Guide to Buying Property in Costa Rica

Many foreigners are drawn to the natural beauty, warm climate, and laid-back lifestyle that this stunning country offers. But one question that often comes up is whether foreigners can buy property in Costa Rica. Well, the good news is, yes, they can!

Buying property in Costa Rica is not as scary as you would think, either, despite some of the horror stories you might have heard. With the right team guiding you through the process – from locating a property that suits your needs and informing you about property values and other considerations in the area, to assisting you with negotiating a fair price – buying your dream home can be a very rewarding and exciting experience.

Here’s what we’ll cover in this guide

• How Property Ownership Works
• How Escrow Services Work
• How Closing Costs Work
• How Financing Works

Why Buy Property in Costa Rica

Costa Rica is known for its welcoming attitude towards foreigners, and its property laws reflect that. Whether you’re looking for a vacation home, an investment property, or a place to retire, owning real estate in Costa Rica is within your reach.

One of the key reasons why owning property in Costa Rica is so accessible to foreigners is the country’s property ownership laws. Unlike some countries where restrictions may apply, Costa Rica has almost no restrictions on foreigners owning property here. Whether you’re a resident or a non-resident, you can even own property in your own name.

Here’s a look at a couple of reasons why so many people from the United States and other countries buy property in Costa Rica:

Friendly Laws For Foreign Investors and Home Buyers

Unlike some of the other countries In Central America, foreigners have the same rights when purchasing land in Costa Rica as locals do. You can own property outright in your own name or in the name of your corporation, which is explained in more detail in the section on how property ownership works. There is also no need for a local partner, except in cases of beach front concession property where special rules apply (also explained in the next section).

The Costa Rica Real Estate Registry

Another plus for property purchasers in Costa Rica is its central land registry, which allows your lawyer to confirm if there is clear title to your property. It also allows your lawyer to determine if there are any restrictions on the property before the deal goes through. Also attractive are Costa Rica’s very low property taxes, which is a quarter of 1%, annually. That means if you buy a condominium or home with an assessed value of $100,000. the property taxes per year would be $250. Now that’s what I am talking about!

How Property Ownership Works in Costa Rica

There are two different avenues for purchasing property in Costa Rica: individual vs. corporation. Both have their advantages, which is explained in more detail below. You’ll also find options for titled vs. concession property, which we also go over in this section.

It’s also important to note that all properties should be registered in the Public Registry of Properties, whether the property is fee simple or concession. By means of the Public Registry of Properties, your attorney will be able to confirm that the seller possesses ownership of the property and determine if there are any restrictions, liens or encumbrances on the property before the deal goes through. Avoiding the purchase of unregistered property is strongly recommended as this could take years to rectify.

Each property registered in the Public Registry of Properties is assigned a Folio Real number, which is the unique number assigned to each property to identify it. The number is comprised of three parts, the first number indicates the province the property is located in, there are 7 provinces in Costa Rica. The second group of six numbers is the number of the property itself, and the last group indicates how many owners the property has. All properties must have this number in order for a clear title to be obtained. Each registered property also has a survey map or Catastral or also called a Plano Catastro. In order to transfer, mortgage, or acquire a property, the survey plan must be recorded at the Public Registry of Properties.

Buying Property in Costa Rica Individually

There is absolutely nothing to prevent you from purchasing property in your own name in Costa Rica, and it does have its advantages when compared with purchasing property under a corporation (which we’ll explain next).

Some advantages of personal ownership include:

• Simplify various aspects of property ownership: As an individual property owner, you may find it easier to open bank accounts and access financial services. Furthermore, service providers, such as telecommunications companies, often require less documentation when the property is registered under your name.However, it should be noted that if you’re making the purchase in your personal name (if you are not present) you will need a special power of attorney so the an attorney is able to complete the transaction on your behalf.
• Potential tax advantages: In numerous situations, selling your primary residence could exempt you from capital gains taxes. This exemption can lead to substantial savings compared to selling property that is owned by a corporation. The burden is that it your domicile, and this can be shown by either having residency, or providing documentation that you have been in Costa Rica for at least 180 days over the past 12 months.
• Personal use flexibility: Owning property individually grants you the freedom to utilize the property for personal purposes without the constraints typically associated with corporate ownership. This includes the ability to use the property as your primary residence, a vacation retreat, or even for short-term rentals.
• Financial savings: Individual ownership often incurs fewer legal and administrative costs compared to corporate ownership. Additionally, easier access to financing and reduced compliance obligations for corporations can further enhance cost efficiency.

