministry of Economy, Industry and Commerce, is charged with investigating and correcting anti-competitive behavior across the economy. The Telecommunications Superintendence (SUTEL) 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 has traditionally been underfunded and weak, although a law passed in 2019 is designed to change that by giving COPROCOM greater regulatory independence and sufficient operating budget.
For an analysis of opportunities for improvement in Costa Rica’s regulatory environment, including in competition and antitrust, see: https://www.oecd.org/countries/costarica/enhancing-business-dynamism-and-consumer-welfare-in-costa-rica-with-regulatory-reform-53250d35-en.htm . For the OECD assessment of competition law and policy in Costa Rica, see: https://www.oecd.org/countries/costarica/costarica-competition.htm .
Expropriation and Compensation
The three principal expropriating government agencies in recent years have been the Ministry of Public Works – MOPT (highway rights-of-way), the state-owned 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) detailed provisions for determination of a fair price and appeal of that determination on the part of the former owner; (c) 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 (d) 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. (For full detail go to https://PGRweb.go.cr/SCIJ . When reviewing the articles of the law go to the most recent version of each article.)
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, when landowners and government differ significantly in their appraisal of the expropriated lands’ value, the resultant judicial processes generally take 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 the United Nations Commission on International Trade Law (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. 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. Nevertheless, in recent years the Supreme Court has refused title to squatters on land already titled, thus removing some incentive for persistent squatters.
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, will normally be resolved within two months of the closing arguments hearing. 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 local 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 (CCA)
Centro de Resolución de Controversias. Costa Rican Association of Engineers and Architects (CFIA)
Centro Internacional de Conciliacion y Arbitraje (CICA). Costa Rican American Chamber of Commerce (AMCHAM)
Centro de Arbitraje y Mediacion/Centro Iberoamericano de Arbitraje (CAM). 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. Dispute Boards have acquired importance lately in construction contracts; with CFIA implementing new by-laws favoring the use of Dispute Boards in such contracts.
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.
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. In the tax arena, several U.S. businesses have objected to the Ministry of Finance’s aggressive stance in interpreting transfer pricing principles, compounded by what the businesses perceive as a lack of specialized judges to competently address such cases. 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 become an increasingly common dispute resolution mechanism.
The Costa Rican bankruptcy law, addressed in both the commercial code and the civil procedures code, has long been similar to corresponding U.S. law. In February 2021, Costa Rica’s National Assembly approved a comprehensive bankruptcy law reform #21.436 “LEY CONCURSAL”. As of late March 2021, the bill was waiting to be signed by the President and published in the official Gazette. It will come into effect six months after publication.
The new law will ease bankruptcy processes and help companies in financial distress to move through the “administrative intervention” intended to save the companies. The previous law too often ended with otherwise viable companies ceasing operations, rather than allowing them to recover, due to a bias towards dissolution of companies in distress. The new law simplifies processes in court, reduces time and costs, and allows judges to act fast, with a system that is clear and expeditious.
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 2020 “Doing Business” report, Costa Rica ranked #137 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. PROCOMER is in charge of the first three programs and companies may choose only one of the three. As of early 2021, 522 companies are in the free trade zone regime, 90 in the inward processing regime, and 10 in duty drawback.
ICT administers the tourism incentives; through 2020 over 1,126 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. See their most recent study of the benefits of FTZ regime for the broader economy on PROCOMER’s website.
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.
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. Under law #8968 ‒ Personal Data Protection Law – and its corresponding regulation, companies must notify the Data Protection Agency (PRODHAB) of all existing databases from which personal information is sold or traded. Databases pay an annual registration fee.
Costa Rica does not require any IT providers to turn over source code or provide access to encryption. 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, the National Registry, the government entity that records property titles, has been successfully targeted on occasion with fraudulent filing, which has led in some cases to overlapping title to real property. Costa Rican law allows long-time occupants of a property belonging to someone else (i.e. squatters) to eventually take legal possession of that property if unopposed by the property 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 49th of 190 for ease of “registering property” within the World Bank 2020 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. In the 2019 United States Trade Representative (USTR) Special 301 Report, USTR noted the substantial progress made by Costa Rica in protecting IPR. As a result, USTR did not include Costa Rica in the 2020 or 2021 Special 301 reports. Costa Rica was not listed in USTR’s 2020 Review of Notorious Markets for Counterfeiting and Piracy.
