Buying Property in Costa Rica

Costa Rica Properties

Assessing Environmental Impact

The international tendency towards a more environmentally friendly country has been defended by Costa Rican governments for at least two decades. We Ticos like to think of ourselves as an ecological Nation.

It’s what we offer --- the beauty of our natural resources, our various national parks, unaltered rainforests, impressive waterfalls, and exuberant wildlife. Nonetheless, Costa Rica is also a developing country, seeking to attract foreign investment as much as eco-tourists and the problem remains how to balance increased development with environmental preservation.

Almost any human activity impacts the environment. It can be positive, but is more likely to lead to deterioration of the natural environment.

Therefore the first step is to development is to assess the possible impact a project may have upon the environment. This is done through an “Environmental Impact Study” or Environmental Feasibility Study, the scope of which makes the environment as a key factor for determining whether a project can go ahead.

Modern environmental legislation, and mainly the 1995 Ley Orgánica del Ambiente, does provide for such an environmental evaluation as a prerequisite to any project in Costa Rica. This could be the construction of a processing plant, the building of a hotel, condominiums or a residential development, and even an individual house. In fact any construction of more than 300 square meters or more.

Most important, without such a study, no “viabilidad ambiental” will be granted, unless authorities have duly considered the environmental impact. And by law, any environmental impact is considered to be “any modification to the environment”, and those impacts must be known to the Costa Rican authorities before the project begins.

In charge of this delicate task of assessing the viability of projects is a small, and often very bureaucratic government agency called the Secretaría Técnica Nacional Ambiental, (the National Technical Environmental Secretariat), or SETENA.

SETENA is supposed to be a technical body, not a political one, meaning that the staff is composed of professionals in various technical fields, like biology, geology, hydrology, and engineering. Their role is to evaluate the impact and possible risks to the environment of the projects submitted to them by private parties and even governmental institutions.

They have considerable power to decide what can or cannot be built in the country.
Say for example, you wish to build a house on a recently-purchased ocean-view lot, you begin the process of a feasibility study by contacting an “environmental consultant” registered before SETENA, so he can fill in the D-1 form. That document will have to include all relevant information concerning the project. This form is used by SETENA to decide what it will ask from you in order to allow your project to go ahead. This could simply amount to a formal notarized affidavit, whereby you declare that you will take certain measures not to harm the environment. It may also include certain terms of reference.

These documents then require you to file an environmental management plan or conduct a full environmental impact study on the issues that may be highlighted, such as a groundwater study, social impact study, or noise pollution.

SETENA will give you a deadline to file your completed Plan or Study, together with other documents. A decision by the body could take as little as a few weeks to a year, depending on the importance of the project, its size and the requested items included in the terms of reference.

The ultimate decision, approving or disapproving your project, will come from SETENA´s Board, known as the Comisión Plenaria. If they rule in favour of your project you will have to hire an “environmental manager” to keep track of the relevant developments through the building process. The manage will also have to periodically inform SETENA that all measures are being properly adhered to.

In other words, once approved, SETENA will insist upon keeping an eye on your project, ensuring it continues to comply with the Environmental Management Plan or Study you presented to them. They can sanction you, claim damages or revoke permits if they suspect the project is not been responsibly managed.

There is a suggestion the new administration will make the process of getting permits easier and faster for investors. However, it is unlikely the need for environmental feasibility form SETENA will be abolished, and it remains to be seen how much simpler the process will be made. Consult your lawyer when undertaking any development.

Real Estate Tax in Costa Rica

Real Estate Tax

The real estate tax is established in Law 7509. this tax is assessed on land and permanently affixed structures and buildings, and is paid to the municipality. The municipality in responsible for collection of the tax within its jurisdiction, and for carrying out, determining, and overseeing property appraisals. Likewise, it sends tax bills, collects, and administers its tax revenue. If property owners fail to pay the tax, the municipality proceeds with collection by court action and an auction sale of the respective properties.

Who is subject to this tax?

All property owners holding a title recorded in the Public Registry, and owners of properties that are not recorded in the Public Registry; concession holders, permit buildings or occupants of the border zone or Terrestrial Maritime Zone, but only for permanent buildings or structures, as a special municipal tax are assessed on the land for using a public asset.

Is any property exempt from this tax?

Yes; property owed by the State, municipalities, and autonomous institutions; property in watersheds, forest, indigenous, or biological reserves or national parks; and property that is the sole asset owned by an individual with multiplied by 45 base salaries. The current base salary is “200,200 colones” which multiplied by 45 base salaries results in a deduction from the tax base of 9 million colones. If the property has a values of less then or equal to 9 million colones, no property taxes are due. By way of example, if a property is valued at 50 million colones and the exemption of 45 base salaries is applied, the property owner would only pay the tax on the difference, in this case on 41 million (41M x 0.25% tax rate), for an annual tax of 102,500 colones. The tax is paid to the regional City Hall.  Also exempt is real estate owned by churches and religious organizations, but only when used as place of worship; diplomatic offices and residences of diplomats and consular agents, with the applicable limitation in each casa; and, lastly, international organizations and the Red Cross.

Where do I have to go to pay this tax?

The tax is generally paid at the regional City Hall building, where you will be given a payment receipt. Tax is collected annually, with the tax year coinciding with the calendar year running from January 1 to December 31. real estate taxes are calculated on the value of each property and receipts are issued by the municipalities on a quarterly basis.  However, in most of the country’s municipalities, you will be told which public or private bank has agreement with the municipal government for collection of the tax.  In that case, the bank issues the payment receipt.

Do I have to file a tax return for this tax?