Buying Property in Costa Rica via a Corporation

Although purchasing property in your own name in Costa Rica is easy and comes with some advantages, the majority of buyers opt to form a corporation with the help of a reputable lawyer, then make property purchases through that corporation.

The reason for this is threefold:

1. It may be more beneficial to have your income (from rentals) or capital gain (from the sale of the property) taxed within a Costa Rican company rather than having it taxed as personal income. Of course, this depends on the tax laws of the country of residency.
2. It allows for simplified estate planning, whereby you can give or will shares of the corporation that owns the property to members of your family.
3. If you ever decide to sell your property, you can avoid paying property transfer taxes a second time by simply transferring the shares of the corporation to the new owner.

Forming a local corporate entity and using it to purchase and manage property holdings is a practical and common sense route to take in Costa Rica. While it is extremely easy to create a corporation in our country, it’s also a smart move, which serves your interests since it will, in many ways, make things easier and safer for you. Unlike the restrictive regulations found in other jurisdictions in Central America and around the world, the new entity or corporation may be fully owned by a foreign citizen, according to Costa Rican law.

Nevertheless, a new local corporation is a distinct entity from its owners (the shareholders). Thus, the new Costa Rican corporation will also be able to sign contracts, purchase and sell its assets, and enter into business in its own name.

How Forming a Costa Rica Corporation Works

When forming a corporation, the legal system allows for several specific corporate entities to choose from. The two most commonly used forms are the Sociedad Anonima, generally abbreviated S.A., and a less elaborate form of the former, called Sociedad de Responsabilidad Limitada, known as S.R.L. or Ltda.

Both the S.A and the S.R.L. are limited liability corporations, meaning that its owners are only responsible for the corporation’s debts with their own personal assets up to a certain limit, and their initial participation in the social capital, which in practice can be insignificant. The two may be used to conduct the same type of activities as regulations do not require for you to select one or the other, depending on what you plan on doing. Notwithstanding this, there are differences between them, and you should select the one that best suits your needs.

For instance, the administration of the S.A. is more complex than the S.R.L. The S.A. must be managed by a board of directors consisting of at least three different individuals occupying the positions of president, secretary, and treasurer, plus a fourth person acting as a comptroller. In the formation of a S.R.L., only a single manager is sufficient according to the law.

Forming a corporation in Costa Rica, whether an S.A. or S.R.L., is a simple but formalistic procedure. It is simple because a corporation may be formed by as few as two individuals with legal capacity, although having to perform a formal incorporation deed with a Costa Rican Notary Public is required by law. This deed will show the names of those people appointed to represent the corporation and act on its behalf, and obviously, the name of the corporation being created.

How Naming a Costa Rica Corporation Works

Choosing a name for a new Costa Rica entity is always an interesting exercise. Some people name their Costa Rica Corporation after their favorite beach or geographic structure, or something that reminds them of home. Others jumble the letters of their children’s names, while animals are also popular, particularly, the humble iguana and turtle.

The name may also be a word, or more likely, a group of words in Spanish or in any foreign language provided a translation in Spanish is given. It can even be a name with no meaning whatsoever. The only condition is the new name must not be identical or similar to any other corporation already registered in the public registry. To avoid rejection of registration due to name similarity or any risk of confusion, a quick name search at the Registry before the incorporation is recommended and should be performed by the law firm in charge of the process.

Other Things to Keep in Mind When Forming a Corporation

The by-laws of the corporation – in particular its scope of activity, which can be drafted to cover a very wide range of commercial activities – will need to be stated on the Notary document, and the same is true concerning the initial capital shares and stock distribution among the partners.

