Questions to Ask When Purchasing Real Estate in Costa Rica
- DEFINE USE
- BUYING PROCESS
- PROPERTY LAW
- Post Closing Considerations
- PROPERTY MANAGEMENT
1. Important Questions to asked in chosing the right estate is to what is the end goal and ongoing use of the property
- Right of use of the Land (Zoning rights)
- Building Regulations (Do Building restrictions excist?)
- What infrastructure will be included in the purchase price (i.e. water, Electricity, Telephone, Sewage, Street access..)
- Proper Property Management in seasonal and investment cases
2. What are the main reasons that speak for an investment in Real Estate in Costa Rica?
- Monetary Security
- Costa Rica’s stable economy
- Inviting investment laws
- Retirement Aspect
- Standard of Living
3. How does the process of acquiring property in Cost Rica work
- First the identified property will be checked in the national and local registry offices to ensure that the seller is the true owner and the title of the real estate is free and clear.
- Then in most residential real estate deals will a title insurance be chosen which ensures that the closing (transfer of title) is handled properly .
- Then an escrow account will be opened handled by either a Title Insurance or a trusted lawyer.
- Then once the Contract is signed between seller and buyer the funds then should be deposited into the escrow account. Once all funds are in the escrow account the ownership of the real estate will be transferred to the buyer and the seller then receives his funds.
- Once the closing was conducted successfully and stamp taxes are paid the title insurance/ lawyer makes sure that the new owner will be registered both in the local and national registry office.
4. Which legal, tax, and operating costs do North Americans and Europeans face investing in Costa Rica
- This varies depending on your lifestyle of course and has to be assessed on a case by case basis
5. What does an investor need to consider when he/she acquires the real estate in ones personal name or in the name of a judicial person.
- If one acquires real estate in its personal name one can most likely go with a title insurance alone
- If the property is purchased in the name of a company a lawyer is recommended to establish the property asset holding structure that best suits your needs.
- How do the possibilities to invest through an off shore Company look like? ---One would first of all purchase a Costa Rican or Panamanian Shelf cooperation which then in turn purchases the property. There are additional options to include layers of companies that own one another to increase the asset protection further. Options are for example a Belize Trust or a Cayman Island cooperation that owns the shelf cooperation which in turn owns the real estate. This can mean tremendous tax advantages when selling the property as Costa Rica has capital gains tax exemptions for passive real estate investors.
6. After the purchase of a real estate in Costa Rica the follwing aspects are to be followed.
To treat Costa Ricans with respect
Time of non use (Squater rights that excist from a long time ago) In Costa Rica a property that has been used by a national for longer than one year, than the national holds right of use for the property, one therefore strongly suggest that a friend, employee or property management company continiously watches over the estate.
7. Resale of Real Estate
- When is the right time personally and that this time match with the projections of the investment to reach its peak price.
- Who will help me conduct this transaction correctly
8. Do I want to handle everything myself or do let a professional familiar with the market and laws regulating Costa Rica Real Estate handle the ongoing duties of property management, etc.
- What type of Construction Services are available to me and what difference exist in regards to Costa Rica
- Identify potential professional general contractors
- Who conducts the quality assurance of construction work
- What additional expenses do occur constructing and managing properties in Costa Rica
9. What property management services does one need to consider in Costa Rica especially in case of absentee property ownership.
Purchasing Costa Rican Property
Making it easy to check on land ownership, all property, with a few exceptions, must be registered at the Property Department of the Public Records Office. This office is located in Zapote and is open to the public. It’s a rather easy system to research; however, it’s best to have your attorney do the checking, because he knows what to look for and where.
The first step is to run a thorough title search of the public records to see whether the property really belongs to the seller, whether the seller is who he claims to be, and whether any mortgages, liens, encumbrances, or easements come attached to the property. Mortgages and lien must be properly registered to have any effect on the buyer. So if the title is clear, you needn’t worry about outstanding debts. If a lender didn’t register a second deed of trust, he’s out of luck. A title search should cost less than $ 50 dollars, and it is well worth it. If the seller was untruthful, you won’t waste any more time. Actually, to get started you can research a title or plot of land yourself in the Registro Nacional, simply by going to the Web site and filling in a form. If you find nothing wrong with the title, you can authorize your attorney to investigate further.
