Due to the in-depth nature of tax systems, it is important that you consult an expert tax advisor when considering purchasing property in the Dominican Republic. Here you can obtain some brief guidance into the Dominican Republic property tax system.
If you are non-resident and earning rental income in the Dominican, you will be taxed at a flat rate of 29%, withheld by the tenant. For residents, income is subject to 20% withholding tax. The tax authorities allow no deductions for rental income.
These are charged at the same rate and will be gradually decreased in the next few years: in 2008 the rate will be 27% and in 2009 it will decrease to 25%.
Capital gains arising from the sale or transfer of real estate in the Dominican Republic are classed as income taxable. The gains are calculated by deducting the original cost of the property (adjusted for inflation) from the gross selling price or market value. Currently, capital gains for non-residents are taxed at a flat rate of 27%.
(Impuesto sobre Transferencia de Bienes Industrializados y Servicios)
VAT applies to the sale of goods and services at all stages of production and is charged at 16% for property transactions in the Dominican Republic.
Currently inheritance tax is levied at 3% of the appraised value of the property, but if the beneficiary resides outside the Dominican Republic, the tax is raised to a rate of 4.5%.
The Dominican Republic’s law governs inheritance of real estate even if you are a foreigner and ensures that if you have a child, you must reserve 50% of the estate for him/her, despite the fact that you may have a will in your home country. It is wise therefore, to look into holding your real estate indirectly through a holding company.
This tax applies to “luxury dwellings” and empty urban lots: the current classification on the luxury dwellings is that any home worth more than DOP 5,000,000 is considered to be ‘luxury’ for tax purposes and will be charged at 1% of the property value. Homes worth less than this threshold figure are property tax exempt.
Property tax may be avoided if a property is held by a corporation as it must pay a 1% tax on corporate assets. However, any income tax paid by the corporation will be offset against its tax on assets, so that if corporate income taxes paid are equal to or higher than the taxes on assets due, it will be exempt from taxes on its assets/property.
Be aware that ongoing bills relating to costs and taxes for your property are not usually sent to you, making them easy to overlook until such time as you wish to sell up and a fine has been added to the total debt. If you wish to avoid this situation, you are advised to keep well informed from the relevant authorities as to how much you owe each year and where you must pay.
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