Real estate fever in the Caribbean: St. Martin, St. Barth and the Dominican Republic
7 August 2017
The customer base is mainly located in North America and Europe, and more particularly in France, for taxpayers who want to defiscalize by purchasing real estate products in the French part of Saint Martin or in Saint Barthélemy, commonly known as "Saint-Barth".
These two islands have just changed their status since 24 January 2007: formerly communes dependent on Guadeloupe which is an overseas department (DOM), Saint Martin and Saint Barth have become two new overseas collectivities (COM ).
The Dominican Republic remains the Caribbean's favorite destination by tourists with more than 3 million visitors each year but mainly in hotels. However, for the past 3 years, the island's real estate boom has enabled it to invest in a high-yielding sector in order to generate strong capital gains with favorable taxation.
Which island to choose to invest or buy the apartment or villa of his dreams?
The serious builders and their architects adapt the projects to the climate of the islands: roof protected from cyclones (whose existence is to relativize), large bay windows, Caribbean style ...
For the buildings, the American and now European customers demand the additional services called "amenities": swimming pool, gym, coffee shops, cleaning service, babysitting service, business center: these programs make the difference and all the more if they plan The timeshare timeshare particularly developed in the Dutch part of Saint Martin. In the United States time share has become an enormous means of speculation and it is common to invest in this mode of ownership very practical because one can take advantage one to two weeks a year all over the world with exchange system .
When the urbanization comes to saturation in Saint Martin and Saint Barth, the investments will go towards the English island of Anguilla located near Saint Martin and which currently enjoys a fever in the luxury real estate property around Many golf courses and which is already almost a new Saint Barth ...
Which island to choose?
The island of Saint Martin is the smallest island in the world to be divided between two countries: France and Holland which coexist peacefully for 350 years.
The Americans buy in the Dutch part of Saint Martin which benefits from a deep water port, casinos and many zero-rated stores. They will have fun in the French part renowned for its restaurants and small exotic cities. The island has 37 beaches.
Saint Barthelemy enjoys a high reputation among the Americans for its calm and luxury and the prices there reach vertiginous summits.
The Dominican Republic is renowned for the hospitality and kindness of its inhabitants, its coconut groves as far as the eye can see and its paradisiacal beaches, which bring many retirees, including French, attracted by the low cost of living: a very beautiful house. 4 rooms at the edge of the beach costs only 100.000 € ...
Saint Martin or St. Maarten
Saint Martin called in Dutch St. Maarten has for Dutch capital Philipburg. Marigot is the French capital.
In the Dutch zone, the overdeveloped island is saturated with two major problems: the traffic that becomes difficult in high season because the roads are dangerous and primitive and the urban pattern somewhat chaotic.
The commercialization of real estate programs is favored by a weak dollar and the many amusements that are American casinos and duty free shops. For a dollar at € 1.30 the restaurants and hotels on the French side are struggling to line up with the Dutch side. Real estate investment in the French sector is far from being uninteresting due to the laws of tax exemption although the real estate value and the ISF are applicable in the French part and not on the Dutch side.
It is not necessary to be resident to buy in a real estate program in the Dutch part. Promotions are constantly expanding as builders buy the last pristine beaches and demolish the coastline to such an extent that real high-rise buildings are built on the edge of the beaches to the delight of buyers.
Urban planning is less unbridled on the French side and is applicable the "littoral" law which prohibits construction within 60 meters of beaches.
The legal security of a real estate acquisition in Saint Martin is total because it is secured by a Dutch or French Notary whose powers are strictly identical as regards the verification of titles of property and mortgages. On the Dutch side there is no exchange control and repatriation of rental profits is permitted all over the world. The Dutch Notary fees, which include the registration fee, are 10% of the amount of the acquisition. Unlike the French part, there is no property tax or housing tax.
Taxation on rental income is reasonable and depends on the amount of taxation as in France. However, there is no ISF or CSG ... Capital gains can be as high as 15% per year for some programs that are particularly well built and enjoyable, while the rental income offered by local real estate agents is between 5% and 10% per year.
