Tax exemption for second mortgages in Dominican Republic
Owning real estate, either a house, an apartment, a commercial location or a piece a land, rather than leasing properties, has become more popular in the Dominican Republic. However, not everyone has the liquidity to buy a property upfront for which they must explore the possibility of requesting a loan. As we know, a mortgage is a loan that places the same property to be acquired as the security or collateral. In case the debtor fails to pay, the bank or financial institution will execute its rights and get a hold of the property signed down as collateral.
These mortgages are documented and listed on the title deed of a property (process which is carried out at the Land Registry Office), once the two (2%) percent tax of the amount being financed has been paid to the Dominican Tax Authority. It is important to mention loans for less than one million Dominican pesos will be exempt from paying the before mentioned amount.
In the past, property owners frequently faced the need to finance property renovations or the need to consolidate the existing debt. But what happened with the taxes to be paid when requesting a new mortgage? Property owners had to pay the 2% equivalent to the amount of the loan for the new mortgage for the second time. This double taxation on the mortgage for the same property was affecting the decisions of property owners when making new loans that might be more advantageous in terms of the interest rate or time.
As an effective solution to this double taxation, Law 182-09 came into effect in July 2009,which eliminating the payment of taxes when getting a second mortgage on the same property. Article 2 of the before mentioned law states: “Since the entry into force of this Law the payment of the 2% ad valorem concerning the registration of a mortgage referred to in Article 8 of the Law on Efficient Collection 173-07, the second registration of a mortgage shall be exempt from tax payment, providing that a new loan be subscribed to pay the first mortgage”.
Providing this additional incentive has relieved our economy to a certain point because it is a short-term solution to eliminate the negative impacts faced by our society. In addition, the cash flow of businesses benefited from this tax reduction. Individuals benefited as well from this incentive since they will have more flexibility and fewer expenses to cover when financing a property in the country.