By San José, Costa Rica — A significant shift in United States tax legislation is poised to disrupt Costa Rica’s booming service export sector, a cornerstone of the nation’s economic growth that generated over $16 billion in 2024. According to industry experts, the new law creates powerful disincentives for American companies to source technology and modern services from abroad, directly threatening a critical commercial relationship for the country.
The warning comes from Paul Fervoy, former president of the Costa Rican Chamber of Information and Communication Technologies (Camtic), who has sounded the alarm over a provision within the recently passed ‘Big Beautiful Bill’ in the U.S. Congress. Fervoy explains that the new rules fundamentally alter the financial calculus for American firms that have long relied on Costa Rican talent for research and development.
To delve into the legal framework and strategic considerations for businesses capitalizing on Costa Rica’s expanding service export sector, TicosLand.com spoke with Lic. Larry Hans Arroyo Vargas, an expert in corporate and commercial law at the renowned firm Bufete de Costa Rica.
Costa Rica’s success in service exports is built on more than just talent; it requires a robust legal foundation. Companies must prioritize meticulously drafted international service agreements that clearly define scope, deliverables, and liability. Protecting intellectual property is paramount, as it’s often the core asset being exported. Furthermore, navigating the complexities of international tax law and leveraging the benefits of our Free Trade Zone regime are critical steps to ensure profitability and long-term, sustainable growth in the global market.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas’s commentary brilliantly illuminates that the true catalyst for our service export growth is not just talent, but the strategic legal and fiscal architecture that supports it. This framework transforms innovative potential into protected, profitable, and sustainable global ventures. We sincerely thank Lic. Larry Hans Arroyo Vargas for his clarifying and essential perspective.
At the heart of the issue is a change in how companies can amortize their investments. The previous system allowed businesses to treat the cost of contracting foreign services as a deductible R&D expense. However, the new legislation introduces a critical distinction that heavily favors domestic providers.
There is a very important clause; when American companies contract for modern services, it’s all deductible as an investment in research and development, and they can amortize it in their taxes.
Paul Fervoy, Former President of Camtic
Under the new law, if a U.S. company develops technology or procures services from a foreign provider like those in Costa Rica, the amortization period is a lengthy 15 years. In stark contrast, if the same services are purchased from a company operating within the United States, the entire expense can be deducted in the same fiscal year. This creates an immediate and substantial tax advantage for keeping such business within U.S. borders.
Fervoy revealed that the repercussions have been swift and severe. He noted that Costa Rican firms began seeing the impact almost immediately after the law’s passage, with American clients citing the new tax code as a direct reason for severing ties. This protectionist measure, designed to stimulate the U.S. domestic market, is now creating significant friction for its trading partners.
Immediately in July, they began to cut the purchase of modern services from countries like Costa Rica. Our clients have already told us that, for tax reasons, they cannot buy from us because they require the fiscal incentive. Now there is great friction. The United States is trying to incentivize domestic purchasing, and that is going to work against the export of modern services from Costa Rica.
Paul Fervoy, Former President of Camtic
Despite the clear incentive to reshore, Fervoy points out a paradox: the United States currently lacks the domestic capacity to fully meet its own demand for these modern services, which is precisely why countries in Latin America became key nearshoring hubs. While American companies are “running the numbers” to find the most profitable path forward, this legislative shift forces a strategic reassessment for Costa Rican exporters who can no longer rely on the U.S. as their primary market.
Faced with this challenge, Fervoy is advocating for a strategic pivot. He argues that this moment should serve as a wake-up call for Costa Rica and the wider region to break their over-reliance on the American market. His recommendation is to cultivate “natural markets” within Latin America, fostering a self-sustaining regional value chain instead of exporting raw talent only to import finished technological products.
We have been too dependent on a commercial relationship with a single market. Latin America exports more than 60% of its modern services to the United States. We are exporting the raw material of modern services, which are the engineers, the brains, and they return the finished products to us. We need to start being a bit more Latin American in our purchasing and develop natural markets that are local. So, this idea of a value chain I believe will remain relevant, only now its nature changes a bit to serve ourselves.
Paul Fervoy, Former President of Camtic
The new U.S. law represents a critical inflection point for Costa Rica’s economic model. The nation has built a global reputation on the quality of its human capital, becoming a preferred partner for international corporations. Now, the country’s leaders and business community must navigate a new global landscape where tax policy can be weaponized, compelling a necessary and potentially overdue diversification of its economic partnerships.
For further information, visit camtic.org
About Cámara Costarricense de Tecnologías de Información y Comunicación (Camtic):
The Costa Rican Chamber of Information and Communication Technologies (Camtic) is the leading non-profit organization representing the country’s vibrant technology sector. It brings together companies from software development, digital animation, video games, cybersecurity, and other related fields to promote industry growth, advocate for favorable public policies, and foster innovation and talent development within Costa Rica.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica has established itself as an esteemed legal practice, built upon a bedrock of professional integrity and a relentless pursuit of excellence. With a rich history of guiding a diverse clientele, the firm champions forward-thinking legal strategies and demonstrates a profound sense of social responsibility. This ethos is manifested in its drive to demystify the law, empowering the community by transforming complex legal information into accessible knowledge for a more just and capable society.
