How secure is a real estate purchase in Costa Rica?

It is just as safe to buy titled land in Costa Rica as it would be in the US, Canada, or Europe. The guiding principles of offer and acceptance and the public registration of ownership, leans and encombrances are no different here. Additionally, there are no restrictions on foreign ownership of real estate in Costa Rica as there are in some other countries such as Mexico. So, a foreigner has the exact same rights on titled real estate as does a Costa Rican.
Because of specific laws that govern real estate within 200 meters of the ocean, there are risks that you must take to own real estate in this region that lie outside of the general statement regarding titled land.

What is a "Net Listing" and how do I avoid it?

Unfortunately, "net listings" are very common in the Costa Rica real estate market. What is a net listing? A real estate listing that has the price jacked up by a middle man in the transaction. Very often, a seller will tell a real estate house or some third party, "I want a set amount for my real estate. Anything you can get above that, you can keep.".
Although this is legal in Costa Rica, and in a strict business sense could even be considered moral, it puts the buyer at a huge disadvantage. You go to a real estate broker to get help finding a "good buy" and they or some other third party has "snuck" a net listing in front of you.
For a quick example, a Costa Rican seller has a piece of property that they think is worth $100,000. They go to a real estate broker and say, "I want $100,000 for this property. You can keep whatever amount above $100,000 you can sell the property for."  The real estate broker then puts the property on the market for $200,000 and tells their customers it is a great deal. The buyer has no way to tell the real value of the property because usually these listings are not listed elsewhere and they trust to some extent the real estate broker. This type of transaction is extremely common...I could say almost commonplace.  To avoid "net listings" and other hidden commissions you should demand, as part of your purchase agreement contract, that all commissions and fees be disclosed. Have the seller bound to disclose all fees or commissions they will pay and do this at the outset before the taste of money is too strong. 

Additionally, try to be aware of who is at your closing when the money exchanges hands. Generally speaking, the money is often dispersed to more than one person. Whole families are often involved. Ask who the people are and ask that the audience in the closing be only you, your lawyer, your real estate agent, and the legal seller(s). This will often flush out a nervious "comisionista" who doesn't want to miss out on his take.
As a final note, not all commissions are a bad thing. Very often we have local Costa Rican's find farms for us for which they often get commissions directly from the seller (in addition to the commission we pay them) at closing. This is not a bad thing as long as you are aware of what you are paying. The key, then, is full disclosure.

Does Costa Rica have a national registry for real estate?

Yes. All publicly titled real estate must be registered with the Costa Rican National Registry by definition. This computerized system is widely recognized as being more advanced, and dependable, than that of many industrialized countries, including the US. But the rules are very similar. For example, the only way a third party can claim rights to titled real estate is if they have a registered lean or encumbrance. If you buy titled real estate, you can be sure there are no outstanding leans or encumbrances by referencing the registry.
This statement does not apply to "maritime" real estate in Costa Rica (those properties located within 200 meters of the high-tide mark). These properties are inherently more risky because they come with what is called a "consession" from the municipality rather than a registered title. However, we believe they can be bought safely if the proper due-diligence is performed. After all, it's the only way to buy beachfront in Costa Rica, and many hundreds of foreigners have done it safely over the years.

What prices can I expect to find for real estate in Costa Rica?

There are four factors that drive the price to the upper limit. The first is, of course, the location. Proximity to beaches, tourist towns, etc. is super-important. Second, is size of the land. If you buy a small parcel, say 1 hectare, then you will pay more per hectare...economy of scale. The third is quality, broadly defined by the big four:
-Features (ocean views, other views, waterfalls, rivers, great topography, etc.)
-Access (close to a paved road with good gravel)
-Electricity (nearby is usually good enough)
-Water (good drinking water can be tricky even in a country with 4 meters of rain per year)

The fourth and final factor involves the law of supply and demand. There are only so many locally-owned choice properties still available in this tiny land, and they are being sold at a rapid pace. It seems that the worse the threat of terrorism gets in the US and Europe, the more folks from there want to come live or at least invest in Costa Rica. The effect has been to drive up prices, although there are still many good deals to be had.

How much does it cost to build in Costa Rica?

Building costs are much cheaper than in North America or Europe. For a house built to US standards, for example, the cost averages about $50/sq.ft. For "tico style," the price drops by up to half. On the upper end, luxury starts at about $70/sq. ft. and goes up from there.

What kind of building codes are there in Costa Rica?

