Mipymes 52 INGLES Jul Ago 2011

We are told ...

That by the global crisis we have to think out of dollarization, how absurd!.

In the editorial of Mipymes March-April 2003 I spoke about the global economic

collapse where I stated that the problem now was not the shortage of supply, but

rather than because of technology, offering expanded geometrically while the

demand remained straight, that it was impossible to rely only on the U.S. market

because a family could not buy 10 refrigerators, 10 cars, etc.., so therefore

prosperity had to expand to many third World countries (at that time China recently

began its economic change ) this means that in the case of Ecuador far from

thinking about removing the dollarization, to put his hand in the pocket of the

people or turn again in a casino that impoverished state. We should stop spending

prioritizing spending quality, change confrontation by agreements and set the rules

of the road to development and opening of markets, this means, walking at the

same speed of technology and and stop promoting bureaucracy rather than

competitiveness, open markets rather than closing them and understand that

something fundamental in economics that is the timing, which apparently many

here do not know, because as Manuel Hinds says, "we cannot go playing

monopoly with the devil."

Let's bet to become a Switzerland and not Somalia, to do so we must not walk

backwards but forwards, so upon reaching 11 years of dollarization we are

delivering this issue with COUNTRY COMPARATIVE COSTS ANALYSIS between

Ecuador and 8 countries. What a shame that we are so behind, it is time to stop

confrontation and catch up on everything that the others have done and that we

raise instead of going down.

TERRIBLE, we do not see the forest, we see the tree, barely half of the leaf.

3

ANÁLISIS COMPARATIVO DEL COSTO PAÍS 2011

ECUADOR* EL SALVADOR* PANAMA* COLOMBIA PERU

GDP (Million U.S. $) Population (Millions)

57.978 million USD 14.30 million inhabitants

21,700 million USD 5.9 million inhabitants




WHAT IS THE MINIMUM LIVING INCOME IN U.S. DOLLARS? (INCLUDING ALL THE BENEFITS OF

LAW)

308 USD 224,10 USD (max.) 416 USD (máx.) 258 USD 350 USD

WHAT IS THE NUMBER OF WORKING HOURS PER WEEK BY LAW?

40 hours Cost per hour a month taking in consideration

the IMV: 1.93 USD


the IMV: 1.27 USD


the IMV: 2.16 USD


the IMV: 1.34 USD


the IMV: 1.82 USD

ANUAL INFLATION 2010 (%)

3,33% 2,1% 3,5% 3,1% 2,08%

WHAT IS THE RATE OF PERSONAL AND

CORPORATE INCOME TAX?

Personal: 0% less than $ 8,910 of income and progressive up to 35%. Corporate in 2011 will be 24%. Plus 10% of

dividend payment.

Maximum rate of 25% applies equally to natural and legal

persons

For Individuals: Between 15% and 25% according

to income brackets.

Corporate: 25%

The income tax and its complementary are of national character, and

are considered as a single tax: 33%

Personal Income Tax: 15% to 30% depending

on income brackets.

Corporate: 30%

WHAT IS THE RATE OF VALUE ADDED TAX? IF

THERE ISN'T ANY, IS THERE A SALES TAX?

12% 13%

The reference rate is the Transference of Assents and

Services Tax (ITBMS in spanish) of 7%

La tasa de referencia es el

Impuesto de Transferencia de Bienes muebles y Servicios

(ITBMS) es del 7%.

There is a general tax rate: 16%

The general tax on sales is 18%

IS THERE TAX FOR CAPITAL OUTFLOW? IF THERE IS,

WHICH IS THE PERCENTAGE?

IT EXISTS. Is 2%. DOES NOT EXIST DOES NOT EXIST DOES NOT EXIST DOES NOT EXIST

4


DOES THE LAW MAKES MANDATORY FOR EMPLOYEES TO

PARTICIPATE IN THE PROFITS OF THE

COMPANY? IF THERE IS, WHAT IS THE

PERCENTAGE.

15% of utilities It is NOT deductible for the

employer DOES NOT EXIST DOES NOT EXIST DOES NOT EXIST

It exists; in averege 8% of utilitie. Maximum 18 remuneratios for the

employee.

WHAT IS THE TRADE RATE (ACTIVE) IN U.S.

DOLLARS?

Referencial Active 9,54%.

Between .6,24% and 7,77%.

The trade interest rate is 8.30%

Ordinary rate is 10,09 , and preferential 7,19.

Averge active rate 7,9%.

IS THERE THE POSSIBILITY OF

OUTSOURCING THE ACTIVITIES OF THE

COMPANY?

DOES NOT EXIST YES, THERE IS YES, THERE IS YES, THERE IS YES, THERE IS

ARE THERE HOUR CONTRACTS?

DOES NOT EXIST There are half XX contracts Existen

contratos de mitad de jornada

DOES NOT EXIST DOES NOT EXIST

There are defined and undefined time contracts.

DOES NOT EXIST There are defined and

undefined time contracts. YES, THERE ARE

IS THE SOCIAL SECURITY SYSTEM OF

INDIVIDUAL CAPITALIZATION, OF

DISTRIBUTION OR MIXED?

Exists a distribution system, INDIVIDUAL

CAPITALIZATION DOES NOT EXISTS.

Individual Capitalization

The social security sistem is of individual and mixt

capitalization.

There is individual capitalization and

distribution system, people can choose to enroll in

either.

There is individual capitalization and

distribution system, people can choose to enroll in

either.

WHAT IS THE PERCENTAGE OF

EMPLOYER CONTRIBUTIONS TO SOCIAL SECURITY?

12.15% 7.25% 12.0% Employer, Pensions 12%,

Health 8.5%. 9%

HOW MANY DAYS OF VACATION EMPLOYEES

HAVE BY RIGHT PER YEAR?

15 days per year in the private sector. (from the 5th year of work a day is

added, 30 days maximum)

15 working days, with a 30% aditional payment,

calculated over the salary of the employee.

