Dominican Republic: Tax credit opportunities for taxpayers with 30 September year-end

Taxpayers seeking opportunities to improve their cash flow may consider acquiring transferrable tax credits.

Specifically, taxpayers with a fiscal year ending 30 September 2021 would need to acquire these transferrable tax credits by 30 September 2021—to apply the tax credits against their income tax to be paid when they file their 2021 tax returns.  

Law 108-10 grants film producers the ability to transfer their transferrable tax credits on 25% of the qualifying expenses incurred to produce the film in the Dominican Republic. These tax credits can be used against the film producer’s own income tax liability. Many film producers (especially foreign film producers), however, may not able to fully use these tax credits because their tax liability is not sufficient or is lower than the amount of tax credits granted. Thus, to provide an incentive for film producers, Article 39 of Law 108-10, par VI provides that these tax credits may be transferred—in whole or in part—by the film production company to one or more corporate and/or individual taxpayers. Typically, these tax credits are transferred at a discount.

Before the tax credits are granted by the Dominican tax authorities, the film producer will have gone through a rigorous validation process with the Dominican cinema authority (Dirección General de Cine—DGCINE), by a CPA auditor, and then by the tax authorities. Once the tax credit requirements are satisfied, the tax authorities will issue the tax certificates to the film producer, and it is these certificates that can be transferred. The tax credit regime only permits one transfer. Read TaxNewsFlash

For a potential purchaser of a transferrable tax credit, it may not be intuitive that a taxpayer with no nexus to the film industry can benefit from these credits. Nevertheless, acquiring the transferrable tax credits at a discount affords the credit-buyer an opportunity to settle its Dominican income tax liability with less cash because the film tax credits are exchanged dollar for dollar to pay the income tax—with the purchase price generally being lower for prior year credits.  The credit-buyer, thus, effectively “earns” the difference between the face value of the transferrable tax credit and the amount negotiated and paid for the credit acquisition. 

The credit-buyer’s income tax liability is not reduced, as the savings comes from the discount negotiated from the film company (as opposed as a reduction of the income tax liability).  

Many companies may not be aware that such a mechanism exists or that it could apply to their situation. The transferrable tax credit regime does not require any relationship between the film producer and the credit-buyer. 

Taxpayers with a 30 September fiscal year-end seeking ways to use the transferrable tax credit regime (and thus to reduce their income tax due payable 29 January 2022) have until 30 September 2021 to purchase the transferrable tax credits. Any unused tax credits that are not used for income tax purposes can be used to settle the asset tax liability and the advance payments of income tax. Any remaining transferrable tax credits can be carried forward to the next three tax years.

For more information, contact a KPMG tax professional in the Dominican Republic:

Marco Banuelos | +1 809 566 9161 | mbanuelos@kpmg.com