Dominican Republic VAT, GST, and Sales Tax Guide

Dominican Republic

Santo Domingo GMT -4

EY

Torre Empresarial Reyna II Suite 900

Pedro Henríquez Ureña No. 138 Santo Domingo Dominican Republic

Indirect tax contacts

Ludovino Colon +1 (809) 472-3973 ludovino.colon@do.ey.com

Rafael Sayagués +506 2208-9880, (resident in San José, Costa Rica) New York: +1 (212) 773-4761 rafael.sayagues@cr.ey.com

Guillermo Leandro +506 2208-9887 (resident in San José, Costa Rica) guillermo.leandro@cr.ey.com

A. At a glance

Name of the tax

Tax on the Transfer of Industrialized Goods and Services

Local name Impuesto sobre Transferencias de Bienes Industrializados y Servicios (ITBIS for its Spanish acronym)

Date introduced 16 May 1992

Trading bloc membership Economic Partnership Agreement (EPA) with the European Union

Administered by General Directorate of Internal Taxes (Dirección General de Impuestos Internos (DGII) (www.dgii.gov.do)

ITBIS rates

Standard 18%

Reduced 16%

Other Zero-rated (0%) and exempt

ITBIS number format Tax identification number (known as the “RNC” number)

ITBIS return periods Monthly Thresholds

Registration None (exceptions apply)

Recovery of ITBIS by non-established businesses No

B. Scope of the tax

ITBIS applies to the following transactions:

• Supply/transfer of industrialized goods

• Importation of industrialized goods

• Leasing and rendering of services

C. Who is liable

The following are ITBIS taxable persons:

• Individuals or business entities, whether domestic or foreign, that habitually supply industrialized goods as part of their industrial or commercial activities

• Individuals or business entities engaged in the importation of goods subject to ITBIS

• Individual or business entities that render services subject to ITBIS

No turnover threshold applies to ITBIS registration.

Within 30 days after beginning taxable activities, the taxable person must notify the tax authori ties of its activities. In addition, ITBIS taxable persons must issue tax valid invoices for their operations. An authorization for fiscal supporting numbers (Números de Comprobantes Fiscales or NCF) for tax valid invoices to be issued by the ITBIS taxable person should be requested from the tax authorities prior to the issuance of any tax valid invoice.

Exemption from registration. The ITBIS law in the Dominican Republic does not contain any provisions for exemption from registration for entities or individuals that make taxable supplies.

Voluntary registration and small businesses. The ITBIS law in the Dominican Republic does not contain any provision for voluntary ITBIS registration, as there is no registration threshold (i.e., all individuals or business entities that make taxable supplies or provide services (including exempted) are obliged to register for ITBIS purposes.

A taxable person may use a simplified tax procedure (Procedimiento Simplificado de Tributación or PST for its Spanish acronym) if it meets certain purchase or income criteria to qualify as a small or medium taxable person.

The PST based on purchases applies to a taxable person that makes annual purchases of approx. DOP42.2 million (approx. USD728,000) or less and performs commercial activities related to retail sales to final consumers.

The PST based on income criteria applies to a small taxable person that satisfies all the following conditions:

• The taxable person is dedicated to the provision of services, production of goods or belongs to the agriculture sector.

• The taxable person has annual income of DOP9.2 million or less (approx. USD158,000).

The PST allows the taxable person to benefit from the following:

• No obligation to file monthly purchases and sales data through the data submission formats (606, 607, 608, among others) established by the Dominican tax administration (DTA)

• No advanced payments of income tax

• No payment of the asset tax

• Right to opt for automatic payment agreements for the payment of taxes

• Simplified annual declaration forms for ITBIS and income tax

Group registration. Although the tax authorities do not apply group registration in practice, under the Dominican ITBIS provisions, the tax authorities may consider as unique taxable persons’ entities, individuals, enterprises or a combination of them, if they supply or render ITBIS-taxable goods or services and if these activities are controlled by the same person or persons (individuals, entities or combinations). If an individual exercises control or administers several businesses or establishments, the ITBIS imposed is considered to be the ITBIS of such individual.

Members of an ITBIS group in Dominican Republic are not jointly and severally liable for ITBIS debts and penalties. Instead, the representative member is responsible for ITBIS debts before the tax authorities.

There is no minimum time period required for the duration of an ITBIS group.

