Taxation

International Tax Law

Introduction

Tax law shapes the nature of almost every international business transaction and has a significant impact on the way international corporations behave. Substantial value can be created by timely tax planning that takes into consideration the dilemmas and opportunities of international taxation, such as double taxation, foreign tax credit and anti-abuse/anti-avoidance rules. A principle of taxation accepted worldwide states that corporations and individuals have the right to arrange their affairs so as to minimize their taxes. Our lawyers are specialized in this field and are ready to help you structure your transactions in the most tax-efficient manner.

Taxation in the Dominican Republic is governed by Law No. 11-92 of May 31, 1992, commonly known as the Tax Code (“Código Tributario”), its amendments and regulations (“Reglamentos”). This overview is a brief summary of the Tax Code’s most relevant provisions. All references in parentheses refer to articles in the Tax Code unless otherwise specified.

Taxes are collected by the Bureau of Internal Revenue (“Dirección General de Impuestos Internos”or DGII), an autonomous government entity which may also issue its own regulations (“Normas”).

Dominican income tax law is primarily territorial. All income derived from work or business activities in the Dominican Republic is taxable, no matter if the person is a Dominican, a resident foreigner or a nonresident foreigner (Articles 269 and 270).

Income derived from work done outside of the Dominican Republic, by Dominicans or resident foreigners, is not taxable in the Dominican Republic. The exception to the principle of territoriality is income from financial sources abroad (Articles 269 and 271). A Dominican or a resident foreigner receiving income from financial investments (stocks and bonds, certificates of deposits, etc.) must pay taxes in the Dominican Republic on their income from those investments (Art. 269). Pensions and Social Security benefits are exempt (Art. 2 of Reglamento #139-98). For the resident foreigner, this obligation only starts three years after obtaining residency (Art. 271).

For tax purposes, any person residing in the Dominican Republic for more than 182 days in a year is considered a resident (Art. 12).

The Tax Code includes a general anti-avoidance provision whereby the tax authorities may ignore the existence of legal entities or certain transactions when used to secure a tax advantage (Art. 2).

Law #53 of 1970 makes it mandatory for all taxpayers to register with the tax authorities and obtain a tax or RNC (“Registro Nacional de Contribuyentes”) number.

A summary of the most important taxes in the Dominican Republic is found below.

Income Tax

For Individuals

Individuals obtaining income from a Dominican source or from financial investments abroad shall pay taxes as per the following scale (Art. 296), in Dominican pesos (RD$):

Income up to RD$399,923.00 annually exempt
RD$399,923.00-RD$599,884.00 15% on the excess of RD$399,923.00
RD$599,884.01-RD$833,171.00 RD$29,994.00 plus 20% of income above RD$599,884.00
Income above RD$833,171.00 RD$76,652.00 plus 25% of income above RD$833,171.00

This scale is adjusted for inflation every January based on the rate of inflation calculated by the Central Bank of the Dominican Republic. This adjustment has been recently suspended for the period 2013 to 2015 (Art. 3 of Law 253-12). There are very few deductions.

Employers must retain and pay to the DGII, within the first ten days of each month, any income tax due on the salaries paid to their employees the previous month (Art. 307). Individuals who receive incomes from non-wage sources must file a tax declaration every year, on or before March 31 (Art. 110 of Regulation #139-98).

For Corporations and Other Entities

Corporations and any other for-profit organizations pay a flat 29% income tax on net taxable income (Art. 297). The rate will be reduced to 28% for fiscal year 2004 and to 27% thereafter.

Unlike in the United States and other countries, in the Dominican Republic the tax treatment for corporations, partnerships and limited liability companies is exactly the same.

Net taxable income is determined after deducting from gross income those deductions, credits and advance payments admitted by law (Articles 284 to 287).

All corporation and for-profit entities must file a tax declaration every year, on or before April 30, if their business year coincides with the calendar year. Otherwise, the filing must be done within 120 days after the end of the business year (Art. 112 of Regulation #139-98)

Capital Gains Tax

Capital gains are defined as the difference between the sale price of an asset and the acquisition or production price adjusted for inflation (Art. 289). Capital gains are taxed as regular income.

Taxes are levied based on the capital gains calculated in Dominican pesos.

