HomeReportsBureau of Economic and Business Affairs2017 Investment Climate Statements...Costa Rica

# 					2017 Investment Climate Statements: Costa Rica			

 In this section										/

													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

Costa Rica is the oldest continuous democracy in Latin America with moderately strong economic growth rates (four percent in 2016) and low inflation (less than one percent in 2016) providing a stable investment climate. The country’s relatively well-educated labor force, focus on English-language instruction, relatively low levels of corruption, physical location, living conditions, dynamic investment promotion board, and attractive free trade zone incentives also offer strong appeal to investors. Costa Rica’s accession process to the Organization for Economic Co-operation and Development (OECD), begun in June 2015, further benefitted the investment climate through its broad review of government policy and actions and concrete proposals to improve perceived areas of deficit. Nevertheless, the Costa Rican investment climate is threatened by a high and persistent government fiscal deficit capable of squeezing domestic credit and forcing government budget cuts, a complex and often inefficient bureaucracy, and basic infrastructure – ports, roads, water systems – in need of major upgrading. Organized crime, drug trafficking, and money laundering are also growing challenges, despite strong government efforts to counter these forces.

Costa Rica’s continued popularity as an investment destination is well illustrated by strong yearly inflows of foreign direct investment (FDI) as recorded by the Costa Rican Central Bank, reaching USD 2.88 billion in 2014 (5.7 percent of GDP) and 2.85 billion in 2015 (5.1 percent of GDP). In recent decades, the Costa Rican government through its investment promotion agency CINDE focused on attracting relatively high-tech manufacturers, such as medical device makers, and service companies that demand skilled labor, introduce new technologies and often run robust corporate social responsibility (CSR) programs. In addition, the Costa Rican Tourism Board (ICT) attends to potential investors in the very dynamic tourism sector.

Costa Rica’s high-tech and tourism sectors are legitimate “clusters” of economic growth in which each new exporter, service provider, sector employee, or university course of study adds depth to the sector as a whole and makes it more attractive for new entrants. Costa Rica has had remarkable success in the last two decades in establishing and promoting an ecosystem of export-oriented technology companies, suppliers of input goods and services, associated public institutions and universities, and a trained and experienced workforce. A similar transformation took place in the tourism sector, now characterized by a plethora of smaller enterprises handling a steadily increasing flow of tourists eager to visit despite Costa Rica’s relatively high prices. Costa Rica is doubly fortunate in that these two sectors positively reinforce each other as they both require and encourage English language fluency, openness to the global community, and Costa Rican government efficiency and effectiveness.

*Table 1*

							1. Openness To, and Restrictions Upon, Foreign Investment					

**Policies Towards Foreign Direct Investment**

Costa Rica actively courts foreign direct investment (FDI), placing a high priority on attracting and retaining high-quality foreign investment. There are some limitations to both private and foreign participation in specific sectors, as detailed in the following section.

The Foreign Trade Promotion Corporation (PROCOMER) as well as the Costa Rican Investment and Development Board (CINDE) lead Costa Rica’s investment promotion efforts. Costa Rica’s dynamic and well-respected investment promotion agency CINDE had great success over the last several decades in attracting and retaining investment in specific areas, currently services, advanced manufacturing, life sciences, light manufacturing, and the food industry. In addition, the Tourism Institute (ICT) attends to potential investors in the tourism sector. CINDE and ICT are strong and effective guides and advocates for their client companies, prioritizing investment retention and maintaining an ongoing dialogue with investors

**Limits on Foreign Control and Right to Private Ownership and Establishment**

Costa Rica recognizes and encourages the right of foreign and domestic private entities to establish and own business enterprises and engage in most forms of remunerative activity. The exceptions are in sectors that are reserved for the state (legal monopolies) or that require participation of at least a certain percentage of Costa Rican citizens or residents (electrical power generation, transport services, professional services, and aspects of broadcasting). Properties in the Maritime Zone (from 50 to 200 meters above the mean high-tide mark) may only be leased from the state and with residency requirements. In the areas of medical services, telecommunications, finance and insurance, state-owned entities dominate but that does not preclude private sector competition. Costa Rica does not have an investment screening mechanism for inbound foreign investment, beyond those applied under anti-money laundering procedures.

**Other Investment Policy Reviews**

Costa Rica’s investment policy reviews in recent years tend to be positive but qualified by a list of problems that need immediate attention, for example underfinanced infrastructure, lax intellectual property rights (IPR) enforcement, slow environmental permitting, and a persistent and growing government budget deficit. The OECD completed a comprehensive investment policy review in September 2013: http://www.oecd.org/daf/inv/investment-policy/costa-rica-investment-policy-review.htm . In 2014, Costa Rica became the 45th country to adhere to the OECD Declaration on International Investment and Multinational Enterprises. OECD accession talks for Costa Rica began in 2015; within that context the OECD in February 2016 published the “Economic Assessment of Costa Rica 2016”: http://www.oecd.org/economy/surveys/economic-survey-costa-rica.htm .

