By: Rosario Araya A.
Why set up a corporation to own your property in Costa Rica?
If you are considering investing in real estate in Costa Rica, we recommend that you hold it under a corporation. There are several advantages to doing this:
- Non-residents (foreigners) will have more options for bank accounts and telephone plans if they apply in the name of their Costa Rican corporation.
- Liability limitation or separation from other assets
- The shareholder representation by proxy is stated in the Commercial Code, which could save travel and expenses
- Holding separate or joint powers of attorney among partners
- Income tax strategy planning
- Privacy in terms of ownership of assets. The shareholders’ information only gets recorded in the corporation books which are considered internal, therefore private information doesn’t get reported to the registry. What does get recorded in the Public Registry are the names of the officers who manage and represent the corporation, as well as a POA’s assignees. Bear in mind that the board of directors and managers do not necessarily have to be shareholders.
Why not just transfer shares in the existing corporation that owns the property?
It is generally safer to create your own corporation that suits your specific needs. We do not recommend acquiring real estate through purchasing/transferring the stocks of an already active corporation since you could be getting yourself into trouble. There is always a serious question as to what liabilities the corporation may have acquired while in the control of the former corporate officers.
While some liabilities would be registered and discoverable during due diligence, there are others that may not be, particularly if the corporation has operated a business. For example, if the corporation has employees and the employer didn’t pay the CCSS (Caja Costarricense de Seguro Social – Costa Rican social security), then that debt remains due because there is no statute of limitations for debts owed to the CCSS. Any previous taxes owed by the corporation could put you in an uncomfortable position as well.
What types of corporations are there?
The Costa Rican Code of Commerce provides for five types of business corporations. Of these, only two are generally used, which are “Sociedad Anónima” abbreviated “S.A.”, and the “Sociedad de Responsabilidad Limitada” abbreviated “Ltda.” or “S.R.L.” Both types of corporations limit shareholder responsibility to the amount of registered capital thus excluding personal assets from being affected by corporate liabilities. For the stated reasons, corporations are very frequently used to hold assets.
A side-by-side look at the differences between an S.A. and S. R. L.
|Sociedad Anónima, or S.A.||Sociedad de Responsabilidad Limitada, or S.R.L.|
|The stocks are called “acciones”The shareholders are called “accionistas”It must have three corporate books: “Registro de Accionistas” (Register of Shareholders), “Asamblea de Accionistas” (Shareholder Meetings) y “Actas del Consejo de Administración” (Minutes of the Board of Directors).It must be represented by a board of directors with a minimum of three members plus a statutory examiner.The stock transfers must be specifically included in the corporate bylaws if desired.There are Court resolutions that indicate that it was intended to be used by larger groups of investors needing to be represented by a board of directors for the purpose of supervising day to day operations.||The stocks are called “cuotas”The shareholders are called “cuotistas”It must have only two corporate books: “Registro de Cuotistas” (Register of Shareholders) y “Asamblea de Cuotistas” (Shareholder Meetings).It can be represented by one or more Managing Directors chosen by the shareholders.The stocks have a legal “first right of refusal” in favor of current shareholders. (Commercial Code establishes it)There are Court resolutions that indicate this structure was intended for smaller groups of owners more directly involved in the business management.|
Which is the best type for you?
This is something you should discuss with your attorney in order to make sure the type you select makes the most sense for your goals. Regarding #6 in each list above, note that there is no restriction regarding size and type of corporation. Both of these types of business corporations are used by large and small groups of investors in Costa Rica. Generally speaking, however, if you want to set up a corporation with just you as the manager, and pretty much just to own your property, the S.R.L. is more common and the simplest.
What do I need to set up a corporation?
Once you and your attorney have decided which type of corporation best suits your needs, the following information will be necessary for the process:
- A name for your corporation. It’s best to come up with 3, in case the name you select is already in use. For simplicity, many people request that the Public Registry assign a number to the corporation, which then functions as both the name and the I.D.
- Decide who the shareholders will be. For both types of corporations a minimum of 2 shareholders are required during the creation process.
- For an S.A., decide who will be on the board of the directors, and for an S.R.L., decide if you want only one person to be in control, or if you prefer to share control, and in what proportions. Do you want more than one person to have power of attorney to act on behalf of the corporation?
- For all individuals who will be part of the corporation, the following 5 elements of information required for all Costa Rican legal documents would be necessary:
- their full legal names
- a copy of the primary page of their passport
- marital status
- legal address
A corporation with no shareholders living in Costa Rica must have a “resident agent” who should be a notary. He/she would receive notifications on behalf of the corporation.
What are the steps to set up a corporation?
- Select an attorney you trust and make an appointment
- Gather the information listed above and take it with you when you meet with your attorney
How much does it cost?
Our prices for establishing a corporation are quite competitive. Give us a call at 2787-0446 or email us and we will be happy to visit with you.
NOTE: Corporate taxes payable in January of each year are now being collected by the Costa Rican government. (Under $120 for inactive corporations in 2018.) If the annual tax is not paid by the end of January, interest will begin to accrue. This new tax on the existence of corporations has been effective since 1 September 2017 due to Law #9428, which was passed 22 March 2017. All corporations – whether active or inactive – will be required to pay this annual corporate tax. Newly created corporations will pay an amount prorated for the remaining portion of the year, and this amount must be paid within 30 days of the new corporation being inscribed or interest will begin to accrue.
All corporations also have the one-time requirement of filing a D-140 form with the Tax Ministry. The law set a specific deadline based on the last digit of their I.D. number for the filing of the D-140 form for corporations which existed prior to 1 September 2017. Corporations created after 1 September 2017 must file the D-140 form with the Tax Ministry within 30 days of their corporation being inscribed in the Public Registry. In our region, the filing of the D-140 form is done at the Tributación office in San Isidro.