Relevant Information
Last updated Friday, June 15, 2007
Buying Corporate vs. Titled
Carlos D. Angulo Ruiz is an attorney with Arias & Muñoz, a firm with offices in San José, Liberia and Tamarindo. He holds a Master's degree in International Economic Law from the University of Geneva. He can be reached at cangulo@ariaslaw.co.cr.
According to real estate professionals, about 80 to 90 per cent of all real estate transactions are made when a Costa Rican corporation owning land is sold, as opposed to one owner conveying a property title to a buyer.
Most of the time, buyers are left without an option since sellers offer them a “fast and easy way” of buying land in Costa Rica: simply pay the price and become the owner of the corporation which already holds title to the property.
There are many selling arguments for such a purchase.
Sellers may tell prospective buyers that purchasing the land by buying shares of the corporation owning the land, will avoid having to pay the “high” transfer taxes which amount to 2.3 per cent of the purchase price, or value of the land. Sellers may also say this type of purchase avoids paying the mandatory notary fees, which are one per cent of the purchase price, because this type of corporation-purchase does not need to be completed through a public deed, whereas the conveyance of a property title does.
Sellers will also insist that because the corporation-purchase is an entirely private transaction, it simplifies the more formal, notarized transaction of title-transfer. It also cuts out a lengthy registration process; one can become the “owner” immediately; and, last but not least, the seller will conclude by telling the buyer he or she will be receiving a ready-to-use Costa Rican corporation, which can be used to open bank accounts, or function as collateral for other assets, such as a car.
They will pitch it as an incredible offer, whereby an entire corporation comes included in a deal like some sort of bonus.
Well, doesn’t this all just sound perfect. You may legitimately ask yourself: why would I want to purchase the title — with full and legal conveyance of the property — instead of simply buying a corporation holding title?
Let me tell you exactly why: because of ethical, legal and practical reasons.
First and foremost, legally, when “buying land” through the purchasing of a corporation, you are circumventing Costa Rican tax laws.
And if you are the developer or seller, you may even be accused of tax evasion; however, such a purchase is also ethically wrong — the purchaser is intentionally not paying taxes on the transaction, and these include municipal taxes meant to aid local governments in building schools, repairing roads, and maintaining parks and beaches.
How can the buyer later complain about uneducated locals, bumps on the roads, or dirty and unhealthy public places?
Tax liabilities aside, you may also be aware of a hidden liabilities issue: if you buy a corporation, what you get is exactly that. Sure, the corporation owns the land, but it may also come with unsuspected or unwanted responsibilities. It may be that the corporation, which is a legal entity, has pending judicial claims, and/or other such liabilities. Yet another risk: the corporation may already have an appointed board of directors with recorded powers of attorney. This means people you do not know, let alone trust, will be acting on behalf of the corporation — even to encumber, mortgage, or sell the property.
Legally speaking, the buying of shares of a corporation is very different in nature from the well-regulated purchasing of property.
The legal guarantee system is also very different. When acquiring title to the property, as the new owner, you are granted protection by the law as to any defects — legal or material — regarding the property, which would entitle you to seek remedies against the seller for a full year after the purchase, and up to five years, in the event of defective construction. These remedies will not be available to you if what you bought are simply shares of a corporation.
Additionally, if you are to acquire “title insurance”, any company will guarantee only the title to the property, but not the corporation itself, leaving you unprotected.
The list goes on and on with reasons why purchasing a corporation instead of title to the property is a risky decision to make. The bottom line is that — in both scenarios — the goal is to sell or purchase the property itself, but only in the case of purchase of title, with all the formalities established by the law, is there a true conveyance of the property. As an attorney, my advice is to purchase the land, not a pre-incorporated entity, which only circumstantially owns the asset.
Thanks to Eduardo Zúñiga for his input in this article.
Airport Stats Up, Government Reviews Bids
More than 26,800 passengers came through Liberia’s Daniel Oduber International Airport in May, 14 per cent more than last year and ten times the airport traffic of May five years ago.
With the airport continuing to see record passenger numbers, aviation officials are now confident they will service more than 400,000 passengers by year’s end.
About 214,000 passengers have come through the airport in the first five months of the year, and of those 203,000 were international arrivals or departures.
Airport officials expect 34,000 passengers next month, building to 37,700 in July.
Delta Airlines, which pioneered direct flights from the US to Liberia’s airport in December of 2002, was the biggest carrier in May, ferrying 9546 between Guanacaste and its US hubs. Continental carried 7251 and American Airlines 6209.
Continental remains the year’s biggest carrier, with 62,797 to date, or about 31 per cent of the total.
First choice, the British holiday maker carried 1551 passengers on its weekly charter in May.
Daniel Oduber has seen just under 60 per cent growth since accurate statistics were recorded in 2002. In recent years the growth has slowed, although last year’s increase of 18 per cent was well up on global figures.
Despite hefty increases in aviation fuel, about 12 per cent up from 2005, scheduled airlines posted an estimated combined operating profit of 2.9 per cent of operating revenues in 2006
The International Civil Aviation Organization’s (ICAO), which boasts 190 member states, said this was a significant improvement over the one per cent recorded in 2005.
The organization said in a statement that operating revenues were estimated at about $452.4 billion for 2006, up around 9.5 per cent over 2005.
