Costa Rica Law
In the United States, the legal system is based on Common
Law. Civil or Romano-Germanic Law is used in Costa Rica. This distinction is important to make
in regard to how judges make decisions and how contracts are written. Civil Law
is based around one or several codes of law, which set out the main legal
principles that judges then apply to the specific cases before them. Written
contracts in Costa
Rica are of a simpler form
than their stateside counterparts. Contracts include mainly what the law does
not already state. Under Common Law, contracts are more specific and detail
oriented since they must allow for as little interpretation as possible.
Property Rights
Costa Rica's laws and constitution, based on a
well-developed tradition of Democratic government, include secure property
rights for the private ownership of land. These laws are extended equally to
foreigners as well as residents. Neither citizenship, nor residency, or even a
presence in the country is required for land ownership. There are almost no
restrictions to the ownership of land in Costa Rica, with the exception of direct beach
front property. Few countries in the world welcome foreigners so well, and have
laws that allow for, and protect, the property rights of foreign investors the
same as citizens. Costa
Rica's open door policy to
foreign investment combined with secure property rights has made it a number one
pick for foreign Real Estate investment.
When purchasing real estate
in Costa Rica, proper registration of the property
and not only the deed is of great importance. All Costa Rican land is registered
at a Public Registry that certifies all information about a property, its owner,
location, measures, boundaries, etc.
Types of Land
Just like in the United States, Canada, and Europe, there are different types of property
available to buyers. Understanding the various types that are available for
purchase is critical in the evaluation process. Below are the property types
that can be purchased in Costa Rica and the implications of each type of
ownership for the buyer.
Concession Land
Beachfront property around the world is
more commonly know as "concession property." In Costa Rica, 95% of beachfront property is
concession property and is governed by the Maritime Zone Law (Law No. 6043) and
other specific regulations. These legal dispositions set forth the conditions
under which foreigners and local residents can lease concession property.
In Costa
Rica, a concession is
defined as the right to use and enjoy a specific portion of land located on the
maritime zone for a pre-determined period of time and based on a predetermined
use of soil (zoning or master plan, known as "Plan Regulador"). The Government,
through its corresponding municipality, grants this right by means of a private
agreement between concessionaire and municipality that is further recorded in a
Public Registry. This agreement also establishes a yearly concession fee that is
paid based on an appraisal performed by government financial authorities.
Costa Rica's shoreline zone is comprised of 200
meters starting at the mean high tide mark and heading inland. This zone is
government owned and no individual or company can own it. The shoreline zone is
divided into two strips of land:
· The first strip is 50 meters
(approximately 150 feet) is known as the "public zone". This zone is not
available for ownership of any kind. No development is allowed, except for
constructions approved by government entities (i.e. marinas). As this area is
deemed public, it is available for use of any individual.
· The following 150 meters (approximately
450 feet) can be subject to occupation or lease by individuals or companies,
either through a concession with the respective municipality (in case of
residential and commercially exploitable portions or land) or a management Plan
with the Ministry of Environment and Energy (MINAE), as in the case of
environmentally sensitive, low density, portions of land. In both cases, the
property can be used, although not owned (same as with a lease).
Both concession agreements and
management plans are entered between private parties and the Government for a
limited period of time that ranges between 5 and 20 years, at the Government's
discretion; however, most concessions and management plans are granted for 20
years. During such period, the concessionaire pays a fee for the use and
occupation of such Government land. Renewal for equal and consecutive periods is
negotiated between private parties and the corresponding government authority
and, such renewal is usually based on the concessionaire's ability to comply
with its commitments and obligations during the previous agreement. Such
obligations include having assumed the commitment to build on that concession
land, subdivide it or perform other acts of development or improvement on the
land, in which case, the concessionaire will be required to obtain all
appropriate permits from the local municipality.
Foreigners do not have
the same rights as citizens when it comes to obtaining maritime zone concession
land. The law establishes that foreigners without residency can own up to 50% of
concession land. A foreigner can, however, enter into a partnership with a Costa
Rican citizen where the Costa Rican national holds the other 50% of the
concession land. An exception to this prohibition applies to foreigners who have
resided in Costa
Rica for at least five
years, who can also be majority holders of a concession.
To own
something built on concession property is a different story. For more
information about buying condos, houses, villas, etc. built on concession
property; please see our section Homes/Condos/Villas
Titled / Fee Simple Land
In Costa Rica, foreigners can own titled property in
their own names and can share the same rights to it as a Costa Rican citizen.
