The guide is intended to be used for informational purposes only and you should consult a professional tax advisor to acquire more information.

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2 FOREWORD This guide has been prepared to provide basic information to those interested in investing and doing business in Costa Rica. It does not cover in detail all the requirements and subjects considered, but it is aimed to provide an overall idea of the benefits of doing business in Costa Rica and to answer basic taxation requirements. The guide is intended to be used for informational purposes only and you should consult a professional tax advisor to acquire more information. The material contained in this guide is based on information and regulations in effect as of July ABOUT BLITA INTERNATIONAL BLITA International is a global association of independent tax accountants, tax attorneys and business consultants dedicated to providing personalized professional services for all your transnational tax planning and business management needs. Our member firms are committed to providing the highest quality professional services to help meet your business and financial goals across international borders. The local expertise of our members regarding business and tax regulations, culture and knowledge of doing business in their home countries, allows them to provide the best solution and advice to maximize your profit and reduce your tax implications.

3 WHY SHOULD YOU DO BUSINESS IN COSTA RICA? STRATEGIC GEOGRAPHIC LOCATION COUNTRY ESSENTIALS Costa Rica is geographically situated in the middle of the Americas between Nicaragua and Panama, bordering both the Caribbean Sea and the North Pacific Ocean. This central location near the United States and the Americas makes the country an important near shore location for U.S. companies, as well as a strategic offshore location for European companies looking to do business in the region. Costa Rica s proximity to the different countries in the region allows for a reduced delivery time for goods exported, as there are over 24 world cargo shipping lines with regular departures on the Pacific Ocean and Caribbean Sea, daily world-wide air cargo through 15 daily flights and expedited delivery time by major express services. Capital city Area and population Language Currency International calling code National holidays San José 51,100 km² and a population of 4,872,543 people (July 2016 est.) Spanish (official), English Colón (CRC) +506 New Year's Day Juan Santamaria Day Maundy Thursday Good Friday Labor Day Guanacaste Day Mother s Day Independence Day Christmas Day January 1 st April 11 th April 13 th April 14 th May 1 st July 25 th August 15 th September15 th December 25 th Working hours 48 hours weekly TAX-FREE ZONES Major stock exchanges Costa Rica Stock Exchange Costa Rica has a variety of free trade zones that provide a set of incentives and benefits to companies making new investments in the country, including: Export Manufacturing companies, Export Trade companies, Export Service companies and Companies or organizations engaged in scientific research. Government structure Costa Rica is a democratic, free, and independent Executive power. Its political system consists of three supreme powers which are distinct and independent of each other, the Executive Power, the Legislative Power and the Judicial Power. The Costa Rican State has also a Supreme Elections Tribunal with the same rank and independence as the other powers. The president of Costa Rica is both the Chief state and Head of government. These free trade zones, apart from being rich in infrastructure, also benefit company investments by offering exemptions on import duties on raw materials, components and capital goods. In addition, they offer a variety of fiscal benefits that grant exemption on corporate income taxes, export taxes, local sales and excise taxes as well as capital taxes. Tax Tax & Business Professionals in Costa in Uruguay Rica Attorneys Accountants