Checking Property Via the Web…
How to check your Catastro Online,
Your property for liens, ownership, actual dimensions, property type (concessions, titled)
The Costa Rican Government has utilized the Internet to open the Registro Nacional to the public. What used to be a time-consuming and bewildering process of investigating the legal status of a piece of real estate has now become a simple matter of calling up a Web page and entering a few numbers.
Within a few seconds, you can find out if that beautiful house with a view of the valley actually belongs to the person who is trying to sell it to you. Does he have a mortgage on the property that he neglected to mention? Are there any liens against the house because of an automobile accident or a liable judgment? You can discover who the previous owners were, in case you would like to talk with them to see if they have any information for you. In some instances you can find out who the neighbors are. The Web site can be found at: http://22.214.171.124. Navigating the site is fairly straightforward. You’ll probably need a dictionary or, better yet, an online Spanish –to-English virtual dictionary to understand some of the terms. (Go to http://wordreference.com and install the Spanish-to-English module.) Several examples are found in the help section. To look up real estate, click on Bienes Immuebles and
then Catastro. You’ll find several search choices: search by name (nombre), by corporation number (cedula), the number on your lot plan (numero de plano), or number of the finca or concession (numero de finca o concession). To look up an automobile or an insurance policy or any number of other features, click on Bienes Muebles, and follow the same procedure.
Properties with exceptions
These exceptions are important. Let’s review the three basic categories of Costa Rican Properties.
- Recorded Land. This includes all properties you’ll find registered at the Public Records Office. The vast majority of properties for sale fall into this category.
- Nonrecorded Land. This is property that could be registered at he Public Record Office but has no yet been recorded. This applies to farmland, fincas (ranches), or homesteads—places that haven’t legally changed hands for many decades or perhaps have been changed through a private contract. Nonrecorded land requires an attorney familiar with the procedure. It takes a judicial procedure to register land for the first time into public records. This kind of sale lacks the security granted by the Public Record Office.
- Nonregisterable Land.
Transferring Recorded Land
Any individual or company, national or foreign, may legally own land sheltered by the Public Record Office system. But for legal and economic reasons, you should consider placing your property in the name of a Costa Rican corporation, or sociedad anonima (more about this later).
Recorded land transfers must be granted through a public deed. That is, buyer and seller must appear before a Costa Rican notary public (to be chosen by the purchaser), who will insert the title transfer in his protocol. (A notary public is a licensed attorney who is endowed with “public trust” and the right to validate and legalize all contracts and deeds. Again, to protect your investment, you should appoint your own attorney to perform as the notary public in the transaction.)
The purchase deed, as well as any liens or mortgages agreed to by the buyer, is then presented to the Public Record Office to be registered. It’s also the notary’s duty to complete all recording procedures necessary to provide the title transfer with full efficacy. (This is another reason to have a good attorney working for you)
Expenses and legal fees involved can range from 6 to 7 percent of the total amount of the transaction and on the assessed price of the property. These costs are customarily shared by the buyer and seller on a fifty-fifty basis—unless agreed otherwise.
Beach Front Property
Because of special regulations some areas are no subject to private ownership. This is the case with most beach-front property, which, in some cases, may be leased through concessions granted by the government. This is where things become complicated. Public Law No.6043 of March 1977 established a restricted coastal zone called the Zone Maritimo/Terrestre. Thais law covers a strip of land, 200 meters deep along both the Pacific Coast and the Atlantic Coast. The restricted zone is divided into two sections:
1. The Public Zone (Zona Publica) is that first 50-meter strip of land starting at the mean high-tide line. This is public property; the public has full access to this zone.
2. The next 150 meter strip of land is called the restricted zone (Zona Restringida).
The law state that no private individual or corporations is allowed to build on or use for private purposes “any portion whatsoever”of the Public Zone. However, it’s possible to obtain a lease/concession on the Restricted Zone properties for private or business use. Understand when this happens, it isn’t a deed; it’s a “lease concession.” At first the lease is with the local municipality; later on, after a procedure, the lease is with the Costa Rica Tourism Institute. Beneficiaries of lease concessions are granted the use, occupation, and possession of the land, including the right to build.
Now comes a sticky point. “No lease concessions are granted to non-Costa Ricans who have resided in the country less than five years, nor to foreign companies, nor to national companies of which 50% or more of its stock is owned by non-Costa Ricans.”
