Intel Is A Pillar of the Costa Rican Economy But Cracks Are Forming

New tax in Costa Rica threatens Intel’s operations in Costa Rica.

With 55 hectares of land, 33,000M2 of construction in their $300 million semiconductor assembly and test plant, 5,300 employees (2,800 direct and 2,500 sub-contracted) Intel’s production alone makes up 4% of Costa Rica’s GDP so Intel is – without doubt – a pillar of the Costa Rican economy but, is the honeymoon over?

Intel was promised various benefits to entice them to establish their operations in Costa Rica in 1997 rather than in Chile which was the main competitor at the time. It’s been a great ride for Costa Rica which has been able to leverage that success to attract hundreds of other high-tech and medical companies to also establish their offshore operations in Costa Rica.

That was 14 years ago and Costa’s Rica’s consideration of a new plan to tax foreign-owned companies operating in free-trade zones may threaten overseas investment, says Intel Costa Rica’s general manager Michael Forrest.

Most foreign companies that operate in the free-trade zones now pay no income taxes but, with the new proposed tax plan presented to the Legislative Assembly on the 27th September 2011 companies may face a tax rate of as much as 15 percent on investments.

According to Michael Forrest, Intel Costa Rica’s general manager, the world’s biggest chipmaker already decided against a large investment in Costa Rica in 2010 due to “uncertain fiscal policies.”

“Intel makes future investments on a long-term horizon, and one of the things we consider very seriously is fiscal policy stability and consistency,” said Forrest, who participated in panel discussion of foreign business owners and managers in San Jose. “If there are fluctuations and instability of fiscal policies in certain countries, those countries are removed from investment consideration.”

Forrest also compared the rising costs of electricity in Costa Rica with their other manufacturing plants in the Far East.

“When you look at the utility rates of what we pay here in Costa Rica versus what our sister companies pay in Malaysia, Vietnam or China, it is significantly higher here in Costa Rica than in the rest of the world,” Forrest said.

WeLoveCostaRica.com recently discussed the issues of the new taxes on Trade Free Zones and increasing electricity prices in our Big Investors Considering Costa Rica – What problems are on the horizon?

In his Leave The Trade Free Zones In Peace article (Spanish), tax expert Diego Salto examines the topic saying: “Any attempt to impose taxes on free zone companies shows complete ignorance of the dynamics of investment attraction.”

We should give Don Diego Salto a round of applause for that statement because the warning bells are now officially clanging for business, jobs and foreign investment in Costa Rica and, although this hardly affects people considering retirement here, if the politicians do not pay attention to this, right now, over the long-term this will have an extremely negative effect on the Costa Rican economy.

[custom_script adID=97]

Written by Scott Oliver, author of 1: How To Buy Costa Rica Real Estate Without Losing Your Camisa, 2: Costa Rica Real Estate Scams & How To Avoid Them, 3. Costa Rica’s Guide To Making Money Offshore and 4. ¿Cómo Comprar Bienes Raices en Costa Rica, Sin Perder Su Camisa?

Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.