Scope and rates
VAT in Dominican Republic is known as Tax on the Transfer of Industrialized Goods and Services (in Spanish: Impuesto a la Transferencia de Bienes Industrializados y Servicios “VAT”). As its name suggests, this tax is applicable on the transfer of industrialized goods, whether domestic or imported, imports and the rendering or leasing of certain services, as long as these are perceived /occur within the country.
Individuals and corporations engaging in any of the referred economic activities are deemed taxpayers under the scope of the VAT law, unless expressly exempted. The aforementioned rule is to be applied regardless of the taxpayer possessing a permanent establishment in the country or lacking registration before the Dominican tax authorities.
The rate of Value Added Tax (VAT) applied to a product, material or service in the Dominican Republic is of 18%, as established on Law No. 253-12 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, Articles 335 and 341 of the Dominican Tax Code, supported by the Law No. 11-92, and modified by the Law No. 147-00 of December 2000, provides the following:
Article 335 - ESTABLISHMENT OF TAX. A tax is applied to:
- The transfer of industrialized goods
- Importation of industrialized goods
- Services provided
Article 341 - RATE. This tax is of a rate of 18% on the taxable base.
For the purpose of the VAT, taxpayers are:
- Entities or individuals who transfer goods. Individuals, corporations or enterprises, national or foreign, that carry out transfers of industrialized goods in the course of their industrial, commercial or similar activities.
- Importers of goods. Those who import taxable goods, whether for themselves or for others, whether included or not in the preceding paragraph.
- Those who render or provide taxed services. Persons who render or provide services burdened by this tax.
After the tax reform (Law 253-12), a VAT rate of 18% will apply from the start of tax period 2013 and 2014, and 16% upon the start of 2015.
Exports are zero-rated. Exporters shall have the right to deduct tax charged on rented goods destined for exportation activities. Should there be a credit balance remaining in favor of the exporter, it shall be returned by the General Agency for Income Tax, in the manner established in the Regulations.
The Dominican Tax Code establishes a list of products generally exempted from VAT, such as agricultural goods, livestock, certain types of food, fuel, educational materials and medicines. Services such as educational services, cultural services, healthcare, electricity and financial services, among others, are also exempted from VAT.
The following goods are also exempted from VAT:
- Goods produced in the country. The transfers of goods produced in the country that are listed below are VAT exempted:
- Products of the primary sector arising from agriculture, cattle ranching, exploitation of forests, hunting, fishing and mining, which are transferred by the producer without any degree of transformation or treatment, except that which is indispensable for their conservation in a natural state;
- Milk in its natural state, as well as dried, evaporated, condensed, powdered and pasteurized milk;
- Bread, flour in general, vegetables, processed cereals, ground coffee. Cocoa and chocolates are no longer exempted, after the enacting of law 253-12 (the tax reform). -Rice, tomato sauce
- Fresh, frozen, dried and canned fruits and vegetables from the farming and ranching sector
- Water in its natural state
- Among others
- Certain imported goods such as those detailed below are also exempt:
- Books, newspapers and magazines
- Petroleum and its derivatives
- Medicine for human and animal use
- Salted cod and herring
- Evaporated, dried, condensed or powdered milk
- Fungicides, herbicides and insecticides
- Imports made by public sector institutions, provided they do not carry out operations burdened by this tax
- Final imports of samples and parcels exempted from payment of import duties
- Imports of machinery and spare parts for the same, raw materials, supplies and equipment and their spare parts made by industrial free zone enterprises for exportation
- certain other goods.
The following services are VAT exempt:
- Services related to education
- Service related to healthcare
- Financial services, including insurance
- Pension and retirement plans
- Transportation services (cargo and passengers)
- Electricity, water and garbage pickup services
- Home Rent services. Please be advised that rent services for homes are VAT exempt, however, rent services of offices and commercial buildings are not VAT exempt.
- Exportation services
- Beauty salon and barber shop services
On the other hand, as per the amendments provided by the Law 253-12, Some previously exempted goods are now deemed taxable of the Value Added Tax. Yogurts, Butters, Toasted Coffee, Soy Oil, Peanut Oil, Sunflower Oil, Coconut Oil, Corn Oil, Margarine, Sugar, Cocoa and Chocolates are currently deemed taxable with an ITBIS of 8% upon the start of 2013, and of 11% upon the start of 2014, and finally of 16% upon the start of 2016.
In addition, the construction industry, under the All-Costs model may apply a 16% of VAT on the 10% of the invoiced amount.
