Ley 8683, or commonly known as the Impuesto Solidario para el Fortalecimiento de Programas de Vivienda, is now the law in Costa Rica.  What does all that mean?  It means that if you own a home with a value greater than around $175,000, you have a new tax to pay.  In English you would call it a tax on luxury homes.  In Spanish, impuesto a casas de lujo.  In the aforementioned case of a home “valued” at $175,000, the tax would be .0025%.  That is the case up to around $440,000, using current exchange rates to convert colones, the local currency, to dollars.  The scale is graduated and tops out at .0055% for homes valued over $1,500,000 (again, using today’s exchange rate).  The rub comes in calculating value.  Up until now home owners could pretty much declare any darn value they wanted to.  Not any more.  The Ministro de Hacienda is getting downright scientific about all this, even to the point of developing a computer program that owners can use to calculate the value of the home.  The report of value must be filed within three months of the law going into effect, which was October 1, 2009.  The tax must be paid within the first 15 days of January, 2010.  The calculation of value is very complicated and goes strictly by the guidelines of value for various types of structures (and that includes the home and other improvements such as pools, jacuzzis, garages, etc.).  All of it is laid out in a manual, or you can just download the computer program, which happens to be in Spanish of course.  I downloaded it today and began to play around with it.  Just do not change the suggested “directory” when going through the download instructions, or it won’t work.  Couple of things to note here.  First, this tax is in addition to the normal quaterly property tax, up until now which was based on the declared value.  Not any more, because in the future even that old tax will be based on what you report under the guidelines of the new “additional luxury tax.”  So if you report a $200,000 value under the new tax, you could end up paying $500 for the old tax (previously based on the “declared value” of probably close to nothing), plus another $500 for the new luxury tax, for a total of $1,000 annually.  You have to reevaluate every three years, or in any year when an improvement was made to the property.  The money collected from this new tax is supposed to be exclusively earmarked to eliminate “tugurios,” or shacks, and provide adequate housing for the folks that live in them.  That is a good thing.  My only fear is what the implementation of this tax might mean for the Costa Rica real estate market.  It is one thing to help the poor, but if in so doing you greatly discourage foreign investment, are you not cutting off your nose to spite your face?  Only time will tell.

You Can Download the Tax Evaluator Here (zip file)

Well I guess if you’re gonna get tapped for an ambassadorship, it might as well be in paradise.  That is what Anne Slaughter Andrew, if she knows anything about where she is headed for the next four (or could it be eight) years, should be thinking.  Obama has nominated her to be his eyes and ears here and if Senate approved, which she certainly will be, San Jose will have a new U.S. ambassador.  Andrew is an expert in environmental issues and is the founder of New Energy Nexus, LLC, a firm that consults with emerging clean energy companies.  She is the wife of Joseph Andrew, who was the national chairman of the DNC (Democratic National Committee) from 1999 to 2001.  Andrew earned her B.A. from Georgetown University and her J.D. at the Indiana University Law School.  Andrew may lack the diplomatic experience of past ambassadors, but since relations between U.S. and Costa Rica are fairly “warm and fuzzy,” Obama opted for someone he personally knew and trusted, rather than someone the Department of State may have picked for the post. And if it was a “political favor,” it was a nice ripe one! The pick may also have had much to do with Obama’s concern over environmental issues and Costa Rica is a country that is setting many trends in that area. Andrew also co-founded the medical technology consulting firm known as Anson Group.

The tourism sector in Costa Rica attracted $223 million foreign direct investment (FDI) in the first six months of 2009.  That is less than in 2007 and 2008, but not nearly as drastic a decrease as many had predicted.  Prime reasons supporting the continued strong demand are the many marina projects that are now underway, such as the Marina Papagayo in Guanacaste.  Direct investment in tourism represented about 38% of the total FDI.  IN 2008, investment in tourism represented only 14% of the 2 billion in total FDI that year.  Gonzalo Vargas, president of CANATUR (the Costa Rican Tourism Chamber), commented in an article in El Financiero, that while tourist arrival numbers are down, investors are thinking more in the long term.  Overall, however, FDI this year is way down, 50% less than in 2008.  The first six months of this year recorded a total FDI of around $592 million compared with over $1 billion last year.  The Central Bank predicts that FDI will be down 30% for the full year and will recuperate at a slow pace next year.  The sectors that have suffered the most are real estate and industry, which enjoyed strong showings in previous years.  The industrial sector’s share of total FDI was 17.2% for the first six months.  Its share of total FDI has been falling since 2004 as other sectors, principally tourism and real estate, have been on the steady rise. 

