Tax and Customs Benefits in Free Trade Zones: What You Should Know

The Free Trade Zone Regime is a customs regime that exempts the payment of customs duties. Companies that decide to accept this regime receive a series of tax and customs benefits granted by the State, to encourage companies in the country.

Customs-wise, Free Trade Zones are defined as geographically delimited areas, considered outside the national customs territory, where companies that operate must have strict control over the entry and exit of people, vehicles, transport units or merchandise, which must be carried out through the posts or places designated for this customs control.

It is important to know the benefits offered by this regime, which is why we have the following exemptions granted:

• Exemption from all taxes and consular fees on the import of operational and administrative goods and vehicles with certain specific characteristics, necessary for their operation.
• Exemption from export taxes.
• Exemption from the tax on remittances abroad.
• Exemption for 10 years from the payment of the tax on capital and net assets, as well as from the payment of the tax on real estate, the tax on the transfer of real estate, all taxes and municipal patents.
• Exemption from sales and consumption tax on purchases of goods and services.
• Exemption from all taxes on profits, as well as from any other taxes, whose taxable base is determined in relation to gross or net profits, dividends paid to shareholders or income or sales, in accordance with the following differentiations:
  ° For companies located in the Greater Metropolitan Area, the exemption will be 100% for a period of up to 8 years and 50% in the following 4 years. (exceptions apply depending on the category of the company)
  ° For companies located outside the Greater Metropolitan Area, the exemption will be 100% for a period of up to 12 years and 50% in the following 6 years. (exceptions apply depending on the category of the company)
• Exemption from all taxes on the import and export of commercial or industrial samples, subject to prior authorization from PROCOMER.
• Companies located in areas of “less relative development” will be entitled to receive a bonus equivalent to 10% of the amount paid in salaries during the immediately preceding year, after deducting the amount paid to the Costa Rican Social Security Fund on the amount paid.

In the case of the tax credit, this applies to one of the exceptions to the exemption from the profits tax, as such it is regulated in article 21 st., paragraph f) of the Free Trade Zone Regime Law, which applies specifically to companies classified as f), that is, those processing industries that produce, process or assemble goods, regardless of whether or not they export; they will be entitled to a tax credit for the reinvestment of profits in new fixed assets, expenses incurred within or outside the country in relation to the training and development of Costa Rican or Costa Rican resident personnel who work for the company.

This credit will be deducted from the amount of income tax payable, up to 10% of the taxable income in each fiscal period; this is because many processing companies located within the GAM, during their first 8 years of operation, must pay a 6% rate for income tax; in this sense, the tax credit is an additional incentive for this type of companies.

When the amount of expenses is higher than the indicated limit of 10% in a fiscal period, the difference may be used as a credit in any of the following 5 consecutive fiscal periods, at the taxpayer’s option, but the credit applicable in each fiscal period may not exceed the indicated limit of 10%.

It is important to note that the Regulations to the Law of the Free Trade Zone Regime in its articles 137 and following are those that determine the specific requirements for the reinvestment of profits, the characteristics of the expenses that

will qualify, as well as the procedure for the corresponding calculation, accumulation and other aspects necessary for the application.

In the case of reinvestment of profits in new fixed assets, the processing company must comply with the following:

a. That these are profits generated during the company’s operating period within the Free Trade Zone Regime from the date on which it was included in category f) and that, in addition, they are duly recorded in the company’s accounting books.

b. That the new fixed assets are useful, necessary and relevant goods to carry out the activity for which the company entered the Free Trade Zone Regime.

c. The movable fixed assets must be new.

d. The new fixed assets that are acquired with the profits generated during the company’s operating period may be: buildings, land, machinery and equipment, necessary to obtain current or potential income, exempt or taxed under the Income Tax Law, specific to the activity of the company covered by the Free Trade Zone Regime.

The reinvestment of assets owned by the beneficiary is considered to have been made on:

a. The date of billing, in the case of movable assets purchased locally.

b. The date of acceptance of the respective customs declaration, in the case of imports of movable property.

c. The date on which they are duly registered in the name of the beneficiary in the Property Registry of Real Estate of the National Registry, in the case of real estate.

In the case of training and instruction expenses, the following may be deducted from the amount of income tax payable:

a. Expenses incurred, within or outside the country, in training and instruction of Costa Rican personnel or those residing in Costa Rica who work for the company in the country.

b. Expenses incurred within the country in relation to the training and instruction of the personnel of supplier companies, which qualify as micro, small and medium-sized companies, according to the records of the Ministry of Economy, Industry and Commerce.

These expenses must meet the following requirements:

a. Expenses related to the operation of the company or that affect production.

b. Expenses for training and coaching of personnel, in any of the areas of operation of the beneficiary company, must be limited to those that are useful, necessary and pertinent to generate current or potential taxable income, with the aim of income tax and must also comply with the provisions of the last paragraph of article 8 of the Income Tax Law.

c. Training and coaching expenses of supplier companies of the companies benefiting from the Regime. Before the beneficiary incurs this expense and can apply for the credit, it must verify that the supplier is registered as a micro, small or medium-sized company in the Ministry of Economy, Industry and Commerce.

d. Training and coaching expenses incurred by the beneficiary companies in training sessions for supplier companies organized by PROCOMER, the INA, Universities and other Public Institutions; as well as scholarships granted by the beneficiary companies in local training sessions for supplier companies of the companies benefiting from the Regime.

It is important that companies know the benefits they can obtain from this regime and how to apply them.

Alejandra Arguedas M.
Free Trade Regime Director

Disclaimer: The information provided in this blog post is for general informational purposes only and is not intended to constitute legal advice. While we strive to ensure the accuracy and timeliness of the content, laws and regulations are subject to change. For the most accurate and up-to-date information, please contact our office directly. Some images may be AI generated.