Tax on the Transfer of Industrialized Goods and Services (ITBIS)

The ITBIS is a value-added tax applicable to the transfer and importation of most goods, and to most services (Art. 335). The rate of the ITBIS is 18% (Art. 341). For imports, the ITBIS is charged on the CIF value of the goods plus applicable duty (Art. 339).There are many exemptions to the ITBIS tax (Arts. 342 and 343), among them, the following:

* exported goods
* basic foodstuffs
* medicines
* fuels
* fertilizers
* books and magazines
* educational materials
* financial services
* transportation services
* home rentals
* utilities
* educational and cultural services

The 18% ITBIS must be added to every bill for goods and services that are not exempt. The individual or entity receiving the ITBIS must disburse it to the DGII within the first 20 days of the following month (Art. 353). Noncompliance is subject to a 10% surcharge for the first month and 4% for each month thereafter, in addition to 2.58% interest for each month or fraction of a month (Art. 252). From the total ITBIS received, the individual or entity is allowed to deduct any ITBIS paid to suppliers, customs, etc. (Art. 346).

Selective Consumption Tax (ISC)

The Selective Consumption Tax is applied to the acquisition or import of certain goods and services, including the following (Articles 361, 381 to 383):

* motor vehicles
* guns
* tobacco products
* alcohol products
* jewelry
* Electronic products
* long distance phone calls
* insurance

The ISC rate varies according to the good or service taxed.

Tax on Assets

Businesses and corporations must pay a 1% annual tax on assets (Arts. 401 and 404) in two installments due on April 30 and October 30 (Art. 405). For the purposes of this tax, all assets are taken into account, minus depreciation and amortization, except: a) stock holdings in other corporations, b) real estate in rural areas, c) real estate used for agriculture or animal husbandry, d) tax advances and e) provisions for bad debts (Art. 402).

The tax on assets operates as a kind of minimum income tax. If the income tax paid by the business or corporation is equal or higher than the amount of the tax on assets, then the business will have no obligation to pay the tax on assets (Art. 407). If the income tax paid is less than the amount of tax on assets due, the business must pay the difference.

New capital-intensive businesses may obtain a temporary exemption from this tax if certain conditions are met.

The tax on assets will be eliminated in 2015. Also, the tax rate for 2014 will be reduced to 0.5%. After 2015, real estate properties held by corporations will pay the same property tax as individuals.

Real Property Tax

A 1% annual tax is assessed on any real property owned by individuals, based on the value of the property as appraised by the government authorities. (Articles 1 to 3 of Law #18-88). Properties are valued without taking into account any furniture or equipment to be found in them. For built lots, the 1% is calculated only for values exceeding RD$6.5 million pesos. For unbuilt lots, the 1% tax is calculated on the actual appraised value without the RD$6.5 million pesos exemption. Individuals must pay this tax every year on or before March 11, or in two equal installments: 50% on or before March 11, and the remaining 50%, on or before September 11.

The RD$6.5 million pesos threshold is adjusted annually for inflation.

The following properties are exempt from this tax:

(1) Built properties valued at RD$6,500,000 or below.
(2) Farm properties.
(3) Properties whose owners are 65 years old or older, who have owned it for more than 15 years and have no other property in their name.
(4) Properties subject to the Tax on Assets.

Real Property Transfer Tax

A 3% tax is assessed on any transfer of ownership of real estate (Art. 20 of Law #288-04). The transfer tax is paid based on the market value of the property as determined by the appraisal done by the DGII, not on the price of purchase stated in the deed of sale. The deed of sale cannot be filed at the Title Registry Office without paying this tax. The transfer tax must be paid within six months of the date of the deed of sale (Art. 7 of Law #173-07). Noncompliance is subject to fines.

Properties worth less than RD$1 million pesos acquired through a bank loan are exempt from the transfer tax (Art. 20 of Law #288-04). The RD$1 million pesos exemption is adjusted annually for inflation.

Tax on Mortgages

A 2% tax is levied on all mortgages recorded in the Dominican Republic (Art. 8 of Law #173-07).

Tax on Transfers of Motor Vehicles

A 2% tax is levied on any change of ownership of motor vehicles (Art. 9 of Law #173-07). The transfer tax must be paid within three months of the date of the acquisition. Noncompliance is subject to fines.

