Explore the requirements and rules that apply to Indirect Taxes in Dominican Republic.
Explore the requirements and rules that apply to Indirect Taxes in Dominican Republic.
Types of indirect taxes (VAT/GST and other indirect taxes).
VAT in Dominican Republic is known as the tax on the transfer of industrialized goods and services (Impuesto sobre Transferencia de Bienes Industrializados y Servicios or ITBIS).
This tax is applicable on the transfer of industrialized goods, whether domestic or imported, and the rendering or leasing of certain services received within the country.
Individuals and corporations engaging in any of the referred economic activities are deemed taxpayers under the scope of the ITBIS unless expressly exempted. The aforementioned rule is to be applied regardless of the taxpayer being a local entity registered before the Dominican Republic Tax Authorities, or being a foreign entity engaged in business in the Dominican Republic that possesses a permanent establishment in the country.
The Dominican Tax Code establishes a detailed list of products (in the following categories) that are exempted from ITBIS:
Education and culture services, as well as electricity, among others, are also generally exempted from ITBIS.
Additionally, exports of goods are subject to a 0 percent rate, while exported services that comply with certain conditions are VAT exempt. This entitles exporters to input ITBIS deductions and reimbursements. Moreover, importers of raw materials, industrial machinery and capital goods, which are considered exempt by law, shall as of 1 January 2017 advance 50 percent of the VAT that would normally apply under the ordinary regime when clearing customs. Such measure substantially modifies the previous scenario in which VAT was levied with the first transfer of finalized products within the local market and not through the production process. This change is significant as it partially eliminated the tax deferment benefitting producers and manufacturers.
The taxable base of ITBIS in the transfer of goods (whether at a price or freely disposed) shall be the net transfer or fiscal worth of the item plus costs of any supplemental services in connection thereof, in addition to any applicable excise taxes and offset by any offered non-financial discounts.
In the case of imports, the taxable base shall be the cost, insurance and freight (CIF) value of the imported goods, plus customs duties and excise taxes, if applicable. Concerning the rendering of a service, the taxable base shall be equal to the price charged, whether paid as a lump sum or through installments, offset by any legal tips/gratuities if applicable. The Dominican Labor Code establishes a legal tip of 10 percent over the pre-tax amount of invoices for services rendered in hotels, restaurants, cafes, bars and in general all commercial establishments that sell food and beverages for consumption within such establishments.
Are there other indirect taxes?
Excise taxes are levied on the acquisition, consumption or import of certain goods and services, as listed in the Dominican Tax Code. Two main types of excise taxes exist in the Dominican Republic, namely: the selective consumption tax (Impuesto Selectivo al Consumo or ISC) and the selective ad-valorem tax (Impuesto Selectivo Ad-valorem).
In general, the referred taxes apply to tobacco products such as cigarettes or cigars, gasoline, alcoholic beverages, telecommunication services, the use of cheques, wire transfers, as well as insurance premiums. Except for telecommunication services, excise taxes shall be accounted for toward determining the taxable base of the ITBIS.
Moreover, on 4 January 2018, the Executive branch enacted Decree No. 01-18, which establishes the Regulations for the Application of Title IV of the Dominican Tax Code regarding Selective Consumption Tax. This sets forth the general criteria for when the ISC may be applicable and the requirements for compliance. Most material changes introduced under this new regulation apply to tobacco and alcohol products, however, many changes were based on administrative practices already adopted by the Tax Administration.
What supplies are subject to VAT?
The VAT rate applied to a product, material or service in the Dominican Republic is 18 percent, and it is applicable to all provisions of goods and services. VAT is assessed and collected on the value of goods or services that have been provided every time there is a transaction, either sale or purchase. On this point, VAT is applied to:
For the VAT purposes, taxpayers are:
What are the standard or other rates (i.e. reduced rate) for VAT/GST and other indirect taxes?
