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Investing in Costa Rica
When investing in Costa Rica, professional advice and guidance should be sought by an expert such as an attorney, surveyor, or architect, depending on the nature of your investment. Even when professionals are present to assist you, you should be familiar with Costa Rica’s treatment of concepts such as company formation, property tax, income tax, capital gains tax, the real estate closing process, financing, government, and property owner rights. Additionally, you should be familiar with the due diligence process that every investor should go through before entering into a transaction, regardless of the purpose, be it relocation, retirement, investment, vacation home, or development site.
Incorporation - Creating a Company in Costa Rica
A foreigner can legally own real estate in Costa Rica, except in the specific case of owning “concession” property. In Costa Rica, companies are used as a holding vehicle for assets, especially real estate. This is done to protect assets from future liability exposure, and to protect the individual from future personal liability. Companies are also used to hold assets for ease of ownership transfer. When selling a real estate asset, the seller may sell 100% of the shares of the company that wholly owns the asset. If a seller sells the asset by selling the company that owns it, the transfer tax levied in Costa Rica, which is about 3% of the transaction value, is waived.
Types of Companies in Costa Rica
The type of company you form for your investment purposes in Costa Rica should be determined by you legal counsel. Your legal counsel will consider shareholder regulations, board of director positions, fiscal responsibilities, and other information before deciding which type of company is suitable for your situation. The different types of companies are listed below:
1) Sociedad Anonima (S.A.)
2) Sociedad de Responsabilidad Limitada (LTDA)
3) Sociedad en Comandita (Family Limited Partnership) (S en C)
In Costa Rica, property tax is 0.25% of the recorded value of the real estate asset in the national registry of Costa Rica. The recorded asset value is typically significantly less than the actual value of the real estate. Property taxes are paid at the municipality to which the property belongs between January and March for the previous year’s taxes due. For example, a recorded $1,000,000 USD home would yield a property tax $2500 USD per year.
Before committing to buy property in Costa Rica there are several due diligence steps that may be applicable:
Before purchasing a property it is vital that an attorney checks the title to the property in the national registry to make sure there are no third party claims, leins, or encumberances against the property, which could affect the value of the property. The company that owns the property should also be free and clear of any claims.
Often surveys are old and outdated. Land use allowed changes over time due to landslides, erosion, other natural circumstances, as well setback law changes. The area designated for construction in the survey may be incorrect. A professional surveyor should be contracted to check the boundaries and other characteristics of the land before the purchase is made.
*There may be other factors that contribute to or detract from your ability to develop the land with your vision. You should make an effort to review all site characteristics before purchasing.
The closing process
Approximate Real Estate closing costs*
Attorney Fee: Approximately 1.25% of Purchase Price
Title Insurance (Optional but Recommended): $1,000 USD or 1.5% of the
insured sum up to $500,000 USD then 0.75% of the insured sum above $500,000
Property Transfer Taxes (If applicable): Approximately 2.5% of purchase price