Caribbean Real Estate in the Dominican Republic - Taxes in the Dominican Republic

Residency, real estate & property taxes in the Dominican Republic

One of the major advantages of buying property in the Dominican Republic is that generally taxes are low, increasingly straight forward and property can be purchased without temporary or permanent residency.  Lawyers can advise on individual circumstances and the finer details, but the following information may help buyers gain a broad understanding of transfer tax, property tax, purchase tax, capital gains tax, asset tax, income tax, rental revenue tax and inheritance tax.  Whatever type of realty you decide to buy, your lawyer can best advise on minimising taxes and keeping the whole purchase problem-free.  As a long established realtor, West Indies Real Estate can guide you with the process of choosing a lawyer through to closing on your Caribbean property.        

Dominican Republic Transfer Tax

Once a property has been purchased, a copy of the Sales Contract, the Vendor’s property Title Certificate and the Vendor’s and Purchaser’s personal identification documents are deposited at the Dirección General Impuestos Internos (DGII), in order to request authorization to pay the Transfer Tax.

A 3% tax is assessed on any transfer of ownership of real estate (Art. 20 of Law #288-04). The transfer tax is paid based on the market value of the property as determined by the appraisal done by the DGII, not on the price of purchase stated in the deed of sale. The deed of sale cannot be filed at the Title Registry Office without paying this tax. The transfer tax must be paid within six months of the date of the deed of sale (Art. 7 of Law #173-07). Noncompliance is subject to fines.

Properties worth less than RD$1 million pesos acquired through a bank loan are exempt from the transfer tax (Art. 20 of Law #288-04). The RD$1 million pesos exemption is adjusted annually for inflation.

• Unless otherwise agreed by the Vendor and the Purchaser, the Transfer Tax is paid by the Purchaser.
• Once the transfer tax has been paid, an original of the Sales Contract, original property Title Certificate, and the receipt of transfer tax payment issued by the DGII, are filed with the Title Registry office in the jurisdiction where the property is located.  The Title Registrar registers the purchase in its records, cancels the Vendor’s Title Certificate and issues a new Title Certificate in favor of the Purchaser.  The issuance of this Title Certificate takes between 30 and 90 days.  

Tax on Real Estate Property, Purchase Tax, Property Tax and Capital Gains Tax

A 1% annual tax is assessed on any real property owned by individuals, based on the value of the property as appraised by the government authorities. (Articles 1 to 3 of Law #18-88). Properties are valued without taking into account any furniture or equipment to be found in them. For built lots, the 1% is calculated only for values exceeding RD$5 million pesos. For unbuilt lots, the 1% tax is calculated on the actual appraised value without the RD$5 million pesos exemption. Individuals must pay this tax every year on or before March 11, or in two equal installments: 50% on or before March 11, and the remaining 50%, on or before September 11.

The RD$5 million pesos threshold is adjusted annually for inflation.

The following properties are exempt from this tax:

(1) Built properties valued at RD$5,000,000 or below.
(2) Farm properties.
(3) Properties whose owners are 65 years old or older, who have owned it for more than 15 years and have no other property in their name.
(4) Properties subject to the Tax on Assets. 

Tax on Assets (ISA) in the Dominican Republic

Businesses and corporations must pay a 1% annual tax on assets (Arts. 401 and 404) in two installments due on April 30 and October 30 (Art. 405). For the purposes of this tax, all assets are taken into account, minus depreciation and amortization, except: a) stock holdings in other corporations, b) real estate in rural areas, c) real estate used for agriculture or animal husbandry, d) tax advances and e) provisions for bad debts (Art. 402).

The tax on assets operates as a kind of minimum income tax. If the income tax paid by the business or corporation is equal or higher than the amount of the tax on assets, then the business will have no obligation to pay the tax on assets (Art. 407). If the income tax paid is less than the amount of tax on assets due, the business must pay the difference.

New capital-intensive businesses may obtain a temporary exemption from this tax if certain conditions are met.

Income Tax in the Dominican Republic

Income Tax includes profit tax, revenue-based levy, which individuals or companies receive during a certain tax period.  Companies pay a tax of 25% of their income, individuals obtaining income from a Dominican source or from financial investments abroad pay according to the following scale (Art. 296), in Dominican pesos (RD$):
 

This scale is adjusted for inflation every January based on the rate of inflation calculated by the Central Bank of the Dominican Republic. There are very few deductions.

Employers must retain and pay to the DGII, within the first ten days of each month, any income tax due on the salaries paid to their employees the previous month (Art. 307). Individuals who receive incomes from non-wage sources must file a tax declaration every year, on or before March 31 (Art. 110 of Regulation #139-98).

