PROCESS FOR BUYING REAL ESTATE

The process of buying real estate in the Dominican Republic is fairly simple and somewhat similar to the process in the United States.

A Contract of Sale is signed by both the buyer and the seller, before a Dominican notary (notaries in the DR are required to have a law degree) or may be certified through the Dominican Consulate in the US. The buyer normally posts a deposit for the property, usually not less than 10% of the total purchase. The Contract of Sale is submitted to the Dominican Internal Revenue Office for assessment and payment of the transfer taxes. Then, with financing in place, and all the conditions of the Contract of Sale met, the Contract of Sale and the Certificate of Title are submitted to the Title Registry Office to be recorded. A new Certificate of Title issued in the name of the buyer is supplied by the Title Registry Office.

As is the case in many markets, there is a risk of fraudulent real estate transactions. With the immense interest in Dominican real estate, there are cases of one property being sold to multiple buyers, property being sold by individuals who do not in fact hold title, and land that cannot be developed being sold to prospective developers. Caution is advised.

REAL ESTATE TAXES, FEES, AND FINANCING

Real Estate Transaction Fees

In the Dominican Republic a transfer tax of 4.8% of the appraised value of property is due at closing. Title insurance is available through Stewart Title at 1.0 to 1.5% of purchase price as one-time charge.

Property Tax

The property tax rate in the Dominican Republic is very attractive. Property valued under RD$ 5,000,000 pesos (approximately $165,000 US) are not subject to property tax. Property valued in excess of $165,000 (US) are taxed at a rate of one percent of the value above $165,000: A property valued at $265,000 will be assessed a tax of one percent of $100,000--$1000 annually).

Capital Gains, Income Tax, and Entity Structuring

The Dominican capital gains and income tax rate is 25%. Holding real estate in a corporation offers the advantage of allowing related expenses to be deducted.

Property may be held as an individual, a Dominican SA (Dominican corporation), an off-shore company, or a US LLC. For all real estate held in a corporation, documentation must be submitted in Spanish to the Mercantile Registration in the Dominican Republic.

Real estate owned as an individual or a Dominican SA is subject to Dominican income tax. Capital gains tax is due whether owned as an individual or by any entity, Dominican, off-shore, or US.

1031 Exchange is available as a strategy to avoid capital gains tax.

FINANCING

90% LTV is available from both US and Dominican banks. The origination fees range from 0 - 1% with Dominican banks to 3.5% with some US lenders. US lenders generally require cross collateralization of US property equity. Some lenders will finance the transfer tax, and possibly furniture and appliances.