Intel is threatening to stop investing in Costa Rica after the country dared to think that it could start taxing foreign-owned companies operating in free-trade zones.
Chipzilla has been investing in Costa Rica since 1997 when it built a $300 million semiconductor assembly and test plant, as the country’s free-trade zone helped attract other multinational companies.
However, Intel started to get cold feet in 2010 when the country started muttering about the outfit paying tax.
Intel Costa Rica’s general manager Michael Forrest pointed out to Business Week that Intel is the largest revenue-earning company in the $35 billion economy.
Potential taxation of free-trade zone businesses is part of a tax overhaul presented to the Legislative Assembly on Sept. 27. At the moment foreign companies that operate in the free-trade zones now pay no income taxes and that includes Intel.
Under the new plan, companies may face a tax rate of as much as 15 percent on investments made after 2015 while current investments would remain exempt.
The idea is from President Laura Chinchilla’s government, as its seeks to trim a budget deficit that’s estimated at about five percent of gross domestic product. If companies like Intel pay up the country could claw back a lot of that dosh.
However Forrest points out that things are getting costly in Costa Rica, what with the rising power bills and other utillities, so Intel might have to pack its bags.
The other problem is that Costa Rica’s currency, which has the unfortunate name of the colon, has been weakening lately. And there is nothing that Intel hates more than taxes, high power bills and a weakened colon.