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Forming an Incorporated Company in the Dominican Republic:
.Why consider the Dominican Republic as a juridiction for incorporation, investment or banking?
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When many people
think about Offshore Incorporations or Trusts, the Dominican Republic is
one of the last places that come to mind. To be sure, the Dominican Republic
is not a 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 some interesting Banking Options, including US dollar and Euro savings 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 can also provides tremendous tax advanteages. . 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 25% 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 real estate bargains and returns from time deposit investments in the entire Caribbean, but obsurity has its price. The meaning is that The Dominican Republic is not as sophisicated 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 an offshore 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 offshore entity. Not because it is against the law or because of some other issue, simply because 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 (or down 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 from Europe 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 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 boiler plate 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, we have 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 tim-bok-tu. 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 there an 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 to own the property. Thus eliminating a taxable real estate transaction. . How to Form
A Dominican Company
.Articles of Incorporation - Like most jurisdictions, a standard document is drafted to indicate the company purpose, tenants, direction and officers. The company purpose can be as general or as specific as the client wishes. We suggest, as with all of our client incorporations, that the articles include such languange that gives the client complete and sole authority over bank accounts or company contracts. . Company Name- Since most foreigners are not aware of the Dominican Incorporation process, you will not find many companies in the registrar that contain names in other than the Spanish Language. However, this does not mean there is necessarily a prohibition on a company with an English name, and many of our clients have set up a company with something other than a Spanish name. We have of course successfully incorporated company names in the English language for clients. All Dominican companies end with the denotation of C x A. This notation is uniquely used in the Dominican Republic, but just like the terms "Inc, Ltd. or S.A.", indicates that this is an incorporated company. As with other jurisdictions, clients must provide three choices of the company name to make sure that the desired name is not currently registered or in use by another incorporated company. . Authorized Capital - The authorized capital of the company must be expressed in Dominican Pesos and can be any amount the client wishes. For the purpose of initial costs, taxes and the annual registration fee, we suggest that the client form the company with the minimum required capital, which is 100,000 Dominican Pesos or less than US$3,500 under current exchange rates. However, the only exception to this is when the client is using the company to purchase real estate, as the authorized share capital must of course be equal to, or greater than, the real estate purchase price. The authorized capital is indicated on the incorporation documents, but the client need not prove this amount via bank deposit or otherwise. . Stockholders or Founders - Unlike some jurisdictions, the Dominican company does require that seven individuals form the company. Usually, these persons are also the stockholders as well, but certainly do not necessarily have control. Since many clients do not often have seven persons they know of to become subscribers to the company, we would usually place or name the client as the first dominant shareholder with 94% of the stock, or by the client's other offshore entity as the predominant shareholder - with balance provided as nominees. . Directors of
the Company - The
Dominican Company requires that
. Tax Liabilities of the Company - Your Dominican Company can enjoy the benefit of certain kinds of income that might otherwise be taxed if the company was formed in another jurisdiction, but it is important to plan how you might use the company (or for what purpose). For example, there are some cases whereby a Panama Company or Panama Foundation might be a better idea tax-wise. However,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 100,000 peso authorized share capital. If clients intend to 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 statement or "Declaration de Renta" indicating that the company had no taxable income for the previous year. . . An Incorporation can be done in the Dominican Republic for less than US$2,800. This includes our advisory fee, all incorporation taxes and fees, nominee directors, attorney and filing fees, registration and documents. All incorporation documents are turned over to the client including: the formal hard cover binding of the incorporation documents, two separate corporate resolutions permitting the client to establish bank accounts or conduct other business, the offical company seal or "Sello" and all other related documents as required. |