When purchasing property in Costa Rica, many international buyers opt to do so through a Costa Rican Limited Liability Company (LLC). This method provides distinct advantages, particularly in simplifying administrative processes and enhancing tax and estate planning flexibility. Here’s a breakdown of why this approach might be the perfect fit for your Costa Rican property investment.
Why Buy Through a Costa Rican LLC?
Simplified Administrative Processes
Setting up utilities and public services in Costa Rica is smoother when the property is owned by a local LLC compared to a foreign company or individual. This can save significant time and effort during the ownership transition.
Flexibility for Estate Planning
Owning property through an LLC can streamline estate planning by allowing easy transfer of ownership interests. This flexibility is harder to achieve with properties held in personal names.
Tax Benefits
If the property generates income, such as rental revenue, the LLC, not the foreign individual, is registered as the taxpayer with Costa Rican tax authorities. This distinction can simplify tax reporting and management.
When a Costa Rican LLC May Not Be Ideal
Despite its advantages, using an LLC may not suit all scenarios:
- If you wish to issue preferred stock, this structure isn’t compatible.
- If quotaholders intend to lend money to the LLC and expect the interest paid to qualify as a deductible expense, an LLC may not meet those requirements.
Key Features of a Costa Rican LLC
Incorporation Process
- An LLC is established through the National Registry via a Notary Public.
- At least two quotaholders are needed during incorporation, but ownership can later be consolidated to a single quotaholder or distributed among multiple quotaholders without limit.
Governance and Documentation
- LLCs must maintain a Stockholders Registry Book and a Stockholders Meetings Book of Minutes. These records are crucial for:
- Amending the articles of incorporation.
- Transferring ownership quotas.
- Approving asset transactions owned by the LLC.
- Any capital contributions or changes in ownership must be recorded in these official books as well as in the company’s accounting records.
Tax Considerations
- Dividends paid to foreign individuals or companies are subject to a 15% withholding tax under Costa Rican law.
Management and Representation
- If no Manager resides in Costa Rica, a Resident Agent, typically a Costa Rican lawyer, must be appointed to receive official notices. However, this agent holds no authority to represent the LLC in decision-making.
- At least one Manager must act as the LLC’s legal representative.
Should You Incorporate an LLC?
Incorporating a Costa Rican LLC offers undeniable benefits, particularly for those looking to optimize property management and tax responsibilities. However, it requires careful planning and legal expertise. A trusted legal advisor can guide you through the process, ensuring compliance with local laws and maximizing your investment’s potential.
Ready to take the next step? Reach out for a tailored quotation covering the legal fees and maintenance costs for setting up your Costa Rican LLC.