30 days of vacations for every 11 working months.

15 working days. General Regime: 30 days. Special Regime: 15 days.

5

ECUADOR* EL SALVADOR* PANAMÁ* COLOMBIA PERÚ

COST OF ELECTRICITY IN DOLLARS per kWh?

(Including tax) residential commercial industrial

Residential: $0,09 - $0,65.

Comercial: $0,062-$0,09 Industrial: $0,054-$0,09.

Residential: $0,14 – $0,17 Industrial: $0,103

Residenctal: $0,13 – $0,17 Industrial: $0,07 – 0,10

Industrial and Comercial: $0,14 - $0,26

Big Conssumers: $0,05 - $0,10.

Residential: $0,11 Industrial: $0,79

COST OF GASOLINE IN DOLLARS PER GALLON

INCLUDING TAXES?

86 OCTANE 89 to 92 octane

diesel

Extra 86 $1.48 Super 89 – 92 $2,19 Diesel $1,03

Regular $4,64 Special $4,80 Diesel $4,68

Gasoline 91 $3.98 Gasoline 95 $4.19 Light Diesel $3.79

88 octanes $4,49 ACPM Gasoline $3,89.

84 octanes $4.25 90 Octanes $4.53

AREAS WHERE THE LAW IMPEDES THE PRIVATE

INVESTMENT

Petroleum, Gas and electricity. And any other sector determined by the

goverment

For underground resources – water and minerls- have to ask for

permission.

National Aqueducts and Sewer.

Ativities related with defense, national security

Actividades relacionadas con la defensa y seguridad nacional y el Manejo,

procesamiento disposición de desechos tóxicos, peligrosos o radioactivos no producidos

en el país.

There is no restriction.

IS THERE OPEN TRADE

Limited trade openess. High level of

Protectionism

YES. Free Economy according to the

Economical Freedom rate.

YES. The strategy is to sign

FTAs


FTAs


FTAs

DO YOU HAVE FREE TRADE AGREEMENTS

WITH:

- USA - EU

THERE IS NOT ANY FTA WITH ANY

COUNTRY AND THE GOVERMENT HAS

INFORM THERE IS NO INTENTION IN HAVING

THEM.

Yes, with USA, and in negociations with the EU.

Currently in process of ratificating the FTA with

USA. Central America and

Panama signed a Comercial Agreement with

the EU.

It exists with the EU and the FTA with USA. Is in

process of the Goverment approval.

YES, THERE IS

6


DOES FOREIGN INVESTMENT HAS THE SAME TREATMENT AS

NATIONAL INVESTMENT?

YES YES YES YES YES

ARE THERE INCENTIVES TO FOREIGN

INVESTMENT? IF SO, WHAT ARE THEY?

CURRENT GOVERNMENT ELIMINATE THE

TREATY OF LEGAL STABILITY AND

CONFLICT RESOLUTION. ON THE

ROLE OF FOREIGN INVESTMENT HAS OFFERED SOME BENEFITS BUT IN

PRACTICE DUE TO INSTITUTIONAL

CHAOS AND VIOLATION OF

CONTRACTS THAT FOREIGN COMPANIES

HAVE SUFFERED, ECUADOR IS ONE OF

THE LAST COUNTRIES IN ATTRACTING

FOREIGN INVESTMENT.

THERE ARE NOT

There are incentives for foreign investment, which

are listed below: • Law on Export

Processing Zones (Law 25 of November 30, 1992) • Law of Incentives for

Tourism Development in the Republic of Panama

(Law 8 of 1994) • Stability Judicial

Investment Law (Law 54 of July 22, 1998)

• Law of Multinational Enterprises Regional

Headquarters (Act 41 of 2007)

• Law of Incentives for the Film Industry (Act No. 36 of

2007)

Colombia ranks second in Latin America with better business environment, according to the Doing Business Report 2010.

The most important incentives to attract

investors. 1. Legal Stability

Agreements. 2. The Colombian

government has created a series of exemptions from

income tax in priority sectors.

3. Special Import - Export "Plan Vallejo" Services.

National treatment to is granted foreign investors

7

ECUADOR* EL SALVADOR* PANAMÁ* COLOMBIA PERU

ARE THERE FREE TRADE ZONES?

EXIST BUT THEY ARE BLOCKED

YES, THERE ARE YES, THERE ARE YES, THERE ARE YES, THERE ARE

IS THERE AGREEMENTS (CONTRACTS WITH THE

STATE) OF LEGAL STABILITY

THERE ARE NOT, THE CURRENT GOVERMENT

ELMINATED THEM. EXISTED FORMERLY BUR

WERE NOT APPLIED

DOES NOT APPLIES YES, THERE ARE YES, THERE ARE YES, THERE ARE

INCENTIVES FOR FISHERIES AND

PRESERVES INDUSTRY

THERE IS NO BENEFIT to incentive investment in

the sector.

DOES NOT EXIST. DOES NOT EXIST.

RECENTLY ELIMINATED.

NA

Supreme Decree # 0022002PE, entitled "Act to promote the globalization of

the tuna fishery and the development of canning and freezing industry of this kind."

definitive Returning of general sales tax, excise tax

and municipal tax. In addition, a group of tax

benefits based on fulfillment of specific conditions.

TOURISM INCENTIVES

THERE ARE BUT THE CONDITIONS OF THE

COUNTRY AND BY THE ELIMINATION OF

THE WORK FLEXIBILITY

PREVENTS IT.

The Tourism Law

provides legal guarantees and

incentives to investors with assets of more than $ 50 thousand,

including total exemption from duties

and import taxes, including VAT of inputs for project equipment.

Law # 8 (June 1994) provides a set of incentives to promote

investment in the tourism sector: Total exemption from income tax for a period of 15 years, total exemption from

property taxes for a period of 20 years, total exemption from import duties for materials and

furnishings needed for the construction and equipment.

Companies that provide ecotourism services certified

by the Ministry of Environment, have the

advantage of the exemption from Income Tax.

