Country Name: Dominica
Currency: East Caribbean Dollar (XCD)
Primary Tax Authority: Inland Revenue Division (IRD)
Key Legislation:
- Income Tax Act
- Value Added Tax Act
- Corporate Tax Act
Fiscal Authority Allocation
Centralized Fiscal System:
Dominica operates a centralized tax system, with the Inland Revenue Division (IRD) responsible for administering and collecting taxes, including corporate income tax (CIT), personal income tax (PIT), and value-added tax (VAT). Local governments have limited authority to collect minor fees, but the central government oversees most tax collection.
Corporate Income Tax (CIT)
Standard Rate: 25%
Dominica levies a corporate income tax rate of 25% on net taxable income for resident companies. Non-resident companies are taxed on Dominica-sourced income.
Corporate Forms and Taxation:
- Corporation (Company): The most common corporate form, subject to the 25% CIT rate.
- International Business Company (IBC): IBCs that conduct business exclusively outside of Dominica are typically exempt from corporate income tax.
- Branches of Foreign Companies: Taxed at the same 25% CIT rate on Dominica-sourced income.
Exemptions and Incentives:
- Tax Holidays: Companies in certain sectors, such as manufacturing, tourism, and agriculture, may qualify for tax holidays of up to 20 years.
- Investment Incentives: Dominica offers various incentives for businesses investing in key sectors, including tourism, agriculture, and renewable energy. These incentives include CIT reductions and customs duty exemptions.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
Standard Rate: 15%
Dominica applies a VAT rate of 15% on most goods and services. VAT is levied on the sale of goods, provision of services, and imports.
Reduced Rate: 10% for certain tourism-related services.
Exemptions: Basic food items, educational services, healthcare services, and certain financial services are exempt from VAT. Exports are zero-rated, allowing businesses to reclaim VAT paid on inputs used in export production.
Personal Income Tax (PIT)
Progressive Rates:
Dominica applies progressive personal income tax rates to residents and non-residents earning Dominica-sourced income:
- Up to XCD 30,000: 0%
- XCD 30,001 to XCD 50,000: 15%
- XCD 50,001 to XCD 100,000: 25%
- Above XCD 100,000: 35%
Dividends:
Dividends paid to residents are exempt from income tax, while dividends paid to non-residents are subject to a 15% withholding tax.
Additional Mandatory Contributions
Social Security Contributions:
Employers and employees must contribute to Dominica’s social security system, which provides pensions, healthcare, and unemployment benefits.
- Employer Contribution: 7% of gross salary.
- Employee Contribution: 6% of gross salary.
Withholding Taxes
- Dividends: 15% for non-residents (exempt for residents).
- Interest: 15%
- Royalties: 15%
Withholding tax rates may be reduced under Dominica’s double taxation agreements (DTAs).
Transfer Pricing Rules
Dominica does not have formal transfer pricing regulations, but companies engaging in related-party transactions are expected to adhere to international best practices and ensure that such transactions are conducted at arm’s length.
Special Tax Regimes
- International Business Companies (IBCs): IBCs conducting business outside of Dominica are generally exempt from income tax, capital gains tax, and withholding taxes, making Dominica a popular jurisdiction for offshore business activities.
- Tourism Incentives: Companies investing in the tourism sector may benefit from tax holidays, VAT exemptions, and reduced import duties on tourism-related equipment.
- Renewable Energy Incentives: Dominica provides tax exemptions and incentives for investments in renewable energy projects, including exemptions on CIT and VAT for qualifying projects.
Other Taxes
- Real Estate Tax: Property taxes are levied annually, ranging from 1% to 1.5% of the property’s assessed value.
- Capital Gains Tax: Dominica does not impose a separate capital gains tax. Capital gains are typically included as part of ordinary income and taxed at the applicable CIT or PIT rates.
- Excise Duties: Excise taxes apply to specific goods such as alcohol, tobacco, and fuel.
Double Taxation Agreements (DTAs)
Dominica has signed several double taxation agreements with countries such as the United Kingdom and CARICOM member states. These agreements help reduce withholding taxes on dividends, interest, and royalties and prevent double taxation of cross-border income.
Local Taxes
Local governments in Dominica collect property taxes and certain minor fees. However, the majority of tax revenue is collected and administered by the Inland Revenue Division (IRD).
Compliance and Reporting
Annual Filing:
Corporate tax returns must be filed by March 31st of the following tax year. Personal income tax returns are due by the same date. The tax year in Dominica follows the calendar year.
Penalties for Late Filing:
Penalties for non-compliance or late filing include interest and fines. Interest on unpaid taxes is generally charged at 1% per month, with additional penalties for significant delays.
Recent Developments
Digital Economy and E-commerce:
Dominica is exploring regulations to tax digital services and e-commerce activities. With increasing internet access, the government is looking to capture revenue from online platforms and digital transactions.
Green Energy Investments:
Dominica is prioritizing renewable energy projects, offering tax incentives to attract investment in geothermal, solar, and wind energy. These incentives include tax holidays and VAT exemptions for qualifying energy projects.
Economic Citizenship Program:
Dominica’s Citizenship by Investment (CBI) program continues to attract foreign investors, offering citizenship in exchange for investments in the country. These investments often qualify for tax incentives, including exemptions from CIT, VAT, and import duties.
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