A more efficient tax system has been put into place in the Dominican Republic with changes you should be aware of.
As one of the strongest economies in Latin America and the Caribbean, the Dominican Republic hosts corporations from all over the world. It has political and economic stability as well as strong social and educational policies. However, according to the World Bank Ease of Doing Business survey, the Dominican Republic ranks 149th for ease of paying taxes, taking an estimated 317 hours a year and costing 49% of profit.
The World Bank report: "Gearing up for a More Efficient Tax System in the Dominican Republic", states tax losses from fraud, fiscal evasion and bad management of the Transfer of Industrialized Goods and Services Tax (ITBIS, in Spanish), are among the largest in Latin America and the Caribbean. The government is aware that a more efficient tax system is required to stem these losses
Recent tax changes
As a result, the Fiscal Administration has submitted new requirements, such as complementary information about VAT compliance across the Norm 07-2018. This explains the new requirements that the companies must to submit monthly in their VAT declaration. The main elements are the New Structure for 606 Form (Expense and Purchase Fiscal Report), the New Structure for 607 Form (Revenue and Fiscal Receipts Report) and the IT-1 Form (Tax on Sale Report) including Annex A (detailed information).
Companies must now present the required information in the Norm like, kind of goods and services, Fiscal Receipts Number (NCF), date of receipts, date of payments, services invoiced, goods invoiced, VAT calculated, VAT Retained, VAT in proportion (when companies have taxable and not taxable sales), kind of payments, etc.
Corporate income tax is 27% and takes around 74 hours a year to complete. A major business tax change, launched by the Dirección General de Impuestos Internos (DGII) aims to mitigate the abuse that some companies were committing when deducting their expenses, with the aim to reduce their tax base. Companies must adjust the format of their invoices to incorporate the new requirements by the Fiscal Administration. Automatically printed fiscal receipts need the system updating to accommodate the changes. Items which need dealing with separately are: Legal Tips, IVA, Services, Goods, Other Taxes, Payment Method, Conditions. The deadline for this was 1 June 2018.
Those affected by the changes are all the legal persons or entities without juridical personality, such as trusts, investment funds or similar. Exemptions are Individual Companies of Limited Responsibility (EIRL) and the Natural persons, including new Incorporation companies.
These new requirements are part of the monthly Tax Report (Revenues and Expenses) and legal information for the company. Our local expertise and extensive experience in tax compliance means we are very well placed to advise our clients on the most recent updates to local compliance.
Employer paid pension contributions
This is levied at 7.1%, but takes 80 hours a year to comply.
VAT is levied at 18% for the standard rate and takes around 163 hours per year to complete. There is a reduced rate for certain goods, of 16%.
The Dominican Republic has two tax treaties, one with Canada and one with Spain. Additionally, they have signed the Multilateral Convention for the Transparency and the Exchange of Information, which will allow to the country to accede contributors' information from more than hundred countries globally. Likewise, FATCA-IGA was negotiated by the United States for a reciprocal exchange of information.
Companies can choose from four available tax year ends: 31 March, 30 June, 30 September and 31 December, which is the most common. Each company must file their own tax return, consolidated returns are not permitted.
Contact our local TMF Group experts
TMF Group has the local knowledge to help you identify the relevant tax and accountancy aspects in the Dominican Republic, and face any challenge or opportunity they may pose for your business. Whether you want to set up in the Dominican Republic or want to streamline your operations there, we have the local knowledge to help. Talk to us today.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.