Costa Rica has some of the most favorable property laws in all of Latin America for foreign buyers, but before you begin the buying process, it is important that you understand the procedures that are in place. If these are adequately understood and adhered to, you will no doubt enjoy years of joy in this magical land. If you do not adhere to the proper protocol, it is possible to be scammed. The following article lays out these steps 1 by 1, in order to help you through a smooth buying processing in Costa Rica. Once you've decided on a house or condo, you will need decide which method of purchase you will pursue:
By Direct Transfer where one or more individuals buy the property using their own names.
Via Corporate Ownership - This is a standard practice in Costa Rica. Often individuals will select to start a new corporation (a relatively simple process in Costa Rica though you will require the services of a lawyer who is familiar with the procedures of setting one up) or purchase a property already owned by an existing corporate
The advantage of this system is that it allows a buyer to protect their asset anonymously. Further, if a purchaser acquires a property through an existing corporation that already owns the property, there are no government transfer taxes and stamps to pay. The reason is that transfer taxes and stamps must be paid anytime that there is a change in the ownership of the property. If a buyer acquires the shares of an existing corporation, technically there is no change in the recorded ownership of the property (i.e. the corporation still owns the property). However, if a property is acquired through forming a new corporation to buy the property, the transfer taxes and stamps must be paid because the name of the property owner has changed. The risk for the buyer in acquiring an existing corporation is that the corporation might have other liabilities and there is no way to verify 100% that the corporation is clean. When buying a Costa Rican corporation, it is important to keep in mind that there are other obligations and responsibilities that must be addressed. Examples include yearly tax declarations (even if the corporation is inactive), payment of income taxes if any, and keeping the legal books of the corporation up to date and in order. Once a buyer has seen a property of interest, the next step is to understand what the process of acquiring the property entails. The following are the basic steps that a purchaser follows:
Step 1: Have a Notary Public, Lawyer, or Title Company review the property for any defects. This preliminary title search to find out who owns the property, and to discover if the property has any mortgages, liens, encumbrances, or easements attached to it. If this comes up clean proceed to the next step. If not look for a different property or be prepared to deal with the issues this property has. This should cost around $50.
Step 2: Sign an option to Purchase/Sell with seller and deposit funds into escrow (if available) in order to reserve the property.
Step 3: Make sure you review the following documents with your attorney or real estate agent:
-Uso del Suelo -- This is a document from the municipality stating how the property is zoned
-property plan (plano catastrado)
-Impuestos Municipales --This document assures that the present owners are up to date on their taxes
-Water Letter (Carta de Disponilidad de Agua) -- Is your property approved for water?
Step 4: A notary will need to draw up the purchase deed to buy the property. If you have an attorney, they can manage this process for you.
Step 5: If you are buying the property through an existing corporation, you will need to do an Endorsement of Shares at time of closing. If not, you will sign the Deed on the Mortgage (if one exists) and the Transfer Deed to transfer the money from escrow to the seller.
Step 6: Have your property registered into the Registro Nacional under its new ownership.
By Direct Transfer where one or more individuals buy the property using their own names.
Via Corporate Ownership - This is a standard practice in Costa Rica. Often individuals will select to start a new corporation (a relatively simple process in Costa Rica though you will require the services of a lawyer who is familiar with the procedures of setting one up) or purchase a property already owned by an existing corporate
The advantage of this system is that it allows a buyer to protect their asset anonymously. Further, if a purchaser acquires a property through an existing corporation that already owns the property, there are no government transfer taxes and stamps to pay. The reason is that transfer taxes and stamps must be paid anytime that there is a change in the ownership of the property. If a buyer acquires the shares of an existing corporation, technically there is no change in the recorded ownership of the property (i.e. the corporation still owns the property). However, if a property is acquired through forming a new corporation to buy the property, the transfer taxes and stamps must be paid because the name of the property owner has changed. The risk for the buyer in acquiring an existing corporation is that the corporation might have other liabilities and there is no way to verify 100% that the corporation is clean. When buying a Costa Rican corporation, it is important to keep in mind that there are other obligations and responsibilities that must be addressed. Examples include yearly tax declarations (even if the corporation is inactive), payment of income taxes if any, and keeping the legal books of the corporation up to date and in order. Once a buyer has seen a property of interest, the next step is to understand what the process of acquiring the property entails. The following are the basic steps that a purchaser follows:
Step 1: Have a Notary Public, Lawyer, or Title Company review the property for any defects. This preliminary title search to find out who owns the property, and to discover if the property has any mortgages, liens, encumbrances, or easements attached to it. If this comes up clean proceed to the next step. If not look for a different property or be prepared to deal with the issues this property has. This should cost around $50.
Step 2: Sign an option to Purchase/Sell with seller and deposit funds into escrow (if available) in order to reserve the property.
Step 3: Make sure you review the following documents with your attorney or real estate agent:
-Uso del Suelo -- This is a document from the municipality stating how the property is zoned
-property plan (plano catastrado)
-Impuestos Municipales --This document assures that the present owners are up to date on their taxes
-Water Letter (Carta de Disponilidad de Agua) -- Is your property approved for water?
Step 4: A notary will need to draw up the purchase deed to buy the property. If you have an attorney, they can manage this process for you.
Step 5: If you are buying the property through an existing corporation, you will need to do an Endorsement of Shares at time of closing. If not, you will sign the Deed on the Mortgage (if one exists) and the Transfer Deed to transfer the money from escrow to the seller.
Step 6: Have your property registered into the Registro Nacional under its new ownership.
About the Author:
Jason Shelby Smith is a long time resident of Costa Rica and is a respected authority on Real Estate Technology in Latin America. If you're looking for properties in Costa Rica or would like to know more about the buying process in Costa Rica, please visit the MLS Costa Rica site where you can find information and browse properties from around the country.
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