Having watched the Wall Street banksters steal trillions of dollars from the American taxpayer – without one single arrest – it’s understandable that there is a total lack of confidence in investments markets around the world with most institutional and retail investors being extremely cautious with what they do with their money.

Most markets are cyclical, there are natural and manipulated booms and busts but, in comparison with the U.S. and most of Europe, Costa Rica continues to enjoy a fairly vibrant economy and has benefited tremendously from a variety of large multinationals companies – primarily from the U.S. – who have established their offshore operations in Costa Rica to lower their operational costs but, is this growth sustainable?

Surely it’s only a matter of time before these companies find another offshore destination where they can save even more money?




Last week I spoke with Costa Rica tax expert Randall Zamora about some of the problems that we face in Costa Rica today to see what he thinks:

1. The new corporation tax could be costly for entrepreneurs, aren’t these the people we should be encouraging and not punishing?
   
   
   
   
   “This is part of the neoliberal doctrine of the people in power, PLN (National Liberation Party) and Oscar Arias. They don’t believe in local entrepreneurs, period! All they want and are commanded to do is create a platform where the country becomes just a source of cheap labor for multinational companies, so they can increase their profits by reducing their labor cost.
   
   
   
   
   
   
   
   
   
   Recently, a commission analyzed the Banca de Desarrollo performance, this Fund was created to finance entrepreneurs, however the requirements for a lady who want to start a small tailor’s shop and needs a little financing are exactly the same for her as they are for a big company, so the access to financing for the entrepreneurs in Costa Rica is very difficult and that should be the starting point to enhance local entrepreneurism which at any rate is the basis of a strong and long term economic growth, let’s keep in mind that the today’s richest countries became what they are today by protecting and backing up financially speaking their domestic entrepreneurs”




2. We believe it’s unlikely but, if Costa Rica does implement this new tax on global income, won’t this really anger a lot of people?
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   “It may but realistically we shouldn’t be too angry because Costa Rica has absolutely no resources whatsoever to perform this task and collect these taxes. Not to mention that PAC (PAC is the Citizen’s Action Party are really the ones who want this) are thinking more of the individuals/companies with business abroad, so I don’t think this will affect US retirees in Costa Rica, but even if it did, they can “pick” where they want to pay taxes, here or in the U.S.
   
   
   
   
   

   To rent or buy this one hour video with Costa Rica Tax Expert Randall Zamora, please visit our Video On Demand page here.

   The worst part about this, is that PAC does not realize they are opening Pandora’s box, since this is exactly what WTO (World Trade Organization) wants… If they do implement a world wide income principle, the WTO will want more! They always want more…. And by the way, the Hacienda Ministry proposed that they could have access to bank information without a judge warrant because the WTO wanted that!”











3. If Costa Rica changes the tax status of the Free Trade Zones, would this not encourage the big investors and multinationals to look for cheaper alternatives and leave Costa Rica?
   
   
   
   
   “Once again the PAC are the ones pushing on this, and as far as I recall they wanted to tax the FTZs with a 5% tax… Even with that rate it’s still a good deal for those companies, the stories about jeopardizing 60,000 jobs is just a desperate plea from Anabelle Gonzalez who is one of the biggest believers of foreign investment as the ultimate solution for Costa Rica and, who does nothing for local entrepreneurs.
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   We should also remember that companies in the Free Trade Zones companies can take out profits to their country of origin without paying income tax at a regular rate (as low as 10% or as high as 30%) therefore I feel that most of them will be more than happy to pay 5% and be able to access their profits after tax, not to mention that there are less than 300 companies under this regimen so this is not too much of a big deal”



Other tax experts however, feel that this is a “big deal.” 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.”








4. Electricity prices have increased dramatically over the last five years which could also negatively affect many companies?
   
   
   
   
   “This is another measure from the Arias so the people start asking for “free trade” when it comes to electricity. In my opinion, they want to open the market for private companies, other than ICE, CNFL, ESPH, so their plan is to encourage the CEO’s of those entities to raise their rates so that the people buy into their idea that private companies have to generate electricity, not to mention that President Laura Chinchilla threatened the country, once again, by saying that if the Electricity Co-Generation Bill doesn’t get approved she “could not do anything” to avoid black outs within the midterm, let’s also remember that this exactly what Oscar Arias did back in 2007, and he and his brother Rodrigo Arias not only own companies related to this business but they are the main sponsors of this bill.?
   
   
   
   

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   This will probably also include granting exclusive water usage rights to those companies, this is the reason why PLN lawmakers did not support a change to the constitution in order to grant the free access to the water as a constitutional right for everyone.
   
   
   
   
   The same applies to oil, Oscar Arias owns almost all the sugar cane business in Costa Rica and during his last administration he was in constant contact with Brazil in order to “learn” more about biofuels, he tried to make that mandatory but it did not work, so it’s no wonder why the Chinese now 50% of RECOPE (Costa Rica’s oil refinery) in exchange for building the new national stadium!











5. What other potential tax, legal and immigration problems do you predict could be problematic for Costa Rica over the next ten years?
   
   
   
   
   “Tax, legal and immigration are complicated right now as they are, and taxation will get harder if Francisco Villalobos gets his way with his foolish ideas, but it’s banking that’s really going to get hit hard! Last week Costa Rica was again accused of being “too soft” when it comes to money laundering so now the Ley 8204 (the know your customer rules) are just ridiculous and, when the U.S. starts implementing The Foreign Account Tax Compliance Act for U.S. citizens, banking will be even more ‘complicado’ than it is now – especially for U.S. citizens.”

My job as Pro Bono Local Partner of the World Bank is Costa Rica is basically to monitor the country in different business areas, not only taxes, so for the reader to have a better idea on how bad the decisions makers/politicians of Costa Rica are performing, lets take a look to the country’s ranking for the last 3 years:

Is noticeable that the country is not doing that well, it remains a good country to invest in and to retire however, if the Costa Ricans do not act wisely on the next elections, and by acting wisely I openly mean not to vote for PLN (National Liberation Party) and its so far proclaimed candidate, Rodrigo Arias, brother of Oscar Arias, then I forecast no improvements for the overall ranking of the country when it comes to doing business in Costa Rica.




For Costa Rica to remain attractive to foreign investors and to people looking for an attractive retirement destination, we must remain vigilant about security, the education of our children, the healthcare system and the economy, if we continue on the path we are on right now, we’ll see the total destruction of the middle class just as we see this happening in the U.S.




We’ll then return to the days where we’ll have the very same oligarchy that ruled back in the first half of the last century and Costa Rica will not be nearly as attractive as it is today.”

Written by Randall Zamora who is the President and CEO of CostaRicaABC.com, former CFO and Head of Accounting Department of multinational companies like Four Seasons Resort Costa Rica, active member of the Interamerican Accounting Association, Pro Bono Local Partner of The World Bank and contributor to their yearly publication “Doing Business Report.”

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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.