Costa Rica actually has fairly stringent building codes, contrary to popular belief. The problem is that these codes are rarely enforced, especially in rural areas. If you want to build, we can recommend professional builders who moved here from the US after spending many years in the construction business. They will build according to North American codes and take care of all required permits for reasonable prices.

What are the Residency Requirements in Costa Rica?

Residency status is available in different formats, depending on the applicant’s qualifications and requirements, as to lifestyle in Costa Rica. However, it should be noted, that this area of the law is under scrutiny at the moment, by the Costa Rican Government, with a view to introducing some significant changes, including a proposed elimination of the Rentista residency status.

The Permanent  residency status means that you can both reside and work in Costa Rica, since it is usually granted without limitations.
Temporary residency may be granted to individuals for a specific purpose,  such as rendering services to the Government, international organizations, or educational institutions.  It may also be granted to individuals with certain specialized knowledge, students enrolled in specific educational institutions,  domestic servants, and to other individuals who qualify, at the discretion of the Department of Immigration.

Resident Investor residency was created to attract investment capital to Costa Rica. This status may be granted to individuals who invest $200,000.00 US or more.  If the investment is made in an area deemed a priority, such as forestry or tourism, then the investment amount is $100,000.00 US or more.

Pensionado and  Rentista Residency may be granted to individuals who can demonstrate an offshore fixed income from recognized sources. In the case of Pensionado status, the individual must show a fixed monthly pension income of $600.00 US or more. With respect to Rentista status, the individual must show a fixed monthly investment income of $1000.00 US or more.  Working is usually not permitted with either the Pensionado or Rentista status.

In each Residency category, a specific set of notarized documents is required from the applicant’s country of origin, which is more easily obtained prior to travelling to Costa Rica. An applicant ought consult the nearest Costa Rican Embassy or Consulate in their country of origin to determine these documentary requirements. Upon arrival in Costa Rica, an applicant ought to retain the services of a lawyer,  specializing in Residency Applications, to complete the process.           
                                    
It ought be noted that the granting of Residency status in Costa Rica is discretionary on the part of the Department of Immigration and not a right of the applicant.  

Can a foreigner Buy Real Estate in Costa Rica?

Buying Real Estate in Costa Rica by a foreigner is permitted (with certain restrictions), but presents a number of potential pit-falls.  A purchaser is well advised to retain the services of a qualified and reputable realtor, to advise on the purchase, and the services of a lawyer, specializing in real estate conveyancing, to complete any purchase transaction.  Particular issues may arise in the ascertaining of the state of  the title to property, which are unique from other jurisdictions such as the United States and Canada.  Also, a number of  general legal statutes may have a bearing on the development of a piece of property, such as the Maritime Zoning Law, which may not be annotated on the title to the property, as registered in the National Property Registry.  For these and other considerations which may not be apparent to an unsuspecting purchaser, the retaining of proper professional advisers is imperative.

How do I obtain a construction permit for a house?

The law requires that the application for a construction permit be presented by a licensed architect or engineer, to the Municipality where the property to be built on is located. Prior to submitting a application, Municipal zoning for the property should be checked, a determination that basic services such as water, electricity and telephone are available, and insure that there are no restrictions placed on the property, which would deny the issuance of a construction permit. To determine if such restrictions exist, the registered title, in the National Registry, would need to be reviewed, along with checking with a number of other Government agencies, who may have statutory authority to restrict development.  For a serviced residential lot, you will need architectural blueprints, an electrical plan, each appropriately endorsed and filed with the Costa Rican Association of Engineers and Architects, along with their standard consulting agreement, approval of the plans from the Ministry of Health; then filing at the appropriate Municipality, along with the completed construction permit application, workers’ compensation policy from the National Insurance Institute, a certified copy of the property survey map, three copies of the construction plans, a Municipal certification that all property taxes and assessments are current, and an approval from the water company (AyA),  regarding the availability of water, where the home is to be built.

Is house insurance available in Costa Rica?

Yes, house insurance is available from the National Insurance Institute (I.N.S.), for all of the usual insurable perils. This coverage may be extended to cover house contents, which the Insurance Institute estimates to be 35% of the insured value of the house.

How much are property taxes in Costa Rica?

The Municipal government in the area where the property is located, is in charge of levying and collecting property taxes.  The tax rate is set annually by the Municipality and is based on 0.25% of the recorded property value in the National Public Registry.  The property value may be adjusted automatically by the Municipality, when the property is sold or mortgaged.

