Costa Rica Lures Pensioners for Post-Pandemic Recovery

Costa Rica Lures Pensioners for Post-Pandemic Recovery

Law Enacts New Residence Regime, Expanded Benefits
Costa Rica
Since the 1990s, Costa Rica has been attracting foreign companies to the country’s 30 free-trade zones. (José Conejo Sáenz)

Costa Rica Lures Pensioners for Post-Pandemic Recovery

1170 658 Paz Gómez

Costa Rica, one of Latin America’s most thriving economies, is betting on foreign capital to boost its economic recovery. To that end, it has passed the Law to Attract Investors, Retirees, and Pensioners in July 2021.

Besides stunning beaches and warm weather year-round, the country is offering better immigration benefits and extended tax incentives to lure would-be resident investors.

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Why Should Investors Consider Costa Rica?

Before the pandemic, Costa Rica rode a 25-year wave of steady economic growth propelled by foreign investment and trade liberalization. A rarity in Latin America, Costa Rica has enjoyed political stability and healthy institutions reflected in competitive development indicators.

Indeed, Costa Rica has the lowest poverty rate in all Latin America and the Caribbean. In 2019, just 10.6 percent of the population earned below $5.50 per day (the COVID-19 pandemic raised it to 13 percent). GDP per capita stood at $12,243 in 2019, higher than the regional average.

Although its economy contracted by 4.6 percent during the pandemic, Costa Rica will recover with estimated growth of 2.6 percent in 2021 and 3.3 percent in 2022, according to the World Bank.

Since the 1990s, Costa Rica has been attracting foreign companies to the country’s 30 free-trade zones, which offer generous tax exemptions.

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What Has Changed with the New Law?

The Law to Attract Investors, Retirees, and Pensioners targets individuals worldwide. Retirees with a minimum pension of $1,000 per month or those who can demonstrate a monthly income higher than $2,500 can also move to Costa Rica and enjoy fiscal perks.

That is why the new law reduces the minimum investment requirement from $200,000 to $150,000. Investors can allocate those funds to real estate, registrable assets, stocks, securities, and productive investments.

Another difference is that investors will receive a 10-year residence permit—up from the previous two years—and can extend it for five more years.

Under the new law, foreign investors will enjoy the following benefits:

  • Exemption of import duties on household goods.
  • Exemption of import duties on up to two vehicles for personal use.
  • Income-tax exemption on earnings qualified under the law.
  • A 20 percent reduction of the transfer tax on assets acquired in Costa Rica.
  • Exemption of import duties for assets used in a professional or scientific capacity.

However, the law does not provide automatic fiscal residence, so investors must still comply with the tax regime of their country of origin until they remain in Costa Rica, continuously or discontinuously, for over 183 days during the same fiscal period.

The application window will remain open until July 2026. After approval, applicants will enjoy the incentives for 10 years.

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How Can Investors Access the New Incentives?

The Costa Rican government will enable a single-stop shop to assist individuals wishing to enter the country under the investor and retiree categories.

Hence, foreigners first need to get a visa or entrance permit under the aforementioned categories. Requirements for such permits include:

  • official request form;
  • a motivation letter including the investor’s relevant information;
  • payment receipt of the $50 fee;
  • two passport-sized photos;
  • fingerprint-registration receipt issued by the Ministry of Homeland Security;
  • consular registration receipt;
  • birth certificate;
  • criminal record issued by the birth country and countries the applicant has lived in during the last three years;
  • copies of all passport pages;
  • an official document proving the individual meets the minimum income requirement.

Potential investors must get apostilles for all foreign documents and deposit $200 in a Costa Rican bank account to request a temporary residence. Depending on the type of investments, there are additional requirements.

To learn more about investment and entrepreneurship opportunities in Costa Rica, individuals can contact the investment promotion agency CINDE.

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What Do Free-Trade Zones Have to Offer?

Costa Rica’s free-trade zones provide exemptions on income taxes, import duties, excise taxes, and repatriation taxes. Costa Rica has 30 free trade zones with over 400 companies in them.