Selective Consumption tax (ISC as per its abbreviation in Spanish) is an excise tax, which is defined in the Dominican legislation as a selective tax on the consumption of goods and services. This tax shall apply to the transfer of certain goods produced nationally at the level of the manufacturer, their importation and the rendering or leasing of the services described in the Dominican Tax Code.
Excise taxes are levied on the acquisition, consumption or import of certain goods and services, as listed by the Dominican Tax Code. Two main types of excise taxes coexist in the Dominican Republic, namely: i) The Selective Consumption Tax (in Spanish: Impuesto Selectivo al Consumo “ISC”) and, ii) the Selective Ad-Valorem Tax (in Spanish: Impuesto Selectivo Ad-Valorem “Ad-Valorem”).
Some products levied with the ISC are listed below:
- Malt beer (except malt extract)
- Fresh grapes wine, fortified wines, grape must, except that of item 20.09
- Vermouth and other wines from fresh grapes prepared with aromatic substances or plants.
- Other fermented beverages (e.g., cider, Perry, mead, drink mixes) and soft drinks not included elsewhere.
- Ethyl alcohol not denatured with an alcoholic strength in volume greater than or equal to 80% vol.: Denatured ethyl alcohol and brandy of any strength.
- Ethyl alcohol not denatured with an alcoholic content in volume less than 80% vol., and other spirituous beverages; compound alcoholic preparations of a kind used for the manufacture of beverages.
- Grape brandy (cognac, brandy, staple)
- Tobacco & Cigarettes
In general, the taxes referred to above also apply to tobacco products such as cigarettes or cigars, gasoline, alcoholic beverages, telecommunication services, the usage of checks, as well as insurance premiums. Except for telecommunication services, excise taxes shall be accounted towards determining the taxable base of ITBIS.
- ISC: This tax applies principally to the transfer of certain domestic goods at the level of the manufacturer, the transfer, or import of certain restricted goods and the rendering or leasing of a series of services, as described in the Dominican tax code.
- Ad-Valorem: Without prejudice to the ISC applying to certain economic activities, the Ad-Valorem functions as a secondary excise tax burdening the consumption or import of certain goods, such as on tobacco products, alcoholic beverages, oil products, hydrocarbons and certain others goods considered by law as luxury assets.
In general, individuals, corporations, look-through entities or any economic unit doing business in the Dominican Republic, whether domestic or foreign, regardless of its legal capacity or place of domicile, are considered taxpayers subject to VAT, to the extent they engage in the following activities: i) transfer industrialized goods; ii) import goods; iii) render taxed services; or, iv) perform a commercial activity deemed taxable under the scope of the VAT´s regulation and general rulings.
VAT Taxpayers must file a tax return of their taxed activities, in the manner and under the conditions established in the Regulations. This tax return shall be filed in the course of the first twenty (20) days of each month, even when there is no tax to be paid.
Yes. Not filing VAT taxes is considered as a misdemeanor subject to a fine of RD$27,790.00 (approx. US$ 677.00).
Dominican tax law does not provide a taxable turnover or threshold in connection with the registration of a taxpayer for the purposes of fulfilling its ITBIS liabilities. Therefore, any taxpayer subject thereto, shall file its correspondent ITBIS return on a monthly basis, following the start of the operational or business activities, whether a foreign or domestic taxpayer. However, Dominican Tax authorities have implemented a new simplified procedure in favor of small to medium-size businesses, based in sales or income, whereby the monthly ITBIS liabilities, as well as the amount of returns to be filed, are considerably reduced.
Foreign entities operating overseas are obliged to register, therefore, no simplifications exists that could avoid the need for an overseas company to register for VAT. However, foreign entities that do not have a Permanent Establishment in the Dominican Republic are not obliged to register in the DGII for VAT purposes. The aforementioned is also applicable to providers abroad or clients residing overseas.
Dominican Tax Law requires all companies and taxpayers, whether foreign or domestic, to appoint a legal representative or register a contact person with the tax authorities. Any liability or tax issue arising may be effectively complied with by means of a legal representative or an agent.
The Dominican Republic has a free currency exchange market. A foreign company is not required to obtain government approval to invest or to conduct its 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.
Dominican tax law does not allow the filing of consolidated VAT returns. However, the tax authorities may either disregard the presence of an individual or several legal entities and treat them as an economic unit for certain transactions, when used to secure a tax advantage or as a sham.
No, an overseas company cannot be included in a VAT group.
Each VAT return is to be submitted along with the payment on a monthly basis; having as deadline the 20th day of the month following that in which the tax liability arose. The filing of the ITBIS return is mandatory by law, whether or not a liability is due by the taxpayer.
