Businesses generally adopt corporate forms in the Dominican Republic, with the most commonly used being shareholding companies, limited liability entities, and branches of foreign entities. There are also individual limited liability entities – each of which is owned by a single individual (single-owner business). Finally, there are de facto entities (ie, consortiums) that may operate as a separate entity (from the entities that form them) from the tax point of view, subject to registration requirements. The tax obligations of all entities are basically the same, with certain exceptions.

The differences between the most utilised corporations are mainly to do with minimum capital requirements, governance and/or liabilities vis-à-vis third parties.

• Limited liability companies (LLCs) ‒ these companies are formed by two or more people or entities with contributions made by each of the partners. In this type of company, partners are not personally liable for the debts of the company. LLCs are classed as intuitu personae entities because the quotas (equivalent of shares) are not considered to be freely marketable but, rather, company partners must approve a potential sale of quotas. In this case, the minimum amount of paid capital is DOP100,000 (aproximately USD1,650) and the position of vigilance officer (an external officer who supervises the company’s financial situation) is optional. The company is managed by general managers, who have ample authority to represent the company in its commercial transactions.
• Stock companies (SCs or sociétés anonyme (SAs)) ‒ these companies have two or more shareholders operating under a single commercial name, with the contributions of such shareholders forming the company’s capital. This type of company is characterised by the fact that the shareholders are liable for the debts of the company, albeit only up to the amount of their contribution to the company’s capital. The authorised capital must be set to DOP30 million (approximately USD500,000), of which at least 10% must be fully subscribed and paid. The company is managed by a board of at least three members. One or more vigilance officers will have to be designated, who must be authorised public accountants with at least three years of experience in the auditing of companies. The capital of the company is divided in freely negotiable shares.
• Simplified stock companies (SSCs or sociétés par actions simplifiée (SASs)) ‒ these are somewhat of a hybrid of the previous two companies. The minimum authorised social capital of the company is DOP3 million (approximately USD50,000) or its equivalent in a freely exchangeable foreign currency, such as US dollars. At least 10% of said capital must be fully subscribed and paid. The capital of the company is divided in freely negotiable shares. SSCs can be administered either by a board of directors or by a single president. If the shareholders decide to have the company administered by a board of directors, the same rules established by law that are applicable to the board of directors of SAs would apply to the SAS. SSCs can freely decide whether or not to name a vigilance officer. If the company were to decide to name a vigilance officer then the same rules applicable to vigilance officers in SCs would apply

It is possible to operate through a branch of a foreign entity or through a consortium, except in very specific cases in which the formation of the local entity is required; albeit without general restrictions as to the nationality of the shareholders or participants. Nonetheless, the following should be noted.

• A branch of a foreign entity shall be a permanent establishment, but must be registered and taxed for income generate locally, is obligated to keep separate books from those of its parents, and essentially has the same obligations (and treatment) as a local entity.
• The fact that a foreign entity operates through a local subsidiary does not mean that such foreign entity has a local permanent establishment for tax purposes. Said foreign entity will be solely taxed (withholding tax) on dividends distributed by the local entity in which it is a shareholder, to the extent the foreign entity does not engage directly in any of the activities that might trigger a permanent establishment status.
• Similar to the foregoing should be the case of forming a consortium ‒ although technically not a separate legal entity (from the entities that form it) from the tax point of view, once registered, it is treated as such.

There are no true transparent entities. Generally regarded transparent entities such as partnerships and trusts are recognised as taxable entities under Dominican Republic regulations. However, trusts incorporated in accordance with Law No 189-11  on the Development of Trust Funds and the Mortgage Market in the Dominican Republic are subject to a special tax regime.

The Dominican Republic taxes primarily on a territorial basis. Business income derived from activities performed in property situated or economically used in or the economic rights to which are used in the country is taxed, regardless of the domicile or residence of the participants or regardless of the contracting location.

A company is resident if it is incorporated under the laws of the Dominican Republic or if the Dominican Republic is the place where the entity mainly carries out its activities or where the entity’s main business headquarters or effective management is located. Holding an interest in a Dominican Republic entity does not necessarily entail local tax residence for a foreign entity.