Non-established businesses. A “non-established business” is a business that has no fixed estab lishment in the Dominican Republic. The Dominican Tax Law does not provide a mechanism for the withholding of the ITBIS from non-established businesses. Consequently, a non-established business must register to pay ITBIS to the tax authorities if it supplies goods or services in the Dominican Republic. Once registered with the local authorities, the entity will be considered domiciled for fiscal purposes and will have to comply with all tax duties and obligations as if it were a formal established entity. To register for ITBIS, a non-established business must register with the Chamber of Commerce and the tax authorities.

The Dominican tax regulations do not provide a reverse-charge or refund mechanism for these entities.

Tax representatives. At the moment of registering an entity as a taxable person, a tax representa tive must be appointed.

Reverse charge. The reverse-charge mechanism is not allowed in the Dominican Republic. Consequently, if a non-established business supplies goods or services in the Dominican Republic, it must register for ITBIS to pay the ITBIS to the tax authorities, due on the supply made.

Domestic reverse charge. There are no domestic reverse charges in the Dominican Republic.

Digital economy. There are no specific ITBIS rules in relation to the digital economy. In principle, the same ITBIS rules should apply to goods and services that are provided digitally; nonetheless, the rules are not that clear. In practice, a non-established business providing digital services would generally be required to register for ITBIS and charge ITBIS on its supplies where the services are physically performed or used in the Dominican Republic.

At the time of preparing this chapter, the rules for registration and accounting for ITBIS in prac tice for nonresident providers of electronically supplied services (for both business-to-business (B2B) and business-to-consumer (B2C) supplies) are not clear. As such, several bills for the application of a tax to digital services are expected to be discussed by the tax authorities in the near future.

There are no other specific e-commerce rules for imported goods in the Dominican Republic.

Online marketplaces and platforms. The general rules for online marketplaces and platforms are provided through Law No. 126-02 on Electronic Commerce, Digital Documents and Signatures and its Regulation of Application the Decree No. 335-03. However, from a tax perspective, no specific ITBIS rules are provided for such supplies through online marketplaces and platforms.

Registration procedures. Tax registration can be done online via the virtual office of the tax author ity or physically. In the case of individuals, Form RC-01 must be filed before the tax authority with a copy of their tax ID or passport. In the case of legal entities, a previous procedure before the chamber of commerce must be carried out to register all corporate documentation (bylaws, shareholders’ meeting minutes, subscription list) regarding their legal constitution. Moreover, legal entities must file Form RC-02 before the tax authority, along with the previously registered docu mentation, to request their incorporation to the Taxable persons’ Registry (RNC for its Spanish acronym).

Deregistration. To deregister from the RNC, taxable persons must request from the tax authority an authorization for business termination and additionally submit within 60 days after its busi ness termination a final income tax return. Legal entities must also provide corporate documen tation approving the dissolution of the corporation.

Changes to ITBIS registration details. In the case of changes to the registration details of an indi vidual or entity (i.e., name of company, address, type of business) Forms RC-01 and RC-02, respectively, must be filed online or physically with the tax authority, along with a copy of the corporate documents that demonstrate or justify the changes made, for example, Mercantile Registry Certificate, shareholders’ meeting minutes, etc. The tax authority will review the new information and modify the registration within 30 days. Based on the Dominican tax code, noti fications of these changes must be made within 10 days after the date these changes are made.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of ITBIS, the zero rate.

The ITBIS rates are:

• Standard rate: 18%

• Reduced rate: 16%

• Zero rate: 0%

The standard rate of ITBIS applies to all supplies of goods or services, unless a specific measure provides for a reduced rate, the zero rate or an exemption.

• Exportation of goods

Examples of goods and services taxable at 0%

Examples of goods and services taxable at 16%

• Yogurt and other dairy derivatives

• Coffee

• Butter, margarine and oils

• Powdered cacao (with or without sugar) and unfilled cacao bars

• Sugar

• Live animals

Examples of exempt supplies of goods and services

• Fresh, refrigerated or frozen meat

• Fish for popular consumption or reproduction

• Milk, eggs and honey

• Non-processed fruit for massive consumption

• Cocoa, chocolate and some grains and cereals

• Certain types of medicines

• Certain types of books and magazines

• Education services, including theater, ballet, opera and dance

• Health services

• Electricity, water and garbage collection services

• Financial services (including insurance)

Option to tax for exempt supplies. The option to tax exempt supplies is not available in the Dominican Republic.

E. Time of supply

The time when the taxable event is considered to take place and ITBIS becomes due is called the “tax point.”

