Below we detail our legal opinion on the advantages of acquiring a property under the generous incentives offered by Law 158-01 on Tourism Development Promotion (CONFOTUR) through a Limited Liability Company (SRL) in the Dominican Republic. This approach not only maximizes fiscal and commercial benefits but also provides robust legal protection and remarkable flexibility in estate planning. Below, we outline the key points from a commercial, civil liability, and versatility perspective to ensure a more profitable and secure investment experience.
I. Commercial Perspective: Tax Exemptions and Resale Flexibility
The CONFOTUR regime, under Law 158-01, grants significant tax incentives to encourage investment in the tourism sector, facilitating both the acquisition and resale of properties covered by this regime. The main benefits include:
Exemption from Real Estate Transfer Tax (3%)
According to Article 20 of Law No. 288-04 on Real Estate Transfers, any real estate transaction is typically subject to a transfer tax equivalent to 3% of the property’s total value. However, under the CONFOTUR regime, buyers of properties within this framework are exempt from this tax. This represents a direct and significant cost savings, making the acquisition more financially attractive. It also spares the buyer from additional expenses that, in traditional transactions, could substantially increase the final property cost.
Exemption from Real Estate Property Tax (IPI)
The Real Estate Property Tax (IPI) is an annual tax applied to properties exceeding a certain value threshold. Under the general regime, property owners must pay a percentage of this value as an annual tax. However, properties covered by the CONFOTUR Law are exempt from this tax for up to 15 years. This means that investors not only save at the time of purchase but also eliminate the recurring fiscal burden of maintaining the property, thereby optimizing the investment’s profitability and significantly reducing long-term operating costs.
Fiscal Incentives and Transferability of Benefits
As stipulated in Law No. 158-01, the tax incentives granted by the State, such as exemption from real estate transfer tax and property tax (IPI), apply exclusively to the first buyer of a property under the CONFOTUR regime. This means that in a conventional real estate transaction, any subsequent buyer would lose these benefits, as they are not transferable to individuals in a second sale.
However, when the property is acquired through an SRL created exclusively to own the property, there is a strategic opportunity to indirectly transfer these tax benefits to the new buyer. This is achieved by transferring the SRL’s corporate shares instead of the property itself. Thus, the new buyer acquires ownership of the SRL, retaining the fiscal incentives for the remaining period of the law’s application.
By structuring the transaction through an SRL, the new owner avoids direct property transfer, thereby bypassing the 3% transfer tax, as no new real estate transfer occurs—only the SRL’s shares are assigned.
In addition to tax benefits, acquiring property through an SRL enables greater agility and efficiency in resale processes. By transferring shares, associated property registration costs are eliminated, and the transaction is faster and less expensive for both parties.
It is essential that the SRL be created exclusively to own the property under the CONFOTUR regime. This ensures that, upon the transfer of shares, only the property is transferred, avoiding other assets or liabilities being included in the commercial entity.
II. Civil Liability: Limitation and Protection
From a civil liability perspective, acquiring property through an SRL offers notable legal protection for the partners, whose liability is limited to the capital contributed to the company, as per the corporate veil principle established under Dominican law.
Corporate Veil Principle
Law No. 479-08 on Commercial Companies and its amendments regulate the corporate veil principle by granting, under Article 5, a distinct legal personality to the corporate vehicles it covers. This separates the SRL’s legal personality from its partners, meaning the SRL is an independent entity with its own legal personality. As a result, any obligations, debts, or legal claims arising from the property ownership are exclusively attributable to the SRL and not to the individual partners.
Personal Asset Protection
A primary advantage of using an SRL to purchase property is the protection of the partners’ personal assets. In the event of litigation or legal claims against the SRL related to the property (e.g., disputes over property rights, contractual breaches, or debts), liability is confined to the SRL’s assets. Partners are not obligated to respond with their personal assets for the SRL’s debts or obligations unless exceptional circumstances arise warranting the corporate veil’s lifting.
III. Versatility in Property Ownership: Flexibility in Succession Structures
Another benefit of this structure is that if the buyer or owner has a foreign trust, it can be included as a partner within the SRL. This facilitates asset management within the company, ensuring that estate succession is carried out per the trust’s stipulations, with full legal validity and without the complications of an individual ownership structure.
Additionally, one of the most noteworthy aspects is the ease and cost-efficiency of transferring SRL shares compared to a direct property sale. Share transfers are faster and less costly since they do not require the Real Estate Transfer Tax payment or the usual property registration and transfer procedures.
IV. Final Recommendation
Acquiring tourist properties under the CONFOTUR regime through a Limited Liability Company (SRL) is a highly recommended strategy. This model not only maximizes fiscal benefits, such as exemptions from real estate transfer taxes and property taxes, but also ensures robust legal protection through the corporate veil principle. Additionally, it offers flexibility in estate planning and succession, enabling efficient and hassle-free asset transfer. This structure optimizes the investment and provides legal certainty under Dominican law.
