Under the new guidance, an investment fund management company must satisfy any tax liability applicable to the process of its incorporation, pre-operational and operational stages, and even until the moment of its possible liquidation.
General Ruling 05-2013 provides, specifically, that any transfer of assets to an investment fund management company is subject to value added tax (VAT) and also to the real estate transfer tax, if applicable. In addition, any income accrued will be subject to corporate income tax (ISR).
On the other hand, investment fund management companies must withhold and pay over to the DGII, as a definite and final payment by reason of the corporate income tax, an amount equal to 10% of the total amounts paid or credited to the beneficiaries of the investment funds (whether such beneficiaries are individuals or legal entities).
General Ruling 05-2013 additionally provides that a tax identification number (RNC) will be separately assigned to each investment fund, so as to differentiate such investment vehicles from the RNCs also assigned to the investment fund management companies.
Transactions by an investment fund must be verified by a receipt containing an official tax verification number (NCF), along with its corresponding fiscal value. Similarly, the investment fund will act as a tax withholding agent, when applicable.
Income earned by investment funds, either in open or closed operations, will not be subject to complying with the rules under the corporate income tax law; however, any income obtained by corporate beneficiaries of the investment fund will be subject to payment of corporate income tax. Also, the transfer of assets during the operational stage of the investment funds will be subject to VAT and the real estate transfer tax.
Investment funds, whether closed or open, to the extent of tax (fiscal) matters, are to act as a trust with respect to managed assets or transactions (i.e., such assets and transactions will be maintained as independent assets from the respective investment fund management company). Consequently, under the Dominican Republic’s trust law, these trust assets will be subject to the same tax treatment as a trust originating from a public-market offer.
Finally, a transfer of cash made by a contributor, either through check or by electronic means, will be subject to the “0.0015 tax” that applies with respect to the acquisition of shares or quotes of an investment fund. However, if an investment fund distributes amounts by means of a check or an electronic transfer, such distribution shall not be subject to the referred payment of the “0.0015 tax.”
For more information, contact a KPMG tax professional in the Dominican Republic:
José Manuel Romero