Updated Comments About Real Estate

When working with real estate agents and buyers in Costa Rica, I frequently encounter persistent myths about property ownership structures. Recently, an agent with nearly twenty years of experience told me, “Your opinion seems to depart from everything I’ve known and everything other attorneys have told me.” This reflects how deeply these misconceptions have taken root in the Costa Rican real estate market.

This guide addresses the most common myths about owning Costa Rican real estate through corporations and explains when corporate structures are actually necessary.

Understanding Costa Rican Property Law

Property law in Costa Rica closely resembles property law in the United States and Canada. Costa Rica recognizes fee simple ownership, various forms of tenancy, easements, liens, encumbrances, encroachments, and covenants of title. The legal framework is familiar to North American buyers.

The Corporate Ownership Requirement Myth

You do not need to own Costa Rican real estate through a corporation. While corporate ownership remains an option, it is not required by law. Many buyers receive incorrect advice suggesting corporate structures are mandatory or universally beneficial for property ownership.

Four Major Myths About Corporate Property Ownership

Myth 1: Corporations Protect You from Liability

Status: False

Costa Rican courts have increasingly adopted the doctrine of piercing the corporate veil. This legal principle allows courts to disregard corporate structures when no legitimate business separation exists between the entity and the individual.

The “limited liability” protection corporations offer applies only to legitimate business operations—not to individuals using corporations solely to shield personal assets. When courts determine a corporation exists only to hide assets rather than operate a business, they can hold individuals personally liable.

Practical guidance: If you want to buy a house, buy a house. If you want to buy a car, buy a car. If you want to operate a business, establish a business entity. Creating a corporation simply to hold a personal residence or vehicle provides minimal actual protection.

Myth 2: Corporate Ownership Creates Tax Savings

Status: False—This Constitutes Tax Fraud

Some attorneys promote the idea that transferring corporate shares instead of property creates tax savings. The theory: by selling the company that owns the property rather than the property itself, parties avoid transfer taxes.

This practice does not constitute legitimate tax planning—it constitutes tax fraud. Attorneys who structure transactions this way create the illusion that parties are purchasing a corporation when they are actually purchasing real estate.

How Costa Rica addressed this practice: Rather than prosecuting tax fraud, the Costa Rican government passed legislation requiring parties to pay transfer taxes on real estate even when transferred indirectly through corporate share transfers. The supposed tax advantage no longer exists.

Myth 3: Transferring Corporations Is Easier Than Transferring Property

Status: False

Current Costa Rican law requires shareholders to approve by simple majority any sale of assets representing more than 10% of corporate assets. Most property-holding corporations fall into this category, as their sole purpose is holding real estate.

What this means in practice: If your corporation’s only asset is a house, selling that property requires:

• Convening a formal shareholders meeting
• Voting to approve the sale
• Paying a notary public to authenticate the meeting minutes

This process does not simplify property transfers—it adds bureaucratic steps and costs.

Myth 4: Corporations Make Transferring Assets to Heirs Easier

Status: Partly True, Often Misunderstood

People use two primary methods to transfer assets to heirs:

1. Making living gifts before death
2. Transferring assets through probate after death

Many property owners receive incorrect advice about using corporate structures for estate planning. Attorneys often tell clients that appointing heirs as corporate officers avoids probate. This is incorrect.

The critical distinction: Appointing someone as a corporate officer does not transfer share ownership. If you die while still owning the shares, your heirs must probate those shares regardless of their officer status.

To actually avoid probate: You must transfer ownership during your lifetime—whether transferring real estate directly or transferring corporate shares. The corporate structure itself does not eliminate probate requirements.

The Reality of Corporate Maintenance

Maintaining a Costa Rican corporation creates ongoing obligations:

• Annual taxes: Congress passed legislation requiring corporations to pay taxes simply for existing, regardless of business activity
• Shareholder meetings: Required by law with authenticated minutes
• Books and records: Must be maintained properly
• Professional services: Attorneys and accountants needed to maintain compliance

These requirements make corporate ownership tedious and expensive for simple property holding.

When Should You Actually Use a Corporation?

Use corporate structures for their intended legal purpose: operating legitimate businesses. Do not create corporations solely to hold personal real estate or vehicles unless you have specific business reasons that justify the additional complexity and cost.

Costa Rican property law provides straightforward mechanisms for real estate ownership, vehicle ownership, and asset transfers. In most cases, using these existing legal frameworks proves simpler and more cost-effective than creating unnecessary corporate structures.

Making Informed Real Estate Decisions

The persistence of these myths demonstrates how important it is to receive accurate legal guidance. When attorneys provide advice that contradicts fundamental legal principles—particularly regarding liability protection and tax obligations—buyers should seek second opinions.

Key principle: Keep your ownership structure simple unless legitimate business needs justify corporate complexity.

Feel free to reach us with any comments or questions on these issues.