FREE zones, known locally as Zonas Francas, are one of the most dynamic sectors of the Costa Rican economy. They are home to many of the country’s top exporters and receive an important part of the country’s foreign direct investment.
Costa Rican businesses planning to begin exporting and foreign firms looking to set up shop here have the option of moving into one of the many industrial parks that offer free-zone privileges located throughout the Central Valley.
A free trade zone is an area within a country designated as “outside customs territory.” Importers are allowed to bring foreign goods into the free zone without having to pay import duties or taxes, pending the goods will be processed, shipped or re-exported.
In Costa Rica, the free-zone regimen is granted to firms that propose an initial new investment of at least $150,000 or its equivalent in colones.
SMALL businesses (fewer than 20 employees) that associate to perform processing activities for exports which collectively reach the minimum amount of required investment can also apply for free-zone status.
The Foreign Trade Promotion Office (PROCOMER) is the institution in charge of awarding free-zone status to export firms.
Businesses operating in free zones benefit from 100% tax-exemptions on imports of raw materials, parts, machinery and equipment required for operation.
They also are exempt from paying sales and consumer taxes on the purchase of goods and services, and taxes associated with the export and re-export of products, taxes of net capital, property and real estate transfers and municipal licenses.
They are allowed to import work vehicles (pick-ups, trucks and vehicles with room for 15 or more people) duty-free.
FREE-ZONE companies involved in export processing industries and services are 100% exempt from paying taxes on profits during their first eight years in the country. During the following four years they must pay 50% of property taxes. After that they are required to pay regular taxes.
Trading companies receive a 100% exemption during their first four years and 50% exemption during the following two years. After the periods expire, the companies must pay regular taxes.
“The fiscal exemptions are very important,” said Timothy Scott, executive director of the Association of Costa Rican Free-Zone Businesses (AZOFRAS). “However, there are other elements such as the political and social stability, the geographic situation – particularly in the case of companies that export to North America, the trade policies the country has adopted that allow it to access a large number of markets with tariff benefits, and a highly qualified workforce capable of learning new processes rapidly.”
THE growing demand for space in free zones has fostered healthy competition between many of the country’s largest industrial parks. All parks offer 24-hour security, modern telecommunications infrastructure and other amenities.
UltraPark Free Zone and BusinessCenter (www.ultrapark.com, 293-3333) in Heredia, just three kilometers from JuanSantamaríaInternationalAirport, is one of the country’s largest and most modern free zones. In recent years, it has been dedicated primarily to serving the needs of science, information services and technology companies.
Offices range in size from 150 to 3,300 square meters. About 85% of the 14-acre complex is occupied. It is home to the regional offices of several large multinational firms including French telecom giant Alcatel, pharmaceutical companies Pfizer and Roche.
UltraPark expects to continue growing in the coming years and is in the process of constructing an eighth office building with 24,000 square meters of available office space.
“LAST year was a good year. A few U.S. and local companies moved into the park,” explained Monica Montoya of UltraPark. “We expect the situation to definitely improve this year. So far this year, we’ve seen a lot of movement from foreign firms attracted by the Costa Rican Investment Board (TT, Jan. 30).”
Global Park Free Zone and BusinessPark (www.globalparkcr.com, 209-5959), also located in Heredia across the street from Ultrapark, says it is attracting a great deal of business as well.
The 85-acre park is also home to many prominent firms including Costa Rican software developer Exactus, JuanSantamaríaAirport operation and construction concession holders Alterra Partners and pharmaceutical giant Abbot Laboratories and Sykes Enterprises’ call center, which recently moved into a new building there.
NEAR the airport, Saret Zona Franca (www.gruposaret.com, 443-0001) is a free zone geared primarily toward industrial production, including several textile firms.
Saret’s General Construction Division can be commissioned to construct custom offices for companies moving into the 26-acre industrial park.
Saret also runs a Free Zone industrial park in the western province of Puntarenas.
ForumOffice Park and Euro Plaza Diursa (see related story) also offer freezone privileges inside their office centers for companies that meet the requirements.
However, despite the recent growth in the number of free-zone parks, a shadow hangs over the sector. The fiscal exemptions and other benefits free zones receive are supposed to expire in 2009, once World Trade Organization agreements on the elimination of export subsidies go into effect.
WITHOUT these benefits, it is possible Costa Rica could become less attractive for foreign firms. Despite this, representatives of the free zones are confident a permanent solution will be found.
The original January 2003 deadline to eliminate export subsidies was already pushed back, and that might happen again.
“Free Zones are very important to the country,” Montoya said. “They are responsible for nearly 60% of exports. They can’t disappear.”