An Overview of Closing Costs in Costa Rica
Law Firms and Escrow Services take the main load
In Costa Rica, property closings are facilitated by law firms, often in conjunction with government-approved third-party escrow services such as Secure Title Costa Rica. While fees may appear higher compared to those in the USA or Canada, they need not dissuade you from making a purchase.
The rationale behind these costs is straightforward. Like any government, Costa Rica relies on tax revenue for its functioning. Unlike North Americans, many Costa Ricans remain in the same home throughout their lives, with properties often passed down through generations without financial transactions. This stands in contrast to the dynamic property landscape in North America, where various taxes, including capital gains, inheritance, and property taxes, burden homeowners.
How the Government gets paid
Most of these tax burdens are absent in Costa Rica, where property taxes are notably low, typically at 0.25% (1/4 of 1%). The exception lies in beachfront properties within the Maritime zone, where municipal authorities may levy up to 4%. Larger homes, often exceeding $500,000, may incur a luxury tax, though still significantly less than in many tropical locales.
To offset the absence of ongoing property taxes, Costa Rica imposes a transfer tax at the time of property purchase. This serves as a vital revenue source for the government and ensures that property taxes remain low to prevent financial strain on its citizens.
Typical Forms of Costa Rica Property Ownership
Many properties in Costa Rica are held under Costa Rican corporations, known as Limitadas or Sociedades Anonimas While some may suggest purchasing shares of these entities to circumvent transfer taxes, this approach carries significant risks, including inheriting potential liabilities and debts.
The most secure method for property acquisition involves transferring the property to a newly formed entity at closing. This ensures a clean transaction without liabilities inherited from previous ownership.
Fees Associated with Property Transfer
Fees associated with property transfer include:
- Transfer tax: 1.5% of the purchase price or the registered value at the Municipality, whichever is higher
- Registration stamps: 0.84% of the purchase price or the registered value at the Municipality, whichever is higher
- Legal fees: 1.25% of the purchase price plus 13% VAT tax
- Establishment of a new corporation: $900 plus 13% VAT tax
- Escrow services: An average of $550 plus 13% VAT tax
Additionally, there may be minor fees for utility transfer and corporation maintenance.
Closing Thoughts
While upfront costs may seem daunting, they ensure a smooth transaction and relatively low ongoing expenses. Buyers benefit from potential disparities between purchase price and tax valuation, translating into immediate equity gains.
Investing in Costa Rica offers financial stability and a stress-free environment, without the perpetual tax hikes common elsewhere. Your taxes are paid upfront, allowing you to enjoy your slice of paradise without financial worries.
Congratulations on your decision to invest in Costa Rica!
Welcome to Pura Vida!