CHAPTER VII. 

                            INVESTMENT CLIMATE 

 

A.   OPENNESS TO FOREIGN INVESTMENT: 

 

In general, Costa Rica has a relatively open international trade 

and investment regime.  However, state monopolies in public 

utilities, insurance, bank demand deposits, the production and 

distribution of electricity, hydrocarbon and radioactive minerals 

extraction, refining and the wholesale distribution of petroleum 

and operation of ports and airports limit investment 

opportunities in these sectors. 

 

In sectors not reserved to the state, there is widespread 

recognition in both public and private sectors that increased 

foreign investment is essential for increased exports and 

employment.  Since mid-1982, the government has placed 

considerable emphasis on improving the investment climate, 

including the creation of the Ministry of Foreign Trade (COMEX), 

which is coordinating government efforts in the trade and 





investment areas.  The Center for Export and Investment Promotion 

(CENPRO), has assisted prospective investors during the past 18 

years with information-gathering and in completing formalities 

required to set up an investment.  CENPRO also created a "one- 

stop" export window (La Ventanilla Unica) in 1994 to assist 

exporters cut through often confusing export paperwork.  The 

Costa Rican Coalition for Development Initiatives (CINDE), a 

private non-profit association, operates a very active investment 

promotion program through several regional offices in the U.S., 

Europe and the Far East. 

 

Key to its attractiveness as a potential site for investment is 

the fact that Costa Rica is a beneficiary country of the U.S. 

Caribbean Basin Initiative (CBI) and Generalized System of 

Preferences (GSP).  These programs grant Costa Rica duty-free 

access for some 4,000 products and have played a significant role 

in helping Costa Rica diversify its exports and increase two-way 

trade. 

 

In February 1984, Costa Rica's Legislative Assembly passed the 

Financial Equilibrium Act to improve public finances, which 

includes a whole chapter on export incentives.  Companies 

choosing to enter into an "export contract" with the Government 

of Costa Rica receive benefits that include 100 percent 

deductions on income tax, up to 50 percent tax credits on the 

purchase of an export company's stock, and almost total exemption 

on duties for imported raw materials and capital goods that are 

not produced in the country and are necessary for the operation 

of the export companies.   The same act includes provisions to 

encourage draw-back activities. 

 

Industries with the following characteristics are considered to 

have good development potential in Costa Rica:  those which are 

labor intensive, have low capital costs, require medium skill 

complexity, and produce CBI-eligible goods which have high U.S. 

duties or quotas that impede imports from outside the Caribbean 

area. 

 

Such industries include: electronic components, electronics 

assembly, electronic consumer goods, mechanical engineering 

assembly, small electrical appliances, up-scale apparel, toys, 

sporting goods, selected leather goods (most leather products do 

not currently benefit from CBI), health care supplies, and 

natural resource-based products, including food processing and 

agro-industry. 

 

With the Government of Costa Rica's emphasis on exports, 

enterprises meant to supply or service local consumers tend to be 

overlooked.  However, recent foreign investments include such 

varied activities as fast food (Burger King, Taco Bell, 

McDonalds, Pizza Hut, etc.), video rentals, hotels (Marriott, 

Hampton Inn, Camino Real), computer products and services.   The 

Government of Costa Rica has also actively sought investment in 

hotels and other tourist facilities. 

 

Laws governing private investment are identical for nationals and 

foreigners.  Discrimination between these two groups is 

constitutionally prohibited.  Costa Rican laws are passed by the 

Legislative Assembly and ratified by the President.  Some of the 

laws dealing specifically with investment are the Civil and 





Commerce Codes, the Export Promotion Law, the Financial 

Stabilization Act of 1984, and the Income Tax Law of October 

1988, as well as banking and other laws dealing with specific 

topics such as property registration, taxation, mining and 

industrial contracts. 

 

According to Costa Rican law, the Constitution of Costa Rica 

takes foremost precedence, followed by international treaties, 

Acts of the Legislature, and regulations dictated by the 

different government entities.  Custom, precedent, foreign laws 

and learned opinions (jurisprudence), serve only as tools of 

interpretation and do not bind judges. 

 

Foreign companies and persons may legally own equity in Costa 

Rican companies, including real estate, manufacturing plants and 

equipment, hotels, restaurants, and all kinds of commercial 

establishments.   However, several activities are reserved to the 

state: public utilities, insurance, telecommunications, mail, 

demand deposits (checking and savings accounts), the operation of 

ports and airports, and the extraction of hydrocarbons (through 

government concession) and radioactive minerals extraction and 

refining.  In May 1994, the Hydrocarbons Act was enacted, 

allowing the state to award concessions to private parties, 

including foreign companies, for the exploitation of petroleum 

(were it to be found).  Similarly, an energy co-generation law 

(Law #7200) allows private entities to produce up to 30 percent 

of the country's electricity. 

 

Participation in some service industries by foreign individuals 

can be so rigorously controlled that in practical terms it may be 

impossible: for example, medical practitioners, lawyers, 

certified public accountants, engineers, architects, teachers 

and other professionals must be members of one of the guilds or 

"colegios" which stipulate residency, exams and apprenticeship 

requirements that can only be met by long-time residents of Costa 

Rica, whether citizens or foreigners.  For this reason, U.S. 

firms seeking to do business in these sectors should secure a 

local Costa Rican partner. 