4 ECONOMIC GROWTH For the last decades, trade liberalization has been one of the pillars of Costa Rica s economic development, as it has allowed exports to surpass its 30% ratio of GDP in 1980 to a rate of 37% in This has led to a series of structural changes which have resulted in a productive transformation, a higher level of investment, and diversification of the economy. The country has experienced a compound annual growth rate in GDP of 10.4% since 2002 and a reduced poverty rate (46%) in the last 25 years. QUALIFIED WORKFORCE Costa Rica has a labor force of 2.21 million people and an unemployment rate of 8.5%. After the abolishment of the armed forces in 1948, Costa Rica has invested a major part of its resources in education, achieving one the highest literacy rates in the American Continent (96.2%). The World Economic Forum s Global Competitiveness Report has ranked Costa Rica s educational system 20th out of 144 economies, being the highest in Latin America. There are a total of 128 technical schools and 60 universities in Costa Rica that prepare professionals with the highest international standards. In addition, and as a result of foreign language instruction in primary schools and the prevalence of English speaking tourists, an ample amount of people have knowledge of the English language. EXCELLENT BUSINESS CLIMATE In addition, the country has experienced a growth in Foreign Direct Investment (FDI) from Mexico, Brazil, Venezuela, Germany, Switzerland and Asia. EXTENSIVE NETWORK OF FREE TRADE AGREEMENTS During the last 20 years, Costa Rica s trade policy has changed from one with a high level of protection into one that promoted openness and active international trade negotiations. In 2012, 87% of Costa Rica s exports of goods were covered by Free Trade Agreements, resulting in cost reductions for companies that engage in global production networks and becoming a key element in fostering Costa Rica s strong integration to global markets. Currently, Costa Rica has agreements with Panama, Dominican Republic, Chile, Canada, Mexico, China, Peru, Singapore and the European Union and is part of the CAFTA-DR and CARICOM treaties. With more than 120 years of democracy, Costa Rica remains one of the most stable and attractive countries for foreign investment in Latin America. The country ranked 2nd, below Uruguay, in the Political Stability and Absence of Violence Index and first in Latin America and 25th in the world, ahead of Brazil and Argentina, in the Country Brand Index (CBI). Costa Rica has achieved international standards for IPR protection and ranks 1st in Latin America in Innovation. For foreign investors, it is not required to register investments with any of the government authorities.

5 QUALITY INFRASTRUCTURE INTELLECTUAL PROPERTY PROTECTION Costa Rica benefits from a solid and secure telecommunications infrastructure. The country offers redundant fiber optic submarine cables as well as satellite and terrestrial microwave networks. Private networks, Internet and mobile phone services are entering the market as a result of new multinational suppliers. The country also has a reliable hydroelectric power, where 90% of electricity is generated from renewable resources, such as hydroelectric, geothermal and wind. According the Global Competitiveness Report, Costa Rica ranks 6th in the world in quality of electricity supply. In Costa Rica, the protection of intellectual property is a priority guaranteed by the National Constitution. The country adheres to modern protection mechanisms, including multilateral conventions and treaties to enforce and protect trademarks, patents, copyrights geographical indications, and other IPRs under international standards. In terms of transportation, Costa Rica has an extensive highway system, two major international airports and three seaports.

6 ESTABLISHING A BUSINESS PROCESS TO INCORPORATE A COMPANY An investor aiming to establishing a business entity in Costa Rica requires 9 procedures over an average of 24 days, making it the 7th country in the region in terms of regulatory favorability to start a business. Procedures Time to complete Check the availability of the proposed company name A notary public drafts and notarizes public deeds of the incorporation charter for registration before the Mercantile Section of the Public Registry online Deposit capital in the bank account, pay registration fees and stamp duties. As a prerequisite for registering the company, 25% of the capital stock indicated in the incorporation charter (if paid in cash) must be deposited in a national bank. The amount deposited may be withdrawn once the company has been duly recorded. The founders may also opt to sign a promissory note at the notary public and deposit the capital into the bank account later. Register the incorporation charter in the mercantile section of the public registry and obtain authorization to legalize the company books; send the notice of constitution of the company (edicto) File Form D-140 with the before the Tax Department to register the firm as a taxpayer Less than 1 day 2 days Less than 1 day 2 days 2 days Register for labor risk insurance with the National Insurance Institute (Instituto Nacional de Seguros) 1 day Apply for sanitary permit Register the company as an employer with Caja Costarricense de Seguro Social (CCSS, Social Security Institution) Apply for the business license (patente municipale) from the municipality 1 day 1 day 1 day Total number of days 15 days

7 REQUIREMENTS TO INCORPORATE A COMPANY The Sociedad Anónima (S.A.), similar to a Limited Liability Company, is the most common form of incorporation in Costa Rica. Shareholders in a S.A. are liable only to the value of their shareholding. COMPANY NAME Costa Rican regulations require company names to be unique and approved by the registry. Company names in English must be accompanied by their corresponding Spanish translation. Additionally, company names must end with the suffix Sociedad Anónima. REGISTERED OFFICE Under Costa Rican regulations, all companies are required to have a registered office in Costa Rica where documents can be legally served. DIRECTORS A Sociedad Anónima registered in Costa Rica must have a minimum of three directors, and there are no restrictions on the nationality or residency of the directors. SHAREHOLDERS A Sociedad Anónima registered in Costa Rica must have at least two shareholders, who can also be directors. Additionally, corporate shareholders are allowed. A single shareholder is permitted once the company is incorporated. Annual general meetings are required but may be held anywhere in the world and can be attended via electronic means. There are no restrictions on the nationality or residency of shareholders.

