Flash | Dominican Republic: Government presents proposal to revise tax framework

On Thursday, June 11, the Dominican Government, through the Ministry of Finance and Economy, presented a series of economic and tax measures (hereinafter, the “Plan”) aimed at improving public revenues in order to mitigate the impact of the international crisis.

The Plan proposes the following changes to the tax system:

• Accelerated depreciation to promote private investment starting in 2027

• Refund to exporters of the excise tax on fuels and insurance.

• Gradual repeal of various outdated taxes, including those applicable to mortgages, incorporation of companies, and the excise tax on life insurance.

• Refund of the excise tax on ethyl alcohol used in the manufacture of medicine.

• Elimination of advance payments of the Corporate Income Tax (“CIT”) for microenterprises.

• Simplification of the advance payment regime for small businesses (reducing the number of advance payments from 12 monthly installments to 3 installments per year).

• Elimination of income tax advance payments and the Asset Tax for the agricultural sector.

• Update of Title I of the Dominican Tax Code, including the reduction of late payment surcharges, the update of references to compensatory interest, the formalization of payment agreements, and the update of prompt payment discounts.

• Expansion of the Simplified Tax Regime (“RST”, for its Spanish acronym) through the increase of thresholds applicable to individuals and the agricultural sector (from DOP 12 million to DOP 15 million – approximately USD 205,000 to USD 256,000), and the purchases‑based regime (from DOP 55 million to DOP 60 million - approximately USD 940,000 to USD 1.02 million), as well as the creation of a new threshold for small businesses (DOP 30 million – approximately USD 513,000).

• Modernization of the inheritance and donation tax regime, through the update of the exempt amounts under the inheritance tax and the reduction of the rate applicable to lifetime transfers between parents and children from 25% to 3%.

• Reduction of the income tax on capital gains from the sale of real estate by individuals from 25% to 10%.

• Repeal of obsolete tax control laws, including the Match Tax Law of 1935 and the Stamp Control Law of 1966.

• Implementation of collection mechanisms for the Tax on Industrialized Goods and Services (“ITBIS”, hereinafter “VAT”), to be administered by the General Customs Agency, on imports made by informal taxpayers.

• Increase in income tax withholding rates for a group of taxpayers.

• Strengthening of tax traceability mechanisms for alcoholic beverages, cigarettes, and fuels.

• Granting veto power to the Ministry of Finance and Economy and the Ministry of the Presidency in the classification of beneficiaries under tax incentive laws.

• Increase of the Tax on Checks and Electronic Transfers from 0.15% to 0.20%.

• Temporary three-year increase in the CIT rate from 27% to 30% for large taxpayers with annual revenues exceeding DOP 1,000 million (approximately USD 17.09 million).

• Creation of a new personal income tax bracket of 27% for salaries exceeding DOP 400,000 (approximately USD 6,800) per month.

• Introduction of an excise tax on electronic cigarettes and vapes.

• Increase in taxation on casinos and gambling activities.

• Increase of USD 10 in the tax applicable to airline tickets.

• Incorporation into statutory law of certain tax measures currently established through administrative regulations or annual budget laws, including the Liquefied Petroleum Gas (“LPG”) contribution, the application of the zero‑rate VAT to certain basic consumer goods and the elimination of the exemption applicable to the importation of machinery used for gambling activities.

• Elimination of VAT and customs duties applicable to ambulances, fire trucks, and garbage compactor trucks.

• Elimination of VAT on asphalt and AC‑30.

• Indexation of the tax-exempt threshold by 15% to reflect the cost of the basic family basket for the first and second quintiles. As a result, the tax-exempt threshold would increase from DOP 34,685 to DOP 39,900 (approximately USD 593 to USD 682).

• Increase in the deduction for educational expenses from 25% to 30%, and up to 50% when such expenses are incurred for the benefit of persons with disabilities or neurodevelopmental disorders.

In addition, as in other past proposals involving substantial changes to the tax system, the Plan contemplates the introduction of a special tax amnesty.

Likewise, the changes set forth in the Plan will be addressed in detail in an upcoming KPMG Informative Note, once the Executive Branch publishes the draft bill to implement them. Finally, KPMG remains available to provide tax and legal advisory services to assess the impact of these measures on your business.