What to Avoid When Applying for Residency as an Investor
A few years back we published an article pertaining to common mistakes people make when trying to apply for Residency as an Investor, particularly when investing in real estate. Unfortunately, it seems those mistakes continue
A few years back we published an article pertaining to common mistakes people make when trying to apply for Residency as an Investor, particularly when investing in real estate. Unfortunately, it seems those mistakes continue to be made and we wanted to address them one more time.
As most of you may already know, Costa Rica offers various Residency programs or categories. Investor is one of these Temporary Residencies. Basically, what the law states is that to be eligible for Investor, you must prove that you have invested a minimum capital of $200,000. For the purposes of this article, we will focus solely on real estate investments.
Whilst on paper it sounds very straight forward, the process rarely is. Due to lack of proper information, many of our clients initially purchase the property and then reach out to have us assist with the Residency. Regrettably, when we sit down and review their investment documents, the purchase was done incorrectly to the point where some of them no longer qualify for Investor.
As discussed in our old post, there are two ways in which people purchase a property: a-directly, meaning you have a deed stating that you are investing X amount on a land/house or b- through a corporation.
Needless to say, when purchasing through a corporation the paperwork increases significantly. In addition to all documents pertaining to the property, you will also need to file the certificate of good standing of the corporation, certification of distribution of shares, copy of the agreement to purchase the shares of the corporation, notarized copies of the books, etc.
The process, therefore, becomes even more cumbersome.
Now, these are a few common mistakes we have seen lately when going down the corporation path:
- Shares are not properly distributed. If you and your spouse are part of the corporation and through it purchased a $300,000 property, you would immediately think that you qualify for Investor. Nonetheless, lets say each spouse owns 50% of the shares of the corporation. What does this mean? To Immigration, this means each spouse invested $150,000 meaning neither of the two would qualify. In such cases, a transfer of shares must be completed so that one of the spouses owns at least $200,000.
- When purchasing the shares of the corporation, there is no mention of the property on the shares purchase agreement, or taxes for the transfer of the property were never paid. This is not compliant with local law and eliminates the possibility of applying as an Investor.
Other common red flags we have seen with Investor:
- Whilst the applicant did pay over $200,000 for the property, the deed states otherwise. Sometimes, to avoid paying transfer taxes, some attorneys advice their clients to state a lower purchase price in the deed. For a $200,000 property, the deed may say $100,000. If this occurs, you will no longer qualify.
In summary, you must prove to Immigration that you invested, meaning paid, at least $200,000 in a property. Our advice, to make things easier for you, would be to purchase the property directly, without involving a corporation. Purchasing a corporation and the property it owns means not only additional paperwork but a lot of room for errors that may just eliminate the possibility of applying as an Investor.
Make sure things are done properly, always compliant with our law, paying the necessary taxes, drafting the correct deeds, etc. Finding loopholes and using them to your advantage may seem like a great way to save some money but it will result in serious headaches when pursuing Residency.