Costa Rica is an incredible place to buy real estate. Not only are the climate and views amazing, but the market is also incredibly competitive when it comes to pricing. However, the big question on every investor’s mind is…
‘Should I start a corporation before buying property in the country?’
Despite what many people believe, it’s a complete myth that you have to incorporate in order to invest in Costa Rican real estate. The choice is truly yours to make based on your specific needs and requirements.
Today we’re here to fill you in on the pros and cons, as well as providing a bit more insight into why incorporating may or may not be the best option for you. Keep reading to find out!
Table of Contents
Pros of incorporating before investing in Real Estate
Physical Presence
The first and most important positive to creating a corporation is the physical presence it provides you with. Many people looking to purchase property in Costa Rica live elsewhere, meaning they may not always be here when legal decisions need to be made or documents need to be signed.
If you go down the corporation route, the process becomes a whole lot easier. When it comes to closing on a real estate contract, you can simply elect a proxy in the country to sign on your behalf. The same applies if you’re trying to open a bank account or sign up with a utility provider; all administrative tasks are much simpler when you incorporate.
Of course, you can still get past these hurdles without incorporating, but the process involves getting a publicly notarized power of attorney signed at a Costa Rican consulate in your country. Overall, it’s more time consuming and a whole lot more complicated.
Inheritance and Probate
When we invest in property, there’s always the consideration for what might happen to it when we pass. Ensuring your inheritance is safe and in good hands is obviously an important factor to consider, especially when buying real estate abroad.
If a property is under one singular title rather than a corporation, the process of separating it into equal shares is quite a complicated process. When you incorporate, you can plan ahead and identify heirs, quantity of shares, and how they’ll be divided ahead of time. Not only does this give you peace of mind in the present, but it also provides you with the knowledge that your future assets are being well-managed.
Liability benefits
For many people, their real estate is usually the most valuable asset they have to their name. If you’re ever in a situation where you’re liable for damages or have to pay out in a legal settlement, your property will immediately be at risk.
However, if you buy property under a corporation your assets will be protected from personal liability. Depending how likely you think it’ll be that you’ll ever be caught up in this kind of situation, it’s definitely something to consider when deciding whether to incorporate.
Cons
Associated Costs
While a corporation can make the process of buying property abroad a whole lot smoother, there are a few costs you’ll need to factor into your budget. Law firms usually charge a flat fee of around $1000 to set up a corporation for you. As well as this, you’ll have to make sure you’re ready to pay resident agent fees and annual filing fees too.
Since corporations are so popular in Costa Rica, the government also charges an annual flat rate tax whether you’re making money or not. All physical entities must pay up, even if you’re simply existing and not making a profit from your property.
Tax filings
Following on from the costs related to tax, there’s also the added inconvenience of the admin involved in filing them. Each year, you’ll be expected to declare your circumstances through the Annual Form of Final Beneficiaries, in turn disclosing your shareholders to the government.
The administrative side can be lengthy, so it’s worthy considering if this is something you’re prepared to take on when buying your property.
When should I incorporate?
If you’ve decided that a corporation is the right route for you, the great news is that you won’t need to make any arrangements until you’re ready to close a deal.
Foreign investment is extremely common in Costa Rica, especially through corporations. This means that the process has become incredibly efficient, and there’s plenty of lawyers ready to take on the take of getting you set up.
You can be established and ready to go almost instantly, so there’s no need to rush the decision.
So, should I incorporate?
As we mentioned previously, you’re under no obligation to incorporate in order to experience the benefits of Costa Rican real estate. It really is your own decision!
Consider the pros and cons openly and don’t forget, you’re well-entitled to discuss all of your options with your lawyer or realtor. Research really is the key to a successful real estate process.
