Overview

The Basics

Costa Rica is sandwiched between Nicaragua and Panama in Central America. It is also bordered by the Caribbean Sea to the east and the Pacific Ocean to the west. Costa Rica has a total landmass of just a little over 51,000 square kilometers.

Costa Rica has a sub-tropical temperature that varies between 20 and 30 degrees Celsius on the coast and hovers near 22 degrees Celsius in the Central Valley. There are two distinct seasons – a rainy season from May to November and a dry season from December to April.

Costa Rica has three volcanic mountain ranges and the rivers that flow from them are an abundant source of hydroelectric power for the nation.

The capital city San Jose has an international airport with many regular flights to various international destinations.

Since it’s independence from Spain in 1812, Costa Rica has been a relatively stable nation. The only major exception to this was a short civil war in 1948. Following the war the government passed a new, very liberal constitution, which currently remains in effect, and abolished its army.

Like all other former Spanish colonies, the official language of Costa Rica is Spanish and the population is mostly Roman Catholic and follows Hispanic cultural practices. Nevertheless, English is widely spoken throughout the business community.

Just over 4 million people call Costa Rica home and presently there is little population growth. The overwhelming majority of Costa Ricans are white or mestizo, people with mixed indigenous and European heritage.

Government and Economy

Costa Rica is a democratic republic with three distinct branches of government – the legislative, executive, and judicial. The powers between the three branches are strictly divided based upon the 1949 constitution, which is considered the supreme law of the land. The head of the executive branch is a president who may only be elected to a single four-year term. The president is responsible for appointing a cabinet to assist him/her; cabinet members are chosen from members of the legislature. In addition to advising the president, the cabinet participates in the decision making process for issues relating to their office.

The legislature has 57 members called deputies. Deputies are elected every four years and can be re-elected for only for non-consecutive terms.

Of the three branches of government, the judicial branch is the most powerful branch of the government in practice. The legislature appoints judges for periods of eight years. The appointments may be renewed indefinitely. Like other former Spanish colonies, Costa Rica’s laws are based on the Spanish legal system. It is a civil law jurisdiction and does not have a jury system. The Argentinean and Mexican legal systems and laws have influenced Costa Rica’s legal system in recent years.

The government is currently struggling to control inflation and unemployment while simultaneously trying to maintain social policies, encourage private sector development, and overcoming tough political resistance to fiscal reform and the privatization of state monopolies.

Largely because of its temperate climate, Costa Rica’s export of agricultural products such as coffee and bananas has historically been a pillar of the Cost Rican economy. Low prices for its two main commodities have caused problems for Costa Rica since the late ‘90s. The second pillar of the economy, possible because of Costa Rica’s great natural beauty, is tourism. Both coasts are full of luxury hotel resorts. 10.3% of the country is covered by natural parkland, which includes coral reefs, volcanic craters, and virgin rainforests. The natural parkland is a huge tourist draw.

As a result of the introduction of a free trade zone fiscal regime, the economy has undergone a major transformation and currently non-traditional trade goods representing 68% of exports while agriculture now only accounts for 17% of the GDP.

While one may guess that Costa Rica’s favorable taxation regime makes it a likely place for an offshore tax haven, the government only became aware of the nation’s potential to develop its financial sector fairly recently. In response, the government has begun to promote and legislate this sector of the economy with gusto.

Recent economic results have been less than stellar with growth down and inflation and unemployment growing. Despite the growth in unemployment, several economic sectors continue to complain about shortages of certain skills. Although Costa Rican labor costs are relatively high for the region, inward foreign investment is still common because of Costa Rica’s skilled labor force, the lack of labor problems, economic and political stability, and favorable fiscal regime.