The Costa Rican economy is considered stable with real annual growth of between 3% and 5% in the last five years, and that’s in spite of the COVID-19 pandemic last year. The country has traditionally been an inflationary economy, with an average of 4% and 5% over the past five years – in 2016, it was 3.7% and inflation is expected to be within these 3% parameters (-/+ 1%) in the coming years. As the country recovers from the pandemic, it’s going to be a good time to consider Costa Rica for investment reasons and Randall Castillo Ortega, the founder of RACO Investment, offers insight into what’s in store.
More than half of Costa Rica’s exports are manufactured products and agricultural products, such as fruits, nuts and coffee, to a lesser extent. The capital is San Jose, and the currency used is the Colon (CRC). The exchange rate is freely determined in foreign exchange markets, although the Central Bank has the right to participate to avoid violent fluctuations. Last year’s history shows a trend of currency depreciation against the US dollar.
The main sectors of economic support in the country are are tourism, high-tech industrial manufacturing, agriculture, forestry and fisheries. Costa Rica is the most visited country in Central America, with about 25% of the share of the tourist market and Americans account for about 40% of all tourists. Costa Rica participates in the Central American Common Market (CACM) and has existing free trade agreements with the European Union, Canada, the Caribbean, Chile, China, the United States, Central America, the Dominican Republic, Peru, Singapore and Panama.
In Costa Rica, there are more than 270 high-tech multinational companies, including Intel, Amazon, HP Enterprise, P&G, Boston Scientific, St. Jude Medical and Abbott. Says Castillo, “The World Economic Forum ranked Costa Rica as the first Latin American country in innovation, the sophistication of the production process, the availability of engineers and the quality of researchers. The country has an advanced and competitive business climate that lends itself to multinational operations because of a large bilingual workforce.”
In Costa Rica, there are generally no restrictions on foreign investment, with certain exceptions. The import, refining and distribution of oil and its derivatives or the distillation of alcohol are an exclusive right of the State. There are certain activities that might be subject to the application for a license or concession, including financial services, insurance services, railways, sea and airports and telecommunications. In most of these sectors, there is no limitation on foreign investment, but discussing options with an expert is always recommended.
There are seven free trade areas, where there is an exemption from import duties on certain goods and certain tax exemptions, depending on the activity and category of imported goods. Minimal investment may be required, depending on the geographical location, the activities to be carried out and whether they will be carried out within an industrial park. Adds Castillo, “Companies entering the free trade area may be exempt from import taxes, sales taxes, export taxes, excise duties, property transfer taxes and withholding tax on non-residents and exempt from income tax during the first eight years of operation and 50% in the next four years.”
There are also a number of investment incentives for those wanting to work in the tourism industry. To qualify partially or fully for these incentives, certain requirements must be met and the applicant company must be previously classified as a tourist company by the ICT (Costa Rican Tourism Institute).
In Costa Rica, foreigners, regardless of their immigration status, have the same rights as Costa Ricans when buying real estate, whether land or buildings. With the sole exception of Maritime-Land zones subject to concessions, to which foreigners are normally not eligible. The Costa Rican real estate market is quite mature and offers many options.
Since 2013, real estate sales have increased by 14% compared to the previous year, and demand has remained since then. Due to its popularity with those who want to live on a retired income, baby boomers have chosen it as a destination for permanent vacations and economic growth and access to mortgage credit for housing. Explains Castillo, “The price is significantly higher in the Central Valley area, which includes San José, Alajuela, Heredia and Escazú and on the Pacific coast than in the southern region, such as the Osa Peninsula. You can still find oceanfront condominiums for just over $180,000 in areas such as Playa Langosta, Playa Grande or Drake Bay, among others.”
Currently, gross rental income is considerably good, between 6% and 8%. While real estate market expectations are positive for this year, there may be a price correction in the near future. Still, there are interesting opportunities to buy land in old areas that are likely to be re-urbanized, or on the south Pacific coast, such as Sierpe de Osa, Playa Guapil or in mainland areas such as Arenal Lake, where you can find villas for just over $125,000.
There is no legal limit to establish security deposits, although they are usually one month. Please note that prepayment is limited to one month’s rent. In case of non-payment, an eviction process should not take more than a year, where you can try to collect the unpaid rent. Real estate is subject to a municipal property tax that can be up to 0.25% of the value assessed by the municipality.
The sale of real estate is subject to the transfer tax, which is 1.5% of the sales value or the amount of the tax, whichever is greater. Capital gains are normally not taxable unless the sale of real estate constitutes the usual activity of a company or individual.
If you have a good idea (which does not need to be original), a good way to invest in Costa Rica can be to start a business, thanks to its great advantages in terms of taxes for foreigners.
