Common questions about services and procedures for banking in Costa Rica
Foreigners may set up bank accounts in Costa Rica and Costa Rica is recognized by experts as a good choice for offshore accounts because of their strict banking secrecy laws. You will probably be better served opening accounts in the private banks, where employees are likely to speak English or other languages and the service is more customer oriented and faster.
Costa Rican banks do wire transfers under the international SWIFT system or the ABA system. Many private banks, particularly BAC, offer U.S. bank accounts connected with the local bank through subsidiaries, agreements or actual branches. In this case you can make transfers yourself over the Internet for very reasonable rates.
In Costa Rica the bank system is divided into state owned banks and private banks and financial companies. State banks are Banco Nacional, Banco de Costa Rica, Bancredito y Banco Popular. Savings with these banks are guaranteed by the State under constitutional statute. However some private banks offer consolidated guarantees and manage a prestigious client list. Amongst first order private banks are: Banco Interfin, Banco San Jos? and Banco Banex. All these banks have general banking services such as checking accounts, offshore accounts, money market accounts, CD?s and credit card issuance and affiliation (as a commercial establishment). Other international banks doing business in Costa Rica are: Citibank, Scotia Bank and other regional banks such as Bancrecen and Cuzcatlan.
Mortgages in Costa Rica are not very attractive to foreigners. The requirements are much more rigorous because the credit rating system is not as developed. Also, the rates are higher and most banks have been reluctant to lend to foreigners who are not residents or illegally residing here (perpetual tourists).
Due to these factors, most real estate transactions are on a cash basis. Generally, people sell their properties back home and use the equity to purchase less expensive property here. Alternately, people mortgage property back home and use the cash here. Another common way has been owner financing. These are usually shorter term and for lower percentages than bank mortgages. (20, 30, or rarely as much as 50% of the purchase price and terms of 3,5 or 8 years)
Recently some banks have begun programs for making mortgages to foreign residents, due to increased competition in other markets. Scotiabank particularly offers mortgages with prerequisites friendly to foreign residents.
Incorporating in Costa Rica, shell companies (IBCs) and benefits
For three simple reasons:
- To protect or insulate the real estate asset from the personal liability of the Beneficiary Owner like in a car accident scenario;
- To avoid Probate by customizing the entity in a way so that equity ownership passes to heirs, without triggering Probate rules; and
- In case the real estate asset produces income like a hotel or restaurant, to qualify for residency under "Empresario" status.
For a full description of Costa Rican corporate structures, see this page - Costa Rica Incorporation
Sociedad An?nima or ?S.A.? ie corporation or anonymous society: this is the most commonly used entity in Costa Rica, however not the only one, it?s designed for complex and/or multiple partnerships, for versatile transfer of its ownership and for securitized transactions of its shares ie a public company traded in the stock market;
Sociedad Limitada or ?LTDA? ie. company or LLC, this entity is designed for one person or individual partnerships, where the person who owns the? Company Units? ie. shares of the LTDA is the one that matters most as opposed to the SA where it is the corporation itself that matters most. In other words in the SA it?s immaterial who comes and goes, whereas in the LTDA it matters. This also means inside partners have to be given first option or right of purchase of Company Units before an outsider comes in as a partner. The structure of the Limitada is also simpler than the SA, therefore, we believe it?s ideal for a closely held personal or family company to hold assets in a passive manner.
Sociedad en Comandita or ?S en C? is the equivalent of the so-called Family Limited Partnership in the common law, rarely seen in Costa Rica and recommended as an estate or asset planning tool, under more complex structures like trusts.
Foreign citizens with a valid passport or Costa Rican residency card, can incorporate in Costa Rica, by way of executing the Articles of Incorporation, ie the corporation birth act, this document must be executed by the Stockholders on the Notary Public indentures book: ?protocolo?, and establishes the main components and rules of the Entity: type: corporation (sociedad an?nima) or company (limitada), name, domicile, life term, purposes, stock or shares structure and ownership distribution, administration: legal representatives, legal reserve: company savings, yearly meetings, summons procedures, dissolutions procedures and designation of Directors. The articles of incorporation are then filed at the Mercantile Registry for recordation and validation of the company as a legal entity. After the company is registered, the books are legalized in the Revenue Administration Books? Legalization window.
Note: Incorporation with Absentee stockholders is possible by way of using Nominee Shareholders at the outset, and then transferring the ownership of the stock to the Beneficiary Owners in the entity?s Stock Holder Registry book. The Directors can accept their appointment by a statement of acceptance.