8 TAXATION CORPORATE TAXES EMPLOYMENT TAXES Costa Rica operates under a territorial tax system in which both resident and non-resident corporations are only taxed on their Costa Rica source income. Companies are taxed on their net income at a standard rate of 30%. However, lower rates of 10% and 20% may apply to companies that earn income under certain thresholds. Payroll taxes are withheld by the employer and paid on a monthly basis. Employer is responsible to contribute to social security and a year-end bonus. See table below for rates of contribution: Employee Employer TAXES ON CAPITAL GAINS AND DIVIDENDS Sales tax is levied on the sale of goods within the country, the provision of a few services and all imports. The standard rate is 13%. Payroll Taxes Social Security Year-End Bonus 0% - 15% 9.17% 26.17% 8.33% Only a few services such as hospitality, communications, advertising and public entertainment, among others are subject to VAT. Sales tax is payable on a monthly basis and all businesses must register with the corresponding tax authority. ESTATE AND GIFT TAXES Costa Rica does not levy estate or inheritance tax. TAXES ON CAPITAL GAINS AND DIVIDENDS Generally, capital gains are not subject to taxation in Costa Rica, except when it arises from a normal trade or business, or if it is the result of an asset transfer that is subject to depreciation/amortization for corporate income tax purpose. In this case, the gains are taxed at a rate of 30%. Dividends received by a Costa Rica entity from another domestic entity are exempt from corporate income tax. Dividends paid to a non-resident or resident individual are levied a 15% withholding tax. If the dividend is paid by a stock corporation registered on the official stock exchange, the rate is 5%. PERSONAL TAXES All individuals, whether or not resident are subject to taxation on their Costa Rica-source income. Residents are subject to profit tax, while non-residents are subject to withholding tax. For tax purposes, an individual is considered a resident if he/ she has been in the country for six months or more during a tax year (October 1st to September 30th). Individual income is taxed according to the progressive rate scale shown below: Over But no more than Icome tax rate 0 $5,973 Exempt $5,973 $8,919 10% $8,919 $14,878 15% $14,878 $29,816 20% $29,816 and over 25% All values are in Costa Rican Colones (CRC)

9 MARKET OPPORTUNITIES AND COMMERCIAL SECTORS MANUFACTURE Costa Rica remains as a leader in the sophistication of production processes in Latin America, including development of projects from advanced electronic technology to rocket plasma propulsion. Currently, the Costa Rican industry has companies focused on metallurgy, automotive, electronics and aerospace. FOOD INDUSTRY Costa Rica has fertile land and a variety of climates that provide a diverse range of production opportunities in the country. Coffee, pineapple, cacao, melon and mini vegetables are among the most demanded foods in Costa Rica, however, Costa Rican industry has taken the sector to an advanced level. Today, Costa Rica exports to more than 130 countries including Germany, China, Italy, the United States and Japan. It is noteworthy that the country is home to 9 of the 40 companies with the highest international reputation, since Costa Rica provides them with easy access to high quality raw materials produced in the natural, as well as a dynamic logistics in their transport from the Pacific and the Atlantic. MEDICAL TECHNOLOGY Being a country focused on education and innovation, Costa Rica is one of the leading countries in the investment of medical technology worldwide and the second largest exporter of medical devices in Latin America, ranking 7th as a supplier in the US market. The sector has been transforming and evolving according to demand and has now positioned Costa Rica as a key headquarters for multinational companies in the production and distribution of medical and pharmaceutical devices and in scientific research.

10 TAX & BUSINESS PROFESSIONALS IN COSTA RICA ARA LAW Abogados San José Alejandro Rodríguez Castro Tel: (506) Masis & Asociados San José Néstor Masís Tel: (506) Management Office 2330 Ponce de Leon Blvd. Suite 201. Coral Gables, FL United States Tel: Fax: UK Headquarters Dalton House 60 Windsor Avenue London, SW 19 2RR United Kingdom Tel: Download our Global Taxes app