Dominican Republic

Employers in the Dominican Republic have various tax obligations related to payroll, social security, and other contributions.

Payroll Taxes

• Income Tax Withholding: Employers must withhold income tax from employee salaries monthly, based on a progressive scale ranging from 0% to 25%. The specific income thresholds for each tax bracket are adjusted annually for inflation. However, this adjustment was suspended for the period 2013-2015, and its current status needs confirmation with local authorities.
• Technical Education Tax (INFOTEP): Employers contribute 1% of their total monthly payroll towards INFOTEP. Employees also contribute 0.5% of any bonuses received.

Social Security Contributions

• Pension Fund (AFP): Employers contribute 7.10% of employee salaries and withhold 2.87% from employee salaries for pensions. The annual contribution limit per employee is 325,250 Dominican Pesos. The contribution is based on up to 20 times the minimum wage.
• Family Health Insurance (SFS): Employers contribute 7.09% and withhold 3.04% from employee salaries. The annual contribution limit per employee is 162,625 Dominican Pesos.
• Labor Risk Insurance (ARL): Employers contribute 1.2% of employee salaries for labor risk insurance. The annual contribution limit per employee is 65,050 Dominican Pesos. The contribution is based on up to four times the minimum wage.

Other Taxes and Obligations

• Value-Added Tax (ITBIS): While not directly an employer obligation, businesses must collect and remit ITBIS (VAT) at a standard rate of 18% on most goods and services. Some goods and services are exempt. Monthly filings are required.
• Fringe Benefits Tax: Fringe benefits provided to employees are subject to a 28% tax, payable monthly by the employer. If an employer pays a third party to provide an employee benefit, the resulting benefit is still considered a fringe benefit.
• Tax Filing and Reporting: Employers must file and pay withheld income tax, social security contributions, and other payroll taxes by the 10th of each month for the previous month's payroll. Annual income tax returns are due by March 31st of the following year. Companies must file annual corporate tax returns within 120 days of their fiscal year-end.

It's crucial for employers to register with the tax authorities (DGII) and the social security system to ensure compliance. It's highly recommended to consult with a local tax advisor for the most current regulations and specific requirements as information can change. This information is current as of February 5, 2025, and may be subject to change.

Employee tax deductions in the Dominican Republic are determined by a progressive tax system applied to net taxable income after certain deductions.

Income Tax (ISR)

The Income Tax (ISR) is the primary deduction for employees in the Dominican Republic. It's calculated on the net salary earned over the fiscal year (January 1st to December 31st) after deductions for social security contributions.

• Exempt Income: Incomes up to RD$416,220.00 are exempt from ISR. This threshold is subject to annual adjustments based on inflation.
• Tax Rates: Progressive rates apply to income above the exempt amount, ranging from 15% to 25%. As of 2023 the brackets are:
  • Up to RD$624,329.01: 15%
  • RD$624,329.01 to RD$867,123.00: RD$31,216.00 + 20% of the excess over RD$624,329.01
  • Above RD$867,123.01: RD$79,776.00 + 25% of the excess over RD$867,123.01
• Withholding: Employers are responsible for withholding the ISR from employee salaries and remitting it to the Dirección General de Impuestos Internos (DGII) by the 10th of the following month.

Social Security Contributions

Employees are subject to deductions for social security, which funds various programs like healthcare, pensions, and occupational hazard insurance. These contributions are typically a percentage of the employee's salary, shared between the employer and employee, and may vary depending on the specific programs included.

Other Deductions

• Educational Expenses: Employees can deduct up to 10% of their net taxable income for educational expenses incurred for themselves or their dependents. These expenses must be properly documented.

Employer Obligations

Employers in the Dominican Republic have specific tax obligations related to their employees, including:

• ISR Withholding: Deducting and remitting employee ISR to the DGII.
• Social Security Contributions: Paying both the employer's and employee's portions of social security contributions.
• INFOTEP Tax: A monthly payment of 1% of the total payroll to the National Institute of Professional Technical Training (INFOTEP).
• Fringe Benefits Tax: Paid by the employer at the corporate income tax rate on certain benefits given to employees.

Important Considerations

• Tax Year: The tax year in the Dominican Republic is the calendar year.
• Tax Filing: While employers handle most tax withholding and payment, individuals earning above a certain threshold from non-wage sources must file an annual tax return by March 31st.

This overview is current as of February 5, 2025, and may be subject to changes in tax laws and regulations. It is recommended to consult with a tax advisor for the most up-to-date information and personalized guidance.

