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The Costa Rican legal market, like those of many of the country's neighbours, remains reasonably small and populated with a mixture of local firms and branches of Central American regional firm networks. Costa Rica itself enjoys a greater degree of foreign investment than some of its neighbours though because of the perennially strong economy, the comparatively high education level and a population with a more established middle class than some Central American nations....

The Costa Rican legal market, like those of many of the country's neighbours, remains reasonably small and populated with a mixture of local firms and branches of Central American regional firm networks. Costa Rica itself enjoys a greater degree of foreign investment than some of its neighbours though because of the perennially strong economy, the comparatively high education level and a population with a more established middle class than some Central American nations.

Another factor increasing both foreign and domestic investment involves the country's "free trade zone" policy. Companies established in Costa Rican free trade zones enjoy numerous tax benefits in return for creating new investment, increasing exports and creating jobs. The policy has attracted a great deal of investment and is responsible for a significant portion of the country's economy.

That's why Costa Rican financial firms breathed a sigh of relief in April of this year when a controversial piece of tax legislation was deemed unconstitutional by the nation's highest court. The law, proposed by President Laura Chinchilla's administration, dealt with the tax treatment of free trade zone companies. The new law would have raised the tax on corporate dividends for free trade zone entities from zero to 15% and added a municipal tax for companies entering a free trade zone after 2015. The law was eventually put down, but what was perceived as a government tax grab to pay down the country's growing fiscal deficit made some investors nervous.

The financial firms in Costa Rica all have bilingual attorneys and are used to servicing large international corporations in addition to their local clients. Most firms reported a busy year in 2011 and into 2012 and expect the momentum to continue in the coming year.

CONTEXT AND TRENDS Costa Rica has maintained its expansion of industries like insurance, power generation and telecommunications this year after the breakup of government monopolies in those sectors mandated by Costa Rica's participation in CAFTA-DR (Dominican Republic-Central America Free Trade Agreement). Attorneys report that, in almost every industry that was previously a government monopoly, the government company remains the primary provider as private companies slowly make inroads into the newly opened markets....

Costa Rica has maintained its expansion of industries like insurance, power generation and telecommunications this year after the breakup of government monopolies in those sectors mandated by Costa Rica's participation in CAFTA-DR (Dominican Republic-Central America Free Trade Agreement). Attorneys report that, in almost every industry that was previously a government monopoly, the government company remains the primary provider as private companies slowly make inroads into the newly opened markets.

Costa Rica remains incredibly committed to high environmental standards from a government perspective and in terms of industry. The country has targeted carbon neutrality by 2021, and roughly 20% of the land in Costa Rica is designated as either a National Park or other protected area – a large portion considering Costa Rica is a country with significant oil reserves.

Despite relatively stringent environmental procedures, recently dissolved government monopolies, and a climbing deficit, Costa Rica remains one of the most attractive markets in Central America, often competing directly with Panama for the largest clients and transactions in the area.

One of the areas driving that business is the generation of electrical power. There was a distinct emphasis on energy from renewable sources, but not for the reasons many investors expect: "The focus on renewables has a lot to do with the environmentally conscious culture in Costa Rica," explains an attorney. "There are no subsidies, no political pressures and no international pressures – it's just a fact of doing business here, even though the regulations can slow things down a little."

Project finance in other areas was prevalent, as well. One partner notes, "We saw a lot of project finance this year. Most of it was done through banks, and most of it was designated for infrastructure projects. We've seen port projects, roads, and a couple of PPP's (public-private partnerships) – most of them bank financed."

It is also worth noting that, unlike some neighbouring countries that see more Taiwanese investment, Costa Rica has accepted a great deal more Chinese involvement in their economy recently. "Some of it goes back to the days of Communism," one lawyer comments. "A lot of countries in Central America have traditional ties with Taiwan from those days, so they don't deal with the Chinese as much. Costa Rica has better ties with China and it's worked out well since the Chinese seem willing to invest right now."

The country saw further efforts by private companies to break into several recently opened markets. Those efforts have succeeded in some ways, but not to the extent that many anticipated. "We're moving away from the monopoly, but the regulations are still quite strict in insurance, telecommunications and energy," states an attorney. "Where there used to be one company in the market, in many industries there are still only three or four. It's been hard for new companies because people are so used to the old one and because the new companies have found it difficult to set up their own infrastructure."

For the future, several attorneys point to relatively new features in the Costa Rican economy and financial system: "I would say that if there is any trend in Costa Rica, it's the growth of the market for derivatives and hedging instruments," says one, adding: "It isn't a local market – it's institutional. [Costa Rica's] currency follows the [US] dollar pretty closely. A lot of the bigger financial entities are finding it necessary to hedge against fluctuations in currency and oil prices using derivatives and other instruments."

MAJOR LATERAL HIRES

José Paulo Brenes Lleras
From: Pacheco Coto
To: Sfera Legal

Rafael Cañas
From: Facio Abogados
To: Sfera Legal

Ignacio Esquivel
From: Facio Abogados
To: Sfera Legal

José Schroeder
From: Facio Abogados
To: Sfera Legal