Joining a Free Zone: How to Go About It Free Zones Mean Priveleges for Companies, Advocates Confident of Free Zones’ Future
FOR a business in Costa Rica, membershipin one of the country’s free zones,or zonas francas, can mean privilegessuch as tax exemption on imports andutilities, convenient Central Valley locations,24-hour security, modern telecommunicationsservices and the streamliningof the paperwork required to open a facilityhere.But how do interested businesses goabout obtaining free-zone status?While the Web site of the Associationof Free-Zone Businesses (AZOFRAS),www.azofras.com, offers a somewhatintimidating “Critical Path Structure FlowChart” that details the admissions procedure,the entire process of installing abusiness in an industrial park takesapproximately 30 days, association presidentTimothy Scott told The Tico Times.Installation as a free-zone business outsidean industrial park generally takes50% longer, or approximately 45 days,Scott said.BUSINESSES seeking to join a freezone won’t have to go it alone. The association’sstated goals include facilitating theadmissions process for new businesses andadvising them on the various permitsrequired.To be eligible, the business must export75% of its total production in the case ofmanufacturing businesses, or 50% for servicebusinesses.Installation in an industrial park requires an initial investment of at least$150,000, Scott said. Businesses operatingoutside an industrial park must make aninitial investment of $2 million to achievefree-zone status, he added.Businesses with 20 employees orfewer may form an association and combinetheir resources to meet this initialinvestment requirement, according to theFree Zone Law.The full requirements for membershipin a free zone are listed in Costa Rica’sFree Zone Law, available in English orSpanish on the AZOFRAS site, as well ason the Foreign Trade Ministry’s Web site,www.comex.go.cr.Required permits include a sanitarypermit from the Ministry of Health, anenvironmental impact or feasibilitystudy, customs authorityapproval, amunicipal licenseand construction orbuilding improvementpermits.Signing an operationscontract withthe Foreign TradePromotion Office(PROCOMER), theinstitution in chargeof determining free-zone eligibility, is thefinal step in the process.Once installed in a free zone, businessesare exempt from 100% of income taxesfor a period of eight years, and 50% of thetaxes for the followingfour. Businessesin underdevelopedareas receive thebenefits for 12 andsix years, respectively.The Planning andForeign Trade ministriesare in chargeof classifying areasas developed orunderdeveloped.“Underdeveloped areas are generallythe most outlying provinces, such asPuntarenas, Guanacaste and Limón,” Scottsaid. Association members are found in allthree of these regions: Mundimar, whichexports banana concentrate in Limón;Terrapez, which exports fresh tilapia inGuanacaste; and Aluminios Nacionales,which exports various aluminum productsin Puntarenas.However, only one free-zone industrialpark is found in an underdeveloped area,Scott said: Parque Saret in Puntarenas.Therefore, a business interested in theextended benefits of free-zone status in anunderdeveloped area must either installitself in Parque Saret, or make an initialinvestment of $2 million (as opposed to$150,000 for installation inside a park). REGARDLESS of location, free zonemember businesses are exempt from 100%of taxes on importation of raw materials,manufactured materials, packing materials,machinery and equipment to be used forproduction, and any other taxes associatedwith exporting or re-exporting products.Import taxes on necessary vehicles,such as cargo trucks or 15-passenger vans,are also waived, as are fuel, oil and lubricantsnot produced within Costa Rica inthe required quantities.The future of these exemptions is lessthan certain, since they are scheduled toexpire globally in 2009. Because the clockis ticking on the benefits, free zones’ statusin the tax reform package under debate inthe Legislative Assembly is under scrutiny.Some say the corporate tax rate proposedin the plan is too high and will drive businessesto neighboring countries. However,free zones are widely recognized as a hugesource of foreign investment, which proponentssay is likely to motivate legislators tokeep corporate tax rates competitive.Scott pointed out that the expiration offree-zone benefits applies to processingbusinesses such as Baxter and Intel – CostaRica’s largest exporter – but not to servicebusinesses such as Procter & Gamble,Sykes or Western Union, which are protectedunder a different World TradeOrganization agreement.“Those businesses won’t be affectedat all in 2009,” he said.ACCORDING to Scott, the costs ofconstructing or renting office space in afree zone vary greatly depending on thelocation and needs of the company in question.However, he said rent for warehousesgenerally ranges from $3.75-4.75 persquare meter, while standard office spaceruns from $9-12 per square meter.Free-zone industrial park locations inthe Central Valley include UltraPark FreeZone and Business Center (www.ultrapark.com, 293-3333) and Global Park(www.globalparkcr.com, 209-5959), inHeredia, northwest of San José, and SaretZona Franca (www.gruposaret.com,443-0001), near Juan SantamaríaInternational Airport, also northwest ofSan José.For more information on free zonemembership, visit the AZOFRAS Web siteor call the association at 293-7073.
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