Real Estate in Costa Rica
Frequently Asked Questions

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Q: Can I purchase and legally own property in Costa Rica?

A: Yes, foreigners have the same rights to own property in Costa Rica as citizens.  The only exception to this rule is concession property, which will be discussed below.  Otherwise, owning property in Costa Rica confers the same rights as in North America or Europe.

Q:  Are there special regulations regarding beachfront properties? 

A:  When purchasing beachfront property in Costa Rica, buyers should be aware of the Maritime Zone Law, which applies to property within the first 200 meters of the ocean’s high tide line.  The first 50 meters from the high tide mark cannot be built on by anybody and is considered public beach.  The next 150 meters is restricted and cannot be owned in fee simple but can be leased by a concession from the local municipality.  A Costa Rican citizen must always have a percentage ownership in this concession.  A concession can be granted for 20-99 years in Costa Rica and is transferrable. 

Q: What is a “Holding Corporation”?

A: A “Holding Corporation” provides several advantages to ownership.  When purchasing real estate it is common to form a corporation to hold the property being purchased.  A corporation provides a shield protecting your assets and separates your real estate investment from any other liabilities.  In addition it also allows for purchasing and sell by proxy, thereby saving travel and expenses, and helps avoid complicated probate issues. 

In this regard, U.S. citizens should always opt for using Costa Rican Limited Liability Corporations –instead of a Sociedad Anónima-, which are recognized by the IRS as “pass-through” entities, for U.S. tax purposes, and hence any tax payment made in Costa Rica may be credited in the United States.

Normally, companies holding title to real estate hold the contracts with service providers, employees and other contractors.  All of these are hence acquired –without the liabilities, which will be included and determined in the Due Diligence- when the holding company is acquired as part of the purchase. 

Q: What taxes apply to property ownership?

A:  Property taxes are astoundingly low, as they are applied to the value of the property as recorded by the local municipality, which often values properties below true market value. The property tax is 0.25 % of the recorded value of the property on an annual basis.

However, all properties that are registered with a value higher than an approximate two hundred thousand dollars (US$200,000), are also subject to a yearly “luxury tax,” which is paid to the Central Government in an amount equal to 0.25% of the recorded value of the property.

There is no capital gains tax in Costa Rica.  When you sell your home, you receive both the original cost of the house plus the appreciated value, tax-free.

Income, such as that derived from rentals, is taxed at a fixed rate of thirty percent (30%) for corporations. 

In addition, sales tax in Costa Rica is thirteen percent (13%).

Q:  How does the property registry work?

A:  All titled properties in Costa Rica are titled under a single, legal, government-managed system known as the Costa Rican Public Registry.  Property titles are registered in the Registry, whose records serve as ultimate proof of ownership.  In addition to recording title, the Registry also indicates whether a given property has any liens, encumbrances or easements associated with it.  Registry records are public and are accessible via the Internet.

Q:  Is Title Insurance available?

A:  No system for registering and protecting title is foolproof.  Title Insurance is available in Costa Rica, by means of Stewart Title and Chicago Title (LATCO).

Q:  What is Escrow?

A:  Escrow is a process that allows a potential buyer to place an amount of money (either a down payment or the entire purchase price) in the secure hands of a disinterested third party for a set amount of time.  In so doing, the buyer demonstrates to the seller the intent—and capacity—to make payment for acquisition of the property. The Escrow Agreement provides the conditions (free and clear title, for example) for transfers of the money.  It is only when those conditions have been met that the Escrow Agent is obligated to hand over the money to the seller; thus buyer and seller are both protected.

Q: What is Due Diligence?

A:  Due diligence is the process of researching the physical and legal status of the property you are about to buy before you buy it.   It will also be conducted in the holding corporation, if applicable.  During this process, you should confirm that the property is what the seller says it is, that it brings with it no legal complications that will make your life difficult and that you can do with it what you have planned.

In addition, Due Diligence will allow you to determine the acquisition process:  by means of acquisition of the holding company or by means of direct transfer of property to a new Costa Rican company, as explained below.

In the event the Due Diligence shows the probable existence of liabilities, then a recommendation will be made to keep a portion of the purchase price in Escrow as a hold-back, to ensure the buyer will not have to bear these liabilities.

Q:  What are the standard costs for Due Diligence?

A:  Most attorneys will charge based on an hourly rate.  However, some attorneys might be willing to include their fees for due diligence as part of their fees for the actual closing –described below.

Q:  Can you explain the buying process?

A:  Here are the basic steps in more or less chronological order:  find a real estate broker and find a property; check it out by doing some preliminary due diligence; have your broker begin the negotiation, offer and counter-offer; sign the sales agreement and put down a deposit; complete the due diligence process and inspection; make any contract adjustments according to findings of due diligence; execute Purchase Agreement (in any of its possible ways); pay transfer and stamp taxes, notary fees, broker fees, and administrative fees.

Depending on the result of the Due Diligence, your attorney will recommend the acquisition process:  (a) by means of a direct transfer of property from the Seller to a newly incorporated Costa Rican corporation; or (b) by means of acquisition of the shares of the Holding Company. 

Provided the result of the Due Diligence conducted on the Holding Company is positive, the acquisition of such company’s shares shall have the following benefits:  (a) no stamp taxes will have to be paid (equal to 0.9% of the purchase price); (b) all services (i.e., water, cable, electric, and in some cases, already existing bank accounts) will most likely remain in the Holding Company’s name and be transferred to the Buyer.  Benefits regarding transfer taxes are no longer available, since September 2012.

