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The
Dominican Republic To The Rescue Of The Middle-Class:
..
American and European
middle class
citizens are currently struggling with higher costs of living, higher
taxes and inflation - but the Dominican
Republic has in essence
come to the rescue. How? By creating an environment where
solvent, law abiding, well heeled people can consider for relocation or
retirement, which of course includes a number of favorable
benefits. What kind of benefits? For starters, such persons
get to enjoy a pension, retirement or even other kinds of world-wide
investment income tax-free. In addition, all depending upon the
price of the real estate you purchase (the Dominican Republic generally
offers some of the most affordable homes in the Caribbean) then a
relief from annual real estate taxes as well (zero annual taxes for
homes valued at US$150K or less).
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THE
DOMINICAN REPUBLIC TO THE RESCUE:
A
New Law in 2007 Codifying a Tax-Free Retirement for Middle Class
Retirees and Investors
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By
John Schroder - September 20, 2007
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Over
the years, and in some other previous articles, I have made mention of
the fact that certainly many countries are in competition with each
other to attract business, investment and of course new upright
citizens as well. This perhaps is obvious and what one
might say is normal or logical as well. However, along these
lines, we have identified a trend some time ago, that basically
demonstrates a desire and need of the middle-class from the wealthier,
industrialized welfare state countries to find some way to make ends
meet, or otherwise said, to simply survive economically going
forward. Often enough, this have involved the decision to move to
another country, or otherwise said, to expatriate.
.
Why
is this so? Well, there are a number of factors currently
converging upon these so-called wealthier nations, but the short
version is that, taxes are going up, inflation is now once again
translating into higher living costs for the average citizen (which
includes housing and rental costs), and the bottom line is, personal
survival is the name of the game. With that said, let us explore
how the Dominican Republic, and other countries of a like mind, are
coming to the rescue.
.
There
certainly many countries out there that have similar attributes, in
terms of choosing a country for relocation or retirement. For
example, how many countries or jurisdictions are there that you can
name, offering warm year round climate, palm trees, white sand beaches
or any number of other things you might find appealing? You might
come up with a sizeable list. However, after considering the
similarities, often it comes down to other factors when making a
relocation decision, which will include housing costs, taxes, cost of
living, access to infrastructure, school or university choices if you
have children, cost and access to quality medical care, and so
on. Among all of these things, usually it becomes an issue of
taxes and cost of living as the final denominator often enough.
It is truly in this area that many countries have become competitive,
in terms of luring new solvent citizens and retirees. And so, we
have seen programs developed in Costa Rica, Panama and now the
Dominican Republic to hopefully attract such people. But, to be
very clear, it is not just retirees as the only group looking for a
better and less taxing place to live. The current trends indicate
that we are equally seeing younger people, and especially young middle
class families that are moving as well. But, with that said,
generally speaking, both groups are indeed looking for the same thing.
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Getting
back to the theme we mentioned in the first paragraph, some countries
wisely understand this trend and are actively seeking new, well heeled
and solvent persons or families as new residents, and new
citizens. In the case of what might be called developing nations,
obviously such people (or new residents if you prefer) can bring skill
sets, such as entrepreneurship, knowledge of certain industries, not to
mention investment capital as well. To this end, some countries
such as the Dominican Republic, have wisely sought to make the
residency process and benefits for newcomers as attractive as
possible. This ties in to some articles we have written in the
past, whereby we have identified this trend of what we like to call -
Trading Places. Which is to say, the high tax welfare states are
loosing their best and brightest (as more and more citizens feel they
are being abused and overwhelmed with taxes, higher cost of living,
unfair trade and immigration policies, mismanagement, etc.) and are
going to countries whereby they have a chance at a better
existence. No nation is perfect, but there are limits to what
some people would consider to be fair and correct.
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In
any event, let us highlight what is going on in the Dominican Republic
and why many of our clients have elected the country accordingly.