Companies that provide ecotourism services

certified by the Ministry of Environment, have the advantage of the

exemption from Income Tax.

NA.

8


INCENTIVES IN AGRICULTURE

THERE ARE NO INCENTIVES

DOES NOT EXIST

Reduction of up to 30% of the prevailing rate in

the installation and electricity consumption,

tax exemption up to 30% of sums invested in the agricultural, livestock,

aquaculture and agribusiness.

NA

During pre-production stage and for a

maximum period of 5 years, the natural or legal person, may

recover in advance the general sales tax.

ARE THERE TECHNOLOGY PARKS AS

SPECIAL AREAS OF PRODUCTION?

YES, THERE IS,

THE ESPOL TECHNOLOGICAL PARK, THAT THE

ESPOL HAS DEVELOP

YES, THERE ARE

YES, THERE ARE (Example.:

www.ciudaddelsaber.org )

YES, THERE ARE (Example:

www.parquepta.org ) YES, THERE ARE

ARE THERE INCENTIVES TO EXPORT? IF SO, WHICH ARE THEY?

DO NOT EXIST. LAW IS CHANGED TO

A NEW CODE OF ORGANIC

PRODUCTION, BUT HAS NOT BEEN SUCCESSFUL IN

PROMOTING EXPORTS, AND

DOMESTIC PRODUCTION.

DOES NOT EXIST

There are incentives for exports, which are: Certificates for the

Promotion of agricultural exports (CEFA) and

Industrial Development Certificate (IFC).

Yes there are incentives to exports. Among these are, Special systems of import and export (Plan

Vallejo).

There is a system of tariff refunds (Draw

Back) that is 5%

ARE THERE SECTORS WHIT SPECIAL BENEFITS

OF PRODUCTION? DOES NOT EXIST NA YES, THERE ARE YES, THERE ARE YES, THERE ARE

http://www.ciudaddelsaber.org/

http://www.parquepta.org/

9


TOTAL ASSETS TAX

1.5 per thousand over book value of total

assets of the calendar year preceding the date of payment.

The renewal of the registration of Trade is

conducted annually and the payment is 5% of

total assets. The payout percentages are based

on the amount of assets.

DOES NOT EXIST NA

ITAN Tax: 0% from 0 to

$ 1Mill, 0.4% for the excess of one million.

CAPITAL MONEY TAX DOES NOT EXIST NA. DOES NOT EXIST NA NA

URBAN PROPERTY TAX YES, THERE ARE DOES NOT EXIST from 1,40% to 2,10% over

the cadastral value NA

0.2% up to 15 ITU-impeditive tax unit,

0.6% from 15 to 60 ITU, 1% over 60 ITU.

ALCABALA MUNICIPAL TAX:

For each purchase made of real estate

and ships. Real estate: The rate varies from a

minimum of 4% on contracts of more than

$ 200.

NA DOES NOT EXIST NA Less than 10 UIT does

NOT pay. 3% of transfer value.

VEHICLE TAX

YES THERE IS, 35%. And in charged another

luxury property tax is (ICE) up to 30%

CURRENTLY THERE IS A NEW REFORM

THAT WILL AGGRAVATE MORE

THE VEHICLES.

The right of fee changes. For the pick ups, for

example, is 5%, but for a sedan, depending on their size varies and can range from 20% to 25% of the

vehicle value. For vehicles from United

States, due to the NAFTA, do not pay tariffs.

There is no import tax on vehicles, but there is an excise tax ranging

from 5% to 23%.

The value varies between 1.5% and 3.5% depending on the value

of the vehicle.

Minimum 1.5% of the ITU, 1% of the original

value or CIF transaction.

10


IS THERE DRAWBACK?

EXISTS BUT IT IS ALMOST IMPOSIBLE TO CONSOLIDATE IT.

YES, THERE ARE YES, THERE ARE

YES, THERE ARE The equal process in

Colombia is the “Vallejo Plan”

YES, THERE ARE

CUSTOMS DUTIES: WHAT IS THE MIN AND MAX

RATE TARIFF.

Up to 35% in some products

Minimum: 0 % Maximum: 17 %

Average Tariff 2,5%

Average Tariff 7,1% (Economical Freedom

Inform 2011)

Average Tariff 8,4% (Economical Freedom

Inform 2011)

Min: 0% Max: 11%

Average Tariff 2%.

ESTIMATED TIME OF MERCHANDISE customs

clearance (Shipping)

6 days 3 days 2 days 4 days 3 days

ESTIMATED TIME OF MERCHANDISE customs

clearance (AIR TRANSPORT)


HOW MANY DAYS TAKES TO CONSTITUTE A

COMPANY? 56 days 17 days 9 days 14 days 14 days

* Dollarized countries colored in green. ** The figures for other analyzed countries that have national currency have been converted into dollars to the current exchange rate. In non-dollarized countries tax rates are in local currency. Blue = Forward. Red = Reverse. For any details on the information presented, you can consult the American Federation Business. NA: Not available.

11

ANÁLISIS COMPARATIVO DEL COSTO PAÍS 2011

ECUADOR* CHILE ARGENTINA URUGUAY COSTA RICA

GDP (MILLION U.S. $) POPULATION (MILLIONS)

US$57.978 million 14,30 Million inhabitants





WHAT IS THE MINIMUM LIVING INCOME IN U.S. $? (INCLUDING ALL THE BENEFITS OF LAW)

US$308 US$388 U$S 441,24 US$355 US$325

WHAT IS THE NUMBER OF HOURS YOU WORK PER WEEK BY LAW

40 hours Cost of hour per month, taking notice of the MLI

(Minimum Living Income) US$1,93







48 hours (max.) Cost of hour per month, taking notice of the MLI


ANNUAL INFLATION 2010 (%)

3,33% 2,9% 10,9% (According to private estimations

between 20 and 25%) 6,9% 5,8%

WHAT IS THE RATE OF PERSONAL AND CORPORATE INCOME TAX?