Many of the desirable Zonz Restrigida properties are held by Costa Rican corporations which are owned entirely by foreigners. This is, of course difficult to verify because ownership of a Costa Rican corporation is impossible to substantiate. (Tips on how to start a corporation..***)
These lease concessions can be transgerred from one person or company to another, subject to the approval of the municipality is entitiled to charg a small leasing fee. Ath the end of the leasing period, the lessee can apply for an extension of the lease concession, and extensions are normally granted with the previous approval of the Tourism Insititute.
Beachfront land not regulated by this law can be found, but it’s extremely unusiual to find titled property in areas within the restricted 200 meter-zone. True, some beachfrontland isn’t regulated, because it was in use before the beach laws ere passed. These exempt parcels are so-called “grandfathered” properties. However, be cautious; many people think that their property is grandfathered when it really is not. Some claim it’s grandfathered when they know it’s not.
For a variety of reasons, banking secrecy laws such as those in Switzerland attract a great deal of interest among certain folks who have motives for holding assets. There is no law against this as long as these accounts aren’t used to defraud creditiors or to evade paying taxes. Costa Rica, like Switzerland, has strict rules on nondisclosure of bank accounts eventhough this has changed and deteriated.
An interesting aspect of financial secrecy is the use of Costa Rican “offshore” corporations. Like bank accounts, these corporations can be started by anyone—citizen, resident, or tourist—and are supposed to be totally secret. Since ther is no way of knowing who is behind arbitrary names on the corporation books, it’s almost impossible to discover who actually controls these corporations. In fact, the legal term is sociedad anonima or “anonymous society.” That’s why corporations names are appended with “S.A.” instead of “Inc.” or “Ltd.” One common example of a legitimate uso of a corporations is when buying or selling real estate. If the property belongs to a corporation, transfer of ownership is simple. You merely transfer the corporations’stock; the property belongs to whoever holds this stock.
Starting a Costa Rican Corporation
Costa Rica’s corporate structure allows any person (Costa Rican or not) to control a company without his or her name apperaring in the pubic records. A Costa Rican lawyer (who mus be a specialist in this) sets up a corporations without the real owner’s name ever appearing in the record. It is termed a sociedad anonima con acciones al portador, or “anonymous society with all stock owned by the bearer.” This means that although there is a legal president, secretary and treasurer (often simply employees of the attorney), the actual ownership of the corporations is invested in whoever physically has the stock certificate in his or her pocket or safe-deposit box. Even the attorney has no way of knowing whether the original client still owns the stock. This arrangement is prohibited in the United States but is perfectly legal in Costa Rica.
This corporation is free to engage in many types of business activities, both in Costa Rica and in other countries. Theoretically, because it is considred a “foreign corporation” as far as the IRS is concerned, it pays no taxes in the United Sates. (There’s talk about changing this) Because it’s a Costa Rican corporation, it pays little or nothing on what it earns outside Costa Rica. This doesn’t relieve the individual of the responsibility of reporting income and paying income taxes I his or her home countryu. New laws require that a yearly report of a corporation must be filed; should there be no income to report, there are no tax consequences—but no filing the report makes the corporation liable for a fine. So if you already have a corporation in Costa Rica aand haven’t been filing reports, see you lawer.
Be aware that from time to time there can be arbitrary changes in tax rules for corporations. No matter that your corporation does not make money—for example: if the corporation’s only asset is a house or an automobile—there could be an extra form to fill out to state that there is no income. This happened in 2003, and many people were caught unaware. The process was simple, but if you happen to be living in the United States or Canada, you might not hear about this. To avoid and fines for no filing, you need to have someone inn Costa Rica watching the situation and to notify you when something like this comes up. I have my lawyer take care of things like this for me, and it is automatically taken care of.
Advantages of a Corporation
It’s always advisable for both foreigners and Costa Ricans to own land through a corporation. Among the advantages is a reduction of personal liabilities and taxes. The ownership of assets, such as real estate, boats, and automobiles, is the main purpose of most registered corporations in Costa Rica.
A corporation can be owned by a group of shareholders or fully owned by one shareholder. This way a single individual or a small group of people can operate the company in a relatively simple and inexpensive manner. The asset (your house ) can be sold simply by handing over the shares of the corporation, because it is owned by the corporation, not the individual, even though he or she may own all the shares. Your attorney will show you the best ways to ensure control of the company and the overall handling of corporate power.