Foreigners may set up and run businesses in Costa Rica. In many cases, you may obtain residency because of your business ties, see the Residency FAQs for more information
The costs of incorporating in Costa Rica are:
- Mercantile Registry one time incorporation tax stamps, processing fees, and publication of notice which add up to of ?30,000 colones approximately.
- Legalization of books with the Revenue Administration ?10,000 colones approximately.
- Lawyer/Notary Public incorporation fees we have seen from ?50,000 colones to US$1,500 dollars. We charge US$500 dollars, based on the templates we have developed, our know how to customize them for a client's specific needs and time invested in discussing types, customization, and Articles of Incorporation generation and registration.
Note: if the corporation or company does not perform commercial or income activity in Costa Rica, there are no yearly maintenance payments to be made, except education and culture tax stamp or D-175 corporate asset tax form for the 2002-2003 term only and not for further terms until further notice.
Setting up and running a business in Costa Rica will require five basic steps to start with:
- Establish a corporate entity to run the business.
- Apply for and obtain a business license (patente comercial) from the local Municipality department (Departamento de Patentes) where the business is to operate.
- Register with the Costa Rican Revenue Administration (Direcci?n General de Tributaci?n Directa).
- Register the company as an employer under the Costa Rican Social Security System (Registro Patronal bajo la Caja Costarricense del Seguro Social) and to obtain an official numbered payroll form to pay social security insurance for each employee.
- To set a functional bank account and credit card acceptance affiliation.
See our article Setting Up and Running a Business in Costa Rica for details.
A corporation or a company, is a legal fiction of civil/commercial law like ?adulthood?, invented by the late middle age European jurists to serve as vehicles and to order the market relationships of the business people back then. We find it very practical, for pedagogical purposes, to compare them with human beings, since they are very similar from the civil/commercial legal point of view:
- They both have parents ie the stockholders, the stockholders own and control ultimately the entity, they can change stock holders like humans through adoption;
- They have spouses ie the directors: president, secretary, treasurer and auditor in a corporation or general managers in a company, the directors represent legally the company and can be changed like spouses in divorce and marriage;
- They have id like adults, its called Juridical Identity Card or ?c?dula jur?dica? in Spanish;
- They have a birth certificate like humans ie the Articles of Incorporation: ?estatutos de constituci?n? in Spanish;
- A passport too: Legalized Books or ?libros legalizados? in Spanish: three minutes books for corporations or two for companies, and three accounting books for both.
- And for civil/commercial law purposes, they can do almost everything citizens do: like own, buy, sell, transfer, mortgage or negotiate property or assets, they are born upon incorporation, they live one hundred years, they have a house its called the Legal Domicile or ?domicilio social?, they get married upon merger with another entity and they die upon dissolution.
The bottom line is that the civil/commercial law recognizes the entity as an individual separate from its Stock Holders and Directors, who is able to interact with others through its legal representatives and the documents they execute on its behalf.
Offshore & Asset Protection
What is offshore? What are the benefits of being offshore? How can I protect my assets from frivolous litigation?
Purposes of Asset Protection Planning
Asset Protection is defined as reducing the potential level of exposure to the assets of a business or an individual, (such as real estate, cash funds, business inventories, and machinery) arising out of an eventual liability situation of a civil, criminal or taxation nature. Given the imminent exposure that comes with the most conduct of business and the often devastating implications of personal and company liability enforcement, the advantages of cautious "risk management" planning arise as a real necessity in today's complex and often unpredictable business relationships.
An appropriate Asset Protection Strategy will accomplish the following purposes:
- Screening: The original person or entity owner of the assets should be screened from view so as to prevent the corporate piercing from attaching the assets. A Very accurate methodology is involved at this initial step in order to avoid triggering any fraudulent conveyance issues that may involve criminal liability and void the assets? transfers.
- Insulation: The ownership of the assets must be isolated from the higher risk enterprise and the beneficiary, by using a shield? an entity to conduct the liability absorbing? cash generating activity. The shield entity has as few assets as necessary to cover its operational needs. At this stage risk segregation needs to be undertaken along with appropriate functional lines, clearly differentiating specific entities and contractual relationships.
- Tax benefits: If carefully planned and conducted, tax treatment advantages can be achieved, as expenses and profit margins can be adequately recorded and claimed under parameters legally recognized under the Tax Code (C?digo Tributario).
