RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q3/CRI/3
26 April 2002
(02-2412)
Committee on Subsidies and
Countervailing MeasuresOriginal:  Spanish
SUBSIDIES
Requests Pursuant to Article 27.4 of the Agreement on Subsidies and Countervailing Measures
Replies to Questions Posed by AUSTRALIA1and the UNITED STATES2
Regarding the Notification of COSTA RICA3
The following communication, dated 24 April 2002, has been received from the Permanent
Mission of Costa Rica.
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QUESTIONS POSED BY AUSTRALIA
1. Could Costa Rica outline the criteria for qualifying for tax and import duty exemptions
under the Free Zone Regime and Inward Processing Regime programmes?
Reply
The following types of enterprise qualify for the Free Zone Regime:
(a) Export processing industries that manufacture, process or assemble export or re-
export goods;
(b) Commercial export enterprises that do not manufacture but simply handle, repackage
or redistribute non-traditional goods and products for export or re-export.
(c) Services enterprises and industries that export services to natural and juridicial
persons domiciled abroad, or that provide services to companies benefiting from the
Free Zone Regime, provided those services are directly linked to those companies'production process;
(d) Enterprises engaged in the administration of industrial estates intended for the
location of enterprises under the Free Zone Regime, provided the estates meet the
minimum infrastructure and service-availability requirements established by theregulations of this law.
                                                     
1 G/SCM/Q3/CRI/1.
2 G/SCM/Q3/CRI/2.
3 Documents G/SCM/N/74/CRI and G/SCM/N/71/CRI.G/SCM/Q3/CRI/3
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(e) Enterprises or other bodies engaged in scientific research with a view to improving
the level of technology of industrial or agro-industrial activity and foreign trade in
Costa Rica.
(f) Enterprises that operate shipyards and floating or dry docks for the purpose of
shipbuilding, repair or maintenance.
Commercial export enterprises do not qualify for exemptions from taxes on remittances
abroad, profits tax, or any other taxes for which the tax base is determined by net or gross earnings,
dividends paid to shareholders, income or sales.  In this respect, it should be noted that most
enterprises under the Free Zone Regime are engaged in export processing or the provision of services,
rather than being commercial export enterprises.
Banking, financial and insurance companies located in free zones are ineligible for the
benefits of this programme.  Similarly, natural or juridical persons engaged in providing professional
services do not qualify for the Regime.
Any enterprise that so requests is eligible for the Inward Processing Regime, provided it
adopts one of the following modalities:
• 100 per cent re-export: enterprises qualifying under this modality may not sell their
products on the local market;
• re-export and local sales: under this modality, enterprises may either re-export goods
or sell them on the local market.
Enterprises operating under the local sales modality are liable to pay the full amount of taxes
on any goods intended for definitive import.  On clearance through customs of any machinery and
equipment under the Inward Processing Regime, they are required to pay a tax amount calculatedaccording to the percentage of local sales in relation to the total sales of the enterprise.
Beneficiaries of the regime are required to:  submit reports on all their operations;  keep a
register of operations carried out under the Regime, prior to further operations taking place;  request
authorization from the General Customs Directorate to operate as a customs service auxiliary;  storeany goods imported under the Regime on authorized premises;  maintain separate records of
inventories and accounting books of the operations carried out under the Regime; comply with
customs legislation;  etc.
2. Are these exemptions contingent on export performance?
Reply
Yes, the incentives granted to companies benefiting under the Free Zone Regime and Inward
Processing Regime are contin gent on export performance.
3. Are these targeted at particular industry sectors?  Which industry sectors have
benefited under these programmes?
Reply
Neither the Free Zone Regime nor the Inward Processing Regime are targeted at particular
sectors or industries.G/SCM/Q3/CRI/3
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Most of the enterprises benefiting under the Free Zone Regime belong to the following
manufacturing subsectors, inter alia :  yarn, textiles and clothing;  electronics industry;  jewellery;
medical apparatus;  plastic manufacturing;  electrical equipment;  metallurgy, machines and
apparatus;  furniture;  paper, card and products thereof;  fish and shellfish;  hides, leathers andproducts thereof;  personal hygiene products;  glass products;  chemical and pharmaceutical products;
software and marine transport vehicles.
Most of the enterprises benefiting under the Inward Processing Regime belong to the
following manufacturing subsectors, inter alia :  yarn, textiles and clothing;  metallurgy, machines and
apparatus;  maintenance services;  electronics industry;  fish and shellfish;  plastics, rubber and
products thereof;  furniture;  paper, card and products thereof;  marine transport vehicles;  footwear;chemical and pharmaceutical products and services.
4. Does the Inward Processing Regime operate as a duty drawback scheme?
Reply
No, the Inward Processing Regime in Costa Rica does not operate as a duty drawback
scheme.
Under this Regime, the State authorizes enterprises to import raw materials and machinery
into national customs territory exempt from all import duties and taxes.  The raw materials must be
processed, repaired, rebuilt, assembled, installed etc., for subsequent re-export or local sale.  If the
goods are sold locally, the enterprise must pay the full amount of tax.
In contrast, duty drawback schemes generally consist of State authorization for the refund of
amounts already paid or taxes deposited with the Treasury, as a consequence of the definitive import
of raw materials or machinery, provided they are exported within the period established under
domestic law.
Thus, the Inward Processing Regime in Costa Rica is an import duty exemption scheme,
whereas a duty drawback scheme involves the refund of import duties by the State.
QUESTIONS POSED BY THE UNITED STATES
1. Could Costa Rica please explain wheth er these programmes provide any incentives
apart from the full or partial exemption from import duties and internal taxes?