 

Foreign companies may operate legally in several ways, such as a 

branch, a joint venture or wholly-owned subsidiary, or by 

incorporating as a local, foreign-owned company.  Individual 

foreign persons or partnerships can also legally own and operate 

individual enterprises of limited liability, a partnership 

company, or a stock or charter company.  Trusts and cooperatives 

can be established.  Regardless of how they operate, all 

enterprises, owners and company officers must be registered in 

the National Registry, thus becoming "Costa Rican" enterprises 

regardless of the nationality of the owners or officers. 

Acquisitions and company takeovers are governed by regulations 

similar to those in the United States.  Foreigners can be 

officers, directors, partners or trustees of companies, negotiate 

commercial documents, and execute any kind of contract. 

 

In general, the laws controlling investment by foreigners are 

fairly transparent.  However, investment in real estate requires 

particular care due to the possibility of squatter invasions. 

Organized, violent squatters have often targetted undeveloped 

farmland owned by absentee investors.  In recent years, however, 

squatters have also repeatedly invaded developed farmland, e.g. 





macadamia, pineapple and citrus farms Costa Rican land tenure 

laws favor squatters, and police protection of landowners in 

rural areas is poor to non-existent.  Investment in beachfront 

property can also be problematic since all beachfronts are public 

property for a distance of 200 meters from the high tide mark and 

are strictly regulated in accordance with Maritime Zone laws. 

Potential investors should be aware that within the first 50 

meters of this public beach zone, nothing can be constructed and 

the public cannot be denied the right of access.  The next 150 

meters are restricted, but concessions for a certain period of 

time may be obtained from the appropriate municipality. 

Potential investors in land in Costa Rica should also be advised 

that the right of crossing through traditional paths is an 

ancient custom protected by laws derived from Roman law 

(servidumbres). 

 

In general, investing in land in Costa Rica requires constant 

vigilance and expert legal counsel given the risk of squatter 

invasions, expropriations and the strict regulation of beachfront 

property. Furthermore, great attention must be given to the 

accuracy of land registration.  This process is complicated by 

the fact that only about 40 percent of the land in Costa Rica has 

been titled. 

 

Investment in general is not subject to special restrictions. 

For instance, no investment screening mechanisms exist and there 

are no limitations or conditions imposed on transfers of 

technology.  Any available technology is acceptable, and can be 

imported.  Geographically-determined preferential areas of 

investment, set up as industrial investment and duty-free zones, 

are designed to facilitate access to export incentives.  The 

Stock Exchange conducts securities transactions with reference to 

the norms existing in the Civil and Mercantile Codes and the 

Central Bank and other banking Acts.  The Auditor of the Banking 

System, an officer of the Central Bank, is the supervisor of 

commercial banks and all securities and stock transactions. 

 

Foreign investors with some experience in Costa Rica have 

identified several problems which face prospective investors. 

Most of the difficulties are due to a cumbersome bureaucracy 

which slows approval of documents for all types of transactions, 

but especially those concerned with Customs and the banking 

system.  For example, in the past, delays in receiving dollars 

for imports could be quite lengthy depending on the ready 

availability of dollars to the banking system.  These delays 

sometimes added considerably to an investor's operating expenses. 

The GOCR has made serious efforts to reduce these inefficiencies, 

including the establishment of a "one-stop" office to assist 

investors in obtaining necessary approvals from government 

agencies.  In addition, there are no longer controls on foreign 

exchange transactions which are conducted by commercial banks, 

and the exchange rate is market-determined with the Central Bank 

influencing the exchange rate through open market operations. 

 

Customs procedures are costly and complex.  Most large 

enterprises find they must have customs specialists on the 

payroll, in addition to buying the services of customs brokers. 

Customs brokers must be bonded Costa Rican companies and enjoy a 

monopoly on the handling of imports.  Although things are 

improving there are frequent complaints from importers and 





exporters about burdensome customs procedures, poor 

administration, theft, graft and inadequate facilities. 

 

The share of foreign workers in an enterprise is limited by law, 

but the Ministry of Labor generally grants permission for 

foreigners to work.  Permits for foreign participation in 

management have always been granted.  No requirements exist for 

foreign owners to work in their own companies.  There are no 

restrictions on the repatriation of profits and capital. 

 

 

B. TRANSFER POLICIES: 

 

There are no limitations on transferring funds associated with 

investments abroad, in any available currency, and at a legal 

market-clearing rate.  There is no queueing for foreign exchange, 

but the availability of dollars is dependent on market 

conditions.   No restrictions are imposed on reinvestments or in 

the repatriation of earnings, royalties, or capital except when 

these rights are covered in agreements with the Government of 

Costa Rica.  Royalties are taxed in accordance with Title IV of 

the Income Tax Law, No. 7092, extensively reformed in October 

1988, and the amounts vary from 10 to 25 percent. 