The law of co-ownership is normally applicable according to the Dutch law which knows how to avoid the drift of the charges of co-ownership by the syndic or the promoter as it is sometimes seen in real estate programs located in the Dominican Republic if the contractual framework of the condominium n Is not sufficiently assured.
The French zone is less constructed, more calm, more typical and more natural: building permits are regulated by controlled urban planning, which in principle prohibits buildings with more than 2 floors. The north of the island in its French part is flooded with popular programs. The southern part enjoys a calmer nature with more luxurious houses and a lower density. Small villages such as Grand Case or the capital Marigot attract a large nocturnal population.
Since the referendum of December 7, 2003, Saint Martin, in its French part, is no longer a commune of Guadeloupe but a COM of 35,000 inhabitants (overseas collectivity). As a result, the new Act provides for even greater fiscal autonomy since the New Act provides that COMs have the right to determine their tax and customs regimes.
While the State will retain all its powers in criminal law and criminal procedure, monetary and banking law, company law and insurance law, taxation will be even more specific than it is currently . During the debate in the Assembly last January, the Minister of Overseas France wished to raise some misunderstandings by stating that fiscal autonomy will not be achieved as long as these communities are tax havens or centers off shore ". Nevertheless, the new territorial community of the island on its French side will be competent to determine the rate and the base of taxes of all kinds (with the exception of the social taxes which will continue to fall within the competence of State).
Under the last paragraph of the new Article 6214-4 of the General Code of Local and Regional Authorities, an agreement must be concluded between the State and the community at a later date "with a view, inter alia, to preventing tax evasion and double taxation and to The community in terms of communications and information for tax purposes ".
In a Decision of 15 February 2007, the Constitutional Council admitted that this (broad interpretation) provision was not contrary to the Constitution. In any case the land and condominium law will obviously continue to apply and the French notary is the guarantor of the legal security of the real estate transaction exactly as in the metropolis.
The GIRARDIN law (natural persons can exempt between 25% and 50% of the amount of the acquisition of a new property) tax exemption will continue to apply. This system has succeeded since July 21, 2003 to the PAUL Act and is applicable until December 31, 2017. No one can say what the economic landscape of the island would have been without the law of tax exemption. The public authorities admit that the French side has overtaken in five years a delay of more than 15 years on the Dutch side.
Independently of the real estate programs, 300 boats are permanently stationed ready to be rented or bought by the tax exemption system of questing companies that sell shares of boats (called quirats) which are backed by numerous wealth management firms.
To summarize, three possibilities are available depending on the amount to be taxed.
The rate of tax exemption is 50% for a lease granted to tenants who will have a limited rent. The legislator allows to tax up to 50% of the amount of the acquisition capped at 1.866 € HT per m². The reduction is spread over 5 years, ie 10% per year, and it is directly charged to the investor's income if the taxpayer leases for 6 years, thus complying with the resource rent conditions stipulated by the Act.
An apartment of 140.000 €, 53.39 m ² of habitable surface and 14 m ² of covered terrace allows a tax exemption of 14.323 € per year for 5 years.
The tax exemption benefits from a rate of 40% when the property is leased without limitation as to the income of the tenant or the amount of rent. The same apartment will generate a tax exemption of € 11,459 per year for 5 years.
The GIRARDIN law also allows to tax over 10 years when the property is allocated to the principal residence of the owner. The amount of the tax exemption will be 25%. The same apartment will allow a tax exemption amount of 35.809 € over 10 years ie 3.580 € per year for 10 years.
Like Saint Martin, since January 24, 2007 Saint Barth is no longer part of Guadeloupe and constitutes an overseas collectivity (COM). The law of tax exemption GIRARDIN is also applicable since the French island is entirely subject to the French Legislation.
It will be necessary to know later the provisions of the convention that the State will have to pass with the new community under the aegis of the Territorial Council elected for 5 years in this island of 7,000 inhabitants located to 15 minutes of flight of the island of Saint Martin And consequently at 8 am. From Paris, 3 hrs. From New York, 2 hrs. Of Miami and 1 hr. Of Guadeloupe.