How do I establish a business in Costa Rica?

First, you must determine whether you wish to operate the business as a sole proprietorship or through a corporation. A business license must be obtained from the Municipality, where you intend to conduct business. Some Municipalities, such as the Municipality of San José, require that you obtain a Certificate of Zoning (Certificado de Uso de Suelo), to insure that the property intended for the business is properly zoned for that use, prior to applying for a business license. You must also register your business with the Revenue Ministry, with respect to the collection of any sales tax. If an existing business is to be purchased, extreme caution must be taken in ascertaining all of its liabilities, some of which may not be readily apparent. This is not a matter which should be undertaken without appropriate legal advice.

Can a foreigner incorporate in Costa Rica

Yes,  a citizen of any country may incorporate a company in Costa Rica.  A corporation may be formed in one of two ways. Simultaneous subscription, the most  common way, requires at least two incorporators to appear before a Costa Rican Notary Public, to execute the articles of incorporation.  The second way, known as subsequent subscription, is rarely used, as it involves the formation by a promoter as opposed to incorporators. The articles of incorporation must include: the date and place of formation,  complete identification of each of the incorporators including nationality and identity or passport number, the corporate name, the corporate purpose,  the duration of the corporate term, the capital stock of the company, the capital contribution by the shareholders, the legal domicile of the company, the board of directors (at least a president, secretary and treasurer), an enumeration of powers of the directors,  a statement as to the allocation of profit and loss,  a statement as to how the company would be dissolved, and the name of a resident agent, who must be a Costa Rican Attorney.  

Do I have to pay income tax to Costa Rica on income received by me earned from off-shore sources, business, pension, or investment?

No, income received from sources off-shore to Costa Rica does not attract a Costa Rican income tax liability.

I want to purchase property in Costa Rica. What is required?

So you've found, either through a real estate agent or your own searches, a piece of property that is perfect for you. Once you have negotiated a sales price and the seller has accepted your offer, then the legal procedures for transferring ownership of title begin.

How is title transferred?

In Costa Rica, property is transferred from seller to buyer by executing a transfer deed (escritura) before a Notary Public. Unlike common law countries, such as the United States and Canada, where the role of the notary is limited to authenticating signatures, in Costa Rica the notary public has extensive powers to act on behalf of the state. The notary public must be an attorney and she or he may draft and interpret legal documents, as well as authenticate and certify the authenticity of documents.

In order to close on the property, the buyer and seller must select a notary/attorney who will draft the transfer deed and register the sale in the Public Registry (Registro Nacional). 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 draft the transfer deed.

2. If a property is purchased 50 percent cash and 50 percent 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. The registration fees are discussed below in the section on closing costs.

At your option, the property can be purchased in an individual's name, jointly with other persons, or in the name of a corporation. the decision as to ownership should be based upon your particular situation and after consultation with your attorney.

How can I ensure that I have clear title to the property?

Costa Rican law requires that all documents relating to an interest and/or title to real property be registered in the property section of the Public Registry (Article 460 of the Civil Code). 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. The Public Registry report (informe registral) provides detailed information on the property, including the name of the title holder, boundary lines, tax appraisal, liens, mortgages, recorded easements, and other recorded instruments that would affect title.

Since Costa Rica follows the doctrine of first in time, first in right, recorded instruments presented to the Public Registry are given priority according to the date and time in which they are recorded. Obviously, every situation differs and in some cases a review of the Public Registry record will not be enough to uncover all encumbrances. That is why it is important that the buyer have her or his own attorney conduct an independent title search and investigation rather than rely on the seller's attorney.

How about closing costs?

The general custom is for the buyer and seller to share equally in the closing costs. this can be modified by agreement and usually depends upon the particular transaction. Closing costs involve three things: government taxes and fees, notary fee, and mortgage costs, if any.


