# 1 piece of mis-information circulated by unscrupulous real estate agents
in the Dominican Republic concerns real estate taxes. Many will tell
you that there are no property or real estate taxes in the Dominican Republic.
This is completely FALSE. Granted, the real estate taxes are a bargain
in comparison to some other places, but there are indeed local tax assessments
Why this mis-information or confusion? It
could be one of two things. The first possibility is that the real
estate agent knows better, and is straight out telling you a lie in order
to induce you to make a purchase. The second possibility is that
the agent does not know any better, and if so, is highly unprofessional
to say the least. To be fair, most Dominicans do not even have the
slightest clue about their own tax system. Many Dominicans living
in the United States may in fact tell you the same thing that the real
estate broker has told you. Why is that? The reason is that
the majority of Dominicans either do not pay annual property taxes, or
are exempt due to the assesed value of the property.
The annual property tax system in the Dominican
Republic is in fact a sort of "hidden" wealth tax. The meaning is,
that higher property taxes kick in at a certain value level. For
this reason, it is possible than Dominicans living in New York or Miami,
have homes, or know of family members that have homes, whereby they have
never paid a dime in annual property tax. This does not mean that
they do not have a tax liability on the property. They just
assume so because the government has never asked for payment.
Let us discuss this further, because this
lack of understanding stems from a few sources:
Fact # 1 - The Dominican government tax authority
is somewhat disorganized. It is getting much more organized, and
the "status quo" from the past will not continue going forward. It
will take some time to see this happen, but investors buying property today,
may find a very different government system 10 years from now. That
is why investors need to know the truth and how they could be effected.
Like with many other topics, if you ask three different people or officials
about tax rates, you will get three different answers. This is a
problem to say the least. Who do you believe?
One easy answer is: GET IT IN WRITING.
If official # 1 or your local Real Estate Broker says you will not have
to pay property taxes, ask for it on paper and file the letter with your
title. My guess is you will witness what I like to call the
"seated merengue" when asking for this, but ask for it anyway.
Fact # 2 - The government has neither the
man power or an effective system for enforcement of property tax collection.
This is another reason why many Dominicans hold the opinion that there
is no property taxes on real estate.
In contrast to the US system, chances are
that you will never recieve a property tax bill or notice in the mail.
In addition, tax sale of property by the government is unheard of.
I have never seen or heard of anyone being evicted by authorities in order
to complete a tax sale of property. Again, this only strenthens
the believe that there is no property tax , or that the government does
not care about property tax collection.
Fact # 3 - The property tax rates can often
differ greatly by neighborhood or zone. Both property tax rate schedules,
and utility rate schedules for that matter, tend to be higher in the so-called
"wealthy neighborhoods". This is not a fair system, but it is the
system none the less. With so many different tax rate schedules,
exemptions, and mutlitude of tax codes that often seem to contradict each
other, it can be difficult at times to keep an accurate listing.
Regardless of where you purhcase property,
the one thing you can be sure of of is the tax you will pay to transfer
title into your name. For the sake of brevity, you can figure on
a total cost of 7.48% (of the transaction value), in order to complete
the title registration process. This is not the actual figure, but
is rather a sum of the other various costs or taxes involved. Note
that this is tax payment, and does not include attorney fees.
Is there any way to save of the title transfer
tax? The answer is YES. We highly advocate the use of a Dominican
Incorporated Company in order to provide the investor with a vehicle for
both asset protection and tax savings. Many clients have saved up
to $2,000 or more on transaction costs simply by making a Dominican Company
the owner of their real estate purchase. In addition, this strategy
helps save on capital gains taxes, when the property is sold later on.
Many Investors ask us about title insurance.
There is no such thing as title insurance in many countries, and the Dominican
Republic is no exception.
For this reason, the use of a trust worthy
attorney and a complete title search is of the upmost importance.
Some people have heard stories about problems
with titles in the Dominican Republic. The truth is, like many Latin
American countries, investors must make sure that they are obtaining a
very clear and very legal title. Most of the problems that investors
have experienced usually happened when a purchase of very old property
or when property in the country side was the item being considered.
Titles of new construction or newer properties usually do not pose such
a problem. Regardless, investors are encouraged to retain the
services of an honest and competent attorney for assistance with their
real estate transaction.
For additional information about real estate,
formation of a Dominican Incorporated Company, offshore & tax-free
banking or residency, please contact:
Domingo, Dominican Republic
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