![\"Image](\"https://abanthi.com/media/posts/7/schema_CR_drie_regelsets_EN.png\")
Status: October 2026. General information, not tax advice. The figures in the example are fictitious and simplified.
Costa Rica attracts foreign companies with its free trade zones: little or no profit tax for many years. That works. But two things in the wider tax system can quietly take part of the benefit away again:
Below, we explain both with one simple example.
The free trade zone regime dates from 1990. Its results are impressive (PROCOMER, data 2024; OECD Economic Survey 2025):
It has a price, too: the OECD estimates the tax exemptions at 1.5% of GDP per year.
Imagine a large international group – let’s call it Global Valve Group – that makes medical valves.
| Company | \nWhere | \nWhat it does | \nTax rate (rounded) | \n
|---|---|---|---|
| Valve Holding BV | \nNetherlands | \nParent company, owns the designs | \nabout 25% | \n
| Valve Costa Rica SA | \nFree trade zone, Costa Rica | \nManufactures the valves | \n0% (free zone) | \n
The Costa Rican company buys the designs from its Dutch parent, makes the valves and sells them within the group. Prices within a group are called transfer prices. The rule everywhere is the same: they must be the prices that independent companies would agree – the arm’s length principle.
This year, Valve Costa Rica makes a profit of USD 1,000,000. In Costa Rica it pays USD 0 tax.
The Dutch tax authority audits Valve Holding BV. Its conclusion: “You charged your Costa Rican subsidiary too little for the designs. USD 200,000 of profit belongs in the Netherlands, not in Costa Rica.”
The Netherlands raises the Dutch profit by USD 200,000 and collects about USD 50,000 in extra tax.
Normally, the other country then lowers its side by the same amount, so that the USD 200,000 is taxed only once. That is called a corresponding adjustment.
For our free zone company, Costa Rica’s side costs nothing: the rate is 0% anyway. But take an ordinary Costa Rican company outside the free zone, paying the normal 30%:
| \n | Netherlands | \nCosta Rica | \nTotal tax on the same USD 200,000 | \n
|---|---|---|---|
| Tax | \nabout 50,000 | \n60,000 (not reduced) | \nabout 110,000 = 55% | \n
The same USD 200,000 is taxed twice. That is double taxation – and without a treaty, there is no procedure to fix it.
Since 2024, large international groups (turnover above EUR 750 million) must pay at least 15% tax on their profit in every country where they operate. If a country taxes less, the difference – the top-up tax – is collected anyway.
Valve Costa Rica makes USD 1,000,000 and pays 0%. The minimum is 15%. So there is USD 150,000 of top-up tax to pay.*
The question is: who collects it?
| Situation | \nWho collects the USD 150,000? | \n
|---|---|
| Costa Rica has its own “domestic minimum tax” (QDMTT) | \nCosta Rica | \n
| Costa Rica has no such tax – the current situation | \nThe Netherlands, as the parent’s country | \n
Costa Rica has not introduced a domestic minimum tax. So the group still pays USD 150,000 – but the money goes to the Dutch treasury. Costa Rica gives up the tax through its free zone incentive; another country collects it. The free zone sector put it plainly: “otro país lo cobrará por nosotros” – another country will collect it for us.
In January 2026, the countries behind the minimum tax agreed on a special arrangement (the Side-by-Side Package): groups with a parent in the United States can be exempted from paying top-up tax through the parent’s country or third countries – from 2026 onwards. A domestic minimum tax would still apply, but Costa Rica does not have one.
Now imagine two identical factories, side by side in the same free trade zone:
| \n | Factory owned by a Dutch group | \nFactory owned by a US group | \n
|---|---|---|
| Profit | \n1,000,000 | \n1,000,000 | \n
| Costa Rican tax | \n0 | \n0 | \n
| Top-up tax | \n150,000 – paid in the Netherlands | \n0 (from 2026, if exempted) | \n
Same zone, same rules, same profit – a USD 150,000 difference, depending only on where the parent company sits. And because most foreign investment in Costa Rica comes from the United States, this affects the majority of free zone companies.
*Simplified. The real calculation allows a deduction for staff costs and tangible assets in Costa Rica, so the actual top-up is usually lower.
The global minimum tax has its own rule for price corrections between group companies. In principle it is symmetrical: if the Netherlands moves USD 200,000 of profit from Costa Rica to the Netherlands, the minimum-tax calculation moves it too. In our example:
| \n | Before the Dutch correction | \nAfter | \n
|---|---|---|
| Costa Rican profit for the minimum tax | \n1,000,000 | \n800,000 | \n
| Top-up tax (15%) | \n150,000 | \n120,000 | \n
| Costa Rican profit in the Costa Rican tax return | \n1,000,000 | \n1,000,000 (Costa Rica does not follow) | \n
So the minimum tax follows the Dutch correction – Costa Rica’s own tax law does not. The global rule turns out to be fairer than the local one.
