Under the free zone regime category of “Service Companies”, they now must comply with new requirements recently enacted. New changes were also introduced for all companies that currently operate under any category as a Free Trade Zone.

Most of the new regulations to the Free Trade Zones (Decree No. 34739-COMEX-H) published on February 12th, 2020, respond to the interest of harmonizing internal regulations with international best practices to comply with international standards established by the Organization for Economic Cooperation and Development (OECD) in the framework of the action plan to combat the erosion of the tax base and transfer of benefits, known as “BEPS ".

Services companies

In May 2019, the limit that restricted up to 50% of local sales to companies under category “C” i. e. service companies (article 22 of the Free Zones Law) was eliminated, and the wording of article 17, subsection C, was modified as to require, not to export services anymore, but to comply with the Strategic Eligibility Index for Service Companies (IEES).

Consequently, the main change to the Free Trade Zones Law is the incorporation of the Strategic Index for Services Companies (IEES by its acronym in Spanish). The IEES determines whether or not a service company is eligible as a beneficiary of the Free Trade Zone Regime. It is made up of a series of variables that the company must meet, which is calculated using a formula that, when applied, the result of the algorithm to achieve the Free Trade Zone concession must be equal to or greater than 101.

Besides responding to the need of adapting local regulations to international standards set by the OECD, IEES responds to guide the benefits of the Free Trade Zone to companies related to the strategic sectors established by the Costa Rican Government.

The variables evaluated are the strategic sector in which the company is located, the chaining of service companies with other companies in the strategic sectors defined by the Government, the annual value of the total salaries paid to employees and the value of the new investment in fixed assets, which should be at least US$150.000,00.

In addition to the above, there are new restrictions and requirements for service companies that want to obtain the Free Trade Zone category.

New obligations to all categories

The new regulation also stipulates for all companies under the Free Trade Zone that they must be registered as “taxpayers” before the Tax Administration. In the past, they were registered under a kind of “non-tax declaring companies” category. However, due to the most recent changes according to the tax reform, this was overruled.

The companies that want to apply for the Free Trade Zone, regardless of the category, will also need to register as a “taxpayer” before they start operations (pre-operational phase). It is important to highlight that during the approval process to obtain the free zone status, even though the companies have registered as taxpayers, they cannot carry out lucrative activities.

Annual report local sales vs total sales

Additionally, PROCOMER will send the information of the local sales and total sales to the Ministry of Finance according to the Annual Operations Report issued by the free trade zone company. The purpose of this new report to the Ministry of Finance is to enforce the self-assessment in the companies and to give tools to the tax administration to exercise the relevant controls.

Other modifications

Other reforms were incorporated in the import process from the Free Trade Zone area, as well as the income tax payment for local sales, among others.

Likewise, in the near future, further reforms to the Free Zone Regime regarding the application process for admission and obtaining the status of Customs Service Auxiliaries, are expected.

If you would like more details of the changes mentioned above or assess how the new rules will impact your activity as a beneficiary of a Free Trade Zone, the Dentons Muñoz team can give you the necessary legal advice and support for your operations.