 

 

C.  EXPROPRIATION AND COMPENSATION: 

 

The government's expropriation policy is a cautionary signal to 

U.S. investment in Costa Rica.  In the past, the government 

expropriated large amounts of land for national parks, biologic 

and indigenous reserves, and to distribute to squatters without 

compensating the property owners.  While Article 45 of the 

Constitution of Costa Rica stipulates that no property can be 

expropriated, from a Costa Rican or foreigner, without previous, 

prompt and fair payment, and for a demonstrable reason of public 

interest, some U.S. claimants continue to seek resolution of 

expropriated property cases which began 15 to 20 years ago.  The 

U.S. Government has been able to expedite compensation in some 

individual cases. 

 

In addition to the past failure to provide prompt compensation, 

the adequacy of eventual compensation has at times been 

diminished because Costa Rican law allows claims against the 

government to be paid in depreciated local currency.  Actual 

compensation can therefore be significantly reduced over time. 

 

The Figueres administration has undertaken considerable efforts 

to resolve several pending expropriation cases and some 

longstanding, high-profile cases appear on the way to resolution. 

Five of seven prominent cases have been at least partially 

resolved and a sixth is about to be submitted to international 

arbitration. 

 

A recent development offers some promise that future 

expropriation cases will be dealt with by the government of Costa 

Rica in a more prompt, efficient manner.  On June 8, 1995, the 

Legislative Assembly passed a new law on expropriations, Law No. 

7495, which replaced several laws that had allowed the 

expropriation of private property by any state institution.  The 

new law should help ensure that expropriations take place only 





after full and advance payment is made, regardless of the 

nationality of the property holder.  Included among the laws' 

provisions are:  a) a requirement that the property be returned 

to the original owners if it is not used for the intended public 

purpose within ten years of the expropriation (in the claimant 

already had been paid, he would have the option of purchasing the 

property at its current value); b) a maximum six-month period for 

the expropriating public institution to complete all requirements 

needed for formally registering the property; c) a one-month 

period during which the tax office must conduct an appraisal of 

the property to be expropriated; d) a requirement that the tax 

office itemize crops, buildings, rental income, commercial 

rights, mineral exploitation rights, and other goods and rights, 

separately and in addition to the value of the land itself; and 

e) provisions providing both local and international arbitration. 

 

 

D.  DISPUTE SETTLEMENT: 

 

In general, the Civil and Commercial codes provide for 

arbitration of commercial disputes.  The law does not generally 

recognize any arbitration other than that provided by local 

courts.  (However, the new expropriation law, referenced above, 

explicitly references international and local arbitration). 

 

In 1990 the Government of Costa Rica created a special 

Expropriation Commission to negotiate with the U.S. Government 

and U.S. claimants and/or their representatives to resolve 

pending expropriation disputes.  Claimants in theory have had 

recourse to international arbitration through the International 

Center for the Settlement of Investment Disputes -- a World Bank 

forum for settling investment disputes between governments and 

foreign investors -- since early 1993, when the Government of 

Costa Rica acceded to the Washington Convention (no disputes have 

been submitted to date, although one case appears likely to go to 

ICSID soon).  Claimants also have had access to local arbitration 

since 1991.  Cases in which American citizens sought resolution 

of their property dispute through Costa Rica's domestic 

arbitration procedures, using Costa Rican lawyers as arbitrators, 

have been somewhat disappointing.  In one of the cases, the 

arbitral award was clearly inadequate as the arbitral panel used 

non-market interest and exchange rates to compute the award -- in 

apparent violation of a ruling by the Constitutional Chamber of 

the Costa Rican Supreme Court (Sala Cuarta). 

 

While it is theoretically possible to obtain redress through the 

judicial system, in practice litigating against the Government of 

Costa Rica can take so long and be so costly that the system is 

unworkable. 

 

There are a number of land disputes pending resolution before 

Costa Rican courts that involve squatters on land owned by U.S. 

citizens and/or corporations.  Thus far, the Costa Rican police 

and the judicial system have failed to resolve most of these 

outstanding disputes. In general, the process to resolve squatter 

cases is long and costly, and the legal owner (particularly if 

foreign) is at a significant disadvantage in a system that can 

favor squatters, especially on land not being actively worked. 

It is prudent therefore, that investments in land be limited to 

land actively farmed or occupied by the owner and that a thorough 





investigation regarding the possible presence or threat of 

squatters be made prior to purchasing the property. 

 

In addition to acceding to the Washington Convention and becoming 

a member of ICSID, Costa Rica has joined the U. N. Multilateral 

Investment Guarantee Agency (MIGA), which provides a forum for 

international arbitration in investment disputes, as well as 

investment guarantees.  Costa Rica has not joined the United 

Nations Protocol for the Compulsory Settlement of Disputes 

between countries, nor the New York Convention of 1958 on the 

Recognition and Enforcement of Foreign Arbitral Awards. 

 

 

E.  POLITICAL VIOLENCE: 

 

There is no significant political violence in Costa Rica. 

Internal problems in Nicaragua have resulted in extensive illegal 

immigration into Costa Rica (over 300,000 Nicaraguans, both legal 

and illegal, reside in Costa Rica, about 15% of the population). 

To some extent these migrants have brought the violence of their 

homeland with them, but this is reflected in common criminality 

rather than in political violence.  There are no indigenous or 

external movements likely to produce political or social 

instability.  While Costa Rica is a highly politicized country, 

that politicization is entirely directed towards the practice of 

democratic politics.  A common practice of groups seeking a 

hearing for their cause is to block roads or highways and these 

demonstrations occasionally escalate into violent confrontations 

with the police.  Violent confrontations have also occurred 

during conflicts over private property seized by squatters. 