An important point about corporations is to make sure you are getting a full-fledged corporation; there are shortened versions that have some serious drawbacks. Don’t go for a cut-rate, partial incorporation, because you’ll not get all the required services, and it could expire at the end of a brief period. Later you’ll find you have to go back and spend more money to put the company on a par with other corporations. Most attorneys will charge from $350 to $700 to form a complete corporation.
There are four main stages in the process of forming a Costa Rican corporation
- A document called the Articles of Incorporation or Constitutive Charter of the company will need to be prepared. This document will be drawn up by your attorney. The Constitutive Charter determines the organization, administration, and bylaws of the company. This is signed by all the shareholders,, the appointed members of the board of directors, the controller, and the agente residente.
- Before registration in the Public Record Office, your attorney will announce the company’s constitution in Costa Rica’s official newspaper, La Gaceta. This takes about two weeks. Also, you must make a deposit of the amount of the capital stock indicated in the Constitutive Charter—usually 1,000 colones—in a national bank. The amount of shares in the corporation and their denomination are determined by the founders. All shares must have equal value and must be worth at least 1 colon, but there’s no top limit to a share’s value. The money deposited can be withdrawn once the company has been duly recorded.
- The company must be registered in the Public Record Office. This registration is essential to legally constitute and corporation in Costa Rica. The registration process is performed by the notary public (your lawyer). The whole process takes from one to three months, depending on the time it takes for the Public Registry to approve the company’s bylaws, including the books.
- You’ll receive a set of three accounting books (Diario, Mayo, and Inventario y Balances) and three “legal” books (Shareholders’ Record, Shareholders’ Assemblies, and Board of Directors’ Meetings). Your attorney will present the books to the Minististerio de Hacienda for their initial authorization. Once duly legalized, these books should register all internal affairs of the company (as well as stock transfers) and are kept privately by the shareholders. You can leave them with your attorney or place them in a secure place, such as a safe-deposit box. Remember, whoever has the books in hand also has control of the assets.
To form a Costa Rican Corporation you need a minimum of two intial shareholders. Once the company is formed and properly inscribed in the Public Record Office, the shares can be transferred to a single person, who becomes the sole shareholder of the company. The name of the company must be in Spanish, Latin, or any native dialect. Of course a name can’t be identical or equivalent tothat of an existing corporation. And names with a meaning in a foreign language (such as English or German) are not allowed without special exceptions. Your attorney in charge of preparing the Articles of Incorporation will as you for a list of names (in Spanish), and he’ll research them and determine whether they will be accepted by the Public Record Office.
There must be a board of directors with at least the following officers: president, secretary, and treasurer. The president must be the principal representative of the company. Other members of the board can also be made representatives of the corporation, depending on how the founders of the company decide to do the Articles of Incorporation. The members of the board may or may not be shareholders. The directors must be present when the company is legally formed to personally accept their designation Charter along with the shareholders or power of attorney.
The controller cannot be a shareholder or a member of the board of directors. The perons appointed as controller has to sign the Article of Incorporation. Usually this will be someone on your lawyer’s office staff.
Every Costa Rican company must designate an agente residente. The agente residente will probabley be your Costa Rican attorney, who will be a formal representative for official matters. He has no powers to act on the company’s behalf. The fee for this service is usually $100 dollars a year.
What is Title Insurance?
- Title insurance is offered by Stewart Title, which is the same company who insures land in the US from title fraud. The fact that Stewart Title operates in Costa Rica should give you an idea that your Costa Rica real estate investment comes with only limited risk. There is always some risk associated with real estate, and Costa Rica is no exception; but with no hurricanes, typhoons, mud slides, or wild fires, your risk is minimal to both property and home.
- All properties that we sell are Stewart Title insured and we recommend you purchase Stewart Title when you buy your property, regardless of the location in Costa Rica. The main reason is for purposes of re-sale. North Americans and Europeans want their property insured, plain and simple. Most real estate lawyers can serve as your liaison to get Stewart Title.
How Much Does it Cost?
The standard cost for Stewart Title insurance is 1.25% of the property acquisition cost. Stewart Title is not required in Costa Rica but it makes sense if you are buying Costa Rica real estate as an investment that you plan to resell in the future.