Ownership of Land

Costa Rican laws and constitution protect private ownership of land and foreigners enjoy the same rights as citizens.  They do not require any special conditions to purchase property within Costa Rica .

Neither citizenship, residence, nor even presence in the country is required for land ownership.

It is important to remember that if you are out of the country for an extended period of time, you must protect your property in order to avoid problems with squatters. To be on the safe side, you should not leave your property unattended for more than 6 months.  This is especially true for agricultural and rural land.
Remember,  SQUATTERS HAVE RIGHTS HERE.

     One exception is the - "Terrestrial Maritime Zone" (see below).

I. Property Ownership and other common forms of possession

Just like in the US, Canada, and Europe, there are different types of property available to buyers. Understanding the various types that are available for purchase is critical in the evaluation process. This section highlights the property types that can be purchased in Costa Rica and the implications of each type of ownership for the buyer.

a. Fee Simple: i. The most comprehensive form of property ownership in Costa Rica is fee simple ownership. Fortunately for foreigners, the conditions for this type of ownership are the same for Costa Rican nationals as they are for foreigners. The concept of fee simple ownership is the same in Costa Rica as in the US. Basically, fee simple ownership gives the owner of the property the absolute right to materially own the property, use it, enjoy it (i.e. usufruct), sell it, lease it, improve it (i.e. transformation), etc., subject only to conditions outlined in the Costa Rican Laws. Fee simple also means that if the owner is obstructed from enjoying any of his/her rights to the property, he/she has the right to be made whole, in other words, have the property restored in its original condition.

Buyers who purchase fee simple title have the most rights under to law to enjoy and use the property as they see fit.

b. Concessions in the Maritime Zone: Ownership Limitations: Unlike fee simple property, foreigners do not have the same rights as citizens when it comes to purchasing concession property. The law establishes that foreigners cannot be majority owners of a concession property. A foreigner can, however, enter into a partnership with a Costa Rican citizen where the ownership is divided 49% / 51% between the foreigner and Costa Rican respectively. One exception is if a foreigner has resided in Costa Rica for at least five years, then they may be majority owners of a concession. Both foreigners and Costa Ricans alike are required to purchase all Maritime Zone property through concession.

c. Properties in Condominium: When US citizens think of Condominiums, they normally think of large apartments or townhouses. In Costa Rica, however, there is a specific law called “Condominium Law” that provides certain benefits to developers of many different types of properties, including single family residence projects, finished lot projects, condos, etc. This set of laws allows a developer to restrict and regulate certain aspects of the development. Each Condominium developments has its own by-laws containing all of the restrictions, limitations and privileges that can be enjoyed by individuals who purchase a property in such a development. Ownership of property “in condominium” is fee simple ownership, but usually carries with it a few additional restrictions set forth by the developer. It is advised that you require the owner of the property to give you a copy of the by-laws to check for architectural guidelines, land use restrictions, and other limitations that may be placed on your property. Most often, developers use the condominium laws to allow them to build private roads in a development and set architectural guidelines. For the most part, condominium laws are designed to protect the integrity of a development and maintain the “look and feel” of the project.

d. Untitled property: (Possession Land) There are properties in Costa Rica that are not recorded at the Public Registry of Properties. Families have inhabited some properties of this type for generations while others have never been occupied. In either case, it is possible that someone claims that they “own” the property and may put it up for sale. They may even have fence lines or other boundary markers that separate “their” property from a neighbor’s. Regardless of the time that an inhabitant has lived on the property or to what extent they have demonstrated ownership, unless that property is registered at the Public Registry, there is no official owner. i.e. the title is unclear. It is strongly recommended that this type of property be avoided at all costs because there is no way to prove that the “owner” has the right to transfer the property, or even worse, what the dimensions of the property really are.

e. Time Share:
i. This option allows an owner the right to use a property for certain weeks of the year. In most cases the time-share ownership grants similar rights as implied in the condominium regulation except that in the time-share it is limited to certain weeks during the year. In this manner one single unit is subdivided into parts and sold individually. Time-share resorts are not common in Costa Rica.

Registration

Costa Rica boasts of a safe form of title registration to protect buyers from hidden claims.  It is centered in the "Registro Nacional" (National registry), where both title documents and survey plotted for every property are recorded.  Any change in the status of a title or any claim that might affect it must also be noted on the title registry page, thus making it easy to verify.

(Article 460 of the Civil Code). Most properties have a titled registration number known as the folio real, and the records database can be searched with this number or by name index. The Public Registry report (informe registral) provides detailed information on the property, including the name of the title holder, boundary lines, tax appraisal, liens, mortgages, recorded easements, and other recorded instruments that would affect title.

