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Costa Rica Import Regs.: Free Trade Zones, Duty Deferral

Questions and answers about prohibited imports, labeling requirements, customs valuation as well as tariffs & taxes of Costa Rica.

Costa Rica Import Regs.: Free Trade Zones, Duty Deferral

Postby bridgat » Tue Nov 18, 2008 4:25 am

Free zones are the most important export promotion instruments in Costa Rica. The principal legal provisions are contained in the Law on the Free Zone Regime No. 7210 of 23 November 1990, amendments thereto and its implementing regulations. The latter are contained in Executive Decree No. 29606-H-COMEX of 18 June 2001 and amendments thereto. Other relevant provisions on free zones can be found in the General Customs Law No. 7557 of 20 October 1995, Section I, Chapter V, and subsequent amendments.

The Free Zone Regime includes benefits given to companies that make new investments, provided that they meet the requirements and obligations laid down in the Law on the Free Zone Regime. The purpose of this Law is to promote socio-economic development by attracting both foreign and domestic investment and by promoting exports.

In order to be eligible for the Free Zone Regime, companies must be engaged in handling, processing, manufacturing, producing, repairing or maintaining goods or supplying services intended for export or re-export. The Free Zone Regime only applies to companies whose new initial investment in fixed assets amounts to at least US$150,000 within the free zone industrial park and US$2 million if it is outside the park. Likewise, the establishment of satellite plants outside the free zone industrial park in which the main plant has been authorized is allowed on an exceptional basis.

The benefits extended to companies establishing in FTZs may include the following:
- 100 % exemption from all import taxes associated with the import of goods to make exported products. The same exemption is granted for the re-export of equipment and machinery used in the productive process;
- 100 % exemption from sales and consumer taxes, and taxes levied on remittances abroad;
- 100 % exemption from income tax for the first 8 years of operations and 50% exemption for the following 4 years for companies in "developed areas";
- 100% exemption from income tax for the first 12 years of operations and 50 % exemption for the following 6 years for companies in "less-developed (rural) areas;" and
- credits for job creation in "less developed (rural) areas.

"Active finishing regime" benefits provide for temporary admission and suspension of duty collection for material and equipment used to produce goods that are then exported. Costa Rica may be required to eliminate active finishing regime benefits as of 2007 in order to comply with WTO committments.

The Active Finishing Regime (Regimen de Perfeccionamiento Activo - RPA), provides duty deferral for 6 months for consumable inputs used in products manufactured for export. Firms under the RPA Program receive duty deferrals and eventual exoneration on consumable and capital goods imports used in the manufacture of export goods. The duty is exonerated when the item is re-exported. The Duty Deferral Program firms do not receive income tax holidays. RPA exports contributed 7% of all Costa Rican exports in 2000.

The 6-month deferral can be extended once for another 6-month period, upon application prior to the expiration of the first 6-month period. Certain items are eligible for 5-year duty deferral, and have deferral periods which are automatically renewable for additional 5-year periods.

Application Procedures
Application procedures for the RPA are specified in articles 7-10 of the regulation. The applicant must provide information on the products it will produce, the markets to which they will be sold, and the process and inputs to be used. Applications are submitted to PROCOMER, Costa Rica's trade promotion authority, which verifies the facts and forwards the application to COMEX, Costa Rica's foreign trade ministry. The regulations grant the Costa Rican Government one month for approving the application if everything is in order. Applicants are granted up to 10 days to resolve any problems detected in the application.

RPA derives its legal basis from the Temporary Entry Provisions of the 1988 Income Tax Law and the 1996 Customs Law. Duty Deferral is governed by the Decree 27285-H-COMEX (September 1997), as amended by Decree 27329-H-COMEX (October 1998).
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