[A] Government Transfer Tax and Registration Fees

(1) Real Estate Transfer Tax - The government collects a property transfer tax (Impuesto de Traspaso ) which is equal to 1.5% of the registered value of the property. The Public Registry will not record a transfer deed unless the transfer taxes and documentary stamps have been paid. (The transfer tax was reduced from 3% to 1.5% by Law No. 7764 effective May 22, 1998)

(2) Documentary Stamps - The government also requires that documentary stamps be affixed to the deed. These stamps include the following: Municipal Stamp: (Timbre Municipal) ;Legal Bar Association Stamp (Timbre del Colegio de Abogados); Agricultural Stamp (Timbre Agrario); National Archives Stamp (Timbre del Archivo Nacional); Fiscal Stamp:(Especie Fiscal). The Public Registry also imposes its own tax of .05% on documents presented for recordation to the Public Registry. (Derechos de Registro)


[B] Notary Fees - The Notary that drafted the contract for sale and carried out the closing is entitled by law (Decree 2307-J) to a fee equal to 1.5% of the first one million Colones of the actual sales price and 1.25% on the balance. The Attorney and Notary fee schedule which was established by Executive Decree No. 2307-J on April 4, 1991 was repealed on February 9, 1999 (Decree No. 27624-J). However, in October of 1999, the Supreme Court of Costa Rica ruled that the Decree which repealed the Fee schedule was unconstitutional and reinstated the original fee schedule.


[C] Mortgage costs - It is customary for the person who is receiving financing to pay the costs of drafting and registering the mortgage instrument. A mortgage can be created simultaneously at the time of sale by adding a mortgage clause in the transfer deed. Or, a separate mortgage instrument can be drafted. A mortgage document pays registration fees of 1.00 Colon for every 1,000 Colones. The mortgage document also pays documentary stamps. The Notary Public will also charge for drafting the mortgage instrument and that fee can range from approximately 0.625 percent to 1.25 percent of the amount of the mortgage, depending on the circumstances involved.

The buyer should be aware that Costa Rican real estate transactions commonly operate on a two-tiered system. since Costa Rican properties have a low property tax appraisal base in relation to market value, it is a customary practice to run property sales through at the registered value, which may be substantially less than the actual sales price of the property. In such a case, all transfer taxes and fees discussed above would apply to the registered value as opposed to its sales price, with the exception of the notary fee. Buyers should consult their attorney about the potential risks of this practice.

How do I Register the transfer deed?

Once all the fees have been paid, it is the obligation of the notary who drafted the transfer deed to ensure that the deed is presented (anotado) and registered (inscrito) in the Property Section of the Public Registry. I have stressed the words presented and registered to highlight the importance of following up with the notary to ensure registration. Although presentation guarantees your priority (i.e., first in time, first in right), it does not automatically guarantee registration. The Public Registry will not register a transfer deed unless all taxes and registration fees are included; a certified copy from the Municipality where the property is located is provided certifying that the seller's property tax (bienes inmuebles) and municipal assessments (impuestos municipales) have been paid through the date of closing. Likewise, any prior instruments that encumber the property(i.e., mortgages, liens, judgments, etc.) must be lifted before your transfer deed will be registered.

Once a transfer deed is accepted for registration, the Public Registry will return the original document with all the documentary stamps affixed to it and properly sealed. Assuming no defects in the transfer deed, it should be registered by the Public Registry with 45 to 60 days after presentation. It is therefore important to follow up with the notary to ensure registration, otherwise you will run into problems in the future when you decide to resell the property and find out that your sale was not registered.

What About Beach Front Property?

In most cases, beach front property is untitled property because in Costa Rica the ownership and possession of the shoreline is governed by the Maritime Zone Law (Ley Sobre la Zona Maritimo Terrestre) which restricts the possession and ownership of beach front property. By law the first 200 meters of beach front starting at the high tide markers is owned by the government. Of the 200 meters, the first 50 are deemed public zones and nobody may posses or control that area. On the remaining 150 meters the government through the local Municipal government will lease by way of concessions the land to private individuals. The Maritime Zone Law provides restrictions as to foreign ownership or possession of beach front property so a more through and careful study is always required when considering beach front property in Costa Rica.

I want to build. What do I do?

In order to build in Costa Rica, you will likely face a bureaucratic maze of governmental regulations. The law requires that any application for a construction permit be presented by a licensed architect or engineer (Article 83, Law of Constructions, Article II.2 Construction Regulations). It is therefore advisable to contact a reputable, licensed architect or civil engineer to guide you through the construction process.

What do architects and engineers charge?

All architects and engineers in Costa Rica must be licensed by the Costa Rican Association of Engineers and Architects (Colegio Federado de Ingenieros y Ingenieros y Arquitectos-CFIA. This governing body establishes the fee schedule that can be charged by its members. Most fees are based upon a percentage of the value of the construction project. According to the regulations of the CFIA (Reglamento para la Contratación de Servicios de Consultoría en Ingeniería y Arquitectura), the involvement of a licensed architect/engineer in a construction project is separated into two phases. Phase 1 is construction plans and permits, and phase 2 is control and execution.