There are two documents which, similar to the states, describe "titled" or fee
simple property (land outside the beach zone.) The first document is the title
itself or escritura. Titles are registered in the national registry or Registro
Nacional, and show ownership along with any liens, mortgages, or judgments. The
second document is the registered survey map or plano catastrado. The plano serves the purpose of recording
measurements, size and location along with other useful information like whether
the land falls inside restricted areas. The escritura and the plano are individual documents referring to
the same piece of property. The plano may reflect a previous owner's name.
Both documents must be checked to verify that ownership and mapping coincide
with the same piece of land. These two departments of the National Registry are
currently making internal changes to make the process more efficient. Once a
property is titled for the very first time (original inscription), there is a
three-year "incubation period" where third parties can make a claim. However,
any new claims must carry a fair amount of proof before a title can be
challenged. After three years, a claim can still be filed but calls for
extraordinary circumstances. There is a ten-year statue of limitations for such
claims.
Untitled / Possession
Land
Untitled land is also called
"possession" land. Even though many lands are untitled, it does not mean that
they do not qualify for title. In a possession scenario, it is the recording of
the legal transaction that establishes possession or ownership rights... not a
title. The reason for this is that for many years, farmers and settlers (for any
number of reasons) never applied for their title but possessed the land in a
"legal manner", established boundaries and transferred rights through private
documentation. When properly recorded, these rights are completely legal, fully
transferable and can qualify for inscription in the national registry as fee
simple title. Legitimate possession rights can be demonstrated by researching
the history of ownership recorded through private documentation. The bill of
sale or compra- venta shows transfer of ownership and describes the property in
words relating to the surrounding properties and well defined landmarks. This
information, typically obtained with the help of a lawyer, can then be added to
the National Registry.
On the other side of the possession issue are
lands occupied and claimed by illegitimate settlers or "squatters". A squatter
is someone claiming rights of ownership of the land but that has no "ownership
documentation". They have simply occupied the land for a certain amount of time.
In these cases, there may be some form of rights established, but it is more
difficult to define. Sometimes there is a clear distinction between "legitimate
possession" and "illegitimate possession" and sometimes there is not.
Homes / Villas/Condos
As 95% of beachfront
property in Costa
Rica is concession land,
owning a house/villa/condo on this land is a bit different from owning the same
in the U.S. The developers of the concession land,
or concessionaires, have the right to use the land. When you buy a
house/villa/condo on that land, you are also buying into the right to that land,
and thus your house/villa/condo. For more information on purchasing the
concession land itself, please see our section Concession
Land .
Buying a house/villa/condo on land other than
concession land is just like buying the same in the United States. With the purchase, you will receive
the title to the land the house/villa/condo you are buying
Financing
Although the constitution
allows equal access of credit to both foreigners and nationals, it is more
difficult for foreigners to qualify. Out of country collateral and income is not
normally considered by the banks. In some cases you will need a co-signer or
fiador. Even then, interest rates are higher so it is probably more practical to
bring funds from abroad. In addition, many properties don't qualify for a
mortgage. Beachfront property with a permiso de uso doesn't qualify for a
mortgage (not even for Costa Rican citizens) because the land is technically
owned by the state, not the occupant. Untitled property is also non-attachable,
therefore, unable to mortgage. On occasion, some terms may be negotiated with
the seller but are usually short in length. For these reasons, most real estate
transactions are paid in cash upon closing.
Land Taxes
Collection of land taxes was
turned over to the local municipalities several years ago. Before 1995, property
tax or bienes imuebles on private land was 6% of the declared value based on the
Tax Law No. 7509. In May of 1995, this code was changed and the tax was lowered.
According to the new law No. 7729, taxes are based on 0.25% of the declared
value. In most cases, values claimed are lower than the actual selling price.
Maritime property or permisos de uso pay an "occupation tax" called a canon.
Improvements, like a house added to land, are taxed in addition to the canon and
a bienes imuebles tax based on the value of the construction is paid. Once a
beach property has been awarded a concession (only after an approved zoning plan
is in place) the tax goes up dramatically and depends mostly on how the property
was declared, i.e. residential, commercial etc.
Other Taxes
Residents, non-residents and
corporations generally are subject to tax only on their Costa Rican source
income. For this reason, Costa Rica offers no credit for foreign taxes
paid on foreign source income by Costa Rican residents or non-residents. Tax
rates are 30% on corporations, 30% catch-all rate on non-residents, and a
graduated scale of 10% - 25% for nationals, depending on the type of income.
There is no capital gains tax in Costa Rica, unless the income is derived from
"habitual" activities. National sales tax is 13%.
