Buying Real Estate in Costa Rica
Costa Rica's national constitution guarantees the right to own property to anyone, with foreign nationals enjoying the same rights as Costa Ricans. Land can be owned outright with a deed, allowing the owner to sell or pass it along to their heirs. Homes, living expenses, insurance and property taxes are all significantly lower than in the US. Owning property in Costa Rica is a great way to diversify your retirement investments by holding international real estate. Property in most cases in Costa Rica is deeded and fee simple.
Most property owned by foreigners in Costa Rica is owned in the corporate form. That is, a Costa Rican corporation is set up that is wholly owned by the purchaser (a husband and wife for example). The property purchased is transferred to this corporation, which only owns the property, nothing else. You own the shares of the corporation and the corporation owns the property. The advantages of ownership in this method are many and most property owned in Costa Rica by both Costa Ricans and foreigners are owned this way. First of all there is no capital gains tax on corporate holdings so if the property increases in value and you decide to sell it, you won't pay any capital gains tax in Costa Rica on the gain. Sale of the property is also very easy since all one has to do is sell the shares of the corporation since it owns the property. There is no real estate transfer in this case and no taxes, recording fees etc. to transfer the land. Also since the land is held in a corporation, there is limited liability to the owners if anyone was ever hurt on the property. We set up corporations on behalf of our owners as part of the closing process. We do charge $1,400 to set up the corporation, register the shares and transfer the land to the corporation but WE pay all transfer taxes, stamp fees and other costs on the closing of the property. The only fee you will pay is the $1,400 cost to set up the corporation.
Legal Overview of owning property in Costa Rica and our developments
Overview: Property in Costa Rica can be owned in your own name but we suggest and therefore set up ownership through a corporation. In this method, we register a corporation with the national mercantile registry, commonly referred to as a shelf corporation. These corporations although registered, sit inactive waiting for us to use when ready to transfer the sale of property to the new owner(s). When a person buys property from us we hold the title until the property is paid for in full. Once full payment has been received as well as the one time charge of $1400 to set up the corporation, we transfer ownership of the property in the national online property registry to the corporation being used for that transfer and then transfer all the shares of that corporation to the new owner. Although the property registry is an online registry and therefore public information, the merchant registry is not public. Corporations in Costa Rica (and most Latin countries) are referred to as SA's, which stands for Sociedad Anonima (Annonymous Society). Ownership of SA's is specifically not public since the purpose is to keep the ownership of assets in corporations private. This protects owners from frivolous lawsuits.
Advantages of owning property in a corporate form: There are a number of advantages of this form of ownership. Corporate ownership affords the owner protection from direct lawsuits against them, the corporation being a legal entity unto itself. Someone could sue the corporation but not the owners of the corporation, referred to as the corporate veil of protection. This would be important for example should someone get hurt or die on your property, say in an accident in a pool while you were renting out the property. A second advantage is that the corporation is a legal entity that would live on even if the owners of the corporation passed away. So if you and your spouse owned the property, with ownership represented typically by 10 shares, the surviving spouse would still have all ten shares. These shares could be endorsed to the one surviving spouse and dated prior to the death of the other spouse. A third advantage of corporate ownership is that there is currently no capital gains on corporate gains in Costa Rica. Should you sell your property at some point at a significant gain over the purchase price, there is no tax due on the gain in Costa Rica. Another main advantage is that when you sell the piece of property down the road, there is no transfer of property (or the fees associated with property transfer such as registration fees, deed stamps, document fees, etc), you simply endorse the shares of the corporation to the new owner, since it is actually the corporation that owns the property.
Disadvantages of owning property in a corporate form: There are a few disadvantages of corporate ownership but candidly the advantages clearly outweigh the disadvantages especially for a foreign owner. The primary disadvantage is the cost. Costs of ownership in a corporate form include the initial cost of setting up the Sociedad Anonima and registering both the SA and the property to the SA. This fee varies depending on the attorney but we charge a one time fee of $1,400 (as of January 2014 and subject to change). Corporate ownership also requires that once per year an "annual report" is filed on behalf of the corporate owners however we file the report on your behalf as part of our annual service package. Corporations are charged an annual fee which varies depending on whether the corporation is simply a "holding company" for passive property ownership or whether the corporation is active "with rental income " or some other form of income being derived from the corporation. This would be the case if you owned a business in a corporate form, which is commonly the case in Costa Rica. Costa Rica did not charge annual corporate fees for passive corporations until a few years ago. The government however had realized that they were not recieving any revenue when properties owned in a corporate form were changing hands. The easiest way for them to assure some revenue was to charge an annual "filing fee" for both passive and active corporations. Think of it as a small increase in property tax since the fee amounts to only a few hundred dollars a year while property tax rates are incredibly low already.
Costa Rican corporations have to be set up by at least two individuals that must appear before a notary public. Notary publics in Costa Rica must also be attorneys. Once the two individuals has set up the corporation it is perfectly acceptable for only one to own the corporation. A board of directors is also named in the corporate records, consisting of three individuals, a president, treasurer and secretary, and also to appoint a controller. The initial owners can also be board members. At Pacific Lots we take the burden out of these requirements by naming individuals on your behalf to meet the legal requirements of the law.
One question we get all the time is do we have any beach front property for sale in Costa Rica?
Maritime Concession Laws: Real Estate in Costa Rica is typically deeded and fee simple. All property within 200 meters (about a tenth of a mile) from the high tide mark is owned by the government. The exception is a few places that were deeded as old Spanish land grants before the maritime concession laws were written. Under the maritime concession laws in Costa Rica, the first 50 metes above the beach are public land and considered to be the public zone. Land between 50 meters and 200 meters is considered to be in a restricted concession zone. This zone is admistered by the municipalities but is also overseen by the Instituto Costirricense de Turismo (ICT). On maritime concession property you can only own occupancy rights, you can not own the land outright. (see maritime concession page)