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.

A law ratification has been circling the Costa Rican Legislative Assembly since mid 2008 in which eco-friendly vehicles will pay less tax than the normal mainstream vehicles. After some extra research that had to be completed by the Environmental Department’s authorities, “green” cars will finally be cheaper starting Friday, March 13^th.

As part of the initial stage of this program, consumers who purchase electric cars and hybrid cars in Costa Rica will have to pay 30% less tax. The vehicles that will benefit from this exoneration are those that run on batteries and alternative fuel sources such as those based on alcohol, hydrogen and other non-fossil fuels.

The law seeks to encourage consumers in purchasing these types of vehicles in order to help reduce carbon gas emission from normal fuel-burning vehicles. Costa Rica has set a goal to become a carbon-neutral country by the year 2021. Costa Rica hotels and transportation companies have adopted eco-friendly practices in order to contribute to the country’s goal.

As an added attraction for those who purchase “green” vehicles, the one day license-plate restriction in the downtown area will be waived as well as toll fees throughout the country. The incentive for the import of electric and hybrid vehicles will also include the building of special parking areas where electric vehicles may recharge.

So far, some six companies have confirmed their interest in introducing these alternative vehicles to the Costa Rican market. At the moment, the law will allow the 30% tax reduction for electric and hybrid vehicles under 2000cc engines. However, authorities are focusing on extending this benefit to all “green” vehicles as well as eliminating the automotive tax by 100%.