Dominican Republic
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Please direct all inquiries regarding the Dominican Republic to the persons listed below in the San José, Costa Rica, office of EY. All engagements are coordinated by the San José, Costa Rica, office.
Santo Domingo GMT -4
EY
+1 (809) 472-3973
Ave. Pedro H. Ureña No. 138 Fax: +1 (809) 381-4047
Torre Empresarial Reyna ll 9th Floor
Sector La Esperilla Santo Domingo Dominican Republic
Principal Tax Contact
Rafael Sayagués +506 2208-9880 (resident in San José, New York: +1 (212) 773-4761 Costa Rica)
Costa Rica Mobile: +506 8830-5043
US Mobile: +1 (646) 283-3979
Efax: +1 (866) 366-7167
Email: rafael.sayagues@cr.ey.com
Business Tax Services
Lisa María Gattulli
+506 2208-9861 (resident in San José, Mobile: +506 8844-6778 Costa Rica)
Email: lisa.gattulli@cr.ey.com
International Tax and Transaction Services – International Corporate Tax Advisory
Juan Carlos Chavarría
+506 2208-9844 (resident in San José, Mobile: +506 8913-6686 Costa Rica)
International Mobile: +1 (239) 961-5947
Email: juan-carlos.chavarria@cr.ey.com
Ludovino Colon +1 (809) 472-3973
Dominican Republic Mobile: +1 (809) 909-2516
International Mobile: +1 (239) 628-7496
Fax: +1 (809) 381-4047
Email: ludovino.colon@do.ey.com
International Tax and Transaction Services – Transfer Pricing
Luis Eduardo Ocando B. +507 208-0144 (resident in Panama)
Panama Mobile: +507 6747-1221
US Mobile: +1 (305) 924-2115
Fax: +507 214-4300
Email: luis.ocando@pa.ey.com
Paul de Haan (resident in +506 2208-9800 San José, Costa Rica)
Email: paul.dehaan@cr.ey.com
Business Tax Advisory
Juan Carlos Chavarría +506 2208-9844 (resident in San José, Mobile: +506 8913-6686 Costa Rica)
International Mobile: +1 (239) 961-5947
Email: juan-carlos.chavarria@cr.ey.com
Tax Policy and Controversy
Rafael Sayagués +506 2208-9880
(resident in San José, New York: +1 (212) 773-4761 Costa Rica)
Costa Rica Mobile: +506 8830-5043
US Mobile: +1 (646) 283-3979
Efax: +1 (866) 366-7167
Email: rafael.sayagues@cr.ey.com
Global Compliance and Reporting
Lisa María Gattulli
+506 2208-9861 (resident in San José, Mobile: +506 8844-6778 Costa Rica)
Email: lisa.gattulli@cr.ey.com
International Tax and Transaction Services – Transaction Tax Advisory
Antonio Ruiz
+506 2208-9822 (resident in San José, Mobile: +506 8890-9391 Costa Rica)
International Mobile: +1 (239) 298-6372
Email: antonio.ruiz@cr.ey.com
Rafael Sayagués +506 2208-9880 (resident in San José, New York: +1 (212) 773-4761 Costa Rica)
Costa Rica Mobile: +506 8830-5043
US Mobile: +1 (646) 283-3979
Efax: +1 (866) 366-7167
Email: rafael.sayagues@cr.ey.com
People Advisory Services
Lisa María Gattulli
+506 2208-9861 (resident in San José, Mobile: +506 8844-6778 Costa Rica)
Email: lisa.gattulli@cr.ey.com
A. At a glance
(a) The Dominican Tax Regulations do not contemplate an exclusive or additional income tax for branches. Therefore, the standard corporate income tax rate applies.
(b) This is a final withholding tax applicable to payments to both residents and nonresidents.
(c) This is a final withholding tax applicable to payments to resident individuals and to nonresident individuals, companies and unincorporated business entities.
(d) This withholding tax applies to royalty payments made to nonresident persons.
