Guidance

Overseas business risk: Costa Rica

Updated 14 May 2024

1. General overview

Costa Rica’s investment climate has been favourable for many years. Foreign direct investment is high and has been a significant contributor to Costa Rica’s economic growth. Despite challenges to the country’s competitiveness, including rising operating costs, bureaucratic red tape, and infrastructure challenges, Costa Rican government actions targeted to address these issues have moved Costa Rica up in the ease of doing business ranking considerably.

Costa Rica has enjoyed constant economic growth since the pandemic, with an annual estimated increase of 4.4% for 2024. While the traditional agricultural exports of bananas, pineapples and coffee remain the backbone of commodity-based export trade, a variety of industrial and specialised agricultural products have broadened export trade in recent years. High value-added goods and services, including medical devices, have further bolstered exports.

Costa Rica has an open economy focused on industrial production, services, tourism and agriculture. Its main industrial products are micro-processors, medical equipment, electronic components and food processing. These goods and services, along with pineapple, banana, dairy products and coffee, are the country’s main export products. The currency is Colón (¢) and the exchange rate fluctuates between ¢620 and ¢690 for £1.

Tourism continues to bring in foreign exchange, as Costa Rica’s impressive biodiversity makes it a key destination for ecotourism. Foreign investors remain attracted by the country’s political stability and its high education levels. Costa Rica is the second-highest ranked country in English proficiency in Latin America, according to the English Proficiency Index of 2022. Despite this, the government has recognised ample room for improvement by announcing a bilingualism strategy and positioning English learning as a top priority.

As one of the most stable countries in Latin America, Costa Rica stands out in several ways:

• population of 5.2 million
• the country was ranked as the fifth most competitive country in Latin America in 2022
• the real GDP for 2024 is expected to be $96 billion with a GDP per capita of $18,000
• annual inflation rate between 1% and 2%
• direct British Airways flight from London to San José from November to April (approximately 70,000 British nationals visited Costa Rica in 2022)

Costa Rica has one of the highest levels of foreign direct investment per capita in Latin America, in great measure due to successful and acclaimed incentives such as the creation of free-trade zones. In 2023, the country received $3,900 million in Foreign Direct Investment. For this same reason, various multinational companies have set up their hubs in the country, including British companies such as Videndum, Smith and Nephew, AstraZeneca and Unilever. Investors are interested in Costa Rica because of its high standard of living, its political and economic stability and its robust educational system.

The country has 15 Free Trade Agreements that include the European Union, United States, Canada, Mexico, China, Singapore, South Korea, Peru, Colombia, Chile, the United Kingdom, and the Central American and Caribbean regions. In 2024 the government signed a Free Trade Agreement with Ecuador and United Arab Emirates, while negotiations with Israel continue.  Other initiatives include efforts to enter the Trans-Pacific Trade Bloc (CPTPP) announced in 2022, which strengthens ties with 11 Asian economies.

Although the business climate in Costa Rica is favourable, obstacles remain.  Barriers include bureaucracy, slow decision-making processes, and lack of clarity and transparency in tax administration, and the slowness of the Costa Rican judicial system. Companies can also experience delays in customs, extra paperwork requirements and delays in processing payments.

2. Politics

The current government is keen to promote foreign direct investment, having announced new Foreign Direct Investment and Export Promotion strategies. Efforts are being made to improve countryside access with important investments in infrastructure projects, including road maintenance, highway construction, a mega-port construction and airport construction and expansion. Regarding energy, Costa Rica has a powerful supply network (98.55% from renewable sources). With the liberalisation of the telecommunications sector, mobile phone coverage is wider and internet connection is common, but 5G infrastructure is still lacking.

Costa Rica can seem bureaucratic in specific areas. Its robust judiciary system can result in slow decision-making processes and resolutions. High-energy costs, bureaucracy and conflicting responsibilities between agencies remain as barriers to greater international competitiveness. The country is limited by its fiscal deficit but has made important improvements in this matter with the IMF’s supervision and support.

Costa Rica has one of the highest innovation potentials in the region thanks to a high-quality educational system and an above-average capacity to innovate and use available technology. Despite these strengths, the country still faces significant challenges that it must address to improve its competitive edge. The quality of infrastructure is lacking in many aspects, procedures to start a business can be lengthy, and available financing for businesses – especially through local equity markets – is scarce, affecting the conditions for entrepreneurship.

