Investing in Costa Rica

Making Money in Costa Rica

Why invest in Costa Rica?
A study by the Miami Herald rated Costa Rica the 27th safest country for
investment of 140 countries surveyed. Another study of Latin American
Security conducted by FTI Consulting on behalf of the Latin American
Business Journal, indicates Costa Rica is the safest place in Central and South
America for business executives and multi-national companies to do business.
If you are not impressed by Costa Rica’s ranking, consider that the United
States was ranked only 22nd. Another study found Costa Rica to be the least
corrupt country in Latin America.

Costa Rica has been ranked 32nd of 104 countries in the third edition
of the Legatum Prosperity Index. The country ranks higher than any other
Latin American country. Uruguay, the next highest, is thirty-third.
In addition, U.S. business magazine Fortune ranked San José Latin
America’s fifth best city in which to do business, and for climate, one of
best cities in the world. According to the report, Fortune considered the
city’s ability to create opportunity for its residents, its business climate and
how well it can satisfy the business needs of companies that invest here. San
José ranked tops in the quality of its labor force, its business environment
and the lifestyle it offers resident executives and investors.

According to the magazine Foreign Direct Investment (FDI) Costa Rica
is the second best place to invest in the region which comprises Central
America and the Caribbean. Said publication focuses specifically on foreign
investment. Only Puerto Rica tops Costa Rica in an area that consists of 31
nations.

In order to rank the countries in this region the magazine studied each
country’s economic potential, human resources, cost efficiency, quality of
life, infrastructure, business climate and strategy for attracting investors.
San José ranked tops in the quality of its labor force, its business
environment and the lifestyle it offers companies who provide tourism services
Studies like this one should make individuals and retirees feel comfortable
about investing in Costa Rica.

Here are more reasons why you should consider investing in Costa Rica:
* Year-round spring-like weather in the Central Valley
* Untarnished international image. How often do you hear bad things in
the news about Costa Rica? Only good news!
* Latin America’s oldest democracy
* No army and NO terrorism. Costa Rica has NO enemies.
* Excellent health care at a fraction of the price you pay at home
* Good real estate investments. Costa Rica is considered one of the
world’s best emerging real estate markets. Many properties are in locations
with breathtaking views
* More American residents proportionately than any country in the
world
* A tightly-knit expatriate community
* Time-tested organizations in place to help you with everything you
need to know to make the move from A to Z
* Excellent quality of life
* Good communications with high-speed internet in many areas
* Tax savings
* Opportunities for entrepreneurs of all ages
* Affordable utilities
* Friendly people
* Many people who speak English
* Hundreds of activities to stay busy and happy
* A nature lover’s Disneyland
* Affordable hired help
* The beauty of the country
* Fantastic beaches and warm water
* Latin America’s #1 tourist destination according to Travel Weekly
Magazine
* Many American products and services available
* Fruits and vegetables all year
* Good public transportation
* Any many more intangibles

Areas of investments
Let us review a few of the reasons why Costa Rica has such magnetism
for qualified foreign investors. First, and perhaps most important, is the
enduring political stability. As you already know, Costa Rica has had a
strong, democratic government without interruption since the 1940s and an
excellent centralized banking system. The trend towards an open economy
and possible trade pacts with such nations as the United States and Mexico
are conducive to investment in Costa Rica. Privatization of many state-run
institutions will undoubtedly help economic growth in the future. There
are also no government expropriations or interference, unlike in many Latin
American countries.

Costa Rica is easily accessible from all parts of the world by land, sea or
air. Outstanding phone and Internet systems link Costa Rica internationally
to other parts of the world. Also, investors in Costa Rica have equal rights
and laws to protect them. Regulations for conducting business in Costa Rica
are the same for both local and foreign corporations. Both can fully own and
control local corporations, as well as real estate without any access limitations
or restrictions. Many opportunities await foreigners who start new businesses
previously nonexistent in Costa Rica. In addition, the cost of labor is low.

Asset Protection, Tax Advantages and Incentives
Additional reasons for investing in Costa Rica are: asset protection (creditors,
judgments, liens, bankruptcy and divorce), privacy from individuals and
governments and fewer taxes (income tax, inheritance tax, estate taxes and
probate fees).

