What you need to know about Buying in the Dominican Republic either privately or under a corporation.
Considering buying or selling real estate in the Dominican Republic? We think it’s a safe step. With how the real estate markets in the US and Canada are doing, making moves in a Caribbean paradise is both a wise and fun business move. Let’s walk through some basic concepts and options when it comes to buying or selling – whether it’s under your personal name or with a Dominican Holding Company. We went ahead and got all of this fact checked by one of our preferred partners Guzman Ariza Attorneys at Law.
Conveyance of Real Estate. A conveyance is the transfer of property ownership from one individual (or entity) to another. Here in the DR, this represents approximately 3% transfer tax. For transactions amongst buyers and sellers that are passing on a land, structure, or a house, it’s required to have official documents (titles and contracts) to transfer ownership rights. Conveyance helps in specifying an agreed purchase price, dates of transfer and any other agreements (on both sides).
Whether you buy real estate under your personal name or with a Dominican Holding Company, you have to pay a 3% transfer tax on the value of real estate plus necessary sundry expenses.
As the seller, you have to pay capital gains tax – if applicable. Although the seller is responsible for the real estate transfer tax, it is common for an agreement to be reached where the buyer can take on this load.
Dominican Inheritance Rules
These apply to Dominicans due to public policy. The titled owner of the land or home is required to allocate part of his/her estate to family (descendants or ascendants).
Dominican Inheritance laws do not affect foreigners if a will exists.
In the DR, a spouse is considered co-owner of 50% of all the moveable(things) and real estate property. As well as the partner’s debts. It is also contemplated that property acquired by any of the spouses before the union belongs to that spouse solely. If the land or home was bought during the marriage, a remaining part must go in favor of the deceased’s heirs (descendants or ascendants).
Let’s look at the order of succession and inheritance rules here in the DR:
- There are three orders to inherit:
● Number one in line are the children of the deceased, and their descendants (grandchildren).
● Ascendants (parents and ancestors of the deceased).
● Favored and collateral relatives (like siblings, aunts, uncles, nieces, nephews, etc). - Land and properties are divided into 2 parts:
The first part is defined as the “reserved portion”, which can only go to Relatives (the children, and in case the deceased does not have any, it can be passed on to other family members – as mentioned in the order of inheritance). The second part can be openly disposed of. - The absence of ascendants and descendants is an exception to the reserved portion’ rule. This means that the total estate can be gifted.
- Heirs can decide if they accept or decline the inheritance.
Note: The “reserved portion” of the estate that goes into the deceased’s children does not necessarily refer to half of the estate, this will depend on how many children the title owner has. If the owner has one child, he or she can donate 1/2 of his estate, if it’s 2 kids 1/3 of the estate can be donated and if they have 3 or more kids, they can donate 1⁄4 of their estate.
PS: A joint tenancy with right of survivorship does not exist in the DR.
Inheritance of Real Estate by Foreigners
Up to this date, there seem to be no restrictions on foreigners inheriting title to property in the Dominican Republic. The heirs have to pay an inheritance tax, which is 3% of the estimated value of the estate. Nevertheless, if the beneficiary lives outside the Dominican Republic, inheritance taxes can go up to 4.5%. It is advisable for foreigners to hold real estate through a holding company to make this process faster and easier.
Conveyance of title to heirs after Death of Title Holder
Local and foreign nationals can be charged a tax on death and/or gifts. The gifts made to physical persons are subject to 27% withholding tax (WHT). Even if there is a will or not, this has to be paid by the beneficiaries within 90 days after the individual’s passing. If there isn’t a will (as is very common in the DR), a notarized declaration of succession will have to be stated by the heirs, and it will have to list all the assets and estates of the deceased owner.
When generating the conveyance under your personal name, it might turn into a lengthy procedure at the Internal Revenues Department, the Land Court and the Registry of Titles. If done under a Dominican holding company, no title of conveyance is necessary. The shares of the company will be transferred to heirs (procedure before Internal Revenues Department and Chamber of Commerce). And no need to go to Land Court because the title remains in the company’s name.
Liability
Real Estate liability assessment is a way to determine whatever layers of risk a property might have for its owners or prospective buyers. As you know, liability is the state of being (legally) responsible for something. It generally means that money is owed, like a loan or a mortgage. When done through a person’s name, the real estate will be subject to this person’s liability – as the owner. But, under a company name the real estate will only be subject to liability of the company – not of its company owners.