Reply
Subsidies under the Free Zone Regime consist of the grant of the following incentives to
enterprises:
(a) Exemption from any taxes or fees on imports of raw materials, processed or semi-
processed products, components and parts, wr apping materials and packaging, as well
as other goods and materials needed for their operations;
(b) exemption from any taxes or fees on imports of machinery, equipment, accessories
and parts, as well as any motor vehicles needed for their operating, production,
administrative and transport requirements;G/SCM/Q3/CRI/3
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(c) exemption from all taxes and fees on the import of fuel, oil and lubricants needed for
their operations;
(d) Exemption from all taxes associated with the export or re-export of goods:  this
exemption shall be granted for the re-export of manufacturing machinery andequipment from free zones that have been imported under the Regime.
(e) exemption for ten years from the payment of taxes on the company's capital and net
assets, as well as from land and property transfer taxes.  The exemption from the
payment of land tax was abolished in June 1995;
(f) exemption from sales and consumption taxes on the purchase of goods and services;(g) exemption from all taxes levied on remittances abroad;(h) exemption from all profits taxes, as well as from any other taxes for which the tax
base is calculated in relation to net or gross earnings, dividends paid to shareholders,income or sales:  this is a 100-per-cent exemption for eight years and a 50-per-cent
exemption for four years, counted from the date of initiation of operations by the
beneficiary;  for companies located in areas classed as disadvantaged regions, the
same exemptions last for twelve and six years respectively;
(i) exemption from all municipal business licences and taxes for ten years;
(j) exemption from all import and export taxes on industrial or commercial samples;(k) to help them to carry out operations smoothly, enterprises benefiting under the Free
Zone Regime are entitled to carry out in foreign currency, without charges, any
payments or contracts pertaining to international transactions or transactions with
other companies operating under the Free Zone Regime;
(l) enterprises located in disadvantaged regions are entitled to a reimbursement of 10 per
cent of the total amount of wages paid during the preceeding year;  the amount
decreases by 2 per cent each year until the reimbursement expires completely afterfive years;
(m) export processing enterprises which, having completed four years operating under the
Free Zone Regime, reinvest in the country are entitled to an additional exemption of
75 per cent of income tax payments for up to four years, depending on the amount ofthe reinvestment as a proportion of the original investment.
The subsidies under the Inward Processing Regime consist of the authorization to import
goods into the national customs territory exempt fr om all taxes in exchange for a guarantee.  The
goods must be re-exported within the period determined by the regulations, having been processed,repaired, rebuilt, assembled, installed or incorporated into units, machinery, general transport
equipment or apparatus displaying greater technological or operational complexity, or used for similar
purposes, under the conditions established by the rules and regulations adopted by the competent
administrative body for subsidies.
These exemptions remain contingent upon compliance with specific requirements established
by the laws and regulations relating to both programmes, as well as with the international
commitments adopted and undertaken by Costa Rica.G/SCM/Q3/CRI/3
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2. Please provide the normal customs duty, consumption tax and income tax rates
companies would normally pay in the absence of these programmes.
Reply
The average customs duty paid by Costa Rican importers not covered by one of the special
regimes was 6.08 per cent in 2001.
The selective consumption tax amounts to a simple average of 30.1 per cent.There are three different rates of income tax for corporate entities.  For companies with a
gross annual income of up to 16,067,000 colons, the rate stands at 10 per cent.  For companies with agross annual income exceeding that amount but not exceeding 32,320,000 colons, the rate stands at 20
per cent.  Above this amount, the rate stands at 30 per cent (the amounts indicated correspond to the
tax year 2002 and are subject to annual adjustments by the tax authorities).
3. Are subsidies under any of these programmes contingent upon the use of domestic
goods?
Reply
The incentives that constitute the subsidies granted to companies under the Free Zone Regime
and Inward Processing Regime are not contingent upon the use of domestic goods.
4. Could Costa Rica please provide statistical data on the number of companies that
benefit from each of these programmes, the industry sectors represented by these companies,
and the value of exports for these companies?
Reply
There are currently 299 companies benefiting from the Free Zone Regime.  Together, these
companies generated 47 per cent of total exports from Costa Rica in 2001, whereas in 1991 the
81 companies benefiting from the Regime accounted for only 9.3 per cent of total exports.
Costa Rica:  Total Exports and Free Zone Exports
(US$ Million)
1999 2000 2001
Free Zone 3,591.9 2,980.2 2,377.5
Total exports 6,719.0 5,897.5 5,040.0
Most of the enterprises covered by the Free Zone Regime belong to the following
manufacturing subsectors, inter alia :  yarn, textiles and clothing;  electronics industry;  jewellery;
medical apparatus;  plastic manufacturing;  electrical equipment;  metallurgy, machines and
apparatus;  furniture;  paper, card and products thereof;  fish and shellfish;  hides, leathers and
products thereof;  personal hygiene products;  glass products;  chemical and pharmaceutical products;
software and marine transport vehicles.
In 2001, 121 companies benefited from the Inward Processing Regime, accounting for
approximately 7 per cent of total exports from Costa Rica during that year.G/SCM/Q3/CRI/3
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Costa Rica:  Total Exports and Inward Processing Regime Exports
(US$ Million)
1999 2000 2001
Inward Processing 370.5 392.3 345.0
Total exports 6,719.0 5,897.5 5,040.0
Most of the enterprises covered by the Inward Processing Regime belong to the following
manufacturing subsectors, inter alia :  yarn, textiles and clothing;  metallurgy, machines and
apparatus;  maintenance services;  electronics industry;  fish and shellfish;  plastics, rubber and
products thereof;  furniture;  paper, card and products thereof;  marine transport vehicles;  footwear;chemical and pharmaceutical products and services.
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