DO IT YOURSELF IN REAL ESTATE IN THE DOMINICAN REPUBLIC

During our more than nine years or experience in the real estate and tourist markets, we have been greatly surprised to learn that many buyers do not consider their acquisitions as an investment. As soon as the purchase of a house, an apartment or a Villa is considered an investment, the legal treatment varies substantially. the first difference is the manner of acquisition. A real investment involves planning. The second factor is preparation of the mecanism of acquisition; in most cases we recommend formation of a corporation.

What type of company is recommended for purchasing real estat in the Dominican Republic, particularly in the tourist market? Can a foreingner buy shares or invest in real estate through a company in the Dominican Republic? What is the best option to organize an investment, a Dominican company or a foreign company?

The last question is the most important. It all depends on your priorities, and above all on your interest in the investment. If it is a totally passive (or enjoyment) investment, the best option would be an off-shore company. such company would become a simple shareholder. On the other hand, for an active investment, it is best to form a Dominican company, because such investment would yield rentals from a domestic source, and filing an income tax would be obligatory.

There are no restrictions for foreigners wishing to purchase shares in the Dominican Republic, and regarding the first question, in the case of a Dominican company, the best option is a stock company. If the formation of a foreign company is preferred, in our opinion it is imperative to form an IBC. These companies may be formed through our office. To obtain information about fees, please contact Freddy Miranda at fmiranda@fgasoc.com.do.

Let´s take for example the case of an operation in the tourist market, focusing specially on the market of Casa de Campo, La Romana, on the eastern part of the of the Dominican Republic. In this market, the first element to consider is the construction time, whether is an old or a relatively young house. The purpouse of such diligence is to garantee the property from evictions with respect to the boundaries and improvements of the Villa.

Then, it is advisable to verify the payment of common services, the absence of which could jeopardize the improvement, and finally the payment of property taxes which could cause a tax lien to be levied if the property has an outstanding balance to the credit of the Internal Revenue Office.Afterwards, it is essential to make a formal examination of the deed to the villa, particularly in the case of title deeds issued more than five years before the transaction. The ideal is to obtain a certificate of liens and encumbrances from the Registrar Office. In many cases, greater assurance (title´s insurance) may be obtained by means of a collateral on the property, to cover the risks.If ther is no title deed for the property, usually this type of resorts has entered into a sales agreement with the buyer, which may be dissolved in order to make a direct sale to the new investor.

In this case, it should be noted that in order to make the transfer, the buyer has to pay all appropriate taxes. Many unscrupulous lawyers misadvise their clients, saying that with this method there is no need to pay transfer taxes, which is inexact. What is usual is for the seller to have his/her title deed so that the property may be purchased and transferred with no problems or difficulties. In practice, since the buyer has to pay transfer taxes, the seller does not bear such taxes. For more information about to be paid, please contact Freddy Miranda, at fmiranda@fgasoc.com.do. Next, the sales agreement must be drafted. The final sales contract may be preceded by a free-look or due diligence period, in order to allow the buyer to obtain a certification of liens and encumbrances, to inspect the improvements, to allow for the preparation and investigation by the insurance carrier, if the purchase was agreed upon condition that the property be insured.Assurance that both parties (or the buyer) will honor their sale/purchase agreement may be obtained by executing a promise of sale.

This promise of sale may be agreed to with or without a deposit. In our legislation, such deposit is called earnest money, and it may be considered as payment or part of the purchase price, or it may be kept as security for such sale. It is important to have sound legal assistance for executing a promise of sale with earnest money deposit, because of the penalties involved in the event of default. (See. www.fgasoc.com.do. "Promise of Sale with Earnest Money Deposit").As mentioned above, a sale/purchase agreement is the classic contract for transfering the deed to the villa and obtaining the warranty granted by it. The Internal Revenue Service established that the amount to be paid for transfer taxes shall be calculated on the minimal credible value, or value assessed for property tax or luxury tax. Investors are advised to retain a good real-estate lawyer to avoid problems with the fiscal authorities.

Can transfer taxes be reduced without incurring evasion?

The classic ways to amortize the weight of transfer tax are: buying shares of stock from the owning company if that were the case, and, if the property being transfered is the sole asset of such company, obtaining a loan through a savings and loans institution, and incorporating the property into the capital stock by making a contribution in kind or "aporte en naturaleza". Taxes are withheld on share purchases. In the case or a savings an loans bank, the institution will charge a sum in addition to the closing value of the loan for the duration thereof. Finally, a contribution in kind (aporte en naturaleza) is the most complex way of reducing transfer costs in a real estate transaction. In most cases, any such contribution is subject to significant expenditures by the investors.

Upon receipt by the appropriate Recorder of Deeds, the sales contract will be duly registered and an entry to that effect will be made in the books kept for real estate transfers. The recorder of deeds or his/her deputy will formally audit the documentation to verify that if meets the requirements prescibed by the law in order for a new title deed or an attesting letter to be issued guaranteeing the property.