Common Problems with the Investor Category When Investing in Real Estate Through a Corporation

As some of you may know, the investor category allows four options to qualify for temporary residency in Costa Rica: investing in real estate, purchasing an existing business, creating a new business, or purchasing part of a business. Today, we are going to talk about the investment in real estate, specifically when the investment is done through a corporation.

Property Ownership Options Under Costa Rican Law

Under Costa Rican law, it is permissible to purchase real estate through a corporation, which basically allows two options: people can either transfer the shares of the corporation owning the real estate, or they can transfer the property to a corporation they already own. I do not necessarily suggest people to own property through a corporation (this topic will be developed in another post) as the law also allows people, whether nationals or foreigners, to directly own property. To summarize, foreign nationals can either own real estate directly or through a corporation. Therefore, when applying for temporary residency under the investor category when investing in real estate, foreigners will have two options: apply for the investor category because they own property in fee simple, or because they own property through a corporation.

Required Documentation for Fee Simple Property Ownership

When the property is owned in fee simple, the documents required to demonstrate the investment in real estate are as follows:

• Detailed description of the asset. This is done in the cover letter.
• Certificate of title from the registry which should indicate the ID of the property, the name of the owner, the purchase value of the property.
• Certification from the Municipality where the property is located, which should indicate the value of the property.
• Certificate of registration with the revenue service indicating that the property has been registered for the luxury tax.
• Copy of the deed for the transfer of the property.

The purpose of these documents is to demonstrate that the foreign national has made the required investment amount for the purchase of the property.

Additional Documentation for Corporate Property Ownership

When the property is owned through a corporation, it will be required to provide the following documents in addition to the ones mentioned above:

• Certificate of good standing of the corporation.
• Copy of the stock certificates.
• Notary certification indicating that according to the shareholder’s registry book, the applicant is the owner of the 100% of the shares.
• Copy of the Agreement to Purchase the Shares of the Corporation.

There are some additional documents required for the application for residency, which we will not discuss here as we want to focus on the documents related to the ownership of the property.

The $200,000 USD Investment Requirement

Now that we have reviewed the documents required for this category, let’s review the challenges.

First and foremost, the main requirement is to invest $200,000 USD in real estate. In this case, the investment must be in real estate, which means that the applicant must disburse at least $200,000 USD to purchase real estate, either directly or through a corporation. This point is very important to mention as there is the misconception that people can qualify if the current value of the property is more than $200k, which is not true. Section 87 of the Immigration Regulations clearly states that people need to invest a capital of $200,000 USD in order to qualify. So, on the one hand, the regulations are clear about the requirement, and on the other hand, I have never met anyone who has obtained residency based on the assessed value and not on the investment amount. Every now and then, we may receive an inquiry from a person indicating that they purchased a property for $50,000 USD ten years ago and now is worth $250,000 USD, well, you will not qualify under this scenario.

Thus, if you made a capital investment of at least $200,000 USD, then you qualify. If the property is owned directly in fee simple, there should not be much trouble if all the documents are produced. However, if the property is owned through a corporation, it is quintessential to make it clear to the Immigration Department that the category is that of the purchase of real estate and that the foreign national owns the property in a corporation. This is an essential point since the room full of monkeys at the immigration department will require additional business documents as soon as they see a corporation. You do not want that.

The Business Category Misclassification Problem

When the technician at the immigration department reviews the file and sees corporate papers when reviewing an application under the investor category, that technician will automatically think that the application is related to investing in a business instead of a property, and will therefore require documents related to the category of investing in a business which will be naturally missing in the file since it is not the same category. For instance, the documents required for the category of investing in a business are as follows:

• Business permit.
• Health Permit.
• Workers Compensation Insurance.
• Confirmation of the Registration with CAJA as an employer.

When someone only owns real estate, none of these documents will be required, and on the contrary, when owning a business, it will be required to have such documents.

Naturally, the technicians at the immigration department will require such documents since the purpose of a corporation is to do business and not to own real estate. Thus, when they see a corporation, they subsequently think business.

The Under-Reporting Problem

Another significant issue is the purchase price of the property. More often than not, foreign nationals, under the suggestion of local attorneys (or notary publics) under-report the value of the property when doing the transfer of the deed of the property or the transfer of the shares of the corporation, with the intention to avoid having to pay transfer taxes. For instance, a foreign national may have purchased a property for $250,000 USD, but the deed only indicates $100,000 USD which can save them just over $3,500 USD in taxes. This is a significant issue since on the first place, it is illegal and punishable with prison, but on the other hand and for our purposes, the deed only shows an investment of $100k, which therefore would not allow the foreign national to qualify under the investment category.

A Real Case: Eight Years of Delays

Recently, we completed a case that was initiated by another attorney under this category of investment in real estate through a corporation. To the chagrin of the foreign national, the other attorney did not know how to proceed when the Immigration Department required the documents related to the business. The attorney filed an appeal, which just made matters worse. We had to start from scratch and were able to complete the case in eight months after our client was stuck in the process for eight years.

Recommendations

Always, always, always, own property in fee simple, not through a corporation.

Pay your taxes, never under report the purchase price of the property. Please respect the local laws.

Try to find professional help when doing your application for residency.

I hope this information to be helpful. Please feel free to reach us with further questions or comments.