Those who want to buy land in Costa Rica should work with a professional reputable Real Estate company (that does not mean all francise real estate companies are reputable in Costa Rica) that will refer them to a good, reliable lawyer.  The lawyer will do a search of the title in the registry, so as to confirm that there are no liens on it, and to establish its proper ownership.  Once the deal is completed, you should also secure documents from the lawyer to prove that the sale was registered.  This is for your own safety and to present to somebody else if necessary.

Since Costa Rica follows the doctrine of first in time, first in right, recorded instruments presented to the {Public Registry are given priority according to the date and time in which they are recorded. Obviously, every situation differs and in some cases a review of the Public Registry record will not be enough to uncover all encumbrances. That is why it is important that the buyer have her or his own attorney conduct an independent title search and investigation rather than rely on the seller's attorney.

That does not mean all the land in Costa Rica is Titled, which a good lawyer will be able to tell you whether it is titled, possession, IDA, leased or a share that you are purchasing. There are properties that are 5000m2 lots that are a share not a titled property, this makes a difference if you are going to purchase with a loan. A reputable lawyer and Real Estate Broker will be able to define what type of purchase the property will be.

Registration of the transfer deed.
Once all the fees have been paid, it is the obligation of the notary who drafted the transfer deed to ensure that the deed is presented (anotado) and registered (inscrito) in the Property Section of the Public Registry. I have stressed the words presented and registered to highlight the importance of following up with the notary to ensure registration. Although presentation guarantees your priority (i.e., first in time, first in right), it does not automatically guarantee registration. The Public Registry will not register a transfer deed unless all taxes and registration fees are included; a certified copy from the Finance Ministry (Ministerio de Hacienda) is provided certifying that the seller's property tax (impuesto territorial) payments are current; and a municipal certification is provided from the municipality where the property is located certifying that both buyer and seller are current on municipal tax payments. Likewise, any prior instruments that encumber the property(i.e., mortgages, liens, judgments, etc.) must be lifted before your transfer deed will be registered.
Once a transfer deed is accepted for registration, the Public Registry will return the original document with all the documentary stamps affixed to it and properly sealed.

Assuming no defects in the transfer deed, it should be registered by the Public Registry with 45 to 60 days after presentation.

It is therefore important to follow up with the notary to ensure registration, otherwise you will run into problems in the future when you decide to resell the property and find out that your sale was not registered.

Title Insurance

As in the US, the title guaranty serves as a contract by which a third party (Guaranty Company) commits to indemnify losses due to legal situations that could affect the property, minus any exceptions or exclusions from the coverage. This legal document grants the buyer the security and peace of mind that the property has free and clear title to and is protected in the event of defect. The process of issuing a Title Guaranty includes the issuance of a Title Commitment before the closing to allow the buyer time to examine the legal status of the property and evaluate if the property is in proper condition for purchase. The final title guaranty is issued after the close and is based on the title commitment. The Title Guaranty is a new concept in Costa Rica and Latin America in general, but it has already proven to add value to initial real estate purchases, re-sales and has encouraged transparency and increased liquidity in the real estate process.

Escrow

Most buyers from the US understand Escrow service to include not only the managing of funds for a property purchase, but all of the administrative work required to execute a closing. In fact, in states where an attorney is not required for a real estate purchase, the escrow agent becomes the central party responsible for ensuring that all documentation is in order before the close. In Costa Rica, the escrow agent performs many of the same duties. The primary function is the financial service to prevent manipulation or mishandling of funds prior to closing. The escrow agent is a neutral third party with responsibility for issuing checks and executing payments. This system gives confidence to all interested parties (e.g. attorneys, brokers, seller, buyer) that funds are protected during the buying process and that all funds will be disbursed appropriately to all parties at closing.

You have several choices of title companies to choose from. The first and formost would be the one that is registered with Menia. This means that a title company does have a legal and registered escrow account. This is important for you as a purchaser to understand that your money is safe. There are title companies that say they have an escrow account and do not have the correct documents to back them up. There are a few lawyers that have a legal escrow account.

Our recommendation is Chicago Title Insurance, for we know that they do have the legal paper work inorder.

Financing

With some properties, owner finance is available at between 8-10% per year.  Financing has started with the bank of Nova Scotia in Costa Rica with interest rates as low as 7.5%, but the requirements for foreigners are still tight.  At this time, it is more profitable for our clients to acquire a U.S. mortgage loan for the lowest interest rate. All transactions are based on U.S. dollors whether buying, selling, lawyers fees and mortgages.

