Purchase Process and Costs
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. One of the greatest concerns of foreigners purchasing real estate in a foreign country is to ensure that the transaction will be executed legally and if the system can ensure a lifetime of enjoyment of the property. The Costa Rican legal system, if followed correctly, does give ample protection to investors, but if the transaction is not executed properly, loss can and does occur.
1. Acquiring Properties through direct transfer: A purchase process whereby one or more physical individuals acquire a property in their personal name.
2. Acquiring Properties through corporations: A common practice in Costa Rica is to acquire properties through a new corporation or through an existing corporation that currently owns the property of interest. The process of setting up a corporation is not complicated, but does require a knowledgeable attorney who understands the exact protocols and procedures necessary to properly set up the corporation.
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
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.
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 owner 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.
Step-by-Step through the purchase process:
1. Once a buyer has seen a property of interest, the next step is to understand what the process of acquiring the property may entail. 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 make sure who owns the property, if the property has any mortgages, liens, encumbrances, or easements attached to the property. If this comes up clean proceed to step 2. 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/Sale with seller and deposit funds into escrow (if available) in order to reserve the property.
- Step 3: In addition to the title search, make sure that your representative shows you the following documents: zonig from the municipality which dictates what the property can be used for (uso del suelo), property plan (plano catastrado), annual property taxes paid in full (impuestos municipales al dia), and letter of availability of water (carta de disponilidad de agua).
- Step 4: Have a Public Notary draw up a purchase deed which will be inserted into his/her legal protocol book.
- Step 5: Closing - Execution of Transfer Deed, Endorsement of Shares and/or Mortgage Deed and disburse fund. In most cases closing costs are spilt by the seller and the buyer 50/50 unless otherwise negotiated.
- Step 6: Register new owner with the National Public Registry.