Q:  What are the standard closing costs for a Real Estate transaction?

A:  When a property is sold, a tax equal to 1.5% of the value of the transaction is levied on the transfer of the property.  As of September 2012, such tax also applies to the transfer of shares of the holding corporation.  In addition, stamp taxes equal to 0.9% of the value of the transaction, apply when the vehicle used is a direct transfer of property.  Legal and notary fees are equal to 1.25% of the value of the transaction.  Total:  3.65%.

Therefore, by acquiring an already existing corporation that holds a property, payment of 0.9% for the stamp taxes may be waived.

Q:  What is a Trust?

A:  A Trust is created in order for a third party (Trustee) to oversee the Trust Assets (i.e., share certificates, real estate, vehicles etc.) to safeguard them from any potential liabilities, to guarantee the fulfillment of the terms and obligations set forth by the parties in a Guarantee Trust Agreement, and to create a vehicle for their direct inheritance to the Trustor’s beneficiaries, according to the instructions set forth in the Trust in a Living Trust Agreement.  The Trust Assets remain under the Trustee’s custody, as fiduciary property, during the term of the Trust. Upon occurrence of any of the events described in the Trust (i.e., death of the Trustor, fulfillment of the obligations by the parties), the Trustee shall act pursuant to the instructions and transfer the Trust Assets to the beneficiary of the Trust.

Q:  What are the costs associated with setting up a Trust?

A:  Standard, mandatory fees for setting up a Guarantee or a Living Trust are around one percent (1%) of the loan amount (for a Guarantee Trust), or the Trust Asset’s value (for a Living Trust).  In addition, an annual trustee fee shall be paid.  Most Trustee’s charge between five hundred dollars (US$500) to one thousand dollars (US$1,000), on an annual basis.

Q:  Is financing available for foreigners in Costa Rica?

A:  Yes.  Financing from private lenders is the best option for foreigners, as most local banks have proven to be too strict on their requirements for foreign debtors.

Q:  If I purchase on terms, should I use a mortgage or a Guarantee Trust?

A:  For collateral purposes, both mortgages and Guarantee Trusts provide protection to the Creditor.  However, both from a cost and a collection process perspective, Guarantee Trusts have proven to be more effective.

Legal fees for setting up a Guarantee Trust are normally one percent (1%) of the loan amount, whereas in a mortgage, in addition to the one percent (1%) legal fees, an approximate one percent (1%) shall be paid in registration and stamp taxes. 

Q:  What is a tourist Visa?

A:  North Americans and Europeans visiting Costa Rica are granted a three-month tourist visa on entering the country. After the three months have lapsed, tourists who want to extend their stay another three months can do so by hopping over the border to Nicaragua or Panama and remaining there for at least seventy-two (72) hours. On reentering, they will be issued a new three-month visa.  The validity of doing this has become controversial recently and you should consult your attorney before employing this method.  However, chances are that if you plan on staying in Costa Rica for extended periods of time you should and could be eligible to apply for a temporary residency.

Q:  How can I obtain my temporary residency?

A: There are several ways to may apply for and obtain a temporary residency.  The most common are by claiming “pensionado,” “rentista” or “investor” status. Individuals who apply for pensionado (retiree) status, must demonstrate a fixed income from Social Security or government guaranteed pension of at least $1,000 per month.  Rentista status caters to those with regular income from personal investments.  To apply for temporary residency under rentista status, the applicant must show at least $2,5000 per month in permanent and stable income for at least two years, guaranteed by a banking institution or a $60,000 deposit in a Costa Rican bank.  In the case of investor status, you must invest at least $200,000 in a business or property in Costa Rica. 

Q:  Is it possible to have a Costa Rican Bank Account?

A:  Yes.  After you have acquired real estate in Costa Rica or obtained a temporary residency, it is possible to open a bank account in Costa Rica.  Most banks will require proof of ownership, which may be provided by your attorney after the closing, along with letters of recommendation from your banks.  All other documentation will be provided by your attorney in Costa Rica.  Most attorneys will assist you in the process and charge you for their services on an hourly rate.

Q: Can you own a beach front land in Costa Rica?

Dreaming of purchasing a Costa Rica beachfront property where your backyard is the ocean is close to impossible to find. Most of the beachfront property is actually concession land, which means it is in the public domain and not available for private ownership. In Costa Rica, concession properties are generally avoided because they don’t grant the ownership rights. Taking possession of these properties is the equivalent of a long-term lease.

95% of the beachfront property is concession and governed by maritime zone law. The first 50 meters of beachfront are held under public domain, and the next 150 meters of land are held under concession. The buyer may use the land for a number of years. Generally, concession land is far less money because of their complicated status. When you purchase concession property, than you are agreeing to the fact the government maintains the right to seize the property if it is needed.

If you decide to go ahead and purchase a concession property, consult with an attorney to make sure the seller has the rights to occupancy, and is in fact in a position to offer you the rights to the land. The land use rights can range anywhere from 5 to 40 years. Most concession properties offer 20-year occupancy rights. If you’re a die hard beach lover with your heart set on having the ocean as your backyard you may take the risk. Be clear that you are essentially signing a long term lease on the land not purchasing the property.

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