The World Trade Organization (WTO) completed its most recent trade policy review in September 2013: https://www.wto.org/english/tratop_e/tpr_e/tp386_e.htm 

**Business Facilitation**

Costa Rica’s single-window business registration website, crearempresa.go.cr, brings together the various entities – municipality and central government agencies – that must be consulted in the process of registering a business in Costa Rica. A new company in Costa Rica must typically register with the National Registry (company and capital registry), Internal Revenue Directorate of the Finance Ministry (taxpayer registration), National Insurance Institute (INS) (basic workers’ comp), Ministry of Health (sanitary permit), Social Security Administration (CCSS) (registry as employer), and the local Municipality (business permit).

The World Bank’s “Doing Business” evaluation for 2017 states that business registration takes a total of 9 steps in 22.5 days, where most of those steps are simultaneous or take one day, while the municipal business license might take 15. Notaries are a necessary part of the process and are required to use the crearempresa portal when they create a company.

**Outward Investment**

The Costa Rican government does not promote or incentivize outward investment. Neither does the government discourage or restrict domestic investors from investing abroad.

							2. Bilateral Investment Agreements and Taxation Treaties					

Costa Rica has bilateral investment treaties (BITs) in force with Argentina, Canada, Chile, the Czech Republic, France, Germany, South Korea, the Netherlands, Paraguay, Qatar, Spain, Switzerland, Taiwan, and Venezuela. The investment chapter of CAFTA-DR includes all aspects of a BIT thereby making a separate BIT with the United States unnecessary. According to the United Nations Conference on Trade and Development (UNCTAD) (http://investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu ), Costa Rica’s other in-force trade treaties with an investment component are with Mexico, Peru, Singapore, China, Panama, Caricom, Canada, and Chile.

Costa Rican and U.S. tax authorities currently coordinate under the terms of two agreements, a Taxation Information Exchange Agreement (TIEA) signed in 1989 and a U.S.-Costa Rica intergovernmental agreement titled “Agreement between the Government of the United States of America and the Government of the Republic of Costa Rica to Improve International Tax Compliance and to Implement FATCA” signed in December 2013 but not yet in force. Costa Rica has active bilateral or regional tax information exchange agreements with 15 other countries, in addition to a number of signed agreements that are not yet in force; see the Global Forum on Transparency and Exchange of Information for Tax Purposes for the full list: http://www.eoi-tax.org/jurisdictions/CR#agreements . Costa Rica is also a party to the OECD “Convention on Mutual Administrative Assistance in Tax Matters,” with Entry-Into-Force in August 2013: http://www.oecd.org/tax/exchange-of-tax-information/Status_of_convention.pdf .

The Costa Rican government in 2013 adopted a new set of transfer pricing rules, followed by their implementation regulations [DGT-R-44-2016 published by the internal revenue department (DGT) of the Finance Ministry] in September 2016, which require full implementation by subject companies by June 2017. Large transnational companies must declare and justify the transfer-pricing methods they are using in a manner consistent with international norms. Costa Rica is a member of the “Base Erosion and Profit Shifting” (BEPS) Inclusive Framework and established a commission in August 2016 to define a framework for implementation of the minimum BEPS standards to stop harmful tax practices and treaty abuse, adhere to country-by-country reporting and reform dispute resolution in transfer pricing.

							3. Legal Regime					

**Transparency of the Regulatory System**

Costa Rican laws, regulations, and practices are generally transparent and foster competition in a manner consistent with international norms, except in the sectors controlled by a state monopoly, where competition is explicitly excluded. Publicly-traded companies adhere to International Accounting Standards Board standards under the supervision of SUGEVAL, the stock and bond market regulator.

Rule-making and regulatory authority is housed in any number of agencies specialized by function (telecom, financial, health, environmental) or location (municipalities, port authorities). Tax, labor, health, and safety laws, though highly bureaucratic, are not seen as unfairly interfering with foreign investment. When applying environmental regulations, the Costa Rican organization that reviews environmental impact statements has been slow in issuing its findings, causing delays for investors in completing projects. The Association of Engineers and Architect’s review of all building plans, Costa Rica’s most prominent example of a regulatory process managed by a nongovernmental organization or private sector association, has not been the subject of U.S. investor discrimination complaints. Costa Rica is a member of UNCTAD’s international network of transparent investment procedures ( http://www.businessfacilitation.org  ). Within that context, the Ministry of Economy compiled the various procedures needed to do business in Costa Rica: https://costarica.eregulations.org/ . Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name, and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time and legal bases justifying the procedures.

Accounting, legal, and regulatory procedures are transparent and consistent with international norms. The Costa Rican College of Public Accountants (Colegio de Contadores Públicos de Costa Rica -CCPA) is responsible for setting accounting standards for non-regulated companies in Costa Rica and adopted full International Financial Reporting Standards. For more, see the international federation of accountants IFAC: https://www.ifac.org/about-ifac/membership/country/costa-rica .

