Dominican Republic: Proposal to impose VAT on digital services provided from abroad

Proposal for applying VAT at a rate of 18% with regard to digital services provided from abroad

Proposal for applying VAT with regard to digital services provided from abroad

The Dominican executive branch released, for public consultation, a draft regulation that proposes a framework for applying a value added tax (VAT) at a rate of 18% with regard to digital services provided from abroad. The draft regulation also proposes a registration and payment mechanism for non-resident digital services providers to follow in order to comply with their VAT obligations. 

KPMG observation

The draft regulation represents the latest attempt of the Dominican government to impose taxes on digital services, albeit this time, the proposal relies on existing legal provisions that do not warrant further congressional approval.

Overview of proposal

The measures under the draft regulation are summarized as follows:

  • VAT would be levied at the general rate of 18%.
  • The regulation would be intended to establish a procedure for the registration, administration, and payment of VAT with regard to internet-based digital services provided by non-resident providers and that are either consumed or destined for users in the Dominican Republic.
  • Digital services would be presumed to be used or consumed in the Dominican Republic in any of the following situations:
    • When the IP address or other geolocation mechanism of the recipient’s device reflects the service was acquired from the Dominican Republic
    • When payment for the service is performed using a Dominican Republic-issued or -registered credit/debit card, bank account or any other means
    • If the digital service is used or received on a mobile device which uses a SIM card (Subscriber Identity Module) with a Dominican country code
    • If a user or customer’s billing address is within the Dominican Republic
  • The draft regulation would establish an illustrative, non-exclusive list of services that would be within the scope of VAT, such as:
    • The provision, storage, and hosting of computer sites and web pages
    • The supply of digitalized products such as computer programs or systems, and related modifications, updates, designs, components, patterns, reports, financial analysis or market data and guides
    • Online advertising services
    • Software maintenance or technical support
    • Cloud and streaming services
    • Online brokerage services
  • For these purposes, any of these digital services provided by a foreign or non-domiciled entity or individual would be understood, in any case, as performed from abroad.
  • As a result, non-resident digital services providers would have to register with the National Taxpayers’ Registry (RNC per its Spanish acronym), under a specialized VAT registry. This VAT registration would not trigger or constitute a permanent establishment in the Dominican Republic.

Read a March 2022 report [PDF 751 KB] prepared by the KPMG member firm in the Dominican Republic

 

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