Tax Code Archives - Guzmán Ariza | The Dominican Republic Law Firm

Taxation in the Dominican Republic

Legislation, Administration and Collection

Taxation in the Dominican Republic is governed by Law 11-92, commonly referred to as the Tax Code, and its corresponding regulations. The administration and collection of taxes are the responsibility of the Dominican Internal Revenue Agency (Dirección General de Impuestos Internos), known by its Spanish acronym, DGII.

Customs duties, established under separate legislation, are administered and collected by the Customs Agency (Dirección General de Aduanas).

Territoriality

Dominican tax law is primarily territorial, meaning taxes are generally collected only on income derived from Dominican sources. Consequently, all income from work or business activities conducted within the Dominican Republic is taxable, regardless of whether the individual or entity is Dominican, a resident or nonresident foreigner, or a foreign company operating with or without a local branch. Conversely, income generated from work performed outside the Dominican Republic is not subject to local taxation, even if received by Dominican nationals, resident foreigners, or foreign companies with Dominican branches.

The only exception to this territorial principle pertains to financial income earned abroad by Dominicans or residents of the Dominican Republic. Such income is taxable locally. Typical sources of foreign financial income include stocks, bonds, mutual funds, and certificates of deposit. Dominicans who return after residing abroad and foreigners who become Dominican residents are exempt from paying taxes on their foreign-sourced financial income for the first three years following their return or establishment of residency. Additionally, pensions, social security benefits, and income received by investors who obtained residency under the provisions of Law 171-07 are expressly exempted.

For tax purposes, individuals residing in the Dominican Republic for more than 182
days within any continuous 12-month period are considered residents.

All taxpayers are required to register with the Internal Revenue Agency and obtain a taxpayer identification number.

Main Taxes

The principal taxes affecting businesses in the Dominican Republic include:

Income tax
Capital gains tax
Goods and services tax (ITBIS)
Excise tax
Real estate tax
Tax on company assets

Income Tax

Both companies and individuals must pay taxes on their net taxable income.

Corporate Tax Rate

All business entities are subject to a flat tax rate of 27%. Unlike in the United States and other countries, the Dominican Republic applies identical tax treatment to corporations, LLCs, and partnerships.

Determination of Corporate Net Taxable Income

Net taxable income is calculated by subtracting legally allowed deductions from gross income. Permitted deductions include expenses directly related to business operations, interest payments on debt, depreciation, amortization of intangible assets, charitable donations (up to 5% of net taxable income for the fiscal period), and research and development expenses unrelated to mineral extraction. Only expenses and losses incurred to generate local taxable income can be deducted. Net operating losses from any fiscal year may be carried forward for up to five years but cannot be carried back.

Corporate Income Tax Returns

All companies, including those without income or business activity, must file annual income tax returns with the DGII.

For companies operating on a calendar year, returns must be filed by April 30. Companies with a non-calendar fiscal year must file returns within 120 days of their fiscal year-end. Returns must be accompanied by financial statements for the corresponding fiscal year.

Payment in Advance of Corporate Income Tax

Corporate income tax is paid monthly in advanced installments of 1/12th of the total amount paid for the previous fiscal year. These advance payments are later compensated against the taxes due for the current fiscal year.

Income Tax Rates for Individuals

Natural persons who receive income from a Dominican source or from financial investments will pay taxes as follows:

Taxable Income (in DOP) Tax (in DOP)
0 to 416,220.00 0
416,220.01 to 624,329.00 15% of taxable income over 416,220.01
624,329.01 to 867,123.00 31,216.00 plus 20% of taxable income over 624,329.01.
More than 867,123.01 79,776.00 plus 25% of taxable income over 867,123.01.

Taxable income brackets are adjusted annually for inflation.

Only educational expenses can be deducted for income tax purposes. Unlike in the United States, no deductions are allowed for dependents, mortgage interest or medical expenses. Married couples must file separate returns.

Individuals who receive an annual income of more than 416,220.00 DOP from non-wages sources must file a tax declaration every year, on or before March 31.