Regulations must go through a public hearing process when being drafted. Draft bills and regulations are made available for public comment through public consultation processes that will vary in their details according to the public entity and procedure in question, generally giving interested parties sufficient time to respond. The standard period for public comment on technical regulations is 10 days. As appropriate, this process is underpinned by scientific or data-driven assessments. Comments from the public received by regulators during the regulatory hearing process are generally made public.

Regulations and laws, both proposed and final, for all branches of government are published digitally in the government registry “La Gaceta”: https://www.imprentanacional.go.cr/gaceta/ . The Costa Rican American Chamber of Commerce (AmCham http://amcham.co.cr  ) and other business chambers closely monitor these processes and often coordinate responses as needed.

There are several independent avenues for appealing regulatory decisions, and these are frequently pursued by persons or organizations opposed to a public sector contract or regulatory decision. The avenues include the Comptroller General (Contraloria General de la República), the Ombudsman (Defensor de los Habitantes), the public services regulatory agency (ARESEP), and the constitutional review chamber of the Supreme Court. The State Litigator’s office (Procuraduria General) is frequently a participant in its role as the government’s attorney.

A similarly transparent process applies to proposed laws. The Legislative Assembly generally provides ample opportunity for supporters and opponents of a law to understand and comment upon proposals. To become law, a proposal must be approved by the Assembly by two plenary votes. The signature of ten legislators (out of 57) is sufficient after the first vote to send the bill to the Supreme Court for constitutional review within one month, although the court may take longer.

The government has mechanisms to ensure laws and regulations are followed. The Comptroller General’s Office conducts operational as well as financial audits and as such provides the primary oversight and enforcement mechanism within the Costa Rican government to ensure that government bodies follow administrative processes. Each government body’s internal audit office and, in many cases, the customer-service comptroller or “Contraloria de Servicios” provide additional support.

No major regulatory system or enforcement reforms have been announced in the past year. The review and enforcement mechanisms described above have kept the regulatory system relatively transparent and free of abuse, but have also rendered the system for public sector contract approval exceptionally slow and litigious. There have been several cases in which these review bodies have overturned already-executed contracts, thereby interjecting uncertainty into the process. Bureaucratic procedures are frequently long, involved and can be discouraging to new investors.

**International Regulatory Considerations**

While Costa Rica does consult with its neighbors on some regulations through participation in the Central American Integration System (SICA http://www.sica.int/sica/sica_breve.aspx ), Costa Rica’s lawmakers and regulatory bodies habitually refer to sample regulations or legislation from more developed countries, notably the United States and Europe. Costa Rica’s commitment to the OECD accession process accentuated this traditional use of best-practices and model legislation.

Costa Rica appears to be notifying all draft technical regulations to the WTO Committee on Technical Barriers in Trade (TBT), notifying 13 technical regulations in 2016. The notified regulations spanned a range of areas including organic foods, synthetic chemicals, energy efficiency requirements, labelling of used clothes, steel specifications and tire specifications. The comment periods for four of those regulations were extended at the request of one or more WTO members.

**Legal System and Judicial Independence**

Costa Rica uses the civil law system. The fundamental law is the country’s Political Constitution of 1949, which grants the unicameral legislature a particularly strong role. Jurisprudence or case law does not constitute legal precedent but can be persuasive if used in legal proceedings. The civil and commercial codes govern commercial transactions. The courts are independent, and their authority is respected. The roles of public prosecutor and government attorney are distinct: the Chief Prosecuting Attorney or Attorney General (Fiscal General) operates a semi-autonomous department within the judicial branch while the government attorney or State Litigator (Procuraduria General) works within the Ministry of Justice and Peace in the Executive branch. Judgments and awards of foreign courts and arbitration panels may be accepted and enforced in Costa Rica through the exequatur process. The Constitution specifically prohibits discriminatory treatment of foreign nationals.

The Costa Rican Judicial System is made up of the Civil, Administrative, and Criminal Court structure. The judicial system generally upholds contracts, but caution should be exercised when making investments in sectors reserved or protected by the Constitution or by laws for public operation. Investments in state-protected sectors under concession mechanisms can be especially complex due to frequent challenges in the constitutional court of contracts permitting private participation in state enterprise activities. Furthermore, independent government agencies, including municipal governments which grant construction permits, can issue permits or requirements that may contradict the decisions of other independent agencies, causing significant project delays.

Costa Rica’s commercial code details all business requirements necessary to operate in Costa Rica. The laws of public administration and public finance contain most requirements for contracting with the state.

Investors must exercise caveat emptor (buyer beware) since many firms operate in the informal sector of the economy. Appropriate due diligence should include confirming a company’s registry and formal participation in the Costa Rican economy, such as paying taxes and registering all workers with the Social Security system.

Monetary judgments can be made in USD but paid in the local Costa Rican currency.

The legal process to resolve cases involving squatting on land can be especially cumbersome. Land registries are at times incomplete or even contradictory. The Public Registry of Costa Rica is very effective with nationwide information on-line and in real time. However, rural records or the Cadastral Plans (Planos Catastrados) can be outdated and create land and boundary conflicts. Potential buyers should confirm the validity of their land title. Expropriation and related legal proceedings concerning lands within the Leatherback Turtle National Park boundary have been ongoing since 2004 and are involved in Investor-State Dispute Settlement. Buyers should retain experienced legal counsel to help them determine the necessary due diligence regarding the purchase of property.