The standard rate of ITBIS is 18 percent. However, certain goods enjoy a reduced VAT rate of 16 percent due to their high consumption, including certain dairy products, coffee, shortenings and oils, sugars and chocolates.
Excise tax is imposed on a series of products including ‘luxury goods’ as well as certain services. Each product is taxed with specific amounts and/or rates as determined by law. Such products may be listed as follows:
As indicated in the previous section, the excise tax considers an additional tax imposed on products derived from alcohol, tobacco and fossil fuels. Such ad-valorem tax is levied at a rate of 20 percent on tobacco, 10 percent on alcohol products and 16 percent on fossil fuel and petroleum products.
Who is required to register for VAT/GST and other indirect taxes?
In general, individuals, corporations, flow-through entities or economic units doing business in the Dominican Republic (whether domestic or foreign) regardless of legal capacity or place of domicile, are considered taxpayers subject to ITBIS to the extent that they transfer industrialized goods, import goods, render taxable services or perform a commercial activity deemed taxable under the scope of the ITBIS regulation and general rulings.
As with ITBIS, individuals, corporations and other economic units doing business in the Dominican Republic (whether domestic or foreign) shall register as Dominican taxpayers when the products or manufactured goods are subject to this tax. Furthermore, individuals, corporations and other economic units (whether domestic or foreign) that import goods taxed either by the ISC or the Ad-valorem tax or render services that are levied with the ISC or the Ad-valorem tax shall register as Dominican taxpayers. Please be advised that most products and/or services subject to ISC and/or Ad-valorem tax are strongly regulated in the Dominican Republic (e.g. alcohol manufacturing and insurance).
Is voluntary registration for VAT/GST and other indirect taxes possible for an overseas company (e.g. if the annual turnover is below the relevant VAT/GST and other indirect taxes registration threshold)?
The Dominican tax law does not provide for a special tax registration for ITBIS or other indirect taxes, which implies that an overseas company that wishes to comply with ITBIS and/or other indirect tax obligations shall register as a taxpayer for all taxes and purposes (i.e. permanent establishment). Moreover, there is no taxable turnover or threshold in connection with the registration of a taxpayer for the purposes of fulfilling its ITBIS obligations.
Are there any simplifications that could avoid the need for an overseas company to register for VAT?
Foreign entities operating overseas are obliged to register if they conduct commercial transactions in the Dominican Republic on a regular basis. Therefore, no simplifications exist that would avoid the need for an overseas company to register for VAT. However, foreign entities that do not undertake commercial transactions in the Dominican Republic on a regular basis are not obliged to register in the Dirección General de Impuestos Internos (DGII) for VAT purposes.
Does an overseas company need to appoint a fiscal representative?
Dominican tax law requires all companies and taxpayers, whether foreign or domestic, conducting operations in the Dominican Republic to appoint a legal representative or register a contact person before the tax authorities. Any liability or tax issue that arises may be effectively dealt with by means of such legal representative or agent, in their capacity as representative. Appointing a representative does not substitute the need to register as a taxpayer.
Which forms and supporting documentation does an overseas company need to submit for VAT/GST and other indirect tax registrations?
Is grouping for VAT/GST and other indirect taxes possible?
Dominican tax law does not allow the filing of consolidated returns in regards to ITBIS. However, the tax authorities may either disregard or rule as an economic unit the presence of an individual or several legal entities on certain transactions when used to secure a tax advantage or as a spurious act.
How frequently are VAT/GST and other indirect tax returns submitted?
Each ITBIS return is to be submitted along with the payment on a monthly basis. The deadline is the twentieth day of the month following the tax period contained in such. The filing of the ITBIS return is mandatory by law whether or not a liability is due by the taxpayer.
Should ISC or Ad-valorem tax arise from the transfer of a good or the rendering of a service, any tax returns, along with their corresponding payment, shall be submitted on a monthly basis. The deadline is the twentieth day of the month following the tax period contained in such. In the case of imports, any ISC or Ad-valorem tax obligation shall be paid jointly with the custom duties as set forth in the applicable regulations.
