January 21, 2013 / 10:11 PM / in 6 years

CORRECTED-UPDATE 1-Costa Rica takes aim at foreign investors with tax

(In 2nd paragraph, corrects benchmark interest rate to 8.9 percent, not 9.05 percent)

SAN JOSE, Jan 21 (Reuters) - Costa Rica will increase the tax on foreign investors, levying a rate of up to 38 percent, if they seek to transfer profits from share and bond investments overseas, in a bid to stem potentially destabilizing capital inflows.

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.

The new law will increase the current 8 percent tax on foreign investments by up to 30 percentage points. Under the proposal, the exact amount would depend on the currency of the investment, the yield and the maturity. It would not apply to foreign direct investment.

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.

“With these measures it will be possible to reduce inflows of capital which can hurt the national economy,” the law said.

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 a fiscal deficit of 4.5 percent of gross domestic product. (Reporting by Isabella Cota; Writing by Krista Hughes; Editing by Leslie Adler)

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