Promoting the Development of the Semiconductor Ecosystem in Costa Rica

Annex L. Inward Processing and Duty Drawback regimes

This annex summarises the benefits of the Inward Processing and Duty Drawback regimes.

Inward Processing (INP) regime

The INP regime represents a specific customs modality that permits businesses to import intermediate goods into the country with a suspension of all related taxes, contingent upon providing a suitable guarantee. These imported goods are mandated to undergo processes such as transformation, repair, reconstruction or incorporation into more complex structures like assemblies, machinery, transportation equipment or sophisticated devices (PROCOMER, n.d.[1]).

The primary advantage of this regime for businesses is the deferral of tax payments on imported intermediate goods for up to 12 months. The scope of goods eligible under this regime encompasses: i) raw materials in their basic or initial forms, including mixed, prepared or semi-processed; ii) semi-finished products; iii) manufactured or completely processed products deemed necessary; iv) labels, tags and analogous articles; v) materials used for packaging, as well as the packaging itself; vi) chemicals or other specifically quantifiable and qualifiable materials, excluding fuels.

Duty Drawback (DD) regime

The DD regime is another customs modality in Costa Rica, allowing firms to recover paid import taxes on materials such as inputs, packaging or packaging materials used in the creation of export-bound products (PROCOMER, n.d.[1]).

This regime specifically targets goods used in the production of other items (inputs), those used for the containment and safeguarding of various product types (packaging) and materials needed for the transportation of products (packaging materials).

To participate in the DD regime, firms must meet certain criteria. These include not receiving benefits from other tariff-related export incentives, fulfilling the tax obligations required under their current legal status, fines and other legal dues and ensuring that the products exported incorporate the inputs, packaging or packaging materials within 12 months of the import declaration date of these inputs.

The practical application of the INP and DD regimes in Costa Rica has been limited. This is primarily attributed to their design, which aligns with traditional industrialisation models with low value-added and minimal technological transfer. Furthermore, these regimes present less economic appeal to businesses than the Free Trade Zone (FTZ) regime. The FTZ model provides a comprehensive package of incentives – beyond tax benefits – and fosters a robust ecosystem of suppliers, industrial linkages and substantial governmental support, making it a more attractive option for businesses.

References

[1] PROCOMER (n.d.), Inward-Processing Regime Guide, Promotora del Comercio Exterior de Costa Rica (Costa Rican Foreign Trade Promoter), https://www.procomer.com/wp-content/uploads/Guide.Inward.pdf (accessed on 8 March 2024).