October 11, 2011 / 1:10 AM / 8 years ago

Costa Rica plan to end tax breaks worries investors

SAN JOSE, Costa Rica, Oct 10 (Reuters) - Costa Rican plans for a levy on industries operating in free trade zones could hurt economic development, foreign investors said on Monday.

Lawmakers want to expand the country’s tax base and rein in the national debt, but a plan to extract taxes from companies that operate in free trade zones has some investors worried.

“A regulation like this one throws a curve,” said William Ernest, general manager of Chicago-based cable and fiber optics maker Panduit, who said he is waiting for the tax debate to end before deciding whether to locate a $2 million software development center in Costa Rica or Romania.

The tax plans being discussed would require new free-trade zone companies to pay up to $100,000 in municipal taxes and would include a 15 percent tax on dividends from 2015.

Only businesses that arrive in or after 2015 would be affected, said Gustavo Arias, a lawmaker working on the bill.

“In reality it’s very little for these companies to pay,” said Arias, of the left-of-center opposition Citizen Action Party.

Opponents of the plan said nerves are rattled across the free trade zones, where computer chip giant Intel, computer maker Hewlett Packard and a host of multinational medical device makers and food and beverage companies have plants.

Their combined economic input in Costa Rica, in salaries and local operations, equaled 8 percent of gross domestic product last year, according to a new study by the Costa Rica trade promotion agency.

President Laura Chinchilla’s administration ran a deficit equal to 5.3 percent of GDP last year, the highest in Latin America, and has made a hard push for Congress to approve her tax reform package, which aims to raise around 2 percent of GDP in new state revenue.

Lawmakers expect tax reform to pass by December.

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