DOMINICAN REPUBLIC Law and Practice Contributed by: Luis Miguel Pereyra, Pereyra & Asociados
entities that form it) from a tax point of view, once registered, it is treated as such. 1.2 Use and Taxation of Transparent Business Structures There are no transparent entities. Eentities such as partnerships and trust are recognised as taxable entities under Dominican Republic regulations. How - ever, trusts incorporated in accordance with Law No 189-11 on the Development of the Mortgage Market and Trust Funds in the Dominican Republic are sub - ject to a special tax regime. 1.3 Tests for Determining Tax Residence The Dominican Republic taxes primarily on a territo - rial basis. Business income derived from activities performed in property situated or economically used, or having economic rights, in the country are taxed regardless of the domicile or residence of the partici - pants or the contracting location. A company is resident if it is incorporated under the laws of the Dominican Republic – or if it is located in the same place where it mainly carries out its activi - ties or has its main business headquarters or effec - tive management. Holding interest in a Dominican Republic entity does not necessarily entail local tax residence for a foreign entity. Regarding foreign entities, “permanent establishment” is defined as a fixed place of business in which a for - eign legal entity carries out all or part of its activities, such as: • supervision activities in relation to headquarters, offices, branches, commercial agencies, factories, workshops, oil or gas wells, quarries or any other place of extraction of natural resources; • construction or supervision activities associated with the sale of machinery or equipment when their cost exceeds 10% of the sale price of said goods; and • business consulting activities, provided they are carried out for six months per year or involve dependent representatives or agents (in the case of the latter, when they carry out all or almost all of their activities on behalf of the company).
To determine whether there is a permanent estab - lishment, the tax administration has the authority to request documents including proof of residence, ser - vice agreements, corporate documents and invoices, among others. It should be noted that the Dominican Republic is a party to only two double taxation treaties (Canada, 1976; and Spain, 2011) with specific rules related to permanent establishments and tax residency. 1.4 Applicable Corporate and Individual Tax Rates Resident or branch corporations (or consortiums) are subject to Dominican corporate income tax ( impuesto sobre la renta ISR) on their local income (only) and income coming from activities within the country. The income tax rate is 27%. Non-resident companies also pay ISR on income sourced in Dominican territories, in the absence of a permanent business. The resident corporation in the Dominican Republic will withhold 27% of the payment made to such non-resident entities for services includ - ing publicity, royalties, technical assistance, etc. The withholding tax on dividends paid to a resident or a non-resident is 10%. The same withholding tax applies to dividends or benefit remittances by free trade zone entities (under a special tax regime). The withholding tax for non-resident lenders is 10% on the interest payable to such lenders. Capital gains derived from the sale of assets, immov - able property or shares are included in gross income and are subject to the standard corporate income tax rate of 27%. A 1% asset tax also applies to the value of a corporation’s total assets according to the com - pany’s financial statements. The asset tax, which is paid in two instalments, is considered the minimum tax payable when it is higher than the company’s cor - porate income tax liability. Certain assets are excluded from the taxable base. Capital duty is levied on the formation of a corporation, or on a capital increase, at a rate of 1% of the capital amount (or of the capital increase, as applicable).
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