Personal: 0% less than $ 8,910 of income and progressive up to 35%. Corporate in 2011 will be 24%. Plus 10% dividend payment.

Personal progressive up to 40%. Corporate flat rate 17.5% but exceptionally today is 20% in the first category to contribute

to post-earthquake reconstruction

Personal: 9% to 35% (depends on level of taxable income)

Corporate: 35%

Personal: is by fringes and includes a tax allowance. Varies between 10% and 25%.

Corporate: 25%

Individuals: 10% to 25%, depending on income level. Corporate: 30%

WHAT IS THE RATE OF VAT? IF THERE ISN'T ANY, IS THERE A SALES TAX?

12%

19% No sales tax, except tabacco and fuel

tax.

21% Maximum rate: 22% Minimum rate: 10%

Sales tax: 13%

IS THERE CAPITAL OUTFLOW TAX? IF THERE IS WHAT IS THE PERCENTAGE?

YES, IT IS 2%. NO

There are no restrictions to the outflow of profits

abroad.

YES There is a regulation to the output of capital, but only

taxes the income of that exit

through the income tax.

NO

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DOES THE LAW MADE MANDATORY FOR EMPLOYEES TO PARTICIPATE IN THE PROFITS OF THE COMPANY? IF THERE IS, WHAT IS THE PERCENTAGE

15% of the profits NOT deductible for the

employer

The law requires that gratuities are agreed. You can

agree month to month or yearly, as long as there profits. The top is U.S. $

1,404 per worker.

NO NO NO

WHAT IS THE COMMERCIAL INTEREST RATE (ACTIVE) IN U.S. DOLLARS?

Referencial Active 9,54%. 8% (average of the

system). 19% (min) Between9 % and 12% 9,57%

IS THERE THE POSSIBILITY OF OUTSOURCING THE ACTIVITIES OF THE COMPANY?

NO YES NA YES YES

ARE THERE CONTRACTS OF HOURS?

NO Only contracts for half a

working day

YES

It is possible to conclude contracts for

part-time work.

Depends on the activity and the Conventions set

out in the Wages Councils.

NO

IS THE SOCIAL SECURITY SYSTEM OF CAPITALIZATION, INDIVIDUAL OF DISTRIBUTION OR MIXED?

There are distribution systems, THERE IS NO INDIVIDUAL CAPITALIZATION

INDIVIDUAL CAPITALIZATION

Distribution System

It is mixed. Part will to distribution system and

some individual capitalization regime.

Coexist Individual capitalization and

distribution system

WHAT IS THE PERCENTAGE OF THE PATRONAL CONTRIBUTION TO SOCIAL SECURITY?

12,15% NA 16% 18,12% 8%

HOW MANY DAYS OF VACATION ARE ENTITLED TO WORKERS PER YEAR?

15 days per year in the private sector (increases 1

day after the 5th year of work, limit 30 days)

15 working days per year and rising after 10 years

by adding an extra day per year.

Less than 5 years old: 14 days. 5 to 10 years: 21 days. 10 to 20 years: 28 days. 20 to 30 years: 35

days.

20 days during the first five years, adding one more day after this period for each 3 years old, always in the same company.

1 day per month worked

13


COST OF ELECTRICITY IN DOLLARS PER KILOWATT HOUR (INCLUDING TAXES)

residential commercial industrial

Residential: $0,09 - $0,65. Commercial: $0,062-$0,09 Industrial: $0,054-$0,09..

Residential: $0,21 Industrial: $0,196 – 0,257

Residential: $0,01 – 0,055 Industrial: $0,038

Residential: $0,19 - $0,39. Industrial y Commercial: $0,24 - $0,28.

Residential: $0,14 Industrial: $014 General: $0,17

COST OF THE GASOLINE IN DOLLARS PER GALLON INCLUDING TAXES 86 OCTANE 89 to 92 OCTANES Diesel

Extra 86 $1.48 Super 89 – 92 $2,19 Diesel $1,03

95 octanes $6,05 97 octanes $6,46 Diesel $5,17

96 octanes $4,4 97,5 octanes $5,3 Gasoil $3,96

86 octanes $6,59 89 octanes $8,32 Diesel $4,84 Fuel Oil $2,75

Super $5,36 Plus 91 $5,18 Diesel 50 $4,82

AREAS WHERE THE LAW PREVENTS PRIVATE INVESTMENT

Oil, gas and electricity. And any other area determined by the government.

The State of Chile has a very limited role in productive activities.

Activities such as lithium exploration and

exploitation, deposits of located liquid and gaseous

hydrocarbons

Areas such as banking and insurance, there are special statutes

that require all operators, domestic or

foreign, to request permission

Import, export and refining of crude oil and petroleum derivatives export, in the distribution of electric power, in fixed telephony and data transmission, in sanitation and water supply and insurance for work accidents.

Hydropower, coal, gas and oil, production of

alcohol, telecommunications

services, water, railways, ports, airports

and insurance.

IS THERE TRADE OPENNESS?

Limited trade openness High level of

protectionism

YES The strategy is to sign

Free Trade Agreements.

Limited

YES Free economy

according to the Index of Economic Freedom

YES Free economy

according to the Index of Economic Freedom

IS THERE A FREE TRADE AGREEMENT WITH: - USA - EU

THERE ARE NO FTAs WITH ANY

COUNTRY AND THE GOVERNMENT HAS

INDICATED THEY HAVE NO INTEREST IN

DOING SO.

Chile has FTAs with 58 countries including the EU and the U.S. and 24

countries with double taxation treaties.

NO

NO Only with MERCOSUR, the

rest are bilateral agreements and for specific

areas of activity.

Yes, with both

14


¿LA INVERSIÓN EXTRANJERA TIENE EL MISMO TRATO QUE LA

NACIONAL?

Yes Yes Yes Yes Yes

ARE THERE INCENTIVES TO FOREIGN INVESTMENT? IF SO, WHAT ARE THEY?

