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Since gaining its independence in 1844, the Dominican Republic had a legal system based on French law, specifically on the Napoleonic Code; however, since the first half of the 20th century, there has been a move away from the French model, with the adoption of many statutes and codes inspired by other legal systems, such as the Land Registry Law of 1920, based on the Australian Torrens system. In the real estate area, the authors can mention as a key source Real Estate Registration Law No 108-05 (2015), as well as the resolutions issued by the Judicial Branch’s Council.
The Constitution of the Dominican Republic lays out the fundamental framework for the organisation and operation of the Dominican government and its institutions, and recognises an impressive list of civil rights for all individuals, Dominicans and non-Dominicans, including an equal protection clause for non-Dominican citizens and investors. Article 25 of the Constitution expressly states that foreign nationals are entitled to the same rights and duties in the Dominican Republic as Dominican nationals, except, understandably, for the right to take part in political activities. Article 221 of the Constitution sets forth that the government will ensure equal treatment under the law for local and foreign investments.
Individuals and entities, domestic and foreign, have a quick and inexpensive remedy for the protection of their constitutionally protected rights: the writ of amparo, which is granted by all courts and is subject to an appeal to the Constitutional Court.
Cases in Dominican courts are decided by judges, not by juries. Judges rule based on the texts of the Constitution and existing statutes, the precedents of the Constitutional Court (which are binding), and the precedents of other courts (which are not binding). They do not rule in equity, as in some common law countries, but the principle of good faith is recognised by statutory law and grants the courts some discretion. Punitive damages are not awarded in injury cases – just compensatory damages.
Regarding evidence, parole evidence is admissible in criminal, labour and commercial matters, and, under certain circumstances, in civil and real estate matters.
Finally, real estate laws are national in scope and application.
The main trends in the real estate market in the Dominican Republic continue to be the development of important projects in the tourism sector, as well as new projects for the cruise sector after the success story of Amber Cove project in Puerto Plata. Many well-known international developers have started projects, some of which are already operational, in the areas of Punta Cana, Bani, Miches, Puerta Plata, Santo Domingo and the southwest provinces of Pedernales, Barahona and Peravia – Bani.
Of note in the last 12 months can be mentioned Club Med’s Miches Playa Esmeralda hotel, a five-star, 400-room hotel just built in a 93 acres beachfront property in Miches, Dominican Republic, the first major hospitality venture in the Miches area, destined to become the next Punta Cana in terms of tourism development in the Dominican Republic. The firm assisted Club Med in both the acquisition, permits and tax exemption matters under the country’s Tourism Incentive Tax Law (CONFOTUR).
Tech adoption in commercial real estate, although increasing, is still slow compared to other industries.
At this point in time it is very difficult to navigate the many technological offerings available and in development for real estate professionals without a clear idea on how these tools will affect the business. As trends begin to emerge on how companies are using these technologies and the competitive advantage they provide, adoption rates will increase at a faster rate.
So far, the biggest adoption has been on data analytics and streamlining workflows to work more efficiently, propelled by international franchises operating in the country, and it is obvious that they will be a big influence on what technology is adopted and how fast. The outlook is that in the next 10 to 12 years the industry will look very different from what it does today.
On the legislative front, the much-anticipated new statute on Real Estate Evictions, Law 396-2019, has been in force since October 2019. This new law regulates a formerly relaxed practice in real estate evictions and at the same time brings added security to the protection of real estate rights against unlawful eviction processes.
Dominican real estate law recognises the following interests in real estate: absolute ownership, usufruct, easements, betterments, leases, condominium regimes, and privileges and mortgages. It does not recognise co-operative ownership arrangements or other occupancy interests.
Registration rules are established by the General Director of the Registries of Title and are applicable nationwide. The Dominican Civil Code states that buyers pay all the fees, expenses and taxes required for conveyances, unless agreed otherwise by the parties.
