Costa Rica has become an increasingly popular destination for real estate investors in recent years. With its beautiful scenery, stable government, and policies aimed at attracting foreign investment, Costa Rica offers many advantages for those looking to invest in property. However, there are also important factors to consider before buying real estate in Costa Rica. This article will provide an overview of the benefits as well as the key considerations for investing in Costa rican real estate.
Costa Rica’s Stable Economy and Government Make It an Appealing Place for Investment
Costa Rica has a stable, democratic government and a diverse, market-oriented economy. Unlike some other countries in Central America that have experienced political turmoil, Costa Rica has had uninterrupted democracy for over 60 years. The country has not had a standing army since 1948, allowing it to invest more in healthcare and education. Costa Rica’s economy is based on tourism, agriculture and technology exports. The economy has grown steadily in recent decades, with an average GDP growth rate of over 4% annually from 2000 to 2020. While the COVID-19 pandemic led to a contraction in 2020, the economy is projected to recover strongly. Costa Rica’s political stability, coupled with consistent economic growth, make it an attractive option for real estate investment compared to more volatile emerging markets.
Costa Rica Offers Tax Incentives for Foreign Real Estate Investors
Costa Rica offers significant tax advantages for foreign real estate investors. The country does not tax foreign-sourced income, meaning earnings from outside Costa Rica are exempt from local taxes. Capital gains from real estate transactions are also exempt from income taxes in Costa Rica. In addition, the country has no inheritance or estate taxes, making it easier to pass property to heirs. While residents are subject to local property taxes, foreign owners can receive exemptions on their primary residence and on the first $100,000 of assessed property value. The tax incentives in Costa Rica provide foreign real estate investors with major savings compared to what they may pay at home.
Real Estate Investors Benefit from Costa Rica’s Retirement and Residency Programs
Costa Rica has offered attractive retirement and residency programs since the 1990s as a way to spur investment. The pensionado program allows qualifying foreign retirees to receive residency visas. To qualify, retirees must prove a minimum monthly income of $1,000. This program grants participants access to Costa Rica’s affordable healthcare system, tax exemptions on certain goods, and the ability to earn local income. The country also offers a rentista residency program where investors can qualify by owning real estate valued at $200,000 or more. Residency provides the ability to live in Costa Rica long-term and freedom of movement throughout Central America. These programs create built-in demand for real estate among foreign buyers.
Purchasing and Holding Real Estate in Costa Rica Involves Unique Challenges
While Costa Rica’s real estate market offers many benefits, investors must also be aware of the potential pitfalls. One major consideration is that foreigners cannot directly own property within 50 kilometers of the coast. However, they are allowed to own shares in local corporations that can then purchase the property. Working through a corporation creates an extra layer of legal and tax complexity. There are also restrictions on land use and development in some environmentally sensitive areas. Language and cultural barriers can pose issues when conducting real estate transactions or resolving problems. Professional legal guidance is highly recommended when purchasing property in Costa Rica. Investors may also face challenges obtaining financing from local banks as a foreigner.
Costa Rica provides a stable political and economic environment that makes real estate investment attractive for foreigners. Tax incentives, retirement programs and strong demand help spur the real estate market. However, unique ownership rules, land use restrictions and legal/cultural barriers also pose challenges for investors. Weighing the pros and cons allows making an informed decision when considering Costa Rican properties.