The incorporation deed will also need to be filed for registration at the Commercial Section of the Public Register. All information contained in it becomes public access, meaning anyone can look it up. Future changes to these by-laws must equally be recorded at the Register. In contrast, share transfers that take place after the incorporation remain in the private realm of the company and must only be recorded in its shareholders registry book.

If you plan to purchase property in Costa Rica and form a Costa Rican corporation but decide not to reside in Costa Rica, we recommend utilizing your attorney as the resident agent. The attorney will hold and keep safe all the legal documents and perform annual shareholders meetings to comply with local laws. Even if nothing has changed, it’s advisable to do this in the event you want to sell your assets, all will be in legal order. The fees to form a Costa Rican Corporation and be a resident agent vary from attorney to attorney but are very reasonable, starting as low as $500 for a corporation and $300 per year as the resident agent

In short, Costa Rican law allows you to use a corporation to own land, a home and a condo, even when this entity does not conduct actual business in the country. There are advantages when proceeding this way and, although it may not be the best solution in all cases, most of the time ownership through a corporation can save you money and, perhaps more importantly, spare you unnecessary headaches.

Acquiring Beachfront Property: A Special Case

There is only one type of property that a person who has not been a legal resident of Costa Rica for 5 years cannot buy outright, and that is concession beachfront property. The first 200 meters inland from the medium high tide mark is called the Maritime Zone and can only be leased by a concession from the local municipality. This land is not titled.

Concessions can be granted for 5 to 20 years, the latter being the more common. The lease could be transferred through a legal shell corporation in which a Costa Rican citizen is the majority shareholder. Keep in mind, the first 50 meters from the medium high tide mark is considered a public space and building property there is prohibited.

There are also strict requirements for building on the remaining 150 meters. For example, there are restrictions on building heights in certain areas to protect the environment and preserve the natural beauty of the country. So you will want to do all sorts of due diligence BEFORE deciding to acquire the concession.

Why Due Diligence is Key When Searching Property for Sale in Costa Rica

One of the first things you should find out about a property for sale in Costa Rica is if the title of the property is properly registered and free of liens, encumbrances and annotations. (A title or deed is called an “escritura” in Costa Rica.) This is extremely important because it’s common for properties to have been in a family for years, and we often find that such properties were never properly registered and the taxes were never paid.

To do a title search, your lawyer will take the Folio Real Number of the property and insert it in the national registry system to determine if it’s clean or if it has issues. This allows them to check their records and provide you with current information about the desired property.

The process of transferring the title must also be prepared by and executed before a registered licensed notary. In North America, a notary only authenticates signatures, but in Costa Rica, the role is much more expansive. To be a notary in Costa Rica, you must be an attorney, then go to school for two more years and pass more exams to become a “Notario” or notary.

How Escrow Services Work in Costa Rica

Just like buying property in the United States, escrow is an important element of buying a home in Costa Rica, as it’s used to protect both the buyer and seller throughout the transaction. It’s also the most difficult part of purchasing a property in Costa Rica due to money laundering laws, so knowing how to prepare for escrow will make the process go smoothly and lead to less frustrations. You’ll find escrow services available through well-known international companies such as Secure Title Latin America.

What is Escrow?

Escrow is a legal arrangement in which a third party escrow company temporarily holds money until the fulfillment of a purchase agreement. Escrow companies are legal financial entities authorized and licensed to hold funds as a neutral third-party real estate and other dealings. Escrow companies in Costa Rica must be registered with SUGEF, which stands for “Superintendencia General de Entidades Financieras” (Superintendent General of Financial Institutions).

This organization audits financial institutions to ensure they are complying with federal and international financial regulations. Such institutions include banks, savings and loans, and employee credit unions, as well as other institutions or persons that handle large money transactions, such as real estate agents, escrow companies and even property management companies. SUGEF is similar to the Office of the Comptroller of Currency (OCC) in the United States.

