Costa Rican law provides two main forms of representation: a representative and a distributor. The representative can also be considered an agent. It is possible for one person to be both a representative and agent or a distributor at the same time.
Representative or Distributor
A representative/agent/distributor is any individual or company who “in continuous and autonomous form, with and without legal representation, acts by directly placing sales orders among the local import or export firms, on a commission or percentage basis; or who prepares, promotes, facilitates and completes the sale of merchandise or services which another foreign merchant or firm renders.”
A representative:
- Can be a Costa Rican or a foreign national, permanently and legally established within the country for at least ten years;
- Must have at least three years’ experience engaged in any form of commerce within Costa Rica;
- Must be sufficiently knowledgeable in commercial matters and recognized as being solvent and of honorable character; and
- Must be duly registered in the Mercantile Registry of Costa Rica.
A distributor must meet the same requirements as a representative, as described above. Specifically, a distributor is defined as an individual or company that purchases goods directly from the manufacturer for resale. Generally, a distributor signs a distribution agreement with the manufacturer and carries a stock of inventory. A distribution agreement may be exclusive or non-exclusive. It is not uncommon to find a representative or a distributor representing multiple product lines or operating on a regional basis in Central America.
The Costa Rican Commercial Code allows a U.S. company to participate in public tenders directly without a local Costa Rican representative. The only requirement is that the official representing the U.S. company must have a Power of Attorney that is certified by a Costa Rican Consulate in the United States. However, the process of bidding on public tenders is usually a tedious process and best accomplished through engaging the services of a qualified Costa Rican representative.
Finding a Partner
The U.S. Commercial Service (USCS), a division of the U.S. Department of Commerce, helps U.S. companies in identifying potential business opportunities in Costa Rica. Information can be provided via the FCS website, and/or counseling sessions over the telephone, via e-mail or videoconference, or by office appointment. For a complete list of USCS services, please see trade.gov’s webpage. To find the nearest U.S. Export Assistance Center, please go to the trade.gov’s U.S. offices webpage.
To help U.S. companies identify appropriate local representatives, the Commercial Service offers its Gold Key Service for those who wish to meet prospective local partners in Costa Rica through appointments set up by Commercial Service personnel, or its International Partner Search (IPS) for those companies who cannot immediately visit Costa Rica or prefer to arrange their own appointments from a USCS-generated list of local companies.
Whichever method a U.S. company chooses for its partner search, the company should ask for as much information as possible from the potential partner prior to any contractual arrangements. In addition, the company should be prepared to provide complete information about its history, resources, personnel, product line, and previous export experience.
Once a partner has been selected, the U.S. firm should obtain business and/or credit reports on the Costa Rican company, as part of the due diligence process. The Commercial Service offers the International Company Profile (ICP), a credit check/background report that will provide the U.S. company with useful information for evaluating the foreign company as a potential partner.
Costa Rican firms wishing to represent U.S. companies may request exclusive representation in the local market. American firms should consider this issue carefully to decide if they want to retain the right to sell to other representatives/importers in the Costa Rican market.
U.S. companies should employ the services of a qualified Costa Rican attorney for various issues, ranging from contract advice to protection of trademarks and other intellectual property. Lists of Costa Rican law firms can be found on the FCS Costa Rica Business Service Providers directory, and the Consular Section of the U.S. Embassy in Costa Rica. (See Web Resources Section at the end of this chapter for this and other links.) Both the Costa Rican Chamber of Commerce (Cámara de Comercio) and the Costa Rican-American Chamber of Commerce (AmCham) have established International Arbitration Centers to provide alternative methods for dispute resolution.
Agricultural Sector
The United States is the single most important agricultural partner for Costa Rica due to its geographical proximity as well as a wide selection of high quality, competitively priced products. However, competition in the Costa Rican market is increasing following implementation of free trade agreements with several countries and blocs, including Mexico (since 1995), Chile (2002), Canada (2002), CARICOM (2005), Panama (2008), the People’s Republic of China (2011), Peru (2013), Singapore (2013), the EU (2013), and Colombia (2014). Costa Rica is a member of the Central American Common Market, which sets low to zero duties for most agricultural products. After a long process that started in October 2007, Costa Rica approved an “Association Agreement” with the European Union in October 2013.
