How to buy Costa Rica Real Estate
As a buyer of titled property in Costa Rica, you have several options regarding how you can take title.
You can own Costa Rican property in either:
Your name individually
Jointly with a spouse
Jointly with a group of people, or,
In the name of a corporation.
When buying land in Costa Rica we encourage our clients to purchase it using a Costa Rican corporation. Paradise Brokers can walk you through all of the steps for this and even work with you in establishing your own Costa Rican Corporation. The Corporations are usually set up as a Sociedad Anomina (similar to a U.S. Limited Liability Corporation) or a Limitada. Every land transaction must have a lawyer perform a title search on the property. Paradise Brokers has several attorneys that we recommend and an outside firm based in our San Isidro del General office. Our customers can either use our lawyer or they can use their own.
The most common practice in Costa Rica is to form a corporation and then hold title to the real estate in the name of the corporation. This is typically done for two primary reasons:
If properly structured, transferring ownership to the corporation can protect the property from liabilities which may be incurred by you in the future, as an individual. Costa Rican courts generally respect the corporate entity, as separate from the individual and with limited exceptions, will not pierce through the corporation to get at the individual.
When you sell property in Costa Rica, the transaction is subject to a transfer tax of 2.5% of the registered value of the real estate or sales price – whichever is greater. This tax is avoided by simply selling your corporation which holds the property, to your buyer. This will significantly reduce your closing costs.
Costa Rica Real Estate
The following information highlights some of the legal requirements and overview of what is needed when purchasing property in Real Estate.
I. Step by step through the purchase procedure of titled property in Costa Rica
- Due diligence on property: Prior to purchasing the property, it is necessary to perform a title research in order to acquire all information regarding the current and legal status of the property. The due diligence report must include a complete description of the property, its owner, its liens, encumbrances and possible restrictions.
- Escrow service option: Funds related to the transaction can be deposited into an escrow account.
- Acquisition of a corporation: A common practice in Costa Rica is to acquire properties through a new corporation. This tool is especially useful if Buyer wishes to close on their property without visiting Costa Rica. In this case, the corporation may grant a special power of attorney to a third party in order to purchase the property on its behalf. A corporation must have four people on its board – all over the age of 18 years.
- Public transfer deed: Once the Buyer has a clear view and understanding of the property status, a public deed must be executed. This document contains all of the stipulations regarding the transfer of real estate including basic information about the Buyer, Seller, the property and any other terms and conditions of the sale. An attorney who is also a Public Notary must prepare this document and the deed must be recorded in his/her Notary Book as well as at the Costa Rican Public Registry.
- Recording process: Once the deed has been prepared and executed by Buyer and Seller, it is the Notary’s responsibility to record the deed immediately at the Public Registry. The recording process consists of two phases. In the first phase, the Notary files the deed at the Public Registry for its annotation; from this moment the property is protected against any third party interest. Although presentation guarantees the priority of the deed, it does not automatically guarantee registration. The Public Registry must first approve the purchase agreement and verify that all taxes and expenses are included. At this moment, the second phase of registration begins and the property is recorded in the name of the new owner. Please be advised that since Costa Rica operates on a “first in time, first in right” system, recorded documents filed before the Public Registry are given priority according to the date and time in which they are recorded, therefore registering the deed immediately is essential to ensuring that the new Buyer’s rights to the property are ahead of any other claims by third parties. If the public deed complies with all legal requirements, it should be registered within 15-30 days after it was filed.
II. Step by step through the purchase procedure of beachfront property in Costa Rica
When purchasing a beachfront property, you are acquiring the concession rights over the property, not ownership rights. In order to achieve successful closing transactions, the following steps and requirements must be fulfilled:
- Due diligence on property: Since there is no registered property title, it is necessary to assure that the concession rights of Seller have been exercised in compliance with all applicable statutes, laws, rules and regulations of all Governmental Authorities; that there are no liens, attachments, restrictions, encumbrances, or limitations that affect the concession rights; and that Seller has all concession fees, municipal and property taxes up to date and duly paid for.
