These are the 10 challenges of doing business in Costa Rica

Despite a challenging external environment, Costa Rica remains a promising business destination, thanks to a relatively stable economy and domestic political situation.

Costa Rica‘s investment climate has been generally favorable for many years.

In 2022 alone, the Costa Rican Coalition of Development Initiatives (Cinde) registered 40 new Foreign Direct Investment (FDI) projects and 61 more reinvestments or expansions of companies already operating there.

Of the new projects, 27% that set up operations originated in Latin America and Europe.

In addition, five were in services, three in manufacturing, two in tourism infrastructure, and one in life sciences.

The figures reflect that Costa Rica’s investment climate has been generally favorable for many years, a trend that will continue in the short term, according to the consulting firm TMF Group’s econometric models, and the FDI in Costa Rica will leave US$650 million in 2023, and US$950 million in 2024.

CHALLENGES OF DOING BUSINESS IN COSTA RICA

There are still obstacles to overcome in this scenario and certain hurdles to consider when establishing or doing business in Costa Rica, as recently published by TMF Group in Costa Rica.

The ten challenges identified are based on experience assisting local and international clients.

A look at each in more detail:

STARTING A BUSINESS

Starting a business in Costa Rica involves nine procedures.

It can take up to 22.5 days, compared to other places in the Latin America and Caribbean region, where the average is 31.7 days.

The usual form of entity is a corporation Sociedad Anónima (SA).

A company can be registered by name or number through the Registro de Personas Jurídicas.

A notary public is required to draft, authorize and submit a company registration.

BUILDING PERMITS, PROPERTY REGISTRATION, AND ELECTRICITY SUPPLY

Obtaining a building permit involves 17 procedures and takes up to 135 days.

Registering a property requires five procedures and 177 days, compared to a regional average of 7.2 procedures that take 63.2 days.

Connecting electricity involves five procedures that take up to 45 days.

EMPLOYMENT

More than 40% of workers are in informal jobs.

Unemployment is expected to remain high, reflecting structural mismatches between skills supply and demand as the economy shifts toward more knowledge-intensive activities.

TECHNOLOGY

Costa Rica has cybersecurity concerns that affect many countries, but no identified cybersecurity issues are unique to Costa Rica.

TAX

Costa Rica ranked 60th for ease of paying taxes, on par with the regional average, according to the Doing Business report that the World Bank stopped publishing as of 2021.

But the total tax and contribution rate as a percentage of profits is 58.3%, considerably higher than the regional average of 46.6%.

The corporate income tax rate is 30%, and the value-added General Sales Tax is 13%.

The tax rate for employer-provided social security contributions is 26.33%.

CROSS BORDER TRADE

Costa Rica ranked 73rd for ease of cross-border trade but scores significantly better than the regional average for hours needed for border compliance per shipment, with 20 hours compared to 62.5.

It also comes out better than the regional average in the cost of border compliance, with a cost of US$375 compared to US$526.5.

CONTRACT EXECUTION

According to the World Bank report, the country ranks 129th in contract enforcement, as it can take 852 days to take legal action and enforce the judgment, compared to the overall time of 164 days.

RESOLVING INSOLVENCIES

According to the latest World Bank report, Costa Rica ranks 131st in ease of resolving insolvency.

The process can take up to three years, slightly longer than the regional average of 2.9 years.

CREDIT

Costa Rica improved access to credit by adopting a new secured transactions law that establishes a functional secured transactions system and a modern, centralized, notice-based collateral registry.

The law expands the range of assets that can be used as collateral, allows for a general description of assets granted as collateral, and permits out-of-court enforcement of collateral.

CULTURE

Business negotiations can be slow as decision-making is consensual and often involves many people.

There is also a great deal of bureaucracy.

Delays in settling invoices and bills are common in Costa Rica, so payment arrangements must be made in advance.

With information from Bloomberg