Most grains are imported into Costa Rica in bulk, limiting the import market to a few major players. There are two wheat mills (Molinos de Costa Rica and Fábrica de Harinas de Centroamerica), which account for the purchase of all wheat imports. Two groups of private sector importers buy almost all of the yellow corn and soybean imports. Rice is generally imported by a group of producers and millers grouped under the name CONARROZ (National Rice Corporation). Rice importers outside of this group must pay higher duties, unless they use the tariff rate quotas set up under the CAFTA-DR agreement. For 2021, the CAFTA-DR quotas were 66,000 metric tons for rough rice and 9,000 metric tons for milled rice.
Import permits (other than those for phytosanitary and sanitary requirements) are not required for imports of grains, poultry, meat, dairy products or any other agricultural product, per the terms of Costa Rica’s GATT accession agreement.
Costa Rica established tariff rate quotas (TRQs) for high-tariff products in conformance with its Uruguay Round commitments in July 1997. Outside of the TRQs, tariffs on “sensitive” products range as high as 150 percent for some chicken products, and 65 percent for dairy products. Also, there are TRQs under CAFTA-DR that allow imports of potatoes, onions, dairy products, poultry and rice (both rough and milled) with zero duties.
Under CAFTA, Costa Rica recognized the U.S. meat and poultry inspection service, thus eliminating the previous plant inspection requirement. All federally inspected U.S. meat and poultry plants are now eligible to export to Costa Rica. Exporters of animal origin products other than those mentioned in the previous sentence are required to register with the Animal Health Service (SENASA) prior to exporting their products. Exports of U.S. consumer-oriented products such as snacks, meats, processed fruits and vegetables, and dairy products, have grown steadily since the approval of CAFTA-DR in 2009.
A list of the major Costa Rican importers of consumer-oriented foods can be obtained by contacting the Foreign Agricultural Service (FAS) office at the U.S. Embassy, San Jose. For more information, please contact Laura Calzada.
Negotiating an Agreement with a Costa Rican Company
Once a U.S. company has selected a potential representative, the next step is to negotiate an agreement. The content of this agreement is extremely important, as it will determine the legal basis for any relationship between the exporter and the representative. Engaging a qualified lawyer is strongly advised.
U.S. companies should pay close attention to the conditions of the contract with representatives and distributors and be prepared to work within the agreed upon guidelines. The approved CAFTA-DR agreement makes provisions for a new damage compensation method in the Law of Representatives of Foreign Firms. When compensation for damages is claimed based on one of the provisions of the law, the financial damages suffered or that could be incurred must be compensated, as a direct and immediate consequence of the infringement of the provision or a violation of the agreement. The regulations from the Costa Rican Civil Code apply to this subject matter.
In the court proceeding to obtain damages under this law, the judge may, upon the request of one of the parties, establish an appearance guarantee, in proportion to the amount being claimed. This request can be made when it has been determined that the party of which an appearance guarantee is requested does not have enough assets in the country to respond to an award. The appearance guarantee shall consist of a deposit in cash or in securities payable to the order of the court.
Therefore, it is very important for U.S. companies to have a written agreement in place and to have that agreement reviewed prior to signing by a competent qualified attorney familiar with Costa Rican law.
Distribution & Sales Channels
U.S. goods and services have a high level of penetration in the Costa Rican marketplace. Purchasing power is concentrated near the capital: 73 percent of the country’s 5 million consumers live in the San Jose Metropolitan Area, also known as the Central Valley. The retail distribution sector closely follows U.S. practices. Costa Ricans are accustomed to large shopping centers and malls that house retail stores, kiosks, food courts, theaters, and supermarkets.
Franchise outlets, smaller mixed-use commercial centers and hypermarket-type operations have proliferated, due in part to increased competition from large retail chains such as PriceSmart and Walmart. There are currently five large department store chains, six supermarket chains, and countless small and medium-sized family-owned businesses. U.S.-owned Walmart is the single largest chain, controlling all Mas X Menos, Maxi Pali, and Pali Stores in Costa Rica and the rest of Central America. Other well-known retailers are Automercado, Perimercados and Megasuper. In addition, PriceSmart, an offshoot of Costco that features U.S. brands and the well-known Kirkland brand, is prevalent throughout the Central Valley. Rural areas are generally served by “pulperias”, or family-owned general stores.
The concept of customer service is very important in Costa Rica. TV (both local and cable), radio, print and billboard advertising, and discounting are widely accepted commercial practices.
Distribution channels do not vary significantly among food and agricultural products. Some products (for example, fresh fruits and frozen foods) require technical knowledge regarding handling due to their shelf-life requirements and the need for refrigeration. Such facilities are readily available in Costa Rica, as the country exports fresh and frozen foods to other Central American and Caribbean countries. Private firms import processed consumer foods, while several wholesalers are dedicated to importing agricultural products. Many companies incur additional costs due to delays at Customs in clearing goods. The food product distribution chains to supermarkets and smaller stores is well developed. Some of the larger supermarket chains import directly. However, U.S. firms must consider the need to adapt packaging and labeling requirements to comply with local regulations and registration processes for most consumer goods.
