As business owner you need to know the ground rules for playing in the Dominican Republic. Over the last five years, we’ve realized that foreign investors have lots of information on how to do business in Dominican Republic. Unfortunately most of it biased or wrong.
The present article is intended, and designed, to be a self-help tool for the business owner who wants an up-to date guide to the basic financial, legal, and tax ground rules that apply to most businesses operating in the Dominican Republic. You will find useful information on how to set up a Dominican corporation, a subsidiary, a branch, hiring personnel and more. For more and precise information, please contact us fmiranda@fgasoc.com.do. Also, for your queries relating to trademark (presently under construction)www.trademark-registration.com.do; for real estate, www.Dominican-real estate.com.do, for information about traveling or staying in Dominican Republic, www.Dominican-residence.com.do.
To invest in the Dominican Republic, you can form what we call a “per share” company, similar to LLCs of the United States, because your liability (responsibility in French legislation) is limited to the amount of your investment. It is possible, also, to enter into a partnership. In a partnership the associates have to face personally business liabilities during the life of same.
While considering, or doubting which form of corporation is easier to establish in the Dominican Republic, we suggest a branch. You may bring your foreign corporation to the Dominican Republic, and fix domicile, get tax payer ID, and registration with the Ministry of commercial concerns. You can also form your own “per share” company in the Dominican Republic. To set up said corporation you must pay taxes, have a minimum of seven members and obtain registration with Internal Revenue Office.
It is mandatory to have a minimum quota of national investment? Legislation 16-95 establishes equal treatment for nationals and foreign investors. Nevertheless we do have regulated fields, such as mining, insurance, telecommunication, etc.
Reporting issues.
When you do business through a corporation with a capital over RD$500,000.00, you must have an “organized accounting system”, which means that a certified Public Accountant must certify your financial statement for preparation of income tax. Taxes? What is my tax liability as foreign investor?
The rule. All income of Dominican source or income from sources outside the Dominican Republic that proceed from investments and financial profits are liable to Dominican taxes. And…home company’s expenses, are these, deductibles from the taxable income of a Dominican branch or subsidiary?
Branch’s expenses can be deducted from the taxable income. The subsidiary, however, is not allow to deduct home company’s expenses.
Am I liable to capital gains? Yes at 25% of your net income. However, your capital losses can be compensated when they exceed the capital profits obtained on a same fiscal year. The remaining balance can be compensated with the capital gains obtained in subsequent activities.
And…individual taxes? A) As a resident in the Dominican Republic, your tax will fall upon your income of Dominican source, or income of sources outside the Dominican Republic that proceed from investments and financial profits; B) For non residents, taxes will fall upon your income of Dominican source; C) residents are liable to taxes for the amounts perceived after the third year or taxable period after they have established their residence in the Dominican Republic.
You need the assistant of a good Attorney to set up your residence and to help you with your tax statement, because we do not have tax treaties to allow the foreigners to obtain a tax refund when they leave the Dominican Republic.
How long can I stay in Dominican Republic without paying income tax? If you stay in the Dominican Republic for more than 128 days, in a continuous or irregular manner, during a fiscal period, the Government will treat you as a resident and you are liable to personal taxes, for you income coming from Dominican sources. But…
I am just working in the Dominican Republic, am I still liable to pay taxes for benefits paid or received in my Country of origin?Services provided in the Dominican Republic and paid in your Country are subject to Dominican taxes. Only Christmas’s salaries are tax-exempt.
For information about hiring personnel in the Dominican Republic, free zones incentives, import and export, contact Freddy Miranda at fmiranda@fgasoc.com.do, and get a free consultation.
The author is an Attorney of Figueroa Guilamo & Associates. Dominican Republic. www.fgasoc.com.do www.Dominican-Residence.com.do www.Dominican-RealEstate.com.do, www.Trademark-Registration.com.do
Wednesday, July 25, 2007
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.
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.
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