Offshore Banks in Costa Rica may lose advantages.

In response to a dramatic increase in the presence of offshore banks in Costa Rica, the President of the Central Bank, Francisco Gutierrez, announced that a bill was sent to the Legislative Assembly last week to try to even the tax requirements paid by offshore banks in the country. Currently, offshore banks are exempt from paying a 15% tax on the money they earn from the interest on loans taken out by Costa Rica nationals.

The current law controlling this requires that offshore banks pay a flat tax of $125,000, which is far lower than the price that local banks pay. Local “first class” banks also do not have to pay the tax, this currently includes 221 banks, which are labeled based on certain criteria defined by the Central Bank regarding their contributions to national interests and the well-being of the general population

The bill that was sent to the Legislative Assembly would get rid of the constitutional article that allows for certain banks to not pay the tax. The decision came about due to the Central Bank’s wish to discourage offshore banks in Costa Rica because they do not fall under their supervision and control. They also don’t want to create different tax obligations for some banks and not others.

According to a recent Costa Rica Pages article, the amount of funds invested in offshore banks in Costa Rica has increased by 65% over the past three years, and exceeded $2.4 billion at the end of last year.

If the bill is passed, offshore banks would have to pay the 15% tax. This increase in operating costs would make interest rates on loans from such offshore banks rise an estimated 1.2 to 1.5 percent, thus eliminating some of the current advantages the banks have over Costa Rica banks.

“The idea is to level the playing field”, the President of the Central Bank stated.

There is still the option of keeping the list of “first class” banks which would continue to enjoy the tax exemption. In this case the Central Bank would be able to include certain offshore banks that are dedicated to investing in positive development in the country. It was suggested that the requirements to be added to this list of banks would increase so that banks would have to work harder to enjoy the exemption.

Some of the offshore banks in Costa Rica that would be affected include: Scotiabank, Promérica, Banco Cuscatlán, HSBC, BCT and BAC San Jose.

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Filed under: Business on April 23rd, 2008