Although it is possible to export directly to Costa Rican retailers, U.S. firms will find it beneficial to work with a local representative and possibly even establish a local sales office. A local representative is critical for those companies wishing to sell to private sector companies or to government institutions. Since Costa Rica is a small market, one representative/distributor is often enough to cover the entire country.
Establishing an Office
While Costa Rica provides a pro-business environment for U.S. companies, the ease of starting a business in Costa Rica can take considerably longer than what a U.S. business is accustomed to. The process of establishing an office still takes an average of 23 days and 10 procedures.
The first step in establishing a business in Costa Rica is to obtain the assistance of a Public Notary, the only professional authorized by law to register a company. In Costa Rica, almost all lawyers can act as a Public Notary. Companies must be listed in the Costa Rican Mercantile Registry in order to be a legal, authorized entity. Upon registration, all information related to the new company and the people who will manage the company must be submitted. This information includes full name, nationality, occupation, marital status, country of origin, the legal name of the business, purpose of the company, amount of initial capital and the way this capital will be used, time limits for payments, domicile of the company, and any other agreements made by the founders.
An excerpt of the registration is then published digitally in “La Gaceta,” the official legal journal in Costa Rica. Payment on initial equity is usually nominal and must be paid in local currency and deposited with a local bank of the Costa Rican national banking system until registration is completed. Initial equity payment is generally from US $100 to US $1,000.
Depending on the type of business, the company may have to acquire a municipal license or permit. A foreign company that has, or intends, to open branches in Costa Rica must appoint and retain a legal representative with full Power of Attorney concerning the business or the branch. Similar to U.S. law, foreigners must become residents in order to work in Costa Rica.
Individuals interested in establishing a business in Costa Rica are encouraged to contact CINDE (the Costa Rican Coalition for Development Initiatives) and/or PROCOMER (Costa Rican Foreign Trade Corporation). Both organizations are involved in providing support and information for prospective investors in Costa Rica. Each organization maintains extensive information databases that are useful to potential investors in evaluating operating costs, taxation issues, availability of employees, and related investment questions.
The Ministry of Economy’s website has instructions specifically for companies interested in establishing a company in Costa Rica.
For the latest Investment Climate Statement (ICS) which includes information on investment and business environments in foreign economies pertinent to establishing and operating an office and to hiring employees, visit the U.S. Department of Department of State’s Investment Climate Statements website.
Direct Marketing
Direct marketing has enjoyed limited success in Costa Rica. The country does not have a developed postal system with defined street names and numbers, so it is difficult to obtain client lists or reliable addresses. Direct marketing via email, phone, and text messaging is becoming a popular method of outreach. There are no Costa Rican laws that specifically regulate direct marketing. Instead, the general laws which apply to advertising and public relations agencies are used to regulate direct marketing. Companies use websites and Facebook pages (Facebook is widely used by Costa Ricans of all demographics). Recently there has been an increase in the use of email and mobile subscription to promote sales by sending e-coupons. Also, the use of other social media marketing networks like WhatsApp, Marketplace (Facebook), and custom-made apps gained popularity during the pandemic. Currently, it is more common to receive coupons or advertising on cell phones.
International e-commerce stores such as Amazon and Wish are popular among local consumers. This continues to generate business for companies that handle associated logistics and other e-commerce collateral services.
Joint Ventures/Licensing
Licensing is not widespread in Costa Rica. Traditionally, foreign companies export to Costa Rica or set up manufacturing/assembly operations in the country. This can be accomplished independently or through joint venture arrangements. Foreigners may legally own Costa Rican companies or equity and may invest in all areas not expressly reserved for state or government sponsored entities. Foreign corporations may be organized legally in several ways: as branches (except for banks or insurers), joint ventures, wholly owned subsidiaries, or locally incorporated companies. Bona fide investments are encouraged and actively promoted by the Costa Rican Government.
Due Diligence
Before finalizing any contract, whether for a sale or representation, U.S. companies should obtain information on the bona fides of the foreign firm, including reliable business and financial references. The Commercial Service at the U.S. Embassy offers a background report service called the International Company Profile (ICP). The profile can also link interested companies to well-known local private sector credit-reporting services that can provide background and credit reports on companies in Costa Rica.