Dominican Real Estate Law Developments, include a Draft Bill amending Tourism Development Promotion Law 158-01.

On July 22th of 2013, the Chamber of Deputies of the Dominican Republic approved the Draft Bill amending Law No. 158-01 of Incentives for Tourism Development of the Dominican Republic to include non- exempt urban and oceanfront areas in Santo Domingo and Punta Cana Area, where certain qualified promoter and developers may benefit from the vast tax exemptions regime provided under of Article 4 of Law 158-01.

The draft Bill’s main goal is the amendment of Article 1 of Law 158-01 to include the high rise & business developed area commonly known as the “Poligono Central” of the National District of the City of Santo Domingo, located between the 27 de Febrero Ave., John F. Kennedy Ave., Winston Churchill Ave. and Ortega & Gasett Ave, as well as the Santo Domingo Colonial Zone and other Caribbean waterfront areas considered of importance to the Tourism Industry.

Among the considerations for including such new zones in this draft bill, is the fact that the Poligono Central has not only become the Business and Financial Centre of the city of Santo Domingo but it is officially expected to become one of the most important destinies of urban tourism in the Caribbean.

It should be noted that Ministry of Tourism Resolution 61/2011 already made extensive the application of Law 158-01 and its amendments to Hotel Installations, Resorts and/or Hotel Complexes in the Poligono Central of the National District and the Malecon, while large shopping malls, international hotel chains and franchises have established in the Business Centre of Santo Domingo, in light of the investment and business opportunities of this area and the expected tourism incentives this draft bill would provide.
Law 253-12 amending Law 158-01 limiting tax exemption and real estate property tax rules

From a tax standpoint, Article 33 of Tax Collection Efficiency Law 253-12 dated November 9th of 2012, eliminated the broad tax incentives which were previously available to individuals or legal entities that made one or several direct investments with the originally qualified promoters or developers of the tourism activities established in Law 158-01, dated October 9th of 2001, of Incentives for Tourism Development.

The above shall be understood in the sense that such incentives for the development of tourism shall continue to apply to the qualified promoters or developers of tourism activities only, and not to third parties who make side or additional investments or purchases with said developers or promoters.

With regards to the general tax regime and following the entry into force of the above mentioned Law 253-12 and its Regulation No.50-13, certain aspects of the one percent (1%) real estate property tax, applicable to individuals on a yearly basis, were modified as follows:

First, the taxable event shall be considered to take place on January 1st of each year (starting in 2013), regardless of any changes on ownership that may occur during the calendar year. In consequence, both sellers and purchasers of real estate property should take into consideration the tax installments due on March and September 11th when planning their real estate transactions.

In addition, the annual tax exemption amount increased from DR$5,000,000 (approx. USD117,650) to RD$6,500,000 (approx. USD152,950) adjustable by inflation.

Nonetheless, it is important to note that, in the end, the tax reform intended the overall tax exemption decreased. As of now, the exemption applies to the real estate assets owned as a whole, instead of an exemption on a per property basis.

Notwithstanding the above, the real estate property taxes and the real estate property taxes paid may be deducted from the individual’s income tax , pursuant to the provisions of Article 7 of the mentioned Regulation No.50-13.

Furthermore, it is foreseen that in fiscal year 2016, the real estate property tax shall be also applicable to legal entities instead of the 1% annual assets tax, now in force. As per the sunset clause included in Article 48 of Law 253-12, the assets tax rate shall be reduced to 0.5% in the year 2015 and eliminated by 2016, provided certain collection goals are met.

The above measure should imply a strong relief for legal entities incurring in losses or which may be subject to the payment of the minimum 1% assets tax, since they would not be subject to taxes over their non real estate assets.

Dominican Republic Tourism Sector Land Use and Organization Plan

After the approval of the Manual of Norms and Procedures for the Processing of Tourism Projects of March 9th of 2012, establishing the requirements for the processing of No Objection to the use of Land and Design Parameters, the Ministry of Tourism of the Dominican Republic (MITUR) has issued several Resolutions establishing the “Tourism Sector Land Use and Organization Plan” and modifying the Urban and Construction parameters for Samaná and Las Terrenas, the Punta Cana, Bávaro- Macao Area and the Cabarete Area, respectively, as well as other developing areas such as the Coast of Miches, and the provinces of El Seibo, Hato Mayor and Pedernales.

The purpose of these Resolutions is to regulate the urban categorization, classification and implementation of touristic projects and of any other nature with a view to promote a harmonious touristic development.

These resolutions govern matters such as the preservation of natural resources, the revaluation of the urban surroundings, the diversification of the touristic offer and the preservation of the traditional touristic model of these areas, among other aspects.

Each one of these Tourism Sector Land Use and Organization Plan Resolutions outline its scope of application, structuring, and that of the Normative Regulation. In its turn, the Normative Regulation sets the maximum soil occupancy levels, the green areas ratio, maximum permitted height and residential density that shall apply to all kinds of touristic real estate, touristic complementary or of any other nature to be developed in each of these Areas.

These Tourism Sector Land Use and Organization Plan Resolutions replace the previous resolutions on this subject and are being implemented by the Planning and Projects Department of the Ministry of Tourism, constituting a mandatory reference prior to purchasing Dominican Republic real estate or proposing tourism and real estate development projects in these areas.

ABOUT THE AUTHOR: Dr. Felipe Isa Castillo is a Partner, Head of International Business, Foreign Investment & Real Estate at ACLAW, a law Firm in the Dominican Republic. He specializes in international business, foreign investment and real estate law (International Legal Studies LLM in Georgetown University Law Center & Masters in International Business in Universidad Pompeu Fabra in Spain) with more than 20 years of experience in International Business and Trade, Foreign Investment, Free Trade Zones and Cross Border Real Estate practice. Dr. Felipe Castillo is also a Certified Bankruptcy Conciliator and Liquidator and Legal Interpreter.

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Copyright 2013 Arthur & Castillo | Dominican Law

Disclaimer: This publication is not intended to provide legal advice or suggest a guaranteed outcome as individual situations will differ and the law may have changed since publication. For specific technical or legal advice on the information provided and related topics, please contact the author.