Free trade zones account for more than 134,000 direct jobs and 50 percent of Costa Rica’s commercial shipments abroad.

Despite the pandemic’s economic toll, these zones created 19,806 new jobs in 2020. Of the companies operating in them, 54 percent turned a profit last year.

Companies allowed to operate in free-trade zones:
  • For-export manufacturing companies
  • For-export trading companies (not producers)
  • For-export service companies
  • Companies or organizations engaged in scientific research
  • Manufacturing firms regardless of exporting capacity

Companies must meet minimum export levels, and incentives per industry vary.

Manufacturing Firms
Incentive/Requirement Period* Small/mid project Large project
Income Tax

(Statutory income tax: 30 percent)

8 years

4 years

6 percent

15 percent

0 percent

15 percent

Income Tax Deferral No limit Not available Up to 10 years
Import Duties No limit 100 percent exemption 100 percent exemption
Excise Taxes
Repatriation Taxes
Minimum Export Level Not required Not required
Must belong to a strategic sector Yes Yes
Minimum Employment Level Not required 100
Minimum Investment Level $150,000 $10 million

* Additional eight-year renewal might be granted if significant reinvestment is made.

Service Companies
Incentive/Requirement Period Rate or Amount
Income Tax

(Statutory income tax:

30 percent)

8 years*

4 years

0 percent

15 percent

Import Duties No limit 100 percent exemption
Excise Taxes
Repatriation Taxes
Minimum Asset Investment 3 years $150,000
Minimum Export Level No limit At least 50 percent of the services must be exported.

* Additional eight-year renewal might be granted if significant reinvestment is made.

Requirements for all industries
  • Minimum monthly fee to operate inside a free trade zone (PROCOMER fee): $200.
  • Minimum PROCOMER guarantee deposit: $5,000.
  • Environmental guarantee deposit: 1 percent of total investment.

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Pros and Cons of Investing in Costa Rica

Advantages
  • Costa Rica is located between North and South America and has access to the Pacific and Atlantic oceans. Its small size allows for quick transportation to and from the airport, ports, and urban areas.
  • Costa Rica’s official language is Spanish, but citizens have high English proficiency, and English is widely spoken in expatriate communities.
  • Costa Rica is the world’s best place to retire, according to the International Living Index, which assesses real-estate prices, living costs, migration policies, investment opportunities, health system, banking services, and governance.
  • Foreigners can open bank accounts, use their foreign driving licenses, do business, hire qualified workers, invest, ask for credit, and purchase real estate without much extra bureaucracy.
  • Although Costa Rica’s currency is the colón, businesses usually accept and price items or services in US dollars.
Disadvantages
  • Because the new law does not grant automatic fiscal residence, investors need to comply with two tax regimes until they spend over 183 days in Costa Rica during a fiscal year.
  • Obtaining a construction permit can be lengthy, involving 17 procedures and a minimum of 63 days.
  • Out of 180 countries, Costa Rica ranks 60th for ease of paying taxes and 73rd for ease of trading across borders.
  • The World Bank ranks Costa Rica 129th in contract enforcement, as it can take 852 days to undertake legal action and enforce a ruling, and resolving a bankruptcy or insolvency process can take up to three years.

Regulations in Costa Rica are burdensome and costly for ventures with potential environmental impact: there are strict rules on land use and zoning, protected areas, construction, and water use.

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Paz Gómez

Paz Gómez is a market analyst for Econ Americas. She is cofounder and academic coordinator of Libre Razón, a liberal think tank in Quito, Ecuador. She holds a bachelor's degree in international relations and political science from San Francisco University of Quito and studies for a master's degree in digital currency and blockchain from the University of Nicosia. Follow @mpazgomezm.

All stories by:Paz Gómez

Paz Gómez

Paz Gómez is a market analyst for Econ Americas. She is cofounder and academic coordinator of Libre Razón, a liberal think tank in Quito, Ecuador. She holds a bachelor's degree in international relations and political science from San Francisco University of Quito and studies for a master's degree in digital currency and blockchain from the University of Nicosia. Follow @mpazgomezm.

All stories by:Paz Gómez
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