Property Sale
Did you know?: Previously foreigners needed presidential approval to buy real estate on the island. Luckily, a lot of things have changed. Nowadays there are no particular restrictions on foreigners buying real estate property in the Dominican Republic. The decree 21-98 determined as the only request that the Title Registry Offices maintain a documentation of all purchases made by foreigners. If done under personal name the conveyance of real estate to the buyer is necessary. The seller must pay capital gains tax, if applicable. With a Dominican holding company, the Conveyance of real estate to buyer is not necessary if the shares of the holding company are sold. In this case the title will remain in the company’s name. Only corporate changes will apply.
Keep in mind: The Internal Revenues Department can charge 2% of the value of the shares transferred. It’s not common but it can very well take place. Conveyance of property to the buyer is possible either through a direct sale or a contribution in kind to a local company. Both situations are positioned to capital gains tax.
Property Sale if Owner is Married
Now, when the individual is married and wishes to complete the process under their Personal name, a consent of the spouse is necessary, unless there is a legalized and translated original of a prenuptial agreement with additional details on this subject. In case of divorce, a more complicated court procedure would ensue, in order to divide the title of ownership. When doing this process with a company, the consent from the spouse is not mandatory, just a company verdict (notarized by all stockholders) certifying the sale. Guaranteed to be authorized by the designated person to sell in the name of the company. FYI: Same sex marriage is yet to be recognized in the DR.
Annual Property Tax
The 1% annual tax on property is evaluated on real estate possessed by individuals, as rated by authorities – and taking into consideration the total amount of properties they have. Right now, the annual tax goes for properties valued over and above $8,829,763 RD, and it usually gets readjusted every year.
The Property tax is formed from the cadastral value (a map showing its level, for taxation purposes).
When owned by an individual. values less than $160,000 USD are not taxed. However, when owned by a company, the 1% annual tax goes for the total of government-appraised values of real estate belonging to the company.
Cost of Holding
The holding costs are fees for owning a property. So, it’s important to have an idea of what you’d like to do with the area once you have it. Would you prefer to flip the property or keep it as a long term investment? As covered in the previous section, if done under a personal name, the only holding costs are annual property taxes which are 1% of the government appraised value of the property over the $160,000 you do not get taxed on. For example if your property has a government appraised value of $200,000 USD then you would be taxed 1% annually on $40,000 USD. But if it’s done with a Dominican holding company, the 1% annual property tax, plus annual corporate maintenance and tax declaration expenses will be a part of your holding costs. Plus, the business registry has to be renewed every 2 years.
Whether you are a foreign national or a Dominican the same rules apply for obtaining a Dominican Tax Number (RNC) to Convey Property. First you will need to obtain a dominican tax identification number, also known as Registro Nacional del Contribuyente (RNC) which can be done by a lawyer or an accountant. The RNC belongs to the Dirección General de Impuestos Internos (National Tax Authority) and all companies and individual professionals must have one because it serves as evidence of the business, and allows the government to collect taxes. When getting an RNC under your Personal name it’s a simple procedure that involves completing a form in the Internal Revenues Department, again this is easiest with a lawyer or accountant. If done with a Dominican holding company, obtaining a tax number is the final step in the incorporation process.
Do international investors in the DR get any incentives?
It might seem like so far we’ve covered a lot of little steps and details but don’t forget, the incentives in place for international investors!
Law 171-01 allows foreign nationals who put in a minimum investment of $200,000 USD in the DR – or are planning on becoming retirees – an expedited residency in the country, exoneration from duty for bringing possessions from abroad, let-off from transfer taxes for the purchase of first real estate, and 50% cutback on property and capital gain taxes.
And then, there’s projects that are supported by CONFOTUR which makes this process much more convenient, faster, and gives you a head start with an even smaller investment… like Laguna City for example (a Realtor DR exclusive). Sneak peak on this project here: https://realtordr.com//lagunacity In this Blog we go over CONFOTUR and why projects offering this tax exemption are a hot ticket item.
Last but not least: Have you considered Estate Planning?
If you or a close one owns real estate on the island, it’s best to have a definite clause of what should be the next step. Here’s how Real Estate Planning in the Dominican Republic it goes:
● Estate planning determines how someone’s assets will be taken care of or divided after his/her passing, or in case they become disabled. It is handled through a legal representative.
● It includes making a will, setting up beneficiaries or making charity donations, and deciding funeral arrangements.
● A few moves can be considered to control the amount of taxes you pay on an estate, like giving back to charity.
So, hopefully we’ve answered a few questions here (or generated more interest) on key details of buying real estate in the DR and some of the taxes, expenses and details that go around it. Also, the main benefits of personal home ownership vs. company ownership.
Any more questions? Just ask for one of our trusted real estate agents and they can walk you through it. Feel free to reach out and take the steps to live your best life on the North Coast.
Check out this Guide to Investing in the Dominican Republic
Written by:
Adriana Badía
