Taxpayers with a fiscal year ending 31 December 2018 may want to consider a tax credit program to settle their tax liabilities, but they need to act before the end of the year.
Specifically, taxpayers that intend to acquire transferrable tax credits need to act by 31 December 2018 to be able to use these credits on their 2018 tax returns.
Dominican tax law affords many types of tax incentives to companies. Examples of such tax incentives include film production tax incentives.
To lure film companies to the Dominican Republic, Law 108-11 provides a transferrable tax credit (TTC) in an amount equal to 25% of the qualifying expenses incurred to produce the film in the Dominican Republic. The tax credits are available for use against the film producer’s own income tax liability. However, many film producers—specifically, foreign film producers—may not be able to use their TTCs fully because their tax liabilities may not be sufficient or may be less than the amount of the TTCs granted to them. Article 39 of Law 108-11 allows TTCs to be transferred, in whole or in part, by a film company (the transferor) to one or more corporate and/or individual taxpayers (the transferee).
Before TTCs are granted, the film producer will have gone through a rigorous validation process (involving the Dominican film office (DGCINE), a CPA/auditor, and the tax authorities). Once the requirements for the tax credit are satisfied, the tax authorities will issue the tax credit certificates to the film producer, and it is these that can be transferred. The law permits only one transfer.
The transfer of TTCs is generally accomplished by means of an outright sale of the TTCs at a discount. For a potential buyer/transferee, it may not be evident that a taxpayer with no connection to the film industry may benefit from these TTCs. However acquiring TTCs may allow the buyer/transfee an ability to settle its Dominican income tax liability at a discount—that is, the film tax credits are available to settle the tax liability on a dollar-for-dollar basis while the amount paid for the TTCs generally is at a discount. The buyer/transferee of the TTCs thus can realize the difference between the face value and the amount paid for the TTCs. In other words, the buyer’s / transferee’s income tax liability is not reduced, but the savings are realized from the discount negotiated on purchase of the TTCs from the film company.
Those taxpayers with a 31 December fiscal year-end that are considering using TTCs to reduce their income tax (due 30 April 2019) will have until 31 December 2018 to purchase the TTCs and to comply with other requirements for their 2018 tax liability. If there are any unused TTCs, these can be applied against the taxpayer’s asset tax liability and to satisfy advance payments of income tax. The remaining TTCs can be carried forward for three tax years.
Many taxpayers are not aware of the TTC-related mechanism or perhaps that the TTC program may be available for their tax planning opportunities. Transferability of these TTCs does not require any sort of partnership or legal relationship between the film producer and the buyer/transferee.
For more information, contact a KPMG tax professional in the Dominican Republic:
Marco Banuelos | +1 809 566 9161 | firstname.lastname@example.org
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