by Fabio J. Guzmán Ariza
Guzmán Ariza, Attorneys at Law - DRLawyer.com
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 3.5% of the government-appraised value of the property, as follows:
• 3% Transfer Tax (Law # 288-04)
• Minor expenses such as cost of certified check required to pay taxes to Internal Revenue, 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 assets. 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.
Introduction
Taxation in the Dominican Republic is governed by Law No. 11-92 of May 31, 1992, commonly known as the Tax Code (“Código Tributario”), its amendments and regulations (“Reglamentos”). This overview is a brief summary of the Tax Code’s most relevant provisions. All references in parentheses refer to articles in the Tax Code unless otherwise specified.
Taxes are collected by the Bureau of Internal Revenue (“Dirección General de Impuestos Internos”or DGII), an autonomous government entity which may also issue its own regulations (“Normas”).
Dominican income tax law is primarily territorial. All income derived from work or business activities in the Dominican Republic is taxable, no matter if the person is a Dominican, a resident foreigner or a nonresident foreigner (Articles 269 and 270).
Income derived from work done outside of the Dominican Republic, by Dominicans or resident foreigners, is not taxable in the Dominican Republic. The exception to the principle of territoriality is income from financial sources abroad (Articles 269 and 271). A Dominican or a resident foreigner receiving income from financial investments (stocks and bonds, certificates of deposits, etc.) must pay taxes in the Dominican Republic on their income from those investments (Art. 269). Pensions and Social Security benefits are exempt (Art. 2 of Reglamento #139-98). For the resident foreigner, this obligation only starts three years after obtaining residency (Art. 271).
For tax purposes, any person residing in the Dominican Republic for more than 182 days in a year is considered a resident (Art. 12).
The Tax Code includes a general anti-avoidance provision whereby the tax authorities may ignore the existence of legal entities or certain transactions when used to secure a tax advantage (Art. 2).
Law #53 of 1970 makes it mandatory for all taxpayers to register with the tax authorities and obtain a tax or RNC (“Registro Nacional de Contribuyentes”) number.
A summary of the most important taxes in the Dominican Republic is found below.
Income Tax
For Individuals
Individuals obtaining income from a Dominican source or from financial investments abroad shall pay taxes as per the following scale (Art. 296), in Dominican pesos (RD$):
| Income up to RD$290,243.00 | annually exempt |
| RD$290,243.01-RD$ 435,364.00 | 15% |
| RD$435,364.01-RD$604,672.00 | RD$21,769 plus 20% of income above RD$435,364.0 |
| Income above RD$604,672.01 | RD$55,630 plus 25% of income above RD$604,672.01 |
This scale is adjusted for inflation every January based on the rate of inflation calculated by the Central Bank of the Dominican Republic. There are very few deductions.
Employers must retain and pay to the DGII, within the first ten days of each month, any income tax due on the salaries paid to their employees the previous month (Art. 307). Individuals who receive incomes from non-wage sources must file a tax declaration every year, on or before March 31 (Art. 110 of Regulation #139-98).
For Corporations and Other Entities
Corporations and any other for-profit organizations pay a flat 25% income tax on net taxable income (Art. 297). Unlike in the United States and other countries, in the Dominican Republic the tax treatment for corporations, partnerships and limited liability companies is exactly the same.
Net taxable income is determined after deducting from gross income those deductions, credits and advance payments admitted by law (Articles 284 to 287).
All corporation and for-profit entities must file a tax declaration every year, on or before April 30, if their business year coincides with the calendar year. Otherwise, the filing must be done within 120 days after the end of the business year (Art. 112 of Regulation #139-98)
Capital Gains Tax
Capital gains are defined as the difference between the sale price of an asset and the acquisition or production price adjusted for inflation (Art. 289). Capital gains are taxed as regular income.
An example: if an individual with an annual income higher than RD$604,672.01 purchases a house for RD$4 million pesos and sells it two years later for $6 million pesos, while inflation during the two-year period is a cumulative 15%, the tax due on capital gains is calculated as follows:
RD$6 million pesos - $4.6 million pesos ($4 million pesos x 15%) x 25% tax = $350,000 pesos.
Taxes are levied based on the capital gains calculated in Dominican pesos.