Over the past few weeks we have gotten a large number of inquires from
people that have heard rumors about a new program for retirees and
investors in the Dominican Republic. It is no longer a rumor, but
rather a fact as of June 2007. Those guys (and gals) down at the
Congress have finally gone and done it (after talking about it on and
off for over 8 years now). In other words, they have now created
what possibly could be one of the absolutely best programs in the
entire Caribbean or Latin America for retirees or investors, all things
considered. Which is to say, at a time when American and European
middle class citizens are finding themselves struggling with higher
costs of living, higher taxes and inflation, the Dominican Republic has
in essence come to the rescue. Here is how it works:
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For
those people interested in retiring or relocating, who happen to have
some stable source of income, either from government pension (Social
Security), a private pension or annuity, or even independent income
from investments (dividends or interest) - this is the ideal program
for you. Since there is no age specified for participation, let
us examine how this would apply in the practical world (and as a
comparison to say, Panama as an example). Let us speculate that
you are 40 years old, you have just sold your business, and are too
young to qualify for retirement programs elsewhere solely because of
your age (as would be the case in Panama). No problem in the case
of the Dominican Republic. What you need to do is invest your
funds into any kind of investment that will generate a steady monthly
income of interest or dividends, anywhere in the world that you wish
and not necessarily in the Dominican Republic. So, this could
mean bank accounts, bonds or annuities that maybe you decide to have in
Europe, Hong Kong, or anywhere else that suits you. In addition,
you can also put some funds into local bonds or fixed income
investments (bank certificates of deposit, commercial paper) inside the
Dominican Republic in Pesos, in order to draw down a monthly income in
the local currency as well. The financial requirement in such a
case is that you must have an independent monthly income of at least
US$2,000 and an additional US$250 per month for your spouse or children
(if you are married with two children, then as an example, a total of
US$2,750 per month in such an example). It does not matter where
the investments are located, because it is ALL TAX-FREE in the DR, and
there is no age limit to qualify (such as 50 plus in some other
countries).
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Let
us say you are retired or close to retirement age. In that case
you need to prove a monthly pension income of at least US$1,500 from
any pension source, be it a government run pension or private
one. In fact, theoretically, if a 40 year old applicant set up a
private annuity, and started taking the annuity income right away, that
should allow you to qualify as a retiree rather than an investor (with
the lower amount applicable). But regardless of which status you
chose, you benefit from: Zero Tax regarding the title transfer taxes
when you purchase your first home or apartment and Zero Tax on interest
income or dividends derived from investments abroad or local. In
addition, Fifty Percent OFF any annual real estate taxes you might owe
(remember that any real estate valued at RD$5 Million Pesos or about
US$150,000 is 100 percent free from any annual property taxes
regardless, but you would pay tax on the prorated value above that
amount). This special provision cuts those potential taxes in
half, should they apply, due to a real estate value being greater than
US$150,000 - or RD$5 Million. Also, Fifty Percent OFF any capital
gains taxes you earn as a shareholder of a company not involved in any
commercial or industrial activities (in other words, a holding company
only). Plus, Tax-Free importation of your personal effects and
belongings as a new resident (although port fees, storage fees, and any
related shipping costs of course must be paid by you directly as these
things have nothing to do with taxation or duty)
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The
only question you may have is: who then does not qualify? The
answer is anyone involved in a commercial or business activity, or
better stated, someone that is not simply a passive investor or
retiree. So, if it is your goal to simply retire or live as a
passive investor, then this program would be perfect for you. If
you were interested in establishing a business, or conducting some
other kind of commercial activity, then in such a case, you could not
qualify for this specific program but would apply under another venue
for residency (which of course still may be very attractive and many of
our clients have in fact done so).
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With
regards to many of our European and Canadian clients, this retiree or
passive investor program would be a very attractive solution tax wise,
as in such a case, proof of residency in another country (outside of
Europe or Canada respectively) allows such people to declare themselves
non-resident in the former country, thus opting out of local taxation
in the country of citizenship, meaning Canada or the EU. In other
words, obviously if your investment or pension income is tax-free in
the Dominican Republic, as your new home of residency and tax domicile,
AND also tax-free in terms of your country of existing citizenship as
well, then you have a 100 percent tax-free scenario, as it applies to
investment or retirement income all the way around.
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Americans
of course still need to be concerned about tax implications as it
pertains to US taxes, even though such income would be 100 percent
tax-free in the Dominican Republic, as the US government certainly
seeks to tax Americans on world-wide passive income (investment income,
etc.) regardless. In other words, for Americans more so than any
other nationality, to get the same benefit, renouncement of US
citizenship would really be the key solution. But, there are of
course some legitimate and legal strategies to employ without
renouncing citizenship, and of course we work with our clients on some
of these options.
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