 

 

F.  PERFORMANCE REQUIREMENTS/INVESTMENT INCENTIVES and FREE TRADE 

ZONES: 

 

There are no performance requirements that foreign investors must 

meet.  Investment incentives are included in three recent laws 

governing investment in Costa Rica: the Export Processing Zones 

Law of 1981, the Financial Stabilization Act of 1984, and the 

Income Tax Law No. 7092, last revised in October of 1988.   The 

Export Processing Law established publicly operated free-trade 

zone industrial parks in Santa Rosa (Puntarenas) on the Pacific 

Coast, and Moin (Limon) on the Caribbean seaboard.  Coto Sur, 

near the Panamanian border is engaged in the export of African 

oil palm seed. 

 

The Cartago Industrial Park, 15 miles from San Jose, was the 

first privately-managed free trade zone to be established.  The 

Free Zone Corporation has authorized several new private projects 

in Alajuela (Saret Free Trade Zone) and Heredia (Metropolitan 

Free Trade Zone) provinces, in order to take advantage of the 

proximity to the Juan Santamaria Airport.  The Corporation has 

recently decided to divest itself of the actual ownership and 

running of free-zone parks, preferring to encourage the 

establishment of privately-run parks throughout the country. 

The benefits available under the provisions of the free zone 

legislation include the following: 

 

  - Total exemption from imported duties on raw 

    materials, processed or semi-processed products, 





    parts or components; 

 

  - Total exemption from all export taxes associated 

    with the export or re-export of products.   The same 

    exemption is granted for the re-export of equipment 

    and machinery used in the productive process; 

 

  - Total exemption from sales and consumer taxes; 

 

  - Total exemption from taxes levied on remittances 

    abroad; 

 

  - Total exemption from all taxes on profits for a 

    period of six years from the beginning of operations, 

    and 50 percent exemption for the following four years. 

 

In addition to these tax benefits, companies operating in free 

trade zones enjoy free currency conversion (no restrictions), a 

benefit not available to companies with export contracts. 

However, companies operating in free trade zones are not 

qualified to receive tax credit certificates. 

 

The Financial Stabilization Act creates the export contract and 

consolidates legislation governing drawback operations, to 

include: 

 

  - Total income tax deductions on profits from 

    non-traditional exports to third (non-Central 

    American Common Market) countries; 

 

  - Reduced port charges; 

 

  - Simplification of procedures; 

 

  - Bank financing at preferential rates; 

 

  - Tax deductions; 

 

  - Accelerated depreciation; 

 

  - A fifty percent tax credit on the purchase of stocks 

    of firms that produce entirely for export; 

 

  - Duty-free import of inputs for production of 

    non-traditional products to be exported to third 

    countries; 

 

  - Duty-free temporary entry for inputs used in assembly 

    operations, samples and other inputs and 

 

  - The creation of a National Investment Council, 

    comprised of two ministers from the economic sector 

    (which in practice are the Ministers of Finance and 

    Foreign Trade), by the Director of CENPRO, and by two 

    representatives of the private sector chosen by the 

    President of Costa Rica. 

 

At present, some incentives included in the Financial 

Stabilization Act (and reiterated in Articles 60 and 61 of the 

Income Tax Law of October of 1988) listed above are not being 





offered to new investors.  These are reduced port charges, 

preferential interest rates, and certificates of increased 

exports (CIEXES). 

 

Until recently, the Central Bank, upon recommendation from the 

National Investment Council, would award Tax Credit Certificates 

(CATs) and Export Increment Certificates (CIEXES) -- two 

investment incentives established under the 1972 Export Promotion 

Law that also created CENPRO.  CATs and CIEXES have been 

determined to be countervailable subsidies in recent 

investigations by the U.S. Commerce Department; consequently, the 

government of Costa Rica is considering alternative incentives 

more consistent with international trading rules.  The Financial 

Stabilization Act of 1984 and the Income Tax Law of October 1988 

allow for complete exoneration of income taxes for 12 years, 

thereby providing alternative benefits.  A recent Supreme Court 

decision has halted the issuance of further CATs. 

 

Under the terms of the Central American Common Market (CACM) 

Treaty of 1960, industry products produced in Costa Rica enter 

duty-free into the other four Central American countries.  There 

are no discriminatory import policies on goods from outside 

Central America (except for some non-tariff barriers to 

agricultural products), and most goods imported from outside of 

Central America pay duties ranging from 5 to 30 percent (not 

including the 8 percent across-the-board tariff hike which the 

government has said will be "temporary").  Holders of export 

contracts avoid paying these duties. 

 

Special benefits are afforded those who establish residence in 

Costa Rica, such as foreign retirees and resident investors, as 

well as Costa Ricans who retire here on incomes received from 

abroad.  Information on the requirements and benefits established 

for such residents can be obtained from the Instituto 

Costarricense de Turismo (ICT), Apartado 777, San Jose 1000, 

Costa Rica. 

