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

The most utilised corporation types mainly differ in terms of minimum capital requirements, governance and/or liabilities vis-à-vis third parties.

Limited Liability Companies (LLCs)

LLCs are formed by two or more people or entities, with contributions made by each of the partners. Partners are not personally liable for the debts of such companies. LLCs are considered to be intuitu personae entities, since the quotas (equivalent of shares) are not considered to be freely marketable; rather, company partners must approve a potential sale of quotas. In this case, the minimum amount of paid capital is DOP100,000, and the position of vigilance officer – an external officer that supervises the company’s financial situation – is optional. The company is managed by general managers. The managers have ample authority to represent the company in its commercial transactions.

Stock Company (SC) or Sociedad Anónima (SA)

These companies have two or more shareholders operating under a single commercial name, with the contributions of such shareholders forming the company’s capital. The shareholders are liable for the debts of SCs, although only up to the amount of their contribution to the company’s capital. The authorised capital must be set to DOP30 million, of which at least 10% must be fully subscribed and paid. The company is managed by a board having at least three members. One or more vigilance officers will have to be designated, and they 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 Company (SSC) or Sociedad por Acciones Simplificada (SAS)

SSCs are, to some degree, hybrids of the previous two company types. The minimum authorised social capital of the company is DOP3 million, 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 by either a board of directors or 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. SSCs can freely decide whether or not to name a vigilance officer. If the company were to decide to name a vigilance officer, 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 shall be registered and taxed on income generated locally. It shall also be obligated to keep separate records from those of its parents, and shall essentially have 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. Such foreign entity will be solely taxed (withholding tax) on dividends distributed by the local entity to which it is a shareholder, to the extent the foreign entity does not engage directly in any activities that might trigger permanent establishment status.
• The foregoing applies similarly in the case of forming a consortium. Technically speaking, although a consortium is not a separate legal entity (from the entities that form it) from a tax point of view, once registered, it is treated as such.

There are no transparent entities. Eentities such as partnerships and trust are recognised as taxable entities under Dominican Republic regulations. However, trusts incorporated in accordance with Law No 189-11 on the Development of the Mortgage Market and Trust Funds 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, or having economic rights, in the country are taxed regardless of the domicile or residence of the participants or the contracting location.

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

Regarding foreign entities, “permanent establishment” is defined as a fixed place of business in which a foreign legal entity carries out all or part of its activities, such as:

• supervision activities in relation to headquarters, offices, branches, commercial agencies, factories, workshops, oil or gas wells, quarries or any other place of extraction of natural resources;
• construction or supervision activities associated with the sale of machinery or equipment when their cost exceeds 10% of the sale price of said goods; and
• business consulting activities, provided they are carried out for six months per year or involve dependent representatives or agents (in the case of the latter, when they carry out all or almost all of their activities on behalf of the company).

To determine whether there is a permanent establishment, the tax administration has the authority to request documents including proof of residence, service agreements, corporate documents and invoices, among others.

It should be noted that the Dominican Republic is a party to only two double taxation treaties (Canada, 1976; and 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; ISR) on their local income (only) and income coming from activities within the country. The income tax rate is 27%.

Non-resident companies also pay ISR 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, technical assistance, etc.

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). The withholding tax for non-resident lenders is 10% on the 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%. A 1% asset tax also 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 instalments, is considered the 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 (or of the capital increase, as applicable).

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 forms of investment income derived by resident corporate taxpayers from foreign sources also are 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 taxable income, the necessary expenses incurred to obtain, maintain and conserve the gross income will be subtracted from the same, as provided by the Tax Code. In the event of a loss, it can be used against the profits generated in the next five years. The following are included in the deductible expenses of income from business activities:

• interest;
• taxes and fees on insurance premiums;
• extraordinary damage;
• depreciation;
• depletion;
• amortisation of intangible assets;.
• uncollectible accounts;
• donations to institutions of public welfare;
• research and experimentation;
• losses; and
• contributions to pension and retirement plans, among other things.

Non-deductible personal expenses include withdrawals or salaries of shareholders charged to profit accounts, losses from illicit operations, income tax, surcharges, fines and interest on any tax debt, and inheritance and gift taxes, among other expenses. Particular rules apply to certain other expenses, including but not limited to loss carryovers and interest deductions.