The legal requirements for recording conveyances are the following:
The legal requirements for recording conveyances are the following:
The typical real estate due diligence overseen by the buyer’s attorney regarding title consists of the following:
Warranties typically specify that:
The warranties are provided both in relation to the property and to the shares of the holding entity being purchased, if that is the case.
In the Dominican Republic, before buying real estate, investors must consider tax law, real estate law, environmental legislation and administrative law for licences, planning and the registration of the title of ownership.
Issues of environmental clean-ups in real estate transactions are still very rare in the Dominican Republic. So far, this has been a problem only in the mining sector. Therefore, there are no general covenants in use. Of course, the parties to a contract are free to insert mutually agreed terms regarding long-term environmental liability and indemnity issues.
All planning and land use matters are handled by municipalities, the Ministry of Tourism (in tourist areas) and the Ministry of Environment. The municipalities and the Ministry of Tourism establish the general rules regarding use (residential, commercial, industrial, mixed, density, maximum height, etc).
The Constitution and Law 344 of 1943 establish the legal regime for the government’s compulsory purchase or condemnation of real estate.
The Dominican Constitution states: “No person shall be deprived of his or her property, except on justified grounds of public utility or social interest, for which a person shall be paid a fair value before expropriation, as determined by the mutual consent of the parties or by the judgment of a court of competent jurisdiction, pursuant to the law. In case of the declaration of a State of Emergency or Defence, compensation may not be paid before the expropriation.”
Law 344 establishes the specific procedure that the government must follow in any case of expropriation. Because the provisions of this law are of public order, allocations cannot be modified by contractual arrangements between the parties.
A conveyance tax must be paid before registering the purchase of real estate. The conveyance tax amounts to 3% of the price of sale or the market value of the property as determined by the tax authorities, whichever is higher.
Also, a 1% annual tax is assessed on real estate properties owned by individuals, based on the cumulative value of all the properties they own as appraised by government authorities. Properties are valued without taking into consideration any furniture or equipment in them. In 2020, for built lots, the 1% is calculated only for values exceeding DOP7,710,158.20. The amount of the exemption is adjusted annually for inflation.
For unbuilt lots, the 1% tax is calculated on the actual appraised value without the exemption. The real estate tax is payable every year on or before March 11th, or in two equal instalments: 50% on or before March 11th, and the remaining 50% on or before September 11th.
The following properties are exempt from paying real estate taxes:
There are no restrictions on foreign individuals or entities owning or leasing real estate in the Dominican Republic.
The process for purchasing or leasing real estate for foreigners is exactly the same as for Dominicans; there are no national defence or security limitations. Foreign individuals and entities, and Dominicans, must register locally with the tax authorities before registering purchases of real estate. Individuals must submit their application directly at the Internal Revenue office, while entities must first register at the Chamber of Commerce and obtain a mercantile registry certificate, before applying for their tax number. These are mere formal requirements that can be easily fulfilled.
In general, Dominican law does not distinguish between commercial and residential properties; the same rules apply for both. However, regarding ownership, properties held by commercial entities are taxed differently from those owned by individuals.
Financing sources are mixed, depending on the type of investment. For example, major infrastructure financing is obtained through foreign banks and institutions, while real estate developments in the tourism sector have been more dependent on local banks, most of which have entire departments catering to the real estate-tourism industry.
Large real estate transactions are acquired through syndicated loans and low-income housing projects developed through Trust Law No 189-11 are being financed by the local banks through their recently created fiduciary entities.
There are major financial institutions, publicly traded funds and private investors with interests in the country, as it is the largest recipient of foreign direct investment (FDI) in the region.
Mortgages (financing from third parties) and privileges (seller’s financing) are the customary security interests. Both grant the lender a registered right on the property (collateral) that can be enforced in the event of default through a foreclosure process. Holders of mortgages and privileges must go through a court-supervised foreclosure procedure to execute the mortgage. Automatic defeasible conveyances in the event of default are illegal. Dominican trust law offers the possibility of setting up real estate security trusts.