- Escrow service: All funds related to the transaction must be deposited into escrow.
- Purchase option: prior to purchasing the concession rights, Buyer and Seller may execute a Purchase Option over the concession rights. During the term of the Option, Buyer shall have the right to execute a due diligence investigation on the property.
- Acquisition of a corporation: The concession rights shall be purchased on a corporation’s name. Buyer may suggest a company name and designate the directors of the company (personal information is required: full legal names, domicile, passport numbers, marital status and profession).
- Purchasing the property: When purchasing the property, Buyer may execute a Purchase Agreement through a new corporation or a Stock Purchase Agreement. If Buyer executes a Stock Purchase Agreement, 100% of the capital stock of the corporation that holds the concession rights over the property must be transferred to Buyer. The parties must also execute a Spanish Agreement “Renuncia a los derechos de concesion y a los tramites de concesion” stating that Seller resigns and waives any right, term or condition of such party in regards to the concession rights and property during and after the concession process.
- Trust agreement: Upon closing, the stock must be transferred into a Trust for nationality compliance, since at least 51% of the stock of a corporation that applies for a concession request must be owned by a Costa Rican citizen or corporation.
- Concession request: Upon closing, the concession procedure must be immediately started. The concession request, the plot of the property and other legal documents must be filed at the corresponding municipality. The procedure to obtain a land concession will take form six months to one year, provided there is an approved Regulatory or Zoning Plan for such area.
Incorporation of a Company in Costa Rica
Procedures to set up or create a Costa Rican Corporation:
The Law requires a minimum of two (2) persons to register the corporation. After the incorporation, the number of shareholders may be reduced or increased, with NO limitations as to the nationality.
The articles of incorporation must be recorded in a notarized public instrument and registered in the Mercantile Registry.
The Corporation's name must be expressed in Spanish, Latin or Greek, though it may include Fantasy names. The name must be followed by the expression "Sociedad Anónima" or its abbreviation, "S.A." Which is the most common corporate structure. Limatad’s are a another form used in Costa Rica (S.R.L.). Please contact your tax attorney for the proper structure.
For new corporations and for capital increases in all companies, the law establishes that all payments or capital stock must first be deposited in a bank account. This transaction must be certified by a Notary Public. In Costa Rica all Public Notary’s are Attorneys. The deposit may be returned only to the legal representative of the corporation, once the new company or the capital increase has been registered.
Twenty-five percent (25%) of each subscribed share must be paid at the moment of registration. Shares that are to be paid in kind have to be fully paid.
The types of shares must also be stated. Bearer shares or non-par value shares are not allowed. Common shares have equal rights and one vote each. Accumulative vote is operative in the election of Board Members if stated in the articles of incorporation.
Registration procedures usually last at least four weeks. Shell companies can be used in case of immediate application.
Basic Features of Corporations in Costa Rica
The corporation is managed by a Board of Directors of no less than three members, President, Secretary and Treasurer, who do not need to be shareholders (there are no citizenship or residency requirements). No one person can hold two office positions. The President of the Board legally represents the corporation, as well as any other member specified in the charter. They are able to delegate all or some of their power to other members of the Board if the charter permits. They may also appoint one or more managers.
One half of the members of the Board are required for meetings and a majority of those present to hold a resolution. The President has two votes in case of a tie. Supervision of the corporate business should be exercised as provided in the charter. It is normally performed by a Controller that is not part of the Board of Directors. Ordinary meetings should be held at least once a year. The topics reviewed at ordinary meetings include: Approval or rejection of financial statements, distribution of profits, appointment or dismissal of Board members, statutory or external audits, and other matters not reserved to special meetings and proposed in the agenda. Special meetings are to be held to review topics such as: amendment of the articles of incorporation or by-laws, issuance of other classes of shares not included in the by-laws, when required by law or by the incorporation charter.