6 Mistakes when Using a Corporation for Property Ownership
Estimated Reading Time: 5 Minutes
For many years, lawyers have recommended the use of a corporation for property ownership for resident and non-resident foreigners.
The choice of a corporate structure used to be recommended because of personal liability, estate planning, tax planning, and a few other reasons.
Also, real estate developers used to create corporations for each of their units under construction, to save the cost of transferring the title to their buyers.
Costa Rica has several corporate forms: the Sociedad de Responsabilidad Limitada (SRL), or the Sociedad Anónima (SA).
The Costa Rican government has now imposed compliance requirements that corporation owners must be aware of. Legal residents can comply themselves, but non-residents need the assistance of someone who is a citizen or a resident.
Would you like to learn more about those requirements? Then check out what attorney Roger Petersen explains in his blog “Costa Rica company requirements 2022“.
Therefore, those looking to use a corporation for property ownership in Costa Rica, especially if they’re not residents, must be aware of their obligations. Also, please ask your lawyer about the risks of taking over a corporation that owns the property you are buying from the seller.
If you’re not a citizen or a resident, you won’t be able to comply with the legal requirements yourself. But we have all the solutions for you, click on the banner below to learn more.
Mistakes customarily made
In any case, request legal advice from your attorney before you make the decision, but make sure you do not commit any of the following 6 mistakes:
1. Closing Attorney
Always use your own real estate attorney for closing, never the seller’s or developer’s attorney. One way or another, you will be paying for closing, so take advantage of making sure you hire someone who works for you only.
2. Limit the Use
a. If you use an S.A. to own Costa Rica real estate, don’t do anything else with the S.A. Never use it to start a business.
b. Never register any vehicles within the same S.A.
c. Never register any employees like maid or gardener within the same S.A. that owns your properties or cars.
3. Share Endorsement
a. Make sure you endorse your shares on the back, so if you pass away, your partner won’t have to jump through legal hoops.
b. Always keep your shares and your S.A.’s documents (constitution, purchase/sale, and corporate ID) in a bank safe
4. Make a will
Make sure you make a will or testament for yourself and your partner. Your will in another country has no validity in Costa Rican courts.
5. Take Over
a. When you take over an existing S.A. make sure the old board of directors resigns. Your lawyer also needs to change the shareholders and the powers of attorneys.
b. It is not easy to find out if the corporation that you’re buying has any open-standing debts. Ask your attorney how he/she will protect you from this when keeping the existing corporation for property ownership.
c. Since you are taking over the existing corporation that owns the property, the value of the property in the National Register will not be changed into what you are buying it for. When you sell again in the future, you’ll be paying 15% capital gains tax over the difference of what the property was registered at when first bought by the seller and you selling it again.
Do not fail to ask for proof that the property was indeed registered in your S.A.’s name as well as an up-to-date “personería juridica” to show you that the change of board of directors was indeed registered in the National Registry.
No more hiding?
For many years, Costa Rica was the perfect place for foreigners to hide their money. The Sociedad Anonima or anonymous corporation was used for this as the shareholder information was private.
Money laundering laws and the SUGEF compliance have put a stop to this way of doing business in Costa Rica. Also, in 2015, the Costa Rican and U.S. governments implemented Foreign Tax Compliance Act known as FATCA.
Are you planning to purchase a property in Costa Rica by using a corporation for property ownership? Then hire the experts, contact us now. We’ll have your back!
Feel free to leave your comments on this blog. Also, if you like this article, please feel free to share it on your social media.
If you like this blog, subscribe to our newsletter by clicking the banner below.