The decision depends on your goals, financial plans, and risk tolerance. For simplicity and lower costs, buying under your name may be the better choice. However, for added legal protection, tax efficiency, and easier inheritance planning, a corporation can provide significant benefits.
It’s recommended to consult with a Costa Rican lawyer and a tax advisor familiar with international property ownership to make the best choice for your situation.
Buying Under Your Personal Name
Advantages
- Simplicity: Purchasing property under your personal name is straightforward and involves less administrative effort.
- Cost Savings: You avoid the costs of forming and maintaining a corporation, such as legal fees and annual tax declarations.
- Personal Control: Ownership is directly tied to your name, simplifying transactions like refinancing or selling.
Disadvantages
- Liability Risks: As the owner, you bear full legal liability for the property, which can be seized if you incur debt.
- Tax Implications: Rental income is taxed as personal income, potentially leading to higher obligations depending on your country’s tax treaty with Costa Rica.
- Estate Planning Challenges: Transferring property to heirs can be more complex and time-consuming under Costa Rican inheritance laws.
Buying Under a Corporation (Sociedad)
Advantages
- Limited Liability: A corporation provides legal protection, limiting liability to corporate assets and safeguarding personal wealth.
- Estate Planning: Transferring ownership is easier through the sale or assignment of corporate shares.
- Tax Efficiency: Rental income and other earnings can be managed under the corporation, offering tax benefits.
- Flexibility for Multiple Owners: Corporations make it easier to allocate shares and responsibilities among co-owners.
Disadvantages
- Higher Initial Costs: Setting up a corporation requires legal assistance and fees, typically $500 to $1,000 USD.
- Ongoing Maintenance: Corporations must file annual tax returns and pay corporate taxes, adding administrative overhead.
- Complexity: Managing a corporation involves record-keeping, regulatory compliance, and proper accounting.
Key Considerations
- Purpose of the Property: If for personal use only, holding it in your name may suffice. For rentals or business use, a corporation offers more advantages.
- Liability Concerns: For vacation rentals or commercial properties, the liability protection of a corporation is beneficial.
- Future Plans: Corporations simplify inheritance and sales processes, especially for heirs or co-owners.
- Tax Treaties: Consult with a tax advisor to understand how property ownership in Costa Rica interacts with your home country’s tax obligations.
Article written by our expert attorney Max Valverde.