Relaxed restrictions are luring international investors to Dominican Republic real estate, where painless property taxes help offset a rather hefty burden on capital gains and rental income. Potential buyers are advised to enlist an attorney’s assistance to secure a title, clear any outstanding property tax and handle inheritance matters. For more on this, see the following article from International Property Journal.
A new wave of large scale developments is changing the Dominican Republic landscape. A 1998 law removed most restrictions on foreign land ownership, sparking a wave of overseas investment.
Although unregulated, the process for buying and selling property is relatively simple, but contracting with an independent attorney is always a top priority. Extra care should be taken to verify titles and the validity of contracts.
The key document for the early stage of a transaction is a binding “promise of sale,” which is usually prepared by an attorney or a notary (notaries in the D.R. are required to have a law degree). Typically a 10 percent deposit is required to hold the sale. Sellers should provide up front a copy of the title and a survey of the property, which will be required to register the new title. Experts recommend checking the title and documents against tax assessments to make sure everything matches.
The final document is a “contract of sale” (Acontrato de Venta), which is executed before a notary. At that point the Title Registry Office should issue a new certificate of title in the name of the new owner. Although closing costs are relatively low, usually about 5 percent, post-sale taxes are relatively high. Sales are typically subjected to a 25 percent capital gains tax and rental income is usually subject to tax at the corporate rate, which is also 25 percent. The good news: Property taxes are usually only about 1 percent of the property’s value as determined by the government, which usually come in lower than market appraisals.
- Agent commissions range from 5 to 10 percent of the value of the transaction.
- Any buyer looking to eventually pass the property on to an heir should carefully review inheritance rules. There is a tax surcharge on non-residents and the D.R. recognizes a policy of “forced heirship,” requiring certain heirs to receive a percentage, regardless of wills. Many buyers form corporations to avoid the inheritance issues.
- The government tends to be lax collecting property taxes, until a property is sold. At that point all outstanding fees must be paid, which can quickly throw a wrench in a transaction. It’s often best to ask a seller for proof of property tax payments.
- New development might only be able to offer copies of a “master title” for the property. Once the project is completed the developer should provide an individual land title. To be safe, experts recommend getting a written agreement at the time of sale stating the developer will provide title within a year.
- It may not be directly related to property sales, but Mariah Carey, Jane Fonda, Elizabeth Taylor, Diana Ross, Sylvester Stallone and Michael Jackson are among the celebrities that have taken advantage of the Dominican Republic’s streamlined divorce procedures.
This article has been republished from International Property Journal. You can also view this article at International Property Journal, an international property news and information site.