Oct. 11 (Bloomberg) -- Costa’s Rica’s consideration of a plan to tax foreign-owned companies operating in free-trade zones may threaten overseas investment in the Central American nation, said Intel Costa Rica’s general manager.
Potential taxation of free-trade zone businesses is part of a tax overhaul presented to the Legislative Assembly on Sept. 27. Most foreign companies that operate in the free-trade zones now pay no income taxes. Under the plan, companies may face a tax rate of as much as 15 percent on investments made after 2015 while current investments would remain exempt.
Intel Corp. has been invested in Costa Rica since 1997 when it built a $300 million semiconductor assembly and test plant as the country’s free-trade zone regime helped attract other multinational companies. The world’s biggest chipmaker decided against a large investment in Costa Rica in 2010 due to “uncertain fiscal policies,” Michael Forrest, Intel Costa Rica’s general manager, said yesterday. Intel is the largest revenue-earning company in the $35 billion economy.
“Intel makes future investments on a long-term horizon, and one of the things we consider very seriously is fiscal policy stability and consistency,” said Forrest, who participated in panel discussion of foreign business owners and managers in San Jose. “If there are fluctuations and instability of fiscal policies in certain countries, those countries are removed from investment consideration.”
Fiscal reform is a priority of President Laura Chinchilla’s government as its seeks to trim a budget deficit that’s estimated at about 5 percent of gross domestic product.
According to the Costa Rican Investment Promotion Agency, known as CINDE, the 256 free-trade zone companies earned $2.865 billion in 2010, or about 8 percent of GDP. Over 60,000 Costa Ricans are employed by free-trade zone companies.
Forrest also noted the rising costs of electricity and utilities in Costa Rica.
“When you look at the utility rates of what we pay here in Costa Rica versus what our sister companies pay in Malaysia, Vietnam or China, it is significantly higher here in Costa Rica than in the rest of the world,” Forrest said.
The colon has weakened 0.8 percent to 517.25 per U.S. dollar this year, according to data compiled by Bloomberg.
--Editors: Robert Jameson, Richard Jarvie
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