As regards foreign entities, a permanent establishment is defined as a fixed place of business in which a foreign legal entity carries out all or part of its activity – such as headquarters, offices, branches, commercial agencies, factories, workshops, oil or gas wells, quarries or any other place where the extraction of natural resources (including supervision activities thereof), construction or supervision activities derived from the sale of machinery or equipment (when their cost exceeds 10% of the sale price of said goods), or business consulting services (provided they exceed six months within an annual period) are performed ‒ or has dependent representatives or agents, when the latter carry out all or almost all of their activities on behalf of the company.

In order to assess whether there is a permanent establishment, the tax administration has the authority to request documents that include proof of residence (eg, service agreements, corporate documents, and invoices).

It should be noted that the Dominican Republic is a party to only two double taxation treaties (DTTs) ‒ namely, with Canada (1976) and with Spain (2011) – with specific rules related to permanent establishments and tax residency.

Resident or branch corporations (or consortiums) are subject to Dominican corporate income tax (impuesto sobre la renta, or ISR) on their local income (only) or income coming from activities within the country. The income tax rate is 27%.

Non-resident companies also pay corporate income tax 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, including publicity, royalties, and technical assistance.

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).

Withholding taxes on non-resident lenders are 10% on interest payable to such lenders.

Capital gains derived from the sale of assets, immovable property or shares are included in gross income and are subject to the standard corporate income tax rate of 27%.

Also 1% asset tax applies to the value of a corporation’s total assets according to the company’s financial statements. The asset tax, which is paid in two installments, is considered a minimum tax payable when it is higher than the company’s corporate 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

Individual Limited Liability Entities pay similar taxes, except that they do not pay Assets Tax or Capital duty Tax .

Corporate tax is levied on the net aggregate of various sources of business income, including capital gains derived from the transfer of capital assets (generally land and shares). Certain items of investment income derived by resident corporate taxpayers from foreign sources are also subject to Dominican tax, including:

• dividends;
• interest on loans and bank savings; and
• income from banking or financial operations, bonds, shares in capital companies, bills of exchange, and other movable capital or securities on the capital markets.

To determine the net taxable income, the necessary expenses incurred to obtain, maintain and conserve the gross income will be subtracted from the same, as provided for by the Tax Code. In the event of a loss, the net taxable income can be used against the profits generated in the following five years. The following are considered among the deductible expenses of income from business activities:

• interest;
• taxes and fees;
• insurance premiums;
• extraordinary damages;
• depreciation;
• depletion;
• amortisation of intangible assets;
• uncollectible accounts;
• donations to institutions of public welfare; R&D;
• losses; and
• contributions to pension and retirement plans.

The following are not deductible:

• personal expenses;
• withdrawals or paying shareholders’ salaries from profit accounts;
• losses from illicit operations;
• income tax;
• surcharges;
• fines and interest on any tax debt; and
• inheritance and gift taxes.

Particular rules apply to carryover losses and interest deductions, among other things.

There are no incentives geared specifically towards technological investments. However, there are tax provisions and regimes that may apply to and incentivise such investments, as follows.

• Investment in R&D can be deducted from gross income in the assessment of taxable income.
• The free zone regime (Law 8-90) provides a custom-sterile environment whereby manufacturing and services could take place for export purposes. Entities located within free zone parks, authorised to operate as such, are generally exempted from income taxes, VAT, and import duties related to machinery and inputs required for its operations, among other exemptions and benefits.
• The border integral development zone regime (Law 12-21) provides incentives to companies based in an especially designated area comprising Dominican provinces located at the Haiti border. This law provides for similar incentives as those provided for by the free zone regime (Law 8-90). However, they are for a limited period of time and include 100% exemption from withholding taxes applicable to technology innovation services required for projects during construction and business set-up only ‒ as well as 100% exemption from taxes applicable to the transfer of corporate shares to other commercial corporations domiciled within the special border development zone.

Aside from the incentives described in 2.2 Special Incentives for Technology Investments, the Dominican Republic has granted certain incentives to various sectors, ranging from investment credits to tax exemptions. Among the most important tax incentives are:

• incentives for the promotion of cinematographic activity, including international financial investment in the film industry in the Dominican Republic;
• incentives for books and libraries;
• incentives in textile chain sectors;
• incentives and special regimes for renewable energies;
• special incentives for pensioners and rentiers from foreign sources;
• incentives for competitiveness and industrial innovation;
• incentives for the promotion of tourism development; and
• foreign investment incentives.