 

 

G.  RIGHT TO PRIVATE OWNERSHIP: 

 

Apart from fields reserved for the state or that require Costa 

Rican citizenship or residency, all private entities and persons, 

domestic or foreign, may establish and own business enterprises 

and engage in all forms of remunerative activity.  The exceptions 

occur in sectors reserved wholly or primarily for the state (bank 

demand deposits, insurance, education, medical services, police 

services, etc.), where private sector participation is, to 

varying degrees, limited.  For instance, private banks can 

provide all banking services except for checking and savings 

deposits, while private insurance companies may only sell 



reinsurance services to the state insurance monopoly and foreign 

trade insurance (mainly to foreign companies that insure imports 

from Costa Rica). 

 

Private-sector firms also offer educational, medical and security 

services, closely supervised by the corresponding state 

institution.  The limitations apply to domestic as well as to 

foreign private enterprises.  The Costa Rican Legislative 

Assembly appears to be seriously considering the possibility of 

allowing private banks to offer demand deposits (checking and 





savings accounts) and offering private banks access to the 

Central Bank's rediscount window, but a final decision regarding 

this issue has not yet been made. 

 

In fields where private enterprises provide the same goods or 

services to the public that state enterprises provide, open 

competition has generally led to either the sale to the public or 

the closing of the state company (food retailing, sugar 

production, road building and repairs, aluminum processing).  In 

some cases (road building and repairs), the state has switched 

from providing the service directly, to purchasing it through 

open bidding. 

 

 

H.  PROTECTION OF PROPERTY RIGHTS: 

 

The status of patent and trademark protection is similar under 

Costa Rican law to that provided by the Lanham Act, and U.S. 

patents can be registered in Costa Rica in the Patents Office of 

the National Registry.  Costa Rica law stipulates 12 years patent 

protection for inventions, except in the case of medicines and 

agricultural inputs, for which the period of protection is 

limited to one year.  Models and trademarks are effectively 

protected by branches of the National Registry, which keep 

permanent files on foreign models and trademarks and allow 

foreign registration.  Any trademark registered abroad can be 

registered in Costa Rica, and in practice, the trademark is 

protected from copy even if not registered in Costa Rica upon 

showing proof of registration abroad. 

 

Costa Rica is a signatory of all major international agreements 

and conventions on intellectual property, trademarks, copyrights, 

and patent protection.  Costa Rica became a member of the World 

Intellectual Property Organization (WIPO) in 1980.  In May 1995, 

the Legislative Assembly ratified Costa Rica's adherance to the 

Paris Convention for the protection of Industrial Property. 

Adherence to GATT and the possibility of obtaining desired 

foreign investment has caused the Government of Costa Rica to 

contemplate extending patents on inventions, medicines and 

agricultural chemicals to 20 years, but no such initiatives 

appear likely to be approved soon. 

 

In May 1994, Costa Rica amended its copyright law to strengthen 

sanctions for piracy and provide explicit protection of computer 

programs.  Prior to this amendment, although computer programs 

could be registered as general copyrighted material, they were 

not explicitly protected by the Costa Rican copyright law.  Gross 

violations of intellectual property continue in Costa Rica's 

video cassette market, where, according to U.S. industry sources, 

nearly all tapes are unauthorized. 

 

Costa Rica was a signatory to the revised Central American 

Convention on Industrial Property on November 30, 1994.  This 

protocol attempted to bring Central American laws on industrial 

property in conformity with world standards and the requirements 

of GATT Trade Related Aspects of Intellectual Property and the 

major international conventions.  The Legislative Assembly has 

not yet ratified this revised agreement. 

 

Costa Rica is a signatory of the the 1886 Bern Convention for the 





protection of literary and artistic works, the Universal 

Copyright Convention (Geneva) of 1952, the 1961 Rome Convention 

for the protection of artists and performers of artistic works, 

and the 1971 Geneva Convention for the protection of phonograms 

against unauthorized reproduction.  Costa Rica has not adhered to 

the 1974 Brussels satellite transmission convention.  Copyrights 

can be registered with the National Registy, but their protection 

is guaranteed under international treaties even if they are not 

registered locally. 

 

Trade secrets are specifically protected in the Constitution and 

in the Civil, Mercantile, and Criminal Codes.  Article 24 of the 

Constitution protects the confidentiality of communications, and 

Article 203 of the Penal Code stipulates jail terms as punishment 

for divulging trade, employment, and other secrets.  The 

punishment is double for public servants.   The patents, models 

and trademark protection laws stipulate criminal as well as civil 

liabilities for divulging certain types of trade secrets.  These 

laws are generally enforced, but only at the initiative of the 

affected party.  However, the main deficiency in Costa Rica's 

intellectual property protection regime is its one-year patent 

protection for pharmaceuticals and agricultural chemicals. 

 

 

I.  REGULATORY SYSTEM - LAWS AND PROCEDURES: 

 

Costa Rican laws, regulations and practices generally foster 

competition.  Tax, labor, health and safety laws generally do not 

block the efficient mobilization and allocation of investment. 

However, bureaucratic procedures are frequently long and involved 

and tend to be discouraging to newcomers.  Nevertheless, long- 

time foreign resident companies and individuals appear to thrive 

despite (or perhaps because of) the red tape that might 

discourage some newcomers.  Judging by new construction and 

investment, as well as by the growth of the Costa Rican-American 

Chamber of Commerce (AMCHAM), the regulations and red tape are 

not sufficient to block healthy growth. 

