Should You Buy Property Personally or Through a Company?

When considering buying property in the Dominican Republic in your own name versus through a company, each approach has distinct advantages and disadvantages depending on factors like taxes, liability, and future business plans. Here’s a comparison:

Buying in Your Own Name

Advantages:

1. Simplicity:
   • Fewer administrative procedures: Purchasing a property in your own name involves less paperwork, fewer legal requirements, and simpler processes compared to setting up a company.
   • Lower upfront costs: There are no company formation fees or ongoing legal costs related to maintaining a corporate structure.
2. Lower Maintenance and Reporting:
   • Individuals aren’t required to submit corporate filings or annual reports, making this option less bureaucratic over time.
   • Avoid corporate tax filings and company renewal fees.
3. Full Ownership Rights:
   • You have complete control over the property, including decisions related to its use, sale, or improvement, without needing to consult other shareholders or directors.
4. Residential Tax Exemptions:
   • Exemption from property tax (IPI – “Impuesto sobre la Propiedad Inmobiliaria”) for residential properties under a certain threshold (RD$9,860,649.00 or approximately USD $165,000 in 2024). This tax is generally 1% annually for properties above this value.

Disadvantages:

1. Liability Exposure:
   • You are personally liable for all debts or obligations tied to the property. If any legal disputes arise (e.g., tenant issues, accidents), your personal assets are at risk.
2. Inheritance and Succession Issues:
   • In the event of death, transferring property can be complex, involving probate and potential delays for your heirs.
   • Inheritance taxes may apply if not properly structured.
3. Capital Gains Taxes:
   • When you sell the property, you may face capital gains tax on the increase in the property’s value.
   • Tax rates are applied to the gain based on the difference between the purchase price and the sale price.

Buying Through a Company

Advantages:

1. Limited Liability:
   • A company structure limits your personal liability. If legal or financial issues arise related to the property, only the assets of the company are at risk, protecting your personal assets.
     
2. Easier Transfer of Ownership:
   • Selling or transferring the property is often simpler because you can sell shares in the company rather than going through a full property transaction. This can streamline the process, especially if multiple properties are involved.
   • It may also offer tax advantages in terms of capital gains, as the sale of company shares may be taxed differently than direct property sales.
     
3. Succession and Estate Planning:
   • A company can allow for easier succession planning. Shares in the company can be passed on without the need for complicated probate procedures.
   • This can avoid potential inheritance taxes or delays for heirs, especially for non-residents.
     
4. Business Expansion:
   • If you plan to rent out the property or use it for commercial purposes, buying through a company could offer more tax-efficient business structuring (deducting certain expenses, managing depreciation, etc.).
   • It is easier to separate personal and business finances.

Disadvantages:

1. Initial Setup and Ongoing Costs:
   • Setting up a company involves legal fees, registration costs, and paying for local services like accountants or legal representatives.
   • Companies must file annual tax returns and reports to the Dominican Republic’s General Directorate of Internal Revenue (DGII), which adds ongoing maintenance costs.
     
2. Corporate Taxes:
   • A company will be subject to corporate income tax on rental income, which could be higher than the personal tax rate, depending on the circumstances.
   • Double taxation could occur if profits are distributed to shareholders, meaning both the company and individuals may be taxed.
     
3. Complex Administration:
   • You will need to maintain corporate governance, including keeping records, maintaining shareholder agreements, and following local corporate laws.
     
4. No Tax Exemption for Residential Properties:
   • The 1% property tax exemption on properties under the threshold (approx. USD $165,000) that applies to individuals is not applicable to properties owned by companies. Therefore, the company will have to pay this annual tax, even on properties under this threshold.

Which Option to Choose?

• Buy in Your Own Name: If you’re purchasing a property for personal use, with no immediate plans to rent it out or use it for business purposes, buying in your own name may be the simpler, more cost-effective choice.
• Buy Through a Company: If you plan to rent out the property, use it for commercial purposes, or own multiple properties, buying through a company could provide more flexibility and protection. It also facilitates easier succession planning if the property is part of your long-term estate planning or if you plan to sell it later on.

Ultimately, the best option depends on your financial goals, the intended use of the property, and whether liability protection and ease of transfer are more important than simplicity and reduced costs. Consulting a local attorney or financial advisor familiar with Dominican law is recommended to ensure that you make the best decision for your circumstances.