Carlos D. Angulo Ruiz is an attorney with Arias & Muñoz, a firm with offices in San José, Liberia and Tamarindo. He holds a Master's degree in International Economic Law from the University of Geneva. He can be reached at cangulo@ariaslaw.co.cr.
According to real estate professionals, about 80 to 90 per cent of all real estate transactions are made when a Costa Rican corporation owning land is sold, as opposed to one owner conveying a property title to a buyer.
Most of the time, buyers are left without an option since sellers offer them a “fast and easy way” of buying land in Costa Rica: simply pay the price and become the owner of the corporation which already holds title to the property.
There are many selling arguments for such a purchase.
Sellers may tell prospective buyers that purchasing the land by buying shares of the corporation owning the land, will avoid having to pay the “high” transfer taxes which amount to 2.3 per cent of the purchase price, or value of the land. Sellers may also say this type of purchase avoids paying the mandatory notary fees, which are one per cent of the purchase price, because this type of corporation-purchase does not need to be completed through a public deed, whereas the conveyance of a property title does.
Sellers will also insist that because the corporation-purchase is an entirely private transaction, it simplifies the more formal, notarized transaction of title-transfer. It also cuts out a lengthy registration process; one can become the “owner” immediately; and, last but not least, the seller will conclude by telling the buyer he or she will be receiving a ready-to-use Costa Rican corporation, which can be used to open bank accounts, or function as collateral for other assets, such as a car.
They will pitch it as an incredible offer, whereby an entire corporation comes included in a deal like some sort of bonus.
Well, doesn’t this all just sound perfect. You may legitimately ask yourself: why would I want to purchase the title — with full and legal conveyance of the property — instead of simply buying a corporation holding title?
Let me tell you exactly why: because of ethical, legal and practical reasons.
First and foremost, legally, when “buying land” through the purchasing of a corporation, you are circumventing Costa Rican tax laws.
And if you are the developer or seller, you may even be accused of tax evasion; however, such a purchase is also ethically wrong — the purchaser is intentionally not paying taxes on the transaction, and these include municipal taxes meant to aid local governments in building schools, repairing roads, and maintaining parks and beaches.
How can the buyer later complain about uneducated locals, bumps on the roads, or dirty and unhealthy public places?
Tax liabilities aside, you may also be aware of a hidden liabilities issue: if you buy a corporation, what you get is exactly that. Sure, the corporation owns the land, but it may also come with unsuspected or unwanted responsibilities. It may be that the corporation, which is a legal entity, has pending judicial claims, and/or other such liabilities. Yet another risk: the corporation may already have an appointed board of directors with recorded powers of attorney. This means people you do not know, let alone trust, will be acting on behalf of the corporation — even to encumber, mortgage, or sell the property.
Legally speaking, the buying of shares of a corporation is very different in nature from the well-regulated purchasing of property.
The legal guarantee system is also very different. When acquiring title to the property, as the new owner, you are granted protection by the law as to any defects — legal or material — regarding the property, which would entitle you to seek remedies against the seller for a full year after the purchase, and up to five years, in the event of defective construction. These remedies will not be available to you if what you bought are simply shares of a corporation.
Additionally, if you are to acquire “title insurance”, any company will guarantee only the title to the property, but not the corporation itself, leaving you unprotected.
The list goes on and on with reasons why purchasing a corporation instead of title to the property is a risky decision to make. The bottom line is that — in both scenarios — the goal is to sell or purchase the property itself, but only in the case of purchase of title, with all the formalities established by the law, is there a true conveyance of the property. As an attorney, my advice is to purchase the land, not a pre-incorporated entity, which only circumstantially owns the asset.
Thanks to Eduardo Zúñiga for his input in this article.
Airport Stats Up, Government Reviews Bids
More than 26,800 passengers came through Liberia’s Daniel Oduber International Airport in May, 14 per cent more than last year and ten times the airport traffic of May five years ago.
With the airport continuing to see record passenger numbers, aviation officials are now confident they will service more than 400,000 passengers by year’s end.
About 214,000 passengers have come through the airport in the first five months of the year, and of those 203,000 were international arrivals or departures.
Airport officials expect 34,000 passengers next month, building to 37,700 in July.
Delta Airlines, which pioneered direct flights from the US to Liberia’s airport in December of 2002, was the biggest carrier in May, ferrying 9546 between Guanacaste and its US hubs. Continental carried 7251 and American Airlines 6209.
Continental remains the year’s biggest carrier, with 62,797 to date, or about 31 per cent of the total.
First choice, the British holiday maker carried 1551 passengers on its weekly charter in May.
Daniel Oduber has seen just under 60 per cent growth since accurate statistics were recorded in 2002. In recent years the growth has slowed, although last year’s increase of 18 per cent was well up on global figures.
Despite hefty increases in aviation fuel, about 12 per cent up from 2005, scheduled airlines posted an estimated combined operating profit of 2.9 per cent of operating revenues in 2006
The International Civil Aviation Organization’s (ICAO), which boasts 190 member states, said this was a significant improvement over the one per cent recorded in 2005.
The organization said in a statement that operating revenues were estimated at about $452.4 billion for 2006, up around 9.5 per cent over 2005.
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