Government Proposes 15% Tax in Free Zones

August 4, 2006

The Arias administration is pushing a plan that would require businesses in free zones to pay 15% income tax starting in 2010, a cost that could be reduced if companies meet certain requirements.

The proposed tax comes in the wake of a mandate from the World Trade Organization requiring direct incentives for exports to expire as of Jan. 1, 2010, said Minister of Foreign Trade Marco Vinicio Ruiz on the radio station “Monumental.”

In Costa Rica, businesses in designated free zones do not have to pay income taxes. But the proposed tax would change that, and would prompt Costa Rica to find other benefits to attract direct foreign investment, Ruiz said.

He clarified that the initial 15% tax would decrease to 5% for businesses in strategic sectors, businesses that create jobs, businesses that set up shop in zones of low development, and businesses that lead in training investment.

The minister said such plans “have proven to be successful” in many countries, and that the government will send the proposal to the Legislative Assembly next month.

Ruiz stressed the importance of free zone firms in Costa Rica, which account for “more than 40,000 high quality jobs, with salaries three or four times higher than the minimum, that employ the best workers in the country and have brought training and technology.”

If lawmakers approve the proposed tax, the Costa Rican government will look to attract foreign direct investment by improving the country’s service sector and infrastructure, Ruiz said.

 

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