Investing in Costa Rica

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Costa Rica Law

In the United States, the legal system is based on Common Law. Civil 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 more restricted with less interpretation by the judges. Written contracts in Costa Rica are of a simpler form than their stateside counterparts. Contracts include only 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.

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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.

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.

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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 Shoreline 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 shoreline 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 hightide 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 leasing shoreline zone concession land. The law establishes that foreigners cannot be majority owners of concession land. A foreigner can, however, enter into a partnership with a Costa Rican citizen where the Costa Rican national appears as the majority holder 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 appear as 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. Most of the land in Costa Rica falls in this category. 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 carta de 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.

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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

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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 very high 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 all real estate transactions are paid in cash upon closing.

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Land Taxes

Collection of land taxes was turned over to the local municipalities several years ago. Before 1995, property tax or vienes 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 vienes 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.

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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%.

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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.

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Capital Gains

There is no capital gains tax in Costa Rican unless the income is derived from "habitual" activities.

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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 years past, 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.

It is possible to own property in Costa Rica as a foreigner and to live here on a tourist visa.

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. You must provide documentation that you receive a minimum of $1,000 each month fIndividuals who do not have retirement income but can show income from other capital investments may apply for this type of residency. Documentation that states that a minimum of $1,000 is received each month for a period of at least five years must be provided. Also, a minimum of $12,000 per year must be changed into colones through the Costa Rican National Banking System.
• Investor Status - Those making a minimum investment of $50,000 in Costa Rica can qualify for residency if the investment is made in a priority industry, such as non-traditional exports or tourism. Residency, along with other incentives, is offered with investments of $100,000 in reforestation projects or of $200,000 in non-priority industries. Ask an attorney for further details.
• Permanent Residency - People who marry Costa Ricans, have a child born in Costa Rica, or are seeking political asylum 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 report, photos, income certification, etc. must be provided. All documents must be certified by the Costa Rican Embassy 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.