The basic time of supply of goods is when the invoice is issued or, if an invoice does not exist, the time of the delivery or the withdrawal of the goods.

The basic time of supply for services is the earlier of the following: (i) when the service is per formed, (ii) when the invoice is issued or (iii) when the price is paid in full or in part.

The basic time of supply for services is the earlier of the following:

• When the service is performed

• When an invoice is issued

• When the service is completed

• When the price is paid in full or in part

Deposits and prepayments. The time of supply for deposits and prepayments is when the price is paid in full or in part if it occurs before the issuance of the invoice or the provision of the service.

Continuous supplies of services. When there is a periodic payment/invoicing for ongoing services, the time of supply for the services is the earlier of when the invoice is issued or when the price is paid (in full or in part).

Goods sent on approval for sale or return. The time of supply for goods sent on approval for sale or return is when an invoice is issued by the receiver of the goods once it sells it to a third party.

If the goods are returned to the original seller, no ITBIS should apply.

Reverse-charge services. Local legislation in the Dominican Republic does not contain any provi sion for ITBIS for reverse-charge services.

Leased assets. The time of supply for leased assets is when the lease payment is due according to contractual terms or when it is paid, whichever occurs first.

Local legislation does not provide a special rule if the lease results in the transfer of ownership of the underlying assets. Nonetheless, the general time of supply rules should apply.

Imported goods. The time of supply for imported goods is when the goods are placed at the disposition of the importer.

F. Recovery of ITBIS by taxable persons

An ITBIS taxable person may deduct as input tax the advance taxes paid with respect to the fol lowing purchases:

• The purchase of domestic goods and services that are subject to ITBIS

• The importation of goods subject to ITBIS

The right to deduct advance taxes must be supported by proper documentation related to the local purchase or the importation of the goods.

There is no set time limit for a taxable person to reclaim input tax in the Dominican Republic. This mean that, effectively, the input tax (ITBIS credit) may be carried forward indefinitely until its complete recovery.

Nondeductible input tax. Taxable persons may deduct from their output tax the amounts that by concept of this tax have been paid in advance in the same period (input tax), if the following requirements are met:

• The input tax that is intended to be deducted corresponds to goods and services used to carry out activities subject to this tax, except in the case of exempt goods producers and exporters.

• The expense on which the ITBIS was incurred is deductible for the purposes of income tax.

• The input tax has been expressly transferred to the taxable person who intends to make the deduction.

• The input tax has not been considered as part of the cost or expense for the purposes of the allowable income tax deductions.

• The input tax does not come from acquisitions of goods that are part of Category 1 assets.

• The invoiced ITBIS is recorded separately in a fiscal invoice that meets the conditions estab lished in the Dominican legislation.

When it is not possible to segregate whether the imports or acquisitions of local goods and ser vices made by a taxable person have been used in taxed or exempt operations, the deduction of the taxes that have been charged will be made in the proportion corresponding to the amount of their taxed operations, considering the total of its operations in the period in question.

Examples of items for which input tax is nondeductible

• The purchase of ITBIS subject goods used for the sale of ITBIS exempt goods.

• The purchase of goods used in the construction of a building.

Examples of items for which input tax is deductible (if related to a taxable business use)

• Renting a car for a company employee for corporate use.

• Purchase of a mobile phone for a company employee for their professional activities.

Partial exemption. If it is not possible to determine whether the goods purchased or imported by a taxable person have been used in performing taxable or exempt activities, the ITBIS deduction is proportional. The deductible proportion is based on the value of the taxable person’s taxable operations in the tax year compared with the value of its total operations for the tax year.

ITBIS deduction = 100 x Taxable operations Total operations

ITBIS not deductible according to this formula should be considered as a cost of production for the goods supplied or services provided.

Approval from the tax authorities is not required to use the partial exemption standard method in the Dominican Republic. When filing the ITBIS return, the taxable person notifies the tax authorities of the deduction made.

Special methods are not allowed in the Dominican Republic.

Capital goods. The Dominican Republic tax regulations do not establish a definition for capital goods for indirect tax purposes. There are no special input tax recovery rules for capital goods. As such, input tax recovery is subject to the normal rules (as outlined above).

Refunds. Exporters that have excess credits for advanced payments of taxes on the purchase of materials employed in the production of exported goods may request a refund for the advanced tax.

If an invoice is voided within 30 days after its issuance, a refund of the ITBIS may be requested in that period.