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

• Costs of investment in research and experimentation are deducted from gross income when assessing taxable income.
• The free zone regime (under Law 8-90) provides a custom-designed sterile environment wherein manufacturing and services could take place for export purposes. Entities located within free zone parks, and authorised to operate as such, are generally exempted from income tas, VAT (Impuesto a la Transferencia de Bienes Industrializados y Servicios; ITBIS) and import duties related to machinery and the inputs required for its operation, among other exemptions and benefits.
• The border integral development zone (Law 12-21) provides incentives to companies located in specially designated areas (Dominican provinces located on the Haiti border). This law provides similar incentives to those of the free zone under Law 8-90; however, they are available only for a limited time and provide 100% exemption from the withholding taxes applicable to the technology innovation services required for projects only during construction and the initiation of operation. There is also 100% exemption from the 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 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 relate to:

• promotion of cinematographic activity;
• international financial zones in the Dominican Republic;
• books and libraries;
• sectors involved in the textile chain;
• renewable energies and special regimes;
• pensioners and rentiers receiving from foreign sources
• competitiveness and industrial innovation; and
• promotion of tourism development and foreign investment.

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; and 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 also 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 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 income that may arise because of the reorganisation will not be taxed. There are also rules on the transfer of tax attributes from one entity to another in the context of a merger or spin-off approved by the tax authorities.

Also, the Dominican Tax regulations recognise the existence of economic groups when a person or company, or a group of people, regardless of whether they are domiciled in the Dominican Republic, carry out their activity through companies whose operations are related and are controlled or financed by them. In this cases, the tax administration may attribute, allocate or assign gross income, deductions or credits among such organisations or companies if it determines that this is necessary to prevent tax evasion, or to clearly reflect the income of any of the 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).

Capital gains might be offset against any capital loss during the same fiscal period. Furthermore, if capital losses exceed capital gains from a given period, those losses can typically be carried over to offset future capital gains. Note that capital losses can only be offset against capital gains, not against ordinary operational income.

Other taxes that might be applicable are as follows.

• Capital duty: 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 the National Institute of Technical and Professional Training (Instituto Nacional de Formación Técnico Profesional – 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: For corporations, this is basically an assets tax, 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 increased by 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 trademarks; documents evidencing loans, debts, shares and guarantees; and 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 the fiscal value of the same (whichever is higher).

VAT (ITBIS)

This is applicable to the transfer of industrialised goods and services. Exceptions and exemptions apply. The regular rate is 18%. On imported goods, VAT is liquidated alongside customs duties at customs. VAT is charged for the transfer of industrialised goods or services rendered. It has to be declared and paid to the tax authority within the first 20 days of the month following the one in which the obligation to pay VAT arose.

Selective Excise Tax (Impuesto Selectivo al Consumo – ISC)

ISC is charged on the import or first sale of certain products. It can be set as a fixed amount or applied ad valorem.

Closely held local businesses usually operate in a corporate form – mainly as limited liability entities or individual limited liability entities. However, more sophisticated structures are sometimes used, including trusts.

Individual rates are lower than corporate rates, and they are established by income bracket – with 25% being the higher rate (the corporate income tax rate is 27%).

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

There are no rules applicable to accumulated earnings, except that the entity should document investments and provide concrete evidence thereof.

There is no difference between taxation on dividend distributions and capital gains for legal entities.

The general rule is that income and transactions carried out in the securities market are subject to the ordinary taxation regime established in the Tax Code, excepting exemptions explicitly established in law (which do not refer to dividends from or gains on the sale of publicly traded corporations).

The applicable withholding taxes are as follows.

• Dividends: The withholding tax on dividends paid to a resident or non-resident is 10%. The same withholding tax applies to dividends and benefit remittances for 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% (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 a large web of withholding agents, including financial institutions, as well as tools for mandatory electronic monthly reporting of purchases, sales or payments (amongst other things). The tax authorities can promptly detect breaches of withholding obligations by any withholding agent, or failure to properly report transactions subject to withholding taxes, by cross-checking.

The Dominican Republic is a signatory of only two double taxation treaties (Canada, 1976; and Spain, 2011). The treaty with Canada only covers income tax, while that with Spain deals with income and capital gains taxes. Generally, there is no distinction between the use of a treaty or the country of residence for local investment in domestic corporate stock or debt. Such usage depends on the focus of investment (mining, banking, hospitality, etc), not on the nationality of the investor.

Historically, the use of treaty entities by non-treaty-country residents was not challenged, to the extent permitted by the applicable treaty. However, in 2022, the tax authorities issued a regulation (norma) procedure for granting the benefits of international agreements to avoid double taxation. However, this was later revoked due to complaints of overreach, but it nonetheless signalled that the tax authorities are aiming for greater control and stricter criteria with respect to the enforcement of treaties, including the use by non-treaty-country residents of treaty country entities.

The main drawback in relation to transfer pricing is that it can result in an excessive administrative burden, for both taxpayers and tax administrations, when assessing a large number and variety of transactions across borders. This is due to historically limited resources complicating accurate assessment.

Tax administrations and taxpayers have difficulty in obtaining sufficient information to apply the arms-length principle, as this often requires the assessment of uncontrolled and complex transactions, and assessment of the activities of associated companies. The tax authorities still struggle with the consistent application of relevant criteria, although improvements have been made by adjusting the regulations and through more consistent enforcement of the same.

