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)
Ludovino Colon
International Mobile: +1 (239) 961-5947 Email: juan-carlos.chavarria@cr.ey.com
+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
Corporate Income Tax Rate (%)
Capital Gains Tax Rate (%)
Tax Rate (%)
Tax (%)
(a)
Dividends 10 (b)
10 (c)
(d)
Other Dominican-source Income
Remittance Tax
Operating Losses (Years)
(e)
(a) The Dominican Tax Regulations do not contemplate an exclusive or addi tional 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 individu als and to nonresident individuals, companies and unincorporated business entities.
(d) This withholding tax applies to royalty payments made to nonresident per sons.
(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
• Income from personal labor, the exercise of a profession or a job
• Income from the exploitation of all types of industrial property or know-how
• Income from technical assistance services, provided from abroad or within the Dominican Republic
• Income from rental or leasing activities
B. Taxes on corporate income and gains
Corporate income tax. Resident corporations are subject to tax on their Dominican-source income and on their foreign-source in come derived from investments and financial gains, such as divi dends and interest from bonds acquired abroad.
A company is resident in the Dominican Republic if it is incorporated in the Dominican Republic.
A foreign company is considered domiciled in the Dominican Republic if it has its principal business or its effective manage ment located in the Dominican Republic. Nonresidents operating through a permanent establishment are subject to income tax as companies incorporated in the Dominican Republic.
Corporate income tax rates. The corporate income tax rate is 27%.
Full exemptions or certain income tax credits usually apply to companies established in designated Free-Trade Zones (FTZs) or to companies to companies benefiting from other special incentive laws, including, among others, the Frontier Development Law (Law 12-21), the Tourism Development Law (Law 158-01, as amended by Law 195-13) and the Film Law (Law 108-10).
Asset tax. The annual asset tax is assessed at a rate of 1% on the assets registered in the taxpayer’s accounting books.
The tax base is the net carrying value of the taxpayer’s assets at the end of the fiscal year as indicated in the balance sheet, not adjusted by inflation and after applying depreciation, amortization and reserves for bad debt expenses. Investments in shares of another company, real estate used for agricultural exploitation and advance tax payments are excluded from the tax base. Corporate income tax is creditable against the asset tax. The asset tax is calculated in the annual income tax return.
For financial institutions, electricity companies, stockbrokers, pension fund administrators, investment fund administrators and securitization companies, the tax base for the asset tax is the total value of fixed assets (net of depreciation) according to the balance sheet at the end of the tax period.
Entities that benefit from corporate income tax exemptions based on special laws or public contracts approved by Congress are exempt from the asset tax.
Capital gains. Gains derived from direct and indirect transfers of assets or rights located or economically exploited in the Dominican Republic are taxable and subject to the capital gains tax rate of 27%. Under the Dominican Republic Tax Code, capital gains may arise from the transfer of shares, land or other capital assets pos sessed by taxpayers, regardless of whether the gains are connected to the taxpayers’ businesses. The following assets are not consid ered capital assets:
• Commercial inventories or assets possessed principally for sale to clients in the ordinary course of business
• Depreciable assets
• Accounts or promissory notes acquired in the ordinary course of business for services rendered or derived from the sale of inventory assets or assets sold in the ordinary course of business
The capital gain tax base equals the difference between the trans fer price of the assets and the cost of acquisition or production (adjusted for inflation).
Administration. In general, the tax year is the calendar year. However, companies may adopt a fiscal year ending on 31 March, 30 June or 30 September. The income tax return must be filed within 120 days after the end of the fiscal year.
All companies must make monthly income tax prepayments. For taxpayers that had an effective tax rate (ETR) in the preceding tax year that was lower or equal to 1.5%, each prepayment equals the amount resulting from applying the 1.5% rate to the gross income reported in the preceding fiscal year. Taxpayers with an ETR higher than 1.5% must make monthly prepayments corresponding to 1/12 of the income tax paid in the preceding fiscal year. The ETR is determined by dividing the income tax paid in the preced ing fiscal year by the gross income of the same period.
Taxpayers can request up to a two-month income tax return filing extension.
Indemnity interest at a rate of 1.10% is charged monthly on outstanding balances of taxes due. In addition, a penalty of a 10% surcharge applies for the first month, and a 4% surcharge applies for each month or fraction of a month thereafter.
Noncompliance by the taxpayer with tax obligations may be subject to a penalty of 5 to 30 minimum wages.
In addition, a penalty equal to 0.25% of the income declared in the preceding fiscal year may be applied.