Zoning

Knowledgeable lawyers agree that zoning regulations in Costa Rica are reasonable and logical, although far less stringent then in other countries such as the United States. A registered local engineer must sign all building and subdivision plans, and they also require approval by the local municipality, the Ministry of Health, and the Government Housing Department.

Taxes

The taxes paid on properties in Costa Rica are very low. 

Yearly property taxes vary from 0.5% to 1.5% of the declared value of the property.  This declared value is a common law practice; in that a property's value according to the government is very low, almost always lower than the sale price. Corporation taxes vary depending on if your company is active or inactive. (meaning making money or not - to be explained with corporations below.)

It is the responsibility of the owner to declare the true value of their property to the corresponding municipality every 5 years. Taxes must be paid yearly or interest will be added. The government has the right to repossess the land if taxes are not paid in a timely fashion.

All taxes are paid in Costa Rican currancy colonies and must be paid at the municipality.

Closing Costs

Closing cost for a sale include a transfer land tax, a stamp tax, and legal fees. Closing costs are approximately 4.2% of the sale price. The transfer and land taxes are assessed based on the declared value, while legal fees are charged based on sales price of the property.

It is a common practice with many lawyers here to lower the actual amount paid on a sale to a much lower sum on paper to reduce the land transfer tax. This is acceptable if you are willing to take the risk, but be aware should there be any legal disputes at a later time, that you will only be compensated for the amount registered at the National Registry.

SALES TAX ON REAL ESTATE COMMISSIONS.
There is a sense that Costa Rican Real Estate Brokers are considered "tax collectors". It is the responsibility of the Broker to collect from the owner the sales tax on earned commissions. Other real estate related services such as rents, property management, mortgages and appraisals are not subjected to this tax.

FOREIGNERS REMITTANCE SERVICE TAX.
Fees charges to foreigners for services performed are subjected to a 15% tax..

100% tax free on Capital Gains as long as you do not sell more than one property per year.

If you want to return to your country with the moneys from a sale in Costa Rica, in most countries you can repariate the amount you brought into the country at no extra expense as long as you can prove how and when you brought it in. So it is better to transfer money to Costa Rica, for there will be the paper trail to follow and proof.

Corporation

We advise all our foreign owners who purchase any property or vehicles to register them in Costa Rican companies for tax reasons as well as resale or inheritance.  The cost of a company will be around $600+/- depending on the lawyer you use.

The cost of a corporation is around $600.00

Transfer of board of director will cost around $450.00

Signing over the shares will cost about $200.00

THE IMPORTANCE IN HAVING CORPORATIONS IN COSTA RICA

I’ve had many inquire about the value of having a corporation in Costa Rica, and I would like to explain the ways of having a corporation and its benefits:

They are called Anonymous Societies (Sociedad Anonima or S.A.), because the stockholders are never mentioned anywhere, except in the first document or Constitution. The Notary Public takes note of the parties that make the Society and that are the initial stockholders, after that the National Registry does not take note of that information and new ones are never mentioned, unless they want to be.

The stocks in an Anonymous Society are transferable with only the stockholder signature & endorsement and can change hands as many times necessary. They are presented in the annual meeting so the board of directors can take note of the presence of the stock and its holder.

The Commercial Code of Costa Rica, which is a copy of the Mexican Commercial Code (which is also a copy of the Spanish Commercial Code), had the original intention of making possible the trip to the new found lands of America at the beginning and kept that idea through time. This gave the explorers a legal instrument to finance their expeditions and at the same time, it gave the investors security in their investment because they owed a percentage of the corporation that made the trip, therefore the same percentage of the benefits of it. The Corporation in this sense is a legal individual, who represents the interests of its stockholders, and was important to be able to claim a piece of the new riches found in the new found lands once the trip was finished

Through time the idea of the Anonymous Society has changed very little, so the legislation is intended for that type of Entity. A big Corporation with a lot of stockholders who start a new business or service, which initially is financed by the stock holders and then, when the business is running, they get back their percentage of the earnings.

But times have changed and we lawyers have found new uses for the legal figure of the Corporation, and though it is still intended for the initiation of a business that would generate income, there is also another use for it. The corporation can be used to hold your assets in Costa Rica, and it can become a good way to limit your liability in personal liability situations you may encounter.
If your idea is to buy a house or real estate in Costa Rica, it is a good idea to do it through a corporation so that those properties have liability protection.

To constitute a corporation you require

-           At least two persons, because a “Society” means more than one.
           
-           An amount of capital to give economical ground to the corporation (how much would stocks cost and how many stocks should be generated).