Many attractive incentives are available to foreigners investing in Costa
Rica.
Investments of $50,000 or more in an approved project qualify the
investor for legal residency. However, it is not necessary to become a resident
to own or manage a business. Anyone who owns a business can import some
items used to operate it and get a tax break on some of the usual duties.
Contact the incentive section of the Costa Rican Tourism Institute (ICT)
for more information about incentive programs.

Tourism and Related Ventures
Costa Rica’s strategic location, political stability and adventure tourism,
have all contributed to increase tourism development. Tourism is now the
leading industry in Costa Rica. Numerous opportunities exist in this field.
However, sometimes there can be a lot of red tape and competition. Small
hotels and bed-and-breakfasts were good investments a few years ago, but
there may be a surplus of them now. I have a good friend who refurbished
an old building and turned it into a small hotel in the 1990s. He has done
very well only because he has been in the country for a while, knows all the
ropes, and was a pioneer in the field.

Bank Investments
Foreigners can invest with Costa Rica’s nationalized banking system or private
banks. Interest rates are higher than in the United States and there are many
attractive savings accounts and time deposit programs from which to choose.
Presently there is no tax on interest from bank accounts. However, when
investing in colón accounts, you have to figure in yearly inflation to see if
you are really getting a good deal. There are some degrees of bank secrecy,
liberal money transfer regulations, and favorable tax laws for foreigners (see
the section in Chapter 3 entitled “Taxes”).

Costa Rica’s Stock Market
Foreigners can also invest in the local stock exchange (Bolsa Nacional de
Valores)
to get better returns than from traditional financial systems. The
stock market presents a safe investment alternative with great opportunities
for the investment to grow through stock appreciation, dividends, stock
splits, mergers and acquisitions.

Costa Rica has the largest stock exchange in Central America.
Approximately 29 firms or puestos de bolsa are registered with the National
Stock Exchange. Costa Rican stockbrokers can study economic trends and
give you advice on investing in government bonds, real estate, time deposits
and other investments.

The Costa Rican Stock Exchange is regulated by the National Securities
Commission or Superintendencia Nacional de Valores de Costa Rica
(SUGEVAL), which is the counterpart of the U.S. Securities and Exchange
Commission. They can give you information about the reliability of firms
and brokers. There exists a strong possibility that the local exchange will
be linked with other Latin American trade blocks in the very near future.
Here is one local investor’s take on the Costa Rican stock market. “This
market was virtually non-existent in Costa Rica just a few years ago. At this
time there are only five publicly traded companies in Costa Rica, the most
liquid of which is FIFCO, the beverage company that makes Imperial beer
and the Tropical drinks. Other companies include Atlas Electric and Durman
Esquivel. The local stock indexes have done quite well over the past year
with almost a 100 percent return.

You may be thinking “OK, it isn’t perfect, but higher risk means higher
reward!” Not always. As a guy that likes to speculate now and then, I can
tell you that a vital component of a good market is liquidity. There are few
instruments here with good liquidity, so caveat emptor!

Right now there are few products which offer a good return for the risk
level. On top of that, commissions can be quite high, and sometimes the
broker will try to ask for a cut of your earnings when you sell. For example
if you made a 10 percent return (which is way above average for Costa Rica)
your broker may say “Hey, nice return. How about 8 percent for you and
2 percent for me”. I have never heard of such a thing elsewhere! If your
broker tries this, find another broker.

More and more local investors are looking to international markets outside
of Costa Rica to avoid the problems locally, but all is not lost with Costa Rican
markets. I know that the exchange and the regulators are working hard on
new ideas and new projects to improve regulation, liquidity, and diversity.”

For more information about the Costa Rican stock market, contact Grupo
Busátil Aldesa at 1-888-5-ALDESA (United States only) or 2223-1022, or
E-mail: grupo@aldesa.com. Investors can find additional information about
the local stock market at www.capitales.com.

You may also invest profitably in blue-chip, offshore mutual funds.
Most people do this to protect their assets from creditors, judgments, liens,
bankruptcy, malpractice claims, divorce and separation claims, liability claims
not covered by insurance and seizure by the U.S. government.