A foreign lender does not need specific authorisation to do business in the Dominican Republic. To register a mortgage in its favour, the foreign lender should obtain a local tax number. Once this tax number has been obtained, the lender is no longer subject to the general withholding taxes established for payments sent abroad (28% in general, or 10% for interest paid to foreign financial institutions). The lender will be taxed as a permanent establishment, under the same conditions as a Dominican entity.
Regarding required documents and registration taxes, the same rules that apply for local lenders apply to foreign lenders.
Mortgages and underlying credits can be transferred without paying additional taxes.
The Civil Code states that buyers pay all the fees, expenses and taxes required for conveyances unless agreed otherwise by the parties. Each party covers their own attorney’s fees.
There are no mandatory legal rules or requirements that must be complied with before an entity can give valid security over its real estate assets, except for those imposed on financial entities by the Financial and Monetary Code.
If the borrower is a company, joint solidarity of its shareholders is included as a provision of the contract and they are also required to sign the promissory note in that same capacity.
Additional credit enhancements can be added on separate standalone contracts depending on each type of asset, in the form of pledges against movable assets, such as deposits, a property’s movable assets, motor vehicles, receivables, machinery, inventory and others.
In the event of default, creditors have to file a foreclosure lawsuit before the competent Civil and Commercial Court in order to execute its security against the defaulting debtor. There are only two possible outcomes: (i) the property given as collateral is sold at the foreclosure process’ public action to the highest bidder, or (ii) if there are no bidders at the public auction hearing, the property is automatically adjudicated to the creditor. A 3% real estate title transfer tax is payable in order to convey ownership at the Registrar of Titles after the Court has issued its adjudication ruling.
Banks usually require a first-rank mortgage and will not accept subordination to an existing collateralised debt. Most credit agreements forbid the debtor from entering into additional agreements without express authorisation from the lender; if they do, the new debt will be registered as a second-rank mortgage with second priority after the initial registered lender.
There is no lender’s liability in the Dominican Republic with respect to environmental laws.
During the insolvency process, guarantees are respected and payment of interest or execution of any guarantees remains suspended during the insolvency period.
So far, LIBOR uncertainty has created no noticeable change in the pricing dynamics of real estate properties. In addition, it could be an even smaller issue for commercial real estate compared to other types of credit, given the prevalence of fixed-rate funding.
The authors trust that regulators and policymakers are working to make sure that the transition towards a new base rate for valuing floating rate debt is as seamless as possible.
The main law governing zoning in the country is Law 975/44, dated 29 June 1944, regarding urbanisation and public adornment.
Furthermore, Law 64-00, dated 25 July 2000, the General Environmental and Natural Resources Law, also sets forth a series of provisions regarding zoning in determined regions of the national territory, and also includes a series of limitations with regard to the use of lands declared as national parks, as well as protected areas.
In the Dominican Republic, methods of construction are regulated primarily by the Ministry of Public Works and the Ministry of the Environment & Natural Resources, as they must comply with environmental regulations and construction must not harm the environment.
Exceptions apply in some areas designated as protected spaces, such as the Colonial Zone, where design, construction and appearance must be pre-approved by the Ministry of Tourism.
Land use is controlled by the corresponding city councils or municipal hall, which varies depending on where the real estate property is located.
Environmental regulation is controlled by the Dominican Ministry of the Environment and Natural Resources.
In the tourism sector, building use must be authorised by the Ministry of Tourism.
In order to develop a new project, approval and permits must be obtained from the following governmental agencies.
If the application for permission or authorisation has been denied by any of the institutions involved in the process, the applicant has the right to appeal to the same institution where it was denied. If the reconsideration is again denied, an administrative appeal should be submitted to the immediately superior government authority.
The applicant can also have the case evaluated directly by an Administrative Court judge by submitting its claim to the administrative court, bypassing the hierarchical appeal previously mentioned.
