Costa Rica- Closing Cost

How about closing costs in Costa Rica?          

Though the custom that is prevalent for closing cost is that the purchaser and the seller pay equal amount, this can be changed by agreement and the particular transaction that is being undertaken. Government taxes and fees, notary fee and (if any) mortgage costs make up the closing cost.

[A] Government Transfer Tax and Registration Fees

1. Real estate transfer tax- 1.5% of the registered value of the any property is collected by the government as property transfer tax (Impuesto de Traspaso). The transfer taxes and the documentary stamps have to be paid before the Public Registry record the transfer of the deed.

2. Documentary Stamps- The documentary stamps like the National Archives Stamp (Timbre del Archivo Nacional); Municipal Stamp (Timbre Municipal); Agricultural Stamp (Timbre Agrario); Legal Bar Association Stamp (Timbre del Colegio de Abogados); and Fiscal Stamp (Especie Fiscal) should be attached to the deed. A .05% tax is attached on the document by the Public Registry for the documentation in the Public registry. (Derechos de Registro)

3. Notary Fees- Any Notary whom has drafted the contract and helped in closing of the property transfer is eligible to get a Statutory Fee of 1.25% of the total value of transaction. But in August 2005 the Executive Branch approved Executive Decree No. 32493 stating the revised fees for Attorneys and Notaries in Costa Rica. (Arancel de Honorarios por Servicios Profesionales de Abogacía y Notariado).

The statute determines that Notaries should follow the minimum fees recognized by it. For all acts and contracts the minimum fee schedule formatted by the Costa Rican Notary Public is founded upon the actual value of the transaction taking place according to subsequent minimum schedule:-

ü     Up to 10 million Colones = 2%

ü     From 10 million Colones upwards to 15 million Colones= 1.5%

ü     From 15 million Colones upwards to 30 million Colones= 1.25%

ü     From 30 million Colones onwards=1%

If the acts and contracts are complicated enough the law states that there can be a 50% surcharge levied.

3. Mortgage Costs- The cost of drafting and registering the mortgage instrument should be paid by the person who is being financed. By adding a mortgage clause in the transfer deed, you can create a mortgage at the time of sale or you can draft a separate mortgage instrument. For every 1,000 Colones the mortgage document pays registration fees of 1.00 Colon along with the documentary stamps. According to above mentioned Notary fee schedule, the Notary Public charges the drafting fee for the mortgage instrument.

The real estate transaction in Costa Rica functions as a two tiered structure. It has been a practice in Costa Rica to have property sales at the registered value due to the low property appraisal base in Costa Rica in comparison to other markets.

Your attorney should be able to tell you about the consequences and the hazards that such transaction may entail. Until now there is no capital gains taxes in Costa Rica apart from in Real Estate transactions but this can very well change in the near future when a low scale can end up being the basis for calculating capital gains tax.

Registration of the transfer deed-

When the fees are duly paid the Notary is obliged to ensure that the deed is presented (anotado) and registered (inscrito) under the Property Section of the Public Registry. A presentation assures priority i.e., first in time, first in right but in any circumstances it does not assure registration. Until taxes as well as fees for registration are all paid the Public Registry will not record the transfer deed. And all the previous instruments that impede the property have to be lifted at the time or before the registration of the deed.

The Public Registry returns the original documents with the documentary stamps attached to it and sealed properly, after the transfer deed is registered under it. Within 45 to 60 days of presentation the transfer deed is registered, if further flaws don’t creep up.

It is important to follow up with the notary to ensure that the transfer deed is registered otherwise it will lead to trouble in the future when you want to resell the property, if your sale is not registered.