+506
COSTA RICA
WHY COSTA RICA?
Costa Rica, officially the Republic of Costa Rica, is a country in Central America. It borders Nicaragua to the north, the Caribbean Sea to the northeast, Panama to the southeast, and the Pacific Ocean to the southwest, sharing a maritime border with Ecuador to the south of Cocos Island. It has a population of around five million in a land area of nearly 51,180 km2 (19,760 sq. mi.); the capital and largest city is San José, home to around 350,000 residents and two million people in the surrounding metropolitan area. Costa Rica has consistently performed favourably in the Human Development Index (HDI), placing 62nd globally, and fifth in Latin America, in 2023. Costa Rica is classified by the World Bank as a high-income country and it is the only OECD country in Central America and the Caribbean.
It has also been cited by the United Nations Development Programme (UNDP) as having attained much higher human development than other countries at the same income levels, with a better record on human development and inequality than the regional median. Costa Rica performs well in metrics of democratic governance, press freedom, subjective happiness and sustainable well-being; it has one of the highest literacy rates in the Americas, and is considered a regional leader in human rights and environmentalism.
Costa Rica’s economy has shown resilience and growth in recent years. In 2024, the country’s nominal GDP per capita was estimated at US$17,501, reflecting steady economic development. The improvement reflects successful social programs and economic inclusivity. In 2025, the World Bank reclassified Costa Rica as a World Bank high-income economy. The government remains committed to environmental sustainability, implementing policies aimed at reducing greenhouse gas emissions and promoting clean energy initiatives. These efforts align with Costa Rica’s goal of achieving net-zero carbon emissions by 2050. Costa Rica has free trade agreements with many countries, including the US. There are no significant trade barriers that would affect imports and the country has been lowering its tariffs to other Central American countries. The country’s Free Trade Zones (FTZ) provide incentives for manufacturing and service industries to operate in Costa Rica. The central location provides access to American markets and direct ocean access to Europe and Asia.
ADVANTAGES
Political and Economic Stability
Costa Rica is a long-standing democracy with a stable political climate and no army since 1948. This stability creates a predictable and secure environment for investment, allowing companies to focus on growth without worrying about sudden regulatory changes or civil unrest.
Strategic Geographic Location
The country’s location in Central America provides easy access to North and South American markets. Proximity to key shipping routes and two coasts (Pacific and Caribbean) makes it an ideal hub for logistics, distribution, and nearshoring operations, reducing transportation time and costs.
Educated and Skilled Workforce
Decades of investment in education have resulted in a highly educated and skilled talent pool, particularly in technology, life sciences, and services. Many Costa Rican professionals are bilingual (Spanish and English), which is highly valued by multinational companies.
Attractive Investment Incentives
The Free Trade Zone (FTZ) regime is a major draw for foreign investors, offering significant benefits:
- 100% exemption from corporate income tax for the first eight years (and 50% for the next four).
- Exemption from import duties on raw materials, machinery, and equipment.
- Exemption from sales, excise, and municipal taxes for a specified period.
Pro-Investment Business Ecosystem
The government actively encourages foreign direct investment (FDI) and offers institutional support through agencies like the Foreign Trade Promoter (PROCOMER) and the investment promotion agency (CINDE), which assist businesses throughout the setup process.
Commitment to Sustainability
Costa Rica generates nearly all its electricity from renewable sources (hydroelectric, geothermal, wind, and solar). This strong alignment with ESG (Environmental, Social, and Governance) goals is a powerful differentiator that attracts environmentally conscious businesses and helps companies align with global sustainability benchmarks.
Access to International Markets
The country has numerous free trade agreements (FTAs) with countries like the United States (CAFTA-DR), the European Union, Canada, and China, which provide preferential access to a wide range of international markets.
Territorial Tax System
Costa Rica operates a territorial tax system, meaning only income generated within the country is subject to local taxation, while foreign-sourced income is not taxed.
TAX REGIME
Corporate Taxation
30% for companies exceeding a specific gross income threshold (CRC 119,629,000 to CRC 122,145,000 depending on the source/year). Smaller companies use a progressive scale (5% to 20%).
Individual Income Tax:
Residents pay tax on local income on a progressive scale (up to 25%), with exemptions for lower incomes.
Territoriality:
Only income generated within Costa Rica (from services rendered, goods located, or capital invested) is subject to taxation.
VAT (Value Added Tax):
The standard rate is 13%, with reduced rates of 4%, 2%, and 1% for certain goods and services.
Capital Gains:
Generally taxed at 15%.
Withholding Taxes:
Non-residents are subject to various withholding taxes, often around 15% for technical services, remittances, and salaries, though this varies.
Real Estate Tax:
Property tax is 0.25% annually, and a 1.5% transfer tax applies to property sales.
COSTA RICA COMPANIES
Sociedad Anónima (S.A.):
Ideal for larger businesses or foreign investors seeking a flexible structure.
Structure: Requires a minimum of 2 shareholders.
Management: Requires a 3-member Board of Directors (President, Secretary, Treasurer) and a statutory agent (Comisario).
Agent: If no directors reside in Costa Rica, a resident agent (local attorney) must be appointed.
Sociedad de Responsabilidad Limitada (S.R.L. or Ltda.):
Often preferred by small to medium-sized businesses for its flexibility and lower administrative burden.
Structure: Minimum of 2 members (“quota holders”).
Management: Managed by one or more managers (gerentes).
Liability: Members are only liable up to their capital contribution.
Other Business Entities
- Branches (Sucursal): Foreign companies can operate in Costa Rica through a branch, which requires appointing a local legal representative.
- Sole Proprietorship (Empresa Unipersonal/Autónomo): A business owned and managed by one individual.
- Partnerships (Sociedades en Nombre Colectivo/Comanditaria): General or limited partnerships, used less frequently than S.A. or S.R.L.
RELATED BLOGS
Contact Us
Get in touch with the right people to get the right help in setting up your business in Costa rica.
enquiries@chandrawatpartners.com.