Capital Gains Tax

The Dominican Tax Code defines a capital gain as the difference between the sale price of a capital asset and its acquisition price or production cost, adjusted for inflation. For assets subject to depreciation, inflation adjustments are applied to the residual value. This adjustment prevents taxpayers from being unfairly taxed on price increases caused solely by inflation —a feature not typically available in the United States and many other countries. Unlike other jurisdictions, there are no exemptions from the payment of capital gains taxes, even if the proceeds of a sale are used for long-term investments.

Capital gains tax rates are identical to regular income tax rates: 27% for companies and a progressive scale ranging from 0% to 25% for individuals.

Capital gains calculations must be made exclusively in Dominican pesos.

Goods and Services Tax (ITBIS)

The Goods and Services Tax (GST), known locally by its Spanish acronym ITBIS, is a value-added tax of 18% applied to the sale and importation of most goods and services. For imports, the GST is calculated based on the CIF (cost, insurance, and freight) value plus any applicable customs duties. A reduced GST rate of 16% applies to specific food products.

The 18% GST must be explicitly added to each invoice issued for goods and services. Individuals or business entities that collect GST are required to remit it to the DGII within the first 20 days of the subsequent month. Noncompliance results in a 10% surcharge for the first month overdue, an additional 4% for each following month, and a monthly penalty of 1.1% for each month or fraction thereof.

Taxpayers may deduct from the total GST collected any GST amounts paid to suppliers, vendors, customs, and similar entities.

Certain goods and services are exempt from GST, including basic foodstuffs, medicines, fuels, fertilizers, books, magazines, educational materials, financial services, transportation, residential rentals, utilities, educational and cultural services, and goods intended for export.

Excise Tax

Excise taxes apply to the purchase or importation of certain goods and services, including motor vehicles, firearms, tobacco products, alcoholic beverages, jewelry, electronics, telecommunication services, insurance, and payments made by check. Rates vary depending on the item or service. For example, telecommunication services are taxed at 10%, insurance at 16%, and payments by check or wire transfers at 0.15%.

Real Estate Tax (IPI)

An annual real estate tax of 1% is imposed on properties owned by individuals and trusts, calculated based on the total value of all properties owned by each individual, as appraised by government authorities. The valuation excludes furniture and equipment.

For individuals, the tax applies only to values exceeding 10,190,833.00 DOP (approximately $160,000.00). For trusts, the tax is calculated based on the full appraised value, without any exemption.

Real estate tax payments are due annually by March 11 or can be divided into two equal installments, with the first due by March 11 and the second by September 11.

The exemption threshold is adjusted annually for inflation.

The following types of properties are exempt from real estate tax:

Agricultural properties.
Primary residences owned by individuals aged 65 or older who have no other property.
Properties owned by companies, as these entities pay a separate tax on company
assets.

Tax on Company Assets

Companies pay an annual tax equal to 1% of their total assets. This tax is credited against the company’s income tax obligations, provided such obligations exist due to profits earned.

Tax Incentives

Various tax incentives are available for specific industries and investment scenarios, as outlined previously in the section “Investing in the Dominican Republic.” Please refer to that section for detailed information.

Withholdings at the Source

Companies must apply withholdings in the following scenarios:

Employee salaries. Employers must withhold income taxes from employees’ salaries and remit them to the DGII within the first ten days of the following month.
Payments abroad. Payments made to non-resident individuals or entities are generally subject to a 27% withholding tax, considered final and without deductions. Exceptions include payments to residents of Canada (18%) and interest payments to financial institutions or payments by Dominican branches to their foreign headquarters (10%).
Dividends. Companies must withhold 10% on dividends distributed to shareholders.
Rentals. Payments made to individuals (not companies) for rentals are subject to a 10% withholding tax.
Fees for services and commissions. Payments to individuals (not companies) for services or commissions incur a 10% withholding tax.

Anti Avoidance Rule

Based on the substance-over-form principle, the Dominican Tax Code contains a general anti-avoidance provision allowing the DGII to disregard certain legal entities or transactions intended primarily to secure unjustified tax advantages.

