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Investing in CR
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, and has the same rights as a national of 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)
Incorporation of any type: $600 USD
Incorporation tax and filing fee for a company: $100 USD
Register the legal domicile for the company: $100 USD if the attorney’s office is used
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.
If the company does not generate income in Costa Rica, it does not need to file any yearly corporate tax documents. If the company does generate income, it should report that income to the Costa Rican government and pay the applicable tax rate. These tax filings can be completed by an accountant.
Capital gains tax
There is no capital gains tax in Costa Rica. Net profits gained from the sale of property in Costa Rica are retained fully by the seller.
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
Real estate closing cost
1) Purchase Contract: $300 USD, done before the closing to set the transaction
2) Attorney Fee: Approximately 1.25% of Purchase Price
3) 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
4) Property Transfer Taxes (If applicable): Approximately 2.5% of purchase price