As has been indicated previously, in Costa Rica, corporations and many other entities, have the obligation of reporting the distribution of the company shares or association participation in such a manner that it is clear who the final beneficiary is. In other words, this law seeks to clarify who the real owners of each corporation are. This report must be filed every year with the Costa Rica Central Bank.
The failure to file this report carries a number of sanctions. These reports must be filed in chronological order. This means that the failure to file the report one year does not allow you to file next year´s report until the previous report is corrected.
There are also monetary sanctions. Failure to report can cause a fine equal to 2% of the gross income of the corporation or obligated structure, with a minimum and maximum fine.
At the same time, when a corporation wishes to register a document or a contract, for example, the corporation shareholders wish to change the corporate structure or the corporation intends to buy, sell, mortgage or otherwise execute any important action that must be registered, that document or that contract must be presented by the Notary Public (Notario Público- which is very different from the USA Notary Public) to the National Registry.
When that document is presented to the Registry, the Registry officials will check a number of issues with the corporation that is executing the document and one of those items that will be checked is precisely if the corporation has complied with its obligation to report its shares distribution to the Costa Rica Central Bank.
If the corporation has failed to file this report, then the National Registry will refuse the registration of the document presented to its offices for execution, until the problem is resolved. This could be a real problem for any one of the parties involved in the transaction.
Let´s take a practical example. A person wishes to purchase a property or a vehicle or any other number of transactions, which must be registered in the National Registry. The buyer and the seller go to a lawyer who is also a “Notario Público” and they ask the lawyer to perform the sale. The buyer pays the price of the property and the seller signs the formal contract in the lawyer´s special book so that the transaction can be presented to the registry for registration. The lawyer fails to check that either one of the corporations or both have not filed their share report to the Central Bank.
Once the document has been filed, the Registry will advise the lawyer that the sale of the property cannot be registered in the name of the buyer because the seller has not filed his share report. The lawyer tells the buyer that he must now communicate with the seller so that the seller will file his share report to the Central Bank. There is no way the buyer can force the seller to file the report. The buyer is completely at the mercy of the seller. It would be even worse if the seller is a foreign national that has left the country after the sale and can no longer be located or does not care to return to Costa Rica to resolve the situation.
In this scenario, it does not mean that the buyer does not own the property purchased, of course he does and his rights will be protected, but it does mean that he or she has a big problem until they are able to find the solution to resolve the situation, because in the Registry the property will not appear in his or her name, it will appear in the name of the former owner. It also means that until the problem is resolved, the new owner will not be able to sell, mortgage or otherwise take full advantage of his ownership rights.
A similar situation could occur with a mortgage if the lender has issued the loan to the debtor to buy a car or a house and is later not able to register the mortgage document in the Registry.
There are a large number of possible scary scenarios in which a person can have to deal with growing frustration, expenses and loss of time and opportunities.
Of course, these are extreme situations that fortunately don´t always happen but in legal matters it is always better to be extra cautious.
What is the proper way to resolve these issues? First, determine if your reports are up to date and if they are not, establish which reports are missing. File the reports that are in fact missing and finally pay the outstanding fines that may be owed.
About the Author
Lic. Jorge Montero B. was educated in the U.S.A. and in Costa Rica. He holds various specialties and master’s degrees in Criminal, Commercial, Environmental and Agrarian Law from the University of Costa Rica and has over 30 years of litigation, contract and counsel experience.
Email: acmbalaw@gmail.com
Tel: (506)- 8384- 2246
WhatsApp: (506) 8384- 2246