AmCham’s Guide to Investing and Doing Business in Costa Rica is another
source of information for the potential investor. It is available through the
Costa Rican-American Chamber of Commerce, or AMCHAM. The
Chamber of Commerce also publishes a monthly magazine entitled Business
in Costa Rica that has advice on how to invest in Costa Rica.
Before investing or starting a business, you should take the time to do your
homework. Under no circumstances should you invest right off the plane,
that is to say, on your first trip to Costa Rica. Unscrupulous individuals and
scamsters prey on buyers throughout the world. Be wary of any salespeople
who try to pressure you into investing. Remember, it is hard to start a business
in your own home country; don’t imagine it will be any easier in Costa Rica,
where both language and customs are different. The Better Business Bureau
of Costa Rica will help you find reliable businesses and services.

I also suggest you ask a lot of questions and get information and
assistance from any of the organizations listed below in order to thoroughly
understand the business climate of the country. However, don’t depend on
the help of these organizations. You’ll have to garner a lot of information
and learn on your own by some trial and error. This way you can find out
what works best for your particular situation.

Costa Rica is the Most Stable Country in Latin America
A World Bank study released in May aims to provide a “set of governance
indicators that can help de-politicize efforts to track the quality of
institutions, support capacity building, improve governance and address
corruption.”

The index, which analyzed 209 countries between 1996 and 2004,
focuses on six components of good governance: political, civil and
human rights; political stability and violence; government effectiveness;
the incidence of unfriendly market policies; rule of law; and control of
corruption.

“On average the quality of governance around the world has remained
stagnant, highlighting the urgent need for more determined progress in
this area in order to accelerate poverty reduction,” said the World Bank.
The percentile ranks below indicate the percentage of countries
worldwide that rank below the selected country. For example, 83 percent
of countries studied worldwide have less political stability than Costa
Rica, meaning that according to this study, it is the most stable country
in Latin America.
Country…………………………………………….. Percentile
Costa Rica……………………………………………………… 83.0
Chile………………………………………………………………76.7
Uruguay …………………………………………………………62.1
Panama…………………………………………………………..55.3
Dominican Republic …………………………………………48.1
Mexico……………………………………………………………43.7
Brazil………………………………………………………………43.7
Nicaragua………………………………………………………..43.7
El Salvador………………………………………………………39.8
Argentina………………………………………………………..38.3
Bolivia…………………………………………………………….28.6
Peru……………………………………………………………….27.2
Honduras………………………………………………………..26.7
Paraguay………………………………………………………….25.7
Ecuador…………………………………………………………..23.3
Guatemala……………………………………………………….21.8
Venezuela………………………………………………………..13.6
Colombia………………………………………………………….5.8

Costa Rica Number One in Latin America in Economic Freedom
Costa Rica and Chile are tied for first in the area of Economic freedom
in Latin America. Hong Kong offers the most economic freedom in
the world with Costa Rica and Chile in nineteenth place. One hundred
twenty-seven countries were studied in the survey.

Factors such as the flexibility of the labor force, monetary regulation
and more were studied in order to determine a country’s ranking.
Other Countries in the region:
Country………………………………………………. Ranking
Costa Rica………………………………………………………….19
Chile…………………………………………………………………19
Panamá……………………………………………………………..24
El Salvador…………………………………………………………29
Uruguay…………………………………………………………….44
Guatemala………………………………………………………….53
Perú………………………………………………………………….38
Honduras…………………………………………………………..59
Bolivia……………………………………………………………….59
Mexico………………………………………………………………59
Paraguay…………………………………………………………….65
Dominican Republic…………………………………………….68
Nicaragua…………………………………………………………..68
Ecuador……………………………………………………………..86
Brazil…………………………………………………………………86
Haití………………………………………………………………….86
Argentina…………………………………………………………..92
Colombia…………………………………………………………101
Venezuela…………………………………………………………120

Costa Rica: Bright Outlook
Costa Rica’s economic outlook is bright, thanks to an attractive
environment for business, a new pro-trade government and a
planned free trade agreement with the United States.

(Courtesy of Latin Business Chronicle)
During the 1980s, when Central America was dominated by
political violence and armed conflicts, Costa Rica provided an oasis of
peaceful stability and was often referred to as “the Switzerland of Central
America.” While the area subsequently has returned to normalcy, Costa
Rica remains an attractive destination not only in Central America, but
also compared with the rest of Latin America.

Foreign investors emphasize the country’s democratic system as one
of the key benefits of Costa Rica. The Central American nation is only
one of three countries in Latin America with a perfect score in terms of
political and civil rights, according to Freedom House (the others are
Chile and Uruguay).