Costa Rica is a signatory of many major international agreements and conventions regarding intellectual property. Building on the existent regulatory and legal framework, the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) required Costa Rica to strengthen and clarify its IPR regime further, with several new IPR laws added to the books in 2008. Prior to that, the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) took effect in Costa Rica on January 1, 2000. In 2002, Costa Rica ratified the World Intellectual Property Organization (WIPO) Performances and Phonograms Treaty and the WIPO Copyright Treaty.
The IP Registry presented two bills to the General Directorate of the National Registry on January 12, 2021 for approval before sending to the National Assembly for final approval. In 2020, the IP Registry drafted a bill that will include the new proposed reform of the Law on Invention Patents, Industrial Designs, and Utility Models. This bill will adjust the current law to international standards to make it a more useful tool for the promotion of innovation in the country. Additionally, the National Registry merged the Law on Copyrights and Related Rights and the Law on Procedures for the Enforcement of Intellectual Property Rights into a single draft bill, with the aim of incorporating the provisions of the Marrakesh Treaty to Facilitate Access to Published Works for Persons Who Are Blind, Visually Impaired or Otherwise Print Disabled and the Beijing Treaty on Audiovisual Performances.
On June 22, 2020, the General Directorate of the National Registry merged the Registry of Industrial Property and the Registry of Copyright and Related Rights into a single Registry of Intellectual Property, improving the National Registry’s efficiency and fulfilling a reform called for in the National Registry Law from 2010.
While online piracy remains a concern for the country, in February 2019, Costa Rica modified the existing regulation on internet service providers (ISPs) to shorten significantly the 45 days previously allowed for notice and takedown of pirated online content, creating an expeditious safe harbor system for ISPs in Costa Rica. To meet a longstanding CAFTA-DR requirement mandating government use of legal software, in March 2020, the National Registry launched LegalSoft, a new software program to track software licenses and renewal dates across 95 government institutions, with all agencies set to report by July 2020, followed by external audits to verify implementation. With the tracking program now in place, Costa Rica has a systematic solution for monitoring and ensuring the purchase and use of legal software.
In August 2020, Costa Rica’s Intellectual Property Registry launched a WIPO online platform that will allow interested parties to submit online applications to register trademarks. The online service has improved efficiency and encouraged registrations from small-to-medium-sized companies across the country. During 2019, the National Registry of Industrial Property announced implementation of TMview and DesignView, search tools that allow users to consult trademarks and industrial design data.
The Costa Rican government does not release official statistics on the seizure of counterfeit goods, but the Chamber of Commerce compiles statistics from Costa Rican government sources: http://observatorio.co.cr/ In 2020, Costa Rica’s Economic Crimes Prosecutor investigated 14 IPR cases, down from the totals in the last four years. As in years past, prosecutors ultimately dismissed several cases due to lack of interest, collaboration, and follow-up by the representatives of trademark rights holders. Government authorities complained that the lack of response by trademark representatives is a recurring behavior dating back to at least 2016 and may explain the drop in IPR cases. In 2020, the Prosecutor’s Office established a specialized cybercrime unit with the purpose of improving the country’s response toward computer-oriented crimes, including copyrights infringements. The Costa Rican government publishes statistics on IPR criminal enforcement at http://www.comex.go.cr/estad percentC3 percentADsticas-y-estudios/otras-estad percentC3 percentADsticas/ .
On September 4, 2019, Costa Rican Customs issued an executive decree titled “Contact of the Representatives of Intellectual Property Rights for Enforcement Issues” establishing a formal customs recordation system for trademarks that allows customs officers to make full use of their ex officio authority to inspect and detain goods. Under the decree, customs offices have the power to include new trademark rights holders in a formal database for use by customs officials in the field. As of 2020, 150 trademarks are included in this database.
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
Resources for Rights Holders
Contact at the U.S. Embassy in Costa Rica:
Attention: Investment Climate Statement
Embassy San Jose, Costa Rica
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 10 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 in recent years 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. 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 by August 2020 at 81.5 percent (the percentage of adults over the age of 15 holding a bank account). Non-resident foreigners may open what are termed “simplified accounts” in Costa Rican financial institutions, while resident foreigners have full access to all banking services.