- Offshore Banking: Business revenue both gross and net, have to be channeled into a safe harbor structure so as to guarantee its integrity and capitalization.
- Clean Records: Special attention and significance are given to the fact that authentic asset protection cannot be achieved without breaking away with liabilities or potential risks dragged from the past. Since asset protection is a preventive strategy, a comprehensive diagnosis, and a link erasure? Is a plan conducted in order to assess the plan?s feasibility and assure a successful business transition.
- Estate Planning: A safe and uncontested passage of ownership to heirs and beneficiaries needs to skip the use of wills and irrevocable living trusts, which as conventional instruments often involve court probate, lawyer?s fees and unnecessary exposure to challenges.
- Support and Maintenance: Our Business Consulting Service is available during business operation after the asset protection plan has been successfully implemented, as may be necessary for an optimal performance.
Frequent questions about buying real estate here, your rights under the law and the transfer process.
Yes, foreign citizens can buy, sell, trade and dispose of real estate property in Costa Rica, as they have the same rights as nationals, short of certain exceptions within specific laws, like the Concession Law.
Foreign citizens with less than five years of local residency can own up to 50% equity interest in Concession Property in Costa Rica, with the remainder under the local ownership or a trust structure; foreign citizens with more than five years of local residency can own 100% equity interest in Concession Property in Costa Rica.
In order to get Concession Title, certain concession proceedings have to be executed by the Concession Occupant
Concession rights of occupation are the key to start the following process in order to title the Concession in the Registro P?blico Concessions Registry:
- Yield the rights from old to a new occupant.
- Open new concession application file under the new occupant before the Municipality Concession Department. Foreigners with less than five years of residency in Costa Rica, cannot own more than 50% of the stock of a corporation holding a concession.
- File the application form, with the corporation papers and ids.
- Solicit Instituto Geogr?fico Nacional (IGN)markers (mojones).
- Generate the Cadastral Survey inconsistency with the IGN markers placed.
- Present Cadastral Survey of the property, solicit inspection, appraisal and Zoning Plan (Plan Regulador) compliance verification.
- Request an appraisal of the property by the competent concession appraisal department, and payment of the respective Municipality Concession Tax ?canon de concessi?n?.
- If there is not Plan Regulador current for the property, generate and get one approved by INVU, ICT, SETENA and Municipality competent agencies, for the property.
- Request an appraisal of the property by the competent concession appraisal department, and payment of the respective Municipality Concession Tax ?canon de concessi?n?.
- Publication of notice to the public of solicitation process, for any legitimate party to oppose.
- Generate the Project Resolution on the concession contract, by the Municipality Mayor and Legal Department.
- Run the documents through the National Board of Tourism Concession Department (ICT) to get there: remarks, observations and/or admonitions until its approval.
- Get the Final Resolution Approval by the Municipality Council to the Mayor to execute the Concession Contract.
- Protocolization of Contract, Municipality Council Resolution, and ICT resolution file it in the Public Registry Concessions Registry and get it recorded. At this time the concession is titled.
Most real estate closing costs in Costa Rica are calculated on a percentage basis of the Purchase Price, there are "Basic Costs" and "Optional Costs", depending on the case, as follows:
Property Transfer Taxes: 2,75% of highest of Declared Value or Registered Value.
Optional Costs: depending on the case...
1) Surveyor Fees and Stamps: very often the services of a surveyor are necessary, mainly because of: a) the lot or parcel being sold has to be subdivided from a larger "mother property" in order to transfer it and title it; b) the property being transferred has a rather old or very old survey, example earlier than 1.970; c)the property is a very large farm or estate located in rural areas, and therefore is prudent to resurvey it in order to have an updated map; d) the surface, shape, setbacks or topography of the property have changed as a result of erosion, roads? enhancements, easements, zoning regulations or any other factors. Surveyor fees and stamps are classified depending on location as "urban" i.e. city or "rural" i.e. country area and a rather complex formula, that we attempt here to illustrate as follows:
- Symbols: y = surveyor fee; i = inflationary adjustment (currently set at 13,5 points); a = surface area;
- Urban: y = 160 x i x a; with an average increase of 9 colones x i x a for the location and use of the property; ex. downtown commercial, outbound residential; and with a minimum of 55,000 colones.
- Rural: y = 6.000 x i x the square root of the hectares of the property, with a 50% increase depending on location and difficulty and a minimum of 90,000 colones.
2 ) Surveyor Stamps: on average 5% of the Fees.