**Laws and Regulations on Foreign Direct Investment**

In the past year Costa Rica passed no major laws, regulations or judicial decisions affecting foreign direct investment. Costa Rican websites useful to help navigate laws, rules and procedures include that of the investment promotion agency CINDE, http://www.cinde.org/en  (labor regulations), the export promotion authority PROCOMER, http://www.procomer.com/ (incentive packages), and the Health Ministry, https://www.ministeriodesalud.go.cr/  (product registration and import/export). In addition, the State Litigator’s office (https://www.pgr.go.cr/  – the “SCIJ” tab) compiles relevant laws.

**Competition and Anti-Trust Laws**

Several public institutions are responsible for consumer protection as it relates to monopolistic and anti-competitive practices. The “Commission for the Promotion of Competition” (COPROCOM), a semi-autonomous agency housed in the Ministry of Economy, Industry and Commerce, is charged with investigating and correcting anti-competitive behavior across the economy. SUTEL, the Telecommunications Superintendence, shares that responsibility with COPROCOM in the Telecommunications sector. Both agencies are charged with defense of competition, deregulation of economic activity, and consumer protection. COPROCOM is considered to be underfunded and weak; the February 2016 OECD “Economic Assessment of Costa Rica” emphasizes the need to reform COPROCOM in order to assure regulatory independence and sufficient operating budget – http://www.oecd.org/economy/costarica-stronger-and-more-inclusive-growth-will-require-new-reforms.htm . The government is working on a legislative proposal to create a competition tribunal in consultation with the OECD.

Of interest to any company seeking to sell Information and Communications Technology goods and services to government entities, an ongoing case brought before COPROCOM August 2016 pits the software chamber CAMTIC against the Ministry of Finance and the Heredia Public Services Company ESPH. The Ministry awarded a USD 8.5 million contract to ESPH to develop the Ministry’s “digital invoice” system; CAMTIC characterizes this as an abuse of the administrative law that allows non-competitive award of contracts to public entities like ESPH when functionaries of the awarding entity certify the award to be an efficient use of public funds.

COPROCOM and SUTEL together in September 2016 resolved in favor of the practice of mobile phone providers Claro and Movistar offering roaming privileges without an associated roaming charge to their Costa Rican clients travelling in the Central American region. The state-owned telecoms provider ICE filed a case against that practice characterizing it as an anti-competitive practice.

**Expropriation and Compensation**

The three principal expropriating ministries in recent years have been the Ministry of Public Works – MOPT (highway rights-of-way), the Costa Rican Electrical Institute – ICE (energy infrastructure) and the Ministry of Environment and Energy – MINAE (National Parks and protected areas). Expropriations generally conform to Costa Rica’s laws and treaty obligations, but there are allegations of expropriations of private land without prompt or adequate compensation.

Article 45 of Costa Rica’s Constitution stipulates that private property can be expropriated without proof that it is done for public interest. The 1995 Law 7495 on expropriations further stipulates that expropriations require full and prior payment. The law makes no distinction between foreigners and nationals. Provisions include: (a) return of the property to the original owner if it is not used for the intended purpose within ten years or, if the owner was compensated, right of first refusal to repurchase the property back at its current value; (b) a requirement that the expropriating institution complete registration of the property within six months; (c) a two-month period during which the tax office must appraise the affected property; (d) a requirement that the tax office itemize crops, buildings, rental income, commercial rights, mineral exploitation rights, and other goods and rights, separately and in addition to the value of the land itself; (e) provision that upon full deposit of the calculated amount the government may take possession of land despite the former owner’s dispute of the price; and (f) provisions providing for both local and international arbitration in the event of a dispute. The expropriations law was amended in 1998, 2006, and 2015 to clarify and expedite some procedures, including those necessary to expropriate land for the construction of new roads.

There is no discernible bias against U.S. investments, companies, or representatives during the expropriations process. Costa Rican public institutions follow the law as outlined above and generally acted in a way acceptable to the affected landowners. However, there are currently several cases in which landowners and government differ significantly in their appraisal of the expropriated lands’ value; in those cases, judicial processes took years to resolve. In addition, landowners have on occasion been prevented from developing land which has not yet been formally expropriated for parks or protected areas; the courts will eventually order the government to proceed with the expropriations but the process can be long.

**Dispute Settlement**

*ICSID Convention and New York Convention*

In 1993, Costa Rica became a member state to the convention on International Centre for Settlement of Investment Disputes (ICSID Convention). Costa Rica paid the awards resulting from unfavorable ICSID rulings, most recently in 2012 regarding private property belonging to a German national within National Park boundaries.

Costa Rica is a signatory of the convention on the Recognition and Enforcement of Arbitral Awards (1958 New York Convention). Consequently, within the Costa Rican legal hierarchy the Convention ranks higher than local laws although still subordinate to the Constitution.

