Using A Dominican Corporation:
Investment & Real Estate
Many clients have come to me with questions about the high tax-free Bank Account yields and real estate bargains in the Dominican Republic, and certainly we have assisted clients interested in making those purchases or investments. But aside from the investment returns that are available, many people are also interested in knowing how they can incorporate those holdings into their other foundation, trust or company structures that they have arranged. My suggestion is to form a Dominican company.
Why Form a Dominican Corporation?
As we have mentioned in other articles, the Dominican Republic is probably one of the last places people think of when exploring a list of tax-haven countries. Certainly, It cannot be mentioned in the same vein as a traditional tax haven like Panama, Belize, The Isle of Man or any number of other well-known jurisdictions. However, as part of an overall strategy, owning your real estate or investment accounts through your Dominican company makes perfect sense. Of course I only referring to investments or property purchases that are physically done in the Dominican Republic. Heres why I make this suggestion:
Its a Brave New World
Recent legislation has made real estate purchases and other types of investment into the Country that much more attractive for the foreign investor. On paper at least, this legislation has been a positive move by the government. But, as with many things, the cart is very slow to catch up to the horse. Many Dominican banks, realtors, and the folks down in the government offices still have a difficult time when it comes to handling a transaction where the owner is a foreign corporation. This is quite clear when attempting to open a bank account in the name of your Bahamian or Panama Company. I have had numerous arguments with bank account officers regarding this. They seem to have no problem opening a bank account for a foreigner without asking for a tax identification number or anything other than your passport. When it comes to an offshore corporation however, they start to shuffle papers on their desk and panic. Why? Because most Dominican banks do not have extensive experience with a foreign company wishing to open a bank account. In addition, they are used to asking for the RNC or Dominican tax-id number when presented with Dominican Corporation documents. Dominicans still have difficulty understanding that a foreign corporation, trust or whatever should receive the same treatment as the individual tourist when it comes to bank accounts. No tax id number is required.
This mentality will change over time, but inexperience and ignorance means that every trip to the bank turns into a lecture by a foreigner regarding their tax system. Pretty funny stuff when you think about it.
But saving hassles with the locals is not the real benefit of having a Dominican Corporation. The real benefit comes with your real estate investments. The government recently has taken away one of the best perks for the Dominican citizen or company, namely tax-free capital gains. I tend to think that the government finally has wised up to the windfall being made with real estate profits. Since property is still down right inexpensive, I also think they have their eye on tax revenues from appreciated property that will be sold in the future.
Every Cloud Has a Silver Lining
For starters, from my previous articles, we all know that interest earned from bank accounts are tax-free for residents, non-residents, foreigners and corporations. Interest from commercial paper investments in dollars is also tax-free. Please see my previous article regarding the creative things two brokerage firms do to avoid income tax on peso denominated commercial paper for their clients.
We also know that when a company has no profits or taxable income, it has no tax liability. Meaning, use your Dominican Corporation to own your bank accounts and real estate. Every year you will pay an accountant to declare that all of your income is strictly from your tax-free bank account. This will cost you about $ 100, about the same in Panama, and it will be the truth. The assumption here is of course that you do not have any rental income from your Dominican real estate holdings. You must of course pay the annual company registration tax, but including the accountants "declaration de renta" , should cost no more than $300 total to maintain your Dominican Corporation.
What you now have is a way to hold real estate and earn tax-free income through an offshore entity that is separate and distinct from your other non-Dominican holdings. All of this is perfectly legal, and since the Dominican Republic does not have banking secrecy, you do not care because you do not have any assets in your name. Sounds good, but this is not the best benefit. The best benefit to you comes when you want to sell your real estate and are faced with the possibility of a hefty capital gains tax bill. The Dominican government gets you for tax assessment when you go down to the title office and try to register title to another party. That is how they control or catch back property taxes, registration or title taxes and now, capital gains.
By the way, not to go off on a tangent, but a number of real estate agents like to tell foreigners that there is no property tax in the Dominican Republic. Dont you believe it for one second. The difference here is, they do not go and kick you out of your house or try to put your home up for auction when you are four quarters behind like the US. There are property owners that have not paid property taxes in over twenty years. But, you will get a nice surprise when it comes time to sell and change title. I thought I would mention it since we are speaking about real estate.
Back to your real estate and your corporation. When it comes time to "sell" your real estate holdings, you will not sell your property to anyone. Instead, you will transfer the stock or control of your corporation in a private and undisclosed transaction. What does the new company president receive? A Dominican Company that is the owner of certain property holdings. There are no title registration issues for the land because the property owner never changed, just the shareholders or company president
For additional information regarding tax-free investments, offshore corporations, residency or real estate-please email us.
To review some real estate bargain properties that you may own with your Dominican Corporation Click Here