The island is therefore fully subject to the French legislation but will be able to benefit from an autonomy which it will be interesting to examine in a few months. It is true that the situation of Saint Barthélemy is a little special because its inhabitants often consider themselves exempt from all national taxes.
In a judgment of 22 March 1985 the Conseil d'Etat had to recall that the income tax was applicable to Saint Barthelemy, although the international treaty for the retrocession of the island to France by Sweden was rather vague on the question ... It is not impossible that, subject to five years of residence on the island, the tax status of the taxpayer is most advantageous, but it all depends on how the future tax treaty between the State and The community will be negotiated ...
Regarding the market values of real estate properties, it is not uncommon to see capital gains of 10% to 20% per year for very luxurious products. Local real estate agents estimate that returns on investments can be in the order of 10% a year after application of the GIRARDIN tax exemption law for French nationals.
The Dominican Republic
Foreign individuals enjoy the same rights as Dominicans to invest in the real estate sector in the Dominican Republic since 1998. It is one of the most stable countries in the Caribbean and Latin America. All profits can be repatriated in any country. More than 8 million inhabitants live on the island of which one third in the capital Santo Domingo. No local legislation regulates real estate profits which are variably subject to maintenance with the local tax authorities. Consultation with a specialized lawyer is strongly recommended.
The deed of purchase is legalized by a Notary public who registers the title to the Registry of Titles after having verified that the property is free for sale. The banking system is fairly reliable and knows the mortgage when there is a retention of title that protects the buyer against the existence of any sale or mortgage and is for public consultation.
Notary fees are approximately 3% of the selling price and some land is subject to a sort of property tax in some municipalities.
It is better to avoid disappointments by being assisted by a good professional, the real estate agents world-wide have now all opened agencies that appear reliable, subject to taking usual precautions on the quality of the interlocutors that they are realtors, lawyers Or notaries.
UBI FRANCE, a new name for the French Foreign Trade Center, which is linked to the economic expansion posts in French embassies abroad, considers that real estate investment can be secured when the following minimum precautions are taken: Also recommended for all real estate investments in emerging countries:
- Precise description of the property in the purchase title
- Realization of a cadastral measurement validated by a surveyor registered at the College of Engineers Architects and Geometers which will be signed by the seller,
- Verification by the surveyor and the notary or lawyer that the plot of land is authorized as part of a subdivision,
- Verification with the tax services that the seller is up to date of the possible property tax and this, with the General Direction of Internal Taxes of the Dominican Republic,
- Retention of the photocopy of the identity card or the passport of the sellers,
- Avoid as much as to do that can the sale by an offshore company whose creation conditions are troublesome because it can conceal a money laundering operation.
New projects such as the opening of an international airport in Cabrera on the Costa Verde located 80 km from the airport of the capital is a sector highly prized for European and American real estate investors. This airport, a marina and luxurious residential complexes as well as an 18-hole golf course will inspire this locality. Real estate gains are announced at a rate of 15% to 20% per annum from one year to the next, in addition to a rental profitability also announced at 10% per year.
The multiplication of low-cost air flights in the coming years, and the overcrowding of Mediterranean coastal beaches in France, in addition to the tremendous prices reached so much that it is no longer possible to buy within 30 km of The sea, pre-retirement pensions, leading to a drop in incomes up to 65 years of age, and compensation paid in the framework of social plans by relocating companies bring a new clientele to these dream destinations.
Everyone has a choice: surfers will choose Saint Barth, lovers of water sports, beaches, duty free shops, casinos and small exotic villages will choose Saint Martin / St. Maarten. Pre-retirees, retirees or lovers of coconut groves and splendid beaches with easy and cheap life will choose Santo Domingo.
The capital-intensive property investor will choose a good real estate program or villas in one of these islands which provide average capital gains of 10% to 20% per year and rental income of 10% on average Invested capital.
Olivier J. BRANE, Lawyer specializing in Real Estate Law in Paris
Jean Pierre HEIM, Architect in Paris, New York and Shanghai (www.heimdesign.com)
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