*Investor-State Dispute Settlement*

Disputes between investors and the government grounded in the government’s alleged actions or failure to act – termed investment disputes – may be resolved administratively or through the legal system.

Under chapter 10 of CAFTA-DR entered into force (EIF) January 2009, Costa Rica legally obligated itself to answer investor arbitration claims submitted under ICSID or UNCITRAL and accept the arbitration verdict. To date there are two claims by U.S. citizen investors under the provisions of CAFTA-DR: Aven et al versus Costa Rica and Spence, Berkowitz et al versus Costa Rica. Extensive documentation for both cases is filed on the Foreign Trade Ministry (COMEX) website: https://www.comex.go.cr/ . No local court denies or fails to enforce foreign arbitral awards issued against the government.

In some coastal areas of Costa Rica there is a history of extrajudicial action against foreign investors: invasion and occupation of private property by squatters who are often organized and sometimes violent. The Costa Rican police and judicial system have at times failed to deter or to peacefully resolve such invasions. It is not uncommon for squatters to return to the parcels of land from which they were evicted, requiring expensive and potentially dangerous vigilance over the land.

*International Commercial Arbitration and Foreign Courts*

The right to solve disputes through arbitration is guaranteed in the Costa Rican Constitution. For years, the practical application was regulated by the Civil Procedural Code, which made it ineffective with no arbitration cases until 1998, the year the local arbitration law #7727 was enacted. A 2011 law on International Commercial Arbitration (Law 8937), drafted from the UNCITRAL model law (version 2006), brought Costa Rica to a dual arbitration system, with two valid laws, one law for local arbitration and one for international arbitration. Under the local act, arbitration has to be conducted in Spanish and only attorneys admitted to the local Bar Association may be named as arbitrators. All cases brought before an arbitration panel, under the rules of local arbitration centers, must be resolved within 155 days after the complaint is served to the defendant; if the case does not fall under such arbitration centers’ rules then the award must be rendered within two months of final statements of the parties. Parties can withdraw their case or reach an out-of-court settlement before the arbitral tribunal delivers an award. If the award meets the review criteria, the losing party has the option to request that the Costa Rican Supreme Court examine the award, but only on procedural matters and never on the merits. Under the UNCITRAL Law for International Arbitration, proceedings may be held in English and foreign attorneys are authorized to serve as arbitrators. The following arbitration centers are in operation in Costa Rica:

- Centro de Conciliacion y Arbitraje. Costa Rican Chamber of Commerce
- Centro de Resolución de Controversias. Costa Rican Association of Engineers and Architects
- Centro Internacional de Conciliación y Arbitraje. Costa Rican American Chamber of Commerce (AMCHAM)
- Centro de Arbitraje y Mediación/Centro Iberoamericano de Arbitraje (CIAR). Costa Rican Bar Association.

Beyond such arbitration options, law #7727 also facilitates courts’ enforcement of conciliation agreements reached under the law. Some universities and municipalities operate “Casas de Justicia” (Justice Houses) open to the public and offering mediation and conciliation at no cost. Law #8937 empowered local arbitration centers, beginning with that pertaining to the Engineers and Architects’ Association, to implement Dispute Board regulations, as a method to address construction disputes.

Costa Rican courts recognize and enforce foreign arbitral awards. Judgments of foreign courts are recognized and enforceable under the local courts and the Supreme Court.

Outcomes in local courts do not appear to favor state-owned enterprises (SOEs) any more or less than other actors. SOEs can sign arbitral agreements, but must follow strict public laws to obtain the permissions necessary and follow correct procedure, otherwise the agreement could be void. Once SOEs find themselves in arbitration they are subject to the same standards and treatment as any other actor.

The most frequently heard complaint about Costa Rican court process is that litigation can be long and costly. U.S. companies cite the unpredictability of outcomes as a source of rising judicial insecurity in Costa Rica. The legal system is significantly backlogged, and civil suits may take several years from start to finish. Some U.S. firms and citizens satisfactorily resolved their cases through the courts, while others see proceedings drawn out over a decade without a final resolution. Commercial arbitration has consequently become an increasingly common dispute resolution mechanism.

**Bankruptcy Regulations**

The Costa Rican bankruptcy law, addressed in both the commercial code and the civil procedures code, is similar to corresponding U.S. law, according to local experts. Title V of the civil procedures code outlines creditors’ rights and the processes available to register outstanding credits, administer the liquidation of the bankrupt company’s assets, and pay creditors according to their preferential status. The Costa Rican system also allows for successive alternatives to full bankruptcy: “convenion preventivo” or arrangement with creditors; “administracion por intervencion” or administration through judicial intervention; “reorganizacion con intervencion judicial” or reorganization through judicial intervention; and finally bankruptcy. As in the United States, penal law will also apply to criminal malfeasance in some bankruptcy cases.