“It’s a long-standing democracy,” was among the first things Peter
Cardinal said when asked about the advantages of doing business in
Costa Rica. Cardinal is the executive vice president for Latin America
for Canada-based Scotiabank, which acquired Costa Rica’s largest bank,
Interfin, in July of 2006.

Jose Antonio Rios, international president for Global Crossing,
also emphasizes the democratic credentials of Costa Rica. “It’s a
very democratic country that also calls for stability of institutions in
the longterm,” he says. “The way they have handled that has been
incredible.” Global Crossing last month announced plans to extend its
core network to Costa Rica.

ATTRACTIVE BUSINESS CLIMATE
But Costa Rica wouldn’t be garnering all that attention from investors
if a strong democracy were the only thing it could offer. “They have
a clear and aggressive tax benefit program for companies that invest
there,” says Rui da Costa, managing director for Latin America and
the Caribbean for U.S. computer giant HP, which employs almost
1,800 people in the country, making it home to its largest number of
employees in Latin America. “They have a very updated infrastructure
in terms of telecommunications, very good level of education – in terms
of tech skills and also in terms of language. And it’s also a more secure
area. There’s not as much violence as other places.”

Thanks to high penetration rates of Internet, PC and wireless and
fixed telecommunications, Costa Rica ranks second in Latin America
in technology level, according to the Latin Business Index published
by Latin Business Chronicle. Costa Rica has a fixed line telephony rate
of 31.6 percent, and a PC penetration rate of 23.9 percent – both the
highest in Latin America, while its Internet penetration rate of 23.5
percent is the second-highest in the region, according to 2004 data
from the ITU (the latest available).

Costa Rica has one of the highest education levels in Latin America
and ranks fourth in the region on the latest UN Human Development
Index, which measures the adult literacy rate and combined gross
enrollment ratio for primary, secondary and tertiary schools as well
as health conditions and purchasing power. And Costa Rican capital
San Jose is among the three safest cities in Latin America, according
to a ranking published in the pan-regional business magazine America
Economia recently.

In terms of competitiveness, Costa Rica ranks third in Latin America

(behind Chile and Argentina), according to the 2006 Latin America
Competitiveness Review from the World Economic Forum, while it also
came in third (behind Panama and the Dominican Republic) on the Latin
American Globalization Index published by Latin Business Chronicle.

ECONOMIC FREEDOM
And Costa Rica’s economy is among the freest in Latin America. It
came in third on the 2006 Heritage Foundation/Wall Street Journal
survey of economic freedom in the world. Costa Rica shared the third
place with Uruguay and was only beaten by Chile and El Salvador.
Finally, Costa Rica also ranked third on the FTAA Readiness Indicator
developed by the Institute for International Economics in 2001. The
indicator measures how prepared Latin American countries are for the
Free Trade Area of the Americas (FTAA).

As a result of its high scores in business, political and economic
environment, Costa Rica came in third on the Latin Business Index
(behind Chile and Mexico).

Apart from investors like Scotiabank, Global Crossing and HP, Costa
Rica has attracted significant investment from US-based chip giant Intel,
which employs 2,200 people and has become the top exporter. Intel
212 The New Golden Door to Retirement and Living in Costa Rica
operates two micro chip factories and a distribution center at Heredia,
19 kilometers (12 miles) west of San Jose.

“Costa Rica was originally selected for its export-oriented
infrastructure, reliable power and advanced telecommunications, as well
as its talented and educated workforce, high literacy rate (95.5 percent)
and supportive business environment,” Intel says on its web site.
The chip giant, which has operated in Costa Rica since 1998, also
chose the Central American country over other candidates such as Mexico
due to lower corruption, according to Intel officials. Costa Rica is the
third-most transparent country in Latin America, way ahead of countries
like Mexico and Brazil, according to Transparency International.

