Dominican RepublicTax Obligations Detailed

In the Dominican Republic, employers shoulder several tax obligations, including social security contributions, payroll taxes, and corporate income tax.

Employer Taxes and Contributions

• Social Security: Employers contribute 7.1% of employee salaries for pensions (up to a cap of 20 times the minimum wage), 7.09% for healthcare (up to a cap of 10 times minimum wage), and 1.2% for occupational hazards (up to a cap of 4 times the minimum wage).
• Payroll Tax (INFOTEP): A 1% tax on the total monthly payroll funds the National Institute for Technical Professional Training (INFOTEP).
• Corporate Income Tax: A flat rate of 27% is levied on corporate profits. Monthly advance payments are required, calculated as 1/12th of the previous year's total tax. Annual filing is due within 120 days of the fiscal year-end.

Employee Payroll Deductions

• Social Security: Employees contribute 2.87% of their salary for pensions, and 3.04% for healthcare.
• Income Tax: Withheld at source, the income tax uses progressive rates from 0% to 25%. Annual filing is due on March 31st.

Value Added Tax (ITBIS)

A value-added tax (VAT), known as ITBIS, is applied at a standard rate of 18% on most goods and services, although some exemptions exist.

Other Tax Considerations

• Fiscal Year: The standard tax year aligns with the calendar year. However, companies can choose a fiscal year ending March 31st, June 30th, or September 30th.
• Tax Deadlines: Annual corporate income tax returns are due within 120 days of the fiscal year-end. Personal income tax returns are due by March 31st.

It is important to note that this information is current as of February 4, 2025, and might change due to legal updates. Consulting with a tax advisor is recommended for the latest information.

In the Dominican Republic, employers are responsible for withholding and remitting various taxes from employee salaries.

Income Tax (ISR)

• Deduction: Calculated based on a progressive scale, with rates ranging from 15% to 25% applied to the net salary after social security deductions. The first RD$ 416,220.00 of annual income is exempt.

• Example: An employee earning RD$600,000 annually would have their ISR calculated on the amount exceeding the exempt threshold (RD$600,000 - RD$416,220 = RD$183,780). This amount would be subject to the applicable tax rate based on the progressive scale.

• Deadline: Employers must file and remit ISR withholdings monthly. Annual income tax reconciliation is due by March 31st of the following year.

Social Security Contributions

• Pensions (SFS): Employers contribute 7.10% of the employee's salary, and employees contribute 2.87%. These contributions are capped at 20 times the minimum wage.

• Healthcare (SENASA): Employers contribute 7.09%, and employees contribute 3.04%. These contributions are capped at 10 times the minimum wage.

• Labor Risks Insurance: Employers contribute 1.2% of the employee's salary, capped at four times the minimum wage. Employees do not contribute to this.

Other Deductions

• Technical Education Tax (INFOTEP): Employers contribute 1% of the total monthly payroll, while employees contribute 0.5% of any bonuses received.

• Personal Deductions: Employees can deduct expenses related to education for themselves and their dependents.

Additional Considerations

• Standard Deduction: Residents are entitled to a standard deduction of RD$ 416,220 annually, adjusted for inflation. Christmas bonuses, severance, and pre-notice payments are tax-exempt.

• Tax Reform: Tax reforms are expected, potentially impacting the tax burden. As of February 4, 2025, details about how these potential changes might affect employee deductions are not yet available.

It's important to note that this information is current as of February 4, 2025, and may be subject to change due to ongoing legislative updates.

The Dominican Republic levies a Value Added Tax (VAT), locally known as ITBIS (Impuesto sobre Transferencias de Bienes Industrializados y Servicios), on most goods and services.

VAT Rates

• Standard Rate: 18% applies to most goods and services.
• Reduced Rate: 16% applies to specific goods like certain dairy products, coffee, oils, sugar, and chocolates.
• Zero Rate (0%): Applies to exports.
• Exempt: Certain goods and services are exempt, including basic food items (e.g., eggs, milk, unprocessed grains, live animals, some frozen meats), agricultural inputs (e.g., seeds, fertilizers, pesticides), medicines, educational materials, some financial services, utilities (water, electricity, and waste pickup), some transportation services, and rentals of residential property. As of 2017, imports of raw materials, industrial machinery, and capital goods considered exempt require a 50% advance payment of the standard ITBIS rate (9% as of today) upon customs clearance.

Registration

There is no registration threshold for ITBIS. All businesses making sales in the Dominican Republic, regardless of sales volume, must register for VAT. Registration is carried out with the Dominican tax authorities and results in a tax identification number (RNC) used for all tax purposes, including ITBIS. A legal representative should also be designated. Although a simplified regime exists to ease compliance for some small and medium businesses, all businesses are required to file monthly returns.

Filing and Payment

• Frequency: Monthly
• Deadline: Returns and payments are due by the 20th of the month following the reporting period.
• Mandatory Filing: Filing is required even if no tax is due.

