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The Dominican Republic: A Secret Tax Haven
The majority of investors only think of the Bahamas, Cayman Islands, TheTurks & Caicos, and any number of other jurisdictions when contemplating an offshore incorporated company or offshore banking relationship. However, there may be some circumstances when forming an Dominican Incorporated Company is a smart choice..When people think about Offshore Incorporations or Trusts, the Dominican Republic is one of the last places that come to mind. Of course the Dominican Republic is no ta traditional tax haven as the Isle of Man, the Bahamas, Panama or some other jurisdictions. Even so, that may be even more of a reason for investors to consider forming a Dominican Company to protect their real estate or vacation property. In addition, the Dominican Republic does offer investors Tax-Free Banking and US dollar accounts.
Why Form a Dominican Company ?
Like any other strategy to protect your assets and gain tax advantages, the main goal of asset protection is the separation of personal property from the benefical owner. In other words, if your assets are not in your name, they cannot be taken away from you if a lawsuit arises or if someone wishes to attach your property for some reason.In essence you do not own the property, a completely separate entity does. But this is not the only real benefit of a Dominican Company. Owning your Dominican Republic Vacation property, real estate or investments via an incorporated company also provides tremendous tax advantages..
Here is Why We Make This Suggestion: While it is true that other tax haven jurisdictions may be a better choice for general asset protection or tax strategies, any investor considering the Dominican Republic should form a separate Dominican Company for the following reasons:
1. Title of Real Estate and Bank Accounts
The Dominican Republic is an emerging market. With less than 16% of the tourists coming from the US, it has also remained sort of an undicovered market for many investors. Because of this, The Dominican Republic offers some of the best realestate bargains and returns from time deposit investments in the entire Caribbean,but obscurity has its price. The meaning is that The Dominican Republic is not assophisicated as say the Bahamas or Panama with regards to foreign ownership of real estate or investments.
While the new legislation has greatly liberalized and improved foreign ownership of land, most government offices and banks are not familiar with the idea of property that is being purchased or titled in the name of anoffshore trust or IBC. You will have a difficult time getting property or bank accounts titled in the name of a US Delaware corporation, Bahamas IBC or other offshoreentity. Not because it is against the law or because of some other issue, simpl ybecause Dominicans are not used to dealing with these type of structures and do not have the experience. So, to have a asset protection program in place for your Dominican holdings and to prevent a slew of tap dancing at the title transfer office (o rdown at the bank), the formation of local company speeds things up and prevents questions. Also, generally speaking, it is always a good idea to compartmentalize your holdings anyway. The meaning is, keep you investments or properties separated. Your Dominican holdings with one entity, your offshore mutual funds fromEurope with a Panamanian Foundation and so on.
2. The New Capital Gains Tax
The real benefit to owning your Vacation Property or other real estate through a local Dominican Corporation, is tax savings. Most foreign investors are unaware of the very recent capital gains tax imposed into the tax code. The fact of the matter is, I would wager to guess that most Dominicans are probably not aware of it either. If you ask most Dominican Real Estate agents, they will most likely give you the boilerplate reply regarding title transfer tax, but may indicate that there is no capital gains tax in the Dominican Republic. While this used to be true in the past, it is not the case today. Fear not, there is a solution..
Most governments assess capital gains and property title transfer taxes when a property title changes hands. This is true for real estate in the United States, Europe or whereever. The solution then is to never change the title of ownership. If the property title name does not change, there is no title transfer tax, nor is therean official sales document indicating the new purchase price (and thus a way to determine the capital gain due). Instead, sell or transfer the entity that owns the real estate through a private transaction. Not only is this perfectly legal, it is also a common practice that wealthy Dominicans have been doing for years..
In reality, the new buyer is not taking direct posession of the property, they are taking control, via stock ownership and/or the directorship, of a company that happens toown the property. Thus eliminating a taxable real estate transaction.
How to Form A Dominican Company
We closely work together with major attorneys and law offices to handle these procedures. Please contact us and we will we helpfull to get you in contact with the right attorney.
Tax Liabilities of the Company - Your Dominican company enjoys the benefit of taxfree bank account or time deposit interest. Assuming the company is not engaged in any local commerce, no tax liabilites will be due other than the minimual annual registration tax, which is currently less than US$850 based upon the 10,000 pesos authorized share capital and related annual maintenance fees. If clients intendto rent out their property that is owned by the Dominican company, clients are advised to speak with us regarding strategies to eliminate a local taxable income possibility. A local accountant will be required to complete an annual tax statemen tor "Declaration de Renta" indicating that the company had no taxable income for the previous year. This can be easily accomplished and costs less than US$200 for this service.