Buying Costs, Tax and Legal
Buying Costs, Tax and Legal
Costa Rica's national constitution guarantees the right to own property to anyone, with foreign nationals enjoying the same rights as Costa Ricans.
Private residences are taxed at an annual rate of 0.25% of the assessed valuation.
Taxes on a $150,000 house are typically only a few hundred dollars a year. Owners are also spared high taxes when they sell, because there are no capital gains taxes in Costa Rica.
Income tax
Only income derived in Costa Rica is subject to taxation. The highest rate is 15%, which is levied on monthly income above 324,000 colones, or $625. In some cases, you may be able to lower local taxes by forming a corporation in Costa Rica.
Corporations pay a higher income tax rate - 20% or 30%, depending on its size. But corporations can deduct some expenses from their earnings.
Register The Transfer Deed:
To register your transfer deed, you or your attorney must bring to the Registro Publico (Public Registry) the following documents:
A. Proof of payment of all taxes and registrations fees.
B. Certifications issued by:
a) Finance Ministry, confirming that all seller's property taxes were paid; and,
b) the local Municipality, stating that buyer and seller are up to date on municipal taxes.
C. Proof that all prior mortgages, liens and judgments (if any) have been resolved.
Once all fees are paid, make sure that the attorney who drafted the transfer deed registered it in the Property Section of Registro Publico. It should be registered by the Registro Publico 45 to 60 business day after presentation. Check with the notary to make sure the deed has been properly filed.
Closing costs consist of transfer taxes, Real Estate Property Registry taxes and Notary Public fees.
These costs are approximately 4% of the sales price.
The property is transferred from seller to buyer by executing a transfer deed (escritura) before a Notary Public, who drafts the transfer deed and register the sale in the Public Registry (Registro Nacional). The Registro Nacional can be accessed online.
The importance of selecting the Public Notary
The local custom is that the buyer may select his or her notary/attorney to draft the transfer deed if paying cash for the property.
If the purchase price is financed, there are generally three alternatives for selecting the notary/attorney.
1. If a large percentage of the purchase price is being financed by the seller and a mortgage needs to be drafted to guarantee payment, then the seller may request that her or his notary/attorney will draft the transfer deed.
2. If a property is purchased 50% cash and 50% financed, it is common for the buyer's attorney and seller's attorney to jointly draft the transfer deed and mortgage in a single document. This is known as co-notariado.
3. Finally, the buyer may insist that his or her notary/attorney draft the transfer deed and let the seller's notary/attorney draft a separate mortgage instrument. In this case, because the mortgage is being drafted separately, it carries a higher registration fee.
Drafting of the mortgage requires additional notary fees of around 0.5% - 1.25% of the amount of the mortgage.
How is the title transferred in Costa Rica?
In Costa Rica, the Property will be transferred from the seller to the buyer by executing a transfer deed at closing before a Notary Public, who is also a lawyer.
In Costa Rica the Notary Public is an agent with extensive powers that have the faculties to record transactions in Government offices. The Notary Public may draft and interpret legal documents, as well as authenticate and certify the authenticity of documents.
In order to close a real estate transaction in Costa Rica, the seller will select a Notary Public who will prepare the transfer deed and record the transaction in the Real Estate Property Registry (Registro Nacional).
Most properties have a titled registration number known as the folio real and the records database can be searched with this number or by name index. Notary Public shall obtain a report from the Real Estate Property Registry that will show the situation of the property. The Report will contain the name of the owner, boundaries, location, cadastral surveys and the area, as well as recorded limitations, liens, mortgages, annotations, civil procedures and other encumbrances.
Once the transfer deed is executed before the Notary Public, the Notary Public shall act as agent of the Tax Authorities collecting the transfer tax and Real Estate Property Registry taxes. Then, upon payment of taxes, the Notary Public shall file the transfer deed in the Real Estate Property Registry and the real estate property will be annotated. A Registrator will verify that the information contained in the transfer deed is correct and then, the Registrator will proceed to record the Costa Rican real estate property under the name of the new owner.
PROSPECTIVE BUYERS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MATERIAL AS LEGAL, INVESTMENT OR TAX ADVICE. EACH PROSPECTIVE BUYER SHOULD CONSULT HIS PERSONAL LEGAL COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO THE LEGAL, TAX; ECONOMIC AND RELATED ASPECTS OF PURCHASING REAL ESTATE. EACH PROSPECTIVE BUYER IS RESPONSIBIE FOR THE FEES OF SUCH COUNSEL, ACCOUNTANTS AND OTHER ADVISORS.