							4. Industrial Policies					

**Investment Incentives**

Four investment incentive programs operate in Costa Rica: the free trade zone system, an inward-processing regime, a duty drawback procedure, and the tourism development incentives regime. These incentives are available equally to foreign and domestic investors and include tax holidays, training of specialized labor force, and facilitation of bureaucratic procedures. Costa Rica’s Foreign Trade Promotion Authority (PROCOMER) is in charge of the first three programs and companies must choose one or the other; as of early 2017 over 394 companies are in the free trade zone regime, almost 90 in the inward processing regime, and 10 in duty drawback. The Costa Rican Tourism Board (ICT) administers the tourism incentives; over 1,000 tourism firms are declared as such with access to incentives of various types depending on the firm’s operations. The free trade zone regime is based on the 1990 law #7210, updated in 2010 by law #8794 and attendant regulations, while inward processing and duty drawback derive from the General Customs Law #7557. Tourism incentives are based on the 1985 law #6990, most recently amended in 2001.

The inward-processing regime suspends duties on imported raw materials of qualifying companies and then exempts the inputs from those taxes when the finished goods are exported. The goods must be re-exported within a non-renewable period of one year. Companies within this regime may sell to the domestic market if they have registered to do so and pay applicable local taxes. The drawback procedure provides for rebates of duties or other taxes that were paid by an importer for goods subsequently incorporated into an exported good. Finally, the tourism development incentives regime provides a set of advantages, including duty exemption for some purchases, to tourism operators who sign a tourism agreement with ICT.

**Foreign Trade Zones/Free Ports/Trade Facilitation**

Individual companies are able to create industrial parks that qualify for free trade zone (FTZ) status by meeting specific criteria and applying for such status with PROCOMER. Companies in FTZs receive exemption from virtually all taxes for eight years and at a reduced rate for some years to follow. Established companies may be able to renew this exemption through additional investment. In addition to the tax benefits, companies operating in FTZs enjoy simplified investment, trade, and customs procedures, which provide a convenient way to avoid Costa Rica’s burdensome business licensing process. Call centers, logistics providers, and software developers are among the companies that may benefit from FTZ status but do not physically export goods. Such service providers have become increasingly important participants in the free trade zone regime.

**Performance and Data Localization Requirements**

Costa Rica does not impose requirements that foreign investors transfer technology or proprietary business information or purchase a certain percentage of inputs from local sources. However, the Costa Rican agencies involved in investment and export promotion do explicitly focus on categories of foreign investor who are likely to encourage technology transfer, local supply chain development, employment of local residents, and cooperation with local universities. The export promotion agency PROCOMER operates an export linkages department focused on increasing the percentage of local content inputs used by large multinational enterprises; one recent program is dedicated to helping small and medium enterprises (SME) obtain international certifications such as ISO9000.

Costa Rica does not have excessively onerous visa, residence, work permit, or similar requirements designed to inhibit the mobility of foreign investors and their employees. While the procedures necessary to obtain residency in Costa Rica are traditionally long and very bureaucratic, immigration officials believe that an immigration law that took effect in March 2010 and Costa Rica’s accession to the Apostille Convention, in effect as of December 2011, make the process less burdensome. Existing immigration measures do not appear to have inhibited foreign investors’ mobility to the extent that they affect foreign direct investment in the country. Costa Rica does not have government/authority-imposed conditions on any permission to invest.

Costa Rica does not require Costa Rican data to be stored on Costa Rican soil. With entry into force of law #8968 – Personal Data Protection Law and its corresponding regulation – in 2014, companies must notify the Data Protection Agency (PRODHAB) of all existing databases containing the personal information of individuals outside the company. The notification requirement likewise applies to employee databases maintained, used, or accessed by third parties. Data bases pay an annual registration fee.

Costa Rica does not require any IT providers to turn over source code or provide access to encryption. Until recently the regulation associated with law #8968 did mandate that PRODHAB be given “super-user” privileges in databases registered with the agency, but that requirement was never acted upon and has been reversed by a new regulation effective December 2016. The new regulation was developed through an extensive consultative process and appears to meet with industry approval.

Costa Rica does not impose measurements that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the economy/country’s territory. The measures that do apply under the data privacy law and regulation are equally applicable to data managed within the country.

							5. Protection of Property Rights					

**Real Property**

The laws governing investments in land, buildings, and mortgages are generally transparent. Secured interests in both chattel and real property are recognized and enforced. Mortgage and title recording are mandatory and the vast majority of land in Costa Rica has clear title. However, there are continuing problems of overlapping title to real property and fraudulent filings with the National Registry, the government entity that records property titles. In addition, squatters do have rights under Costa Rican law such that legally purchased and registered property if left unoccupied long enough and under certain circumstances may revert to the person occupying the land rather than the registered owner. Potential investors in Costa Rican real estate should also be aware that the right to use traditional paths is enshrined in law and can be used to obtain court-ordered easements on land bearing private title; disputes over easements are particularly common when access to a beach is an issue. While title guaranty is not a service traditionally used in the country, several reputable companies offer title guaranty and related services.

