Buying Property in the DR
The wonderful thing about the Dominican Republic is that there are no restrictions on foreign ownership of property, residents and non-residents enjoy the same rights and obligations.
To ensure a safe transaction and purchase of your property, hiring reputable and trustworthy real estate lawyer is a very important step. We are well aware that most first time investors here have little or no contacts in the Dominican Republic to begin with and we can suggest great legal representation for you.
Another important thing that will make the entire experience so much easier is to work with professionals who speak your language, both real estate agents and lawyers; clear communication is definitely the key!
Here are the 3 basic steps of the property purchase process:
1) Offer of Purchase– The first contract is a simple one page document which consists of the potential buyer’s name, the property that is receiving the offer, the offer price and any financial terms and conditions to be included with the offer. This offer is written by us here at Las Terrenas Life – Real Estate Solutions as per the buyer’s specifications.
2) Promise of Sale– This second contract is drafted after the Offer of Purchase has been accepted. This contract consists of the seller’s name and personal information agreed purchase price, and any financial terms and condition. (this contract is prepared by your attorney and is more in depth and precise but based on the initial offer).
3) Closing Contract– The final contract is similar to the Promise of Sale except that it includes the exchange of money and property (this contract is also prepared by your attorney).
In a typical property purchase, a 10% deposit is required and due at the signature of the Promise of Sale to reserve the property and take it off the market. Subsequently, the lawyer will conduct the process of due diligence. This involves title search, overseeing the survey, and obtaining important documents from the seller, including a copy of the title. Payments are usually made by depositing to the lawyer´s escrow/trust account. When all has been cleared, the lawyer will transfer the payment to the seller´s account at closing.
A notary authenticates the “Contract of Sale” signed before him by the buyer and the seller. The “Contract of Sale” is processed in the Internal Revenue Office where taxes will be paid. The lawyer will then submit the documents to the Title Registry Office where the title will then be changed to bear the new owner´s name, this generally takes 30 – 60 days. Legal fees for this entire process are typically 1% of the actual sales price.
Closings are normally within 30 – 60 days depending on the agreement between buyer and seller. All buyers’ funds should be in the Escrow account at least 3 days prior to closing. On the closing date, both buyer and seller will sign the appropriate documents or a “Power of Attorney” can be left with someone trustworthy to handle the closing for you (usually your attorney but it could be anybody who will be here in the Dominican Republic at the time of closing, it is your choice). This is quite common here since many of the purchases are from people living in other countries and this makes the process that much easier and stress free to those who don’t want to or cannot fly back here just for a signature on the closing contract.
Properties can be purchased in your personal name or through a Dominican corporation held by you. Both have certain advantages depending on your actual personal situation. It is recommended that you consult with your lawyer about this matter to determine which way will suit you best. The costs today to form a Dominican corporation are approximately US $1,400 and the process is very quick.
There is a 1% yearly property tax on properties valued by the government above 7.7 million Dominican pesos ($132,000 USD as of September 2020) and normally they are valued quite a bit lower than the actual market value. Properties valued lower than that pay no yearly property tax at all and properties valued above that amount must only pay 1% per year of the amount above the 7.7 million pesos. Property purchased through a Dominican corporation pay 1% per year on the full amount assessed by the government.
Currently, there is a title transfer tax that is 3% of the appraised value of the property purchased. Again, this value is a government calculation and does not necessarily reflect the true value of your purchase (usually far less than the actual cost).
There are also certain new developments that meet specific government criteria which waives the 3% title transfer tax, eliminates the 1% property tax for 15 years regardless of the value of that property and also ensures tax free rental revenue for 15 years.
Further information about taxation, permanent legal residency, inheritance taxes, incorporation of a Dominican company or any other legal matter, please ask your lawyer. (Eventually we will put a link here to Vladimir Alonzo at Guzman Ariza)