How to Prepare for Escrow

Have your documents ready! Every transaction must be supported with the following documents (also note that each individual depositing funds into the escrow account needs to provide these items):

• A copy of your passport, or Costa Rican Cedula for locals, Dimex for foreigners, and driver’s license. It must be a full-page color copy of your photo and signature page. Even all four corners must show a passport and drivers’ license.
• A “Know Your Client” form filled, printed and signed with ink. This form will be supplied to you by the escrow company. Your signature must match exactly to the signature in your passport.
• Your most recent tax return/tax filing/tax assessment. This is to comply with FATCA law for U.S Citizens or the CRS Reporting Standard for other nationalities.
• A Bank Verification Letter issued by your bank indicating the age of the account and average balance. If the letter is generated outside of Costa Rica, it must be apostilled by the Secretary of State.
• Documents that support the origin of funds to be received by the escrow company. This may be, but not limited to, proof of property sale, salaries, dividends, inheritance, or any other document considered to support where funds have originated.

Here are some things to keep in mind when submitting your documents:

• If the origin of funds come from salaries and/or savings from salaries, you must provide bank statements of the last six months showing funds available to cover the transaction.
• If the origin of funds are dividends payments, you must provide proof of ownership of shares*/financial statements (certified by public accountant) or tax filings from the corporation*/and last 6 months of account statements where funds are allocated.
• If the origin of funds is a real estate sale you must provide all closing documents (sale deed and closing statement) and proof of payment (incoming wire to your bank account).
• If the origin of funds is inheritance you must provide legal document that confirms inheritance or beneficiaries* and last 6 months of bank statements where funds are being held.

Please note that all documents must be in English, while all legal and financial documents must be certified and apostilled for the bank’s purposes. Please also take into consideration that the escrow company will need incorporation documents if the funds are transferred from a company/corporate bank account. Documents coming from outside Costa Rica must be apostilled by the Secretary of State.

When wiring funds they must come from the same accounts you provided for compliance purposes. If you plan to send the initial deposit and final closing amount of funds from different banks or financial institutions, all documentation from each bank/financial institution must be supplied at the beginning of the process to make the final closing as smooth as possible.

Please also keep in mind that all escrow companies require you to send documents via a secure link or portal to ensure the safety of your documents.

While escrow services may seem like a lot of paperwork not worth the headache, they are truly advantageous to both the buyer and the seller. Escrow tracks the entire purchasing process and gives the buyer verification when everything is completed, while also ensuring payment for the sellers. Both parties are well represented and taken care of, and the process doesn’t have to be difficult – good preparation and a solid understanding of the process will make the transaction go smoothly.

How Closing Costs Work in Costa Rica

A common question buyers have when purchasing property in Costa Rica is “what are the closing costs?” This is actually a very easy question to answer, as the laws of Costa Rica dictate the bulk of the closing costs.

When purchasing a property, the closing costs will be a percentage of either the agreed upon sale price, or the legal registered value of the property in the Public Registry system, whichever number is higher. Of course, the government always wants their cut to be the higher percentage; however, the total closing costs can be as low as 3.85% and should be no higher than 5%.

As mentioned before, property taxes in Costa Rica are very low. However, certain standard closing costs are required to transfer the title of a property from the seller to the buyer, and this is always paid by the buyer. 

Standard real estate closing costs in Costa Rica include:

• Real Estate Transfer Tax, which is 1.5% of the registered valuve of the property on the deed.
• Registration Stamps, which total approximately .84% of the purchase price.
• The Notary Fee, which is 1.25% of the property sales price.

Note that the closing costs will be based on the higher of the purchase price and the registered value of the property. As an example, the closing costs on the purchase of a $100,000 property would be approximately $3,590.00, with the property taxes, totaling around $250 per year or lower. There’s a lot to cover when it comes to how property tax and homeowners associations work in Costa Rica, so check out this guide for a more detailed explanation.

Breakdown of Real Estate Closing Costs

Here’s a list of closing costs to expect when purchasing property in Costa Rica:

Attorney/Notary Fees: This is the fee charged by the attorney/notary representing you in the transaction. The fee ranges from 1% to 1.5% of either the agreed upon sale price or the legal registered value of the property in the Public Registry system, whichever is higher. This fee allows your attorney to do any needed due diligence on the property to make sure you’re purchasing a free and clear title with no liens, encumbrance, or annotations. The notary will also ensure the new deed will be registered properly under your name or corporation once the sale is completed. (Note: Not all Costa Rican attorneys are notaries – to become a notary, one must become a licensed attorney first.)

