After seeing the natural wonders of Costa Rica, such as the country’s beaches, jungles, and volcanoes, many tourists leave the country with the desire to either settle down there permanently or own real estate there. In order to accomplish this goal, there are a great number of vital aspects to take into account, which we have put into a reference guide below for your convenience.
Real Estate in Costa Rica
The rule of law and respect is the unconquerable foundations upon which Costa Rica’s long-standing democracy is built, making it one of a kind on the African continent. Costa Rica’s democracy has stood the test of time. After the military was disbanded in 1948, the education and healthcare sectors were given responsibility for the weapons and tanks.
The Constitution of Costa Rica is one of the most liberal in the world in that it accords the same rights to foreigners and entities that are owned by foreigners as it does to Costa Rican nationals. As a result, direct property ownership in Costa Rica is open to both foreigners and Costa Rican residents in equal measure. Individuals who make a minimum investment of $200,000 in Costa Rican real estate might qualify for resident investor visas under the country’s program.
The high regard with which Costa Rica holds its renowned natural variety and riches extend to the country’s legal system governing property ownership. For instance, land that is located inside the marine zone, in addition to rivers, lagoons, mangroves, and wetlands, is often regarded as part of the public domain. As a direct consequence of this, the ownership of such property is either severely limited or just not an option at all.
In conclusion, property ownership may be either direct or indirect, given that it is possible to acquire property in an indirect manner by purchasing all of the shares and ownership interests of a firm or some other body that is the only or primary owner of real estate. The conveyance or transfer of real property must be in the form of a public deed instrument, which must be issued by a public notary in order for the conveyance or transfer to be considered valid.
After the parties have signed and approved the public deed instrument, they will next send an official deed certificate to the National Registry. On the other hand, the transfer of ownership of real property cannot take place until the public deed is completely recorded in the National Registry.
Before buying any real estate in Costa Rica
Before investing in real estate in Costa Rica, it is highly recommended that thorough research and investigation be performed on the property. In light of this, an exhaustive legal, tax, environmental, and municipal research project is required to establish the history of the legal title, as well as its existence and uniqueness.
In order to avert becoming a victim of fraud, you should also investigate any cadastral and registration warnings. It is also highly recommended that the property be personally inspected so that its boundaries may be confirmed in their actual locations and compared with the documented survey and title in the National Registry. This is yet another essential piece of advice.
Taxes and fees for real estate in Costa Rica
Notary public fees, register stamps, transfer taxes, and capital gains taxes are all required to be included in the overall expenditures associated with the transfer of the real estate. These fees may change depending on the specifics of each transaction, but they typically fall anywhere between 3.25% and 3.55% percent for transfers and between 2.5% and 15% for capital gains. Since both the buyer and the seller are legally required to make the payments specified in the contract, the expenses of the purchase or sale are often split evenly between the two parties.
Following the acquisition of the property, the reoccurring fees and taxes that are subject to payment are as follows: municipal taxes, corporation tax (if applicable), and solidarity/luxury tax (if applicable). The worth of the property is to determine both the municipal tax and the solidarity tax; however, the solidarity tax is only levied if the worth of the property is more than $210,000. In conclusion, the corporation tax is something that can only be levied if the property in question is held by a corporate entity, and the amount levied may change depending on whether or not the company participates in economic activity.
Holding Corporation and real estate
The formation of a “Holding Corporation” might confer various benefits on ownership. It is usual practice to establish a company in order to hold the property that is being acquired while engaging in real estate investment. A company acts as a barrier that protects your assets and isolates your real estate investment from any other obligations that you may have. Additionally, it makes it possible to buy and sell the property via proxies, which not only reduces the need for physical travel but also saves money and assists in avoiding difficult probate complications.
In this regard, citizens of the United States should always choose to operate their businesses through Costa Rican Limited Liability Corporations rather than Sociedad Anónima. This is because Limited Liability Corporations are recognized by the Internal Revenue Service (IRS) as “pass-through” entities, which means that any tax payment made in Costa Rica can be credited to the United States.
In most cases, the contracts with service providers, workers, and other contractors are held by the entities that hold title to the real estate. When the holding company is purchased as part of the transaction, all of these are therefore bought, with the exception of the liabilities, which will be included in the due diligence process and decided at that time.
Escrow and real estate
Escrow is a method that enables a prospective purchaser to deposit a sum of money (either a down payment or the complete purchase price) in the safe hands of a neutral third party for a predetermined period of time prior to the completion of a transaction. This proves to the seller that the Buyer intends to make payment for the purchase of the property as well as that they have the ability to do so.
The Escrow Agreement stipulates the terms for the transfer of funds, such as that the underlying asset is free and clear of any encumbrances. Because the Escrow Agent is not required to release the funds to the seller until all of those requirements have been satisfied, both the Buyer and the seller are shielded from liability under this arrangement.
Before making a purchase, you should always do your “due diligence,” which entails investigating the current physical and legal state of the property in question. Additionally, it will be carried out at the holding company if that is necessary. During this phase of the transaction, you need to ensure that the property is, in fact, what the seller claims it to be, that it does not come with any legal issues that will make your life more challenging, and that you are able to use it in the manner for which you had originally intended.