Corporations and any other for-profit organizations pay a flat 25% income tax on net taxable income (Art. 297). Unlike in the United States and other countries, in the Dominican Republic the tax treatment for corporations, partnerships and limited liability companies is exactly the same.

Net taxable income is determined after deducting from gross income those deductions, credits and advance payments admitted by law (Articles 284 to 287).

All corporation and for-profit entities must file a tax declaration every year, on or before April 30, if their business year coincides with the calendar year. Otherwise, the filing must be done within 120 days after the end of the business year (Art. 112 of Regulation #139-98) 

Value Added Tax and Consumption Tax in the Dominican Republic

VAT is a tax common in many countries and charged on certain commodities and services.  In the Dominican Republic it is 16%.

Consumpation Tax (locally known as ISC) is charged on alcohol and tobacco, telecommunications services, electronic and check payments, insurance and some other resources.  The rate varies according to the commodity or service.

Capital Gains Tax in the Dominican Republic

Capital gains are defined as the difference between the sale price of an asset and the acquisition or production price adjusted for inflation (Art. 289). Capital gains are taxed as regular income.

An example: if an individual with an annual income higher than RD$604,672.01 purchases a house for RD$4 million pesos and sells it two years later for $6 million pesos, while inflation during the two-year period is a cumulative 15%, the tax due on capital gains is calculated as follows:

RD$6 million pesos - $4.6 million pesos ($4 million pesos x 15%) x 25% tax = $350,000 pesos.

Taxes are levied based on the capital gains calculated in Dominican pesos. 

Tax on Rent of Real Estate in the Dominican Republic

If the owner is an individual, the tenant must retain ten percent (10%) of the value of the rent plus the 16% of the Value Added Tax (ITBIS). If the owner of the property is a company, the tenant must retain only the 16% of  ITBIS. 

Inheritance or Gift Tax in the Dominican Republic 

The estate of any person, Dominican or foreign, whose last domicile was in the Dominican Republic is subject to Dominican inheritance taxes. The inheritance of property located in the Dominican Republic is subject to Dominican inheritance taxes, irrespective of the nationality or domicile of the deceased (Art. 1 of Law #2569 of 1950).

Law #288-04 lowered inheritance taxes to 3% of the value of the estate, after deductions, as determined by the tax authorities. Medical and funeral expenses, as well as outstanding debts and mortgages, are some of the allowed deductions. The rate is increased to 4.5% for beneficiaries who do not reside in the Dominican Republic (Art. 7 of Law #2569).

Beneficiaries must file a declaration with the tax authorities within 90 days of the death of the decedent. An extension of an additional three and a half months is possible in complex cases (Art. 26 of Law #2569). Delays in filing are subject to a 2% per month penalty, up to a maximum of 50% of the tax owed (Art. 9 of Law #2569). 

In the case of gifting, the rate is 25% of the total value of donation and should be paid within 10 days of the gift.  There are penalties if this timescale is not met.

Motor Car Tax in the Dominican Republic

Taxes are paid when registering a vehicle and transferring ownership, but there are certain allowable expenses which are not charged.

Casino Taxes in the Dominican Republic

Owners for casinos are liable to monthly taxes dependent on the location and number of gambling tables.

Fiscal Incentives in the Dominican Republic 

Law No. 171-07 establishes fiscal incentives for foreign or national persons that receive monthly rent as pensions or retirement benefits from the government, an official agency or a private foreign entity, that have stated their intention to transfer their place of residence to the Dominican Republic to locally receive the benefits of their retirement.  Persons who receive stable and permanent rents, whose principal income is generated abroad, may also receive the benefits of this law.

The person who wishes to receive the incentives provided by the law must receive a monthly pension not less than US$1,500.00, or a monthly minimum rent of US$2,000.00 for the concepts stated in the law.

Among the fiscal benefits established by Law 171-07 is the following:

• Exemption of the property transfer taxes for the first property acquired in the Dominican Republic;

• Exemption of 50% of the taxes on mortgages, when the creditors are financial institutions duly regulated by the Monetary and Financial Code;

• Reduction on Capital Gains tax;

• Exoneration of payment of taxes for the import of home furnishings and personal goods; and

• Partial exoneration on vehicle taxes. 
   

This summary only contains general information on the addressed matters; and whilst most of the information is taken from Guzman Ariza & Associates, one of West Indies Real Estate's recommended law firms, this document does not constitute a legal opinion. We recommend seeking specific legal assistance for each particular case.

See www.drlawyer.com for information on Guzman Ariza.