Why You Should Buy as a Corporation

Most people who are new to buying real estate in Costa Rica are surprised to learn that almost all real estate purchases by expats are done by corporations.

Different than in the US and unless you are in the real estate investing business there, expats in Costa Rica buy properties and houses in the name of a corporation rather than in their own name.

This is very often a common practice for individual protection of personal liabilities.

Furthermore, it makes it easier to open a bank account and utility services for the home.

Not all banks open bank accounts for foreigners under their personal name, unless they have a Costa Rican residency.

That’s the only area where a certain difference to locals exists.

As a foreigner, you can buy real estate in Costa Rica without restrictions.

The other exception is land that needs a concession, as it is the case with properties bordering coastlines.

Additionally, if you buy real estate at a price that is more than $200.000, you qualify for the temporal residency program as an investor.

Risks and Common Mistakes You Should Take into Consideration

So, by now it should be clear that buying as a corporation is a no-brainer. But it comes with some caveats.

Property owners very often like to sell the already existing corporation holding the property.

At first glance, this sounds good, since you just buy the shares and can save a lot of money in transaction costs.

But unlike the US or other more developed countries, there are not many ways in checking the existing liabilities of a corporation.

It is possible to some degree, but an uncertainty always remains.

By buying the shares of an existing corporation, you not only buy its assets such as properties but also the corporation’s obligations and liabilities.

And in the worst case, although the liabilities of corporations are theoretically limited by the capital stock, authorities can eventually come after the shareholders.

This might be more of an issue for S.A.s (Sociedades Anónimas) than for S.R.Ls (Sociedades de Responsabilidad Limitada).

This scenario is more relevant than ever, due to a new regulation that comes into a law by January 1st of 2019, where the main shareholders of a corporation will have to digitally sign an affidavit, confirming themselves as being one of the main shareholders.

So, you should ask yourself if you would like to take the risk on that.

Should you decide to buy the shares of an existing real estate holding corporation despite these circumstances, make sure the old board of directors resigns and you and your partner become the sole shareholders.

But, if you have any doubts about the reputation or the liabilities of a particular holding corporation, rather have a clean slate and set up your own.

The downside, in this case, is that you now will have to pay more in transaction costs because in this case the title transfer of the property will now be done through the National Registry of Costa Rica.

The Most Commonly Used Corporation Types in Costa Rica

To purchase real estate, a certain type of corporation is preferably used, namely the Costa Rican version of an LLC called Sociedad de Responsabilidad Limitada with the short form S.R.L.

As already mentioned, if a Sociedad Anónima (S.A.) has any problems, the shareholders can be identified and held liable.

This is not completely the same case with Sociedades de Responsabilidad Limitada (S.R.L), the Costa Rican LLC.

So, it’s best you set up an S.R.L. to buy real estate in Costa Rica and not an S.A.

Another upside of using a corporation to purchase properties is that you could buy as a family and appoint all family members as legal representatives.

This approach avoids all kinds of hassles, should a family member pass away.

Children don’t have to show a birth certificate of the family member that has passed away since they are already shareholders in the corporation.

And even if they are not shareholders, they just show the birth certificate and with that, they are able to execute their powers.

The costs of setting up a new corporation range between $500 and $600 and the re-instated corporation tax in 2017 is about $120 per year for each inactive entity.

Summing up, in any case, you are better off buying real estate in Costa Rica as a corporation and it’s best to do it preferably using a newly set-up entity in order to avoid any unwanted hassles and/or liabilities.