Net operating losses may be carried forward for five years, but only up to 20% of the annual total net losses carried forward may be deducted. For the fourth year, the 20% deduction may not exceed an amount equal to 80% of taxable income. For the fifth year, the 20% deduction may not exceed 70% of taxable income. For newly formed entities, losses from the first year of operations should be fully deducted in the second year. The carryback of losses is not permitted.

Other rules may apply.

Thin capitalisation rules limit the deduction of interest. The deductible amount may not be higher than the result of multiplying the total amount of interest accrued in the fiscal period by three times the annual average balance of equity divided by the annual average balance of all of the taxpayer’s interest-bearing debt. After applying the annual permitted interest deduction, excess interest may be carried forward for deduction in the following three fiscal years (subject to the same limitation). Interest paid to resident individuals and entities is not subject to the interest deduction limitation

In accordance with the Dominican Tax Code, when the transfer of interest/shares is part of a reorganisation of entities in the same economic group, the results that may arise as a consequence of the reorganisation will not be taxed ‒ provided the previous authorisation for tax neutrality from the tax authority is obtained.

There are also rules on the transfer of tax attributes from one entity to another, which is possible in the context of a merger or spin-off as approved by the tax authority.

Also, the Dominican tax regulations recognise the existence of economic groups when a person or company (or group of people) – whether or not they are domiciled in the Dominican Republic ‒ carry out their activity through companies or organisations and the operations of both entities are related and are controlled or financed by them. In this case, the tax administration may attribute, allocate or assign gross income, deductions and credits among such organisations or companies if it determines that such distribution, allocation or allocation is necessary to prevent tax evasion or to clearly reflect the income of any of the aforementioned organisations or companies.

Capital gains derived from the sale of assets, immovable property, or shares are included in gross income and are subject to the standard corporate income tax rate of 27%. The capital gain is calculated by deducting the acquisition cost (adjusted for inflation) from the sales price and adding the accumulated earnings/losses. (Other adjustments also may apply, depending on the case.)

There are other taxes that might be payable by incorporated businesses, as follows.

• Capital duty – capital duty is levied on the formation of a corporation or on a capital increase, at a rate of 1% of the capital amount.
• Payroll tax – in addition to the normal income tax withheld from the salary of an employee, the employer must pay a monthly tax equal to 1% of the regular payroll to finance “INFOTEP”, a special training fund. The fringe benefits tax is levied at the corporate income tax rate and is payable by the employer on a monthly basis.
• Real property tax – this is basically an assets tax for corporations, payable under certain conditions.
• Social security – both the employer and the employee must contribute to the social security system. Contributions are calculated based on the employee’s earnings (ie, the basic salary plus additional payments in cash or in kind, although certain deductions apply). The upper limits for calculating the contributions are based on multiples of the minimum salary.
• Stamp duty – stamp duty is levied on most written contracts, the registration and renewal of trade marks, and documents evidencing loans, debts, shares and guarantees, as well as all documents prepared or registered by notaries and registrars. The rates vary depending on the taxable event.
• Transfer tax – the transfer of real property located in the Dominican Republic is subject to a transfer tax of 3% of the price of the property or 3% of the fiscal value of the same (whichever is higher).

VAT or ITBIS (impuesto sobre transferencias de bienes industrializados y servicios) is applicable to the transfer of industrialised goods and services at a regular rate of 18%. Exceptions and exemptions apply. On imported goods, VAT is liquidated along with customs duties at customs. VAT charged for goods sold or services rendered must be declared and paid to the tax authority within the first 20 days of the month following the month in which the obligation to pay VAT arose.

Selective excise tax (impuesto selectivo al consumo, or ISC) is charged on the import or “first sale” of certain products. It might be set as a fixed amount or ad valorem.

Closely held local businesses usually operate in a corporate form – mostly as a limited liability entity or an individual limited liability entity. More sophisticated structures are sometimes used, including trusts.

Individual rates are lower than corporate rates. They are established by income brackets, with 25% being the higher rate (corporate income tax rate is 27%).