Foreigners are subject to the same land lease and acquisition laws and regulations as Costa Ricans with the exception of concessions within the Maritime Zone (Zona Maritima Terrestre – ZMT). Almost all beachfront is public property for a distance of 200 meters from the mean high tide line, with an exception for long-established port cities and a few beaches such as Jaco and Playa Grande. The first 50 meters from the mean high tide line cannot be used for any reason by private parties. The next 150 meters, also owned by the state, is the Maritime Zone and can only be leased from the local municipalities or the Costa Rican Tourism Institute (ICT) for specified periods and particular uses, such as tourism installation or vacation homes. Concessions in this zone cannot be given to foreigners or foreign-owned companies.

**Intellectual Property Rights**

Costa Rica is a signatory of many major international agreements and conventions regarding intellectual property. Building on the existent regulatory and legal framework, CAFTA-DR required Costa Rica to further strengthen and clarify its IPR regime, with several new IPR laws added to the books in 2008. Prior to that, the GATT agreement on Trade Related Aspects of Intellectual Property (TRIPS) took effect in Costa Rica on January 1, 2000. Costa Rica in 2002 ratified the World Intellectual Property Organization (WIPO) internet treaties pertaining to Performances and Phonograms (WPPT) and Copyright (WCT). In 2009, Costa Rica modified its WPPT commitments in a way consistent with its international obligations by notifying the WIPO of its reservations to Article 12 of the Rome Convention and Article 15.1 of the WIPO Performance and Phonograms Treaty (WPPT). These reservations together with a subsequent modification of Costa Rican law – currently under legal challenge by rights’ holders – exempt Costa Rican over-the-air broadcasters from payment of “neighboring rights” to music performers and producers.

Costa Rica’s Customs agency, housed under the Finance Ministry, confirms that no statistics on the seizure of counterfeit goods are made public. In December 2014, the Costa Rican-American Chamber of Commerce (AmCham) launched a website, www.mercadoilegal.com , which allows for the reporting of tips on counterfeit merchandise. The anonymous tips are then shared with the Finance Ministry for action and enforcement.

In 2017, Costa Rica remained on the Watch List in the United States Trade Representative’s (USTR) annual Special 301 Report. The USTR has noted that Costa Rica continues to improve in many areas of IPR enforcement and is working to identify specific IPR accomplishments that can help Costa Rica earn its way off of the Special 301 Watch List.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

*Resources for Rights Holders*

Contact at the U.S Embassy:

Rebecca Espinoza-BensonEconomic SpecialistEmbassy San Jose506-2519-2000SanJoseTradeLeads@state.gov

Country/Economy resources:

Costa Rican American Chamber of Commerce (AmCham): http://www.amcham.co.cr/ 

The U.S. Embassy in Costa Rica (Consular Section) maintains an extensive list of legal service providers, including some firms engaged in intellectual property law. This list does not represent an endorsement on the part of the U.S. government: http://costarica.usembassy.gov/attorney.html).

The Department of Commerce also maintains a list of Business Service Providers that includes law firms specializing in IPR, under the Business Service Provider tab at: http://redirect.state.sbu/?url=www.export.gov/costarica .

							6. Financial Sector					

**Capital Markets and Portfolio Investment**

The Costa Rican government’s general attitude towards foreign portfolio investment is cautiously welcoming, seeking to facilitate the free flow of financial resources into the economy while minimizing the instability that might be caused by the sudden entry or exit of funds. The securities exchange (Bolsa Nacional de Valores) is small and is dominated by trading in government bonds. Stock trading is of limited significance and involves less than 20 of the country’s larger companies, resulting in an illiquid secondary market. There is a small secondary market in commercial paper and repurchase agreements. The securities exchange regulator SUGEVAL is generally perceived to be effective.

Costa Rica accepted the obligations of IMF article VIII, agreeing not to impose restrictions on payments and transfers for current international transactions or engage in discriminatory currency arrangements, except with IMF approval. There are no controls on capital flows in or out of Costa Rica or on portfolio investment in publicly-traded companies. However, a law adopted in 2013 allows the Central Bank, in coordination with the executive branch, to discourage short-term investments through the imposition of taxes on interest earned by foreign non-residents on Costa Rican bonds and also provides for a special reserve requirement of up to 25 percent of the value of those bonds. Government officials said this instrument will be used very carefully and selectively. Some capital flows are subject to a withholding tax (see section on Foreign Exchange and Remittances).

Within Costa Rica, credit is largely allocated on market terms, although long-term capital is scarce. Favorable lending terms for USD-denominated loans compared to colon-denominated loans have made USD-denominated mortgage financing popular and common, even for locals. Foreign investors are able to borrow in the local market; they are also free to borrow from abroad, although withholding tax may apply.

**Money and Banking System**

Costa Rica’s financial system boasts a relatively high financial inclusion rate, with 65 percent of adults over the age of 15 holding a bank account. As part of an ongoing financial inclusion campaign, the Costa Rican government in early 2016 began allowing non-resident foreigners to open what are termed “simplified accounts” in Costa Rican financial institutions. Resident foreigners have full access to all banking services.