3. Economics

Costa Rica offers investors excellent conditions and incentives given by the government as part of the export and investment promotion strategies. The country provides the most attractive and cost-effective tax incentives in the region. The Costa Rican Foreign Trade Promoter (PROCOMER) has been ranked number 1 Trade Promotion Agency in the World for several years. Costa Rica also possesses an excellent location for business and trade, since it is geographically located at the heart of the Americas, with ports on both the Pacific and Atlantic coasts.

Free Trade Agreements provide preferential access to over 57 trade partners, including the UK. Moreover, Costa Rica joined the Organisation for Economic Co-Operation and Development (OECD) in May 2021, becoming Latin America’s 4th member and 38th worldwide, after a five-year process that included 22 legislative committees.

3.1 Trade between UK and Costa Rica

Trade between the UK and Costa Rica has increased in the last few years. Exports of goods to the UK were valued at £263,000 million in 2023.

In January 2021, the UK-Central America Association Agreement (UK-CAAA) came into effect, following the UK’s exit from the European Union, setting provisions on trade in goods and services, intellectual property and government procurement. The Agreement also includes provisions on preferential tariffs, tariff rate quotas, rules of origin and sanitary and phytosanitary measures that ensure continuity of effect of the provisions in the original EU-CAAA. This was important for maintaining beneficial conditions that ensure the continuity and expansion of trade relationships between both regions.

UK businesses established in Costa Rica include AstraZeneca, BAT, DIAGEO, Haleon, Land Rover, London Stock Exchange Group, Pearson, Reckitt, Smith and Nephew, Unilever and Videndum, among others.

3.2 Strengths of the market

• open and well-diversified economy
• high levels of English proficiency
• high literacy rate (97.8%)
• GDP constantly growing since 1991
• robust political stability with more than 120 years of solid democracy
• highest recipient of Foreign Direct Investment per capita in Central America
• international standards for Intellectual Property protection

3.3 Tax and customs considerations

Four investment incentive programs operate in Costa Rica: the free trade zone system, an inward-processing regime, a duty drawback procedure, and the tourism development incentives regime. These incentives are available equally to foreign and domestic investors.

The Free Trade Zone Regime provides 100% tax exemption to all sectors with an option for either a 10-year period or no expiration period. For manufacturing projects with an investment of USD $10 million (approximately £6.5 million) or more, they can receive 100% income tax exemption for an 8-year period and in the following 4 years a 50% income tax exemption. Additional 8-year renewal periods are possible if significant reinvestment is made. Companies that apply can set up their operations inside one of the privately owned Free Trade Zone Industrial Parks. Most of these industrial parks are located within a 20-mile radius from the main international airport.

Other taxes include:

• Value Added Tax of 13%
• selective consumption tax: between 5% and 75% depending on the product

Customs procedures in Costa Rica are carried out through an agent responsible for presenting declaration forms to the Customs Office. The importer must provide all required documentation, such as commercial invoices, bills of lading, insurance agreements (if any), and technical specifications of the product. This is mainly to designate the correct coding of the merchandise within the Central American Customs System.

The following sectors offer the greatest opportunities to British companies:

Services

Costa Rica works with multifunctional modern processes like financial analysis, regional centres, software development and information technologies, engineering and design. The country stands as the first exporter of high value-added services in Latin America, over Chile and Brazil. There are many opportunities for UK companies in the services sector including: contact centres; shared and back-office services; digital technologies; design and engineering; and regional hubs.

Advanced manufacturing

Costa Rica is first in Latin America for production process sophistication. It has a consolidated industry that operates with a high level of complexity, diversity of manufactured products and great dynamism. This is due to a strong educational system that leads to a highly skilled workforce. In the last 15 years the number of companies in this sector has doubled, which has established the country as a relevant part of Global Value Chains. There are many opportunities for UK companies, including provision of electronics, and automotive and aerospace components.

Life sciences

Costa Rica is a leader in MedTech investment in the region. The country is home to 14 of the world’s top 100 medical technology companies, including Boston Scientific, Edwards Life Sciences, Smith & Nephew, and The Cooper Companies. The sector has grown over 190% in the last decade. El Coyol Free Trade Zone was ranked top #7 Free Zone in the world, making the top 10 for four consecutive years as a leading medical device hub.

Clean technologies

Costa Rica is in the process of decarbonising its economy. There are opportunities to aid their progress towards clean growth and the United Nations’ Sustainable Goals.