Inheritance and Gift Taxes

The estate of any person, Dominican or foreign, whose last domicile was in the Dominican Republic is subject to Dominican inheritance taxes. The inheritance of property located in the Dominican Republic is subject to Dominican inheritance taxes, irrespective of the nationality or domicile of the deceased (Art. 1 of Law #2569 of 1950).

Law #288-04 lowered inheritance taxes to 3% of the value of the estate, after deductions, as determined by the tax authorities. Medical and funeral expenses, as well as outstanding debts and mortgages, are some of the allowed deductions.

Beneficiaries must file a declaration with the tax authorities within 90 days of the death of the decedent. An extension of an additional three and a half months is possible in complex cases (Art. 26 of Law #2569). Delays in filing are subject to a 2% per month penalty, up to a maximum of 50% of the tax owed (Art. 9 of Law #2569).

Gifts are taxed at a 25% rate (Art. 6 of Law #2569) except the following, which are exempt;

* Gifts for less than RD$500
* Gifts to government institutions or recognized nonprofit organizations
* Gifts to the family homestead (“bien de familia”).

Withholding or Retentions at the Source

The Tax Code establishes the following retentions:

  • Payments abroad to persons or entities not domiciled or resident in the Dominican Republic are subject to a 29% withholding on the amount paid (Art. 305). This withholding is considered as final and definitive payment of the taxes owed for the operation. No deductions are allowed. The only exceptions to this provision are interest payments to financial institutions abroad which are subject to a 10% withholding instead (Art. 306).
  • Also, payments abroad by a branch office domiciled in the Dominican Republic to its headquarters abroad are subject to a 10% withholding (Art. 308).
  • Payments to workers. Employers must retain income taxes as per the table published by the DGII (Art. 307).
  • Dividends. Corporations must retain 10% of the dividends paid to shareholders (Art. 308).
  • Rentals. Payments to individuals (not corporations) are subject to a 10% withholding (Art. 309).
  • Fees for services and commissions. Payments to individuals (not corporations) are subject to a 10% withholding (Art. 309).
  • Prizes. All payments are subject to a 10%  to 25% withholding, depending on the amount of the prize.
  • Government payments to suppliers are subject to a 5% withholding.

Intellectual Property

Trademark and Intellectual Law

Trademark Registration in the Dominican Republic

Trademark registration in the Dominican Republic is governed by Law 20-00 on Industrial Property. (You may find the text of the statute, in English, in our website: www.drlawyer.com/txt/articles/trademarks.html )

The process to register a trademark is as follows:

(1) Preliminary searches are optional to determine if the mark requested is available for registration in the desired class, under the international classification of goods and services. The search may take up to 5 business days. If time is a factor, faster service is available for a higher fee.

(2) If the search results do not preclude the registration of the mark, in case the preliminary search has been requested, the applicant may proceed to file a petition to record the mark. Government fees must be paid in full with this filing.

(3) If the application complies with the legal requirements, the National Office of Industrial Property (ONAPI) will allow the petitioner to pay for the publication of an excerpt of the application in its Journal. Third parties have 45 days from the date of publication in the Journal to file an opposition to the application. If the application is not opposed within 45 days, or if the opposition is rejected, the Office will issue the Certificate of Registration which is valid for 10 years and may be renewed.

The whole process, without opposition and including the search, takes approximately 4 to 5 months.

To proceed to file the petition for registration, the applicant must provide the following information and documents:

(1) Full name and address of the applicant.

(2) Power-of-attorney signed by the applicant, authenticated at the nearest Dominican Consulate (see attachment), or apostilled. The original copy of this document should be sent to us, since it is required to be filed jointly with the trademark application.

(3) Description of the goods and services covered by the mark, grouped by classes, according to the international classification of goods and services.

(4) If the application is to be based on a foreign registration, a certified copy of such registration, authenticated at the nearest Dominican Consulate, or apostilled.

(5) If a design is to be filed, 6 samples of the design of at least 6 in. x 6 in. (15 cm. x 15 cm.) in size.

(6) If the applicant is an individual copies of his/her passport’s first page and Identification Card. If the foreign applicants are companies, copies of the company’s incorporation certificate and passport of its signing legal representative (President, Vice President, etc…). (No authentication needed)

(7) Copy of the trademark’s certificate of registration in the foreign country, even if the registration is not going to be based directly on a foreign registration. (No authentication needed).

