Costa Rica: Offshore Business Sectors

Although Costa Rica is not an offshore financial center in the traditional sense its favorable tax regime means that it could have been classified as a tax haven some decades ago. However it was not until fairly recently that the Government became aware of its tax haven potential and began actively to both legislate for and market this sector of economic activity.

Costa Rica has many characteristics which give it a distinct advantage over other offshore jurisdictions including (as with Hong Kong) a perceived onshore jurisdictional status, very low taxes (see Domestic Corporate Taxation and Offshore Legal and Tax Regimes for further details) and a fiscal policy which does not discriminate between residents and non-residents for tax purposes.

A significant offshore banking industry does not as yet exist principally because the industry was only released from the shackles of state control in 1996. The lively domestic banking industry is described below.

There is no offshore insurance industry since the insurance sector remains under state control with significant political resistance being mounted against its privatization

The country's biggest low-tax sector is grouped around the Free Zones (Export Processing Zones) and other export incentive programmes. These cover a wide variety of industry and service sectors, but special mention is given to the electronics sector below.

Costa Rica Banking

The state banking monopoly ended in 1995 and by 2009 there were more than 200 financial institutions in Costa Rica, in addition to a rapidly growing 'offshore' banking sector. Banking matters are governed by law No 1644 of 1953 as amended by law No 7558 of 1995 (known as the Organic Law of the National Banking System).

Financial institutions in Costa Rica are regulated by the Central Bank, through the General Superintendant of Financial Entities (SUGEF). The revised legislation reduced the reserve liquidity requirements to 15% of the value of the balance sheet, prohibits loans to an individual customer which exceed 20% of a bank's capital and specifies that a bank's capital cannot be less than 9% of its loans.

Finance and credit companies that take deposits from the general public require a license from the central bank and must have a minimum capital of 300 million colons.

The 'offshore banking' sector, which consists of foreign (for instance, Panamanian) banks which license Costa Rican companies to provide services to them, is virtually unregulated; such banks do not pay the 15% withholding tax normally imposed on interest payments. As of late 2008, the Central Bank was promoting new regulations which would bring such banks under its control.

Costa Rica has strict banking secrecy laws. The banks do not share any banking information with the tax department or with any other Government departments other than the central bank.

This general rule is qualified by an exchange of information agreement signed between the United States and Costa Rica.

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Costa Rica Electronics Sector

Costa Rica's Export Processing Zones and other investment incentive regimes provide a nearly tax-free environment for export-oriented companies in a variety of industries, but the most high-profile investor has probably been Intel, whose Costa Rican chip-manufacturing facility exports nearly $2bn worth of chips each year.

Apart from electronics manufacturing operations, there is a thriving software and it development sector in San Jose, which appropriately shares its name with Silicon Valley's main city.

The Chamber of Software Producers of Costa Rica (Caprosoft), created in 1998 by fifteen founding member software firms, was able to obtain the first technical cooperation project to increase the competitiveness of a sector software granted by the Inter American Development Bank (IADB) through its Multilateral Investment Fund (MIF).

In 2003 Caprosoft developed an intense strategic planning process which resulted in a broad national vision for creating a solid ICT cluster. The planning process and vision design took more than a year to construct and yielded the Information and Communication Technology National Strategy which was named: 'Costa Rica; Green & Smart'.

In June, 2004, Caprosoft broadened its representative remit by becoming the Costa Rican Chamber of Information and Communication Technologies (CAMTIC). Many of the organisation's members have substantial export businesses and a number of factors have assisted the growth of this industry, including: the removal of import duties on computers in the early 1980s; the availability of highly educated labour; the small size of Costa Rica's internal market which has driven companies to look for business elsewhere; and the benign fiscal regime.

CAMTIC, the Government and the Inter-American Development Bank are co-operating to try to encourage the growth of the software sector, particularly through strengthening the supply of venture capital.

In August, 2006, US computer firm Hewlett Packard announced a major expansion of its call-centre operation in Costa Rica, which already employed 3,300 staff at that time.

In September, 2008, CAMTIC welcomed the government's plan to create a National Plan of Formation of Human Resource in IT.

"The commitment of the Presidency to create a high level commission that proposes this plan in three months, is a fundamental step not only to improve the competitiveness of the sector of Technologies of Information and Communication (IT), but of all the Costa Rican economy", said Alexander Mora Delgado, President of CAMTIC.

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