Thank you for visiting ‘Tank Tops Flip Flops’

Hola! Welcome to Paradise. My name is Michael Simons - the Owner/Broker of 3 major real estate franchises in the Papagayo Region - RE/MAX Tres Amigos in Playa Hermosa , RE/MAX Prestige Ocean Properties in Playa Panama and RE/MAX Ocean Village in Playas del Coco.

The majority of people interested in buying real estate in Costa Rica tend to have many of the same questions so I took the time to answer them in detail here in a fun and informative way. This site contains a tremendous amount of information for you and allows me to express my views and pass along wisdom gained while living and doing business in the tropics. Hope you can join us. Pura Vida!

I will respond to your questions immediately with an email or personal phone call.

See you here in Paradise!

Can I open a bank account in Costa Rica ?

Written by Michael Simons on . Posted in Costa Rica Living, Costa Rica Service Providers, EX PATS in Costa Rica

Can I open a bank account in Costa Rica?

Of course you can open a bank account in Costa Rica, but the question should be; do you NEED to open a bank account in Costa Rica. That depends on what you are doing in Costa Rica.

Can I open a bank account in Costa Rica

You do NOT need to open a bank account to buy a property in paradise. All transactions are done using a reputable law firm and a third party escrow, like Secure Title Latin America. They will set up an escrow account specifically for your transaction and insure that the closing takes place before your funds are distributed to the seller.

Costa Rica is a very safe place to put your money and their banks are considered some of the strongest in the world. So your money is very secure in a financial institution in this country. But they are also very opposed to money laundering, drug dealings or tax evasion, and they have implemented many rules and regulations to guard against those types of transactions. So be prepared to show lots of paperwork to substantiate WHERE your funds have come from and HOW you have obtained them. In order to open an account, you will need to provide the following documentation:

  • For each of the authorized signing officers, copy of all pages of the official ID passport or official resident permit.
  • Copy of last declaration tax return in US or Canada (Form 1040 U.S. Individual Income Tax Return).
  • Water, electricity or telephone bill showing your current address.
  • Provide information to fulfill “Know your customer” policy, for example: source of funds, purpose of the account, address, phone numbers, marital status, e-mails, profession or occupancy.

You will also have to show documentation that substantiates where the money is coming from, like bank statements in your home country, Social Security statement or pay check stubs. If it is from a sale of a property then you will be asked to provide proof of that sale, before the money will be credited to your account.

There are two types of accounts that you can open; a personal account and a corporate account. If you are not a Permanent Resident of Costa Rica, then you will be very limited to the movement you will be allowed in a personal account. You will not be able to do any online banking, or any in-country wires or transfers and you will have a very limited amount of monthly deposits that you will be allowed to make.

Most of my foreign clients, who are not residents, then open a bank account under a Costa Rican corporation, many times the same one that owns their house or condo. You want to make sure that this corporation is NOT attached to your car though. You have a lot of liability when driving a vehicle and the last thing you want is to get in an accident, and have your bank account frozen or levied to pay for any damages that you might owe. In a perfect scenario, your bank account corporation should be separate from any other holdings in Costa Rica. But there are annual fees associated with each corporation, so you have to look at those costs as well. It is important to remember though, that under the tax laws of the US and Canada, you must declare any foreign corporations that you might own. So you have to weigh the need for a bank account against the paperwork you must file back in your home country. With a corporate account, your attorney will prepare the necessary documentation that the bank will require. You will still need to provide the personal information above as well. With a corporate account you will be allowed to have online banking abilities, in-country SINPE transfers and a debit card or ATM card as well.

