DOMINICAN REPUBLIC Law and Practice Contributed by: Luis Miguel Pereyra, Pereyra & Asociados
6.4 Taxation of Intangibles Developed by Local Corporations Individuals, legal entities and entities that are not resident or domiciled in the Dominican Republic will be subject to tax on their income from Dominican sources. Income from Dominican sources is gener - ally considered to be that that arising from capital, goods or rights located, placed or used economically in the Dominican Republic. To the extent that the use of a non-local subsidiary of an intangible developed by a local corporation does not generate income from Dominican sources, it should not be taxed. 6.5 Controlled Foreign Corporation-Type Rules There is no provision that would allow taxes to be levied on the income of non-local subsidiaries earned under controlled foreign corporation (CFC)-type rules. 6.6 The Substance of Non-Local Affiliates There are no specific applicable rules in relation to the substance of non-local affiliates. However, there are guidelines determining control or related-party status, mainly with respect to transfer pricing and identifying an economic group. 6.7 The Sale of Shares in Non-Local Affiliates Proceeds received by local corporations from the sale of shares in a non-local affiliate might be deemed as foreign income derived from investments of such local corporations, and thus part of the latter’s tax - able income (as per the general rule explained in 6.1 Foreign Income Exemptions ).
serving taxable income, in accordance with the regu - lations. Such expenses should be supported by fiscal invoices/receipts; in their absence, expenses may not be deducted. 5.7 Restraints on Related-Party Borrowing There are no constraints on related party borrowing, except those resulting from transfer pricing regula - tions (contracted on an arm-length basis) and rules limiting profit shifting. These rules establish that inter - est expenses are deductible in the Dominican Repub - lic to the extent calculated by applying to the expense the ratio between: (i) the potential rate resulting from the withholdings to be applied to the payment of inter - est, plus the taxation for the payment of such interest abroad; and (ii) the rate applicable to companies in the Dominican Republic, which is currently 27%. 6. Taxation of Foreign Income of Local Corporations 6.1 Foreign Income Exemptions The general rule is that any individual or legal entity resident or domiciled in the Dominican Republic, and undivided estates of deceased persons domiciled in the country, shall pay tax on their income from Domini - can sources, and from sources outside the Dominican Republic from investments and financial gains. The foregoing entails that local entities (and local branches of foreign entities) shall pay taxes from foreign income (not deemed to be from a Dominican source) resulting from its investments or financial gains only. 6.2 Non-Deductible Local Expenses According to the general rules for deductible expens - es, in principle, expenses cannot be deducted if they were not incurred in order to obtain or maintain tax - able income. 6.3 Dividends From Foreign Subsidiaries Dividends received from foreign subsidiaries paid to local corporations might be deemed as foreign income derived from investments of such local corporations, and thus part of the latter’s taxable income as per the general rule explained in 6.1 Foreign Income Exemp- tions .
7. Anti-Avoidance Provisions 7.1 Overarching Provisions
In the Dominican Republic, following the approval of the Tax Code through Law 11-92, certain anti-abuse and avoidance clauses have been used, whereby juridical forms are not binding on the tax authorities. Pursuant to Article 2 of the Tax Code, and consistent with BEPS Action 5, the tax administration may ignore the legal form used by the taxpayer when the tax event was defined in accordance with the economic reality.
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