Pursuant to article 16 of Law 7509, property owners are required to declare the value of their real estate to the municipal government where the property is located at least once every five years. The tax Administration, through the Technical Standardization Authority for Property Appraisals, may amend the declared value though an appraisal of the property, at all times respecting the procedure available to the taxpayer to contest the appraisal value

Condominium Property

Condominium property is regulated under Costa Rican law by the condominium Act (ley reguladora de la Propiedad en Condominio) and by the regulations to this Act. As defined in such regulations, all condominiums have two types of areas:

Common Areas: these are all portions or areas necessary for existence, maintenace, safety and enjoyment of the condominium by the owners of individual units.

Common areas are non-transferable.

Individual Units: these are private units that may be owned directly by one or more individuals or corporate entities. Owners may freely transfer, mortgage, lien, lease or agree to convey the unit in any possible way.

The condominium Act and its regulations establish a general legal and regulatory framework for all condominium property. Additionally, more detailed rules and regulations are found in the condominium master declaration and in the condominium by-laws, specific to each condominium.

All condominiums are created upon the execution of a master declaration deed-accompanied by the condominium by-laws. These documents must be granted before a Costa Rican Notary Public and filed and recorded before the Public Registry. On one hand, the by-laws regulate issues such as use of common areas, rules regarding management of the condominium and operational issues related to the homeowners association. On the other hand, the master declaration comprises, among other things, the declaration assigns a percentage value to each unit. This value is obtained from dividing the unit’s area by the area of the entire condominium. This value is of a great importance because it will determine the voting right of each unit owner within the homeowners association and it may also be used to assess the responsibilities of each unit owner with respect to the maintenance and improvement of these areas.

Frequently, condominium by-laws establish the following bodies:

• General homeowners association
• Board of directors
• Administrator

The purpose of the General Homeowners Association is to promote and enforce uniformity within the condominium, and to allow the unit owners to pool their resources for the benefit of the association.

The Board of directors is in charge of controlling the administration and enforcement of the by-laws. Additionally, the board must execute the decisions agreed by the Association. In smaller condominiums, the board is usually excluded and thus, the duties of the board are concentrated in the administrator.

The administrator may be appointed directly by the General Homeowners Association or such authority may be delegated to the board of directors. Among the main duties of the administrators, we can mention: a) hiring, supervising and firing of employees, b) collection of installment and c) acquisition of material and services required by the condominium.

As evidenced, unlike property not under the condominium regime, condominium property is subject to specific rules and regulations comprised in the master declaration and condominium by-laws. These rules and regulations aim to provide higher standards to such properties, usually translating into better investments. Notwithstanding, upon acquiring condominium property, one should assess if these rules and regulations interfere with the desire use and enjoyment.

For information on condos for sale and rent please write to contact@betterhomescostarica.com

Real Estate Title Registration

Costa Rica has a safe and well-develop mechanism for title registration and transfer. At the center of the system lies the National Public Registry (“NPR”) managed by the Executive Branch.  All real estate titles must be recorded before the NPR where a full description of recorded real estate is available to the public (including information such as location, borders, measurement and owner). Also available is a complete history of prior real estate transactions as well as information on pending land transfers, annotations, liens, or other restrictions imposed on real estate. There are two systems in use for real estate registration:

a)      Manual book recordation (tomos): initially used to record land and related transactions. The system relied on handwritten or typewritten books organized by province wherein land was located.  Although this system has not been in use for many years, some pieces of real estate are only recorded in the old books system.

b)      Folio Real: introduced in the 1990’s the system incorporates and summarizes important information about a certain piece of real estate in a single card. Each transaction related to a certain piece of land results in a new card that’s later microfilmed, allowing users to research past transactions. The folio real system also assigns a unique ID to each piece of land located within a certain province. For classification purposes, each province was assigned a number:

      San Jose                 1                                 

Alajuela                  2

Cartago                  3

Heredia                  4

Guanacaste             5

Puntarenas              6

Limon                     7

The first number of the unique ID assigned to each property in folio Real system corresponds to the province. The province number is followed by and separated with a dash from the property number, which typically has four to six digits. Finally, and also separated with a dash a three-digit number. This last number is reserved for properties owned by several owners in different or equivalent proportions (i.e. “000” for a property owner by a single person or entity, or “001” and “002” for a property with shared ownership. An example of the unique ID of a property recorded under this system would be:

Property number:  5 -110456-000

A fourth and final element of a property’s unique ID may be a letter “F”. This indicates that the property is a unit or a “finca Filial” part of a condominium.

Although only available in Spanish, information on the current Folio Real card for any property on this system is available free of charge on-line for anyone with access to the internet at http://www.registronacional.go.cr

Changes in title to real estate, claims related to real estate, liens and real estate transactions in general, must be filled and recorded with the NPR to have an effect on third parties. Supreme Court rulings have consistently upheld that any document not filed or recoded before the NPR does not affect third parties who act in good faith. For example a sale of a lot not filled by purchaser with the NPR would not prevent seller from selling the same lot to a third party who acquires it in good faith nor will it prevent such third party from validly recording the sale. Of course, the initial buyer would have a full legal recourse against seller, but not against the second buyer as long as he acquired the lot in good faith. This clearly illustrates the importance of the system as a means of protecting parties to real estate transactions and providing trustworthy public information.

One of the NPR’s underlying principles is the “first in time first in right” principle, which grants rights to parties in the order in which the document which grant them those rights are filed and made public through the NPR. A second very important and related principle is the succession principle, according to which documents are recorded in the same chronological order in which they are filed.

For more information or advice write to contact@betterhomescostarica.com