What are the exchange rate rules in your country?
The Dominican Republic has a free currency-exchange market. A foreign company is not required to obtain government approval to invest or do business in the country. The Dominican Central Bank, upon requirement of a foreign company through a relatively simple administrative procedure, issues a Certificate of Foreign Investment Registration. The latter constitutes the sole requirement for a foreign individual or company to freely buy foreign currency in commercial banks for the purpose of repatriating dividends or profits earned locally.
Exports – Goods
How are exports of goods treated?
Exports of goods are taxed at a rate of 0 percent. Exporters shall have the right to deduct the value of the tax that may have been charged on goods destined for export activities. Should there be a credit balance remaining in favor of the exporter, it shall be refunded by the General Agency for Internal Taxes, in the manner established in the regulations.
Exports – Services
How are exports of services treated for VAT/GST purposes?
Services provided from the Dominican Republic to foreign entities or individuals that do not reside in the Dominican Republic are exempt from VAT, provided that certain criteria are met (i.e. utilization, origin of funds, person or entity tax residence, amongst others).
Imports – Goods
How are goods dealt with on importation?
For importation of goods, taxes such as tariffs (if applicable) and VAT shall be paid together with any corresponding custom duties in the manner and under the conditions established in the regulations.
If a non-resident online retailer were to import goods on a regular basis, they would need to register at the Chamber of Commerce of the province were its domicile or primary place of business is or would be located, and obtain a Mercantile Registry Certificate.
Such entity would also have the obligation to register before the General Agency for Internal Taxes and obtain a National Taxpayer Registry (RNC) number. Consequently, all VAT charged on imports may be deducted from output VAT accounted for.
Please note that the General Agency for Customs requires a customs registration for those acting as importer of record and such registration may only be completed by individuals with a National ID card or entities which have completed the process for obtaining a Mercantile Registry and RNC number.
Imports – Services
How are services brought in from abroad treated for VAT purposes?
Services brought in from abroad are not subject to VAT as long as the service is not rendered in the Dominican Republic. In general, location of personal and material means, as well as the type of service, would determine whether or not a service is taxable for VAT purposes in the Dominican Republic. Accordingly, such shall be assessed on a case-by-case basis.
Can an overseas company recover VAT/GST and other indirect taxes if not registered for VAT/GST locally?
Only locally registered taxpayers are allowed to recover ITBIS in the Dominican Republic. A recovery is not allowed in any form concerning a tax liability paid in connection with the ISC or the Ad-valorem tax except for fossil fuels exemptions and particular exemptions given to the parties within a government contract.
Are there any exemptions with the right to recover or deduct input VAT?
Yes, ITBIS and excise taxes incurred by real estate developers, producers of exempted goods and services, registered exporters and for the purposes of renovating industrial machinery may be offset and registered as costs of the referred business, carried forward or reimbursed, as applicable. The referred tax treatment is subject to the taxpayer complying with a set of special regulations in connection therewith.
Are there any restrictions to the deduction of input VAT?
Yes, input ITBIS may only be deducted against output ITBIS when the latter is related to the activity that generated the corresponding input ITBIS. Moreover, certain formalities have to be complied with in order for input ITBIS to be deducted by a taxpayer.
When is VAT/GST due on a supply of goods or services?
The obligation to pay in VAT arises according to the taxable event:
It is important to note that VAT is filed and paid on a monthly basis.
Is a business required to issue tax invoices?
Yes, all companies or business entities charging any tax on its sales or services shall issue tax invoices which shall be reported on a monthly basis. Such invoices shall include:
Is it possible/mandatory to issue invoices electronically?
Yes, invoices may be issued electronically. These will also be subject to the previously cited requirements.
Is it possible for the vendor to issue an invoice (self-billing)?
No, self-billing is not permitted by the Dominican tax legislation. However, operations subject to VAT which may involve self-billing from an accounting perspective (e.g. personal consumption of inventory) shall be declared and liquidated in the monthly VAT return (IT-1 Form).