(e) This withholding tax applies to payments to nonresident or non-domiciled entities or individuals. According to the local legislation, the following types of income, among others, are considered Dominican source income:
• Income from capital, assets or rights situated, placed or used economically in the Dominican Republic
• Income derived from commercial, industrial, farming, mining and similar activities carried out in the Dominican Republic
and allocating the amount actually paid among the number of titles that correspond.
Foreign tax relief. Foreign income tax paid on income derived from investments and financial gains abroad may be claimed as a credit against the income tax payable in the Dominican Republic. However, such credit is limited to the portion of Dominican Republic tax allocable to the foreign-source income subject to tax abroad.
C. Determination of trading income
General. Tax is imposed on taxable profits, which correspond to the accounting profits adjusted in accordance with the income tax law.
Expenses incurred to generate taxable income and preserve the source of such income are deductible on an accrual basis if properly documented. However, certain expenses are not deductible, including the following:
• Expenses not properly documented
• Unauthorized bad debt provisions
• Prior period tax adjustments
• Personal expenses
• Profits to be capitalized
In addition, the Dominican Tax Code contains interest deduction rules, which are described below.
Under Dominican Republic law, the deduction of interest depends on certain general and specific conditions.
The following are the general conditions for the deduction of interest:
• The interest should be related to the acquisition, maintenance and/or operation of taxable income-producing assets.
• Corporate entities should recognize interest expenses according to the accrual method of accounting.
• Expenses and costs, such as interest payments, must be supported by corresponding documentation (loan agreement and invoices).
• The loan and interest rates agreed between the parties must comply with the arm’s-length principle.
• The 10% withholding tax applicable to the gross amount of such payments has been applied and paid to the Dominican Republic tax authorities.
In addition, if the payment exceeds DOP50,000 (approximately USD900), the payment must have been made through any of the means available in the financial industry (for example, wire transfers and checks).
Dominican Republic law provides the following specific limitations for the deduction of interest:
• A special anti-avoidance rule, which limits the interest deductible based on the effective tax rate of the interest recipient
• A thin-capitalization limitation, which limits the amount deductible to three times the ratio of the average of equity to the average of debt that generated such interest in a given year
Special industries. Rules applicable to special industries are outlined below.
Nonresident insurance companies. Nonresident insurance companies are taxed on a deemed income equal to 10% of their gross income (premiums) derived from insurance services rendered to resident or domiciled companies or individuals.
Transportation. Income derived from transportation services rendered by nonresident transportation companies from the Dominican Republic to other countries is deemed to equal 10% of the gross income derived from such services.
Others. Film distribution companies are taxed in the Dominican Republic based on a deemed income equal to 15% of their gross income derived from the distribution of foreign films. In addition, foreign communications companies are taxed on a deemed income equal to 15% of their gross income.
Inventories. In general, last-in, first-out (LIFO) is the approved method for valuing inventory. However, taxpayers may use other methods if previously approved by the tax authorities.
Provisions. In general, provisions are not deductible for income tax purposes. However, the Tax Code and income tax regulations provide for limited exceptions to this rule, including a provision for uncollectible accounts receivable. This provision is allowable as a deductible expense if it is calculated based on 4% of the accounts receivable balance at the close of the fiscal year and if the amount is authorized by the Tax Administration.
Provisions for gratifications, bonuses and other similar compensation items are deductible for income tax purposes if the amounts in the provisions are paid by the filing date of the income tax return.
Tax depreciation and amortization allowances. Depreciation is calculated using a variation of the declining-balance method. Intangibles, such as patents, models, drawings and copyrights, may be amortized using the straight-line method if they have a definite useful life.
Salvage value is not taken into account in calculating depreciation. The following are the generally applicable depreciation rates provided by law.
Relief for losses. Losses generated by companies in the ordinary course of a trade or business may be carried forward for a fiveyear period. In each fiscal year, 20% of the total loss can be used to offset taxable income. However, in the fourth and fifth years, only 80% and 70%, respectively, of the total taxable income may be offset by the 20% loss carry forward. Losses derived from reorganizations are not deductible for income tax purposes. Net operating losses may not be carried back.
A member entity of a multinational group that resides for tax purposes in the Dominican Republic and is not the Ultimate Parent Company or the Representative Company must notify the Dominican tax authority no later than three months before the closing of the fiscal year of the multinational group.