Real Estate Transfer Tax: This tax is paid directly to the Costa Rica Government and is 1.5% of the registered value or the agreed upon sale price, whichever is higher.

National Registry & Documentary Stamps: This fee will be .85% of the registered value or the agreed upon sale price, whichever is higher. Here is a further breakdown: National Registry Stamps (0.5%) Agrarian Fees: (0.15%) Fiscal Stamps, National Archive Fee, Costa Rica Bar Association Fees (Less than $20) Municipal Fee: (0.2%)

Escrow Fees: Escrow refers to the registered company responsible for holding the funds and disbursing at closing. This fee can be split 50/50 between the buyer and seller, however the buyer typically pays 100%. The average escrow cost is about $550 and depends on the amount of funds the escrow company is responsible for safe keeping.

Wire Fees: Depending on the escrow company used for holding the funds, wire fees will be about $75.00 to disburse the funds after closing. Your bank may also charge you a fee for sending the funds to the escrow company, so be sure to check with your local bank.

Inspection Fees: When purchasing a finished property like a condo or a home, a home inspection is highly recommended. This will run anywhere from $300 to $700, depending on the size of the property, and will be paid out at closing by the escrow agency, so no need to send funds for this ahead of time.

Utility Transfer: If you choose to have your attorney transfer the utilities under your name or corporation, it will be an additional cost of approximately $250.

Utility Deposit: You will also have to give a deposit to the utility companies, which will be based on past usage but is usually around $250.

Affidavit For Money Laundry: For closing, you will have to sign an affidavit for money laundering. Depending on the law firm you use, the fee will be around $275.

Special Power Of Attorney: If you’re unable to be present for the closing, you will have to have a Special Power of Attorney, which ranges from $200-$400.

Corporation: If you choose to put the property under a corporation instead of your personal name, it will run you about $700-$1200, depending on the law firm or type of corporation you set up. Something else to keep in mind is each year you must pay a corporate tax, register your shareholders and file a tax return.

Survey: When purchasing a house or a lot, it’s very important to have a licensed topographer survey the property and make sure all of the lot lines are correct. A comprehensive survey with markers all on points of the property will cost around $750. If you need to survey a large property like a farm, the survey will be more expensive.

MISC FEES: A few additional fees that can be added into a closing include paying your new property taxes and HOA fees in advance.

VAT: All services used in the closing of a property will include a 13% Value Added Tax. This means that the cost for each service used will have this additional tax added on.

In short, the higher the value of the property, the higher the closing costs will be, so just use 5.25% of the purchase price as a safe assumption as to what you will spend on your new home in paradise when looking at your budget. A small price to pay! If you have any questions, please reach out and we’ll be happy to assist. We can also help you run the numbers on a property you may be interested in!

Disclaimer:We’re here to guide you with information about financing options, but for personalized details and current rates, we recommend reaching out toLAFISE,Banco BCT,BAC Credomatic, orBanco BCR.

Your dream property is within reach, and we’re excited to help you make it a reality in the purchasing process. Financing options for foreigners were always very limited in Costa Rica, but the environment is improving.

Currently, local banks have conditions for mortgage loans for home purchase, lot purchase, construction on own lot and transfer of mortgages or the purchase of a current mortgage in another bank. The maximum term is 30 years for a house or condo, and 15 years for a lot.

Now, let’s talk about the requirements for USA and Canadian citizens interested in obtaining a mortgage loan.

• Copy of passport
• Income tax of the last 3 years
• 6 months of statements and certification of income by public accountant (required for self-employed)
• Last 4 pay stubs with salary constance and 3 months of statements (required for salaried employee)
• 3 credit references or score (for example: Equifax, TransUnion, Credit Solutions, Karma Credit, Borrowell, Experian, etc.)
• KYC form, credit application form, and SUGEF form, all must be completed by the client and signed
• Proof of pension (required in case of being pensioned)
• Value of the property you wish to acquire
• Contract of purchase and sale or reservation

Also, local banks require each client requesting a loan also obtain a life insurance policy. The interest rate varies based on world markets, and each local bank may have a slightly different, but noteworthy offering.