Link to Article in El Financiero

It has been up until now dreadfully difficult to build a new marina in Costa Rica.  For years the only one in the country was Los Sueños, located at Playa Herradura near Jaco beach.  Within the last year another marina, the Marina Papagayo, has opened its slips to massive luxury yachts.  There are several other projects in various stages of administrative approval.  The problem is that administrative approvals have been the “black hole” for marina developers.  A hole from which hardly anyone ever escaped.  That all could be changing now with the new “Ley de Marinas” approved last week by the legislature. The new law tightens up certain environmental controls and enforces compliance with Costa Rica’s Equal Opportunities for the Disabled law. But were the beauty lies for developers, at least potentially, is the way it clarifies and streamlines the approval process and allows for a much faster pace of gaining the myriad of administrative approvals and concessions necessary to push a marina project to actual construction.  Is it a good thing?  Well not all of the “diputados” (or legislative representatives) agree.  Some, like Ana Helena Chacón, believe that it is essential for promoting more tourism in coastal communities and thus more jobs and economic development.  On the other hand, Olivier Pérez doesn’t like marinas in the least.  He says they are only for the benefit of a select few..a very rich select few.  He also claims that large luxury marinas displace the local population and can lead to social unrest.  He nevertheless voted for the measure, because the regulation offered by the new law is better than what is on the books currently.  I have been saying for some time that Costa Rica could use another marina or two, but that doesn’t mean the floodgates should be open allowing a dozen to fast-track towards completion.  There are serious social and environmental implications posed by marina development and each situation should be reviewed carefully.  Also, in the end the ticos living and working in the communities affected should have the final word.

Link to Article in La Nación

Once more this is the case as the U.S. fast food chain Wendy’s will open another restaurant in Costa Rica.  The franchise owner in Costa Rica, Comidas Rápidas Wentica, will open its newest location in the mall Paseo de las Flores in Heredia.  This will be its fourth restaurant, adding to others in Santa Ana, San Pedro and Desamparados. This newest restaurant will measure 400 square meters and have the capacity to feed 150 persons.  This installation will feature a playground, auto-service and ample parking.  The mall is located directly across the highway from Universidad Interamericana, which adds to the appeal of the location for Wentica.  The new operation at Paseo las Flores will employ 35 to 40 ticos.  The Wendy’s chain first arrived to Costa Rica in 2006 with a restaurant in the center of San Jose, in the same location that previously was occupied by the defunct chain, Hardees.  An executive with the franchisee told La Nación that the company plans to continue its expansion in the GAM (Gran Area Metropolitana).  Specifically he mentioned the possibility of future sites in Curridabat, Paseo Colón, La Sabana, Escazu and the Juan Santamaría International airport.  It all depends on the attractiveness of the location and the price, said the exec, who added that the chains experience in Costa Rica has been very favorable.  The investment in this new location is around $1 million.

Link to Article in La Nación

The 19 commercial airlines now flying into the Juan Santamaría airport in Alajuela, Costa Rica’s busiest international airport, cut 1,184 flights during the period January to August, 2009 as compared with the same period in 2008.  The reason?  Well the numbers tell the story. The economic crisis has taken its toll on Costa Rican tourism.  During the period January to August of 2008, there were 20,665 flights.  For the same period this year, there were only 19,481, for a 6% decrease.  During that period 117,000 less passengers arrived at the airport (1,053,000 total arrivals versus 1,170,000 during the same period in 2008).  The principal routes that have been cut are from the U.S. as that country accounts for 12 daily flights and over half the total tourism arrivals.  In addition to cutting flights, some airlines are opting to use smaller planes.  For instance, if the market demands at least 80 seats, a 90 seat-er will be more profitable than a plane that seats 150.  William Rodríguez, vice president of the Costa Rican Tourism Chamber, told La Nación that while this year tourism will likely see a sizable decrease compared to the exceptional year of 2008, already the market is beginning to witness a turnaround.  Although ICT (the Tourism Ministry) wants to attract more flights to Costa Rica, Director Mario Zamora noted that now is not a good time to spend money and time trying to do so.  Allan Flores, also with ICT, added that the $20 million allocated by ICT to promotion of tourism in other countries has definitely softened the blow a bit with respect to Costa Rica as compared to other major tourism destinations.