Phase 1. Construction plans and permits. This phase is further subdivided into several distinct professional services that can be provided to the client by the architect/engineer. The percentages cited below are those that the CFIA has established as minimum chargeable fees.

Preliminary studies (estudios preliminaries): 0.5 percent. These studies may or may not be required, depending on the scope of the project.

Preproject design (anteproyecto): 1.0 to 1.5 percent. Generally, during this stage, the architect/engineer will meet with the client in order to discuss the client's construction requirements. With this information, the architect/engineer will prepare drafts of the proposed construction project for review by the client. These drafts should include site planning and preliminary work drawings. When you contract for this service be sure you agree with your architect/engineer beforehand on what he or she is going to provide you.

Construction plans and technical specifications (planos de construcción y especificaciones técnicas): 4.0 percent. This is one of the most important steps in the overall construction project since execution of the project will depend upon the quality and accuracy of your construction plans. Once you and your architect/engineer have agreed on the layout and design of the project, she or he will begin drafting the plans. In Costa Rica, a complete set of plans should include a site plan, distribution plan, elevation and transversal and longitude perspectives, roof design and drainage, design of footings and support beams, structural plans, electrical design, mechanical and sanitary system design, as well as a plan that details all of the interior finishing's of the construction. Budgeting (presupuesto): 0.5 percent for global budgeting; 1.0 percent for itemized budgeting. Here the architect/engineer prepares a materials list based upon your construction plans and prepares a construction budget for you.


Phase 2. Control and execution. This stage involves the actual construction and project supervision. The regulations authorize three kinds of supervisory tasks, each of which requires a larger time investment from the architect/engineer. Inspection (Inspección): 3 percent of total construction value. Here your architect/engineer will visit the construction site at least once a week and will inspect it to ensure that the plan specifications are being followed by the general contractor. They will also verify the quality of the materials being used and review invoices being presented by the general contractor.

Supervision (Dirección técnica): 5 percent. This requires more direct involvement by the architect/engineer in the day-to-day operation of the project.

Administration (Administración): 12 percent. Here, the architect/engineer takes complete responsibility for the execution and completion of the project.

The option you choose will depend upon the type of project involved, the reliability of your builder/general contractor, and the amount of time you are willing to dedicate to the construction project. All told, phases 1 and 2 can range from 9 percent to 18 percent of the estimated value of the construction project, depending on the amount of services required. As such, it is common practice to negotiate fees with the architect/engineer. Most, of course, will be eager for your business and, depending on the scope of the project will be willing to work out an agreement tailored to your particular needs. Otherwise, have your attorney do the negotiating for you to ensure that you will get the best agreement possible.

Before you sign any contract, be sure that you understand the fee structure and know exactly what is and is not included in the fee. Likewise, clearly define the responsibilities that your architect/engineer is going to assume. Do the same thing with your general contractor and any subcontractors.

What About Construction permits?

Before you purchase a lot with the intent of building on it, you should conduct some preliminary studies on the property to ensure that there won't be a problem obtaining a building permit. First, determine if the lot has basic services such as water, electricity, telephone, and drainage. Second, make sure there are no restrictions placed on the lot that could result in the denial of a construction permit. It will not be enough to check the Public Registry. You should also check the Ministry of Public Works (Ministerio de Obras Públicas y Transporte) for future road construction projects; the Ministry of Health (Ministerio de Salud); the National Institute of Housing and Urban Development (Instituto Nacional de Vivienda y Urbanismo) and the municipality where the property is located (municipalidad). And finally, be aware of any environmental regulation that may effect your construction project, such as national wildlife refuges and areas deemed protected by the forestry Law.

Requests for construction permits are filed with the Permit Reception Office (Oficina Receptora de Permisos de Construcción), which is a centralized office that houses government representatives from MOPT (Ministerio de Obras Públicas y Transportes-roads), INVU (Instituto Nacional de Vivienda y Urbanismo-housing), ICE (Instituto Costaricense de Electricidad-telephone), AYA (Instituto Costaricense de Acueductos y Alcantarillados-water), SNE (Servicio Nacional de Electricidad-electricity), CFIA (Colegio Federado de Ingenieros y Arquitectos), and the Ministry of Health (Ministerio de Salud).

For a single family home that measures more than 70 m2 (735.2 ft.2), the applicant must provide