FAQ guide to purchase your second home in Central America
For many years, Costa Rica has been considered one of the happiest countries on the planet, with one of the most stable and consolidated democracies in Latin America, and with a sustainability and human rights protection vision. It concentrates a large part of the world’s biodiversity and has been considered an example for the world in the fight against COVID-19, among other virtues, which makes it the perfect place to take vacations, invest or to purchase your “second home”.
According to the above, foreigners have 3 clear options:
- Visit Costa Rica as a tourist
- Invest in different niches in Costa Rica
- Purchase a property as a “second home”, which are non-exclusive.
The following questions come up when the foreigner decides to purchase real estate in Costa Rica, either as an investment and/or as a “second home”:
- Can a foreigner own real estate?
In Costa Rica, the general rule is that foreigners can purchase properties, directly or indirectly, just like any Costa Rican. Nevertheless, when the real estate is located in the maritime zone or on the border strip, there are certain restrictions.
- Are real estate titles registered in an official registry?
Although it is true that Costa Rican law establishes that the ownership may be transferred by the contracting parties by the mere fact of agreeing to transmit it; such transfer, to be opposable or detrimental to third parties, must be registered before the Property Registry of the National Registry. Accordingly, any title of domain over real estate must be registered before the Property Registry.
- How can real estate be purchased?
Once the foreigner has identified the real estate to be purchased, mainly, there are two ways to proceed: (i) directly in his/her personal name, or (ii) indirectly through a Costa Rican entity constituted by the interested foreigner.
- What to do before purchasing the real estate?
- Sign an agreement excluding the real estate from the market.
- Perform a due diligence in order to determine that the real estate has no problems, vices, or possible contingencies, and that it is possible to use it for the desired purpose. Depending on the location of the real estate, the scope of the due diligence may vary.
- Establish how to acquire the asset: directly or indirectly.
- Sign the closing documents. The most common legal way to purchase a property or residential home is by signing a public deed of sale before a Notary Public chosen by the parties.
- All sales of registered real estate must be recorded before the Property Registry of the National Registry, and the information will be publicly accessible. The costs and registration fees related with the sale are approximately 3.51% and are calculated based on the highest value between the tax value of the property and the sale price. The tax value of the real estate is set out in the information obtained from the Property Registry of the National Registry.
- Which legal obligations does the foreigner acquire by being the direct or indirect owner of real estate?
- Payment of property tax (current rate of 0.25% on the taxable basis or value of the property) and municipal obligations (garbage collection services, cleaning of public roads, street lighting, among others). Payments are made per year, semester, or quarter, as established by the local government (Municipality).
- Filing of Property tax declaration before the local government (Municipality). All persons subject to property tax payment have the obligation of declaring at least once every five years the value of the real estate before the Municipality where they are located.
- If the asset is part of a Condominium (private and special ownership regime), the owner must comply with the Management Regulations and the payment of maintenance fees.
- Payment of solidarity tax. This is an annual tax on the ownership of high-value real estate. The determination whether or not you are subject to the payment of this tax will be determined by the value of the residential home, as well as the parameters established by law. This tax is commonly known as “Luxury Home Tax”.
- If the property is acquired indirectly by a Costa Rican company, there are other corporate legal obligations related thereto, for example:
- Payment of education and culture tax
- Registry of Transparency and Final Beneficiaries declaration
- Payment of corporate tax
- Registration of the company before the Ministry of Finance
- If the foreigner acquires real estate without constructions with the purpose of building the residential home to their satisfaction, that person must comply with the following procedure:
- It is advisable to contract and enter into a consulting contract with an engineer, architect or consulting firm duly registered with the Federated Association of Engineers and Architects (“CFIA” in Spanish), and to make preliminary inquiries (confirmation that the residential home complies with applicable guidelines and regulations- usually part of these studies are carried out prior to the purchase).
- The construction plan must be duly sealed and approved by the Federated Association of Engineers and Architects of Costa Rica, the Ministry of Health, the Fire Department, and the Costa Rican Institute of Aqueducts and Sewers. This process is done digitally through the Construction Projects Management system (“APC” in Spanish).
- Once approved by the APC, the construction project must be approved by the local government (Municipality).
- If the construction project has a construction area of less than 500 m2, prior to the approval of the Municipality, the project will require environmental feasibility, this must be processed before the National Technical Environmental Secretariat (“SETENA”).
- Once the Municipality approval is obtained and construction tax is paid, the construction of the home may begin.
- What benefits does a foreigner have when purchasing real estate in Costa Rica?
- If real estate, with or without construction, is purchased, with a value equal to $200,000 dollars, legal tender of the United States of America, the foreigner may choose to apply for a restricted condition of temporary residence. This immigration category is called “Temporary Residence for Investors”.
- If a residential home exists or will be built on the real estate purchased, and the investment is equal to $200,000 dollars, legal tender of the United States of America, the foreigner may choose to apply for a “Temporary Residence for Investors”, and thus enjoy the residential home as a “second home”.
- If a residential home exists or will be built on the real estate purchased, it may be incorporated in any “reserve agreement” program, rental pool, vacation home or the like, and benefit from Costa Rica’s reputation and attractions. Under this scenario, the real estate will generate income while the residential home is not occupied by its owner. It is important to take into consideration that if the foreigner does not choose to apply for an immigration status in Costa Rica, his/her stay will be limited by the country’s immigration regulations, but the rest of the time he/she may take advantage of the investment made by making use of one of the indicated programs.
- What benefits does a foreigner with a Temporary Residence as Investor have?
Among the benefits we can cite that bank accounts may be opened with ease, simple approval of a driver’s license, no entry and exist restrictions, no need to purchase a return ticket, local resident discounts, the possibility of purchasing voluntary insurance, and even make contributions for a social security pension, free social security health care for minor children, the possibility of obtaining a permanent residence after three years of having a temporary residence, and the possibility of obtaining Costa Rican citizenship after complying with the established length of residency.
In addition, the foreigner making the investment may include his spouse and dependent children under twenty-five years in the temporary residence for investors. At the same time, it allows parents to be included, under a special category, which will allow such relatives to live legally in Costa Rica.
Yet another benefit are tax advantages, this because Costa Rica has a system based on the principle of territoriality, so any foreign source income is exempt in Costa Rica. Only Costa Rican source income is subject to assessment by the tax authorities.
- Currently, is there a bill in Congress that provides for additional benefits for investing in real estate in Costa Rica?
Currently, the country is working to improve its immigration policies to facilitate and allow the opportunity to apply for residency in the country, as well as to attract tourism investment.