Local regulations allow related parties to make cost distribution arrangements, which must:

• quantify each participant’s expected benefits;
• 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.

The reasonableness of cost distribution is paramount, as the authority could challenge expenses if the activities that are being jointly financed by the related parties do not produce any benefit for the resident participants. This could result in recurring decreases in taxable income for a period of up to three years (which can be extended to five years, depending on the case).

As of 2011, transfer pricing regulations have been modelled based on OECD guidelines and enforcement standards, albeit with limitations. The growing influence of the OECD and the BEPS Plan on local regulations is obvious. In addition, the Dominican Republic has been a member of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes since 2013, and the tax authority’s institutional strategic plan for 2014–17 aimed to bring the authority's operations more in line with the OECD’s best practice guidelines, prioritising improvement of the service and the quality of information provided to taxpayers.

There has been a notorious shift towards more exacting enforcement of transfer pricing provisions, including reviewing past transactions (up to three years ago) and compliance with standards. There is no reliable information as to the use of tax treaties and mutual agreement procedures in transfer pricing disputes, as the transactions usually remain confidential. However, the tax authorities issued Norma General 10-22, establishing a mutual agreement procedure for dispute resolution regarding double taxation and tax evasion. The impact of this norma is yet to be determined, but it will likely become a significant tool given the trend of increasing enquiries and disputes.

Compensating adjustments might be made after transfer pricing claims are settled, considering certain general guidelines. For example, income tax might be adjusted through income tax credits, while VAT might be adjusted via VAT-relevant credits or an added value tax credit, as appropriate. Compensating adjustments may require rectification of the relevant tax return, depending on the tax period in which the dispute arose.

Generally, there is no difference in taxation between 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 in relation to remittances to its parent entity or other related entities.

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

According to the foregoing, if a foreign individual or entity has assets or rights located or used in the Dominican Republic, upon the transfer by its shareholders of its shares in said entity, capital gain tax might be levied pursuant to such transfer. Such capital gains are calculated based on the transfer value, considering 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 whether the transfer is onerous in nature or “free of charge”, or if it occurs directly in the local branch or subsidiary – or indirectly through a change of control (change of the ultimate beneficiary).

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

Formulas are not used to determine the income of foreign-owned local affiliates selling goods or providing services. Rather, there are guidelines to follow in relation to transfer pricing regulations, the obligation for differentiated accounting of parent and related entities, economic groups and the power of the tax authority to allocate income tax, deductions and credits, among other things, if it deems this necessary to prevent tax evasion.

The general rule is that deductible expenses are those incurred in relation to obtaining, maintaining and preserving taxable income, in accordance with the regulations. Such expenses should be supported by fiscal invoices/receipts; in their absence, expenses may not be deducted.

There are no constraints on related party borrowing, except those resulting from transfer pricing regulations (contracted on an arm-length basis) and rules limiting profit shifting. These rules establish that interest expenses are deductible in the Dominican Republic 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 interest, 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%.

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 Dominican 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.

According to the general rules for deductible expenses, in principle, expenses cannot be deducted if they were 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 Exemptions.

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 generally 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.

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.

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.

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 Exemptions).

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.

When the form is manifestly inappropriate with respect to the reality of the taxable event, resulting in a reduction in the obligation, 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 form is made by the tax authorities within the framework of its powers of inspection and determination of the tax obligation.

There is no routine audit cycle, although for certain sectors in the “major contributors” category of taxpayer, periodical audits might be agreed with the administration or may even be usual. Typically, audits are conducted at random or triggered by consistent failure to abide by monthly reporting or payment obligations. The tax authority may undertake direct assessments based solely on information or reports available from the taxpayer. They may also request additional information or adjustments, or even assert breach of tax obligations and impose the applicable penalties. The taxpayer has the opportunity to contest or accept such assessments, which may or may not trigger a formal audit.

BEPS-recommended changes already implemented mostly relate to transfer pricing (Actions 8–10), albeit that they have not yet been fully implemented. There have been efforts with respect 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 by the public. Limits to interest deductions consistent with BEPs Action 4 were also introduced, albeit that they are subject to further adjustments. Reporting obligations consistent with BEPs Action 13 have also been imposed – most notably the ones recently introduced regarding the master report and country-by-country report, which may lay the groundwork for identifying multinational enterprises (MNEs) within the scope of the OECD’s Pillar 2 Rules (Global Anti-Base Erosion (GloBE) Rules.

The Dominican Republic is a party to the inclusive framework for the implementation of BEPS (as of 2018). As such, it has taken on a series of minimum standard obligations. These are currently being implemented and relate to documentation and information obligations with respect to transfer pricing and the activities of MNEs (either headquartered locally or through related entities).