The banking sector is healthy, although the 2020 non-performing loan ratio of 2.46 percent of total loans as of December 2020 would be significantly higher if not for Covid-19 temporary regulatory measures allowing banks to readjust loans. The state-owned commercial banks had a higher 3.24 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 those state-owned banks were approximately USD 29.5 billion in December 2020, while consolidated total assets of the eleven private commercial and cooperative banks were about USD 21.5 billion. Combined assets of all bank groups (public banks, private banks and others) were approximately USD 63.1 billion as of December 2020. As of February 2020, Costa Rica adopted a deposit guarantee fund and bank resolution regime for the financial system, ending the previous much-criticized situation in which only publicly owned banks benefitted from de-facto state guarantees.
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 and direct transfer mechanism “SINPE” through which clients transfer money to and from accounts with any other account in the financial system. The Central Bank’s governance structure is strong, having benefitted in 2019 from reforms that increase the Bank’s autonomy from the Executive Branch.
Foreign banks may establish both full operations and branch operations in the country under the supervision of the banking regulator SUGEF. The Central Bank has a good reputation and has had no problem maintaining sufficient correspondent relationships. Costa Rica is steadily improving its ability to ensure the efficacy of anti-money laundering and anti-terrorism finance. The Costa Rican financial sector in broad terms appears to be satisfied to date with the available correspondent banking services.
The OECD 2020 report “review of the financial system” for Costa Rica is an excellent resource for those seeking more detail on the current state of Costa Rica’s financial system: https://www.oecd.org/countries/costarica/Costa-Rica-Review-of-Financial-System-2020.pdf .
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, 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. Spain, Germany, and Mexico 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 total of 28 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, 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. The 2020 OECD report “Corporate Governance in Costa Rica” reports that Costa Rican SOE employment is 1.9% of total employment, somewhat below the OECD average of 2.5%. 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 (CGR) “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 SOEs may be found in the CGR “Sistema de Informacion de Planes y Presupuestos (SIPP)”.
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.
- According to Law 7200, electricity generated privately must be purchased by public entities and the installed capacity of the private sector is limited to 30 percent of total electrical installed capacity in the country: 15 percent to small privatelyowned renewable energy plants and 15 percent to larger “buildoperatetransfer” (BOT) operations.
- Telecoms and technology sector companies have called attention to the fact that government agencies often choose SOEs as their telecom services providers despite a full assortment of privatesector 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 noncompetitive award of contracts to public entities (also termed “direct purchase”) when functionaries of the awarding entity certify the award to be an efficient use of public funds. CAMTIC has compiled detailed statistics showing that while the yearly total dollar value of Costa Rican government direct purchases in the IT sector under Article 2 has dropped considerably from USD 226 million in 2017, to $72.5 million in 2018, USD 27.5 million in 2019, and USD 7.1 million in 2020, the number of purchases has actually increased from 56 purchases in both 2017 and 2018 to 86 in 2019 and 83 in 2020.
- The stateowned insurance provider National Insurance Institute (INS) has been adjusting to private sector competition since 2009 but in 2020 still registered 70 percent of total insurance premiums paid; 13 insurers are now registered with insurance regulator SUGESE: ( https://www.sugese.fi.cr/SitePages/index.aspx ). Competitors point to unfair advantages enjoyed by the stateowned 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 is working to adhere to the OECD Guidelines on Corporate Governance for SOEs ( www.oecd.org/daf/ca/oecdguidelinesoncorporategovernanceofstate-ownedenterprises.htm ). For more information on Costa Rica’s SOE’s, see the OECD Accession report “Corporate Governance in Costa Rica”, dated October 2020: https://www.oecd.org/countries/costarica/corporate-governance-in-costa-rica-b313ec37-en.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). However, in response to the growing fiscal deficit, the current administration has signaled willingness to privatize two relatively minor state owned enterprises: the state liquor company (Fanal), and the International Bank of Costa Rica (Bicsa).
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.
Multinational enterprises in Costa Rica have not been associated in recent decades in any systematic or high-profile way with alleged human or labor rights violations. The Costa Rican government maintains and enforces laws with respect to labor and employment rights, consumer protection and environmental protection. Costa Rica has no legal mineral extraction industry with its accompanying issues, but illegal small scale gold mining, particularly in the north of the country, is a focal point of serious environmental damage, organized crime, and social disruption. 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 https://www.comex.go.cr/punto-nacional-de-contacto/ or http://www.oecd.org/investment/mne/ncps.htm ).
