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Free Trade Zone Advantages

Free Trade Zone Advantages

All FTZ companies enjoy 100% exemption for import and export duties, excise taxes, and remittances repatriation tax. FTZ companies that reside outside the Greater Metropolitan Area, and those that are considered significant suppliers, may enjoy additional tax exemptions. Other financial incentives are granted according to a company's individual circumstances:

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Main Incentives:

Manufacturing projects that export more than 75% of their Costa Rican production ($150,000 investment):

  • 100% exemption on corporate income tax (8 years, 50% exemption during the following 4 years)

Manufacturing large-scale projects ($10 million and 100 employees, no minimum export level):

  • 100% exemption on corporate income tax (8 years*, 50% exemption during the following 4 years)
  • 10% of income tax credit (profit reinvestment in fixed assets, expenses incurred in domestic and foreign training (local and resident employees); and expenses incurred in training of domestic suppliers.
  • Up to 10 years income tax deferral (companies can defer income tax payments until headquarters receive dividends from Costa Rican operation or during 10 years-whichever comes first.

Manufacturing small and mid scale projects ($150,000 investment, no minimum export level):

  • Preferential income tax rate of 6% for 8 years* and 15% during the following 4 years*
  • 10% of income tax credit (profit reinvestment in fixed assets, expenses incurred in domestic and foreign training (local and resident employees); and expenses incurred in training of domestic suppliers.

Services companies that export more than 50% of their Costa Rican production ($150,000 investment):

  • 100% exemption on corporate income tax (8 years*, 50% exemption during the following 4 years)

* An additional 8-year renewal may be granted if a significant investment is made.

Re-investment Incentives:

Companies that do business in a Free Trade Zone for four years consecutively and that have invested less than $2,000,000, and want to re-invest in Costa Rica can receive additional income taxes exemptions as follows:

  • If the re-investment is more than 25% of the original investment, the tax exemption will be one additional year.
  • If the re-investment is more than 50% of the original investment, the tax exemption will be two additional years.
  • If the re-investment is more than 75% of the original investment, the tax exemption will be three additional years.
  • If the re-investment is more than 100% of the original investment, the tax exemption will be four additional years.

Customs Preferred Point of Entry and Exit:

Most Free Trade Zones have their own Customs preferred point of entry and exit to file all the necessary paperwork to export products. The Costa Rican government now has available to export companies and their export representatives an Automated Export System (AES) that allows businesses in Free Trade Zones to file export declarations electronically 24 hours a day, seven days a week.

Access to Local Markets:

Companies that manufacture, process, operate, produce, repair, maintain, or ensemble a product to be exported worldwide in an Free Trade Zone in Costa Rica can sell up to 25% of the total sales into the Costa Rican local market. Solution partners to export companies that assess at any level the manufacturing process of products to be exported for customers based in a Free Trade Zone in Costa Rica or outside of Costa Rica can sell up to 50% of the total sales into the Costa Rican local market.

Disadvantages of Free Trade Zones:

Companies in retail, wholesale, marketing, advertising, dealership, distributorship, or tourism may not find Free Trade Zones to be beneficial, as they will not receive any significant exemptions. Furthermore, these businesses will not be permitted to sell more than 25% of their production within Costa Rica, and will not receive any exemptions while selling their products on the Central American Market.

Source: CINDE and PROCOMER

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