The banking sector is healthy, with non-performing loans as of June 2016 reported as 1.3 percent of total loans; the state-owned banks had a higher but still healthy 1.8 percent average. The country hosts a large number of smaller private banks, credit unions, and factoring houses, although the four public banks are still dominant, accounting for well over 50 percent of the country’s financial system’s assets. Consolidated total assets of the country’s public commercial banks were approximately USD 27.5 billion in June 2016, while consolidated total assets of the eight private commercial banks were almost USD 15 billion and consolidated total assets of the credit unions and lending houses were over USD five billion, for combined assets of all bank groups (public banks, private banks and others) of approximately USD 47.5 billion as of June 2016.

Costa Rica’s Central Bank performs the functions of a central bank while also providing support to the four autonomous financial superintendencies (Banking, Securities, Pensions and Insurance) under the supervision of the national council for the supervision of the financial system (CONASSIF). Foreign banks may establish operations in the country under the supervision of the banking regulator SUGEF and as such are subject to the same regulatory burden as locally owned banks. Costa Rican banks are reported to have lost some correspondent banking relationships over the past three years, while representatives of the financial sector continue to worry that Costa Rica’s current struggles to comply with the recommendations of the Financial Action Task Force (FATF) may result in additional losses. However, to date the Costa Rican financial sector appears to be satisfied with the available correspondent banking services.

**Foreign Exchange and Remittances**

*Foreign Exchange*

No restrictions are imposed on capital gains, royalties, or capital except when these rights are otherwise stipulated in contractual agreements with the government of Costa Rica. However, Costa Rican sourced rents and benefits remitted overseas, including royalties, are subject to a withholding tax (see below).

There are no restrictions on receiving, holding, or transferring foreign exchange. There are no delays for foreign exchange, which is readily available at market clearing rates and readily transferable through the banking system. Dollar bonds and other dollar instruments may be traded legally. Euros are increasingly available in the market. Costa Rica’s current floating exchange rate regime represents an eight-year transition from a crawling peg (1983-2006), through a crawling band regime to the current regime announced January 31, 2015. The Central Bank pledged to intervene, if necessary, to smooth any exchange rate volatility; the Bank has sufficient international reserves for such actions.

*Remittance Policies*

Costa Rica does not have restrictions on remittances of funds to any foreign country; however, all funds remitted are subject to applicable withholding taxes that are paid to the country’s tax administration. The default level of withholding tax is 30 percent with royalties capped at 25 percent, dividends at 15 percent professional services at 15 percent transportation and communication services at 8.5 percent and reinsurance at 5.5 percent (different withholding taxes also apply for other types of services). By Costa Rican law, in order to pay dividends, procedures need to be followed that include being in business in the corresponding fiscal year and paying all applicable local taxes. Those procedures for declaring dividends in effect put a timing restriction on them. Exceptions to the withholding tax include payment of interest to multilateral and bilateral banks that promote economic and social growth, which pay no withholding tax, and companies located in free trade zones, which pay no dividend withholding tax plus other tax benefits. Both Spain and Germany have double-taxation tax treaties with Costa Rica, lowering the withholding tax on dividends paid by companies from those countries.

The Law for Development Banking, which took effect in May 2015, eliminated a provision allowing foreign banks registered with the Central Bank of Costa Rica to be exempt from withholding taxes. The change is designed to motivate banks to either register as financial entities within Costa Rica or stop lending to Costa Rican businesses. Industry observers indicate that some foreign banks have reduced their level of business activities due to the new tax treatment.

**Sovereign Wealth Funds**

Costa Rica does not have a Sovereign Wealth Fund.

							7. State-Owned Enterprises					

Costa Rica’s state-owned enterprises (SOEs) are commonly known by their abbreviated names. They include monopolies in petroleum-derived fuels (RECOPE), lottery (JPS), railroads (INCOFER), local production of ethanol (CNP/FANAL), water distribution (AyA and the “Asadas”), and electrical distribution (ICE, CNFL, JASEC, ESPH); market dominance in insurance (INS), telecommunications (ICE, RACSA, JASEC, ESPH), and finance (BNCR, BCR, BanCredito, Banco Popular, BANHVI, INVU, INFOCOOP); significant market participation in parcel and mail delivery (Correos), and ports operation (INCOP and JAPDEVA). The Costa Rican government does not currently hold minority stakes in commercial enterprises.

No Costa Rican state-owned enterprise currently requires continuous and substantial state subsidy to survive. Many turn a profit, which is allocated as dictated by law and boards of directors. Financial allocations to and earnings from state-owned enterprises may be found in the “Sistema de Informacion de Planes y Presupuestos (SIPP)” within the General Controller’s Office (CGR) site: https://cgrweb.cgr.go.cr/apex/f?p=102:1:16371636910367 

Eight of Costa Rica’s state-owned enterprises have revenues of close to 1 percent or more of GDP: in the financial sector, (where they are major players in their respective markets), energy (the first two non-financial firms listed below) and the state lottery monopoly (Junta de Proteccion Social or “JPS”). All eight of these agencies are 100 percent owned by the Costa Rican state, are governed by independent boards of directors and have independently audited accounts.