Costa Rica has been a participant since 2011 in the Montreux Document reaffirming the obligations of states regarding private military and security companies during armed conflict.
Department of State
- Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);
- Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-report/);
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;
- North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf)
Department of Labor
- Findings on the Worst forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings ) and;
- List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods).
- Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;
- Comply Chain (https://www.dol.gov/ilab/complychain/).
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 347-360). Entrepreneurs may not deduct the costs of bribes or any other criminal activity as business expenses. In recent decades, 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.
For further material on anti-bribery and corruption in Costa Rica, see the OECD study: https://www.oecd.org/countries/costarica/costa-rica-has-improved-its-foreign-bribery-legislation-but-must-strengthen-enforcement-and-close-legal-loopholes.htm
Also on the OECD website, information relating to Costa Rica’s membership in the OECD anti-bribery convention: https://www.oecd.org/countries/costarica/costarica-oecdanti-briberyconvention.htm
Resources to Report Corruption
Contact within government Anti-Corruption Agency:
Name: Armando López Baltodano
Title: Procurador Director de la Area de la Etica Publica, PGR
Organization: Procuraduria General de la Republica (PGR)
Address: Avenida 2 y 6, Calle 13. San Jose, Costa Rica.
Telephone Number: 2243-8330, 2243-8321
Email Address: email@example.com
Contact at “watchdog” organization:
Evelyn Villarreal F.
Asociación Costa Rica Íntegra
Tel:. (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. Some crime in Costa Rica is associated with the illegal drug trade. 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
In 2020, the Covid-19 pandemic affected employment significantly by decreasing the number of employed persons. In general, the loss of employment affected women the most, as shown by a lower participation in the labor market compared to 2019. The National Statistics Institute (INEC) reported that during the last quarter of 2020, the labor force reached 60.8 percent, 2.1 percentage points below the same period in 2019. The unemployment rate remained high at 20 percent (16.4 percent among males and 25.2 percent among females), 7.6 percentage points higher than the same period in 2019 (the unemployment rate peaked at 24.4 percent during the second quarter of 2020). During the last quarter of 2020, 43.3 percent of the non-agricultural workforce was in the informal economy. In 2020, informal employment decreased to 44.1 percent (compared to 46.3 percent in in 2019) because of the loss of nearly 237,000 jobs, mainly affecting women and independent workers. From November 2020 to January 2021, the unemployment rate maintained a downward trend, reaching 19.1 percent.
The Costa Rican labor force has high educational standards. 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 growth of Costa Rica’s service, tourism, and technology sectors has stimulated demand for English-language speakers. The pool of job candidates with English and technical skills in the Central Valley is sufficient to meet current demand. However, the current finite number of job candidates with these skills limits the ability of foreign and local businesses to expand operations. In 2020, the U.S. Embassy provided support for English language education during the Covid-19 crisis, including virtual programs to improve English language learning and teaching.
The March 2020 border closure due to the pandemic caused a shortage of foreign labor in the agricultural sector throughout 2020, seriously affecting the coffee harvest, which depends almost entirely on foreign labor from Panama and Nicaragua. Initially, the government implemented a temporary program for undocumented migrants who were already in the country. Later, the government allowed a controlled entry of foreign migrant workers through the northern border under strict sanitary measures. The government also allowed entry of indigenous migrant workers through the southern border.
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 ensuring 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’s 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 (Labor Capitalization Fund (Fondo de Capitalizacion Laboral, FCL), as well as the notice of termination of employment (preaviso) and severance pay (cesantia). The FCL, which is funded through employer contributions, functions as an unemployment insurance; the employee can withdraw the savings every five years if the employee has worked without interruption for the same employer. 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 voluntarily establish an unemployment fund.
In response to government-ordered temporary business closures due to the Covid-19 pandemic, in 2020, the Labor Ministry implemented the temporary suspension of employment contracts, a procedure established in the Labor Code, which grants employers the option of stopping the payment of wages temporarily during an emergency. Executive orders (Nos. 42522-MTSS and 42248-MTSS) established the procedures for employers to request the temporary suspension of labor contracts with their employees. Employers requested the suspension of contracts through the Labor Inspectorate of the Labor Ministry.