How long must records and invoices be retained?
The Dominican Tax Authorities require that the taxpayers and responsible parties keep books, special records or other related documents such as receipts, invoices or any general records on their businesses and operations. These records need to be maintained and shown to the Authorities as a means of auditing a company’s tax compliance for a period of at least 10 years.
Can the invoices be stored abroad?
Currently, there are no restrictions or limitations concerning the maintenance of any general records or invoices abroad. However, all corresponding parties are required to facilitate easy access by Dominican Tax Authorities to the general accounting books, special records or other related documents such as receipts, invoices or any records.
Do tax audits take place on a regular basis?
Yes, in the case of large taxpayers, audits are performed generally about once a year or after a transaction deemed important for fiscal purposes by the Dominican Republic Tax Authorities. In other cases, the chances of being audited will normally depend on the amount of tax inconsistencies found by the referred authorities.
Are audits done electronically in your country (e-audit)? If so, what system is in use?
Yes, e-audits by far exceed physical tax audits. The Dominican Republic Tax Authorities have developed and use a special tax software known as the Crossed Information System, among others. Note that the Dominican Tax Authorities have not issued an official software application for taxpayers to prepare tax returns but rather rely on Excel forms which are uploaded through a web portal.
What penalties can arise from non-compliance?
If a taxpayer does not comply with tax obligations, pecuniary sanctions such as surcharges, interest and fines may be applied by the Dominican Tax Authorities.
Fines are usually imposed if a taxpayer uses, or attempts to use, deceptive means to avoid paying its tax obligations, in part or in full. Failure to pay the amount of tax due to the Dominican Tax Authorities before an applicable deadline is subject to surcharges (late fees) at a rate of 10 percent on the first month after the applicable deadline and at a rate of 4 percent on each subsequent month or fraction of a month. Jointly, 1.10 percent interest is accrued for each month or fraction of a month passed. The penalties/interest are not deductible for income tax purposes nor are subject to time, percentage or specific amount limit.
Furthermore, Section 2.11 of Law No. 155-17 against Money Laundering and the Financing of Terrorism establishes that tax offences (i.e. simulating, hiding and/or executing maneuvers or another form of deception, so that the Tax Administration makes an error in the determination of taxes) may be classified as a preceding offence for money laundering.
Are there any special rules for the sale of a company by one taxpayer to another where VAT is not due on the sale?
Yes, special rules apply on sales made by one taxpayer to another who is exempted by law from paying ITBIS.
Are there unique specific indirect tax rules that you would not expect to find in ‘standard’ VAT jurisdictions?
No, there are not any particular rules.
Does a reverse-charge mechanism apply for goods or services?
No, such mechanism does not exist in the Dominican Republic.
Are there indirect tax incentives available (e.g. reduced rates, tax holidays)?
Yes, several incentive laws have been enacted that grant total or partial tax exemptions on certain business activities (i.e. tourism, free trade zones, energy, etc.). Moreover, Law No. 249-17, regarding the Dominican Republic’s stock market sets forth certain incentives for the incorporation and extinction of Autonomous Trusts.
Are rulings and decisions issued by the tax authorities publicly available?
No, generally, tax rulings are addressed to a particular taxpayer and protected under the secrecy provisions of the Dominican Tax Code. Nonetheless, the Dominican Republic Tax Authorities issue general rulings on specific tax matters, which are made publicly available and are subject to a public opinion phase prior to their enactment.
Marco A. Bañuelos
Tax & Legal Partner
KPMG in Dominican Republic
T: +1 809 566 9161
Carlo Mariano Mercedes
Tax & Legal Manager
KPMG in Dominican Republic
T: +1 809 566 9161
*By ‘grouping’ we mean: either a consolidation mechanism between taxpayers belonging to the same group (payment and refund are compensated but taxpayers remain distinct) or a fiscal unity for VAT/GST purposes (several taxpayers are regarded as a single taxpayer).