Agreements are usually signed with the corresponding city council so that the taxes collected from the developer are used for social improvement projects. Optional agreements can also be arranged with the Ministry of Environment & Natural Resources, by signing an Environmental Management Plan, which is compulsory for projects developed in protected areas.
Large developments in the infrastructure industry can now enter into development agreements with the government through the recently enacted Public Private Partnerships Law No 47-20 (20 February 2020).
Restrictions are enforced on development and designated use by employing sanctions designated by the state. These sanctions include fines and penalties, closing of operations, and/or removal of licences and permissions. New regulations on environmental licences and permissions include provisions on prison sentences for violations. The government also uses tax regulations to enforce restrictions.
The most common entity used by foreign real estate investors in the Dominican Republic is a local individually owned enterprise, or LLC. Some, preoccupied by the complexities of reporting a foreign entity to the tax authorities in their home jurisdiction, prefer to register their domestic entity in the Dominican Republic.
There are no restrictions regarding the structure or legal form of foreign investment in real estate. If it is duly incorporated and recognised in the jurisdiction where it was formed, entities can do business in the Dominican Republic upon registration at the Chamber of Commerce and Internal Revenue.
As for Dominican entities, Dominican company law allows different types of commercial companies (LLCs) and corporations (regular or simplified stock corporations), all of which provide limited liability for their owners or shareholders. There are other investment entities recognised under the law – such as business partnerships, limited partnerships and per share limited partnerships – but they are seldom used because they do not offer full liability shields to their members, and are subject to the same tax treatment as the other entities. In 2011, Law 189-11 introduced local fiduciary vehicles as a holding option.
Dominican law does not recognise the concept of pass-through entities. Any entity, local or foreign, is subject to the same tax (27%), regardless of its legal structure. There are two exceptions: (i) entities that have obtained exemptions under Tourism Incentive Law 158-01 and (ii) closed-end real estate investment funds approved by the Dominican Republic Security and Exchange Superintendence.
LLCs must have no fewer than two shareholders and no more than fifty. To form an LLC, with no minimum capital of DOP100,000 is required, which must be paid in full, and divided into shares with a par value of at least DOP100 each. Shares in an LLC are non-negotiable by default. Share transfers to third parties who are not current shareholders must be approved by 75% of the votes of the company, except in certain cases, and if the transfer is rejected, the shares in question must be purchased or redeemed by the other shareholders or the company.
Management of an LLC is in the hands of one or several managers or a board of managers. Managers must be natural persons, not other companies. Unless otherwise stipulated in the by-laws, no inspection officer is required to oversee management.
To form an LLC, a minimum capital of DOP100,000 is required, which must be paid in full, and divided into shares with a par value of at least DOP100 each.
LLCs are governed by the provisions of their by-laws. The authority over day-to-day activities falls on the managers or board of directors and shareholders are the maximum authority regarding issues relating to the dissolution process, modification of by-laws, sales of the company’s assets, and transformation of the company, among others.
Corporations incorporated with the purpose of acquiring or acting as holding companies for real estate properties are not required to obtain licences, authorisations or government permits.
All foreign and local entities are taxed equally regardless of structure: a flat 27% on net corporate profits and 10% tax on dividends or profits sent abroad.
The Dominican Tax Code has a general anti-tax avoidance provision (“substance over form” principle) and specific rules for the sale of shares of foreign entities that own assets in the Dominican Republic.
All companies registered in the Dominican Republic, regardless of whether they are local or foreign entities, including those with no income or operations, must file income tax returns with the Dominican Republic’s Tax Office every year. Aside from the penalties on overdue taxes, entities that do not comply with the filings and subsequent payments of both income and asset taxes run the risk of having the Tax Office begin a lien registration process against the entity’s properties.
Leases are the most common arrangements that the Dominican law recognises for a person, company or other organisation to occupy and use real estate for a limited period of time without buying it outright.
Dominican Law only contemplates leases in general terms.
