In an effort to attract investments, the Dominican Republic has set up one of the most wide-ranging systems of incentives for investors. Few of the incentives provided are described below:
A free zone area is defined as a geographical area of the country which is eligible for special customs and fiscal benefits, which allows the installation of companies that destine their production or services to the foreign market by granting the necessary incentives to promote their development.
Following incentives/exemptions are available to companies operating in FTZ
- Corporate tax exemption for a renewable period of 15 years;
- No goods and services tax, municipal tax;
- No export or import duties nor related charges on raw materials, equipment, construction materials, vehicles, office equipment, and other items necessary for the preparation, construction, and operation of the business;
- No payment of construction taxes, taxes on loan contracts, and on the registration and transfer of real property immediately on creation of the free zone operator;
- No payment of taxes on the formation of companies or on the increase of company's capital;
- All trades-in goods or services from and to a free zone are considered as an import or an export, including trade from or to another location within the country, i.e., local market. Hence, goods and services from the free zones sold in the local market are subject to applicable taxes, such as customs duties and goods and services taxes, except (a) textiles, leather goods, and shoes that benefit from a special program set up under a special statute; and (b) trade between different free zones, if approved by the appropriate authority.
- Companies in the free zones exporting goods or services to the local market pay a preferential income tax rate of 3.5% on gross sales.
Companies established and operating in free zones within the border region with Haiti, including certain provinces near the border, are entitled to various tax benefits under the law on Special Border Development Free Zone (Law No. 12-21) enacted on 22 February 2021, which updated and replaced the previous law (Law No. 28-01).
Under the updated law, qualifying companies are eligible for the following tax exemptions for a period of 30 years:
- Corporate tax exemption;
- Selective Consumption Tax (ISC) on telecommunications and insurance services for project facilities located in the zone;
- Tax exemption on the Transfer of Industrialized Goods and Services (ITBIS) on machinery and equipment required for the installation and start-up of operations, whether imported or acquired locally;
- Tax exemption on ITBIS on the acquisition and import of inputs and raw materials used in the production of goods exempt from ITBIS;
- A 50% tax exemption from ITBIS on acquisition and import of inputs and raw materials used in production that are not exempt from ITBIS;
- Exemption from import duties on inputs and raw materials used for the production of goods, provided these are not produced in the Dominican Republic;
- Exemption from real estate transfer tax;
- Tax exemption on payments made abroad for technological innovation services required for qualifying projects during construction and commissioning; and
- Exemption from taxes, fees, and registration rights on the increase in capital and transfer of shares of the qualifying companies.
Qualifying companies are required to commence operations within a period of 2 years from the date of issuance of a license to commence operations. The license will be reviewed within 10 years from the date of issuance, and the validity of the license will be conditioned on cost-benefit analysis. Companies that fraudulently take benefit of the incentives will be subject to sanctions.
The above tax incentives apply to industrial, agricultural, metalworking, metallurgical, and all other types of companies.
Until 21 February 2021, under the earlier law, in addition to the exemptions listed for companies operating in the ‘Free Trade Zones’ (see above), companies established and operating in free zones within the border region with Haiti were entitled to additional benefits of extension of the tax holiday period from 15 to 20 years, government subsidies to lease space in the free zone, and preferential loans with lower interest rates.
- Companies in special free zones can offer all types of financial and support services to persons or companies located outside the Dominican Republic without having to pay taxes for a 30-year period; and
- Partners and shareholders of companies in financial free zones are eligible for tax exemption on the profits or dividends received.
Under the law on Development of Renewable Sources of Energy, investors are granted, among other benefits, the following incentives:
- No custom duties on the importation of equipment required for the production, transmission, and interconnection of renewable energy;
- No tax on income derived from the generation and sale of electricity, hot water, steam power, biofuels, or synthetic fuels generated from renewable energy sources; and
- Exemption from the goods and services tax in the acquisition or importation of certain types of equipment.
Law on Tourism Development provides various incentives for the development and construction of projects ranging from hotels and resorts to amusement parks and harbors.
- Tax exemption for 15 years for qualifying new projects by local and international investors;
- Existing projects, hotels, and resort-related investments, which are five years or older, are granted 100% exemptions from taxes and duties related to the acquisition of the equipment, materials, and furnishings needed to renovate their premises. Hotels and resort-related investments that are fifteen years or older receive the same benefits as a new project, if the renovation or reconstruction involves 50% or more of the premises;
- Exemption from national and municipal taxes levied on the use and issuance of construction permits, including land purchase documents. Exemption from import duties and other taxes, such as tariffs, fees, late charges, and the ITBIS, that are applicable to equipment, materials, and furnishings needed for initially equipping and putting a tourist resort into operation;
- Financing/loans provided to entities qualifying for these incentives are exempt from all taxes;
- Individuals and companies involved in approved tourist projects are eligible for deduction up to 20% of their annual profits from their taxable income; and
- The law also provides a tax exemption in connection with machinery and equipment needed for products, including kilns, incubators, production control treatment plants, and laboratories used when a tourism project is established.
In addition to the above, certain sector-specific incentives are also provided, such as investments in the film industry, innovation, and competitiveness in manufacture, etc.
New tax incentives have been introduced with effect from 3 February 2021 with the objective to promote and optimize the stock markets. The incentives include:
- Withholding tax exemption of 1% on transfer of shares registered, subscribed, and traded in the stock market that are part of the public offering;
- Tax exemption on the issuance of cheques and electronic transfers in relation to transfers made by a contributor through those means for acquiring or subscribing shares and profit distribution of investment funds; and
- Tax exemption on the transfer of industrialized goods and services (ITBIS) and real estate transfer tax on the transfer of goods or assets for the formation of an investment fund during a period of three years from the fund's registration in the stock market registry.
Further, effective 6 August 2021, the Dominican Republic introduced the Law for the Promotion of the Placement and Commercialization of Public Offering of Securities on the Dominican Republic stock market, which includes the following additional incentives:
- Tax exemption from the 1% tax charged on capital increases for a period of three years for companies issuing shares or similar equity instruments; and
- Reduction of the capital gains tax rate to 15% on the disposal of shares or similar equity instruments for a period of three years.
Effective 1 January 2021, tax incentives are introduced for taxpayers engaged in waste management activities that include:
- 5-year corporate tax exemption;
- Withholding tax exemption on dividends;
- Exemption from corporate tax on assets; and
- Tax exemption on transfer of industrialized goods and services (ITBIS) on machinery and equipment required for waste management activities.