Transfer Pricing Rules

The Dominican Republic has implemented transfer pricing regulations aligned with OECD guidelines. These rules apply to transactions involving resident companies or individuals that engage commercially or financially with related entities or with parties domiciled in jurisdictions featuring preferential (low or zero) tax regimes or blacklisted territories, irrespective of their relationship status. Companies must file an annual transfer pricing information return with the DGII.

Double Taxation Treaties

The Dominican Republic has double taxation treaties in force with Canada (since 1977, covering only income taxes) and Spain (since March 2014, covering income and capital gains taxes).

Foreign Accounts Tax Compliance Act (FATCA)

The Dominican Republic’s DGII and the U.S. Internal Revenue Service (IRS) have established a bilateral financial and tax information exchange agreement under the Foreign Account Tax Compliance Act (FATCA) of 2010. FATCA mandates financial institutions in participating countries to provide information regarding the accounts of U.S. citizens, residents, corporations, estates, and trusts to ensure compliance with U.S. tax laws.

Under the intergovernmental agreement (IGA), Dominican financial institutions report FATCA-related data to the DGII, which subsequently transfers this information to the IRS. This reciprocal agreement also requires the United States to provide relevant financial information about Dominican residents to the DGII.

An Overview of Taxation in the Dominican Republic

Introduction

Taxation in the Dominican Republic is governed by Law No. 11-92 of May 31, 1992, commonly known as the Tax Code (“Código Tributario”), its amendments and regulations (“Reglamentos”). This overview is a brief summary of the Tax Code’s most relevant provisions. All references in parentheses refer to articles in the Tax Code unless otherwise specified.

Taxes are collected by the Bureau of Internal Revenue (Dirección General de Impuestos Internos or DGII), an autonomous government entity which may also issue its own regulations (“Normas”).

Dominican income tax law is primarily territorial. All income derived from work or business activities in the Dominican Republic is taxable, no matter if the person is a Dominican, a resident foreigner or a nonresident foreigner (Articles 269 and 270).

Income derived from work done outside of the Dominican Republic, by Dominicans or resident foreigners, is not taxable in the Dominican Republic.

The exception to the principle of territoriality is income from financial sources abroad (Articles 269 and 271). A Dominican or a resident foreigner receiving income from financial investments (stocks and bonds, certificates of deposits, etc.) must pay taxes in the Dominican Republic on their income from those investments (Art. 269). Pensions and social security benefits are exempt (Art. 2 of Reglamento #139-98). For the resident foreigner, this obligation only starts three years after obtaining residency (Art. 271); however, those who have obtained their residence as retirees are exempt from paying taxes on the income they have declared for resident purposes. (Art. 10 of Law 171-07).

For tax purposes, any person residing in the Dominican Republic for more than 182 days in a year is considered a resident (Art. 12).

The Tax Code includes a general anti-avoidance provision whereby the tax authorities may ignore the existence of legal entities or certain transactions when used to secure a tax advantage (Art. 2).

Law #53 of 1970 makes it mandatory for all taxpayers to register with the tax authorities and obtain a tax or RNC (“Registro Nacional de Contribuyentes”) number.

The most important taxes in the Dominican Republic are the following:

Income Tax

For Individuals

Individuals obtaining income from a Dominican source or from financial investments abroad shall pay taxes according to the following scale (Art. 296), in Dominican pesos (RD$):

Income up to RD$399,923.00 annually   –    exempt
RD$399,923.01 to RD$599,884.00       –    15%
RD$599,884.01 to RD$$833,171.00       –   RD$29,994.00 plus 20% of income above    RD$599,884.01.
Income above $833,171.01           –   RD$76,652.00 plus 25% of income above    RD$833,171.01

This scale is adjusted for inflation every January based on the rate of inflation calculated by the Central Bank of the Dominican Republic. This adjustment has been recently suspended for the period 2013 to 2015 (Art. 3 of Law 253-12).