There is one exception. If the correction is made in Costa Rica itself on a low-taxed free zone company, the minimum tax does not mirror it on the other side. The aim is to stop low-tax countries from moving profit out of the minimum tax.
A Spanish version of this article (versión en español) is available on request: info@abanthi.com.
", "image": "https://abanthi.com/media/posts/7/codioful-formerly-gradienta-VokCTikA6ug-unsplash.jpg", "author": { "name": "Rob Rijnvos" }, "tags": [ ], "date_published": "2026-10-13T22:21:09-06:00", "date_modified": "2026-10-13T23:24:17-06:00" }, { "id": "https://abanthi.com/pillar-two-globe-rules-costa-rica/", "url": "https://abanthi.com/pillar-two-globe-rules-costa-rica/", "title": "Pillar Two and the GloBE rules: what they mean for Costa Rica", "summary": "Since 2024 a growing number of countries apply a global minimum tax of 15% to large multinational groups. The rules come from Pillar Two of the OECD/G20 Inclusive Framework and are known as the Global Anti-Base Erosion (GloBE) rules. This article explains how they work…", "content_html": "![\"\"](\"https://abanthi.com/media/posts/6/meagan-carsience-obfMwn3BNLI-unsplash.jpg\")
The GloBE rules apply to multinational groups with consolidated revenue of at least €750 million in at least two of the four preceding years. Smaller groups and purely domestic companies are not affected. For groups in scope, the effective tax rate is calculated per jurisdiction. If it is below 15%, a top-up tax is due on the difference.
\nProfits linked to real substance are partly carved out: a percentage of payroll costs and of tangible assets is excluded from the top-up calculation (the substance-based income exclusion).
\nThe EU, the United Kingdom, Japan, South Korea, Canada, Australia and many other jurisdictions apply the rules. In January 2026 the Inclusive Framework agreed a \"side-by-side\" package. It includes:
\nCosta Rica taxes companies on a territorial basis. The general corporate income tax rate is 30%; smaller companies pay progressive rates from 5% to 20%. Companies in the free trade zone regime (Ley 7210) can receive full or partial income tax exemptions for a set number of years, depending on their activity and location.
\nThat is where the GloBE rules bite. A free-zone subsidiary of a large group may have an effective tax rate well below 15%. Without a Costa Rican QDMTT, the difference can be collected elsewhere: by the parent's country under the IIR, or by other countries under the UTPR. The incentive then shifts tax revenue abroad rather than benefiting the investor.
\nAs of late 2025, Costa Rica had not announced legislation to implement the GloBE rules or a QDMTT, and we have not found a bill since. The government has said it wants to review the incentive system carefully so as not to lose ground in attracting foreign investment, and to rely more on non-tax strengths such as stability, legal certainty and a skilled workforce.
\nThe side-by-side package changes the picture for many free-zone investors, a large share of whom have US parent companies. For those groups the IIR and UTPR are switched off, so foreign top-up tax on Costa Rican profits becomes less likely. A Costa Rican QDMTT, if adopted, would still apply to them.
\nLast checked: October 2026. Photo: Meagan Carsience on Unsplash
", "author": { "name": "Rob Rijnvos" }, "tags": [ ], "date_published": "2026-10-12T20:44:05-06:00", "date_modified": "2026-10-13T23:24:00-06:00" }, { "id": "https://abanthi.com/cup-cost-plus-tnmm/", "url": "https://abanthi.com/cup-cost-plus-tnmm/", "title": "CUP, cost plus and TNMM: where do you measure the arm’s length price?", "summary": "All three methods look for the price independent parties would have agreed. They just test it on a different line of the income statement. The deeper you measure, the looser the comparability requirements, but the more lies between the price and the point you measure.", "content_html": "![\"\"](\"https://abanthi.com/media/posts/5/meagan-carsience-txThZOwDrCs-unsplash.jpg\")
A plant in a Costa Rican free zone makes a medical device for its US parent company. The figures are invented and serve only as an illustration.
\n| Cost per unit (USD) | Amount |
|---|---|
| Direct materials | 40.00 |
| Direct labour | 20.00 |
| Production overhead | 10.00 |
| Cost of goods sold | 70.00 |
| Operating expenses | 15.00 |
| Total costs | 85.00 |
| Method | Input from comparables | Calculation | Price |
|---|---|---|---|
| CUP | The plant sells the same product to a third party for 100.00 | take over the price | 100.00 |
| Cost plus | Gross markup of independent contract manufacturers: 30% | 70.00 × 1.30 | 91.00 |
| TNMM | EBIT on total costs of comparable companies: quartiles 6%, 8%, 11% | 85.00 × 1.06 / 1.08 / 1.11 | 90.10 – 94.35 |
If the actual price falls within the TNMM range, there is usually no adjustment. If it falls outside, many countries adjust to the median. Which rule applies differs by jurisdiction.