Costa Rica is keen to develop and improve its agricultural output with new technology and tools. The country offers UK companies opportunities in equipment for land preparation and crops, greenhouse production, precision farming, dairy, poultry and pig production.

There are also opportunities for UK companies offering solutions for decarbonisation and development of a clean energy matrix. Public institutions are investing to incorporate technology in the agricultural sector. This ranges from the acquisition of molecular biology, plant protection and animal nutrition, to soil laboratories and drones.

4. Business and human rights

In Costa Rica, foreigners have equal rights and obligations; they have no limits to property handling, and they can conduct business activities freely, since there is free capital movement without foreign exchange controls. Multinational companies must comply with the same procedures and regulations as local companies do, to start operations in the country.

Costa Rica still has some limitations, especially regarding the protection of public health, (human, animal or plant), security, the environment, and the compliance with the adequate quality standards. There are also laws and regulations in the following areas: Anti-discrimination and Harassment; Child and Youth Labour; Statutory Cash Bonus; Workplace Safety; Social Security and Insurance; Taxes; Pensions; Immigration; Association and Union; Confidentiality/Non-Disclosure of Information.

5. Bribery and corruption

Costa Rica has ratified the UN Anticorruption Convention, the OECD Convention on Combating Bribery and the Inter-American Convention against Corruption in 1997. This initiative of the Organization for Economic Cooperation and Development (OECD) and the Organization of American States (OAS) obligates subscribing nations to implement criminal sanctions for corruption. Costa Rica also ratified the UN Anti-Corruption Convention in March 2007 and has laws, regulations and penalties to combat corruption, though the resources available to enforce those laws have been limited.

A series of high-profile corruption cases in recent years involving directors of state-owned enterprises, as well as two ex-presidents, has helped emphasise that even senior officials may be prosecuted on corruption charges. Acts of bribery, including those directed against government officials, are criminal acts punishable by imprisonment. Public officials convicted of receiving bribes are subject to prison sentences of up to ten years, according to the Costa Rican Criminal Code (Articles 340-347). Entrepreneurs may not deduct the costs of bribes or any other criminal activity as business expenses.

For more information please visit: 2022 Corruption Perceptions Index: Explore the… - Transparency.org

6. Terrorism and security

Read the latest on terrorism and protective security in Costa Rica on the FCDO’s travel advice page

7. Intellectual property

While the legal framework governing intellectual property exists, Costa Rica has challenges in adequately enforcing those rights. Significant delays in judicial proceedings and a lack of official investigators, public prosecutors, and criminal and civil judges specialising in intellectual property hamper effective enforcement.

Costa Rica is a signatory to the main international agreements on intellectual property and is a member of the World Intellectual Property Organisation (WIPO). The Costa Rican Legislative Assembly has also ratified the General Agreement on Tariffs and Trade (GATT) agreement on Trade Related Aspects of Intellectual Property (TRIPS) and the Paris Convention for the Protection of Industrial Property.

In order to obtain a patent in Costa Rica, an applicant must apply to the Registry Office. This process usually takes two years. To register a trademark, the applicant must submit a power of attorney requiring only notarisation, a certified copy of the original registration or a legalised Declaration of Adoption of the Trademark. In addition, the applicant or local representative must supply one printing block and twenty prints of the trademark. The registration processes take approximately seven to eight months.

8. Organised crime

Costa Rica is carrying out efforts to reduce the recently growing organised crime in the country. Initiatives such as enhancing the specialised courts investigating criminal gang-related offenses, establishing specialised jurisdictions for organised crime cases and expansion of processing and detention periods are already in place.

For more information please visit: Safety and security - Costa Rica travel advice - GOV.UK (www.gov.uk)

9. Contact

UK Department for Business and Trade
British Embassy San José
Centro Colón
Piso 11
Calles 38 y 40
Paseo Colón San José
Costa Rica
Telephone: + (506) 2258-2025
Fax: + (506) 2233-9938

Email: ukin.costarica@fcdo.gov.uk

10. Useful links

Costa Rican Ministry of Economy and Industry

Costa Rican Ministry of Foreign Trade

Costa Rican Central Bank (Main Economic Statistics)

PROCOMER -Costa Rica’s Trade Promotion Authority

Rankings (doingbusiness.org)

British Embassy San Jose - GOV.UK (www.gov.uk)

Exporting guide to Costa Rica - great.gov.uk