MOTOROLA AND MICROSOFT
Other key investors in Costa Rica include Microsoft, Motorola and
pharmaceuticals like Baxter International Inc. and Boston Scientific.
“It’s very open to investment [and] open to people,” Rios says.
Costa Rica is one of the leading tourism destinations in Latin
America. In 2004, the number of visitors to the country reached 1.4
million, an increase of 17.3 percent from 2003, according to the World
Tourism Organization (UNWTO). While it ranked eighth in the region
in terms of visitors, it came in fifth in terms of receipts: $1.3 billion.
And Costa Rica can also boast a significant expat community of both
retirees and current workers, which in turn is helping drive demand for
real estate. “On the plane down there, you see a lot of people not just
visiting for meetings, but living there or visiting people living there,”
Rios says. “There are now direct flights from [and to] the West Coast
of Costa Rica and not just from capital San Jose.”

WAITING FOR CAFTA

There is now much anticipation surrounding the implementation of a free
trade agreement with the United States. Costa Rica was one of five Central
American countries that signed the Central American Free Trade Agreement
(CAFTA) with the United States in May 2004, but is the only one that has
yet to ratify it. (El Salvador, Honduras and Nicaragua have implemented it,
while implementation is pending in Guatemala. The Dominican Republic
signed the pact later and is also awaiting implementation.)

Pacheco delayed sending CAFTA to the local legislature for approval
until October last year. And there has been strong opposition to the
pact from local unions and other interest groups. However, Arias has
made the ratification one of his top priorities.

“The president is committed to going into the CAFTA with the
US,” Cardinal says.

Arias, who narrowly won the presidential election in February,
named Marco Vinicio Ruiz as commerce minister. Ruiz was a business
leader who led Costa Rican private sector efforts to support CAFTA.
In a meeting with US investors at the Council of the Americas last year
Arias pledged support for open markets and private investment.
At the same time, Costa Rica will benefit from a free trade agreement
between Central America and the European Union. Negotiations for
such a pact were announced in Vienna in May, although talks will likely
take some time and result in implementation after 2008, some experts
predict.

Costa Rica’s total trade grew by 13.4 percent last year to $20.1
billion, according to the United Nations Economic Commission for Latin
America and the Caribbean (ECLAC). Exports increased by 13.3 percent
to $9.7 billion, while imports grew by 13.4 percent to $10.4 billion.

KEY US PARTNER
Trade with the United States grew by 5.6 percent last year to $7.0
billion, according to US Census Bureau data. That was the strongest
growth of any Central American country except Nicaragua. Exports to
the United States grew by 2.5 percent to $3.4 billion, while imports
from the United States increased by 8.8 percent to $3.6 billion. The
United States is Costa Rica’s top trading partner and Costa Rica is the
top US trading partner in Central America.

Meanwhile, trade with the European Union grew by 0.7 percent
to 3.8 billion euro (approximately $4.7 billion). Costa Rican exports
to the EU fell by 1.1 percent to 3.0 billion euro, but imports from the
EU grew by 8.0 percent to 809 million euro, according to Eurostat.
This year, total trade is expected to grow even stronger than last
year. Exports during the first five months were up 17.4 percent compared
with the same period last year, according to Costa Rican data quoted by
Bear Stearns. Top export items were microchips, bananas and textiles.
This year, GDP growth is picking up. In April, the economy grew
by 6.3 percent and growth of more than 5 percent during each of the
first four months of the year has taken the 12-month rate of expansion
through April to 5.5 percent, its highest level since July 2004.

Costa Rican-American Chamber of Commerce of Costa Rica: (AMCHAM)
Address in Costa Rica:
P.O. Box 4946-1000
San José, Costa Rica

Address in United States:
Amcham SJO 1576
P.O. Box 025216
Miami, FL 33102-5216
Tel: 2220-2200
Fax: 2220-233-0969
E-mail: chamber@amcham.co.cr

Coalition for Investment Initiatives-(CINDE)
P.O. Box 7170
San José, Costa Rica
Tel: 2220-0036
Fax: 2220-4750
E-mail: aheilbron@cinde.or.cr

Export Promotion Center (CENPRO)
P.O. Box 5418
San José, Costa Rica
Tel: 0i1-(506) 2220-0066
Fax: 011-(506) 2223-5722

The Costa Rican Stock Exchange (Bolsa de Valores)
Bolsa Nacional de Valores
P.O. Box 1756
San José, Costa Rica
Tel: 2222-8011
Fax: 2255-0531

National Securities Commission
P.O. Box 10058
San José, Costa Rica
Tel: 2233-2840;
Fax: 2233-0969

Canada Costa Rica Chamber of Commerce
Tel: 2257-4466

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