There are also more rules and restrictions with regard to, for example, deductions to gross income to determine an individual’s taxable income. Employees whose sole source of income results from payments from their employer (salary, commissions, bonus, etc) do not file tax returns and the applicable taxes are deducted by the employer (to be further conveyed to the tax authority) from the amounts paid to the employee, based on the employee’s tax bracket (as determined by such employee’s annual income). The rules for applying such withholdings are provided for in the regulations.

There are no rules on accumulated earnings, except that the entity should document investment and have concrete evidence of the same.

There is no difference in taxation on dividend distribution or capital gains for legal entities in general.

The general rule is that income from transactions carried out in the securities market are subject to the ordinary taxation regime established in the Tax Code, save for the exceptions explicitly established in the law, which do not apply to dividends from or gain on the sale in publicly traded corporations.

Withholding taxes are applicable as follows.

• Dividends – 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.
• Interest – the withholding tax on interest paid to a resident individual or a non-resident (individual or entity) is 10%. No tax is withheld on interest paid to a resident legal entity.
• Royalties – the withholding tax on royalties paid to a non-resident is 27% (ie, based on the corporate income tax rate).
• Branch remittance tax – a permanent establishment of a foreign company must withhold 10% on cash dividends paid to its head office.

The tax system incorporates measures that establish an ample web of withholding agents, including financial institutions. It has also established tools for mandatory electronic monthly reporting of purchases, sales or payments (among other things), which includes compliance with withholding obligations, so that the tax authority may promptly cross-check to detect breach of withholding obligations by any withholding agent or failure to properly report transactions subject to withholding taxes.

As mentioned in 1.3 Determining Residence of Incorporated Businesses, the Dominican Republic is signatory of only two DTTs. The treaty with Canada (1976) only covers income taxes, whereas the treaty with Spain (2011) deals with income taxes and capital gains tax. Generally, neither treaty nor country are particularly used for local investment in local corporate stock or debt. Such usage depends on the focus of investment (mining, banking, hospitality, etc).

Historically, there was no challenge to the use of treaty entities by residents of non-treaty countries, to the extent permitted by the applicable treaty. However, in 2022, the tax authority issued a norm to govern procedures for the granting of benefits contained in international agreements to avoid double taxation. The norm was subsequently revoked owing to complaints of overreach but it signalled that the tax authority is aiming to exert a more exacting control and apply more rigourous criteria as to the enforceability of the treaties, including the use of treaty country entities by residents of non-treaty countries.

The main drawback in the application of transfer pricing is that it can result in an excessive administrative burden for taxpayers and the tax administration when assessing a large number and variety of transactions across borders. This is due to historically limited resources to make such assessments accurately.

The tax administration and taxpayers have difficulties in obtaining adequate information to apply the arm’s length principle, as this often requires the assessment of uncontrolled and complex transactions and the activities of associated companies – subject to the later evaluation of the tax authority, which still struggles to apply the relevant criteria consistently. However, improvements have been made in adjusting the regulations and enforcing them more consistently.

Local regulations foresee the possibility of related-party “costs” distribution arrangements, which contain several elements that require clarity in the disclosure of the criteria to:

• quantify participation quotas in the expected benefits corresponding to each participant;
• apply accounting principles in a homogeneous manner to all participants for the determination of expenses and the value of contributions;
• reasonably attribute the responsibilities and obligations associated with the activity;
• regulate accession or withdrawal procedures; and
• make compensatory payments or payments that allow the terms of the agreement to be adjusted to reflect changes in economic circumstances.

Reasonability of cost distribution must prevail, as the tax authority could challenge expenses if the activities that are being jointly financed by the related parties do not produce any effective benefit to the resident participants, representing recurring decreases in taxable income beyond a period of up to three years (which can be extended to five, depending on the case).

As of 2011, transfer pricing regulations are being modelled based on OECD guidelines and enforcement standards, within limitations. The growing incidence of the OECD/G20 Base Erosion and Profit Shifting Project (BEPS) recommendations in local regulations is obvious. The Dominican Republic have also been part of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes since 2013. The tax authority’s institutional strategic plan for 2014‒17 was aimed at bringing the tax authority closer to the OECD’s best practice guidelines, prioritising the improvement of the service and the quality of information provided to taxpayers.

