|Moving Your Small Business to a Tax-Free Zone
in the Dominican Republic
the author: John Schroder
in the Dominican Republic and is associated with Ascot Advisory
Ascot Advisory assists clients with residency in the Dominican
local incorporations (and other services such as Panama Foundations),
with banking introductions and investment advice, plus assistance with
such as title search. For more information about living in the
Republic, contact John by telephone 809-334-5387 or 809-756-1917.
you are like most small businessmen, you are doing your best to grow your
business and compete. Unfortunatly, ridiculous government regulations
and strangling taxes put you "behind the eight ball" before you even get
started. What is the solution?
Move your business to a place that allows you to compete and grow your
of the Best Tax Advantaged Business Opportunities !
We have discussed at length
the idea of using an offshore company to gain some important advantages
for your small business. Certainly a mail order business or Internet
business is one that could conceivably operate without a specific need
for a physical store or location, but what about other kinds of businesses?
Businesses that may require a “work-shop”, such as a small furniture manufacturer,
or even a business such as a travel agency, requiring a facility to accept
customer telephone calls and service clients may still need to be located
“somewhere”. Even a mail order business, if it were large enough,
would require a warehouse of sorts to pack and ship orders. Regardless
of what type of business you are in, providing you deliver your product
via mail, courier, cargo or container shipment, or even just service clients
via telephone – a Tax Free “Free Zone” location may be just the ticket
The first question you have is going to
be, “What is a Free Zone and why does such a place exist?” The answer
to this is quite simple. Any intelligent and forward thinking government
is one that wants to attract new business and hopefully create jobs for
its citizens. One way that some governments have done this, is to
pass special legislation that permits the existence of what are known as
“Duty Free Zones” or we could also say “Duty Free Business Parks”.
These are special zones, campuses, industrial parks or compounds that offer
a number of special benefits to the occupants. Such places are certainly
located within the borders of a particular country, but in a way, operate
somewhat as sort of an autonomous facility. In other words, such
places are sort of business tax havens, allowing business owners to operate
with limited regulation and restriction. The most obvious and direct
benefit is of course that the business may operate and enjoy 100% tax-free
income for 20 years or longer. But aside from this, such zones may
also permit certain types of businesses or operations, which may not be
permitted otherwise inside the country.
In a way, we can say that such a zone
is really a tax-free tax haven state within a country. Business owners
may import raw materials, equipment and products for their business 100%
free of any type of import duty or taxation (or at a greatly reduced rate). They may operate freely
and enjoy 100% tax-free business income (or a greatly reduced rate), and may also be free to expatriate
business profits. In other words, even if currency exchange controls
exist within the country where the free zone was located, being located
inside a “free zone” means that your business is exempt from many local
regulations or requirements.
Many countries such as the Cayman Islands,
Jamaica, Panama, the Dominican Republic, and many others, all offer such
free zone or tax free “business park” type of locations. The costs
to set up will of course vary from country to country, so it is important
to shop around for the “best deal”. As an example, some of our clients
have investigated the Cayman Islands and the Dominican Republic.
As a result, they have found the Dominican Republic to offer a cost structure,
which was half of what it is in the Caymans. But a number of factors,
location being just one, will factor into your decision as to where you
wish to locate.
Since we of course know the Dominican
Republic the best, the following are some costs for the DR, which you can
use for making a comparison.
have already said that a business can
enjoy 100% tax free business income or a very much reduced rate of
taxation when operating inside a free zone,
so this is something that is common no matter which free zone you
However, one important point is the length of time that is stated on
license. For example, if you choose a free zone location close to
Santo Domingo, you obtain a twenty-year exemption with regards to
tax. If however, you choose a location in a more rural area, or
where the government wants to encourage a company to use, then you may
get a 25-year period or longer. Also, where you locate and how
space you want to rent will be a factor as well. Generally
about the Dominican Republic, you can expect to pay anywhere from US
$7.00 and up per square foot per year. If you require a larger
space of say 10,000 square feet, you naturally can obtain a better per
square foot price. For the smaller spaces, of course the price is
This all sounds good, but what about the
practicality of operating your business? What about finding certain
business support services, such as Internet connections and telephone service?
Well, once again, in the case of the Dominican Republic, 56K Internet service
certainly is available. Dedicated lines at higher speeds, including
T1 lines, are available as well. Since the local telephone companies
do offer “800” service from the US, it is also possible to have an 800
number, which rings on your desk in the free zone when dialed by a US based
client. As such, a “call center”, travel agency, mail order business
or any other business that communicates with clients or accepts orders
via telephone, fax or email will find no difficulty in operating their
Fedex, UPS, DHL and a number of other
private courier and mail services operate in the Dominican Republic.
Since the country is an island nation, you can imagine how important cargo
are port facilities are to the country also. In this regard, one
can easily deliver their product directly to clients in the same fashion
that you may be doing at the moment.
Does it make
sense for you consider a “free zone” business?
This really all depends on the business
income and expenses you currently have. Generally speaking, if you
are earning about $ 15,000 or more monthly in profits, you could see a
very real difference in moving to a free zone (regarding you actual profitability,
taking into account business expenses and taxes). Each business is
of course different, but this is a rough “guess estimate” to use.
Certainly you can set up a free zone business
with an offshore company, providing a tax free business income status from
the jurisdiction where you are incorporated and also where you are “physically”
located. I would not suggest putting a US incorporated company inside
a free zone if you truly want tax savings. This is because even though
you have 100% exemption from income tax where you are physically located
(free zone), “Uncle Sam” seems to have the position they have the right
to tax you no matter where in the world you are located (or earning your
income). However, considering you set it up this way, and calculate
your cost savings on labor and other expenses, it is conceivable for you
to “keep more of what you earn” just by changing your place of business
or address. For the small business, keeping an extra $ 50,000 in
your pocket yearly from a total one time set up cost of less than $ 20,000
makes sense (factoring in cost for offshore incorporated company, free
zone license, set up costs, etc).