VAT, GST and Sales Tax in Dominican Republic

Summary

Name of the tax Tax on the Transfer of Industrialized Goods and Services
Local name Impuesto sobre la Transferencias de Bienes Industrializados y Servicios (ITBIS)
Date introduced May-92
Trading bloc membership None related to VAT
Administered by Dirección General de Impuestos Internos (DGII) (www.dgii.gov.do)
ITBIS rates 18%, 16%, 0% and exempt
ITBIS number format Tax identification number (known as the “RNC” number)
ITBIS return periods Monthly
Thresholds No thresholds apply
Registration None (smaller businesses may be treated differently; see article below)
Recovery of ITBIS by non-established businesses No

Scope of the tax

ITBIS applies to the following transactions:

  • Supply of industrialized goods
  • Importation of industrialized goods
  • Leasing and rendering of services

Who is liable

The following are ITBIS taxpayers:

  • Individuals or business entities, whether domestic or foreign, that habitually supply industrialized goods as part of their industrial or commercial activities
  • Individuals or business entities engaged in the importation of goods subject to ITBIS
  • Individual or business entities that render services subject to ITBIS

No turnover threshold applies to ITBIS registration.

VAT taxpayers must file for registration with the Tax Authorities within 30 days after beginning taxable activities.

Within 30 days after beginning taxable activities, the taxpayer must notify the tax authorities of its activities.

Small and medium taxpayers. A taxpayer may use a simplified tax procedure (Procedimiento Simplificado de Tributación, or PST) if it meets certain purchase or income criteria that qualify it as a small or medium taxpayer.

The PST based on purchases applies to a taxpayer that makes annual purchases of DOP40,759,725 (approximately USD877,442) or less and satisfies at least one of the following conditions:

  • It performs commercial activities related to retail sales to final consumers.
  • It performs commercial activities related to wholesale or retail sales of merchandise if the industrial products (products that are subject to industrial transformation) are acquired directly and principally from the national industries or from wholesale sell­ers of industrial products.
  • It manufactures goods using materials acquired from the local market, and its sales are made to taxpayers that do not benefit from the PST.

If the PST is adopted following the purchasing criteria, it allows the liquidation of the ITBIS based on the difference between the gross income and the purchases (gross value added).

The PST based on income criteria applies to a small taxpayer that satisfies all of the following conditions:

  • The taxpayer has annual income of DOP8,437,887 or less (approximately USD193,000).
  • The taxpayer does not use an organized bookkeeping method.
  • The taxpayer’s income satisfies one of these criteria:
    • The income is exempt from ITBIS.
    • More than 50% of the income is derived from ITBIS­exempt activities.
    • 100% of the ITBIS that arises from the rendering of ser­vices is subject to withholding.

The above provisions may include measures designed to reduce the frequency of the filing of ITBIS returns and to simplify other ITBIS requirements.

Group registration. Although the tax authorities do not apply group registration, under the Dominican ITBIS provisions the tax authorities may consider as unique taxpayers entities, individuals, enterprises or a combination of them, if they supply or render ITBIS-taxable goods or services and if these activities are con­trolled by the same person or persons (individuals, entities or combinations). If an individual exercises control or administers several businesses or establishments, the ITBIS imposed is con­sidered to be the ITBIS of such individual.

Non-established businesses. A “non-established business” is a business that has no fixed establishment in the Dominican Republic. The Dominican Tax Law does not provide a mecha­nism for the payment of the ITBIS from non-established busi­nesses. Consequently, a non-established business must register to pay ITBIS to the tax authorities if it supplies goods or services in the Dominican Republic.

To register for ITBIS, a non-established business must register with the Chamber of Commerce and the tax authorities.

The Dominican tax regulations do not provide a reverse-charge or refund mechanism for these entities.

Tax representatives. At the moment of registering an entity as VAT taxpayer, a tax representative must be appointed.

Reverse charge. Not applicable.

Digital economy. The same rules apply to goods and services provided digitally.

Registration procedures. Individual persons should submit Form RC-01 to the tax authority with a copy of their ID or passport. Legal entities should first register before the local Chamber of Commerce and then request to the tax authority their incorpora­tion into the National Taxpayers Registry (RNC) through Form RC-02, attaching copies of their corporate documentation.

Late-registration penalties. A taxpayer that fails to register for ITBIS on a timely basis may not deduct tax on goods purchased by the business that form part of its inventory at the time of reg­istration. The tax authorities may assess unpaid ITBIS, and pen­alties and interest are also assessed for late registration.

Deregistration. In order to deregister from the National Taxpayers Registry (RNC for its Spanish acronym), taxpayers must request from the tax authority an authorization for business termination, and additionally submit within 60 days after its business termina­tion, a final income tax return. Legal entities must also provide corporate documentation approving the dissolution of the corpo­ration.

ITBIS rates

In the Dominican Republic, the standard rate of ITBIS is 18%, which applies to all supplies and importations of goods and to the list of taxable services, unless a specific provision allows a reduced rate, a zero rate or an exemption.

Examples of items taxed at 16%

  • Yogurt and other dairy derivatives
  • Coffee
  • Butter, margarine and oils
  • Powdered cacao (with or without sugar) and unfilled cacao bars
  • Sugar

Examples of exempt goods and services

  • Live animals
  • Fresh, refrigerated or frozen meat
  • Fish for popular consumption or reproduction
  • Milk, eggs, and honey
  • Non-processed fruit for massive consumption
  • Cocoa and chocolate
  • Certain types of medicines
  • Certain types of books and magazines
  • Education services, including theatre, ballet, opera, and dance
  • Health services
  • Electricity, water, and garbage collection services
  • Financial services (including insurance)

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when the taxable event is considered to take place and ITBIS becomes due is called the “tax point.”

