Costa Rica: A Strategic Destination for Green Hydrogen Development

Authors

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Luis Palacios Director Costa Rica E-mail

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Simon Sauvé Director Costa Rica E-mail

Amid the global energy transition, green hydrogen emerges as a key alternative for achieving decarbonization. With abundant renewable energy, ample water availability, and a legal framework that encourages foreign investment, Costa Rica has significant potential to attract investment and become a leader in green hydrogen production and export.

Abundant Water Supply

Producing hydrogen through electrolysis requires a substantial water supply and electricity to separate hydrogen atoms. Costa Rica stands out in this regard, as it is one of the Latin American countries with the highest water availability. Its legal framework allows companies to obtain concessions for water use, including surface water bodies, rainwater, groundwater, desalinated, and even treated wastewater.

Green-sourced Renewable Energy

One of Costa Rica’s most distinguishing features is that nearly 100% of its electricity comes from renewable sources. According to the Costa Rican Electricity Institute (ICE), in 2022, 99.78% of the country’s electricity was generated from renewable sources, including hydroelectric, wind, geothermal, and solar energy. Thus, Costa Rica’s green hydrogen plants, connected to the National Electrical System, will operate almost entirely on clean energy, ensuring that the hydrogen produced maintains its “green” status without requiring additional investments in renewable energy supply.

Tax Incentives: The Free Trade Zone Regime

Another key factor strengthening Costa Rica’s position as a potential green hydrogen production hub for export is the Free Trade Zone Regime, which may apply to such companies when located outside San Jose’s Greater Metropolitan Area. This regime offers an attractive package of tax incentives for companies that commit to specific employment and investment goals within the country. Some of the most noteworthy incentives include:

• Income Tax Exemption: Companies granted Free Trade Zone status under the established parameters pay zero percent (0%) income tax on profits for the first six years, five percent (5%) for the following six years, and fifteen percent (15%) for the next six years. Additionally, companies that make significant additional investments may be eligible for new incentive periods before these exemptions expire.
• Import Duty Exemption: Companies can import machinery, equipment, and raw materials without paying import duties, significantly reducing initial setting up and operating costs.
• Value-Added Tax (VAT) Exemption: Goods and services acquired locally and used in operations are VAT-exempt, further reducing operational costs.
• Municipal/Commercial License Tax Exemption: For ten years, companies under the Free Trade Zone regime enjoy an exemption from municipal taxes related to commercial licenses, adding to the regime’s appeal for establishing businesses.

In addition to its unique combination of natural resources and a favorable legal framework, Costa Rica is internationally recognized for its openness to investment, environmental protection, and respect for human rights. Together, these factors position the country as a provider of truly sustainable fuel solutions and a leader in global energy decarbonization.