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Editorial

Legal 500 Doing Business in Costa Rica

Contributed by EY Law Central America

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Introduction

With a successful history in terms of development, Costa Rica nowadays has a less stable economic situation than in previous years; however, the prospects for long term growth are favorable, the political system is also stable and has a relatively high social development, as well as calcified labor that eases foreign investment over local. Costa Rica is a world leader thanks to its environmental achievements; it is the only country in the world that has reduced deforestation.  It also holds one of the lowest poverty rates in Latin America and the Caribbean, resulting from the sustained growth and solid indicators of human development. The country´s challenges are now based on the fiscal situation and the persistent inequality,

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With tourism being one of the key revenue sources for Costa Rica’s economy, the country’s ecological diversity and dedication to wildlife protection has earned it a particularly strong reputation in ecotourism. The Republic further benefits from low unemployment rates, macroeconomic stability and free trade agreements with many countries, including the US, Canada and regional jurisdictions.

Even though the competitive M&A market has seen a continuous stream of high-value transactions in 2017, it experienced a temporary slowdown towards the turn of the year, as investors awaited the results of the country’s presidential elections. After neither of the candidates achieved an outright victory in the first round in February 2018, Carlos Alvarado was elected president, defeating Fabricio Alvarado in an April 2018 run-off; while the election largely revolved around social issues, the centre-left Carlos Alvarado is expected to pursue an open approach to foreign investment and international trade.

While Costa Rica’s GDP is growing steadily and its inflation rate has remained stable –estimated 2.6% in 2017, a considerable fiscal deficit remains one of the country’s major concerns. The 2018 Budget Bill, sent to the Assembly in February by the Costa Rican government, proposes amendments to income tax legislation and the replacement of the current sales tax with a VAT. Hence, fiscal matters have moved into focus for companies and law firms alike. Another key development was the enactment of the new labour code in July 2017, which changed the procedure of labour-related claims in order to be more time and cost-effective. It also strengthened the protection of employees against discrimination and amended the collective bargaining law, which in turn resulted in a rise of labour-related claims brought against employers.

After Arias & Muñoz’ split in 2016, Costa Rica experienced yet another significant market change in early 2018, when regional heavyweight Pacheco Coto completed its formal integration into EY Law Central America. However, the transition also saw the departure of a number of partners to Batalla Abogados – which had itself lost key members of its tax practice to regional player Consortium Legal in mid-2017. Other movements saw the local legal market gain a new player with the spin-off of GHP Abogados from young regional player Expertis (which has offices in jurisdictions across the region, including Guatemala, El Salvador and Panama), and which itself subsequently announced a tie-up with Spain’s ECIJA (which also has an office in Santiago de Chile), as of June 2018.

Among other key market players, BLP, Aguilar Castillo Love and Nassar Abogados all benefit from strong Central American networks; Sfera Legal, Facio & Cañas and Zürcher, Odio & Raven all feature strongly as key local players. Boutique practices also retain their traditional dominance in certain sectors; Zürcher Lawyers is a go-to firm for all IP matters, for example, and BDS Asesores shines across the full array of labour and employment-related work.

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