THE CURRENT GOVERNMENT ELIMINATED THE TREATIES OF LEGALSTABILITY AND OF CONFLICT RESOLUTION. ON THE ROLE OF FOREIGN INVESTMENT HAS BEEN GIVEN SOME BENEFITS BUT IN THE PRACTICEDUE TO INSTITUTIONAL CHAOS AND VIOLATION OF CONTRACTSFOREIGN COMPANIES HAVE SUFFERED, ECUADOR IS ONE OF THE LASTCOUNTRIES IN ATTRACTING FOREIGN INVESTMENT.

In Chile Exist two fundamental mechanisms that regulate foreign investment, 'The Foreign Investment Statute or Decree Law 600. -Section 47 of the Constitutional Act of the Central Bank, also known as ChapterXIV of Foreign Exchange Regulations (CNCI). There is also a third way, through Law No. 18,657, which regulates the legal figure of Foreing Capital Investment Fund (FICE), although in this case, the invested capital must be justified under Chapter XIV or Decree Law 600. In November 2002 a new standard was approved, known as the law of"investment platform" designed to encourage foreign investment, maritime areasunder national jurisdiction or in areas classified by law as important for national security, as border areas.

THERE ARE NO INCENTIVES

Law 16906 of 20/01/98 - Law on promotion and protection of investments: - Foreign investors have the same incentives as local investors - There is no restriction on the transfer of profits abroad - Automatic Incentives and objective criteria - Silence of the administration works in favor of the taxpayer. There is also a law-free zones and does not discriminate between foreign and domestic investment (Law 15 921, of 17/12, 1987).

In Costa Rica there is not a specific law to regulate direct foreign investment. Both, local and foreign investors enjoy the same treatment and the same levels of investment protection. In addition to external incentives that represent being a beneficiary of the Carebbean Basin Initiative (CBI) and the Generalized System of Preferences (GSP) in industrialized countries, agreements that guarantee access to a wide range of duty free goods to those markets, the Government of Costa Rica offers the following system of investment incentives: the Free Trade Zone and Inward Processing Regime

15


ARE THERE FREE TRADE ZONES?

YES, BUT THEY ARE BLOCKED

YES YES, AND THEY ARE VERY DEVELOPED

YES, AND THEY ARE VERY DEVELOPED

YES

ARE THERE (GOVERNMENT CONTRACTS) LEGAL STABILITY AGREEMENTS?

THERE ARE NOT, THE

CURRENT GOVERNMENT REMOVED THESE. THERE USED TO BUT NOT IMPLEMENTED.

YES THERE ARE

YES THERE ARE. For

example, the mining promotional regime ensures fiscal stability for 30 years.

DOES EXIST, but are rare Free Trade Zones only

INCENTIVES IN FISHERIES AND CANNING INDUSTRIES.

THERE IS NOT ANY TYPE OF BENEFIT to

incentivate the investment in the area

The Foreign Investment Statute (DL 600) does not

discriminate between sectors (fishing has the same treatment)

There are no real incentives nationwide.

Law 14,178 - Industrial Promotion Act -

Incentives: Direct Credit Assistance and tax

exemptions. Credit - for purchase of machinery, raw materials, initial turn, pre-investment, among others.

NO

INCENTIVES IN TOURISM

THERE ARE BUT THE TERMS OF THE COUNTRY AND THE ELIMINATION OF WORK FLEXIBILITY PREVENTS IT.

The Foreign Investment Statute (DL 600) does not discriminate between economic sectors (tourism has the same treatment)

There are no real incentives, access to training or just a conversion program, % subsidized in general by any province.

Law 14,335 - Promotion of Tourism - Among others, plan and promote the improvement of tourism infrastructure, approving projects and tourism development programs, install tourist information centers abroad, grant concessions on property owned by the state for use in tourism.

Incentives in tourism (Law 6990)

16


INCENTIVES IN AGRICULTURE

NO INCENTIVES NA.

There are no real incentives, in agriculture the state retains 30% on the sale of grain, besides the other current taxes.

Law 14,178 - Industrial Promotion Act - idem Fisheries

and preserves industries. Law 15,939 - Forestry Act.

Incentives to reforestation

ARE THERE TECHNOLOGICAL PARKS AS SPECIAL PRODUCTION AREAS?

YES YES YES YES YES

ARE THERE INCENTIVES TO EXPORTS? IF THERE IS, WHICH ARE THEM?

NO. LAW WAS CHANGED TO

A NEW ORGANIC CODE FOR PRODUCTION BUTH

AS NOT BEEN SUCCESSFUL

IN PROMOTING EXPORTS,

NOR DOMESTIC PRODUCTION.

VAT refund. Furthermore, the main incentive is that the country is open to the world through free trade agreements, which opens the door to major world markets.

YES THERE ARE. Ability to obtain the restitution of import duties, statistical tax and Value Added Tax that have been paid on imported inputs and then used in the production of exportable products; internal tax refund, among others

Training in Foreign Trade: Uruguay has a program to promote the export culture of small and medium enterprises in our country. Proexport Program: provides a subsidy of up to $ 5 000 for a maximum grant assistance of 70% of the cost of the activity.

Export Agreement grants the following incentives: 1. Exemption from import duties on raw materials, containers and semi-finished products used in the manufacture of export products. The exemption will be proportional to the third party sales of non-traditional markets. Exemption from import duties on machinery, equipment and spare parts directly involved in the production process.

ARE THERE SECTORS WITH SPECIAL BENEFITS OF PRODUCTION?

NO YES

Automotive and Auto Parts, Software, Biotechnology, Biofuels, Motorcycles and motorcycle parts, Mining, Tourism, Forestry industry, public infrastructure, exploration and exploitation of hydrocarbons.

Yes, for example, the law 14,448 provides special benefits for production ofsacarigens. Today also promotes the production of biofuels.

Special areas of development in less developed regions

17


TOTAL TAX ASSETS:

1.5 per thousand over book value of total assets of the calendar year preceding the date of payment.