Employers must retain and pay to the DGII, within the first ten days of each month, any income tax due on the salaries paid to their employees the previous month (Art. 307). Individuals who receive incomes from non-wage sources must file a tax declaration every year, on or before March 31 (Art. 110 of Regulation #139-98).

For Corporations and Other Entities

Corporations and any other for-profit organizations pay a flat 29% income tax on net taxable income (Art. 297). The rate will be reduced to 28% for fiscal year 2004 and to 27% thereafter. Unlike in the United States and other countries, in the Dominican Republic the tax treatment for corporations, partnerships and limited liability companies is exactly the same.

Net taxable income is determined after deducting from gross income those deductions, credits and advance payments admitted by law (Articles 284 to 287).

All corporation and for-profit entities must file a tax declaration every year, on or before April 30, if their business year coincides with the calendar year. Otherwise, the filing must be done within 120 days after the end of the business year (Art. 112 of Regulation #139-98)

Capital Gains Tax

Capital gains are defined as the difference between the sale price of an asset and the acquisition or production price adjusted for inflation (Art. 289). Capital gains are taxed as regular income.

An example: if an individual with an annual income higher than RD$833,171.01 purchases a house for RD$4 million pesos and sells it two years later for $6 million pesos, while inflation during the two-year period is a cumulative 15%, the tax due on capital gains is calculated as follows:

RD$6 million pesos – $4.6 million pesos ($4 million pesos + 15%) x 25% tax = $350,000 pesos.

Taxes are levied based on the capital gains calculated in Dominican pesos.

Tax on the Transfer of Industrialized Goods and Services (ITBIS)

The ITBIS is a value-added tax applicable to the transfer and importation of most goods , and to most services (Art. 335). The rate of the ITBIS is 18% (Art. 341). For imports, the ITBIS is charged on the CIF value of the goods plus applicable duty (Art. 339).There are many exemptions to the ITBIS tax (Arts. 342 and 343), among them, the following:

•   exported goods
•   some basic foodstuffs
•   medicines
•   fuels
•   fertilizers
•   books and magazines
•   educational materials
•   financial services
•   transportation services
•   home rentals
•   utilities
•   educational and cultural services

The 18% IBIS must be added to every bill for goods and services that are not exempt. The individual or entity receiving the ITBIS must disburse it to the GII within the first 20 days of the following month (Art. 353). Noncompliance is subject to a 10% surcharge for the first month and 4% for each month thereafter, in addition to 2.58% interest for each month or fraction of a month (Art. 252). From the total ITBIS received, the individual or entity is allowed to deduct any ITBIS paid to suppliers, customs, etc. (Art. 346).

Selective Consumption Tax (ISC)

The Selective Consumption Tax is applied to the acquisition or import of certain goods and services, such as the following (Articles 361, 381 to 383):

•   motor vehicles
•   guns
•   tobacco products
•   alcohol products
•   jewelry
•   Electronic products
•   long distance phone calls
•   insurance

The ISC rate varies according to the good or service taxed.

Tax on Assets

Businesses and corporations must pay a 1% annual tax on assets (Arts. 401 and 404) in two instalments due on April 30 and October 30 (Art. 405). For the purposes of this tax, all assets are taken into account, minus depreciation and amortization, except: a) stock holdings in other corporations, b) real estate in rural areas, c) real estate used for agriculture or animal husbandry, d) tax advances and e) provisions for bad debts (Art. 402).

The tax on assets operates as a kind of minimum income tax. If the income tax paid by the business or corporation is equal or higher than the amount of the tax on assets, then the business will have no obligation to pay the tax on assets (Art. 407). If the income tax paid is less than the amount of tax on assets due, the business must pay the difference.

New capital-intensive businesses may obtain a temporary exemption from this tax if certain conditions are met.

The tax on assets will be eliminated in 2015. Also, the tax rate for 2014 will be reduced to 0.5%. After 2015, real estate properties held by corporations will pay the same property tax as individuals.

