Want to invest in Costa Rica? Then you want to read this…

Feb 14, 2008

(Source "The Guancaste Journal"  www.journalcr.com)

(Infocom) – Are you interested in making an investment in Costa Rica’s sector? But beyond that, do you want to make the best decision regarding your investment? Of course! To do that, you need to have equate information, and that’s why we are providing you here with interesting data about the laws that govern the tourism industry – so that your investment won’t just be acceptable, but that it will reward you with the highest possible yield. 

Even though there are many topics involved in tourism investment, we are going to begin by talking about tourism incentives – one way the Costa Rican government simulates the industry through several tax-related benefits. 

Tourism incentives are included in Costa Rica’s law book as a series of tax benefits intended to foment the growth and development of the country’s tourism activities. It’s a non-protectionist stimulus program that seeks to contribute to social and economic development. It was created via Law 6690 of July 15, 1985, experiencing different reforms in the following year. 

To have access to the benefits of these tourism incentives, businesses must request a tourism contract (one they have obtained their tourism tax-registration documents) from the Costa Rican Tourism Institute (ICT). 

The tourism contract is a requirement for anybody wishing to operate a tourism-related business, preferably one of public interest, and wanting to enjoy the benefits of the tourism incentives program. 

These incentives are not given indefinitely, but rather have a specific period of time during which they are effective, depending on the individual evaluation of each tourism project, and based on criteria such as employment generation, impact on the national economy, effects on regional development, how it benefits other production sectors, and others.

These incentives are targeted mostly at hotels, air transportation for local and foreign tourists, water transportation, travel agencies, and vehicle rental for local and foreign tourists. 

Incentives for hotels

Tax benefits in this category apply to new projects and expansion or remodeling of existing infrastructure. 

The first benefit consist of tax exemption for the import or local purchase of items indispensable for the operation of new businesses, already –established businesses offering new services, or construction or remodeling of a building belonging to a hotel project. Purchase of vehicles or fuel is excluded from this exemption. 

It’s important to point out that this tax exemption doesn’t apply if the imported goods are manufactured in any of the countries belonging to the Central America Tariffs and Customs Agreement. 

Also to be considered is the fact that the exemption applies to the general sales tax, but only in the case of goods acquired during the initial investment made to get the business established. Goods procured for remodeling are subject to the general sales tax. 

Moreover, the remodeling and expansions to be made in the future must be indicated in the original project’s documents and in the tourism contract, if they are to benefit from tax incentives. 

Other benefits given to the hotel sector by the tourism incentives program includes the depreciation of goods that because of their nature quickly run out of service; concession of sales permits; authorization to serve as auxiliary cashier for purchase and sale of foreign currency to tourists; and exemption from payment of real estate taxes for up to six years following the signing of the tourism contract for businesses operating outside of San Jose’s metropolitan area. 

Incentives for air and water transportation

Air and water transportation businesses also enjoy benefits provided by the tourism incentives program, such as tax exemption for import or local purchase of goods indispensable to establish their operations – such as parts in the case of aircraft, or construction materials for marinas and docks in the case of water transportation. 

Businesses dedicated to air transportation of passengers, whether in national or international routes, also have access to fuel purchases at competitive rates and accelerated depreciation, according to the Income Tax Law. 

The latter benefit is also given to water transportation companies, which are exempt from all taxes except for tariffs in the purchase of watercraft intended for tourism activities (currently 20 percent for import or local purchase). 

Incentives for travel agencies and car rentals

Finally, travel agencies that bring in tourists are exempt from all taxes, except tariffs for import or group-transportation vehicles with a minimum capacity of 15 people.