Real Estate Practices in the Dominican Republic
Real Estate Practices in the Dominican Republic
The Dominican Republic is the second largest Caribbean nation, with 48,442 square kilometers (18,704 sq. mi) and an estimated 10 million people. Christopher Columbus landed on it in 1492, and it became the site of the first permanent European settlement in the Americas, namely Santo Domingo, the country's capital and Spain's first capital in the New World.
Since 1966 the Dominican Republic has moved toward representative democracy, celebrating free general elections every 4 years, being one of the oldest democracies in Latin America. The Dominican government is composed of 3 branches (Executive, Legislative and Judicial) similar to the United States of America. The Dominican Republic has the ninth largest economy in Latin America and the second largest economy in the Caribbean and Central American region. Though long known for sugar production, the economy is now dominated by services. The country's economic progress is exemplified by its advanced telecommunication system.
The Dominican Republic has a clear socio-political stability and a modern, transparent legal framework, which together with its renowned natural and scenic attractions has contributed to a veritable explosion of the real estate industry, this combined with the absence of any legal restriction for the acquisition of property by foreigners, has boosted the business environment and long-term investment around the different types of real estate. The boom experienced by real estate projects of all types (specially the tourist) and the consequent arrival of interested investors, have been driven by the following factors: the gradual reduction in taxes on the transfer of property, the existence of tax breaks to the developer from which the investor may benefit, the ability to obtain financing from local banks and financial institutions and finally, the existence of a wide offer for the acquisition of real estate.
In the Dominican Republic there are two main channels through which an investor, whether individual or a legal entity may participate in the property market:
- With the purchase of real estate directly
- By participating as a shareholder / partner in a company that owns real estate.
In all cases of acquisition of property, prior to the signing of any commitment, it is advisable to exercise due diligence on various aspects relating to the transaction.
ISSUES RELATED TO THE PARTIES INVOLVED IN THE TRANSACTION
Aspects related to the thing or object of the transaction (real estate, criminal record, physical, fiscal and administrative legal, environmental situation, etc..), being the key document from the legal point of view the so-called "Property Legal Status Certification ", which is issued by the appropriate Title Registry, in order to verify the ownership and existence of liens on the property
Aspects related to the intended project or development, if applicable (feasibility, relevant regulatory framework, among others.).
In order to transfer ownership of a property in The Dominican Republic, we need basically three documents: (I) the contract of sale, (ii) the certificate of title from the original owner or seller and (iii) certification of IPI (Property Tax). The next step is the registration of the contract of sale in the Registry of Deeds of the relevant judicial department, who then proceeds to the issuance of the certificate of title in the name of the purchaser, and it is the latter document proving the existence of the real and title to the property.
The transfer of property rights cannot be done without first meeting certain tax obligations. Tax obligations include taxes related to the sale transaction and current taxes which must be paid to maintain ownership of a property. In the first case we have the obligation to pay the Property Transfer Tax which is worth 3% of the sale price, a requirement to record the transaction at the Registry of Deeds. If you are acquiring the property through a bank loan, the tax to be paid is 2% of the mortgage amount. Finally, the Internal Revenue Department requires an annual payment of Property Tax by the owners of luxury housing and un-developed urban plots that are valued more than RD $ 5,000,000. The rate of this tax is 1% of the excess of the value of the property in respect of RD $5,000,000 cited.
There are certain tourist areas that the government is interested in developing, so Law No. 158-01 was enacted. This provides a number of tax incentives for all companies to be established in our country, exerting efforts in this area, such as hotels, resorts, aquariums, amusement parks, golf courses, among others. In regards to the Pensioners and Retirees, the government has issued Law No. 171-07, which seeks to attract them to reside in our country, offering a range of tax incentives.
REAL ESTATE PRACTICES
The Dominican Republic has no entity that regulates the real estate brokerage. No license is required to perform as real estate broker or agent. A bill of law was presented to Congress in 2007, which establishes the licensing and regulates the real estate professionals. There is no MLS system and as a result, almost no one is willing to sign exclusive listing agreements.