Dividends. Dividends (and all other types of distributions of earn ings) are subject to a final withholding tax of 10%. Under the Dominican Tax Code and its regulations, a dividend is defined as any distributions of profits or reserves made by any type of cor poration or entity to a shareholder, partner or participant. The following are included in the concept of dividends:
• Accounts receivable or similar arrangements that a corporation or entity has with its shareholders, members or participants, if they were not generated by a commercial transaction and if no principal or interest payments have been made in a period of more than 90 calendar days.
• Share capital reductions, if capitalized reserves and/or retained earnings exist, until these reserves and earnings accounts are exhausted. This does not apply to capital returns derived from the liquidation of the entity, whereby the first amounts distrib uted are deemed to be capital returns rather than the distribution of retained earnings.
In the case of an in-kind dividend distribution paid in stock, tax is not incurred at the time of distribution. The value of the shares received is determined by taking the acquisition value of all the new and old titles that the taxpayer owns after the distribution 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 prop erly 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 sup ported 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 trans fers and checks).
Dominican Republic law provides the following specific limita tions for the deduction of interest:
• A special anti-avoidance rule, which limits the interest deduct ible based on the effective tax rate of the interest recipient
• A thin-capitalization limitation, which limits the amount de ductible 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 out lined below.
Nonresident insurance companies. Nonresident insurance com panies 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 ren dered 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 addi tion, 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 allow able 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 compen sation 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 deprecia tion. The following are the generally applicable depreciation rates provided by law.
Asset Rate (%)
Buildings 5 Light vehicles and office equipment, including computers 25 Other assets 15
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.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax Rate (%)
Value-added tax; standard rate 18
Social security contributions
Mandatory health contributions; imposed on salary up to a maximum amount of 10 legal minimum wages
Employer 7.09
Employee 3.04
Mandatory pension contributions; imposed on salary up to a maximum amount of 20 legal minimum wages
Employer 7.10
Employee 2.87
Government Training Institution (INFOTEP) contribution on the payroll amount; payable monthly by the employer 1
Labor risk contributions; payable by employer on salary up to a maximum amount of 4 legal minimum wages; rate varies according to the risk level of the company’s activity 1.10 to 1.30 Workers’ compensation insurance Various Telecom Tax; imposed on the consumption of telecom services by legal entities and individuals in the Dominican Republic; tax rate applied to gross payment 10 Tax on financial transactions; imposed on the value of checks and wire transfer transactions and on payments made to third parties (the tax applies even if the wire transfer is made to an account in the same bank) 0.0015
E. Miscellaneous matters
Foreign-exchange controls. The Central Bank of the Dominican Republic (Banco Central de la República Dominicana) has liber alized foreign-exchange controls. Only individuals and compa nies generating foreign currency from exports, services rendered and other specified activities are required to exchange foreign currency with the Central Bank through commercial banks. The Central Bank is not required to furnish foreign currency to satisfy demands for foreign payments. Individuals and companies may buy foreign currency from, or sell it to, commercial banks.
As of 25 January 2022, the exchange rate was USD1 = DOP57.92.
Transfer pricing. Transfer-pricing regulations apply to entities that perform transactions with the following:
• Nonresident “related parties”
• Resident “related parties”
• Individuals or entities domiciled or located in states with pref erential tax regimes or low or no taxation (tax havens)
Under the transfer-pricing regulations, “related parties” include, among others, the following situations:
• One of the parties participates in the direct or indirect manage ment, control or equity of the other.
• The same individuals or entities participate directly or indi rectly in the management, control or equity of the parties.
• One of the parties transfers more than 50% of its production to the other, and at least one of them is resident or domiciled in the Dominican Republic.
Under the transfer-pricing regulations, the prices established in controlled transactions must comply with the arm’s-length principle, which means that the prices established among related parties should be agreed as if they were carried among independent parties, in comparable transactions and under the same or similar circumstances.
Taxpayers subject to the transfer-pricing regulations must comply with the following requirements:
• They must file a Transfer Pricing Tax Return. This return must be filed with the tax authorities within 180 days after the end of the fiscal year.
• They must conduct a transfer-pricing study in order to justify the prices used in intercompany transactions.
However, if taxpayers only carry on controlled transactions locally or if their controlled transactions do not exceed DOP13,229,946, they are not required to conduct a transferpricing study.
The Dominican tax authorities have the power to challenge the prices agreed between the related parties and adjust them, if the prices agreed result in lower taxation in the Dominican Republic or a deferral in the tax payment.
F. Treaty withholding tax rates
The following are the maximum withholding tax rates under the Dominican Republic’s double tax treaties.
Dividends Interest Royalties
Canada
Non-treaty
(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.