 

On the other hand, much work is necessary to eliminate crucial 

bottlenecks in public offices such as the customs service, the 

state-owned banks and the postal service.  The administration of 

justice should be improved in several areas that are of 

particular importance to investors.   Bankrupcy procedures, land 

tenure conflict resolutions, torts, etc., are complicated and 

require highly specialized professional assistance.  Supplying 

goods and services to the Government requires such expertise that 

frequently public bidding proceedings are annulled because the 

would-be supplier or contractor is unable to understand or comply 

with all the regulations.  However, on June 8, 1995, the 

Legislative Assembly enacted Law No. 7494, regulating 

administrative contracting and procurement.  The law's purpose is 

to simplify and to increase the efficiency of the procedures for 

appealing government procurement contract awards. 

 

 

J.  EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT: 

 

The three state-owned banks supply about 80 percent of domestic 

credit.  Private banks, however, are increasing their share of 

credit by employing innovative ways of borrowing funds and by 





operating in a more business-like manner, free of political 

considerations imposed on the state-owned banks.   The private 

sector has access to a variety of credit instruments.  Long-term 

capital is very scarce, primarily because of high inflation and 

currency devaluation rates that cannot be controlled by the 

banks.  The stock exchange is small with only about twenty 

companies listed, due primarily to the size of the economy and 

the fact that most enterprises are owned and controlled by a 

limited number of persons who wish to retain control.  Thus, the 

stock exchange is not a viable source of new investment capital. 

Stock exchange regulations protect the public, rather than 

encourage and facilitate portfolio investment. 

 

Credit is allocated on market terms, although the state-owned 

banks are sometimes obliged to finance high-risk or unprofitable 

activities deemed by the Government or the Legislature to be of 

public interest.  Foreign investors are able to borrow in the 

local market, but the small scale of the economy and closed 

nature of the society generally means foreign borrowers must form 

joint ventures with well-known local persons or meet stricter 

credit criteria.  Generally, the legal, regulatory and accounting 

systems are transparent and consistent with international norms. 

The major international accounting firms have local offices to 

service international, as well as local, enterprises. 

 

 

K.  BILATERAL INVESTMENT TREATIES: 

 

Costa Rica has bilateral investment treaties with several 

European countries, ranging from a long-standing one with 

Switzerland, to more recent ones with Great Britain, France and 

the Federal Republic of Germany.  Negotiations of a bilateral 

investment treaty with the United States were suspended in 1990, 

given Costa Rica's reluctance at that time to negotiate a 

bilateral IPR agreement. 

 

New Trade Agreement between Costa Rica and Mexico: 

In April 1994 Costa Rica signed the Free Market Treaty with 

Mexico which will permit Costa Rica to reduce even further the ad 

valorem tax on imports from Mexico.  Beginning January 1995, over 

12,000 products (mainly those products that are paying ad valorem 

taxes of 10 percent or less) are exempt of this tax.  Other 

products will have steadily declining taxes over the next 5 

to 15 years. 

 

L.   OPIC PROGRAMS: 

 

The Overseas Private Investment Corporation (OPIC) offers both 

financing and insurance coverage against expropriation, war, 

revolution, insurrection and inconvertibility for eligible U. S. 

investors in Costa Rica.  Financing is available to U.S. 

companies for a maximum of fifty percent of the initial 

investment in the range of USD 250,000 to USD 6 million. 

Currently OPIC insures about 3 to 5 new projects per year in 

Costa Rica, and holds a portfolio of more than 300 clients. 

 

U.S. investors should be aware that OPIC, per statutory 

requirements, may not be able to offer insurance if the project 

would have a detrimental effect on the U.S. balance of payments 

or employment.  These statutory requirements have led OPIC to 





offer only limited insurance coverage for textiles and citrus 

investments.  Similarly, all prospective OPIC insured projects 

must be approved by the government of Costa Rica for possible 

balance of payments or labor problems. 

 

In addition to its regular insurance programs, OPIC has a 

computerized Opportunity Bank which seeks to identify and match 

potential foreign investment projects with U. S. investors 

seeking investment opportunities abroad.  Further information 

regarding the Opportunity Bank, as well as OPIC programs in 

project financing and feasibility studies can be directed to 

OPIC, 1615 M. Street, N. W., Washington, D.C., 20527, telephone 

(202) 457-7200.  The Senior Insurance Officer can be reached 

directly at (202) 872-9306 or by facsimile at (202) 872-9306. 

The Business Development Officer can be contacted by phone at 

(202) 457-7116 or by facsimile at (202) 331-4234. 

 

 

M. LABOR: 

 

The Costa Rican labor force can be characterized as relatively 

well-educated, skilled and easily trainable, largely the result 

of a historical emphasis on significant state support of 

education.  This effort has resulted in a literacy rate of about 

94 percent.  The average worker has demonstrated a willingness to 

seek, and an ability to absorb, additional specialized training. 

