Infrastructure Financial and Legal Considerations

To maximize the investment potential of the Pro Center project, this facility has been divided into two components: (1) The office condominiums which will be located in the duty free zone and (2) The other integral components of the project such as the hotel, gymnasium etc.. This second group qualifies for an ICT Tourist Contract. The ICT Contract also qualifies components required for this group to be imported duty free.

First of all, how are call centers or business process outsourcing doing at this time in Costa Rica? The growth has been explosive and continues at this time in 2009. The growth of call centers increased 56% from 2007 to 2008. The number of employees working in call centers increased from 6,885 in 20004 to 21, 700 in 2008. The number of U.S. firms with call centers increased from 5 in 2000 to 112 in 2008. The source for this information is La Nación, June 2009.

The incentives offered by the Costa Rica government for a duty free zone designation include the following:

IMPORT DUTIES ON RAW MATERIALS, COMPONENTS, PACKAGING, MACHINERY AND EQUIPMENT USED IN PRODUCTION PROCESS.

100% exemption

IMPORT DUTIES ON RAW MATERIALS, COMPONENTS, PACKAGING,

exemption

TAXES ON PROFITS According to location and reinvestment (See annex)

EXPORT TAXES

100% Exemption

SALES AND EXCISE TAXES ON LOCAL PURCHASES

100% Exemption

CAPITAL TAXES

100% exemption for 10 years

REAL ESTATE PROPERTY TAX (only for owners)

0.25%*

TAXES ON PROFIT REPATRIATION

100% exemption

CAPITAL REPATRIATION

No restriction

MANAGEMENT OF FOREIGN

Free CURRENCY

CUSTOMS SERVICE

Expedited on site

SALES TO EXPORTERS WITHIN COSTA RICA

Yes

SALES TO LOCAL MARKET SALES TO LOCAL MARKET

Up to 25% of production **

TIME LIMITATION

Indefinite

ELIGIBILITY REQUIREMENTS / PROCEDURES Initial investment of at least US$ 150,000. Product must undergo substantial transformation to qualify for incentives ***.

EXEMPTION OF IMPORT DUTIES ON VEHICLES 100% exemption: trucks and chassis for trucks;

1-2 ton pick ups; and vehicles for more than 15 passengers

TRAINING ASSISTANCE THROUGH INA (National Training Institute)

Up to 25% of production **

LEGAL BASIS

* 10 year exemption for companies established before June 19, 1995.
** Except for Export traders. Service Companies may sell up to 50% in the local market.
*** Beneficiaries according to the Law:

a. Companies that manufacture, process or assemble goods for export or re-export
b. Export traders: commercial export companies that simply handle, re-pack or redistribute non-traditional goods and products for export or re-export.
c. Service companies that export services to individuals or companies established abroad or that supply services to firms operating under Free Zone Regime. (Banking, financial and insurance entities installed in a Free Trade Zone, as well as individuals or companies that provide professional services, are not eligible to receive the benefits provided by this status)
d. Companies that manage parks dedicated to the installation of Free Zone Regime companies.
e. Firms or organizations dedicated to scientific research that contributes to improving Costa Rica?s technological levels in industry, agro industrial activities or foreign trade.
F. Companies operating shipyards and dry or floating docks for the construction, repair or maintenance of vessels.

Importation of all equipment needed for the office condominiums duty free.

Zero taxes for the first 8 years and for the next four years 50% of the normal tax rate.

To qualify for the duty free zone designation, 50% or more of either the manufactured product or call center services rendered must be outside of Costa Rica. We anticipate that nearly 100% of the prospective clients will be offering services to U.S. customers.

The Costa Rica government offers an ICT contract to tourist projects that include a hotel and ancillary facilities. This means that any materials or equipment needed for this component can be imported duty free. The time required for approval of the duty free designation and the ICT contract is approximately 2 months.

The combination of the above makes location of business for both the lessee and lessor extremely attractive in Costa Rica.

The study of the above incentives along with the going market for the call centers truly surprised me. My research of the call centers in Costa Rica included the following information.

I recently studied the two principal business centers in Costa Rica. I was privy to information given to me in private by primary salesman in Forum 2 Alonso Arias. The architect for both projects was Daniel Lacayo. My wife was his secretary for 19 years and we have always had a very cordial relationship. He in fact shared some very confidential information with me on the costs of Forum 1 nine years ago.

Proctor and Gamble has occupied Forum 1 for 10 years and are very happy to continue with 35,000 square meters of space. Hewlett Packard has been there for 6 years.

The salesman, Alonso Arias, was young but much different than most Costa Ricans. He had worked in Belgium, France and Germany prior to working with Genesis. I inquired about rents at the Forum. He would not give me an exact number. This may be that some are paying more than others and for that reason does not wish to give out these figures. He verified that the range of rents given to me by CINDE was substantially accurate at $17-$20 per square meter. He indicated that some office parks receive up to $25.00 per square meter and that Forum was somewhere in the middle. I estimate conservatively somewhere at $22.00 or $23.00 per square meter. Just a note here; all costs for both construction and space rental here in Costa Rica are quoted in price/square meter. Should one wish to translate to cost and income per square foot you simply divide by 10.76.

Wall Mart has signed a contract for 10 years with Oracle and Western Union signing for 5 years. In the 10 years at Forum 1, no major tenant has vacated. He indicated that the contracts are heavily loaded with penalties should they not fulfill the contracts. They estimated space required per employee is 8 meters per employee.

I was surprised that the employees and or employers pay $100.00 per space for parking monthly. Alonso indicated that the employer and employee share the expense in some cases.

The maintenance fees charged are $1.55 per square meter for office space and $1.20 per square meter for parking spaces. The new Forum 2 has two levels of underground parking. The only spaces above ground are for visitors.

Alonso indicated that in Forum 2 that they had learned from their mistakes in Forum 1 and had incorporated these changes in the design of Forum 2. For example, many more employees have cars today than they had 10 years ago. He estimates that one should plan for 60% of the employees having cars in a call center. Wall Mart has required 1 space for each employee in its new office space.

The duty free designation was most interesting to me. First, the time required is almost immediate approval. Alonso indicated that some buildings have mixed use; i.e. floor 2 in a 4 floor building might be designated as duty free, for example. He indicated that they do not break up floor as some duty free and other sections not. Each floor in Forum 2 is approximately 1,000 square meters.

The incentives in a duty free zone are no taxes of any kind for the first 8 years and 50% in the following 4 years.

I was assured that the project ?Pro Center? qualifies for an ICT contract. Who is ICT and what are the benefits of an ICT contract? ICT is the Ministry of Tourism for Costa Rica. Normally, an ICT contract applies to tourism projects such as ?La Concha?. However, since the project ?Pro Center? has a hotel as part of the project I was told that an ICT contract can be issued for the project. An ICT contract allows for the importation of goods for the approved project duty free.