There has been a notorious shift towards a more exacting enforcement of transfer pricing provisions, including reviewing past transactions and compliance with standards (for up to three years back). There is no reliable information as to the incidence of tax treaties and mutual agreement procedures in transfer pricing disputes, as usually the transactions remain confidential. However, the tax authority issued Norm 10-22 establishing a mutual agreement procedure for resolving disputes regarding double taxation and tax evasion. The impact of this norm is yet to be determined but, given the increasing number of inquiries and disputes, it is likely to become a significant tool.

Compensating adjustments may be made after transfer pricing claims are settled, taking into account certain general guidelines ‒ for example, income tax adjustments might be compensated with income tax credits during the same period, whereas VAT adjustments might be compensated with VAT-relevant credits or an added value tax credit might be created where appropriate. Additionally, compensating adjustments may require rectification of the relevant tax return if the disputed settlement occurs during a different tax period to the period subject to dispute.

Generally, there is no difference in taxation for local branches of non-local corporations and local subsidiaries of non-local corporations. However, local branches of non-local corporations might be more closely monitored with regard to remittances to their parent entity or to other related entities.

Pursuant to the terms of Article 289 of the Tax Code, transfer of assets (including stocks) is in principle subject to capital gains tax-related provisions. Furthermore, pursuant to such provisions, for the purpose of capital gains tax, it must be reported that assets and rights located or used in the Dominican Republic have been transferred, pursuant to the transfer of shares in the company that holds such assets when such company has been incorporated abroad.

The foregoing means that if a foreign individual or entity holds assets or rights located or used in the Dominican Republic, upon the transfer by its shareholders of its shares in said entity, capital gains taxes might be levied pursuant to such transfer. Such capital gains are calculated based on a transfer value that takes into account the “transaction price” for the shares of the company holding the assets or rights and the proportional value of such assets or rights, vis-à-vis the company’s entire patrimony.

Note that, in principle, for capital gains tax to apply it does not matter if the transfer is of an onerous nature or “free of charge” or if such transfer occurs directly in the local branch or subsidiary or indirectly through a change of control (change of the ultimate beneficial owner).

Capital gains tax may apply upon the occurrence of change of control in local branch of a foreign entity or local subsidiary.

There is no use of “formulas” to determine income of foreign-owned local affiliates selling goods or providing services. Rather, there are guidelines to follow with regard to transfer pricing regulations, the obligation to differentiate the foreign-owned local affiliate’s accounting from that of its parent company or related entities, rules regarding economic groups and the option for the tax authority to allocate, income tax, deductions, credits, etc, when it deems this necessary to prevent tax evasion.

The general rule is that deductible expenses are those incurred that are necessary to obtain, maintain and preserve taxable income, in the manner provided by the regulations. Such expenses should be duly supported by fiscal invoices/receipts. If the expense does not comply with such basic rules, it may not be deducted.

There are no constraints imposed on related-party borrowing except those resulting from transfer pricing regulations (contracted on an arm’s length basis) and profit-shifting reduction rules establishing that interest expenses will be deductible in the Dominican Republic to the extent and proportion arising from applying to the expense the quotient between:

• the potential rate resulting from the withholdings to be applied to the payment of interest, plus the taxation for the payment of such interest abroad; and
• the rate applicable to companies in the Dominican Republic, which currently amounts to 27%.

The general rule is that any individual or legal entity resident or domiciled in the Dominican Republic, as well as undivided estates of deceased persons domiciled in the country, must pay tax on their income from Dominican sources and on their income from sources outside the Dominican Republic made from investments and financial gains. The foregoing entails local entities (and local branches of foreign entities) paying taxes on foreign income (not deemed to be Dominican-sourced) resulting from their investments or financial gains only.

Owing to the general rules for deductible expenses, in principle, no expenses can be deducted if they are not incurred in order to obtain or maintain taxable income.

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 of Local Corporations.

Individuals, legal entities or entities that are not residents or not domiciled in the Dominican Republic will be subject to tax on their income from Dominican sources. Dominican-sourced income is generally described as, among other things, income from capital, goods or rights located, placed or used economically in the Dominican Republic. To the extent the use by a non-local subsidiary of intangibles developed by a local corporation does not generate Dominican-sourced income, it should not be taxed.

There are no provisions that would allow taxes to be levied on the income of local corporations’ non-local subsidiaries as earned under controlled foreign corporation (CFC)-type rules.

