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With the corporate tax about to be reinstated, I am wondering if it is time to dissolve the corporation that our condo is owned by. My understanding is that the new corporate tax law allows an opportunity to dissolve a corporation before the new tax takes effect.

 

We used a corporation to purchase a condominium in 2011 when there were tax advantages (i.e. real estate transfer tax exemption) as well as some other advantages that may still apply. But since then the transfer tax exemption has been removed and taxes on inactive corporations have been added. Furthermore, I have found my USA income tax reporting to be more complicated due to ownership in a foreign corporation. I am wondering if the advantages of ownership of real estate in a corporation still offer enough advantages to offset the disadvantages.

 

One concern is whether a transfer tax would apply if we dissolve the corporation at this time and transfer the property into our names. That would be a change in title on the property which normally would require payment of a transfer tax - and that would make the transfer rather costly for us. But if the current law allows a change in title without payment of the transfer tax, that may make it an opportune time to make such a transfer.

 

One advantage touted is better protection against property theft using identity theft methods. Is this still a big advantage? Or with current disclosure laws relating to corporations, is there sill much advantage?

 

I will be discussing this with my attorney, but I would also like to get other viewpoints on the pros-cons of corporate ownership of real estate in Costa Rica based on current laws.

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I am wondering that too. I have a corporation with my now deceased husband and I am wondering if I can transfer it to myself (and wondering about the transfer tax) and get a will, or remove his name from the corporation. If I have to file a tax form going forward on a no activity corporation, I will definitely dissolve it. I live in Golfito and I call it the Land of Broken Dreams!

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Patty,

 

My husband passed away in January. We did not have a will & we were each 50% owners of the corporation that owns our house. His 50% has to go through probate, I cannot transfer the shares to my adult son until that process is complete. So, you need to meet with your attorney to begin that process. The very first step is getting the corporate books to the attorney (if you have them) so they can confirm the set-up of the corporation because there are legal steps (like a shareholder's meeting) that has to happen if the corporation wasn't set up a certain way. Excuse the vagueness, I'm not an attorney but this is what I've been focusing on cleaning up for the last month so I can at least tell you that you are not able to do what you've suggested, you must have an attorney straighten it out for you.

 

Jessica

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Patty: I am curious as to why you call Golfito the "Land of Broken Dreams." If you don't want to share your experiences, I understand. But really, adding that last sentence to your post is hard to pass by without wondering just what you meant by that.

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Interesting stuff as I have SA to hold property. Redbeard (or Induna?) can you explain what you say as the removal of the (i.e. real estate transfer tax exemption). I was not aware of any transfer tax for example if the shares of the corp are changed in the SA books and you have actual printed shares on legal paper (which I recommend) which can be endorsed in advance on the back without putting a name in but should be able to just be transferred after death, adding a new name and updating the books. In this case I dont see any need for a transfer tax. Maybe selling the corp could incur a tax but if the shares are just transferred and the changes made in the books I think the new owner can be registered in the Registro Nacional with some kind of fee for the paperwork.

A properly registered will is a great idea as well which should cover transfer (although I believe there is a probate with a will also but it is quicker and less open to someone else coming in to challenge assets during a probate without a will).

 

My understanding is that automatically will or not that the surviving spouse gets 50% of all assets and can not be challenged.

 

I guess the point is that everyone with these potential situations best see a good attorney, make a will and do what they can on the books and shares in advance to ensure a clean transfer. Also remember that any bank account has the ability to name a beneficiary. So in the case of an account in one spouses name add the other spouse as a beneficiary. For anyone with a safe deposit box make sure you have both spouses listed when you open the box.

 

Unexpected death can create many problems along with the sadness involved. Plan ahead to keep stress levels down.

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rodo, I don't think that shares inherited by a spouse would be subject to a transfer tax, but my understanding is that in 2012 or 2013 a law was passed that eliminated the exemption from paying the real estate transfer tax when selling corporate shares that own real estate. My lawyer also said that if I transferred my condo from the corporation name into our personal names, we would have the pay the transfer tax (which would make that transfer rather expensive). I read that the new corporate law has a provision for dissolving a corporation before the new law takes effect in a few months - I plan to ask my lawyer if the new law will allow such a transfer without requiring payment of a transfer tax.

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I'm not sure about the automatic 50% as I was already 50% owner of the assets with the corporate set-up. My husband's 50% will go through probate - my attorney said it's just a time thing, no worries about losing access to that 50% (based on, I assume, there being no one who would challenge ownership). I believe you are correct that it is just paperwork fees when it comes to the transfer of the shares from my deceased husband to my living adult son.