Technical and vocational training is available through the 

Government of Costa Rica National Training Institute (INA) or 

other private sector organizations.  INA vocational training 

centers provide training on industrial applications in textile 

machinery repair, electronic assembly and repair, general 

mechanics, gasoline and diesel engine maintenance and repair and 

industrial maintenance.  Additional training is available for 

fishing, agribusiness, office management skills and hotel and 

tourism services.  However, while this training is good in a 

general sense, more specialized on-the-job training has been 

required in the past.  Efforts to improve vocational training are 

underway in both the public and private sectors. 

 

Professional manpower, educated in local and foreign 

universities, is ample, the largest in Central America, and among 

the best in Latin America and the Caribbean.  There are 5,500 

registered engineers and 630 registered architects, many of whom 

have earned advanced degrees, professional qualifications and 

valuable experience abroad.  There are 3,900 registered medical 

doctors, about one for every 770 persons; and 1,250 dentists and 

oral surgeons, about one for every 2,400 persons.  Perhaps the 

statistic of which the country is most proud is that of 

university-trained teachers:  ANDE, the National Association of 

Educators, has a membership of 33,000 and the approximately 

20,000 retired teachers constitute the most powerful and 

respected lobby in the country.  Other well-represented 

professions in Costa Rica include:  5,800 registered lawyers and 

notaries, and about 3,000 business and public administration 

graduates, many working in the civil service.  The four state 

universities, five provincial colleges and twelve private 

institutions of higher education produce highly qualified 

professionals at one of the highest rates in Lain America. 

 

Open unemployment in Costa Rica, which dropped steadily from 1982 





to 1993--from 9.5 percent to 4.1 percent--rose slightly in 1994 

to 4.2 percent.  These figures reflect only persons working or 

actively seeking work, and do not include the self-employed or 

"discouraged" workers who have ceased looking for work. 

Underemployment (in seasonal or casual work) is estimated to 

hover around 20 percent (although the official figure for 1994 

was 5.9 percent).  Absenteeism is typically low, with an average 

attrition rate estimated at 15 percent.  Sick leave per person 

averages about four days annually.  Labor-management relations 

are governed principally by the 1943 Labor Code, which addresses 

salaries, working hours and conditions, separation of workers, 

and resolution of labor disputes in the various labor courts, 

among others.  The minimum wage is established periodically (at 

present twice a year) by the National Wage Council, comprised of 

representatives from the GOCR, management and labor.  The current 

average daily wage for the manufacturing sector is about USD 12 

including all social benefits. 

 

Mandatory payroll taxes paid by the employer total 25.75 percent 

of wages and cover contributions toward INA vocational training, 

social security (health, maternity, disability, old age and death 

benefits).  All workers are entitled to both a two-week paid 

vacation and a Christmas bonus equal to one month salary upon 

completion of one year's service.  Christmas bonuses for workers 

with less than one year's service are prorated.  Women workers 

are entitled to four month's maternity leave. 

 

These benefits, coupled with other outlays for severance pay, 

insurance and holiday pay, add approximately 40 percent to 

company base salary payrolls. 

 

The Labor Code limits the number of foreign workers in a company 

-- 90 percent of the total must be Costa Rican employees.  These 

limits are allowed to vary by 10 percent under certain conditions 

during a five-year period, as determined by the Ministry of 

Labor.  Similarly, an employer legally cannot pay less than 85 

percent of total annual company salaries to Costa Ricans. 

Foreigners cannot occupy jobs for which Costa Rican labor is 

available without the express permission of the Ministry of 

Labor. 

 

Costa Rican and foreign companies (maquila and non-maquila) 

located both within and outside of Free Trade Zones have 

complained of difficulties in keeping their workforce.  Some cite 

monthly turnover of 3-5 percent.  A small group of textile 

maquila companies have recently moved or expanded their 

operations to Nicaragua in search of a secure, permanent and 

eager workforce. 

 

Some in the government of Costa Rica say this attrition is 

natural and evolutionary stating that Costa Rica is now ready to 

handle companies who want a more mature and technologically 

sophisticated workforce. 

 

The latest figures available from the Labor Ministry put 

unionization at about 15 percent of the total Costa Rican 

workforce.  This percentage has stayed relatively constant for 

years.  According to best current estimates, there are some 420 

unions containing about 180,000 workers.  A large majority of 

union members are found in the public sector.  While public 





sector strikes remain technically illegal (the labor code forbids 

them), criminal penalties have been repealed. 

 

Growing activity among public sector unions in 1994 came largely 

in response to government austerity plans designed to confront 

the country's fiscal crisis which include possible large-scale 

job layoffs and tax increases.  Several one-day walk-outs and 

marches were called but received little support and there was no 

corresponding response in the private sector. 

 

Strikes hardly ever take place in the private sector, where 

workers attempting to form or join unions or to organize walkouts 

can easily lose their jobs.  Estimates are that 2-3 percent of 

the private sector workforce is unionized and their relative 

proportion is probably declining.  Labor disputes have, at times, 

led to violence, particularly in the banana industry but, 

generally, the level of labor activity is low.  In addition, many 

private sector workers belong to Solidarista Associations. 

Solidarismo espouses employer-worker cooperation and offers 

members such benefits as credit unions and savings plans in 

return for their agreement to avoid strikes and other 

confrontational actions.  Solidarista associations registered 

with the Labor Ministry have over 134,000 members and the 

Solidarismo movement includes a significant number of 

unregistered associations as well, with estimates of total 

membership running as high as 225,000 (roughly 20 percent of the 

total workforce). 