Link to Article in La Nación

No one can deny that in certain parts of the country, crime has risen. The facts speak for themselves.  In 2008 the homicide rate per 100,000 inhabitants reached double digits (10).  In 2007, the figure was 7.5  Also in 2008, 435 people were violently killed, a figure that is 86 more than the 349 in 2007.  This increase in crime is not escaping the attention of the rest of the world, and that could mean troubles for Costa Rica’s future growth unless something is done to stem the rising tide. The World Economic Forum rated Costa Rica 104 out of 133 countries in terms of insecurity, placing it in the neighborhood (ranking-wise) of African countries like Lesoto (103) and Uganda (105).  Vanessa Gibson of Cinde, an entity dedicated to attracting foreign investment into the country, told La Nación that one of the principle challenges of improving the investing climate in Costa Rica is to deal with the problem of delincuencia.  Compared with many other Latin countries, Costa Rica is still considered relatively safe.  For my own part, I believe that much of the crime is drug related and confined largely to certain parts of the larger metro areas. Although petty theft by young adults brandishing firearms has become a real problem.  The answer?  I believe Costa Rica needs more and better paid police. Often the police become part of the problem themselves as they struggle to squeak out a livelihood trying to protect the rest of us. Police corruption is rampant and the bad apples need to be weeded out and the good cops paid better for doing their jobs.  One major international company that has felt the “crime pinch” is Western Union.  Several of its locations around the San Jose metropolitan area have been the victim of armed theft (including the branch located where my office was previously).  Christian Rodríguez, Vice President of Operations, told La Nación, that while crime has not yet become a major obstacle to further investment by the company, it is headed in that direction fast.  In terms of risk in this regard, Costa Rica has received a rating of 2 out of a possible 4 by the company. The worst of the region is El Salvador.  We definitely do not want to see Costa Rica catch up to the problems that country has faced.

Link to Article in La Nación

A legislative initiative has been put in motion by Costa Rica’s Poder Ejecutivo to open up the market for production of electricity to both public and private competition.  The plan would take control of the market away from ICE (the government run monopoly).  Instead it would be placed in the hands of the to be formed, Autoridad Administradora Mercado (AAM).  The AAM would establish a “bolsa” (or exchange) where distributors (such as ICE, CNFL and others) could buy energy produced by private and public suppliers at a price that is between a “floor” and “ceiling” set by the AAM.  The country’s largest private industry players could also buy their energy needs directly from this market, as opposed to buying it from the distributors.  Distribution of electricity in Costa Rica, however, would continue to remain solely in the hands of ICE and other current regional distributors.  If the energy demand of the country were satisfied at any given point, then electrical producers could sell surplus energy on the Mercado Eléctrico Regional (MER), which Costa Rica has been a part of since 1998.  Currently the country lacks the regulatory meat for opening the energy production market.  This would all change in the form of a Sistema Eléctrico Nacional (SEN).  In addition, to bringing the prospect of cheaper energy to the Costa Rican market, it is hoped that by opening the market to private competitors, it will stimulate new innovation in the production of clean and renewable sources.

Link to Article in La Nación

Puerto Rico came out on top in a recent competition by FDI Magazine (Foreign Direct Investment Magazine) to determine the top Caribbean and Central American countries of the Future for 2009/10.  However, Costa Rica (second) and the Dominican Republic (third) fared very well also, with only three points separating them from the top.  Costa Rica scored in the top five ranking across categories of economic potential, quality of life, business friendliness, human resources and FDI strategy.  The one area where Costa Rica did not score so well was cost effectiveness.  The methodology used to judge the competition, as described by FDI’s web site, is as follows:  FDI Countries of the Future shortlists are created by in independent collection of data by FDI Benchmark across 31 Caribbean and Central American countries. This information was set under six categories: economic potential, human resources, cost effectiveness, quality of life, infrastructure and business friendliness. A seventh category was added to the scoring – FDI promotion strategy. In this category, 14 Caribbean and Central American countries submitted details about their promotion strategy and this was judged and scored by our independent judging panel. Countries scored up to a maximum of 10 points under each individual criteria which were weighted by importance to give the overall scores.

Minister of Transportation, Karla González, is sticking to her guns and swears that the Costanera Sur will be completed by December of this year.  The contractors actually have until the first trimester of 2010 under the contract, but González is vowing to complete the project well ahead of schedule.  Well, saying that it could be well ahead of schedule is a little bit silly when you consider that the idea for the Costanera was born back in 1962.  Years of delays related to corruption, incompetence and bad weather have stalled completion of this important project for almost half a century.  But hats off to the Arias administration who it looks like will be able to boast its completion once and for all.  Once inaugurated it will no longer be necessary to traverse the dangerous and sometimes deadly, yet stunningly beautiful, Cerro de la Muerte.  The trip down the Costanera Sur will cut about two hours of driving time to traverse the 222 kilometers from Barranca de Puntarenas to Palmar Sur of the Osa.  The main parts yet to be completed include the 42 kilometer stretch from Quepos to Dominical, as well as several bridges.  One of the main bridges that is very near final completion is that of Parrita, which contractors say will be done in 15 days!  Once completed you will be able to make the trip to the Southern Pacific in about 5 hours. It will be even faster when the new highway from San Jose to Caldera is completed, which will connect with the Costanera Sur.  For the future González expressed in an interview with La Nación that she would like to see the Costanera Sur traverse the complete distance from Nicaragua to Panama.

Link to Article in La Nación