Building
The process of getting
permission to build can be complicated depending on where the property is
located. Beachfront development has a different set of rules as compared to
private land. Although it is national code that regulates building, practical
application will vary in populated areas, like San Jose, versus rural areas. Code is not
nearly as strict as in the Unite States. In rural areas, proof of ownership and
a set of building plans signed by a Costa Rican architect must be presented.
There is a preliminary study and an anteproyecto performed by the architect. For
larger projects, an environmental impact study, and possibly another study for
supporting infrastructure may be required, at the expense of the landowner. For
residential construction, there is a single permit issued at the local
municipality with a one-time inspection to occur before construction begins. In
rural areas, follow up inspections are rare. It is the architect's
responsibility to make sure approved plans are followed. A proper septic system
and water supply must be in place in order to build.
Capital Gains
There is no capital gains
tax in Costa Rican unless the income is derived from "habitual" activities.
Foreign Rights/Residency
Under certain conditions, Costa Rica allows foreigners to gain residency
status. Residency is not to be confused with citizenship. Being a Costa Rican
resident allows certain benefits while residing here, but still allows for
citizenship in your home country. As a tourist, a visa must be renewed every 90
days (depending on the country of origin) by checking out of the country for 72
hours. Aside from not having to renew a tourist visa, benefits of residency
include access and discounts on some public services like health care,
insurance, and education.
In past years, Costa Rica was a haven for retirees, offering
foreign residents certain incentives like importation of household goods and a
vehicle exempt from import duties. These incentives were discontinued several
years ago. Today, benefits are few unless you qualify through an investment
scenario.
One of the confusing issues is gaining residency and the
right to work. Working status is not part of gaining residency and is given only
under special circumstances, like an investment scenario. This process can be
lengthy and bureaucratic.
Qualification categories are as
follows:
· Pensionado Status - Permanent income
from a retirement source such as a pension must be demonstrated. The minimum
amount is $600 per month and the applicant must reside in the country for at
least 4 months each year.
· Rentista Status - This is for
individuals who do not have retirement income but can show income from other
capital investments from outside the country or from any of the banks of the
National Banking System. You must provide documentation that you receive a
minimum of $1,000 each month for a period of at least five years. Also, a
minimum of $12,000 per year must be changed into colones through the Costa Rican
National Banking System. When the residency status is requested also for the
spouse an additional $1,000.oo must be proved and $500.oo for each
son.
· Investor Status - Those making a
minimum investment of $200,000 in Costa Rica can qualify for residency, the
investment must contribute to the economic or social development of the country.
Personal investments such as purchase of a house, farm, and buildings do not
qualify. Ask an attorney for further details.
· Permanent Residency - People who marry
Costa Ricans or have a child born in Costa Rica, may be eligible for this type of
residency.
· Temporary residency - People employed
by international companies or students and teachers participating in official
exchange programs with the Costa Rican Universities may receive this type of
residency.
In all cases, a
series of documentation from the home country, such as certificate of birth,
marital status, police records, photos, income certification, etc. must be
provided. All documents must be certified by the Costa Rican Consulate in the
home country and then must be translated into Spanish in Costa Rica. Fingerprints and a written
declaration are taken in Costa Rica at the immigration office. If investor
status is requested, a financial study of the project must be provided. If the
project involves real property, proof of ownership must be provided. In theory,
the process should only take a few months but can actually take up to a year or
more.
FAQ’S
How safe is buying real estate in
Costa
Rica?
-
It is very safe to buy real estate in
Costa Rica since the National Registry maintains records of all
rights and interests pertaining to real property. This institution guarantees
the security of registered property, by means of a dual process of inscription
and publicity. Any title which constitutes, modifies or extinguishes an
ownership right must be inscribed in the Public Registry. Proper registration of
the property and not only the deed itself is of great importance.
Are there any restrictions in buying real estate by
foreigners?
- There are almost no restrictions to the
ownership of land in Costa
Rica, with the exception of
direct beach front property.
What is a S.A.?
- Sociedad Anónima or Stock
Corporation: Is the most common used corporation in Costa Rica, its main
features are that the liability of the shareholders is limited to their capital
contribution and stock ownership is easily transferred to third parties. The
corporation is to be managed by a Board of Directors composed of three members:
President, Secretary and Treasurer.
Forming a
S.A.
- A Costa Rican corporation like the
Sociedad Anónima is formed by simultaneous subscription. The incorporators must
appear before a Notary Public to execute the articles of incorporation. At least
two persons must take into effect the articles of incorporation by subscribing
at least one share each. Once the articles of incorporation are executed they
must be registered al the Registro Publico.
Why buy real estate through a
S.A.?
- There are a number of good
reasons like the limited liability, stock can be easily transferred, and this
can make a big difference in transfer taxes.
