Taxes and Expenses on Property Transfers
Taxes must be paid before filing the purchase at the Title Registry Office. Taxes and expenses on the conveyance of real estate are approximately 5% of the government-appraised value of the property, as follows:
• 3% Transfer Tax (Law # 288-04)
• 1%-2% Attorney Fees (this will vary depending on the services requested)
Minor expenses such as cost of certified check required to pay taxes to Internal Revenue, sundry stamps and tips at the Registry.
Taxes are paid based on the market value of the property as determined by the tax authorities, not on the price of purchase stated in the deed of sale.
Properties held in the name of an individual are subject to an annual property tax ("IPI") of 1% of government-appraised value in excess of RD$6,500,000 pesos (+/- $160,000 USD) except for unbuilt lots or farms outside city limits and properties whose owner is 65 years old or older, who has registered it in his or her name for more than 15 years and has no other property.
If the property is held by a corporation, no property tax is due. Instead, the corporation must pay a 1% tax on corporate assets. However, any income tax paid by the corporation will constitute a credit toward the tax on assets, so that if corporate income taxes paid are equal to or higher than the taxes on assets due, the corporation will have no obligation to pay taxes on its assets.
Off Shore Holding Company
In the Dominican Republic it is highly recommended to buy property under a corporation, due to the following reasons:
Assets protection, less taxes payment and easier procedure to resale it.
1. Your personal liabilities, both in the Dominican Republic as in your country of origin or residence, will not affect the property held by the corporation. If you by the property under your personal name it will be affect.
2. If you would like to sell the property, you would only have to sell the shares of the company. It permits a simple and quick resale of the property. Since it’s much easier and less expensive (taxes) to resell all the shares of the holding corporation that owns the property, than it is to transfer the real estate. It’s an advantage for the future buyer and for the seller.
3. In case of your death, it simplifies the handling of the estate and the transfer of control to the heirs. Under Dominican law, inheritance of real property is governed by local statute which establishes that part of the estate must go to certain heirs by law (for example, a foreigner with a legitimate child must reserve 50% of the estate to that child irrespective of the existence of a will or of the law of his country of residence). This rule does not apply when ownership of real estate is held by a corporation. Also, if the title is in the name of one or several individuals and one of them dies, the procedure to change the title to the heirs is cumbersome and time-consuming.
We offer Dominican and Offshore shelf companies, most of foreigners that are buying properties in the DR, do it through an offshore company, due to the simple procedure and only requires one, two or three shareholder, in case you are interested or would like more information, just let us know.
Capital Gains Taxes
A real draw for investing in the Domincan Republic is the tax structure. Most foreign investors are unaware of the recent capital gains tax imposed. Because most goverments assess these taxes when a property changes hands, a completely legal strategy has been put in place to circumvent the capital gains and property title taxes, an approach many wealthy Dominicans have been using for years. The solution is a simple one: the new buyer doesn’t take direct posession of the property. Control is transfered via stock ownership and/or the directorship, of a company that happens to own the property. Thus eliminating a taxable real estate transaction.