Litigation and Alternative Dispute Resolution

ProcedimientoenDefectoEl procedimiento en defecto en materia civil y commercial (The Procedure by Default in Civil and Commercial Matters)

Tourism

tourism

  • Overview of Tourism Laws in the Dominican Republic
  • Tourism Incentive Law 158-01

Renewable Energy

Renewable Energy

OVERVIEW OF RENEWABLE ENERGY

Renewable Energy is one of the fastest growing industries in the world due to the urgent problems anticipated by climate change. Driven by worldwide technological innovation and manufacturing of “green” products and systems, the sector is an excellent investment opportunity in the Dominican Republic where there is an abundance of natural resources.

LEGAL FRAMEWORK

“Going green” in the Dominican Republic is governed by the Constitution, the Renewable Energy Incentives and Special Regimes Law #57-07 (a complement to General Electricity Law #125-01), and the Environmental and Natural Resources Law #64-00.

The Constitution of the Dominican Republic, amended on January 26, 2010 for the 39th time in 167 years, devotes several articles (Articles 14 to 17, 66 and 67) to the country’s natural resources, which establish the general legal framework for dealing with natural resources. Some important principles laid down by the Constitution are:

• Exploration and exploitation of natural resources can only be done under rational and sustainable environmental conditions.

• The environment must be protected for present and future generations by prohibiting detrimental activities, promoting alternative energy sources, etc.

• Ecosystems and wildlife protected by the National System of Protected Areas can be changed only by a two-thirds vote in each of the two houses of Congress.

• Non-renewable natural resources belong to the Dominican people.

General Electricity Law #125-01, enacted July 26, 2001, is the legal umbrella under which Renewable Energy is governed. It provides for the production, transmission, distribution, and commercialization of the country’s electricity in a neutral and nondiscriminatory manner. The National Energy Commission (CNE), the Superintendent of Electricity (SIE), and the Coordinating Agency for the Interconnected Electrical System (OC) are responsible for governing the activities in the electrical sector.

Renewable Energy Law # 57-07, dated May 7, 2007, is administered by the National Energy Commission (CNE), the Superintendent of Electricity, and the Coordinating Agency for the Interconnected Electrical System as a sub-sector of the Electricity sector. Law 57-07 zeros in on sustainable energy endeavors with four main objectives: (a) to increase the diversity of energy sources; (b) reduce dependence on imported fossil fuels, (c) mitigate the negative impact of fossil fuel use on the environment, and (e) stimulate private investment in renewable energy. The primary renewable sources targeted are biodiesel, ethanol, hydro, solar, wind, tidal and oceanic.

Significantly, law 57-07 allows the use of ethanol as a motor vehicle fuel, providing a potential of up to 10% in local fuel production and a productive use of unused, fallow sugar cane acreage.

RENEWABLE ENERGY PROJECT TYPES

The law provides incentives to public, private, or a combination of both, corporate, and cooperative projects that produce energy or bio-combustibles and show physical, technical, environmental, and financial viability. The law expressly encourages the installation and exploitation of:

  • Wind farms and individual windmills with an initial installation that does not generate more than 50 M
  • Micro and small hydroelectric installations that do not generate more than 5 MW
  • Electro-solar (photovoltaic) installations with no restriction on production
  • Thermo-solar installations of up to 120 MW of concentrated solar energy per central unit
  • Medium-temperature thermo-solar energy installations to obtain clean hot water and condition air from cooling equipment
  • Energy farms or any infrastructure of any size devoted exclusively to converting biomass into a byproduct for energy consumption, including vegetable or pressure oils to manufacture biodiesel, and plant hydrolyzation to produce ethanol or another type of bio-fuel
  • Central electrical units using primarily biomass fuels either directly, or through a transformation process that generates a minimum of 60% of the primary energy, and which produce an installed energy of no more than 80 MW per thermodynamic or central unit
  • Bio-fuel production plants (distilleries or bio-refineries) of any size and in any volume
  • Oceanic energy installations of any size and any type.

