Investment Levels under the Free Zone Regime
As part of the entry requirements for a company to properly apply for the Free Zone Regime, its committed investment level during its operation within the Regime is required. It is important to note that there are several legal and regulatory entry requirements, which will vary depending on the type of industry or categories established in Article 17 of the Free Zone Regime Law; however, the investment level is applicable to all categories.
The investment levels to be made by a company must consist of new investments in the country, meaning investments that come into existence and are generally fulfilled within a maximum period of three years from the notification of the Free Zone Regime grant agreement.
In addition, the Regulations for the Free Zone Regime Law, Decree No. 34739-COMEX-H, have established the exact parameters for the minimum amounts of new investments. Article 5 outlines the investment levels depending on whether the beneficiary companies will operate within an industrial park or not, and whether they are located within the Greater Metropolitan Area (GAM) or outside it.
Article 5 of the aforementioned Regulation reads as follows for clarity:
Article 5 – Parameters for Initial New Investments:
All companies interested in entering the Free Zone Regime must meet the following minimum levels of new initial investment:
I. Companies located within the GAM
a) A minimum initial new investment in fixed assets of at least one hundred fifty thousand dollars (US $150,000.00) or its equivalent in national currency, for companies established in a Free Zone Park.
b) A minimum initial new investment in fixed assets of at least two million dollars (US $2,000,000.00) or its equivalent in national currency, for companies established outside a Free Zone Park.
II. Companies located outside the GAM
a) A minimum initial new investment in fixed assets of at least one hundred thousand dollars (US $100,000.00) or its equivalent in national currency, for companies established in a Free Zone Park. Additionally, the provisions of Article 1 bis of Law No. 7210, Free Zone Regime Law, should be considered for cases where applicable in accordance with this Law.
b) A minimum initial new investment in fixed assets of at least two hundred fifty thousand dollars (US $250,000.00) or its equivalent in national currency, for companies established outside a Free Zone Park. Also, the provisions of Article 1 bis of Law No. 7210, Free Zone Regime Law, should be considered for cases where applicable in accordance with this Law.
c) For companies in category g) of Article 17, specialized in ophthalmology, orthodontics, dentistry, aesthetic or reconstructive surgery, established outside the GAM, the total new investment must be at least five million dollars (US $5,000,000) or its equivalent in national currency if operating within a Free Zone Park. If these companies are located outside the Greater Metropolitan Area (GAM), they may operate outside a Free Zone Park as long as the total new investment is at least ten million dollars (US $10,000,000) or its equivalent in national currency.
d) Companies in category h) of Article 17, located outside the GAM, must make an initial new investment in fixed assets of at least one hundred thousand dollars (US $100,000) or its equivalent in national currency. These companies may operate outside the industrial park as long as the initial investment in new fixed assets is at least two hundred fifty thousand dollars (US $250,000) or its equivalent in national currency.
e) Companies in category i) of Article 17, located outside the GAM, must make a minimum initial new investment in fixed assets of at least five million dollars (US $5,000,000) or its equivalent in national currency.
Additionally, Article 5 mentions that if the assets of the beneficiary company have been acquired in national currency (colones), the new initial investment amount will be determined based on the exchange rate for the sale of the dollar, as applicable according to the Central Bank of Costa Rica at the time of acquisition of the asset.
From Article 5 of the Regulation, it can be inferred how important the location analysis is for a company’s operation. As the rule indicates, the lowest minimum investment levels are assigned when operating within an industrial park, and also outside the Greater Metropolitan Area.
In practice, these investment levels are often exceeded by the beneficiary companies, as these levels are minimums, not maximums, and their investments in the country are quite significant (they take the form of movable fixed assets, buildings, and real estate, for example). However, these are minimum parameters, and failure to meet them may lead to the initiation of administrative procedures with the Ministry of Foreign Trade and potential sanctions.
Finally, it is important to note that “new investments” refer to assets owned by the applicant of the Free Zone Regime that were acquired after the date of submission of the application for the Regime.
This includes industrial buildings, warehouses, structures, land, and other real estate fixed assets, whether new or used, acquired by the applicant after the application submission date and intended for the operation of the company under the Free Zone Regime; also, improvements to the company’s owned or leased property. It also includes movable fixed assets, whether new or used, coming from abroad, or new assets purchased in the country. Additionally, fixed assets under trust agreements, where the trustor and/or trustee is a beneficiary of the Regime, will be included, provided they are properly registered in the beneficiary’s accounting records.
For any inquiries, feel free to contact us at the email address ccartin@lexincorp.com
Written by: Carlos Cartín Feoli