There are no specific applicable rules related to substance of non-local affiliates. However, there are guidelines to determine control or related-party status mainly with regard to transfer pricing regulations and the determination of the existence of an economic group.

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 taxable income as per the general rule explained in 6.1 Foreign Income of Local Corporations.

In the Dominican Republic, since the approval of the Tax Code through Law 11-92, certain anti-abuse or anti-avoidance clauses were included whereby juridical forms are not binding on the tax authority. Pursuant to Article 2 of the Tax Code and consistent with the directives of BEPS Action 5, the tax administration may ignore the legal form used by the taxpayer when the taxable event was defined in accordance with reality. In this way, when the taxation depends on the forms and they are manifestly inappropriate to the reality of the taxable events and this results in a reduction in the amount of the obligations, the tax authority may recharacterise the transaction to make it consistent with reality and impose the appropriate taxes. The application of the criterion of qualification and/or determination of any abuse of forms is made by the tax authority within the framework of its powers of inspection and determination of the tax obligation.

There is no routine audit cycle in the Dominican Republic – although for certain sectors encompassed within the “major contributors” category of taxpayers, periodical audits might be agreed with the tax administration or are usual for such sector. Typically, audits are made at random or triggered by consistent failure to abide by monthly reporting withholding or payment obligations. The tax authority may undertake direct assessments made solely on the information or reports available from the taxpayer and request information or adjustments or even preliminarily assert breach of tax obligations and impose applicable penalties. These procedures give the taxpayer the opportunity to contest or accept such assessments, which may or may not trigger formal audits.

The BEPS recommended changes already implemented – albeit not fully – have most notably to do with transfer pricing (Actions 8–10). There have been efforts with regard to the taxation of digital services (Action 1) but the most recent overture towards the same was withdrawn for congressional consideration, as the tax overhaul proposed by the government (including such provision) was rejected by most economic sectors and the general public. Limits to interest deductions consistent with BEPS Action 4 were also introduced, albeit subject to further adjustments. There are also reporting obligations imposed that are consistent with BEPS Action 13 – most notably, the ones most recently introduced regarding the master file and country-by-country (CbC) reporting, which may lay the groundwork (information) for identifying multinational enterprise (MNE) groups within the scope of the OECD’s Pillar Two, also known as the Global Anti-Base Erosion Rules (the “GloBE Rules”).

The Dominican Republic entered the OECD/G20 Inclusive Framework for the Implementation of BEPS in 2018. In this regard, it assumed a series of minimum standard obligations ‒ four of which are the main ones that the DR is currently implementing with regard to documentation and information regulations as related to transfer pricing and MNEs’ activities (either directly when headquartered locally or through related entities). As indicated in 9.1 Recommended Changes, the recent introduction of reporting obligations (including the master file and CbC reporting) are deemed as the groundwork (information) for identifying MNE groups within the scope of the OECD’s GloBE Rules ‒ although Pillar One and Pillar Two actions are yet to be implemented, as they require passing a law adjusting in the Tax Code in the context of a currently unpopular tax overhaul.

As indicated in 9.2 Government Attitudes, the Dominican Republic committed to the implementation of BEPS recommendations in 2018 and – although it does not necessarily have a high public profile ‒ it has taken steps towards their implementation in the pace and manner permitted, given the current economic environment. Most of the BEPS actions require the passing of laws and/or a shift of the status quo and, in some cases, have encountered resistance ‒ given that the Dominican Republic’s policies as of 1996 were geared towards the attraction of foreign investment and put in place incentives laws and special tax regimes that will need to be adjusted and/or discarded.

As the Dominican Republic has committed to the implementation of BEPS actions (at least at a minimum level), it will have to revise its competitive tax policies, which mostly consist of tax incentives laws and regimes that in certain cases (and circumstances) provide for 100% general tax exemptions and other benefits. This is apparently no longer sustainable and thus such incentives laws and regimes should be overhauled accordingly, as ‒ far from incentivising investment ‒ such policies may adversely affect the international corporations currently operating (through local branches or subsidiaries) in the country.