RENEWABLE ENERGY INCENTIVES

Upon compliance with certain regulatory procedures specific to each project, the following concessions and incentives are granted to operations that produce or use clean technology:

  • Exemption from import duties on equipment necessary to produce energy from renewable sources.
  • Exemption from ITBIS (value-added tax) for certain equipment expressly listed in the law.
  • Exemption from income tax for up to ten years until the year 2020. Income must be derived from sources dedicated to generating or selling renewable energy, or selling or installing renewable energy equipment, parts or systems specified under the law. Such equipment, parts, and systems must be produced locally with a minimum aggregate value of 35%.
  • A 5% tax reduction on interest on foreign financing of renewable energy projects.
  • A single tax credit of up to 75% (depending upon the energy technology) on the cost of capital equipment used in pre approved projects that change to or expand the use of renewable energy in residential, commercial, or industrial establishments. The tax credit is apportioned over a three- year period at the rate of one-third per year.

Small-scale projects destined for community use that develop renewable energy sources up to 500 Kw can apply for financing, at the lowest market rates, in an amount up to 75% of the total cost of the operation and installation of the project.

INTERNATIONAL INITIATIVES

The United States is keen on supporting clean energy, low-carbon, climate-resilient projects in the Caribbean through private investment or bilateral programs, and pledged US$30 billion in funds between 2010 and 2012 to accelerate developing countries’ progress in combating global warming. With some of the highest electricity prices in the Caribbean, the Dominican Republic offers lucrative opportunities to investors in this area. Some of the U.S. supported initiatives are:

Energy and Climate Partnership of the Americas (ECPA). Leaders of the Western Hemisphere voluntarily partner with countries in the hemisphere to accelerate clean energy development by sharing best practices, encouraging investment, and cooperating in the research and implementation of new technologies. Initiatives may be multi country or bilateral and can involve the private sector, academia, civil society, and international organizations.

The U.S. National Export Initiative, intent on doubling the number of U.S. exports by 2012, promotes the use of clean energy technologies among U.S. exporters.

The U.S.-Brazil Biofuels Partnership Initiative attempts to leverage Brazil’s global expertise in the development and use of biofuels. In 2007, the United States and Brazil entered into a memorandum of understanding and have collaborated with the Inter-American Development Bank, the Organization of American States (OAS), and the United Nations to promote scientific cooperation, development, and use of biofuels in developing countries to mitigate the effects of greenhouse gas emissions. The primary goals of this initiative are to develop sustainable biofuels for aviation, and develop common standards for, encourage research in, and create a multilateral forum in aviation biofuels. The initiative targets the Dominican Republic, Haiti, El Salvador, St. Kitts, and Nevis as the initial beneficiaries, and the Dominican Republic has already been the beneficiary of a US$300,000 private contract to obtain technical assistance in blending ethanol with domestically sold gasoline.

The Global Bioenergy Partnership, comprising the U.S., Brazil, and thirty other governments and international organizations, promotes the sustainable use of bioenergy in developing markets by converting biomass to energy. It brings together public, private, and civil society to create a forum for suggesting tools, facilitating investments, implementing projects, and fostering research and development in bioenergy. The three strategic areas of interest are sustainable development, climate change, and food and energy security.

In 2010, the Organization of American States (OAS), the world’s oldest regional organization uniting thirty-five member states in political and social discussions to improve economic development, received a U.S. grant to assist Caribbean energy ministries, in partnership with CARICOM, to conduct renewable energy dialogues within the region, and to provide technical assistance to qualified projects.

INTERNATIONAL FUNDING

Funding assistance needed to harness reliable and affordable energy in developing countries is delivered through traditional U.S. channels such as Embassy programs and AID missions, the Peace Corps, and the Millennium Challenge Corporation (MCC), and international channels such as the United Nations Framework on Climate Change (UNFCCC), and multilateral financing organizations such as the Climate Investment Fund and the Global Environment Facility.

The Millennium Challenge Corporation (MCC) is an independent U.S. foreign aid agency created in 2004 to grant aid to well-performing developing countries to achieve sustainable economic growth and reduce poverty.

The United Nations Framework on Climate Change (UNFCCC), conceived in 1992 as an international environmental treaty, is dedicated to stabilizing greenhouse gas emissions globally to prevent further interference with the climate by setting mandatory emission limits through protocols. The principal protocol is the Kyoto Protocol under which member countries commit to reduce a cluster of greenhouse gases within their territories.

