Plenty of expats are paying into an informal committee to maintain the security of their gated community or to keep up the subdivision roads and common areas.
These ad hoc community associations stumble over the smallest of details like opening a bank account because they do not have a formal structure. They generally rely on the goodwill of a few residents to keep the guards paid, the grass trimmed and the potholes fixed.
One expat expressed concern about the informal nature of his association when he called last week. He wanted to know some alternatives to his residential area.
These associations are integral parts of expat neighborhoods throughout Costa Rica. They make living with a sense of security and wellness possible considering that robberies and home invasions abound. Usually, a few residents keep them in working order. Others just pay dues knowing that they provide an important role but do not want to commit themselves individually.
Opening a bank account for an ad hoc group seems impossible. The changes to the banking rules in Costa Rica over the past few years have made the whole process a paper chase, noted the expat who called. He oversees the administration, security, and finances of a group of homeowners.
It is all about money. Funds come from the members and non-members to pay what needs to be paid. Most important are security services, common infrastructure, and road maintenance.
The expat’s community does not benefit from a legally formed association under Ley 7933 because the subdivision is not a development registered as a condominium. This means it does not have a legal structure set up at the Registro Nacional with documents that designated members can take to a bank to open an account.
What are the options for these kinds of groups?
One choice is to use Ley 218 to form a legal association. This law was created in 1939 and modified by Ley 6020 in 1997. It provides the framework for parties to work together toward a common goal as long as the group is not politically oriented and is non-profit.
Setting one up is not rocket science. Ten founding members are required. They need the following to set up the organization: 1.) a name, 2.) a legal address, 3.) objectives and statutes, 4.) methods to manage membership, 5.) some resources used for the organization, 6.) structure, 7.) and a way to reform statutes and dissolve the entity.
Other options include using a standard company structure. There are six types. Most people are only familiar with one or two. The most common are the sociedades anónimas and S.R.L.s. The problem most people have with them is they pay Ley 9024 taxes each year. The tax was found unconstitutional Jan. 28, but it is almost a given it will be reinstated.
Lastly, informal structures, groups could use a sociedad civil. They are like partnerships and can be used for profit. A clearly defined constitution or contract is necessary so everyone involved knows where he or she stands concerning contributions and dividing profits and losses. This kind of organization does not pay Law 9024 taxes.
Groups without a legal status need to find a member of their organization who is willing to open a personal account at a local bank and deal with the accounting of the money to its members. A U.S. citizens must also consider the added hassles of reporting any banking activity on the U.S. tax returns and other reporting forms.
It is easy to open a bank account for an individual with the right paperwork. Almost in every case, banking institutions require a certification from a certified public account regarding its use and estimated funds that will go through the account.
Banks understand legal structures. They do not understand someone coming and saying, “I am opening an account to manage money for my community so we can pay our bills.” In fact, the Superintendencia General de Entidades Financieras regulates people using their bank accounts for others. It is a big no-no.
Using an attorney or escrow service is not a good idea either. If they truly understand the know your customer concept and legal requirements to handle someone else’s money in Costa Rica, they would not offer the service to do so. Anyone else is probably untrustworthy.
The best and safest advice to ad hoc organizations is to find a legal structure that works for them. If Ley 218 is too cumbersome for some reason, setting up a sociedad anónima is probably the best answer. It is made up of a board: president, secretary, treasurer and a fiscal. That’s perfect for an association. What most people do not realize is that even though the entity might have a bank account, it does not necessarily pay Ley 9024 taxes as an active company. Any structure requires an attorney to form and modify them over time.
An association is a business too. Proper structure is just good business.