3 ) Real Estate Brokerage Fees: real estate brokers charge a conventional brokerage fee, that ranges from 3% up to 10% of the purchase price, and most of the cases is agreed with and paid for by the Seller upon closing. Be aware that this is a conventional fee, not fixed neither regulated by any specific law or agency in Costa Rica.
4 ) Title Insurance or Title Guarantee Fees: title insurance companies charge a percentage fee compounded according to the purchase price, so this fee changes as the purchase price is bigger.
- Stewart Title: starts with a 1% percent with a minimum of US$800 dollars.
- First American: starts with a 0,75% with a minimum of US$750 dollars.
5) Other Costs: depending on the transaction like courier of documents, Consular fees, translator fees or transportation.
- Notary Public Property Transfer Service 1,25% of Purchase Price: Notary Public Fees in Costa Rica: the fees of the Notary Public are regulated by establishing the minimums allowed for notary services rendered to individuals, and on real estate transactions are set on a percentage basis of the Purchase Price at 1,25%, as a result of the following sources:
- Minister of Justice Decree # 20.307-J of 4th April 1991, the Decree?.
- Notary Board Directive #0002-99, of 7th January 1999
- Lawyers? Bar Board of Directors? Resolution of 19th October 1999
- Constitutional Chamber of Costa Rica ruling #7657? 1999, of 6th October 1999
The above sources dealt with a then ongoing dispute between the Notary Publics' interest and 1998 ? 2002 Executive Administration, who repealed the Decree to please some bankers and other liberals who wanted the notary public fees to be set by the ?free forces of the market? probably so they could hire notaries by the hour, which was finally settled by the Constitutional Chamber ruling stating that ?without the Decree the profession will become ruinous??, meaning the minimums have to be respected in order the preserve the integrity of the Notary Public Service, which lies within the public interest given the importance the Costa Rican legal system delegates to this System. While these minimums are disregarded in practice by some practitioners, in most cases the minimum is applied up to a certain amount after which the client and the notary negotiate a bracketed structure. As we have learned from experience, attempting to compete by lowering the notary fees will result in service quality erosion and very often in malpractice or poor service practice, as the professional will be entrapped between large amounts of documents generated, often complex solicitation procedures and only 8 working hours in a day with no means to delegate or subcontract aides.
Real Estate Property Transfer Taxes are a combination of real estate property transfer tax and Public Registry, Lawyers' Bar and other specific recipients' legal tax stamps, known as "timbres" locally, that grossly add up to 2,75% of the highest of: a) the "Declared Value" or the b) "Registered Value" of the property.
"Declared Value" would be; the value the parties declare in the Property Transfer Deed
"Registered Value" would be the value the title has in the public record as a result of i) value declared by the parties in the former transaction, ii) value registered in a former mortgage on the property or iii) value estimated by the local Municipality for municipal annual real estate tax purposes.
None of the above necessarily mean the "actual market price" unless otherwise intentionally provided for by the Parties. The added amount of the transfer taxes has changed periodically with a historical pattern to lower.
Title insurance services in Costa Rica are provided by three major US title insurance companies: Fidelity, First American and Stewart Title, the first two have a Central America underwriting sub division at headquarters and local lawyers affiliate system, Stewart Title has had a branch in Costa Rica, for more than five years now, and has a lawyer affiliate system know as STAR. The standard title insurance procedure, will involve an eleven year retroactive and genealogical title search on the property, issuing the commitment to insure and underwriting the risk prior and after the closing.
"Conveyance" of Real Estate Property in Costa Rica, i.e. the legal word used for transfer of ownership, happens by way of: a) execution of a Property Transfer Deed by the parties in the Notary Public protocol book of indentures (protocolo) ex. common purchase and sale transaction; b) award of ownership resolution by a competent Costa Rican judge under a due process of law ex. a property foreclosure; c) award of ownership under some special law ex. IDA agrarian and farming land title government program. Under any of the former cases the respective document i.e.. a transcript of the Property Purchase Deed or Judge Resolution or IDA Board of Directors, has to be filed and recorded in the Costa Rican Real Estate Public Registry in order to be binding upon third parties.
Annual Real Estate Taxes are collected by the local Municipality of the jurisdiction?s Real Estate Tax Department, where the property is located, in arrears terms commencing one year after the property has been purchased by the owner. Payment can be quarterly or annual. The property is entereed into the system by a Municipality Real Estate Tax Declaration form signed and filled with documents related to the property and its owner. The data is typed in the Muni computer and a special formula applied that will assign an Appraisal between 10% to 40% of the market price, unless there is a higher Registered Value or Declared Value. The tax is 0,25% of the Appraisal. The Muni Appraisal can be updated every five years by owner declaration or by default by the Muni. In case of appraisal by default, the Muni will serve the owner on the Property or if the title is held by a corporation, in the corporation legal domicile.