The Climate Investment Fund is a funding agency of the World Bank formed in 2008 to combat global climate change. It comprises two funds. One, the Clean Technology Fund, is aimed at public and private investments promoting low-carbon economies, and provides an innovative model for development and climate control financing by working with embedded national plans and strategies. Fund recipients must be ODA eligible and have an active Multilateral Development Bank program. The sister fund, the Strategic Climate Fund, is designed to help developing countries create climate-resistant economies, reduce deforestation, and increase new economic opportunities with renewal energy.

The Global Environment Facility (GEF), established in 1991 as an independent financial organization, partners 182 member nations with international organizations and the private sector to assist developing countries in identifying, developing, and implementing eligible projects in biodiversity, climate change, international waters, land degradation, persistent organic pollutants, and agricultural, forest and grazing adaptation. It serves as the financial mechanism for several international conventions, including UNFCCC, and is heralded as the largest funder of global environmental projects. Since the organization’s inception, the Dominican Republic has been the beneficiary of eight grants with the latest received in 2009.

GUZMÁN ARIZA ON RENEWABLE ENERGY

Guzman Ariza’s service in the renewable energy sector is informed and responsive. We are attuned to continually evolving legislation and international initiatives that address the intertwined challenges of mitigating climate change and obtaining energy security for the Dominican Republic. We rapidly deploy the information you need to invest wisely, and apply our legal expertise to help you develop, produce, transport, and market your green project. Our practice areas span energy, tax, environment, finance, real estate, public procurement, contracts, business and companies, intellectual property, and labor and employment. We will help you procure your site, obtain regulatory approvals and permits, secure intellectual property rights, negotiate construction contracts and clean technology licensing agreements, and meet labor and employment requirements. The time to “go green” in the Dominican Republic is now, and Guzman Ariza has the background and dedication to clients needed for a vital renewable energy investment.

5% Growth Forecast for Dominican Economy in 2014

The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) has estimated that the GDP of the Dominican Republic will grow 5% during 2014. The Commission reduced its projections for the region as a whole from 3.2% to 2.7%, citing less economic expansion in Brazil and Mexico than anticipated. Panama is the country in the region that will grow the most in 2014 ( 7%), while, at the other extreme, the Venezuelan economy will contract by an estimated 0.5 percent. Brazil and Mexico, the region’s two main economies, will grow this year by 2.3% and 3%, respectively.

Goverment starts Implementation of National Legalization Plan

The Dominican government started the implementation of the National Legalization Plan earlier this month to legalize the status of all immigrants who entered into Dominican territory illegally, as well as of those who, having entered legally, overstayed the period of admittance.

The Dominican government will grant a special identification card to all foreigners residing irregularly in Dominican Republic, provided that they can establish that they had been residing in the country on a permanent basis before the new immigration regulations came into effect on October 11, 2011.

The ID card will be valid for one year and the holder, upon expiration, may apply for regular residency under Immigration Law 258-04.

Guzmán Ariza at the Annual Seminar of the Hispanic Bar Association of New Jersey

Guzmán Ariza attorneys Dr. Christoph Sieger and Juan Moreno were invited to give a special presentation at 13th Annual Sun, Surf & Seminar of the Hispanic Bar Association of New Jersey, held recently at the Hard Rock Hotel in Punta Cana, on the ruling by the Constitutional Court of the Dominican Republic which denied Dominican nationality to all persons born in the country since 1929 of parents who were not legal residents.

Dr. Christoph Sieger, partner at Guzmán Ariza, is a former professor of Public and Constitutional law in Germany. Juan Moreno is a specialist in Civil law and an associate at the firm.

The presentation, scheduled for an hour, was extended to two hours because of the many questions from the audience and members of the board of the Association.

Guzmán Ariza has been asked to repeat the presentation at the annual meeting of the National Hispanic Bar Association to be held in Washington, D.C. in September 2014. [May 2014]

DR in the top ten in foreign direct investment in Latin America

According to the Economic Commission for Latin America (ECLAC), the Dominican Republic is in the top 10 in foreign direct investment in Latin America, having received US$1.99 billion in 2013.

[May 2014]

Free trade agreement between DR and Chile

A free trade agreement between Chile and the Dominican Republic plans is in the works, according to an announcement by Chilean ambassador in the Dominican Republic Fernando Barrera Robinson.