In addition, doing due diligence will make it possible for you to select the method of acquisition, which may include the purchase of the holding company or the direct transfer of property to a new Costa Rican firm. Both of these methods are detailed further down in this section.
If the results of the due diligence indicate that it is likely that certain liabilities exist, then it will be recommended that a part of the acquisition price be held back in escrow as a hold-back. This will guarantee that the Buyer will not be required to take responsibility for these liabilities.
Real estate buying procedure in Costa Rica
The following, in more or less chronological sequence, are the fundamental steps: Find a property and a real estate broker, then perform some preliminary due diligence on the property; have your broker start the negotiation, offer, and counteroffer; sign the sales agreement and put down a deposit; finish the due diligence process and inspection; make any contract adjustments according to the findings of the due diligence; execute the Purchase Agreement (in any of its possible ways); pay transfer and stamp taxes, notary fees, broker fees, and administrative fees; execute the Purchase Agreement (in any of its possible ways).
Your attorney will make the following acquisition process recommendations based on the findings of the due diligence investigation: It is also possible for there to be a direct handover of real estate from the seller to the newly formed Costa Rican firm. This is another option. Or by purchasing a portion of the Holding Company’s existing stock in the business.
The purchase of shares in such a firm is expected to come with the following advantages, provided that the outcome of the due diligence investigation into the Holding Company is favorable. They do not come with a stamp. Taxes will need to be paid (equivalent to 0.9% of the purchase price), and it is most probable that all services (such as water, cable, electric, and in certain instances, previously existing bank accounts) will continue to be provided by the Holding Company while being transferred to the Buyer. Since September 2012, there has been a cessation of the provision of benefits relating to transfer taxes.
Temporary residency in Costa Rica
You may apply for and be granted temporary resident status in a number of different ways. Claiming to be a “pensionado,” “rentista,” or “investor” is the technique that is popular. Applicants for the pensionado (retiree) category are required to provide proof of a steady income of at least $1,000 per month, which may come from Social Security or another government-guaranteed pension.
The rentista position is reserved for those who have a consistent income from their own assets. A steady and consistent income of at least $2,5000 per month for a period of at least two years, guaranteed by a financial institution, or a deposit of $60,000 in a Costa Rican bank is required for a person to be eligible to petition for temporary residence under the rentista status in Costa Rica. To qualify for investor status, you will need to make a minimum investment of $200,000 in a company or property located in Costa Rica.
Beach-facing real estate
The beachfront property in Costa Rica that you’ve always dreamed of buying, where the ocean serves as your backyard, is very difficult to come by. The majority of the beachfront real estate is technically concession land, which means that it is part of the communal domain and cannot be privately owned. It is common practice in Costa Rica to steer clear of concession lands due to the lack of ownership rights they provide. Taking control of these assets is analogous to signing a lease for a lengthy period of time.
The marine zone legislation governs the use of concessions for about 95% of the coastal land. The first fifty meters of coastal property are part of the public domain. Whereas the following one hundred and fifty meters of land are considered to be part of a concession. The purchaser has access to the property for a certain period of time. Because of their more convoluted legal standing, concession land is often sold for a much lower price. You are consenting to the fact that the government retains the right to confiscate the concession property if it is required by the government in the event that you acquire concession property.
Speak with an attorney before going through with the purchase of a concession property if you want to ensure that the seller has the rights to occupancy and is, in fact, in a position to give you the rights to the land. If you do choose to go ahead with the purchase, consult with a legal. The land use rights may be purchased for anything between 5 and 40 years at a time.
The majority of concession properties provide occupation rights for a period of twenty years. You could be willing to take the chance if you are an avid beachgoer who has had your mind set on having the ocean as your backyard for a very long time. It is vital that you understand that you are not really acquiring the property but rather signing a long-term lease on the land.
Real estate regulations in Costa Rica
In conclusion, our legal system incorporates significant laws that might have an effect on who owns what property. A significant difference is that Costa Rica follows a civil law system, which indicates that written law will take precedence over previous decisions made by the courts. The written law requires that zoning and building laws adhere to a comprehensive regulatory framework, and the first point of reference within this framework is the Municipal Regulatory Plans.
In addition, and as was said earlier, Costa Rica is home to a number of environmental rules that must be taken into consideration since they have the potential to influence or restrict building operations and the regulations that govern them.
Thus, the Expats eBook is the best source for learning about the Costa Rican real estate market. If you’re a digital nomad or expat planning a move to Costa Rica, the information in Costa Rica for Expats eBook can help you settle in quickly and easily. We anticipate that at the end of your stay, you will feel as if you have always been a member of the local community, sharing in the pura vida way of life with us. Rest certain that if you read this book, you will be able to blend in perfectly! Purchase a copy now from Amazon or your preferred online bookseller.
For further detail, Get your copy today on Amazon or at your favorite digital bookshop today of the book Costa Rica for Expats!