In the Dominican Republic, the Value Added Tax (VAT), known as ITBIS, is levied on the transfer of industrialized goods and services, imports, and specific service renderings.

VAT (ITBIS) in the Dominican Republic

The standard VAT rate is 18%. A reduced rate of 16% applies to specific goods like certain dairy products, coffee, shortenings, oils, sugar, and chocolates. A 0% rate applies to exports, and exported services meeting certain conditions may be VAT-exempt. This allows exporters to deduct and receive reimbursements for input ITBIS. As of 2017, importers of exempt raw materials, industrial machinery, and capital goods must prepay 50% of the standard VAT upon customs clearance.

Registration

Businesses must register for VAT, regardless of turnover. There's no threshold for registration; all businesses conducting taxable activities must register and file monthly returns. This includes foreign companies operating within the Dominican Republic, even without a physical presence. The process involves general taxpayer registration, obtaining a unique tax identification number (RNC) used for all tax purposes, including VAT.

Filing and Payment

VAT returns must be submitted monthly by the 20th of the following month, along with the corresponding payment. Filing is mandatory, even if no tax liability exists. Late payment penalties include surcharges of 10% for the first month after the deadline, and 4% each subsequent month. Additionally, monthly legal interest of 1.10% of the tax due is applied. These penalties are not deductible for income tax purposes.

Exempt Goods and Services

Several goods and services are VAT-exempt, including basic food staples (eggs, milk, grains, etc.), agricultural products, medicines, some fuels, educational materials, books, certain financial services, utilities, and inland transportation. Additionally, education, culture, and healthcare services are generally exempt.

Selective Consumption Tax (ISC) and Ad Valorem Tax

The Dominican Republic also imposes excise taxes, primarily the ISC and the ad valorem tax. ISC applies to specific goods and services, with rates varying by product. For example, alcoholic beverages have a 10% ISC on the retail price, and tobacco products range from 25% to 50% on the retail price. The ad valorem tax complements the ISC, targeting luxury goods like tobacco, alcohol, oil products, hydrocarbons, and others defined by law. This tax is based on a percentage of the product's value.

Note: This information is current as of February 5, 2025, and may be subject to change. Always consult with a tax professional for the most up-to-date regulations.

The Dominican Republic offers various tax incentives to attract investment and stimulate economic growth in specific sectors.

Tax Incentives in the Dominican Republic

Several sectors benefit from tax incentives, including tourism, renewable energy, film production, and free trade zones. There's also a special development zone on the border with Haiti.

Free Trade Zones

• Near 100% exemption from all national and local taxes.
• This covers income tax, customs duties, and construction duties.

Tourism

• 100% tax exemptions for new qualifying tourism-related projects on taxes and duties for equipment, materials, and furnishings.
• Existing projects five years or older receive exemptions for renovations.
• Projects fifteen years or older receive new project benefits for renovations involving 50% or more of the premises.
• Individuals and companies can deduct up to 20% of annual profits invested in approved tourism projects from their income tax.
• The Tourism Promotion Council (CONFOTOUR) reviews and approves applications.

Renewable Energy

• Incentives are available for investments in renewable energy projects. Details were not provided.

Film Production

• 100% deduction on investments in feature films.
• 50% exemption for capital investment in the construction of movie theaters in the National District and Santiago until 2025.
• 100% exemption for capital investment in the construction of movie theaters in other provinces.
• VAT exemption for goods and services directly related to film production.

Border Development Zone

• 100% exemption on corporate income tax (CIT), Value Added Tax (VAT), and customs duties for qualifying companies operating on the Dominican-Haitian border. This includes industrial, agro-industrial, agriculture/livestock, metalmechanic, free trade zone, tourism, metallurgical, and energy companies.

General Tax Information

• The most common tax year-end is December 31st, though March 31st, June 30th, and September 30th are also options.
• Consolidated tax returns are not permitted.
• Tax returns are generally due by March 31st of the following year.
• Withholding tax on interest and dividends is generally 10%.
• Capital gains are usually taxed as ordinary income.
• There is a 3% transfer tax on real estate transactions.
• A tax credit certificate incentive exists for early enrollment in the new electronic tax receipt system.
• Taxpayers whose sole income source is employment and who have had taxes withheld by their employer are not required to file a tax return.

This information is current as of February 5, 2025, and may be subject to change. It is essential to consult with a tax advisor for the most up-to-date and specific information regarding tax incentives in the Dominican Republic.