Taxes and Expenses on Property Transfers
Taxes must be paid before filing the purchase at the Title Registry Office. Taxes and expenses on the conveyance of real estate are approximately 4.4% of the government-appraised value of the property, soon to be raised to 6.4%, as follows:
- 3% Transfer Tax (Law # 288-04)
- 1.3% Document Stamp Tax (Law # 835-45) (Actually, RD$232 pesos for the first RD$20,000 pesos and 13 per thousand for the rest).
- 2% Registry Tax (Law #108-05), applicable to properties valued at RD$5 million pesos or more, which will come into effect sometime in the near future upon creation of the Indemnity Fund established by the Law.
- Minor expenses such as tax on certified check, sundry stamps and tips at the Registry.
Taxes are paid based on the market value of the property as determined by the tax authorities, not on the price of purchase stated in the deed of sale.
Buyers wishing to lessen the impact of transfer taxes have the option of using a loophole in the law which allows the contribution in kind of property into corporations without paying transfer taxes. For this, cooperation from the seller is essential.
Property Taxes
Properties held in the name of an individual are subject to an annual property tax ("IPI") of 1% of government-appraised value in excess of RD$5,000,000 pesos except for unbuilt lots or farms outside city limits and properties whose owner is 65 years old or older, who has registered it in his or her name for more than 15 years and has no other property.
If the property is held by a corporation, no property tax is due. Instead, the corporation must pay a 1% tax on corporate asset. However, any income tax paid by the corporation will constitute a credit toward the tax on assets, so that if corporate income taxes paid are equal to or higher than the taxes on assets due, the corporation will have no obligation to pay taxes on its assets.
Title Insurance
In the Dominican Republic, as in many Latin American and European countries, the government provides title insurance. The old Land Registry Law established an indemnity fund with which to pay claimants who due, for example, to an error of the Registrar, were deprived of their property. Unfortunately, the funds collected were used by the government for other purposes.
The Property Registry Law in effect since April 4, 2007, has created a new 2% tax on all conveyances in order to establish an indemnity fund. It is also possible to obtain title insurance from private insurers.
Inheritance of Real Estate by Foreigners
There are no restrictions on foreigners inheriting title to real property in the Dominican Republic. Inheritance taxes have been recently lowered to 3% of the appraised value of the estate. If the beneficiary resides outside the Dominican Republic, inheritance taxes are subject to a 50% surcharge, raising the tax rate to 4.5%.
Inheritance of real estate is governed by Dominican law which provides for “forced heirship”: part of the inheritance must go to certain heirs by law. For example, a foreigner with a child must reserve 50% of the estate to that child despite the existence of a will or of the law of his country of residence. To avoid the application of Dominican rules of inheritance to the estate, it is advisable for foreigners to hold real estate indirectly through a holding company.