DOMINICAN REPUBLIC Law and Practice Contributed by: Marielle Garrigó, Urania Paulino, Eduardo Pellerano and Ricardo Pellerano Nadal, Pellerano Nadal Law & Consulting
administrator or are part of the adminis- trating body, represent at least 51% of the subscribed and paid-in capital, hold decisive power at the shareholder assemblies or are in the position to name the majority of the members of the governing body; • the grant of guarantees or the increase of the value of guarantees approved prior to the ini- tiation of the proceeding without reasonable consideration; and • payments of obligations not yet due. There are no stamp taxes applicable for the exe- cution and maintenance of financing agreements in the Dominican Republic. However, some fees may apply for the registration of notary promis- sory notes ( pagarés notariales ) and security over real estate and movable assets. 8.2 Withholding Tax/Qualifying Lender Concepts For Dominican Republic tax purposes, the qualifying lender concept is applicable only through the benefits of a tax treaty. Currently, the Dominican Republic is signatory to tax trea- ties with Spain and Canada, based on the OECD Tax Treaty Model. Loans between a Dominican Republic resident and other jurisdictions, in which the first is the borrower, will be subject to 10% withholding income tax on interest pay- ments. 8.3 Thin-Capitalisation Rules Two rules exist and the applicable one will be the most favourable one to the tax authorities. • The deduction of interest paid to non-resident recipients (or non-resident individuals) is lim- 8. Tax Issues 8.1 Stamp Taxes
ited to the amount that results from applying the interest withholding rate (currently 10%) and the corporate income tax rate (currently 27%). The payer cannot deduct interest which is equal to or higher than 27%. • Thin capitalisation – the maximum debt-to- equity ratio allowed to taxpayers is 3:1 pursu- ant to thin-capitalisation rules. The deduction of interest expense is limited when exceeding this threshold. The shareholders’ equity is the share capi- tal, legal reserves and retained earnings, as expressed in the financial statements. Profits earned in the relevant period are excluded. All debts that generate interests exclude debts owed to Dominican Republic residents. These rules do not apply to: • debts between Dominican Republic resi- dents who include the interest in their taxable income (27%); or • financial institutions classified as such before the Monetary Board of the Dominican Repub- lic and the Superintendence of Banks. Interest may be carried forward in subsequent periods for up to three years.
9. Takeover Finance 9.1 Regulated Targets
In the Dominican Republic, certain sectors are subject to special regulations and, therefore, cer- tain procedural authorisations must be obtained from the corresponding regulator in order to be acquired through these types of financing. Some of these sectors include financial institutions, insurance, free zone companies, telecoms, min- ing and energy.
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