In Chile the companies do not pay specific taxes such as described in additional taxes.

The company assets are encumbered by a 1% tax, called tax on minimum presumed income.

IRAE (Income Tax on Economic Activities in spanish) 25% over Net Income Tax (Articles 19 to 25 Law 18 083).

NO

CAPITAL TAX MONEY:

NO NO NO Covered in Tax Law 18,083 of total assets.

NO

URBAN PROPERTY TAX YES YES

There is a provincial property tax and municipal rates vary by value.

It includes two taxes: property tax - Which is fixed by sections. Primary tax, ranging from 0% to 30%. No gravel rural goods.

YES

MUNICIPAL TAX EXCISE

For each sale that is made of real property and ships. Real estate: The rate varies from a minimum of 4% on contracts over $ 200.

NA

Varies between 0.5 to 3% depending on the municipality and the activity of the taxpayer.

Covered in Law 18,083 Tax on total assets.

NO

VEHICLE TAX

YES THERE IS, 35%. And in the luxury is charged another tax (ICE) up to 30% CURRENTLY THERE IS A NEW REFORM THAT WILL TAX VEHICLES EVEN MORE.

NO Yes there is, 34.8% of the net price

Rolled Pat - you pay annually. All departments of the country have their own rate set by each Municipality. The average is 4.5% of the selling price of the vehicle without VAT.

Yes there is and depends on the price

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IS THERE DRAWBACK?

THERE IS BUT IT IS ALMOST IMPOSSIBLE

TO CONCRETE YES YES

YES Decret 380/004

YES

CUSTOMS DUTIES: WHAT IS THE MIN AND MAX FEE RATE

Up to 35% in some products

Average rate: 1% Min: 0%

Max: 20% Average rate: 5,3%

Min: 0 % Max: 20 %

Average rate: 3,5% Average rate: 2,4%

ESTIMATED TIME OF CUSTOMS CLEARANCE OF GOODS (SHIPPING)

6 days 3 days 5 - 7 days 4 days 3 days

ESTIMATED TIME OF MERCHANDISE CUSTOMS CLEARANCE (AIR TRANSPORT)

4 days 3 days 2 - 4 days 4 days 3 days

HOW MANY DAYS IT TAKES TO CONSTITUTE A COMPANY?


* Dollarized countries in green

** The figures for other analyzed countries that have national currency have been converted into dollars at current exchange rate. In non-dollarized

countries tax rates are in local currency. Blue = Forward. Red = Reverse.

For any details on the information presented, you can consult the Federación Interamericana Empresarial.

NA: NOT AVAILABLE

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The crucial question: WHY HAVING A CURRENCY OF OUR OWN? The prejudice:

• There is the idea that by allowing the exercise of "monetary policies" and "exchange rate policies", local currencies give crucial benefits to developing countries. • Since these policies allow them to become independent from what happens in the world, mainly to: - Print money to keep low interest rates even if they are high in the rest of the world - Devalue the currency to promote exports - To protect banks against financial crisis - Printing money to save the banks if there is a crisis • All these ideas are false • These are based on ideas that may be true for currencies that have an standard international value, like the dollar, but not for currencies that are used only in developing countries The confusion of the dollar with the Peso... which are not the same

• Most economists take as true the results of theoretical analysis made on the currencies of the world's strongest economies. • Believing that people react equally to the pesos as to dollars. • This is not true, because people react against the currencies depending on the value that people believe they have and their ability to keep it in time and space. • In the U.S., it is true that so far the Fed can do all that is listed previously... • But it is not true that the central banks of developing countries can do the same. Printing is not the same the standard of value than printing an imperfect substitute for such standard

• When a country has a vulnerable currency, say pesos, people take as a other currency standard of value, less vulnerable, as the dollar. • and start measuring the value of the pesos in relation to the dollar. • That is, thinking in dollars and translates them into pesos. • So, central banks print a substitute of the standard of value, not the standard of value itself, as the U.S. Fed does . • This causes, for example, that by printing money the interest rates to rise it because people think that the pesos will be devalued and the interests want request to compensate the loss • In the U.S., people does not mind is if the dollar depreciates against the euro or any other currency standard ... its of value is the dollar itself, its own currency, not the euro. An appropriate simile

THE ANTICS OF THE DEVIL: DOLLARIZATION AND LOCAL CURRENCY IN DEVELOPING

COUNTRIES Dr. Manuel Hinds

Former Minister of Finance of El Salvador

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• The central bank in a developing country would be as a player who is managing the bank in a game of Monopoly with real money betting. • When entering the game, the bank will that the real change their real dollars money, promising that at the end of the game will sell the dollars back that match what you have in money. • The bank dollars deposits in a real bank that the real and earn interests while you use the fake money. • The important thing for you is that when you want to change your Monopoly money back for dollars these will be enough. • If they are not enough, the bank will devalue the money and you will lose real dollars. In this Monopoly board

• How much interest would you request to be paid would ask for to change their dollars for this little money? • Higher rates than those in dollars, obviously: - Why, otherwise, would you agree to exchange a currency that circulates worldwide, that allowes you to buy houses in the U.S., Brazilian aircraft, boats in England, dinners in China, and so on. ., for a coin you can only use in El Salvador, and may lose value? • And, the more Monopoly money without the support of printed new dollars, you would ask for higher interest rates because the risk are not enough that the real dollars becomes higher. • This is an example of a crucial dimension in which people react in opposite ways to the dollars that to pesos.

In fact, the reality is the opposite of what they expect, those who believe that monetary policies help in all dimensions.

Expectations of local currencies Realities of local currencies

Inflation Low Higher than in dolarized countries

Financial Lower interest rates Interest rates higher than the dollar in all countries with local currency.