As a permanent resident of Costa Rica, you are in essence a Costa Rican. So you will have full banking powers, authority and movements to do transfers, wires or online banking. But at all times, you will have to substantiate where the money came from. The US and Canada, now require all their citizens to disclose any foreign bank accounts on their annual tax returns. So again, you have to decide if it is worth the extra paperwork and filings, to keep that account active in Costa Rica. The purpose of this is to insure against money laundering or any illegal or illicit activities. ALL of my clients are upstanding, tax paying citizens, and none of them are using Costa Rica as a place to hide or launder money. So none of us are concerned about the disclosures, filings, tax returns or paperwork we must fill out. It is more about whether the account is truly a necessity, as there is some extra work on your behalf required to keep that account legal and above board. Your accountants are happy to charge you the fees to prepare these forms so you have to again look at the costs versus needs.

Also, you must keep the account active or the bank will ask you to close it. Unless it is an interest bearing savings account or a CD, you must make at least one transaction every 30 days to keep the account opened.

If you are living full time, or spending 6 months a year in Costa Rica, then obviously you need a bank account. You want your money to be here in paradise where you can get at it easily. You want to be able to pay your bills on line and have access to easy cash at the teller and have your personal funds, Social Security Checks, etc directly deposited into your account. Obviously, if you are working here and earning an income then you will need an account and you will file a Costa Rican tax return at the end of every year. But if you just have a rental investment property, or are only coming a few months a year, then it does not make sense for many people to go through all the hoops and hurdles of opening and maintaining an account. They just have a property manager handle their bills. They keep enough money in there to cover the costs of their overhead, and replenish it as needed, either with rental income generated here, or by depositing money from home into their account. These people then just obtain cash through an ATM, just like any other tourist or visitor, and pay for any of their travel and eating expenses with a credit card.

There is much written on line, about how slow the banks are, how long the lines can get, and what a general pain in the butt it can be. Truthfully, I have not found that to be true here at the beach anymore. Most of the banks here are very service oriented now as thousands of full time residents live here and bank here. There are hundreds of businesses here now doing millions of dollars in transactions so the banks have absolutely stepped up their game.

Just in Playas del Coco alone we have 4 banks and another 3 within a short drive from the beach. They are all brand new locations now, with many tellers and customer service representatives and with the exception of busy holidays, or pay days, they are relatively quick and have very good service. They all are Air Conditioned and many times even have a TV or the radio playing in the corner. Almost everything you need to pay for can be done online as well now, so there are very few times that you will even find yourself having to go and stand in line at the bank.

Personally, I try to go to the bank at least a couple times a month, as the Ticas are very good looking; there is nothing more enjoyable than flirting with a teller.


What are Closing Costs?

Written by Michael Simons on . Posted in Buying and Selling Property in Costa Rica, Homes, Investing in Costa Rica, RE/MAX Tres Amigos

What are Costa Rica closing costs?

In Costa Rica, all closings are handled by a law firm, with a government authorized third party escrow, such as Secure Title Costa Rica. The fees are generally much higher than you would see in the USA or Canada, but surely nothing that will scare you away from a purchase.

The reason for this is simple. The government of Costa Rica, like any government, must collect taxes in order to survive. Most Costa Ricans live in the same house their entire lives. They are not like North Americans, who might buy and sell many properties in their lifetimes. It is very common for Costa Ricans to still live with their parents, even as adults. And many properties are given from the parents to their children for free. A farmer might subdivide his large property and give small sections to each of his children to build a house on. In the USA and Canada, there are many ways to collect taxes to keep the country moving.   Capital gains taxes in the USA are some of the highest in the world. There is also an inheritance tax and unfortunately a death tax. You have very high property taxes in most states, and also many additional taxes: School taxes, road taxes, garbage taxes, State taxes. It never seems to end.

NONE of those taxes exist in Costa Rica and the property tax is incredibly low .25% (1/4 of 1%).  The only exception to this rule are beach front properties inside the Maritime zone, where the Municipality has authorization to collect up to 4%.  On larger homes, usually over $500,000 there is a Luxury tax which can bump your property tax up to .50%, still substantially less than most tropical locations.

When you sell a property in Costa Rica that has not been subdivided, up to this moment there has been NO capital gains tax. When you die and your children inherit your property there is no tax either. Since many Costa Ricans are very poor, you will never see the property tax increased as this could potentially bankrupt their own people. So Costa Rica figures the only place they can get money is when a person BUYS a property for the first time by charging a transfer tax at the time of closing.

