Tax Incentives to Encourage Investment in Costa Rica

 

Costa Rica Business Set to Benefit from New Tax Law.

In order to mitigate the effects of the economic crisis on Costa Rica, the Costa Rica Tax Administration authorized a special accelerated depreciation for all new assets (as in tangible property) increasing the acceleration of the useful life to 60% from the previous 50%. This measure applies to all new assets purchased from January 2009 until the end of the year. The move comes as part of President Arias’s new "Shield Plan" that hopes to protect the country from recession by implementing a series of temporary fixes to promote commerce and protect Costa Rica jobs.

Accelerated depreciation refers to any one of several methods by which a company, for 'financial accounting' and/or tax purposes, depreciates a fixed asset in such a way that the amount of depreciation taken each year is higher during the earlier years of an asset’s life. For tax purposes, accelerated depreciation provides a way of deferring corporate income taxes by reducing taxable income in current years, in exchange for increased taxable income in future years.

According to the Costa Rica Tax Administration, the accelerated depreciation is a smart move to confront the weakening economy by promoting investment because this measure allows companies a larger deduction when determining how much income tax is due. This should help soften the decision to acquire new assets when the world’s economists are telling people to save big purchases for later.

Once this resolution is published in "La Gaceta" it won't be necessary for companies to specifically request authorization to use the special accelerated depreciation from the Tax Administration. The only requirement is that the owner prove that the assets were acquired during 2009. This can be proven with the accountant register or with legal documents.

For more information about Costa Rica tax laws, please contact ICS Tax: www.icstax.com.