DOMINICAN REPUBLIC Law and Practice Contributed by: Sarah de León Perelló, Elizabeth Silfa Micheli and Naomi Rodríguez Manzueta, Headrick Rizik Álvarez & Fernández
the employee must pay 0.5% deductible from bonuses. 5.2 Taxes Applicable to Businesses Dominican tax laws are territorial. All natural and legal persons residing or domi - ciled in the Dominican Republic will pay income tax on revenue of Dominican source and on rev - enue of foreign source originating from financial investments and gains. Companies incorporated in the Dominican Republic are considered resi - dent for tax purposes as well as foreign enti - ties՚ branches registered locally and permanent establishments. If the individual or legal entity is not considered resident for tax purposes, then it would pay tax on each revenue of Dominican source and would be taxed on its gross income. A “permanent establishment” is defined as a fixed place of business in which a natural per - son, legal entity or foreign entity carries out all or part of its activities, such as: headquarters, offices, branches, commercial agencies, facto - ries, workshops, mines, oil or gas wells, quar - ries or any other place of extraction of natural resources, assembly projects, including supervi - sion activities thereof. It also includes construc - tion or supervision activities derived from the sale of machinery or equipment when their cost exceeds 10% of the sale price of said goods, business consulting services, provided they exceed six months within a fiscal year, and rep - resentatives or agents, when the representatives or agents of a legal entity would generate a risk of a taxable presence for such legal entity when they carry out all or almost all of their activities in the Dominican Republic on behalf of the legal entity. The main applicable taxes to companies doing business, among other, are set out below.
• Income tax: any earning or benefit obtained from a good or activity and all the benefits, profits received or accrued, and capital gains made by the taxpayer, whatever their nature, origin or denomination, shall be deemed as “income”. The applicable annual income tax on the net income of legal entities, resident or with a registered permanent establishment in the Dominican Republic is 27%. • VAT: the transfer of industrial goods and services (ITBIS, which is the local VAT equiva - lent) tax rate applicable to the transfer of products, the import of industrialised goods and the provision of services to the local market is 18%. • Tax on assets: 1% tax on the value of its assets (not adjusted for inflation, and apply - ing the deduction for depreciation, amortisa - tion and reserves for uncollectable accounts). • Capital gains tax: this tax must be paid by any individual or legal entity that transfers or disposes of capital assets subject to this tax. To determine the capital gain, the fiscal cost of the respective good or capital asset will be deducted from the sale price or disposal value. The rate is 27% for companies. • Withholdings on dividends: dividends from Dominican sources are subject to a single and definitive withholding of 10%. Those divi - dends from foreign sources are considered financial gains and are taxed at a rate of 27% for companies and 25% for individuals. Other withholding obligations include: • 27% on payments made abroad; • 10% on interest paid to non-resident individu - als or companies; • withholding on employees՚ salaries based on a progressive scale with a cap up to 25% and other contributions to the National Social Security System and INFOTEP; and
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