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Megaprojects,new beneficiaries under Law 10,234,and income tax in the Free Trade Zone Regime
[/vc_column_text][us_separator][vc_column_text]As is known, Law No. 7210, the Free Trade Zone Regime Law (the "Law"), establishes in its section 17 the various categories of companies that may benefit from the Regime. For the purposes of this article, two of them deserve special mention: processing companies that produce, process, or assemble goods, regardless of whether they export; and human health service center companies that are established outside the Greater Metropolitan Area (GAM). With regard to the aforementioned processing companies, it is extremely important to keep in mind that their benefits regarding income tax exemption are "staggered"; that is, the Law contemplates differentiated rates based on the passage of time. Section 21 ter, subsection d) reads as follows:“Companies located in the Greater Metropolitan Area (GAM) will pay a rate of six percent (6%) of their profits for purposes of the Income Tax Law during the first eight years and fifteen percent (15%) in the following four years. If they are companies located outside of the Greater Metropolitan Area (GAM), they will pay a rate of zero percent (0%) of their profits for purposes of the Income Tax Law during the first six years, five percent (5%) during the second six years and fifteen percent (15%) during the following six years.Now, the aforementioned raises the following question: Is there any other mechanism for processing companies to obtain more robust tax benefits than those mentioned above? The Law creates the concept known as a "megaproject." Why is it valuable? What is a "megaproject"? I say "valuable" because a processing company that qualifies as a "megaproject" will obtain even more robust initial tax benefits (100% initial exemption during the first few years) in terms of income tax exemption. In short, a "megaproject" in Free Trade Zones is a concept created for processing companies so that they can access greater initial tax benefits, provided they meet several legal requirements, including a significant new investment in the country. To obtain the "megaproject" status, a processing company must meet the following requirements:
1) Make a new investment in Costa Rica totaling at least ten million United States dollars (US$10,000,000) or its equivalent in national currency;
2) be subject to an investment plan to be completed over an eight-year period, calculated based on the book value of the assets subject to depreciation; and,
3) Maintain at least one hundred permanent employees, throughout the company's operation, duly reported on the payroll.
The same section expressly states that, if these requirements are met, the benefits indicated in sections g) and l) of article 20 of the Law will be fully applied to the processing companies of "megaprojects", which are, in essence, initial benefits of 100% exemption from income tax. The above clearly shows that the returns for an investment of a processing company of at leastUS $10.000.000while also complying with the other legal requirements, are and can be significant, and can make a notable difference in the operation of a company of this caliber, with the megaproject having established itself for many years as an attractive figure for attracting foreign direct investment. With regard to the category of companies of human health service centers that are established outside the GAM (a new category added thanks to theLaw to strengthen territorial competitiveness to promote the attraction of investments outside the Greater Metropolitan Area (GAM), number 10,234 of May 4, 2022),What is interesting to note and mention in these few lines is the very considerable amount of new investment (even equal to or more than the "megaproject" of the processing companies) that must be met in order to obtain the Regime, and therefore, the benefits that said Regime entails, among them of course, the exemption from income tax established by the Law for beneficiaries outside the GAM. Article 21 sexies of the Law mentions that these companies are subject to the following rules: When a human health service center company specialized in ophthalmology, orthodontics, dentistry, cosmetic or reconstructive surgery wishes to benefit from the benefits of the Regime, and is established in an area outside the GAM, it must carry outa total new investment of at least five million US dollars (US$5,000,000)or its equivalent in local currency, if it operates within an industrial park. On the other hand, companies that establish themselves in an area outside the GAM may operate outside of an industrial park, provided that the total new investment is at least ten million US dollars (US$10,000,000), or its equivalent in local currency. As can be seen, the required investment amounts are high. The regulations even create an additional investment parameter when human health service centers provide"services of hospital entities of resolutionThis concept and other issues will be defined in the regulations still being drafted and issued. However, for this specific scenario, the legislation requires a total new investment.of at least one hundred and forty million US dollars (US$140,000,000)or its equivalent in national currency, when installed in an area outside the GAM. For the above cases, the Law requires—in the same way as for the "megaprojects" of the processing companies—the fulfillment of an investment plan over a period of eight years, calculated based on the book value of the assets subject to depreciation and, likewise, at least one hundred permanent employees, throughout the entire operation of the company, duly reported on the payroll to the Costa Rican Social Security Fund. All of the above shows how the rules of the game for megaprojects for processing companies, more or less, are also applicable to this new category of companies benefiting from the Regime.