Rents or lease terms are freely negotiable for the most part as general contract law applies to them. Provisions are, however, limited by various statutes that protect tenants. For example, if there is no escalating clause for rent in the lease, the landlord cannot raise it unilaterally without undertaking a lengthy administrative procedure. Also, evictions cannot happen unless a judicial eviction process is undertaken, regardless of what has been contractually agreed. Key lease provisions include:
There is no typical lease term or restrictions on such a term. Tenants of business premises do not have security of occupation or rights to renew the lease.
The law clearly assigns minor maintenance repairs to tenants, while major structural repairs are covered by landlords; all of which can be modified contractually between the parties.
The rent is commonly paid monthly; however, the parties are free to agree otherwise.
Leases commonly provide for periodic rent increases.
There is no legal rent level protection. Rent can be increased as long as it has been agreed contractually, otherwise it is not permitted.
Rent payments to individuals but not to companies are subject to a 10% withholding at source. All rents are subject to 18% VAT.
At the start of the lease agreement, the tenant usually pays an amount equivalent to two months’ rent as a security deposit to guarantee the fulfilment of its obligations. This amount is to be returned by the landlord once the property is received at the end or termination of the lease. The landlord has the obligation to deposit this money, with a copy of the lease agreement and other documentation at the Agricultural Bank. Legal fees and other applicable fees are usually paid by each party.
The expenses of maintenance and repairs of common areas, especially in commercial buildings and shopping centres, are paid by each of the tenants and are usually established as part of the agreed rent.
For residential spaces, the costs arising from common areas maintenance are covered by each tenant, by payment of a maintenance fee, usually on a monthly basis, either to the building administrator or to the landlord, if agreed as part of the rent.
Utilities such as electricity, cable TV, water and telecommunications are solely covered by the tenant. Expenses related to common areas of a condominium are usually covered proportionally and distributed between tenants as part of the monthly maintenance fee.
There is no legal obligation to obtain insurance for real estate subject to lease; this will depend on the terms and conditions agreed between the parties. Rental insurance is not commonly used.
The parties can agree on the uses of the rented property. There is no regulation and/or law that imposes further restrictions. On occasions, municipal regulations can restrict the use of real estate property for exclusively housing purposes, depending on the zone in which the property is located.
Lease contracts usually include provisions allowing tenants to waive their rights to claim any ownership to property improvements (betterments) and that they will all remain attached to the property and their ownership transferred to the landlord on termination of the lease.
In general, Dominican law does not distinguish between commercial and residential properties; the same rules apply for both. However, properties held by commercial entities are taxed differently from those owned by individuals.
Leases to entities are subject to value-added tax and leases for residential purposes are subject to a 10% withholding tax that is credited toward the landlord’s annual income tax.
Insolvency can be included as a default clause allowing the landlord to terminate the lease. This said, under Law 141-15, if the tenants initiate an insolvency process, they cannot be evicted from the property during the process, nor can the property suffer any type of seizure. The owner is then assigned by a judge a position in the range of creditors.
The most common form of security the landlord holds against the tenant in the event of failure to meet its obligations is the deposit made by the tenant in advance of the commencement of the lease. The provision of a third-party guarantor can also be agreed between the parties, and/or that failure to comply with any of the obligations agreed upon shall result in the termination of the agreement.
Upon termination of the lease agreement, the tenant should leave the property and return it to the landlord in the same condition as it was originally received. If the tenant does not vacate the property upon expiry, and the landlord does not object to the tenant’s occupancy and continues to receive the rent payment without complaint, the lease agreement is considered effectively renewed but as an oral lease, not a written one, to which different rules apply in terms of eviction prior notice.
Most leases provide that any subletting or assignment is subject to obtaining the landlord’s prior consent. Landlords do not have to provide a reason for an assignment or a sublease. Where there is a legal reorganisation or transfer/sale of the tenant, there are no effects as long as the tenant remains the same legal entity.
