Legal Entities

[Dave R.]

Russ-

I'm considering my first real estate purchase in Costa Rica.  I have heard that there are advantages to setting up a Costa Rican LLC for this purpose.  Would you elaborate on these advantages and whether is is worth the additional cost and effort?  How would I go about creating an LLC?

Thanks-
Dave R.

[Russ]

Great question Dave, there are several legal entities you can create and then use to buy properties in Costa Rica, each has their own advantages.  The exact one that is right for you will depend on your own situation, but here are some things to know.

Many locals and expatriates own property in a corporation they control because it protects the property.  If a person is sued or jailed, in some circumstances their property can be subject to leins or seizure.  If a corporation owns the property, then only the corporation can be held liable.  And if the corporation doesn't do anything but own a property, then it won't be taking any actions it can be held liable for!

Another advantage is that when you want to sell the property you can save on the transfer taxes, since you only need to sell shares in the corporation and not change the name of the property owner in the registry.

An advantage for expatriates is that it also protects them from legal issues back home.  Lawyers in the U.S. now have access to sophisticated databases that provide them with detailed financial information on people they are considering filing litigation against.  Property held in the name of a Costa Rican S.A. will not show up in these databases.

Another advantage is in estate planning.  The corporation (or a trust) can be a vehicle for reducing significantly estate taxes for your heirs. Here are some common entities people use:

The Corporation  (Sociedad Anonima or SA)
2 or more shareholders, Fiscal and Board of Directors (President, Secretary, Treasurer)
The Fiscal is an auditor in charge of the due diligence with special rights to inquire from any officer any document or report and to summon a shareholders meeting for an emergency situation, may or may not have veto powers.

Limited Liability Company (Sociedad de Responsabilidad Limitada or LTDA)
This has a simpler structure than the corporation but more flexibility than the limited partnership. This means that it requires less people to be involved, but provides many of the same advantages.  

Family Limited Partnership (Sociedad en Comandita or S en C) ():
This is less commonly used, but is a great tool for estate planning like a trust company.  Often there are 2 partners, one that funds the partnership and has limited liablility and another that controls it and has full liability.  

Each structure has different reporting requirements for tax purposes and you will choose which one suits you best depending upon your objectives.  All of the realtors in the group have attorneys that they recommend and work with in their respective areas. It also wouldn't be bad to use an attorney that is familiar with your home country's tax laws and accounting practices, so that they can better advise as to the protection the different formats provide.  

Fees vary, but for example:
US$500 dollars is common amount to pay for the legal fees on a standard corporation. Other fees:
- Incorporation tax and filing fee: US$75 dollars
- Registered office US$75 dollars per year. (optional)
- Nominee Directors US$75 dollars per hour or US$500 per year (optional)
- Shelf entity. Add US$75 dollars taxes paid at the outset. (optional)