Wondering if you need a corporation in Costa Rica to buy real estate? Here’s a handy guide to answer most of your questions.
There once was a time when foreigners buying property in Costa Rica would pretty much always create a corporation to own their assets. They did this because they could remain entirely anonymous and protect their Costa Rica assets from liability and foreign taxes. Today, there is an ongoing conversation about the advantages and disadvantages of holding land or property in Costa Rica in one’s individual name or through a corporation.
Costa Rican law dictates that a foreigner has almost the same rights as a Costa Rican citizen when it comes to buying property and it only requires an approved form of ID, like a passport. And with all of the annual fees of owning a corporation, new buyers are often asking us if it’s necessary to have a corporation in Costa Rica when buying real estate.
What we tell our clients is that there is more at stake than a few hundred dollars a year and we always stress the benefits of having an inactive corporation for your assets in Costa Rica. But it is no longer a simple and inexpensive matter to own a corporation, especially if its only purpose is to hold a single simple asset, such as a vehicle or a piece of property. As such, we sat down with two different laywers we work with: Juan Manuel Gómez Mora, a real estate lawyer from RE&B Abogados in San Jose, and also Alberto Saenz-Roesch from Invicta Legal in Escazu. Both of these lawyers helped us put together this breakdown for our clients about what a Costa Rica corporation is, how to open one, the annual requirements, and the biggest advantages of owning a corporation in Costa Rica.
Types of corporations in Costa Rica
In Costa Rica there are two basic corporations that are primarily used, The Sociedad Anónima (S.A.) and the Sociedad de Responsabilidad Limitada (S.R.L.). According to Juan Manuel Gomez Mora, the most popular type of structure is the basic S.R.L. (the US-style corporation), which is created to hold a vehicle, a bank account, a property (large and small), or to manage a complex company with a multitude of shareholders and commercial activity. It is the simplest style of corporation in Costa Rica because it can be managed by just one manager (the Gerente) and a Resident Agent (a local lawyer) if the manager is not a Costa Rica resident.
Alberto Saenz-Roesch explains to his clients that according to several USA tax advisors and accountants, Costa Rican S.R.L.s provide more flexibility for tax and accounting purposes in the USA, as you can “check the box” and decide if you want to treat their Costa Rica assets as a pass through entity or not. S.A.s instead are only treated as corporations. “Please consult with your USA accountant or tax advisor for further details regarding this matter,” says Saenz-Roesch.
Most of the S.A.s in Costa Rica are companies which do not perform any real commercial activity, says Gomez. Their sole purpose is to hold an asset (or group of assets) for various legitimate purposes. An S.A. is a more complex type of corporation which ideally exists to form “real” companies with a heavy structure. An S.R.L. is designed for more limited activities and could be more useful to corporations with less activity (less assets and liabilities).
In addition to the common shares, says Saenz-Roesch, on S.A.s you have the option of issuing preferred shares if you want to have investors with limited or special rights or obligations. “Preferred shareholders don’t participate on common shareholders’ meetings. Preferred shares could be a very good tool for certain types of passive investors, etc. On S.R.L.s no preferred shares can be issued but only common quotas exist according to the Law.”
How to open an inactive corporation in Costa Rica
A citizen of any country may incorporate a company in Costa Rica. According to Gomez, “to form a corporation in Costa Rica, the Commerce Code requires that at least two incorporators appear before a Costa Rican Notary Public to execute the articles of incorporation. Once registered, the company can be owned by a single individual who owns 100% of the shares.”
A Costa Rican company must be registered with the financial ministry’s ATV system (Virtual Tax Administration). To register with the system, the person must be a citizen of Costa Rica with a Costa Rican I.D.; or have a DIMEX resident card I.D.; or an N.I.T.E. number and be part of the company with power of attorney. Once a filer has the correct credentials, setting up an account with ATV is a breeze.
Annual maintenance for inactive corporations in Costa Rica
1. Company Tax is due by January 31 and the amount is ¢69,330 (approx US$115).
2. Shareholder and Beneficial Owner Disclosure Form (form D-101) is due by April 30 and is around $200. This can be done on your own if you have a registered digital signature in Costa Rica (only residents or those with a Power of Attorney can register for a digital signature). The purpose of this is to show who the Ultimate beneficial Owners are in case a transfer of shares takes place, which might have a tax implication (i.e. if more than 51% of the shares of a company that owns an asset, like a real estate property, are transferred). All companies registered with the Registro Nacional of Costa Rica, regardless of their active or inactive status, must file an income tax return.
3. Corporations must have annual shareholder meetings, which can be done virtually. For the meeting to be recognized as valid, the Attorney General of Costa Rica requires that meetings be simultaneous, interactive, and with adequate audio and video connection for all shareholders to be able to participate in real time. The law requires that the meeting be logged into the shareholder minutes book and certified by a Notary Public.
Corporation Power of Attorney
As the owner of a Costa Rica corporation, there will be occasions when you also need to confer a Power of Attorney to an agent to carry out some acts on your behalf. The corporation officer or manager if authorized in the bylaws to do so may appear before a Notary Public to grant a Power of Attorney to any third party.
Gomez says that “the shareholders of the corporation may convene a shareholder meeting of the corporation and grant a Power of Attorney. This requires an authorization to appear before a Notary Public or to commission a Notary Public to extract the contents of that meeting and issue a testimonial.”
Advantages of incorporating in Costa Rica
Corporate Personality: An incorporated company is a legally recognized entity that exists separately from its owners and shareholders. No matter what people tell you, it is not mandatory to have a corporation for your assets in Costa Rica. However, if you are not a resident of Costa Rica, you will need a corporation to get electricity to your property, a phone plan, and a no-limits bank account. “Keep in mind,” says Saenz-Roesch, “that you can hold the shares of your Costa Rican company under the name of foreign entities or trusts created in your country of residence.”
Limited Liability: The Companies Act provides that in the event of a company being shut down, none of its members is legally bound to contribute to anything more than the nominal value of shares held by the member which still remain unpaid. A corporation’s liability is limited to the corporation’s assets and to the totality of the contributions made by the shareholders.
As a separate legal entity, an incorporated company has the right to sue other people in addition to companies. In turn, it can be sued by other companies and people. However, the managing directors and other directors are not liable to be sued in the name of the company.
The advantage of having limited liability for its members is one of the major reasons for setting up an incorporated company. Nevertheless, you can now purchase private insurance in Costa Rica that can cover liability to an equal degree.
Perpetual Succession: In spite of any changes in members of the company, the company will be the same entity with the same privileges, immunities, estate, and possessions. The death or insolvency of individual members does not affect the incorporated company in any way or form. The company will continue to exist indefinitely till the company is shut down. Saenz-Roesch says that “if you hold your assets down in Costa Rica through a Costa Rican company, it will be easier to set up an effective, local estate planning structure (like a local estate planning trust) for your heirs to follow a simpler and cheaper process if you pass away.”
Transferable Shares: The shares or other interest of any member in a company are movable property and transferable at will. Shareholders can sell shares anytime on the open market or the stock exchange. According to Saenz-Roesch, “on S.R.L.s, the quota holders will always have automatically by Law a first right of refusal when any quota holder pretends to sell a quota to a third party. On S.A.s it is possible to agree on a first right of refusal but it needs to be expressly included and agreed on the company’s bylaws.”
Dissolving a Costa Rica Corporation
You can dissolve a holding corporation and put a property in your name but the transaction will be considered a sale and the property is therefore subject to transfer taxes and capital gains taxes. This means that if you currently have an inactive corporation holding your assets in Costa Rica, it is not advantageous to dissolve your corporation until you sell your Costa Rica property.