Corporate Tax Rate in the Dominican Republic

The Dominican Republic presents a dynamic environment for business and investment, supported by a structured tax system. For corporations operating there, understanding fiscal responsibilities is part of financial management and strategic planning. The country’s tax regulations outline several obligations that impact corporate profitability. This article provides an overview of the primary corporate taxes, detailing the main income tax, how taxable income is determined, and other financial responsibilities.

The Standard Corporate Income Tax

The primary tax levied on corporations in the Dominican Republic is the Corporate Income Tax, known locally as Impuesto Sobre la Renta (ISR). This tax is applied at a flat rate of 27% on the net taxable income generated during a fiscal year. The Dominican Republic follows a territorial tax system. Resident corporations are taxed on income from Dominican sources, though an exception applies to certain foreign-source income from investments and financial gains, such as dividends and interest.

Conversely, non-resident corporations, including branches of foreign companies, are taxed strictly on their Dominican-source income. This includes earnings from activities, property, or economic rights utilized within the country.

Calculating Taxable Income

To determine the corporate income tax, a company must first calculate its net taxable income by subtracting all legally allowable deductions from its gross income. The tax code specifies which expenses are necessary to generate and maintain taxable income. Common allowable deductions include salaries and bonuses, social security contributions, and interest on business-related debt.

Companies can also deduct depreciation on fixed assets and amortization of intangible assets like patents and copyrights. Certain expenses are explicitly non-deductible, including the income tax itself, fines for legal non-compliance, losses from illicit operations, and personal expenses of shareholders.

Other Significant Corporate Taxes

Beyond the main income tax, corporations must manage several other taxes that affect their financial operations. These taxes address different aspects of business activity, from asset holdings to the consumption of goods and services.

Tax on Assets

The Tax on Assets, or Impuesto sobre Activos, functions as an alternative minimum tax. It is levied at a rate of 1% on the total value of a company’s taxable assets, including real estate and other operational assets. This tax is payable when the 1% of assets calculation is greater than the company’s regular corporate income tax (ISR) liability for the year. Any amount paid can be used as a credit against the ISR liability of the same fiscal year, so it is not an additional tax on top of a higher income tax payment.

Withholding Taxes

Companies in the Dominican Republic are required to act as withholding agents on certain payments. When a domestic company pays dividends to either resident or non-resident shareholders, it must withhold 10% of the gross dividend amount. Payments made to non-residents for services, such as technical assistance or royalties, are subject to a 27% withholding tax. Interest payments to foreign financial institutions face a 10% withholding tax, and the paying company is responsible for remitting these funds to the tax authorities.

Value Added Tax (ITBIS)

The Tax on the Transfer of Industrialized Goods and Services (ITBIS) is a value-added tax applied to the sale of most goods and services. The standard rate for ITBIS is 18%, which businesses are required to charge on their invoices and collect from their customers. Companies then remit the collected ITBIS to the tax authorities monthly. The system allows businesses to claim a credit for the ITBIS they have paid on their own purchases, meaning the ultimate tax burden falls on the final consumer.

Tax Filing and Payment Obligations

The primary tax return for corporations is the Formulario IR-2, which must be filed within 120 days following the end of the company’s fiscal year. Companies can choose one of four fiscal year-end dates: March 31, June 30, September 30, or December 31. The return must be supported by financial statements reflecting the company’s financial position.

In addition to the annual return, corporations are obligated to make monthly advance payments, known as “anticipos,” toward their income tax liability, due by the 15th of each month. The amount of each monthly payment is calculated based on the income tax paid in the preceding year, divided into twelve installments, or for some companies, as 1.5% of the previous month’s gross income. The annual tax return and monthly payments are submitted through the online portal of the national tax authority, the Dirección General de Impuestos Internos (DGII).

Special Tax Regimes

The Dominican Republic offers special regimes with tax incentives to attract investment in specific sectors and geographic areas. The most prominent are the Free Trade Zones (Zonas Francas), which provide exemptions to encourage export-oriented manufacturing and services. Businesses established within these zones receive a 100% exemption from the corporate income tax.

They are also exempt from the Value Added Tax (ITBIS) on the goods and services they produce, import and export duties, municipal taxes, and taxes on the formation of companies. However, these companies must still act as withholding agents, applying a 10% tax on dividends and profit remittances. Other laws provide targeted benefits for industries such as tourism and renewable energy, but the Free Trade Zone regime offers the most extensive tax advantages.