The recently introduced reporting obligations, including the master report and country-by-country report, serve as the groundwork for identifying MNEs within the scope of the OECD’s GloBE Rules, as noted in 9.1 Adoption of BEPS Recommendations, although Pillar 1 and Pillar 2 actions have yet to be implemented (as they require the passing of a law adjusting the Tax Code in the context of the currently unpopular tax overhaul).

As indicated in 9.2 Government Policy and Objectives Approach, the Dominican Republic committed to the implementation of BEPS in 2018, and although it does not necessarily have a high public profile, the Dominican Republic has taken steps towards implementation at the pace, and in the manner, permitted given the current economic environment. Most of the BEPS actions require the passing of laws and/or a shift in the status quo, where in some cases there has been resistance considering that the Dominican Republic policies implemented in 1996 were geared towards the attraction of foreign investment. Current incentive laws and special tax regimes will need to be adjusted and/or discarded.

As the Dominican Republic has committed to the implementation of the BEPS actions (at least to some degree), it will have to revise its tax incentives and regimes – which in certain cases (and circumstances) provide for 100% general tax exemption, among other benefits. This is apparently no longer sustainable; thus, such incentives and regimes should be overhauled accordingly. Far from incentivising investment, such policies may adversely affect the international corporations currently operating (through local branches or subsidiaries) in the country.

Special tax regimes that have been set up to incentivise investments, such as free zones and the Tourism Development Inventive Law, which provide for general tax exemptions, among other things, are among the most vulnerable as they will require substantial overhaul – and some may have to disappear altogether. This is currently subject to ongoing discussion among policymakers and representatives of the affected sectors, and in the short-to-medium term it is expected that measures will be taken to at least adjust such regimes.

In the Dominican Republic, there are no specific regulations regarding taxation related to hybrid instruments, and their impact might not be substantial as the local regulations and tax system do not recognise transparent entities. Thus, the utility of such hybrid instruments in tax avoidance schemes should not be significant.

The Dominican Republic has a territorial tax regime. Individuals and corporations are taxed on their income from Dominican sources, and on some income from foreign sources (investments and financial gains). Non-local individuals and corporations are only taxed on income from Dominican sources (via withholdings). Thus, interest deductibility restrictions are mostly tailored to the territorial tax regime.

In principle, CFC rules seem to generate taxable events locally and may prevent, among other things, the accumulation of profits locally payable to foreign shareholders, or deferral of payment for goods and services to a foreign related party, among other things. However, they also affect foreign investment incentive regimes and competitive tax policies; although local profits might be tax exempt, for a CFC the controlling entity may nonetheless pay taxes on such profits (albeit not distributed).

Nonetheless, as already explained, the recent introduction of reporting obligations in the Dominican Republic, including the master report and the country-by-country report, provide the groundwork for identifying MNEs within the scope of the OECD’s GloBE Rules, which foresee the possibility of a minimum global tax.

There are no double taxation convention-related limitations on benefit or anti-avoidance rules that may have an impact on investors.

As transfer pricing regulations have gradually been introduced, adjusted and implemented since 2012, they are not currently having a major impact on the Dominican Republic’s tax regime, although changes in enforcement efforts (which vary from time to time) create momentary disturbances. However, intellectual property is a source of controversy, as local transfer pricing regulations do not foresee a definition of “intangible asset”, although regulations referring to VAT offer some guidance, and it must be concluded that there is a vacuum in intellectual property-related taxation and the associated implementation of BEPS actions.

The Dominican Republic has already taken steps towards transparency and country-by-country reporting as part of its commitment under the inclusive framework for the implementation of BEPS. Currently, the issue is the way 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 MNEs in the country. Although public information may increase transparency through increased scrutiny by 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, further limit investment in the same.

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

In the Dominican Republic, a tax overhaul seems overdue. Most of the BEPs actions related to regulatory commitments need to be approved by Congress; thus, it is expected that any bill will include provisions related to the taxation of digital economy businesses.

The Dominican Republic is aiming for digital taxation and has made efforts to this end. However, it has not yet passed regulations that would facilitate digital taxation.

Nevertheless, a new tax has been discussed, similar to those already successfully implemented in other jurisdictions such as Colombia and Peru. However, this would represent a great challenge for the Dominican Republic due to the insufficiency of the regulations. In other words, it is necessary to adapt domestic legislation to promote the development of digital trade by allowing the taxation of companies that may not have a presence in the country – ie, by requiring such companies to pay tax in order to carry out their activities.

In principle, such a tax would likely be comparable to those applied to telecommunications services (VAT or ISC), to be withheld by the payment intermediary (ie, the electronic transfer/payment processor). However, the type of tax and the processes for its collection or payment remain to be defined.

There are no specific regulations dealing with the taxation of offshore intellectual property used within the Dominican Republic. The general rules on income tax, income source, withholding, etc, apply.