Tax-free corporate reorganizations. There are “tax-free reorganization” rules in the Dominican Republic that can be used to transfer shares or assets of companies without triggering capital gains taxes, income tax, VAT or real estate transfer taxes.
A “tax-free corporate reorganization” is defined as a “corporate transaction involving significant changes in the legal and economic structure of one or more companies.” The following transactions are considered tax-free reorganizations:
• The merger of existing companies, through a newly formed third-party or by absorption
• The spin-off or division of one entity to other entities that jointly continue the operations of the pre-existing entity
• Sales and transfers from one entity to another that, despite being legally independent, constitute an economic group
Depending on the type of reorganization, several conditions should be met in order for tax-free rules to apply to reorganization, in accordance with local regulations. However, the tax-free reorganization rules should not apply to reorganizations processes exclusively carried out by foreign companies that do not have a permanent establishment in Dominican Republic.
Reorganizations not carried out under current tax-free reorganization rules have to be reported to the Tax Administration and all applicable taxes should be levied (for example, capital gains, VAT, property and vehicle transfer taxes).
Electronic invoicing. At the time of publication, a taxpayer has the option to adopt electronic invoicing (EI) in order to carry out its commercial transactions. However, on 13 September 2022, the Legal Subconsultant of the Executive Power delivered a preliminary bill for EI to the President of the Senate of the Dominican Republic. This preliminary bill aims to regulate the mandatory use of the EI in the Dominican Republic, as well as to establish the following aspects of the EI tax system:
• Characteristics
• Optimization results (improvement of the efficiency, productivity and transparency of the Tax Administration and markets in general)
• Contingencies
• Entry deadlines
• Fiscal facilities that will be granted to taxpayers that take advantage of this system
On 10 January 2023, the Senate approved the EI project and sent it to the Chamber of Deputies for consideration.
The scope of this preliminary bill will cover natural and legal persons, public or private, and entities without legal personality, domiciled in the Dominican Republic, that carry out operations involving the transfer of goods and provision of services. Transactions that are not subject to the issuance of ordinary tax
receipts will not be subject to the provisions of this preliminary bill.
Under the preliminary bill, an EI will be a document that records the existence, magnitude and quantification of facts or legal acts of economic, financial or patrimonial content that is issued, validated and stored electronically and that complies in all situations and before all actors with the same purposes as a paper invoice; both for issuers and receivers as well as for interested third parties. The EI will be valid, effective and will have probative force in all the situations for which it applies and before all the actors in the process, whether in the areas of commercial, civil, financial, logistics and tax or any other, provided that it complies with the authenticity, integrity and legibility requirements.
The preliminary bill establishes the following timeline for mandatory EI implementation depending on the taxpayer’s size.
Size Mandatory date
Large 12 months after the law becomes effective
Medium 24 months after the law becomes effective
Small 36 months after the law becomes effective
F. Treaty withholding tax rates
The following are the maximum withholding tax rates under the Dominican Republic’s double tax treaties.
(a) Under the tax treaty with Canada, if the Dominican Republic enters into a treaty with another country in which the applicable income tax withholding rate for dividends is lower than the rate provided in the treaty with Canada that same tax treatment automatically applies to the treaty with Canada.
(b) Dividends paid to Spanish entities that hold 75% or more of the distributing entity’s capital are subject to a 0% tax.
Treaty benefits. On 3 October 2022, the Tax Administration issued General Standard No. 11-2022, to establish the guidelines for the application of the provisions of the double tax treaties entered into by the Dominican Republic, including the granting of the benefits. Taxpayers that want to apply the provisions and benefits contained in current double tax treaties signed by the Dominican Republic will be required to file a formal request with the Tax Administration.
In general, taxpayers will be required to comply with the corresponding tax obligation (that is, withholdings on dividends, interests, services and other payments) and then request the application of the benefit established in the treaty. Once the tax obligation is complied with and the application is approved, the Tax Administration will grant in favor of the taxpayer a corporate income tax credit to be used on its annual corporate income tax filing.
Initially, the provisions of this General Standard were scheduled to become effective six months after its publication date (that is,