Since real estate properties are registered in both paper and digital form in the Costa Rican Real Estate Public Registry, and any encumbrance, mortgage or claim upon property has to be published in the Registry in order to be valid upon third individuals, the main information about a property is the following:
a) Property Title Number: or "N?mero de Finca" or "N?mero de Folio Real" in Spanish: the title number is a combination of numbers divided into three brackets:
- The 1st bracket: 1 to 7 are the province number.
- The 2nd bracket is four to five digits for the individual property title number.
- The 3rd bracket is three digits designed for joint or common ownership of property, under fractional ownership ex. 1 1/2, percentage ownership ex. 50% or surface area ex. 500 square meters.
- Title number example: 1 - 12345 - 001 and 002. San Jos? is the province, 12345 is the individual property and 001 and 002 are two rights of ownership to the property.
b) Title Search: with the property title number is possible to do a title search in the Public Registry official web page at:
?por n?mero de finca?
1st bracket ?province number?
2nd ?title number?
5th ?000? or ?001? as applicable
- and the title report of the property will be on display with the main and relevant information on the Property such as title number, nature, location, boundaries, surface area, survey number, owner and any annotations or encumbrances.
c) Registered Survey Number: or "Plano Catastrado" in Spanish: the Registered Survey is an official map with a drawing of the property, its measurements, Registry data, location, vortices, vortices' lengths and other topographical data, with official stamps from Catastro, INVU and the local Municipality survey department on some cases.
- A serious owner or real estate broker should give a prospective buyer access to this information, and early access to it can save time and speed things up.
Pretty much like individuals, foreign companies can buy, sell, trade and dispose of real estate property in Costa Rica, and they have similar rights to local companies, subject to a registration process of the foreign company in the Costar Rican Mercantile Registry as a Foreign Company.
With the property, title number is possible to do a title search in the Public Registry official web page at:
?por n?mero de finca?
1st bracket ?province number?
2nd ?title number?
5th ?000? or ?001? as applicable
and the title report of the property will be on display with the main and relevant information on the Property such as: title number, nature, location, boundaries, surface area, survey number, owner and any annotations or encumbrances.
Ways you can legally live and/or work in Costa Rica
Retired Status A foreign citizen earning a pension from their former employer or income from a personal pension program (IRA, ERISA or PERS for example) of US$600 per month. The applicant must live at least 4 months of the year in Costa Rica once the residency is granted. Theoretically the funds must be exchanged into colones every year. Retirees cannot work for a salary but may earn income earned by a Costa Rican corporation. In most cases Immigration will require a letter from the Embassy of the Retiree?s country, verifying the pension source.
Annuitant Income Status A foreign citizen receiving a monthly income of US$1,000, from a legal, self-generated source or a financial investment source, for at least five years. The applicant must live at least 4 months of the year in Costa Rica once the residency is granted. The funds must be exchanged into colones as well. A widely used alternative has been, to deposit a certain sum of money with a regulated and acknowledged financial institution, (a CD for example) that will generate the $1,000 monthly income. Monthly rental fee from the applicant?s real estate at home is another recognized source if properly documented.
Investor Status: Qualified investments of US$50,000 in authorized tourism projects, $100,000 in authorized reforestation projects or $200,000 in other authorized local business, are categories recognized by the Law. It has been noted, that the applicant needs to be committed to the investment, because of the extensive documentation that Migraci?n requires, like an environmental impact study in many cases.
(Permiso Temporal de Trabajo): For professionals or technicians hired in Costa Rica by an authorized and recognized business company. A letter of sponsorship from the employer is necessary. The skills and/or qualifications of the applicant need to be documented (diplomas, licenses, certifications).
Entrepreneur Status: This category is ideal for individuals planning to set up or already running a business operation in Costa Rica: import export operation, hotel or bar and restaurant business, ranch or farm engaging employees, general store or any legal business. The applicant has to document the operation or business with copies of the respective licenses and government authorizations, social security payroll tax and workers? compensation insurance and its economic turn over like bank account statements, CPA certificate of income and similar documents. Immigration will issue a temporary residency permit, renewable every year.