Pre-registration costs. Taxable persons are not permitted to recover input tax paid on purchases made prior to registration for ITBIS purposes.

Bad debts. If customers do not pay businesses back for goods/services provided, the entity would be required to sustain this loss, as there is no ITBIS claim relief mechanism for bad debts in the Dominican Republic.

Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in the Dominican Republic.

G. Recovery of ITBIS by non-established businesses

Input tax incurred by non-established businesses in the Dominican Republic is not recoverable.

H. Invoicing

ITBIS invoices. An ITBIS taxable person must provide invoices indicating the amount of ITBIS collected for the taxable supplies made. In addition, invoices must include a Fiscal Supporting Number (Número de Comprobante Fiscal or NCF for its Spanish acronym) and the Taxable person’s Registration Number (RNC), among other requirements.

An invoice showing the NCF, RNC and the ITBIS amount separate from the total amount is generally necessary to support a claim for an input tax credit.

The invoice for every supply of goods or services rendered must show an NCF. The NCF is made up of an alphanumeric sequence granted by the tax authorities at the request of the taxable per son.

The NCF is required to support deductions for income tax purposes or ITBIS credits.

Invoices with NCFs may be printed directly by taxable persons through their computer systems or by establishments duly authorized by the tax authorities.

Credit notes. An ITBIS credit note may be used to reduce the ITBIS charged and reclaimed on a supply of goods and services within the next 30 days of the issuance of the invoice or the supply of the goods.

Electronic invoicing. Electronic invoicing is allowed in the Dominican Republic, but not mandatory. Electronic invoicing (e-CF) came into effect on 9 January 2020 with the publication of General Ruling (GR) 01-2020, which regulates the issuance and use of electronic fiscal receipts. Taxable persons may request the tax authority approval for the issuance of e-CFs and must comply with the requirements set forth in the ruling (article 6 GR 01-2020). Once authorized, they must request the sequential numbers of e-CFs through the Virtual Office (OFV) and they will be duly authorized to issue them.

The issuance of electronic invoices is optional and may only be issued by those taxable persons previously approved by tax authority.

Simplified ITBIS invoices. Simplified invoices are not contemplated in the Dominican Republic legislation. Nevertheless, Dominican legislation establishes the consumer’s invoice, which can be used to invoice the ultimate consumer of a good or service that will not be used as part of any subsequent commercial operation or activity.

The format is the same as an invoice, except for the customer’s tax information, which is not included in the consumer’s invoice. It is not possible to deduct ITBIS from a consumer’s invoice under any circumstances, provided that this kind of invoice is not used for tax purposes.

Self-billing. Self-billing is not allowed in the Dominican Republic. Proof of exports. Exported goods are zero-rated for ITBIS purposes. Under the ITBIS Law, a compensation and reimbursement procedure is provided for exporters. This procedure allows the com pensation or reimbursement of the ITBIS charged with respect to goods to be used for exportation activities. Customs documentation that can be used as evidence to show that exports have left the country include single customs declaration, origin certificate, commercial invoice and shipping list/documents.

Foreign currency invoices. It is acceptable for invoices including NCF to be issued in a foreign currency, as well as the domestic currency, which is the Dominican pesos (DOP).

Supplies to nontaxable persons. Certain businesses could be exempted from issuing individual tax invoices for final consumers based on the volume of their operations (e.g., supermarkets, gas stations, retailers) by being allowed to group tax invoices to final consumers in a single tax invoice, per day. Approval from the tax authority is required for the application of this rule.

Records. The Dominican Republic tax code establishes that taxable persons must be able to pro vide the tax authority with tax returns, reports, documents, forms, invoices, proof of legitimate origin of goods, receipts, lists of prices, etc., related to events generating tax obligations, and in general, provide all requested clarifications. No special rules for record-keeping are provided for indirect tax purposes.

Records may be held in or outside the Dominican Republic. However, records held outside the Dominican Republic must be readily available upon request by the tax authorities for review.

Record retention period. Conforming to the Dominican Republic tax code, accounting records need to be kept for 10 years.

Electronic archiving. Records can be kept and archived electronically or physically (i.e., on paper). The Dominican Republic legislation does not establish a specific format for said documentation.

I. Returns and payment

Periodic returns. ITBIS returns are submitted monthly. ITBIS taxable persons must file the return by the first 20 days of the following month of the verification of the tax liability. A tax return must be filed, even if no ITBIS is due by the taxable person for the period.