 

Jessica

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As the president of the corporation I think I have power of attorney to dissolve it and transfer/sell the house to myself. Have to return to states to get the books,so haven't seen a lawyer yet. Just wondering if anyone knew for sure

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Did anyone sort any of this out re corporate tax?
It is approaching July and I am wondering :

  • Is it going to be cheaper to dissolve a corporation and put the car or whatever in your name instead of having it in an LLC/SA (not sure what the difference is, but I'm asking about an LLC).
  • is it going to be substantially cheaper to NOT have property such a a car or house or whatever in an LLC?
  • Anyone heard when this corp. tax is going to actually be ready to be paid? Is it still July?
  • Is there any real advantage to having property in an LLC or SA?
    What I've heard is that it protects you from someone suing you for your property (assets) if they hurt themselves or you hurt them (as in with a car) or etc.; and that it is easier to transfer said property to a new owner if it's in a corporation.
    I am wondering if the corporation REALLY makes things that much easier or more secure, to make it worth having ?

There are also IRS advantages to not having real estate in a corporation from what I have read, for those who have real estate here.

Also, while I do plan to talk to an attorney about all this I am wondering if anyone already has, and what they found out,  and what it cost them. Knowing what someone else paid would help me determine what I should be charged for this so as not to get gouged.

Oh, one more thing re this:
In terms of a will, probate etc, is it easier or better to have property in a corporation vs. personal name, or as long as  you have a legal will here in  Costa Rica that doesn't really matter? Again I know no one is an attorney here and I will ask at least one if not two attorneys but just curious what other people may have heard or know here. Thanks.

 

Edited by jamesofomaha
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When we removed our vehicle from its corporation and dissolved the corporation, the total cost was a bit greater than the old corporation tax would have been for that year, but since then we have more than recovered the legal costs by avoiding subsequent years' corporation taxes. 

As far as having a vehicle in a corporation in order to avoid liability, you will be better off to dissolve the corporation and then buy public liability insurance which you can pay for, in part at least, with the savings on the corporation tax. As good citizens, we believe we should be liable for injuries, deaths or damages that are our fault. The liability insurance takes care of that without risking our own financial welfare. 

Our real estate is tied up in a corporation due to our mortgage, but we are looking into how to dissolve that corporation, too. Regardless, our homeowners' insurance provides liability coverage should someone be injured or killed on our property. The cost of that homeowners' insurance, too, would be offset by the savings on the corporation tax.

 

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James, we never put our car in a corporation, but we do have our real estate in one.  We bought car insurance through INS so saw no need to go the corporation route.  As far as the IRS goes, it is no big deal owning a corporation here.  You have to file Form 5471 reporting a foreign corporation.  It was a pain for our tax guy the first time he filled the form out as he had never done it before, but it's just a matter of reporting and nothing else.  I assume that if you are making money through a corporation, that is a different matter.

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in Costa Rica, a married couple own property separately. at the termination of a marriage (and the death of one of the spouses is a termination of a marriage), all propery owned by the parties to the marriage becomes "community property". if the spouse that died did not leave a will, at that point all community property goes to probate. In Costa Rica this is a very expensive and long process (years)......

  

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On 6/28/2017 at 4:27 PM, SEATURTLEWOMAN said:

James, we never put our car in a corporation, but we do have our real estate in one.  We bought car insurance through INS so saw no need to go the corporation route.  As far as the IRS goes, it is no big deal owning a corporation here.  You have to file Form 5471 reporting a foreign corporation.  It was a pain for our tax guy the first time he filled the form out as he had never done it before, but it's just a matter of reporting and nothing else.  I assume that if you are making money through a corporation, that is a different matter.

Maybe no big deal but if it's in a corporation you have to report it and if it's not you don't. From what I understand. I'm not an attorney. Obviously. ;-D

I found this out from an attorney online:
" The New corporation tax law will allow you in September to transfer the asset out of the corporation without paying real estate transfer taxes. "

Not sure what that means in terms of lowering the price, I didn't ask that. In other words how much of the cost of taking something out of an SA and into your name is the "transfer tax" they are waiving and how much of it is other fees like registro and attorney fees etc. So I have more questions to ask! LOL. Anyone have an idea on that?

I think it's a good point someone made above about not paying the corporation tax can go towards home insurance which ultimately is a better solution for any problem of someone getting hurt on your property - at least it seems that way. I don't know how much it would cost but curious to find out. I imagine if you keep the corporation CR will just continue to raise and raise the tax over time, so that's another factor, in addition to having to report it to the U.S. Also if you forget to pay your SA tax ... don't have the money when it's due, etc ...

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"DEADLINES:  August 31, 2017

Payment of unpaid back taxes on companies from 2012 to 2015 will not bear interest or penalties if paid on or before Thursday, August 31, 2017.  After this date interest and penalties will be charged".

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