Real Estate Tax

A 1% annual tax is assessed on any real property owned by individuals, based on the cumulative value of the properties owned by the same individual, as appraised by the government authorities. (Articles 1 to 3 of Law #18-88). Properties are valued without taking into account any furniture or equipment to be found in them. For built lots, the 1% is calculated only for values exceeding RD$6.5 million pesos. For unbuilt lots, the 1% tax is calculated on the actual appraised value without the RD$6.5 million pesos exemption. Individuals must pay this tax every year on or before March 11, or in two equal instalments: 50% on or before March 11, and the remaining 50%, on or before September 11.

The RD$6.5 million pesos threshold is adjusted annually for inflation.

The following properties are exempt from this tax:

(1) Built properties valued at RD$6,500,000 or below.
(2) Farm properties.
(3) Properties whose owners are 65 years old or older, who have owned it for more than 15 years and have no other property in their name.
(4) Properties subject to the Tax on Assets.

Real Property Transfer Tax

A 3% tax is assessed on any transfer of ownership of real estate (Art. 20 of Law #288-04). The transfer tax is paid based on the market value of the property as determined by the appraisal done by the DGII, not on the price of purchase stated in the deed of sale. The deed of sale cannot be filed at the Title Registry Office without paying this tax. The transfer tax must be paid within six months of the date of the deed of sale (Art. 7 of Law #173-07). Noncompliance is subject to fines.

Properties worth less than RD$1 million pesos acquired through a bank loan are exempt from the transfer tax (Art. 20 of Law #288-04). The RD$1 million pesos exemption is adjusted annually for inflation.

Tax on Mortgages

A 2% tax is levied on all mortgages recorded in the Dominican Republic (Art. 8 of Law #173-07).

Tax on Transfers of Motor Vehicles

A 2% tax is levied on any change of ownership of motor vehicles (Art. 9 of Law #173-07). The transfer tax must be paid within three months of the date of the acquisition. Noncompliance is subject to fines.

Inheritance and Gift Taxes

The estate of any person, Dominican or foreign, whose last domicile was in the Dominican Republic is subject to Dominican inheritance taxes. The inheritance of property located in the Dominican Republic is subject to Dominican inheritance taxes, irrespective of the nationality or domicile of the deceased (Art. 1 of Law #2569 of 1950).

Law #288-04 lowered inheritance taxes to 3% of the value of the estate, after deductions, as determined by the tax authorities. Medical and funeral expenses, as well as outstanding debts and mortgages, are some of the allowed deductions.

Beneficiaries must file a declaration with the tax authorities within 90 days of the death of the decedent. An extension for an additional three and half months is possible in complex cases (Art. 26 of Law #2569). Delays in filing are subject to a 2% per month penalty, up to a maximum of 50% of the tax owed (Art. 9 of Law #2569).

Gifts are taxed at a 25% rate (Art. 6 of Law #2569) except the following, which are exempt;

•   Gifts for less than RD$500
•   Gifts to government institutions or recognized nonprofit organizations
•   Gifts to the family homestead (“bien de familia”).

Withholding or Retentions at the Source

The Tax Code establishes the following withholdings:

• Payments abroad to persons or entities not domiciled or resident in the Dominican Republic are subject to a 29% withholding on the amount paid (Art. 305). This withholding is considered as final and definitive payment of the taxes owed for the operation. No deductions are allowed. The only exceptions to this provision are interest payments to financial institutions abroad which are subject to a 10% withholding instead (Art. 306).

• Also, payments abroad by a branch office domiciled in the Dominican Republic to its headquarters abroad are subject to a 10% withholding (Art. 308).

• Payments to workers. Employers must retain income taxes as per the table published by the DGII (Art. 307)

• Dividends. Corporations must retain 10% of the dividends paid to shareholders (Art. 308).

• Rentals. Payments to individuals (not corporations) are subject to a 10% withholding (Art. 309).

• Fees for services and commissions. Payments to individuals (not corporations) are subject to a 10% withholding (Art. 309).

• Prizes. All payments are subject to a 10% to 25% withholding, depending on the amount of the prize.

• Government payments to suppliers are subject to a 5% withholding.

[Updated: December 31, 2012].