Most special tax regimes that have been set up to incentivise investments (eg, free zones, tourism development incentives) ‒ which provide for general tax exemptions, among other things – are the most vulnerable, as they will require substantial overhaul and some may have to disappear altogether. This is currently an ongoing discussion among policymakers and representatives of the affected sector and, in the short-to-medium term, it is expected that measures will be taken in order to at least adjust such regimes.

In the Dominican Republic, there are no specific regulations regarding taxation related to hybrid instrument. Their impact might not be substantial, as the local regulations and tax system does not recognise transparent entities, and thus the usefulness of such hybrid instruments in tax avoidance schemes is unlikely to be significant.

The Dominican Republic has a territorial tax regime. Individuals and corporations are taxed on their Dominican-sourced income and some foreign-sourced income (as derived from investments and financial gains). Non-local individuals or corporations are only taxed on Dominican-sourced income (via withholdings). Given such facts, interest deductibility restrictions are mostly tailored to that regime.

In principle, CFC rules seem to generate taxable events locally, as they may prevent accumulation of profits locally payable to foreign shareholders or deferral of payment for goods and services to the foreign related party (among other things). However, CFC rules also contrast with or affect foreign investment incentives regimes and this also affects the country’s competitive tax policies, given that ‒ although local profits might be tax exempted ‒ as a CFC the controller entity may nonetheless pay taxes on such profits (albeit not distributed).

Nonetheless, as already explained in 9.1 Recommended Changes, the recent introduction of reporting obligations (including master file and CbC reporting) is deemed as the groundwork (information) for identifying MNE groups within the scope of the OECD’s GloBE Rules, which foresee the possibility of a minimum global tax.

In the Dominican Republic, there are no double tax convention (DTC)-specific limitations on benefits nor anti-avoidance rules that may have an impact on investors.

As transfer pricing regulations have steadily been introduced, adjusted and implemented since 2012, they currently do not have a radical impact on the tax regime in the Dominican Republic ‒ although changes in enforcement efforts (which vary from time to time) do create momentary disturbances. On the other hand, the IP issue is a cause for controversy, as local transfer pricing regulations still do not foresee a definition of intangible assets and instead there are approximations within regulations with regard to to VAT. Thus, there is a vacuum when it comes to IP-related taxation and the implementation of BEPS actions in this regard.

The Dominican Republic has already taken steps towards transparency and CbC reporting as part of its commitment under the OECD/G20 Inclusive Framework for the Implementation of BEPS. The current gist of the matter is the manner in which such information shall be utilised. There is concern about the type of information to be provided, whether it should be public, mechanisms to protect it, and what impact it may have on the position of MNEs in the country. Although the possibility of public information may improve transparency, owing to increased scrutiny in the media and civil society, technical information disclosed without the appropriate context may damage the position of an MNE in the Dominican Republic and consequently might further limit investment in the same.

Regulations related to the taxation of digital services have not yet materialised in the Dominican Republic, unlike in other jurisdictions. Initiatives in this regard have been considered and were even included as a potential source of tax revenue in a recently proposed tax bill foreseen by a significant overhaul of the tax regulations. However, the bill was not well received by civil society or certain economic sectors and hence was dropped.

In the Dominican Republic, a tax overhaul seems to be overdue, aside from the fact that most BEPs related regulatory commitments needs to be passed by the Dominican congresses. Thus, it is expected that any bill in this regard will include provisions concerning the taxation of digital economy businesses.

The Dominican Republic is aiming towards digital taxation and has made efforts in this regard. However, the country is yet to pass the regulations that would allow for the same.

What has been discussed is a new tax along the same lines as the one that has already been successfully implemented in other jurisdictions, such as Colombia and Peru – although it would represent a great challenge for the Dominican Republic, due to the insufficiency of regulations that  would allow its immediate application. In other words, it is necessary to adapt domestic legislation to the development of digital trade, to the extent that it allows the Dominican Republic to apply the tax to companies that do not necessarily have a presence in the country nor require it in order to carry out their activities.

In principle, the tax would likely be comparable to those applied to telecommunications services (VAT or ISC) and be withheld by the intermediary of the payment of the services (ie, processors of electronic transfers/payments). However, there is still no definition of the type of tax or processes related to the collection or payment of the same.

There are no specific regulations dealing with the taxation of offshore IP that is deployed within the Dominican Republic. General rules on income tax, source of income, withholding, etc, still apply.