Most properties are held by Costa Rican Companies or Corporations. These are called Limitadas, which are similar to LLC’s  or Sociedades Anonimas (Anonymous Societies) which are similar to “S” Corps in North America. You can read more about that here.

If you read on the internet, you will see where many people will tell you that you can purchase the shares of the entity (Company or Corporation) and eliminate the transfer tax.   This is NOT something I would recommend to my clients in this day and age. Even though you could save the transfer tax, which might be a few thousand dollars, you also inherit any potential liabilities that the corporation might have.  If any side agreements exist, that the previous owner might have engaged in, you inherit those debts. Years from now someone could come out of the wood work claiming that this corporation owes them money for one reason or another, and you would be responsible to pay it.  Also, if any back taxes are owed, such as income tax on previous rentals, you would inherit those liabilities as well.  This procedure recently changed and since September 2012, all transfer of social capital shall also pay the transfer tax. With these modifications, the benefits of transferring social capital versus transferring the asset are very low.   The safest and cleanest way to purchase a property in Costa Rica is to transfer the property to a Brand New Entity (Company or Corporation). At closing, the attorneys will transfer the property out of the old existing corporation and into a new corporation that was set up strictly for this investment.  It will have no liabilities of any kind, as it was recently formed specifically for this transaction, and the seller can then either use the old corporation for another investment or choose to dissolve the corporation after the sale.  It will be their choice.

The fees for the property transfer, including everything, are as follows:

    • Transfer tax – 1.5% of the purchase price or the registered value at the Municipality, whichever is higher 
    • Registration stamps – .84% of the purchase price or the registered value at the Municipality, whichever is higher
    • Legal fees – 1.25% of the purchase price
    • New Corporation $650
    • Escrow services $550

There will be a small fee to transfer the utilities into the name of the corporation usually less than $250 as well as an annual fee for maintaining the corporation, paid in advance, usually around $500.

Then also know that all Home Owners Association fees and property taxes are prorated to the closing date, so you will have to reimburse the seller for any fees they have paid in advance.

So what this means, is that if you are buying a property that is valued HIGHER on the current tax books than you are paying, the transfer taxes are based on that higher number. Although this seems a little unfair, you have to look at the bright side of this situation. Say you are buying a property for $200,000, but the property has a tax value of $300,000. How can this be? Well most likely, the current owner purchased the property at the peak of the market for $300,000. This means, that you are buying this property at a severely discounted price, and although you are paying a few thousand dollars more in transfer tax, you can feel good knowing you are “making” almost $100,000 in equity the first day you own it. 

So I tell everyone, just figure on paying an additional 4% to 4.5% on top of the purchase price or the registered value at the Municipality, whichever is higher .  You know up front this is going to be the case, so it won’t be a big surprise at closing.  Since we know the cost going in, it is not a big issue for most buyers.  A $200,000 house is really a $208,000 purchase and you know your tax dollars are going to good use. The rest of the way is smooth sailing, with very low carrying costs.

Many states and countries continue to raise taxes every year.  This is very upsetting, as your costs keep climbing year in year out.  Not in Costa Rica.  Your taxes will be paid UP FRONT, when you buy the property, and you can relax and enjoy the rest of your time down here in paradise, without panicking each time the tax man comes calling. You have made a very wise choice to invest in Costa Rica.  Congratulations!  You are purchasing your little piece of paradise and it might be the last property you ever buy, if you are retiring.

There is no reason what so ever to take any risk with this investment. We all come to Costa Rica to get away from stress and risk. Start fresh, from the beginning, and you will sleep well at night, knowing nothing will ever come out of the closet to bite you.  And when your first property tax bill arrives, you will chuckle at the savings as it will be substantially less than what you were paying back home.

Pura Vida,

Michael Simons

August 2016
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