The circumstances in which leases are usually terminated by the landlord and/or the tenant are:
Usually, termination terms provide that the non-compliant party is forced to pay a penalty for the early termination. Furthermore, compensation for termination must be contractually agreed upon by the parties.
At the start of the lease agreement, the tenant usually pays an amount equivalent to two months’ rent as a deposit to guarantee the fulfilment of its obligations. This amount is to be returned by the landlord once the property is received at the end or termination of the lease. The landlord has the obligation to deposit this money, with a copy of the lease agreement and other documentation, in Banco Agricola. Legal fees and other applicable fees are usually paid by each party.
Tenants can sue landlords for the specific performance of any obligation assumed by the landlord in the lease and damages. The landlord, likewise, can sue for specific performance and damages, as well as for eviction.
Remedies available to landlords do not differ depending on whether the nature of the lease is commercial or residential.
The customary procedure to evict a defaulting tenant is to sue in court. The process is very time-consuming for two reasons:
General contract law applies to the lease, but is limited by various statutes that protect the tenants. For example, if there is no escalating clause for rent in a lease, the landlord cannot raise it unilaterally without undertaking a lengthy administrative procedure.
No third parties are allowed to initiate the termination process of a lease agreement. However, the government can initiate an expropriation process against the property, by following the due process.
The most commonly used structures are:
The parties are free to establish the conditions that govern their relationship, allowing any scheme to be developed for assigning responsibility for the design and construction of a project, but with the caveat that plans must be executed by a licensed architect or engineer.
Construction risk is usually managed contractually through provisions and the establishment of penalties agreed in the event of delays, performance bonds and insurance cover, among others.
The Dominican Civil Code establishes a warranty on structural and hidden damages in a property, enforceable against architects and contractors for up to ten years. In practice, this timeframe is usually limited by the parties.
These types of risks are managed contractually through provisions and the establishment of penalties in the event of delays; it is also common to ask for a performance bond from the contractor issued in favour of the owner and/or developer.
Owners or developers often require the contractor performing the work to provide security in the form of monetary compensation through available financial tools, in case they are not able to deliver the work on time or to meet the quality standards for which they have been paid.
These risks are usually managed contractually by means of warranties, indemnity provisions, retention provisions, penalties agreed in case of delays, performance bonds and insurance cover, among others. In addition, the Dominican Civil Code establishes a warranty covering structural and hidden damages in a property that is enforceable against architects and contractors for a period of up to ten years.
According to the Dominican Civil Code Article 2103, architects and builders are able to register court-ordered liens in the event of non-payment after the construction in question has been delivered to the owner. Additionally, under Dominican law, contractors and/or designers are not permitted to register any liens or encumbrances in property from non-payment, but can sue the owner for breach of contract, and if the debt is recognised by the court, then they may proceed to register the lien or encumbrance in the property. For an owner to remove the lien or encumbrance, they must provide evidence of successful completion of the obligation to the land registry.
In the Dominican Republic, a site certificate issued by the parties or by an independent engineer is usually required, certifying that the project has been finished and is ready to be delivered and inhabited.
There is no VAT or equivalent tax liability applicable to the sale or purchase of real estate.
Other than the exemptions mentioned above and the option of purchasing the shares of the holding company, there is no way of avoiding the payment of the 3% title transfer tax. Large institutional holders are advised to seek the advice of expert real estate law and tax professionals to mitigate other tax liabilities.
There are no municipal occupation taxes. All planning and land use matters are, however, handled by the municipalities, and a land use tax is levied on developers or owners planning new construction projects.
The basic tax withholdings in the Dominican Republic are as follows:
There are no tax benefits from owning real estate in the Dominican Republic. Corporations may be compensated on the property’s depreciation in accordance with the Dominican Tax Code. Other benefits may apply depending on the type of real estate, the activities developed in the property and its location, among others.
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We appreciate your interest in our services. If you wish to consult us, please fill out the form below with your personal information and send us your questions. We will answer you as soon as possible.