I get this question a lot. And truth be told, virtually all real estate transactions in Costa Rica by foreigners (certainly all that I’ve been involved with) have been conducted with a Costa Rica corporation interposed. That is, the buyers are invariably recommended to use, and invariably do use, a corporation, or limited liability company, as opposed to making the purchase in their individual names.
For starters, there are two basic kinds of entities most often used for real estate purposes. The first is the Sociedad Anonima, or S.A. It is most analogous to a C-Corporation in the U.S. The S.A. is the most formal of the two entities and requires officers and a board of directors, annual meetings, etc. The other type of entity, more often used, is the Sociedad Responsibilidad Limitada, or S.R.L. It is most analogous to the Limited Liability Company, or L.L.C., in the U.S. It is governed by a manager or managers and the process for maintaining one is less formal than the S.A. Both of these entities afford liability protection for the owners, so there’s not a whole lot of difference in that respect. Attorneys will most often recommend the S.R.L. simply because it’s easier for foreign owners to maintain.
So, why do attorneys recommend the use of a Costa Rica corporation for purchasing Costa Rica real estate?
Reason number 1, most often cited, is the limitation of liability, or liability protection for the owners. That means that if there is some liability inducing incident, such as someone getting hurt on your property, only the assets in the name of the entity can be reached. The owners’ personal assets cannot. That is basically the same reason such entities are used for business purposes in the U.S.
But there are others…
One of the first things a new owner of Costa Rica real estate will want to do is to have all utilities transferred over from the former owner. However, that will be very difficult for a foreigner to do with just a passport and no residency in Costa Rica. The Costa Rica corporation, however, can have those utilities transferred into its name and the owner can accomplish this with a simple document called a personaría juridica that shows the owner is acting on behalf of the S.R.L. The same goes with many other forms of transacting business in Costa Rica without residency. For instance, opening a bank account. Now, it is possible to open a bank account with a Costa Rican bank simply using a passport, but such accounts are severely limited. It is much better to open one in the name of your S.R.L., at least until you obtain your Costa Rica residency.
There are other, more esoteric, reasons that a Costa Rica corporation can be beneficial. For instance, if you die owning Costa Rican property it will be much easier for your survivors to carry on with management and even disposition of the property if you own it with them in an S.R.L., as opposed to your individual name. Otherwise, they will only be able to take such control after going through a lengthy and frustrating probate process in Costa Rica.
For owners who are trying to transact business in Costa Rica while outside the country, the Costa Rica corporation will make it much easier. By authorization of a simple proxy letter, the entity can grant a power of attorney to someone in Costa Rica. The proxy letter can be signed by the owners of the entity while outside the country and such signatures do not have to be formalized for legal use in Costa Rica. That is not true for the granting of a power of attorney from person to person, which would either have to be done while present in the country before a Costa Rican notary public, or a signature out of country would need to be executed at the nearest Costa Rica embassy in the case of a general power, or with the use of an apostille in the case of a special power.
If you are conducting a business with your corporation, as opposed to simply using it as a holding company, or inactive corporation, you might find there are tax benefits. Just like in the U.S., more things can be deemed deductible for business purposes, as opposed to being non-deductible personal expenses, if those expenses are undertaken in the name of the entity.
There are some drawbacks to using a Costa Rica corporation for purchasing Costa Rica real estate. One is that a corporation tax has to be paid each year. However, for most inactive real estate holding companies, that tax is very minimal at only around $120 per year.
Another complication that was enacted into law a couple years ago, but only implemented as of March 1, 2019, is the registration of shareholders (or managers). Each year the president of the S.A., or manager of the S.R.L., must register all owners of the entity, as well as its capital stock. This is further complicated by the fact that only residents of Costa Rica can accomplish the registration process. Otherwise, you will have to grant a power of attorney to a Costa Rican citizen, or resident, to do it for you. There are fairly substantial fines for not doing this registration.
Back in the good ole days parties to real estate transactions would try to reduce closing costs by doing share transfers. The idea being that if the shares of the entity owning the real estate were transferred from seller to buyer, rather than transferring the title itself, you could avoid the transfer tax and other typical closing costs. Also, since the property was probably declared for property tax purposes at a very low level, the new owner could maintain that low declaration and continue to pay virtually zero, or very minimal, real estate property taxes (pegged at a quarter of 1% of the declared value). Those loopholes have been slammed shut and don’t let anyone tell you differently! Any attempt to do the above would be considered tax fraud under current law and can get you into a heap of trouble.
Attorneys will almost always advise foreigners to use a Costa Rica corporation for purchasing real estate. The typical S.A. or S.R.L. can be set up in a matter of days and costs range from $500 to $700.
Important Disclosure: While I was, once upon a time, an attorney in the U.S., I am NOT one in Costa Rica (only a lowly real estate agent). So, please take the above as general guidance with a grain of salt and seek competent legal counsel for all things legally related (such as using and setting up entities) in Costa Rica.
Update: Once upon a time consumers had one choice when purchasing services like water, electricity, telephone and internet. However, nowadays some of that has been opened up to competition. Probably as a result, it is now much easier to open up accounts for utility services, telephone and internet in your personal name with just a passport. Corporations are really no longer necessary for this purpose.