 

After a series of conflicts in recent years, 1994 saw a 

strengthened dialogue on basic issues between major trade union 

organizations and business groups, although there was little 

concrete progress.  However, labor-management relations are still 

adjusting to recent major changes in Costa Rican labor law. 

These changes were in response to a June 1993 petition by the 

AFL-CIO before the U.S. Trade Representative requesting that the 

U.S. Government withdraw Generalized System of Preferences (GSP) 

benefits from Costa Rica for violations of internationally 

recognized norms of worker rights.  Included in the modifications 

to the labor law were:  the repeal of certain sections of the 

labor code; modification of, and additions to, the Labor Code 

(increased protections from unjustified dismissal for union 

activists during the process of union formation, forbidding 

Solidarity Associations from acting as collective bargaining 

agents); and commitments to further changes by the Government of 

Costa Rica.  Satisfied that considerable progress had been 

achieved, the AFL-CIO withdrew the petition in November 1993, 

with the proviso that the petition could be reactivated if the 

AFL-CIO considered further progress insufficient.  There was 

little movement on the commitments made by the Government of 

Costa Rica in 1994, which led some local unions to call for a 

reactivation of the petition. 

 

Complaints of violations of internationally recognized worker 

rights in Costa Rica have centered on two areas:  insufficient 

protection of trade union activists and sympathizers and 

preferential treatment given to Solidarista associations.  In 

1994, the International Labor Organization's (ILO) Committee of 

Experts found that with the 1993 changes in the labor code and 

the commitment to further reforms, progress had been made. 

However, a number of separate cases filed by trade unions before 





the ILO are still under consideration. 

 

The government of Costa Rica has ratified several ILO 

conventions, including Conventions 87, 98, 102, 122, 135, 138, 

147 and 148.  At present, 8 conventions (110, 140, 149, 151, 152, 

153, 154, and 155) that had been presented to the legislative 

Assembly for ratification as partial fulfillment of the 

commitments made in 1993, have been withdrawn from consideration. 

 

 

N.  CAPITAL OUTFLOW POLICY: 

 

There are no limitations on capital exports by either local or 

foreign residents or enterprises.  Many Costa Ricans pay for raw 

materials and capital goods, or simply hedge against devaluation 

by keeping some funds abroad, mainly in U.S. banks.  There are no 

incentives for investment in other developing countries. 

 

 

O.  FOREIGN DIRECT INVESTMENT: 

 

Costa Rica received significant foreign direct investment in 

1994, particularly in the strong tourism sector.  Some 

consolidation occurred in the textile and apparel sector, 

however, with reduced new or expansion investment and some plant 

closures.  Slowed investment in the textile/apparel sector 

reportedly is primarily due to the passage of NAFTA (providing 

Mexico with at least a 20 percent cost advantage in apparel over 

Costa Rica) and the lack of NAFTA parity for CBI countries in 

this area. 

 

While some companies have stalled investment decisions, 

anticipating the passage of a CBI enhancement program, others 

decided simply to forego further investment in Costa Rica at this 

time and located new investment elsewhere. 

 

Impressive growth in tourism reflects the increasing importance 

of this sector for Costa Rica.  Not only is this sector now the 

leading generator of foreign currency, but it is also the object 

of most new foreign investment.  During 1994, several new hotels 

opened or were under construction.  A new Camino Real, backed by 

Salvadoran and Costa Rican investors, and a Hampton Inn opened in 

the San Jose metropolitan area in late 1994.  A new $33 million, 

245-room Marriott hotel located near the Juan Santamaria 

International Airport in San Jose is planned to be completed in 

1996. 

 

The Ministry of Foreign Trade has acknowledged the difficulty of 

quantifying foreign direct investment in Costa Rica due to the 

absence of an official foreign investment register, but estimates 

total foreign investment in Costa Rica at approximately USD 70 

million annually, with the U.S. being the main source of 

investment (other major foreign investors include German, Dutch, 

Italian, Spanish, Japanese and Korean companies). 

 

A recent Economic Commission for Latin America (ECLA) report, 

based on IMF data, concluded that foreign investment in Costa 

Rica had increased substantially during the past decade.  It 

cited the following annual levels of foreign direct investment: 

 





1987     $80 million 

1989     $101 million 

1991     $178 million 

1993     $280 million 

 

A survey of free trade zones (FTZs) provides valuable insights in 

foreign direct investment in Costa Rica.  According to the 

Government of Costa Rica's free trade zone corporation, the 

number of companies operating in FTZs increased from 127 in 1993 

to 148 in 1994.  New investment in the FTZs totalled $25.9 

million.  As of December 1994, U.S. companies had invested 53.8 

percent of the total $262.6 million invested in the FTZs.  The 

balance of FTZ investment, by region/country, is as follows: 

Costa Rica (15.5 percent); Europe (20 percent); Asia (7 percent); 

and the rest of the Americas (3.2 percent). 

 

Exports produced in free trade zones increased 26 percent in 

1994, from $273.5 million to $345 million.  These exports 

represented 15.3 percent of Costa Rica's total exports.