The documentation or form required to file VAT depends on the type of presented information:
- Local purchases and payments for the support of VAT advances and withholdings, and costs and expenses of the Corporate Income Tax (Report 606)
- Sales and operations that represent income (Report 607), for which the filing deadline is 60 days after the end of the fiscal period
- Voided NCF, or Tax Verification Number (Report 608), for which the filing deadline is 60 days after the end of the fiscal period
Please be advised that other forms are required for the filing of the ISC, when applicable.
The exchange rate should be that of the invoicing date. The applicable exchange rate shall be the rate provided by the Central Bank.
Only locally registered taxpayers are allowed to recover VAT in the Dominican Republic, whether as a credit or a refund. Recovery is not allowed in any form in respect of a tax liability paid in connection with the ISC or the Ad-Valorem.
The taxpayer shall have the right to deduct from the gross tax the VAT amounts that, by reason of this tax, have been advanced within the same period:
- local suppliers for the acquisition of goods burdened by this tax;
- In customs, for the importation into the country of taxable goods.
An indispensable requirement for the allowance of the relevant VAT deductions is that the VAT charged on local purchases and/or imports must be supported by the documents required by law and in the Regulation for its application. These documents may be the Invoices, with their credit validation (NCF), and customs returns.
Some exceptions exist in respect of the right to recover or deduct input VAT. VAT incurred by real estate developers, producers of exempted goods and services, registered exporters and for the purposes of renovating industrial machinery may be: i) both, offset and registered as costs of the referred business, ii) carried forward or iii) reimbursed, as applicable. The referred fiscal treatment is subject to the taxpayer complying with a set of special regulations in connection therewith.
On the other hand, some industries may not recover VAT, and shall register such expenses as part of the cost of the service or product. These industries include the electricity industry and the security industry.
When it cannot be determined if imports or local acquisitions of the taxpayer have been used wholly for taxed or tax exempt operations, the deduction of the VAT charged on these acquisitions shall be made on a pro rata basis i.e. the proportion deductible should correspond to the amount of the taxed operations over the total of the operations for the period at issue.
When the total taxes deductible by the taxpayer are greater than the gross tax, the resulting difference shall be transferred, as a deduction, to following monthly periods; this situation does not exempt the taxpayer from the obligation of filing a tax return in accordance with that established in the Regulations. Exporters that reflect credits for taxes paid on their supply purchases have the right to request reimbursement of the same within a time period of 6 months.
VAT recovery on employee expenses is possible, as long as the invoice is made under the name of the legal entity. Employee expenses paid on their behalf by the company are commonly known as “Fringe Benefits”. The concept of fringe benefits subject to tax means any good, service or benefit furnished by an employer to an individual for his/her work in a relationship of dependency in addition to any monetary compensation, but only if said good or benefit, service or benefit contains and individualized personal element, in the terms determined in the Regulations.
The following is a non-limited enumeration of the goods, services and benefits, among others, which are considered as fringe benefits. VAT incurred on these expenses is not generally recoverable:
- Vehicles of any kind;
- Domestic employees;
- Special discounts on the sale of goods;
- Educational assistance to the official or employee of their dependents; provided that they are not in training programs directly related to the exercise of the inherent functions of the official or employee of the respective enterprise;
- Premiums paid for life, health or other similar kinds of personal insurance; however, when the premiums for life or health insurance are on behalf of all personnel, collectively, the expense is deductible for fiscal purposes, and the tax contemplated in this Article is not applied nor does it constitute income subject to withholding for the salaried employees;
- Expense accounts, except when it is proven that the expenses and the amounts are reasonable and necessary for the business of the employer.
International Supplies of Goods and Services
Exports of goods are VAT exempt, and therefore remain taxed at a rate of zero. Exporters shall have the right to deduct the value of the tax that may have been charged on rented goods destined for exportation activities. Should there be a balance remaining in favor of the exporter, it shall be returned by the General Agency for Income Tax, in the manner established in the Regulations.
In the case of the importation of goods, taxes shall be paid together with the corresponding custom taxes, in the manner and under the conditions established in the Regulations.
Services provided from the Dominican Republic to foreign companies that do not reside in the Dominican Republic are exempt of VAT.
Any transfer of goods or provision of service in the Dominican Republic implicating expenses or costs must be supported by a Tax Verification Number (“NCF”), regulated by the Dominican Tax Authorities.
According to Decree No. 254-06, NCFs are fiscal documents validating the exchange of goods or service delivery, complying with the minimum requirements provided in the Regulation concerning its printing, issuance, and delivery.
