Real Estate Rights in the Dominican Republic

The following information about buying real estate was provided by my attorney in the Dominican Republic, Sara V. Sicard Sanchez, partner at Sanchez Raful Sicard & Polanco.

The acquisition of real property rights by foreigners is not subject to any special condition, falling under the same legal regime applicable to Dominican nationals.

Registration System

Law 1542 of 1947 on Land Registration establishes the Torrens system of real property registration.

Real property rights registered under this system are deemed to be known by, and thus biding on third parties. Therefore, the presentation by the seller of a Property Certificate issued on his behalf by the corresponding Registry of Titles should in principle be enough to prove that the seller is entitled to transfer the ownership rights of the property. Any mortgages or charges would also be mentioned in the certificate.

However, it is always advisable to verify the status of the property directly at the Registrar’s offices, whose records are open to any interested party, and even obtain a written confirmation on the result of these findings, before purchasing the property. This is usually achieved requesting a certification on the status of the property in question to the Registry of Titles.

The Dominican Republic registration system protects the buyer against any sale or mortgage that, although previously signed, has not yet been registered when the buyer files its purchase agreement for registration.

For these same reasons, the prompt registration of the sale is very important.

In order to do so, the buyer must file at the Registry of Titles the following documents:

a) An original of the purchase agreement, which should be legalized by a Public Notary.
b) The Property Certificate issued on behalf of the seller, which will be canceled and exchanged for a new one on behalf of the buyer.
c) Certification stating that the Tax on Luxury Real Property and Empty Urban Lots (IVSS tax) has been paid, or that the property in question is exempt from such tax payment. Article 13 of the 2004 Tax Reform amends the first three articles of Law 18-88, extending the exemption of this tax from three to five million pesos, and from no exemption to a five million pesos exemption for urban lots.
d) Proof of transfer tax payment.

If the seller in question is a legal entity, the buyer will have to file additionally:
a) Certified copies of the shareholders minutes of the seller, designating its current Board of Directors.
b) Certified copy of the minutes of the Board of Directors approving the sale of the property in question and authorizing a person to sign on it behalf.

Transfer Duties

As mentioned above, the registration of the transfer of a real estate property at the corresponding Registrar of Titles requires the payment of the following taxes and duties:

3% of the market value of the property. This tax also applies to real property transfers for a value exceeding one million pesos that have been purchased with loans of financial entities. This amount is subject to inflation adjustments; and,
Stamps under Law 80-99, calculated as follows: market value minus 20,000 and the result/ 1,000 x 13 + 232.00. This value is subject to annual inflation adjustment.

These taxes amount to approximately 4.8% of the market value of the property.

Another aspect to take into account is Law 18-88 of February 5th 1988, on Tax on Luxury Houses and Urban Lots, amended by Law 288-04 of the Tax Reform, which establishes an annual tax on houses and apartments whose value exceeds five million pesos amounting to 1% of the surplus of such sum. The amendment enlarges the scope of this tax by including commercial properties and urban lots were previously excluded. However, property owners older than 65 years who have owned the property for at least 15 years and who do not have any other property are exempted from the payments of this tax. Furthermore, rural land used in agriculture, as well as equipment, machinery, generators, goods and other personal property located in the properties, is also exempted.

Process for Buying Real Estate in the DR

The process of buying real estate in the Dominican Republic is fairly simple and somewhat similar to the process in the United States.

A Contract of Sale is signed by both the buyer and the seller, before a Dominican notary (Notaries in the DR are required to have a law degree) or may be certified through the Dominican Consulate in the US. The buyer normally posts a deposit for the property, usually not less than 10% of the total purchase price of the real estate in question. The Contract of Sale is submitted to the Dominican Internal Revenue Office for assessment and payment of the transfer taxes. Then, with financing in place, and all the conditions of the Contract of Sale met, the Contract of Sale and the Certificate of Title are submitted the Title Registry Office for the recording of the sale. A new Certificate of Title issued in the name of the buyer is supplied by the Title Registry Office.

As is the case in many markets, there is a risk of fraudulent real estate transactions. With the immense interest in Dominican real estate, there are cases of one property being sold to multiple buyers, property being sold by individuals who do not in fact hold title, and land that cannot be developed being sold to prospective developers. Caution is advised.

Real Estate Taxes, Fees, and Financing

In the Dominican Republic there is a transfer tax of 4.8% of the appraised value of property, which is due at closing. Title insurance is available through Stewart Title at 1.0 to 1.5% of purchase price as one-time charge.

The property tax rate in the Dominican Republic is very attractive. Property valued under RD$ 5,000,000 pesos (approximately $165,000 US) are not subject to property tax. Property valued in excess of $165,000 (US) are taxed at a rate of one percent of the value above $165,000: A property valued at $265,000 will be assessed a tax of one percent of $100,000––$1000 annually).

The Dominican capital gains and income tax rate is 25%. Holding real estate in a corporation offers the advantage of allowing related expenses to be deducted.

Property may be held as an individual, a Dominican SA (Dominican corporation), an off-shore company, or a US LLC. For all real estate held in a corporation, documentation must be submitted in Spanish to the Mercantile Registration in the Dominican Republic.

In terms of financing, 90% LTV is available from both US and Dominican banks. The origination fees range from 0 – 1% with Dominican banks to 3.5% with some US lenders. US lenders generally require cross collateralization of US property equity. Dominican Banks generally loan for a maximum of 20 years, where 30 year loans are available through US lenders. Some lenders will finance the transfer tax, and possibly furniture and appliances as well.