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The Original 2004 Dominican Republic Report:  Find out why so many Europeans and Americans have been relocating or retiring to the Dominican Republic.   Find out about tax-free banking, plus much more
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Moving Your Small Business to a Tax-Free Zone
in the Dominican Republic


About the author: John Schroder lives in the Dominican Republic and is associated with Ascot Advisory Services.  Ascot Advisory assists clients with residency in the Dominican Republic, local incorporations (and other services such as Panama Foundations), assistance with banking introductions and investment advice, plus assistance with matters such as title search.  For more information about living in the Dominican Republic, contact John by telephone 809-334-5387 or 809-756-1917.  Email:  info@ascotadvisory.com
If 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 business.
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One of the Best Tax Advantaged Business Opportunities !
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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 for you.
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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.
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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.
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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.
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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.
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We 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 use.  However, one important point is the length of time that is stated on your license.  For example, if you choose a free zone location close to Santo Domingo, you obtain a twenty-year exemption with regards to income tax.  If however, you choose a location in a more rural area, or one 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 much space you want to rent will be a factor as well.  Generally speaking 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 slightly higher. 
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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 business.
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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.
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Does it make sense for you consider a “free zone” business?
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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.
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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).

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