How to Setup a Company: Costa Rica vs Panama

Over the past five years, there has been an explosion in foreign investors heading to Latin American countries to open manufacturing plants, exploit business opportunities, and expand their brands into exciting, untapped territories. Two of those countries are Costa Rica and Panama. In the former, FDI flows reached an eye-watering US$3 billion in 2017, whilst in the latter, foreign investors pumped more than US$5.29 billion into the economy in 2017, helping to boost employment, increase competition, and transform the country’s respective GDPs.

As an entrepreneur, the chances are that you’re considering Costa Rica and Panama as part of an international plan, but knowing which one can be a challenge. In today’s article, we lift the lid on both, exploring how to incorporate a company and the business opportunities that await, before weighing up the pros and cons of each to help you make a decision….

Setup A Company In Costa Rica

Despite its size, Costa Rica is a force to be reckoned with in the business world, and an ideal starting point for a business considering an international expansion. Not only does Costa Rica rank second on the Global Index of Prosperity list of countries in Latin America, but it enjoys continuous economic growth, with GDP increases of between 2.2 and 4.9%, per year. The country has a strong export economy, and its service industry has been working hard to boost the economy, unlock employment opportunities, and diversify and solidify the market.

Another reason why so many entrepreneurs choose to invest in Costa Rica is that of the country’s education system, with citizens boasting of its high level of education and a 98% literality percentage, which is unprecedented in Latin American markets. If you’re planning to enter the market and require high-skilled workers, or workers you can train to perform important business tasks like sales, marketing, digital development or science, then you will be able to access the country’s pool of talent and enjoy its reasonable labor costs to boot.

A Company incorporation Costa Rica is also a simple and straightforward process and can be done in ten simple steps. Once you have paid agency fees, chosen a structure and translated your company name, you can sign off on documentation, open a business bank account, and register an incorporation charter. From there, you can become a taxpayer in the country, apply for insurance, register with the Costa Rican Social Security and receive a company kit. This no-nonsense approach to company formation is one of the reasons why entrepreneurs choose Costa Rica above its neighbors and are no doubt why FDI is on the up.

Incorporating A Business In Panama

Panama, on the other hand, offers its own unique benefits for entrepreneurs. The country has enjoyed years of consistent foreign direct investment, fueled in part thanks to Panama’s financial and investment freedoms. Unlike in some Latin American countries, commercial businesses are subject to clear and transparent rules, and with moderate tax rates for both corporations and individuals (citizens pay no tax on their first $11,000 per year, 15% tax on earnings up to $50,000, and 25% on earnings above $50,000) Panama is a popular choice.

The Colon Free Trade Zone (CFZ) offers entrepreneurs customs and tax advantages and encourages exports and imports of quality goods, allowing you to manufacture in the country or export raw materials – such as crude materials, metalliferous ores, and minerals – to other countries for you to sell on, or manufacture into high-quality goods for sale around the world.

Panama has specialisms in sectors such as maritime traffic and banking, and has strong FDI partners in the United States, Colombia, the United Kingdom and in Switzerland, allowing investors to capture the attention of a truly global clientele should they choose to operate in the country. Real estate, commerce, and construction are also industries to consider in the country, all of which have enjoyed significant levels of growth and demand in recent years.

With more than half a million companies in the country, incorporating a company in Panama is a wise decision if you want to grab a slice of the market and dominate before your competitors have a chance. Receiving your articles of incorporation and certificate of good standing should take no time at all once you have completed the initial paperwork, and applying for residency in Panama (again, a straightforward process) allows you to put your attention on the country.

Which Is Better For Your Needs?

Deciding whether to invest in Costa Rica or Panama can be tough. Both countries generate returns for their current foreign investors, offer new opportunities for budding entrepreneurs, and allow access to key Latin American markets such as Colombia, Nicaragua, Honduras, and more. Deciding which is right for you comes down to the following specifications:

• Where you want to go: Costa Rica may be a better option for businesses with ambitions of distributing products or offering services in Mexico, whereas Panama offers easier access into Colombia and Brazil, lowering distribution costs.
• Your industry: Food processing, medical products, construction materials, and textiles are big in Costa Rica, whereas agriculture, exporting and the service sector are key industries in Panama.
• Your preference: If the plan is to expand into various Latin American markets, both countries serve as a neutral playing field geographically, right in the middle of Latin and Central America. Some entrepreneurs develop an affliction to one over the other and so decide to set up shop there – travel and research is key to finding a base.

Get Started With Biz Latin Hub

Whether you want to take on the challenge of Costa Rica or penetrate the Panama market, it makes sense to do your research and enter into the territory equipped with the knowledge and support to maximize your returns. Relying on a company offering back-office support services can help, which is where the expert business advisors at Biz Latin Hub can come in.

If you’re looking for support, whether that be during your company incorporation, recruitment, or due diligence, get in touch today for personalized support.