Abundant credit Low and with tight deadlines

Avoid financial crisis Generate financial through exchange crisis

Resolved bank runs when printed

U.S. dollars are needed to solve the runs because people wants dollars

Comerce Devaluations lead to success in exports

Those who devaluate the most the ones that least exporters

The chart above shows

• That a dollarized economy can do everything the economy says it can be done but that does not do • And can be done better and more transparently • The following slides demonstrate this point

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The IMF report on Dollarization in El Salvador

The critics

- Inability to make monetary policy reduces the government's ability to reactivate the economy by lowering the interest rates. - Monetary policy the Central Bank would give high efficiency in the stabilization of the economy. - Devaluations turn companies more competitive and improve their exports. - Monetary policy helps to absorb shocks more efficiently than the dollarization.

The IMF

- The dollarization really dropped the interest rates by at least 5 percentage points. This has led borrowers to save 1.200 million in the first 9 years of dollarization. - The dollarization has been more successful in the stabilization of the economy than the policies of the Central Bank in the years prior to dollarization were. - Lack of devaluations has not affected negatively the cost of exporting companies. - The dollarization has provided a strong anchor to the country to ensure stability through much stronger shocks that the country suffered before dollarization. It's a trust factor.

SOURCE: Andrew Swinston, Official Dollarization as a Monetary Regime: its Effects on El Salvador, IMF Working Paper,WP/11/129 June 2011.

The failed promises of the legacy currencies: THE PROMISE OF LOW INFLATION It is assumed that one of the objectives of monetary policy is to keep inflation low

The evidence shows that dollarized countries have inflation rates substantially lower than those of non-dollarized This is not by chance ... The countries with own currencies devaluate often ... And that causes inflation in developing countries Source of basic data: International Financial Statistics of the IMF.

Depreciation and inflation in the dollar area (USA)

In the United States to devalue the dollar against the euro does not increase inflation The slight trend observed is not statistically significant In El Salvador many people believe that dollarization has caused inflation ...

As shown in the accompanying graphic, inflation in El Salvador has been the lowest in Central America and has been well below the average since the dollarization of Latin

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America

The lowest inflation

It has a big effect on the price level as the time passes. Since the inflation of a year adds up over the previous year. In El Salvador, prices increased 34 percent from January 2001 to February 2010 On average in Latin America increased 87 percent. In Costa Rica, 148 percent.

In the United States: the interest rate does not increase when the dollar is devalued.

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Datos enero 2000 – junio 2004.

But it does in developing countries: Interest rate and currency devaluations in 114 developing countries.

Data January 1997 - March 2005.

In Latin America, central banks talk a lot about

executing monetary policies to maintain low the

interest rates

But the interest rates in dollarized countries have been

much lower than those of non-dollarized

The same goes for real interest rates

That is, with the rates calculated after deducting the

inflation rate

The failed promises of local currencies: DEVALUATIONS DO NOT PROMOTE THE

EXPORTS

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The myth in this dimension is that devaluations promote exports This myth has two problems: - First, if it were true would make it at the expense of workers' income, since the reasoning is that devaluations increase all costs but not the wages, thereby reducing production costs by lowering the real wages of workers and this is not conducive to development. - Second, the evidence sample that is not true that promote exports. - If this were true, Latin America would be the great champion of exports because no region has been devalued devaluated as Latin American countries. - Now, with the boom in primary products exports have risen sharply - But at the same time, the currencies have been appreciated, not devalued.

- It's the opposite of what they say. Competitiveness at the expense of lower the actual salary

• Supporters of dollarization believe that devaluations are good because they "improve competitiveness by reducing costs." Typically they do not say what costs or how. • Do you think what are the reduced costs and how to reduce them? • With a devaluation of all the costs go up ... except wages. • That is, lower costs at the expense of workers. • Of course, this is not true increase competitiveness, which depends on the education, efficiency in managing public services, and many other variables. • None of the Global Competitiveness Index includes devaluations as a factor that promotes it, because there is no gain for the country to increase sales running down the population income

Before showing the data is necessary to make an observation • What is important to vary the cost is the real exchange rate • To relate the movements in the exchange rate to differences in the rate of inflation ... • If, for example, the colon is devalued by 10 percent but the inflation rate rises to 10 percent also while the U.S. is zero, no change in costs - Lower cost 10 percent by devaluation. - But increased 10 percent for inflation. • This is why it is so important that the issue of devaluation increases inflation in developing countries. So, it is possible to devalue nominally and have the currency appreciating in real terms:

This has happened in Latin America, as seen in the accompanying graph, the actual production costs in dollar terms have risen in non-dollarized countries since the current boom began ... While these costs fell in Ecuador dollarized. This is because as Ecuador does devalues its currency, inflation rates are lower than in non-dollarized countries. (The real effective exchange rate measures changes in costs measured in dollars through two variables:

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nominal devaluations and inflation. A devaluation lowers the costs but inflation rises them). That real devaluations do not increase exports is clear in cross sections of the world economy at any given time

In Latin America, the ones that have devalued the ones that least exported. Real exchange rates based on nominal exchange rates and differences in inflation. Real devaluations to the right. Data from 1995 to 2002.

Why export success is linked to the appreciation of the currency and not to devaluations?

• Because by success in exports of, say, toys (like Japan at the end of the war) the large influx of dollars appreciates the local currency. • This means that wages are too high for producers of toys. • Japan could devalue the currency and maintain profitable production of toys. • If this would have been done they would still be exporting toys. • By not devaluing, forced the conversion to higher value added activities. • It's the same story in all successful countries. There is a misuse of language when we say that that by devaluing countries become more competitive:

• Competitiveness is not to earn less, pay less to workers ... • But to earn more, pay more to workers. • This ability depends on real activities - investment, education, improvements in efficiency - and no money tricks. • Instead of toys, cars. • Instead of cheap cars, cars of high value added. • And so on

Why real devaluations do not promote

exports although real wages fall?

Two reasons:

- Because interest rates rise, which turn more

difficult to make the necessary investments to

increase production and exports.

- Because in long term petrify exports in low

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value added activities, which are those that devaluations maintain profitable.

- If it is not devalued, the private sector has to move towards higher added value.