Supply of goods. The basic time of supply of goods is when the invoice is issued or, if an invoice does not exist, the time of the delivery or the withdrawal of the goods.

The basic time of supply for services is the earlier of the follow­ing:

  • When the service is performed
  • When an invoice is issued
  • When the service is completed
  • When the price is paid in full or in part

Imports. The time of supply for imported goods is when the goods are placed at the disposition of the importer.

Leasing. The time of supply for leasing depends on the property being leased. For long-term leasing or rent, the time of supply is when lease payments (installments) are due or paid.

Recovery of ITBIS by taxable persons

An ITBIS taxpayer may deduct as input tax the advance taxes paid with respect to the following purchases:

  • The purchase of domestic goods and services that are subject to ITBIS
  • The importation of goods subject to ITBIS

The right to deduct advance taxes must be supported by proper documentation related to the local purchase or the importation of the goods.

Partial exemption (proportional ITBIS deduction). If it is not pos­sible to determine whether the goods purchased or imported by a taxpayer have been used in performing taxable or exempt activi­ties, the ITBIS deduction is proportional. The deductible propor­tion is based on the value of the taxpayer’s taxable operations in the tax year compared with the value of its total operations for the tax year.

ITBIS Deduction = 100 x (Taxable operations / Total operations)

ITBIS not deductible according to this formula should be consid­ered as a cost of production for the goods supplied or services provided.

Refunds. Exporters that have excess credits for advance taxes paid on the purchase of raw materials employed in production of exported goods may request a refund for the advance tax over a six-month period.

If an invoice is voided within 30 days after its issuance, a refund of the ITBIS may be requested in that period.

Preregistration costs. Taxpayers are not permitted to recover input VAT paid on purchases made prior to VAT registration.

Recovery of ITBIS by non-established businesses

The Dominican Republic does not refund ITBIS incurred by foreign or non-established businesses unless they are registered as taxpayers with the tax authorities.

Invoicing

Invoices and credit notes. An ITBIS taxpayer must provide invoices indicating the amount of ITBIS collected for the taxable supplies made. In addition, invoices must include a Fiscal Supporting Number (Número de Comprobante Fiscal, or NCF from its Spanish acronym) and the Taxpayer’s Registration Number (RNC), among other requirements.

An invoice showing the NCF, RNC and the ITBIS amount sepa­rate from the total amount is generally necessary to support a claim for an input tax credit.

An ITBIS credit note may be used to reduce the ITBIS charged and reclaimed on a supply of goods and services within the next 30 days of the issuance of the invoice or the supply of the goods.

The invoice for every supply of goods or services rendered must show an NCF. The NCF is made up of an alphanumeric sequence granted by the tax authorities at the request of the taxpayer.

The NCF is required to support deductions for income tax pur­poses or ITBIS credits.

Invoices with NCFs may be printed directly by taxpayers through their computer systems or by establishments duly authorized by the tax authorities.

Exports. Exported goods are zero-rated for ITBIS purposes. Under the ITBIS Law, a compensation and reimbursement proce­dure is provided for exporters. This procedure allows the compen­sation or reimbursement of the ITBIS charged with respect to goods to be used for exportation activities.

Foreign-currency invoices. It is acceptable for invoices including NCF to be issued in a foreign currency.

Electronic invoices. Electronic invoices with their corresponding NCF are valid for fiscal purposes.

ITBIS returns and payment

ITBIS returns. ITBIS returns are submitted monthly. Returns must be submitted by the 20th day of the month following the end of the return period. Payment in full is due on the same date. A return must be filed, even if no ITBIS is due for the period.

Tax due must be paid in Dominican pesos (DOP). Special schemes. None.

Electronic filing and archiving. ITBIS returns should be monthly submitted via the tax authority’s virtual office, through Form IT-01.

Annual returns. There are no annual VAT returns.

Penalties

Penalties can be imposed for late payment, tax evasion, failure to comply with formal duties and tax fraud.

Late payments. The following are the penalties for late payments of ITBIS:

  • Surcharges: charged at 10% of the unpaid tax for the first month or fraction of a month, and at 4% per month for each successive month or fraction of a month.
  • Interest: charged at 1.10% per month or fraction of a month. This amount is added to the surcharge.

Tax evasion. Tax evasion that does not constitute fraud occurs if, by any action or omission, a taxpayer files an inaccurate tax return that results in a reduction in the tax payment to be made to the tax authorities. The penalty may consist of up to twice the unpaid amount plus interest and the closure of the business. If the amount of the unpaid tax cannot be determined, a fine ranging from 10 to 50 times the minimum salary (the minimum salary is approxi­mately USD200) may be imposed. The tax evasion penalty may not be applied simultaneously with surcharges for late payment.

Failure to comply with formal duties. Failure to fulfill formal tax duties could result in a fine of 5 to 30 times the minimum salary. The following are the violations:

  • Failure to maintain accounting books or records required by law
  • Providing false information when registering for ITBIS
  • Not registering in the relevant tax registries
  • Refusing to provide information to the tax authorities
  • Failure to file tax returns for the calculation of tax payments

Tax fraud. Tax fraud occurs when information has been altered in a manner that causes the tax authorities to incorrectly compute the amount of tax due. The consequences of tax fraud may include a penalty ranging from 2 to 10 times the amount of the evaded tax, closure of the business establishment or the cancella­tion of an operating license.