What is the Free Trade Zone Regime and how does it work in Costa Rica? Learn about its benefits and how it works.

By definition, free zones are

[a] delimited territory of a country where some tax benefits are enjoyed, such as exemption from the payment of import duties on goods, as well as exemptions from some taxes or a different regulation of these taxes”.

Indeed, in Costa Rica, as established in Law No. 7210 on the Free Zone Regime, the free zone is a set of incentives and benefits granted by the Costa Rican government to companies that make new investments in the country.

Expansion is a tool for companies to reach international markets while taking advantage of economies of scale.

The Free Trade Zone Customs Regime arises from this idea. Its strategy is to attract companies that are interested in expanding their businesses, benefiting their growth and, in turn, promoting the local economy.

In fact, the Free Trade Zone regime represents approximately 50% of Costa Rica’s commercial exports.

Advantages

What is the Free Trade Zone Regime and how does it work in Costa Rica? Learn about its benefits and how it works.
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Multinational companies are driven by the various advantages of the Free Trade Zone regime.

One of them is the exemption from value added tax (VAT) because it benefits directly from the general and administrative expenses of the state of revenue.

Other advantages for companies include income tax exemption and exemption of remittances abroad.

Obligations

Although companies are granted the benefit of not paying certain taxes, they must comply with certain obligations in order to belong to the regime.

Obligations include: the design, implementation and maintenance of internal controls such as assets, facilities and equipment. In addition, they must take care of internal controls at the administrative level and, finally, they must strictly follow local laws and regulations.

All this in order to mitigate the reputational risks to which they are exposed.

In Costa Rica

What is the Free Trade Zone Regime and how does it work in Costa Rica? Learn about its benefits and how it works.
Source: Mi finanza personal

In Costa Rica, the Promotora de Comercio Exterior (PROCOMER) and the Ministry of Foreign Trade (COMEX) administer the Free Trade Zone regime.

There are seven types of companies that can join the regime (such as research companies and service companies) and can operate in all sectors except energy, arms manufacturing and trading, financial and professional services.

Each company that wants to be part of the Free Trade Zone regime must commit to invest and maintain an investment that fluctuates between $100,000 and $2 million.

During 2018, 443 companies operated under the Free Trade Zone regime. Also, 85% of these companies were located in the Greater Metropolitan Area (GAM), despite measures to encourage the creation of investments in other territories of the country.

By 2021, the Free Trade Zone regime in Costa Rica registered US$2,065 million in foreign direct investment.

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