The NCFs consist of an alphanumeric authorized by the Dominican Tax Authorities. This number code has a total of 19 numeric positions. Through this number, the person receiving the NCF can check its validity, confirming whether it has been authorized by the Tax Administration, and if the NCF was actually issued by the relevant issuer.
The tax invoice must contain the following data:
- Name of the Legal Entity Issuing the invoice; their address, telephone number, the National Taxpayers Registry
- Name of the entity receiving the invoice; their address, telephone number, the National Taxpayers Registry
- The corresponding NCF numerical code
- Description and amount of the Transaction, along with the identification of the total VAT amount
Yes, invoices may be issued electronically. Please be advised that these will also be subject to meeting the same conditions, outlined above.
No. However, a recipient may act as a tax withholding agent when ordered by law or the Dominican tax authorities.
Yes. A business can issue VAT/GST invoices denominated in foreign currency. However, it is suggested to include on the invoice the appropriate conversion to local currency.
Transfers of Business
Currently, there is no VAT relief on the sale of a business. However, please be advised that the sales of real estate and intangible assets of the company are not subject to VAT.
Options to Tax
There are no options to tax transactions.
Head Office and Branch transactions
There are no distinctions or special VAT rules in the Dominican Tax Legislation for transactions shared between two local related entities or branches and their head offices. Therefore, goods and services generally deemed subject to VAT in the Dominican Republic are also subject to VAT when they form part of commercial transactions made between two related parties.
As a matter of fact, Transfer Pricing Rulings are set forth in the Dominican jurisdiction, providing no special tax relief on transactions between related parties.
No. A Bad debt is a deductible expense only for the Corporate Income Tax purposes. Losses arising from bad credit, in justifiable amounts, or in amounts separated to create a reserve fund for bad accounts are considered to be a deductible expense only for the Corporate Income Tax. However, there is no VAT tax relief for bad debts.
VAT anti-avoidance in the Dominican Republic is defined as the voluntarily or involuntarily filing of a false or misleading statement, which produces illegitimate decreased tax revenues. As punishment for anti-avoidance actions, the DGII can impose on taxpayers a penalty of twice the taxed amount, including surcharges (late fees) and interests.
Fines are usually imposed if a taxpayer uses or attempts to use deceptive means to avoid the paying its tax debts. Failure to pay the amount of tax due to the Dominican tax authorities before an applicable deadline is subject to surcharges at a 10% rate on the first month or a fraction of it as of the applicable deadline; and of 4% for each subsequent month or fraction of a month. Jointly, 1.73% of the tax due shall be paid monthly by way of legal interest. These penalties, as described, are not deductible from the income tax.
Failure to pay the amount of tax due to the Dominican tax authorities before an applicable deadline is subject to surcharges at a 10% rate for the first month or a fraction of it as of the applicable deadline; and of 4% for each subsequent month or fraction of a month. Jointly, 1.73% of the tax due shall be paid monthly by way of legal interest.
The failure to comply with formal duties are defined as any act or omission that prevents or hinders the determination of the tax liability, as well as maintaining control and supervision of taxes, by the Tax Administration.
Persistent failure to comply with formal duties include:
- Non issuance of invoices with tax receipts Numbers (NCF) authorized;
- Reporting false information when registering as a taxpayer;
- Non maintenance of books or records are required by law;
- Non submission of the statements that apply to the determination tribute;
- Non maintenance or submission of relevant documents and reports;
- Refusal to provide information requested by the Tax Administration
- Non submission of forms 606 and others forms required by the regulations tax.
Failures to comply with the provided formal duties may result in the payment of 5 to 30 minimum salaries. Other sanctions may be applicable such as suspension of concessions, privileges, among others.
How often do tax audits take place?
In case of large taxpayers, these will usually take place once a year or after a transaction judged important for fiscal purposes by the tax authorities. In any other cases, the chances for being tax audited will normally rely on the amount of tax deficiencies found by the tax authorities.
Are there audits done electronically in your country (e-audit)? If so, what system is in use?
Yes, E-Audits exceed by far field tax audits. The Dominican tax authorities have developed special tax software, such as the Crossed Information System, among others.
Are rulings and decisions issued by the tax authorities publicly available in your country?
Tax Rulings are publicly available. Nevertheless, decisions addressed to a particular taxpayer are protected under the secrecy provisions of the Dominican Tax Code.
Yes, several incentives laws have been enacted which grant total or partial tax exemptions on certain business activities (i.e. tourism, free-trade zones, energy, etc.).