* Foreign investors to pay up to 38 pct tax on profits
* Finance minister says Eurobonds exempt from change
By Isabella Cota
SAN JOSE, Jan 21 Costa Rica will increase the
tax on foreign investors in a bid to stem potentially
destabilizing capital inflows, levying a rate of up to 38
percent if investors seek to transfer profits from local share
and bond investments overseas.
Low interest rates in developed economies have encouraged
investors to seek higher returns in Costa Rica, where the
benchmark interest rate is currently at 8.9 percent.
A new law presented to Congress on Monday will raise the
current 8 percent tax on foreign investments by up to 30
percentage points. The exact amount will depend on the currency
of the investment, the yield and maturity.
The measures make Costa Rica the latest emerging market to
erect barriers to investment inflows, which can pressure
currencies. The country's gross domestic product of $45 billion
matches that of the U.S. state of Maine.
But Finance Minister Edgar Ayales told Congress that
Eurobonds would be exempt. Costa Rica issued $1 billion in
Eurobonds late last year in its first foray into international
debt markets in nearly a decade, and the country plans to issue
$4 billion in Eurobonds in the next 10 years.
The new law would mean banks with foreign clients will also
have to deposit up to 25 percent of the value of any investment
they make with the central bank, earning no interest. Ayales
said the central bank could keep the deposit for up to 12
months, even if the term of the investment was less than that.
"We are taking these measures now. We will see what the
reaction is to those measures and their impact on the problem
and if necessary we will take other measures," Ayales told
Brazil also slapped taxes on foreign investments - including
on short positions in foreign exchange derivatives, on foreign
purchases of local debt and on credit card purchases abroad - to
stem the overheating real currency.
Costa Rica, a Central American country of 4.5 million known
for its beaches and high-quality coffee exports, has been
struggling to keep its currency in check after a spike in the
colon at the end of 2012.
Costa Rica's interest rates rose due to the country's fiscal
deficit. A measure meant to shrink the deficit was rejected by a
panel of judges in the supreme court last April, arguing that
amendments made to the bill amounted to short cuts that were in
breach of the constitution.
But on Monday, Ayales hinted at a fresh fiscal proposal.
"Because the fiscal deficit is not going to go away anytime
soon, we will make an additional attempt before the end of this
administration," he told congress.