Depending on the property, banks are able to lend from 50% to 80% of the value (LTV) of the property, based on the lower of either the purchase price or the appraisal. If the property is near a beach (for example located in Playas del Coco or Playa Hermosa) the client needs to put a 30% premium. However, if the value of the condo or house is high, the client may need to put up to a 40% or 50% premium. Also if the property will be used as a rental or vacation home, the premium starts at 35% or higher, depending on the value and location of the property.

If the property is far from a beach, such as a city like Liberia, the premium can start as low as 20%, but if the value of the condo or home is high, most banks will require a higher premium percentage. Each individual case is different.

Alternative Financing Options

Banks and mortgages aren’t the only options for financing a property in Costa Rica. Here’s a look at some alternative options:

• Home Equity Line of Credit: Another option to consider is getting a loan or home equity line of credit or refinancing your present mortgage in your home country. If you have equity in your property, this could be a viable option. Please check with your financial advisor first!
• Cash Purchases: If you have the cash on hand, you can certainly get a better deal with a fast closing and cold cash.

Getting More Creative

Since financing can be an issue in Costa Rica, there are other creative ways to finance if you don’t have all the cash. Here are a few common options:

• Owner Financing: You find the place you love but are short on the amount you need to purchase the property. Ask the owner to carry a small bridge loan for you. Usually, this works.
• >Hard Money Lending: This option is often not recommended. This is almost like loan sharking. There are individuals with large amounts of cash who will loan to those in need or are desperate, but keep in mind that the interest rates are higher than the banks, the terms are shorter, and the closing points upfront can be exorbitant. Please note, we do not recommend this, but the option is available.
• Self-Directed IRA:What is this, you ask? Most companies that manage your IRA claim they are self-directed, but in reality, they only allow you to direct your funds into stocks, bonds, and mutual funds. However, there are other companies that are truly self-directed custodial companies. Contact us for further details, we would be happy to discuss with you.
• 401K Rollover: Yes, you read “401K” – and it’s very easy to do, as I’ve personally experienced. Basically, you would rollover your present 401K to a self-directed IRA, not withdraw it, so you do not have to pay taxes or penalties. Most financial advisors, planners, and even the big mutual fund companies will tell you that you cannot use your IRA or 401K to purchase real estate. They may try to move your money into a real estate trust or fund. Why do they do this, you may ask? Because there are no incentives for them to do so (meaning no commissions, only annual fees for maintenance and fiduciary duties). However, with this option, there are solutions that can help you invest in real hard assets, such as real estate and other property-based assets. Of course, there are federal rules and regulations pertaining to the use of IRA/401K to buy real estate.

Consult an Expert When Buying in Costa Rica

When it comes to buying real estate in Costa Rica, having a knowledgeable broker by your side can make all the difference. As a seasoned broker here in Playa Hermosa, I’ve seen firsthand how crucial it is for buyers to have expert guidance throughout the purchasing process.

Costa Rica’s real estate market is unique, with its own set of regulations, customs, and challenges. Without the right guidance, buyers can easily get overwhelmed and make costly mistakes. That’s where a knowledgeable broker comes in.

One of the key benefits of working with a broker is their expertise in the local market. They have in-depth knowledge of the different neighborhoods, property values, and market trends. This insider knowledge can help buyers make informed decisions and find the perfect property that meets their budget and needs.

Additionally, a broker can help buyers with negotiations. They can leverage their experience and market knowledge to negotiate the best possible price for the property. This can save buyers thousands of dollars in the long run. Another important role of a broker is providing access to a network of professionals. From lawyers to inspectors to contractors, a broker can connect buyers with trusted professionals who can help with every aspect of the buying process.

A broker can also provide you with finding the proper legal team for legal advice. In Costa Rica, real estate transactions can be complex, especially for foreigners. A broker can help explain the legal intricacies, ensuring that the transaction is conducted properly and all legal requirements are met. This is especially true when you are not familiar with the process and terminology involved in transacting business in a foreign land.

More Questions? We’ve Got Answers!

If you’ve got more questions about moving to or living in Costa Rica, then be sure to check out our FAQs page or contact us and we’ll be happy to answer!