Periodic payments. ITBIS taxable persons must pay the corresponding ITBIS amount through the Form IT-1 by the first 20 days of the following month of the verification of the tax liability.

Tax due must be paid in Dominican pesos (DOP).

Electronic filing. Electronic filing is mandatory in the Dominican Republic for all taxable persons. ITBIS returns should be monthly submitted via the tax authority’s virtual office, through Form IT-1. The virtual office (Oficina Virtual) is an electronic means that allows taxable persons to make safe and timely inquiries and submit tax returns. It can be accessed through the tax authorities’ website (https://dgii.gov.do/cicloContribuyente/accesoOFV/Paginas/default.aspx)

Payments on account. Payments on account are not required in the Dominican Republic.

Special schemes. No special schemes are available in the Dominican Republic.

Annual returns. Annual returns are not required in the Dominican Republic.

Supplementary filings. Data formats. Along with the ITBIS monthly return, taxable persons must submit data formats 606 (to report purchases made), 607 (to report sales made) and 608 (for invoice cancellation).

Correcting errors in previous returns. Amendments to tax returns from past fiscal periods may be made through the virtual office of the tax authority. In the case of ITBIS returns, for taxable persons to be able to make the amendments, they must follow some specific requirements and comply with certain conditions, as outlined by the tax authority.

Digital tax administration. There are no transactional reporting requirements in the Dominican Republic.

J. Penalties

Penalties for late registration. A taxable person that fails to register for ITBIS on a timely basis may not deduct input tax paid on the purchase of goods and services. The tax authority may assess unpaid ITBIS, and penalties and interest are also assessed for late registration.

Penalties for late payment and filings. The following are the penalties for late payments of ITBIS or for the noncompliance with tax obligations:

• Surcharges: charged at 10% of the unpaid tax for the first month or fraction of a month, and at 4% per month for each successive month or fraction of a month.

• Interest: charged at 1.10% per month or fraction of a month. This amount is added to the sur charge.

Additionally, failing to file the corresponding tax returns is considered a violation of formal duties, and as such, a tax infraction subject to a penalty of 5 to 30 minimum wages. In practice, such penalty is currently established at approximately USD500.

The failure to pay ITBIS owed to the DTA on time would also lead to surcharges and interests.

Penalties for errors. Failure to fulfill formal tax duties could result in a fine of 5 to 30 times the minimum salary. The following, among others, are the violations:

• Failure to maintain accounting books or records required by law

• Providing false information when registering for ITBIS

• Not registering in the relevant tax registries

• Refusing to provide information to the tax authorities

• Failure to file tax returns for the calculation of tax payments (among others)

Failure to timely notify the tax authority of changes to a taxable person’s registration derails is considered a violation of the taxable person’s formal duties, and a penalty of 5 to 30 minimum wages can be applied by the tax authority. For further details see the subsection Changes to ITBIS registration details above.

Penalties for fraud. Tax evasion that does not constitute fraud occurs if, by any action or omission, a taxable person files an inaccurate tax return that results in a reduction in the tax payment to be made to the tax authorities. The penalty may consist of up to twice the unpaid amount plus inter est and the closure of the business. If the amount of the unpaid tax cannot be determined, a fine ranging from 10 to 50 times the minimum salary (the minimum salary is approximately USD200) may be imposed. The tax evasion penalty may not be applied simultaneously with surcharges for late payment.

Tax fraud occurs when information has been altered in a manner that causes the tax authorities to incorrectly compute the amount of tax due. The consequences of tax fraud may include a penalty ranging from 2 to 10 times the amount of the evaded tax, closure of the business establishment or the cancellation of an operating license.

Personal liability for company officers. The tax liability is personal; however, presidents, vice presi dents, directors, managers, administrators or representatives are jointly and severally responsible for the tax liability of taxable persons that are entities. Tax penalties may vary depending on the type of infraction, among which could be loss of privileges, closure of establishments, monetary fines, confiscation of property and imprisonment.

Statute of limitations. The statute of limitations in the Dominican Republic is three years. This starts from the day after the filing of the tax return and payment of the tax is due. The tax authorities may review, question and amend the transactions carried out and tax returns filed by taxable persons for a period of three years. Nonetheless, in certain circumstances the statute of limitations may be suspended or interrupted and therefore extended for a total of five years if:

• The taxable person or person responsible did not file the corresponding tax return or filed it with false information.

Or

• The tax authorities have given notice to the taxable person of an audit or verification.