Costa Rica is a vibrant country in Central America that has become a popular destination for outsourcing. With its favorable business environment, stable political climate, and strong economic growth, Costa Rica offers numerous benefits for companies looking to take advantage of nearshore outsourcing. With its focus on innovation and a collaborative environment, this country has positioned itself as a top choice for organizations seeking to optimize their operations through nearshore outsourcing.
Let’s look at the benefits and conditions for nearshore outsourcing to Costa Rica.
Benefits of outsourcing to Costa Rica
Costa Rica is a thriving country in Central America that is known for its business-friendly environment. With a stable political climate and strong economic growth, nearshore outsourcing to Costa Rica is rapidly becoming one of the top choices for companies looking to expand their operations and optimize costs. The government is actively working to attract technological partners and promote cooperation. Today, this country is no longer catching up with other players in the market but actively participating in technology trends and adopting innovation. Recently, it became the first country in Latin America to have an AI development policy. Here are the main reasons to choose Costa Rica as a nearshore outsourcing destination:
1. Highly skilled talent
The country is home to over 45,000 tech specialists, concentrated primarily in major IT hubs such as San Jose, Heredia, Alajuela, and Cartago. San Jose, in particular, ranks among the top three cities in Latin America for talent availability and skill level. Costa Rican engineers specialize in various programming languages, including JavaScript, Java, C#, Python, .NET, and C++.
2. Technological initiatives
The Costa Rican government plays an active role in facilitating the growth of technological industries in the country, with a particular focus on Information and ICT. This commitment is evident through various policies, incentives, and infrastructure development aimed at attracting both domestic and foreign tech companies.
3. Thriving tech hubs
Costa Rica has several thriving tech hubs that attract top talent and foster innovation. The capital city, San Jose, hosts numerous tech enterprises and R&D centers of industry giants like Microsoft, IBM, and Intel. Heredia, known for its high-tech industries, accommodates diverse technology companies, including Amazon, Cisco, and Procter & Gamble.
4.Time zone convenience
Costa Rica's central time zone seamlessly synchronizes with the majority of US regions. With the entire country situated in the UTC-6 time zone, Costa Rica maintains a mere 2-hour time difference with New York City and just a 1-hour difference with Los Angeles. This eliminates the need for late-night or early-morning meetings, ensuring smooth communication between teams.
5.Cultural similarities
While Spanish is the official language, English proficiency is widespread, particularly among the country's ICT specialists. Costa Rica ranks 38th in the EF Global English Proficiency Index, just one point below Spain. Costa Rica has embraced North American business practices and fosters a culture of innovation and agile software development.
Read more: Software development in Costa Rica: Market overview
Holidays
Costa Rica is a predominantly Catholic country with a rich history of struggle for freedom. It observes eight official holidays that commemorate important Christian days and significant achievements in the country. Additionally, four more holidays are granted based on religious observance.
Further, employees are entitled to 14 days off for every 50 working days. The first three days of sick leave have to be compensated with a minimum of 50% of the daily salary, from day four, the government fully takes on this responsibility. The minimum maternity leave is four months, where the employer pays 50% of the salary. The government compensates the other half.
Costa Rican tax system for outsourcing
The government has made significant successful investments in the country's education and various programs aimed at boosting innovation and technological advancements. However, these progressive initiatives also require financing.
The biggest disadvantage of Costa Rica is its complex and unclear taxation system. The taxes that apply depend on the form of the contract. However, the tax regime in the country affects the cost of outsourcing, regardless of which party is responsible for filing.
When purchasing software development services from a Costa Rican legal entity, the company is only accountable to the tax regulations of its country of residence. For example, the US does not recognize tax returns on offshore outsourcing deals. So, some companies may hire developers directly to address intellectual property concerns and achieve long-term collaboration goals. If the outsourcing agreement includes direct employment of local workers in the destination country, the hiring company will need to comply with the labor laws of that country. Here is a general overview of taxation rates in Costa Rica:
- Workers’ Compensation Insurance 1.5% - 4%. In some cases, the employer will also be obligated to contribute to the worker’s health insurance. The labor code distinguishes occupations by skill and health risk. Software developers are low-risk highly-skilled workers and thus receive less insurance compensation than other categories.
- 26.33% social insurance tax on employers and 10.84% on employees. It is not uncommon for Costa Rican developers to avoid paying this tax. North American companies should be prepared to present a clear policy on this practice to avoid involvement in questionable schemes.
- Employers withhold and file up to 15% income tax on behalf of the employees. With an average yearly income of a developer around $30,000, most developers fall into the highest tax bracket of 20-25%.
When considering nearshore outsourcing to Costa Rica, it's important to remember that although the country has a complex tax system that can lead to additional costs and administrative complexities for businesses, it's crucial to evaluate this in comparison to other potential outsourcing destinations. Access to a highly skilled workforce and a technology-friendly environment often outweigh the challenges presented by the tax system.
Read more: Software development outsourcing to Costa Rica
Costa Rica in comparison to other LatAm countries
To better understand how Costa Rica compares to other Latin American countries, let’s look at the average hourly rate to ease of doing business ratio for each country. A country with a high ease of doing business score is likely to have lower administrative burdens, which can translate into cost savings for companies and lower risks. A lower average hourly is important for companies seeking cost-effective outsourcing solutions.
Costa Rica is the second most favorable country in Latin America for outsourcing in terms of cost and ease. It has an average hourly rate of $44 and a high ease of doing business score of 69.2. Compare this to the average score of 59.1 for South America and 84 for the US. Although its legal framework may not be the most intuitive or straightforward, it compensates with lower labor costs. This principle also applies to Peru and Bolivia. On the other hand, a country like Colombia is excellent in terms of ease of doing business, but its hourly rates are not as competitive compared to other regions in Latin America.
Read more: Software development in Latin America: 2023 market report
It is important to remember that factors other than cost can significantly influence the success of cooperation. When choosing a nearshore outsourcing partner, factors such as level of expertise, proficiency in English, cultural compatibility, and geographic proximity should also be taken into account. In these soft metrics, Costa Rica performs exceptionally well and proves to be an excellent destination for outsourcing.
Conclusion
In conclusion, nearshore outsourcing to Costa Rica offers numerous advantages, making it an attractive option for businesses seeking cost-effective and high-quality software development and IT services. With its skilled workforce, cultural alignment with North America, and favorable time zone, Costa Rica provides a competitive edge in the outsourcing landscape.
Why choose N-iX as your nearshore outsourcing partner
- N-iX has 21 years of experience in nearshore outsourcing and over 2,200 engineers in the internal talent pool;
- We have development teams in 25 countries including Colombia and Ukraine.
- N-iX is an official partner of technology leaders, including Google Cloud Partner, Microsoft Gold Certified Partner, AWS Advanced Consulting Partner, SAP partner, and more;
- We have a wide expertise profile cooperating with leaders from healthcare, finance, manufacturing, telecom, retail and other industries;
- N-iX ensures the highest levels of data protection by complying with established data protection standards, such as GDPR, and ISO 9001:201
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