Why Use a Corporation to Own Property in Costa Rica?

Written by Michael Simons on . Posted in Buying and Selling Property in Costa Rica, FAQ's, Investing in Costa Rica

Why use a corporation to own property in Costa Rica

Some people name them after a beach they like or a geographic structure, or something that reminds them of home.  Others jumble the letters of their children’s names.  And animals are popular, particularly, the humble iguana. 

Corporations allow you to own property in Costa Rica like this oceanfront real estate

Recent changes in corporate law no longer allow corporations to be named and they are assigned numbers automatically.  You can choose a trade name under which you want to operate however.

Regardless of what you call it, forming a local corporate entity to purchase property in Costa Rica and manage your holdings is both pratical and makes common sense.

While it is extremely easy to create a corporation in our country, it is also a smart move, which serves your interests since it will in many ways make things easier and safer for you.

Unlike the restrictive regulations found in other countries, according to Costa Rican law, these corporate entities may be fully owned by foreign citizens.

Under Costa Rican law a corporation is recognized as a distinct entity from its owners (shareholders) and is considered an entity upon its own without the entity structure passing through to the shareholders as is the case of S Corps in the United States. Thus, your Costa Rican corporation will be able to sign contracts, purchase and sell its assets, and enter into business in its own name.

The legal system allows for several specific corporate entities from which to choose.  The two most attractive and commonly used forms are the Sociedad Anonima, generally abbreviated S.A., and  a less elaborate form of the first, called Sociedad de Responsabilidad Limitada, known as S.R.L. or Ltda.

Both the S.A and the S.R.L. are limited liability corporations, meaning that its owners are only responsible for the corporation’s debts with their own personal assets up to their initial participation in the social capital, which in practice can be insignificant.

The two may be used to conduct the same type of activities as regulations do not require for you to select one or the other depending on what you plan on doing.  Each corporate type is different and you should select the one that best suits your needs.  For instance, the initial set up and administration of the S.A. is more complex than the S.R.L.  The S.A. must be managed by a board of directors, that is, at least three different individuals occupying the positions of president, secretary and treasurer, plus a fourth person acting as a comptroller.  In the S.R.L. a single manager is sufficient to conduct all corporate business according to the law.

Forming a corporation is Costa Rica, whether an S.A. or S.R.L., is a simple and formal procedure.  A corporation may be formed by as few two individuals with legal capacity, by executing a formal ariticle of incorporation deed prepared and submitted to the national registry by a Costa Rican Notary Public.  Such deed will establish the name of the corporation, indicate the names of those people appointed to represent and act on behalf of the corporation, outline the activities and by-laws of the corporation and outline the initial capital investments and corporate stock  ownership structure among the partners, if any.

The incorporation deed will also need to be filed for registration at the Commercial Section of the Public Register.  All information contained in it becomes of public access, meaning anyone can look it up. 

The two may be used to conduct the same type of activities as regulations do not require for you to select one or the other depending on what you plan on doing.  Not withstanding this, there are differences between them, and you should select the one that best suits your needs.  For instance, the administration of the S.A.is more complex than such of the S.R.L.  The former must be managed by a board of  directors, that is, at least three different individuals occupying the positions of president, secretary and treasurer, plus a fourth person acting as comptroller.  In  the S.R.L. on the other hand, a single manager  is sufficient according to the law.

The incorporation deed will also need to be filed for registration at the Commercial Section of the Public Register.  All information contained in it becomes of public access, meaning anyone can look it up.  Future changes to these by-laws must equally be recorded at the Register.

In contrast, share transfer that take place after the incorporation remain in the private sphere of the company, and must only be recorded in its shareholders registry book, well kept by the corporation and only available to third parties holding a Court order.

More generally, using a corporation to own property in Costa Rica is highly recommended as future transactions are rendered considerably easier.  Ownership through a corporation allows greater flexibility and predictability concerning land and property management, including tax and estate planning, and representation.

Costa Rican law allows you to use a corporation to own property in Costa Rica even when this entity does not conduct actual business in the country.  There are advantages when proceeding in this way, and, although it may not be the best solution in all cases, most of the time ownership through a corporation can save you money and, perhaps more importantly, spare you unnecessary headaches when it comes time to either sell or pass on the property to your heirs.

There are small annual attorney fees of around $500 to maintain the corporation.

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