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In this article Casa de Campo Living’s ‘number crunchers’ or ‘money experts’ explain a little about the complicated world of Dominican Tax laws and answer the question ‘What are the differences in local taxation between owning a property under a personal name or under a corporate name?’
What are the differences in local taxation between owning a property under a personal name or under a corporate name?
Real Estate Properties are subject to a 1% taxation over appraised values. The Internal Revenue Office (DGII) holds appraisal of each property and taxes are charged over said values. This rate is payable in two installments, April 30th and October 31th and the tax is called IPI. The rate is the same either for individuals and entities. However, individuals have an exemption of RD$5,000,000 and therefore, only pay for the excess of this value.
For example, if a person holds a property with an appraised value of RD$10,000,000 under his individual name, he will only pay RD$50,000 (RD$10MM minus RD$5MM exemption X 1%). If the same person owns the property through a holding company, the exemption does not apply, and then the tax bill would be RD$100,000.
The example presented above is pertinent to those holding entities that don’t have any other operation, therefore don’t have any taxable income or any other tax obligations. If the company is an operating entity, then the case is different and the property tax becomes a minimum tax in relation to regular income tax obligation of the company. Also, if the property is in the rental market, rents are considered as taxable income, therefore the entity would be an operating entity, and the property tax would be considered the minimum tax. This means that if the rental income provides a taxable earning to the entity, the property tax would become part of the income tax, and would represent the minimum tax bill for the entity.
Another example: The same house with an appraised value of RD$10,000,000 in a company that generated net earnings of RD$1,000,000 in the bottom line. Income tax rate is 25%, therefore this operation represents a tax bill of RD$250,000. In this event, the company would be subject to only RD$250,000 in taxes, and no property tax would be payable. In the event that the operation of the company represents a loss, then it would apply the property tax as a minimum tax and in this case the company would pay RD$100,000 as its minimum income tax.
Briefly, if the property is not rented and doesn’t have any use other than its personal use, holding the property on an individual level provides the chance of having this personal deduction. If the property is in a rental pool, then there are advantages on holding the property through a company. Those benefits go beyond the IPI (Property Tax) and also falls within other tax advantages, like the capacity of deducting itbis on the cost of supplies and others cost. This may be applicable also on a personal basis, but is far more complex to keep it under an individual basis rather than under a corporate umbrella.
This article was contributed by Fernando Cantisano and Irene Torres, cofounders of Santo Domingo based firm Cantisano, Torres y Jimenez (Catojisa), that combines Payroll, Tax and Accounting Services with a customized Corporate Finance Service.