- So it was in El Salvador since the currency was not devalued since 1992 forward.

The failed promises of local currencies: local currencies are not safer IN CRISIS, IN FACT ARE PRONE TO THE CRISIS.

A bank may survive as insolvent for a long time if kept liquid ... until a trigger shoots the crisis. The trigger has always been a currency crisis.

In all crises in developing countries, the

trigger has been a currency crisis

• The history of the crisis has always been

the same:

- The central bank issues large amounts of

money but avoids the devaluation of the

currency to reduce inflation

- This creates an initial a bubble of real

estate and other assets ... everyone happy.

- But then comes the fear that the currency

has to depreciate

- This creates a crisis of trust in the currency,

which makes people withdraw their money

from banks to convert it in dollars

- This leads to the banking crisis.

- The greatest fear is always that the

government will not be able to stop the devaluation of the currency.

- If people trust the currency, the crisis stops with a government guarantee.

Examples: The Case of Thailand, where, as in all other cases, the financial crisis began with a currency crisis.

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Another clear case: In Argentina in 2001, dollar deposits rose and stood while the peso deposits fell.

In Ecuador, the bank run stopped when the economy is dollarized.

The failed promises of local currencies: THE MYTH OF THE LENDER OF THE LAST

28

INSTANCE

The myth is that the central banks of developing countries can stop crises printing local currency • If that were true, the presidents of central banks and finance ministers of the countries with banking crises would go to the beach to enjoy, leaving the central bank machines printing money. • Instead, you find them in Washington or New York getting dollars in the International Monetary Fund and global banks. • Why go to ask for dollars? • Because for issuing pesos the central banks need dollars because: - People take pesos of banks to exchange them for dollars ... - And this depletes the central bank, causing a real crisis. In fact:

• The countries that have local currency have the same problem as dollarized countries to solve a bank run, central banks can not print dollars, which is what people want in a crisis. • However, the risks of falling into a crisis in a dollarized economy are lower because such economies do not have the enormous risk of devaluations. • And because, for the same reason, by solving a problem of excessive debt, we not run the risk that the debt burden is increased exponentially by local currency devaluations. The failed promises of local currencies: the politicization of MONEY AND CONTRADICTION BETWEEN GLOBALIZATION IN ALL DIMENSIONS AND MONETARY FRAGMENTATION.

Local currencies have serious problems that dollarized countries do not have: • One problem is the politicization of monetary creation. - If politicians can create money, they will continually fight to do so. • Another, fundamental, is the contradiction that set the risks of local currency to the globalization process that is making our time, just as the Industrial Revolution marked the transition between the local and national economies. • Local currencies are obstacles to the integration of production and financial processes , which are the only way we have to become part of the global economy. The failed promises of local currencies: WHAT IF DE-DOLLARIZATION?

Those who want to de- dollarize are politicians: • But do not dare to do so. • They say that although dollarization is bad undo it would be worse. • Why? • Because the only reason they want a local currency is to issue it as they please to support increased state spending. • causing inflation and devaluations (which they claim to be good), taking away value to the savings of citizens and lowering real wages for workers. • People willingly gave worthless pesos for dollars, that are worth in the world • They will not deliver this for pesos politicians want to devalue. • Dollarization resolved a crisis ... de-dollarization would cause another. For individuals,

• Surprisingly, there are people who believe that the only consequence of dollarization would be that instead of using dollar bills would use colons bills • There are even many people who believe that the change of bills will result in immediate

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regression to the prices that existed in December 2000, a month before dollarization. Even worse, some people think that thereafter prices would rise no longer. • Prices of course would not drop. At first, prices would be equal to what they are in dollars multiplied by the exchange rate. • What does happen is that your bank account in dollars would become necessarily to colons to the exchange rate set by the government. Soon the dollar value would drop even more because the government would use the power to create money to create it, which would increase inflation and the currency devalued rapidly. • The interest rate on their loans would go up immediately. That is, if now you pay 10 percent, say, you would have to pay 22 or 25 percent, as it was at the time of the colon. This will duplicate the fees for all loans. There would be many who could not afford them. The de-dollarization and companies, • In 2001, the dollarization generated to companies savings in interest payments that they could invest in more equipment, hire more staff, increase salaries or reducing its debts. • interest rates paid on their loans fell between 18 and 22 percent to 7 percent, periods increased from five years maximum fifteen and twenty years. • If the government de-dollarization, the effect is the opposite: by increasing the interest rates, businesses would have to readjust to a dramatic increase in financial costs, which at best would be doubled. • The realignment would occur through fire people and reduce investment, both measures would reduce both, the current and future production. • At the same, companies would be faced with a drastic reduction in demand due to the readjustment of the consumers from rising interest expenses and by the reduction of real purchasing power resulting from inflation. • Thus, the adjustment in all businesses and consumers would result in a deep and prolonged recession. The de-dollarization and exchange and financial markets, • With rising interest credits at least to the level they were before dollarization, the bad loans would rise violently. • If banks offer lower deposit interest savers will take them . To leave here, they would demand fees plus dollar devaluation risk. • In these circumstances, the country would be in a shortage of what the government now wants to get rid of-dollars. The de-dollarization and debt of the country:

• The equals to borrow without devaluations enjoying the debt funds as they increase the debt burden (the ratio of debt to GDP). • Because the debt is denominated in dollars and the GDP is denominated in pesos. • By devaluing the pesos against the dollar, the debt burden increases. SUMMARY: The conclusions are simple

• The blind application of concepts generated in the U.S. and Europe, where currencies create a standard of value for the population, to the context of developing countries, where those same currencies and not their own are the standard of value, has resulted in predictions that are the opposite of what is observed in reality. • Dollarized economies have lower inflation, lower inflation rates higher degrees of export diversification, they can absorb external shocks more promptly without internal crises and financial crises can be resolved more easily than non-dollarized. • In addition, local currencies are obstacles to globalization. • So why having their own currency?

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Mipymes 52 INGLES Jul Ago 2011