Penalties for Non-Compliance

Late payment penalties include a surcharge of 10% for the first month and 4% for each subsequent month or fraction thereof, plus monthly interest of 1.1% on the outstanding tax.

Selective Consumption Tax (ISC)

In addition to ITBIS, excise taxes (ISC) are levied on specific goods and services at varying rates:

• 10% on alcoholic beverages (retail price, on transfer by local manufacturers and importers).
• Variable rates on tobacco products (retail price, on transfer by local manufacturers and importers).
• 10% on telecommunications services.
• 16% on insurance services. Other luxury goods may also be subject to an ad valorem tax.

E-Invoicing

• As of January 15, 2025, large taxpayers are mandated to use e-invoicing.
• A second phase starting May 15, 2025, extends this requirement to medium-sized taxpayers. These e-invoices must include specific information like the business' and buyer's tax information, invoice details, VAT breakdown per item, and total amount.

This information is current as of today, February 4, 2025, and is subject to change. Consulting with a tax advisor is recommended for the most up-to-date information and personalized guidance.

The Dominican Republic offers a range of tax incentives across various sectors.

Tax Incentives in the Dominican Republic

Several sectors in the Dominican Republic benefit from tax incentives designed to stimulate investment and economic growth. These incentives can include full or partial exemptions from various taxes, including income tax, VAT, and customs duties.

Tourism Incentives

• Law 158-01 (Tourism Development): This law offers incentives for investments in designated tourism zones, including exemptions from taxes and duties on construction materials, equipment, and furnishings. It also provides income tax deductions for investments in approved tourism projects. The Tourism Promotion Council (CONFOTOUR) manages applications and approvals for these incentives. It's worth noting that Law 195-13 expanded the areas eligible for these benefits. There is also a tax deduction for individuals and companies that reinvest up to 20% of their annual profits back into approved projects. This law is subject to review as part of ongoing fiscal reforms. Existing hotel and resorts investments older than five years qualify for complete tax and duty exemptions for renovation equipment, materials and furniture. Fifteen-year-old (or older) establishments can enjoy benefits similar to new projects if their renovations or reconstructions cover at least half of their property.

Free Trade Zone Incentives

• Law 8-90 (Export Free Trade Zones): Businesses operating within designated Free Trade Zones (FTZs) are granted exemptions from various taxes, including a near 100% exemption from national and local taxes. These exemptions cover income tax, VAT, and customs duties. The exemptions can last for 15 years for zones located across the country and extend to 20 years for those situated near the Dominican Republic and Haitian border. However, special FTZ classifications for entities outside FTZ parks (like call centers) were abolished under Law No. 253-12.

Renewable Energy Incentives

• Law 57-07 (Renewable Energy): This law promotes investment in renewable energy sources, including biofuels, wind, solar, and other renewable energy technologies. It provides significant incentives, including a 40% tax credit on investment expenses for self-power producers.

Border Development Incentives

• Law 28-01 (Border Development): Businesses in the border region with Haiti can qualify for a 100% exemption from Corporate Income Tax (CIT), VAT, and customs duties. This applies to various industries, including industrial, agro-industrial, tourism, and energy companies.

Industrial Sector Incentives

• Law 392-07 (Industrial Renovation and Modernization): This law aims to promote industrial development and diversification through incentives such as VAT exemptions on imported machinery and materials, prioritized customs processing for imports, and accelerated depreciation.

Other Incentives

• Tax incentives for e-invoicing: Taxpayers who voluntarily register as electronic tax receipt issuers during a designated timeframe may be eligible for tax incentives from the DGII (Tax Authority).

General Tax Information

The Dominican Republic operates primarily on a territorial tax system. However, resident individuals are taxed on certain foreign-source investment income. Non-residents are taxed only on Dominican-source income. Individuals whose primary income source is commercial activities are subject to corporate income tax. Consolidated tax returns are not permitted, with each company required to file independently. There are four tax year-end options: March 31st, June 30th, September 30th, and the most common, December 31st. There's also a tax credit for foreign taxes paid, up to the Dominican tax liability on the corresponding foreign-source income. Notably, there isn't a participation exemption or a holding company regime. The Asset Tax (ISA) serves as an alternative minimum tax, set at 1% of a company's assets.

Fiscal Reform

A fiscal reform plan introduced in October 2024 is currently under review and is expected to impact existing tax incentives and introduce new ones. The reform aims to modernize the tax system, increase revenue, and address tax evasion. It also targets VAT exemptions for short-term lodging rentals through online platforms, applies VAT to low-value imports, and increases taxes on specific goods.

Disclaimer: This information is for general guidance only, is valid as of February 4, 2025, and is subject to change given the ongoing fiscal reforms. Always consult with a qualified tax advisor for personalized advice regarding your specific circumstances.