Country Name: Dominican Republic
Currency: Dominican Peso (DOP)
Primary Tax Authority: Dirección General de Impuestos Internos (DGII) – General Directorate of Internal Taxes
Key Legislation:
- Income Tax Law (Ley de Impuesto sobre la Renta)
- Value Added Tax Law (Ley del Impuesto sobre las Transferencias de Bienes Industrializadas y Servicios – ITBIS)
- Tax Code (Código Tributario)
Fiscal Authority Allocation
Centralized Fiscal System:
The Dominican Republic operates a centralized tax system, with the General Directorate of Internal Taxes (DGII) responsible for administering and collecting taxes, including corporate income tax (CIT), personal income tax (PIT), and value-added tax (ITBIS). Local governments collect property taxes and municipal fees, but major tax revenues are centrally managed.
Corporate Income Tax (CIT)
Standard Rate: 27%
The Dominican Republic levies a corporate income tax rate of 27% on net taxable income. Non-resident companies are taxed on Dominican-sourced income only.
Corporate Forms and Taxation:
- Corporation (Sociedad Anónima – SA): The most common corporate form for large businesses, subject to the 27% CIT rate.
- Limited Liability Company (Sociedad de Responsabilidad Limitada – SRL): Commonly used by smaller businesses, also subject to the 27% CIT rate.
- Branches of Foreign Companies: Taxed at the same 27% CIT rate on Dominican-sourced income.
Exemptions and Incentives:
- Free Trade Zones (Zonas Francas): Companies operating in free trade zones benefit from CIT exemptions for a specified period, along with exemptions on VAT and customs duties. These zones are designed to promote exports and foreign investment.
- Tourism and Renewable Energy: Businesses in the tourism and renewable energy sectors may qualify for tax incentives, including CIT reductions, VAT exemptions, and accelerated depreciation.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
Standard Rate: 18%
The Dominican Republic applies a VAT rate of 18% (known as ITBIS) on most goods and services. VAT is levied on the sale of goods, the provision of services, and imports.
Reduced Rate: 16% for some goods and services, including basic food items and medicines.
Exemptions: Healthcare services, educational services, exports, and certain financial services are exempt from VAT. Exports are zero-rated, allowing companies to reclaim VAT paid on inputs used to produce exported goods.
Personal Income Tax (PIT)
Progressive Rates:
The Dominican Republic applies progressive personal income tax rates, as follows:
- Up to DOP 416,220: 0%
- DOP 416,221 to DOP 624,329: 15%
- DOP 624,330 to DOP 867,123: 20%
- Above DOP 867,124: 25%
Dividends:
Dividends are subject to a 10% withholding tax when paid to residents and non-residents.
Additional Mandatory Contributions
Social Security Contributions:
Employers and employees must contribute to the Dominican Republic’s social security system, which provides pensions, healthcare, and unemployment benefits.
- Employer Contribution: 14.17% of gross salary (10% for pensions and 4.17% for healthcare).
- Employee Contribution: 5.91% of gross salary (2.87% for pensions and 3.04% for healthcare).
Withholding Taxes
- Dividends: 10%
- Interest: 10%
- Royalties: 27%
Withholding tax rates can be reduced under the Dominican Republic’s double taxation agreements (DTAs).
Transfer Pricing Rules
The Dominican Republic follows OECD transfer pricing guidelines. Related-party transactions must comply with the arm’s-length principle, and companies must maintain documentation to support the pricing of cross-border related-party transactions.
Special Tax Regimes
- Free Trade Zones: Companies in free trade zones benefit from full CIT exemptions for 15 to 20 years, depending on the type of activity. These zones aim to attract foreign investment in manufacturing, assembly, and export services.
- Tourism Incentives: The Dominican Republic provides tax incentives to companies investing in the tourism sector, including CIT reductions, VAT exemptions, and accelerated depreciation for tourism-related projects.
- Renewable Energy Incentives: The country offers tax benefits for investments in renewable energy projects, including CIT exemptions, customs duty exemptions on imported equipment, and VAT exemptions.
Other Taxes
- Real Estate Tax: Property taxes are levied at 1% on the value of real estate exceeding DOP 8.2 million (approximately USD 145,000).
- Capital Gains Tax: Capital gains are taxed at a rate of 27%, though gains on the sale of shares may qualify for lower rates under certain conditions.
- Excise Taxes: The Dominican Republic imposes excise taxes on specific goods, such as alcohol, tobacco, and fuel.
Double Taxation Agreements (DTAs)
The Dominican Republic has signed several double taxation agreements, including with countries such as Spain, Canada, and the United States. These agreements help reduce withholding taxes on dividends, interest, and royalties and prevent the double taxation of cross-border income.
Local Taxes
Local municipalities in the Dominican Republic collect property taxes and certain municipal fees. However, the central government, through the DGII, is responsible for collecting income taxes, VAT, and other major taxes.
Compliance and Reporting
Annual Filing:
Corporate tax returns must be filed by April 30th of the following year. Personal income tax returns are due by the same date. The tax year in the Dominican Republic follows the calendar year.
Penalties for Late Filing:
Penalties for non-compliance or late filing include interest on overdue taxes and fines. Interest rates on unpaid taxes are generally set at 1.5% per month, with additional penalties for non-compliance.
Recent Developments
Tax Reform:
The Dominican Republic has enacted various tax reforms aimed at increasing tax compliance and boosting revenue. Recent changes include the introduction of electronic invoicing, enhanced transfer pricing regulations, and measures to reduce tax evasion in the informal economy.
Digital Economy Tax:
The government is considering a digital services tax that would apply to foreign digital service providers offering services to Dominican consumers, such as streaming platforms, e-commerce sites, and online advertising services.
Tourism and Energy Investments:
The Dominican Republic continues to promote tourism and renewable energy investments through targeted tax incentives, including VAT exemptions and CIT reductions for companies developing sustainable tourism projects and green energy initiatives.
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