\n![\"\"](\"https://abanthi.com/media/posts/3/meagan-carsience-M8Z507mOJPA-unsplash.jpg\")
The allocation of head office costs becomes important when your group has entities outside the home jurisdiction (country), because the allocation affects the profit in each jurisdiction where the group has subsidiaries or permanent establishments. It is therefore good to analyse these costs regularly to meet your transfer pricing obligations.
\nChapter VII of the OECD Transfer Pricing Guidelines sets the test: a charge is justified only if the subsidiary receives a service an independent company would pay for, or would have performed itself (the benefit test).
\nA Costa Rican subsidiary can deduct a head office charge only if it can show that the cost was needed to earn taxable income in Costa Rica (Ley del Impuesto sobre la Renta, art. 8), and that the price is at arm's length. An intercompany agreement and an invoice alone are not enough. In an audit, the tax administration expects evidence of what was done, by whom, what local need it met, and how the allocation key and markup were chosen (see CUP, cost plus and TNMM).
\nPhoto: Meagan Carsience on Unsplash
", "author": { "name": "Rob Rijnvos" }, "tags": [ ], "date_published": "2021-09-15T19:55:16-06:00", "date_modified": "2026-10-13T23:23:10-06:00" }, { "id": "https://abanthi.com/permanent-establishment/", "url": "https://abanthi.com/permanent-establishment/", "title": "Permanent Establishment", "summary": "When a company does business in another country through a fixed place there, it can create a permanent establishment (PE). The host country may then tax the profits of that PE, even though it is not a separate legal entity. Most tax treaties follow Article…", "content_html": "![\"\"](\"https://abanthi.com/media/posts/2/dan-freeman-WHPsxhB4mWQ-unsplash-2.jpg\")
Most tax treaties follow Article 5 of the OECD Model Tax Convention. A PE is a fixed place of business through which the business of an enterprise is wholly or partly carried on: a branch, an office, a factory, a workshop, a mine. A building site or installation project becomes a PE once it lasts longer than twelve months (six months in the UN Model, which many developing countries prefer).
\nA company can also have a PE without any premises, through a dependent agent: a person who habitually concludes contracts on its behalf, or habitually plays the principal role leading to such contracts. Since the 2017 update (BEPS Action 7), this test is wider than before.
\nActivities that are only preparatory or auxiliary, such as storage or purchasing, do not create a PE. Splitting activities over several places to stay below that threshold no longer works (anti-fragmentation rule).
\nThe host country taxes the profits attributable to the PE (Article 7). The home country, which taxes the company's worldwide profit, gives relief: either by exempting the PE profit (Article 23A) or by crediting the tax paid abroad (Article 23B). Without a treaty, domestic law alone decides, and double taxation becomes a real risk.
\nUnder the Authorised OECD Approach, the PE is treated as if it were a separate, independent enterprise. You map its functions, assets and risks, and then price its dealings with the head office using the transfer pricing methods (see CUP, cost plus and TNMM). Older treaties may still use the pre-2010 wording of Article 7, which leaves more room for different outcomes.
\nCosta Rica defines a PE in its own income tax law (Ley 7092, art. 2). In 2023 the Legislative Assembly approved a bill (expediente 23.581) that removes the word \"essential\" from that definition, so any fixed place where the business is carried on, wholly or partly, can qualify. Costa Rica has only a small treaty network, so for many foreign companies the domestic definition is the one that applies.
\nStaff who sign or negotiate contracts locally, employees working from home abroad, warehouses, long-running projects, and servers.
\nPhoto: Dan Freeman on Unsplash
", "author": { "name": "Rob Rijnvos" }, "tags": [ ], "date_published": "2021-09-08T20:03:55-06:00", "date_modified": "2026-10-13T23:24:32-06:00" }, { "id": "https://abanthi.com/resolution-of-the-council-on-a-code-of-conduct-on-transfer-pricing-documentation-for-associated-enterprise-in-the-european-union/", "url": "https://abanthi.com/resolution-of-the-council-on-a-code-of-conduct-on-transfer-pricing-documentation-for-associated-enterprise-in-the-european-union/", "title": "Code of conduct on transfer pricing documentation", "summary": "Code of conduct on transfer pricing documentation for associated enterprises in the European Union (EU TPD) Without prejudice to the respective spheres of competence of the Member States and the Community, this Code of Conduct concerns the implementation of standardised and partially centralised transfer pricing…", "content_html": "![\"\"](\"https://abanthi.com/media/posts/1/meagan-carsience-06tyxYdS-j0-unsplash.jpg\")
Code of conduct on transfer pricing documentation for associated enterprises in the European Union (EU TPD)
Without prejudice to the respective spheres of competence of the Member States and the Community, this Code of Conduct concerns the implementation of standardised and partially centralised transfer pricing documentation for associated enterprises in the European Union. It is addressed to Member States but is also intended to encourage multinational enterprises to apply the EU TPD approach.
Photo: Meagan Carsience on Unsplash
", "author": { "name": "Rob Rijnvos" }, "tags": [ ], "date_published": "2020-11-01T09:13:46-06:00", "date_modified": "2026-10-13T23:21:50-06:00" } ] }