Attracting foreign direct investment is crucial for the continued growth and development of the Costa Rican economy. In Central America Costa Rica and Panama are competing to attract investment. Costa Rica was recently named by the Foreign Direct Investment Intelligence report as the Caribbean and Central American Country of the Future for 2011/2012. “Costa Rica attracted a total of 227 FDI projects between 2003 and 2010 compared with only 178 FDI projects investing in Panama, Costa Rica’s closest competitor in the region. However, the latest figures released by fDi Markets have shown that from January to May 2011, Panama has, so far, attracted more FDI projects than Costa Rica.” Source: www.fdiintelligence.com)
Recently, the Costa Rican government has introduced a controversial tax proposal which would impose a 15% tax on the revenue generated from all companies that operate in Costa Rica under the Free Trade Zone Law starting in 2015. Needless to say that many of the companies that invested in Costa Rica based upon the tax exemption are upset with the new tax proposal. Many argue that this new tax will reduce the attractiveness of operating in Costa Rica in the future.
If you track the foreign investment inflows into Costa Rica you see a steady increase over the past 25 years and then a sharp decline in 2008 which coincides with the US financial crisis.
The curve is starting to head up again in 2010 so it seems risky to alter a strategy which has been working well for many years by imposing a tax on companies that are vital for job creation in Costa Rica.
I hope the government gets this one right since the stakes are pretty high.
According to the World Bank Doing Business report for 2012 Costa Rica ranks below the Latin American and Caribbean index for Ease of Doing Business.
The most common complaints are excessive bureaucracy and lack of infrastructure. Other rankings. Obtaining construction permits 141/183. Getting credit 98/183. Protecting investors 166/183. Enforcing contract 129/183.