-           A board of directors that is made up of a President, Secretary and Treasurer (at least).

-           A Fiscal who has the obligation of vigilance of the Corporation activities

-           A Resident Agent (that normally is the Notary Public who constitutes the Corporation) who will the responsible of receiving judicial and extra judicial notifications for the Corporation.

-           A legal representative for the Corporation (normally the President of the Board of Directors or he and the Secretary acting together).

It has to be specified if the power of attorney given to the Representative has no limita­tions (as the Spanish legal term says, GENERALISIMO SIN LIMITE DE SUMA), that means he can buy sell and in any way direct assets of the corporation.

The corporation has a set of six legal books in which the changes are made. The inventory, the stockholder registry, the general assemblies and the board of directors’ assemblies are kept, and also a book that states the annual balances of the fiscal year. (In Costa Rica from October 1 to September 30 of every year).

You may change the board of directors, the powers they have, and all the possible agreements necessary for the corporation to operate.

Many corporations never even use their books, because they never have commercial activity and its board of directors never changed. This is the case when the corporation is used only to hold real estate or vehicles, never conducts any type of business and stays away from trouble. It actually can do this because, different from a physical person, a juridical person never has the possibility of having liability for accidents or criminal activities, but there is always an exemption to the rule

-           Vehicle accidents; the corporation will be responsible for the damage caused by the accident, and if the car is not well insured or the deductibles are not paid, the other assets can be foreclosed to pay for the amounts pending. It is important to have a good insurance on your vehicles or keep cars and real estate in separate corporations.

-           If your corporation has an employee, it is responsible for work benefits and any accidents of its employees, as well as following the regulations on work risk insurance and social security.

-           In case of a mortgage on the real estate of the corporation, if the property given in mortgage does not cover all the expenses of the foreclosure, the other real estate registered on the same corporation would be liable for the amount pending after final foreclosure.

It is very important to have control over the board of directors so you never loose sight of the real estate that is in the name of the corporation. Also to keep the stocks and legal books in a safe place. Always have a lawyer and a good accountant to keep the corporation up to date with all its requirements, and file all tax statements on time to avoid penalties for late presentation.

One of the most important aspects of a corporation is how easy it is for your family to inheret your assets if your corporation is set up correctly. In Costa Rica it can take up to 7 years before your benificiary receives the properties you leave behind. Corporations work better than wills do for foreigners and wills that you produce from another country does not work in Costa Rica.

Regulations for Beachfront Property ("Terrestrial Maritime Zone")

When buying beachfront properties, one must be aware of the Costa Rican regulation that the coastline is all public.  By law, the first 50 meters above the mean high tide line are inalienable public, defined by what is known as the 50-meters line.  No one can restrict access or have a totally private beach.  There are some exceptions, but they include port areas, old land grants, and some title prior to 1973.

On 80-85% of the coast, the next 150 meters are government-owned lease, and also known as the maritime-terrestrial zone (or just maritime zone).  Restrictions on maritime zone land for foreigners are that one must establish five years residency to own more than 50% of the rights to a lease.  A loophole includes holding the lease with a corporation that is 50% held by a Costa Rican (or a five year resident) in name only.  Development of the maritime zone does not discriminate against foreigners.  A regulation plan must exist for areas where the land is, or just for the parcel itself.

The other 15-20% of the coast is land that has title to the 50 meters line.  That is to say that no maritime zone exists and the landowner may develop without inconvenience of filing a regulation plan.

The leased contracts can vary from 5 to 40 year-terms and are perpetual (automatic renewal).
Concession land is taxable each year. This is called the canon tax.

There is no risk of owning lease land in Costa Rica.  The Costa Rican government has in its history never revoked a concession that is current and up to date, nor expropriated a concession property. Furthermore, 85% of all coastal property in Costa Rica is concession and much of it has homes, business or hotels (Melia, Barcelo, Allegro etc…) built on it. As a single example, the Four Seasons Hotel built in the peninsula of Papagayo is entirely concession land and the projected budget for the hotel and Arnold Palmer Golf Course is $105 million dollars.

Your lawyer will make sure that all the legal papers are in order with the municipality and the registry just like they do for titled land.

Like all lease contracts, some basic rules are established and you have to respect them. (Number of story for buildings, size of unused land etc…). The Costa Rican government wants to keep control over is coastal land and make sure it is well developed with respect to the environment.

Building

The real estate buying process in Costa Rica need not be intimidating or confusing. By understanding the steps in the process and pitfalls to avoid, a buyer can confidently invest in and enjoy their property for years to come.