The National Assembly approved a new law to reduce working hours during the pandemic. Under the law, if income in a company decreases by 20 percent, compared to the income during the same month in 2019 or compared to the income of the previous three months, the employer can reduce the employees’ working hours and salaries up to 50 percent. If the decrease in income is greater than 60 percent, the reduction in salary can reach 75 percent. Legislators initially authorized this reduction for three months and employers could request extensions for two equal terms (9 months) and then to five terms (15 months) as the emergency continued.
The National Assembly authorized the employees, whose labor contracts were terminated or suspended or whose salaries were reduced during the state of emergency declaration, to withdraw their contributions to the FCL plan (Law 9839).
Costa Rican labor law and practice allows some flexibility in alternate schedules; nevertheless, it is based on a 48-hour week made up of eight-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 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. The government has been actively exploring ways to introduce more flexibility into the labor code to facilitate teleworking and flexible work schedules.
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. Most unions are in the public sector, including in state-run enterprises. Collective bargaining agreements are common in the public sector. “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 2020 statistics, 98.8 percent of government employees are union members as compared to 3.6 percent in the private sector. In 2020, the Labor Ministry reported 118 collective bargaining agreements, 84 with public sector entities and 34 within the private sector, covering 11.8 percent of the working population. The Ministry reported a total of 119 “direct agreements” mainly in the agriculture sector during 2020, as compared to 149 in 2019.
In the private sector, many Costa Rican workers join “solidarity associations,” through 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 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’s regulations establish that conciliation is the mechanism to solve individual labor disputes, as defined in the Alternative Dispute Resolution (ADR) 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 alternative 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.
Child and adolescent labor is uncommon in Costa Rica, and it occurs mainly in agriculture in the informal sector. In 2020, the government published the results of a child labor risk identification model and a strategy to design preventive measures at local level. It also began to implement a pilot project for the prevention of child labor in two at-risk cantons in the province of Limón.
Chapter 16 of the U.S.-Central American Free Trade Agreement obliges Costa Rica to enforce its laws that defend core international labor standards. The government, organized labor, employer 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.
The government enacted the following labor-related laws: on March 23, 2020, the reduction of working hours in the private sector during the national emergency (Law No. 9832) and its amendment (dated January 13, 2021) extending the reduction of working hours during the national emergency (Law No. 9937); on April 3, 2020, authorization to withdraw the FCL funds by employees affected by the economic crisis (Law No, 9839); and on July 18, 2020, moving national holidays to Mondays to boost domestic tourism from 2020 to 2024 (Law No. 9875).
The National Assembly has been discussing a public employment reform bill that aims to establish the same salary for equal responsibilities in the public sector, eliminating different wage systems and salary bonus structures, which would reduce the fiscal deficit.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|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)||2019||$61,801||2019||$61,801||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2020||$25,682||2019||$1,521||BEA data available at
|Host country’s FDI in the United States ($M USD, stock positions)||2020||$124||2019||$-199||BEA data available at
|Total inbound FDI as % host GDP||2019||4.3%||2019||4.1%||UNCTAD data available at
|* Source for Host Country Data: Costa Rica’s Central Bank BCCR is the source for GDP and FDI statistics. Year-end data is published March 31 of the following year.|
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||43,564||100%||Total Outward||3,446||100%|
|The Netherlands||1,724||4.0%||United States||128||3.7%|
|“0” reflects amounts rounded to +/- USD 500,000.|
|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 United States and Colombia following. The source of this information on direct investment positions is the IMF’s Coordinated Direct Investment Survey (CDIS) site (http://data.imf.org/CDIS).|
|Portfolio Investment Assets|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||3,026||100%||All Countries||1,776||100%||All Countries||1,249||100%|
|United States||1,729||57%||United States||871||49%||United States||859||69%|
|The source of this information is the IMF Coordinated Portfolio Investment Survey (CPIS), June 2020. https://data.imf.org/?sk=B981B4E3-4E58-467E-9B90-9DE0C3367363&sId=1481577785817|
14. Contact for More Information
Attention: Investment Climate Statement
Embassy San Jose, Costa Rica