The Dominican Republic is a unitary state with a central government. Taxes can only be levied by the Congress of the Dominican Republic,2 and collected by the Bureau of Internal Revenue (DGII) under the supervision of the Ministry of Finance (Law 227-06). Taxation is governed by Law No. 11-92 of 31 May 1992, commonly known as the Tax Code, as amended, by regulations issued by the Executive Branch, and by resolutions adopted by the DGII. The Dominican Tax Code establishes the general rules for all the administrative and judicial procedures regarding tax matters, and establishes the main taxes – income tax, capital gains tax, value added tax (VAT), property tax, luxury tax, corporate asset tax – based on a simple, territorial system where the taxes are levied at the source.

The Constitution of the Dominican Republic establishes an equal protection clause for non-Dominican citizens and investors:3 Article 25 of the Constitution expressly states that foreign nationals are entitled to the same rights and duties in the Dominican Republic as Dominican nationals, except – understandably – for the right to take part in political activities.4 Article 221 of the Constitution sets forth that the government will ensure equal treatment under the law for local and foreign individuals and companies.

Tax compliance has been steadily on the rise owing to the invoicing system established for the collection of VAT:5 any expense can only be claimed and deducted if supported by an official invoice with an official number registered and granted by the DGII. This system was introduced in 2007 and has revolutionised the Dominican tax system, providing the tax authorities with a powerful tool to detect evasion of VAT and income tax, both for individuals and entities. Owing to this and many other procedures, the DGII is considered by many to be the most modern and organised of all the public offices in the Dominican Republic.6

Under the Dominican Tax Code, tax evasion was only sanctioned with criminal penalties in cases of intentional tax fraud. This changed in 2017 under the new anti-money laundering law, Law 155-17, and its enabling regulations. The new statute was approved in record time based on the recommendations of the Financial Action Task Force of Latin America (GAFILAT), a G7 regional organisation. The statute establishes a long list of illegal activities with very stiff criminal penalties and fines, including all tax offences contained in our Tax Code, which it has classified as predicate offences for money laundering purposes (predicate offences are those whose proceeds may become the subject of prosecution under the new statute). Since tax fraud and offences are on the listed illegal activities, therefore, any activity to legitimise an asset that resulted from tax fraud constitutes money laundering. In other words, not declaring the proceeds that resulted from tax fraud will now almost automatically constitute money laundering under these new rules. Furthermore, the law establishes very strict and complex rules for any financial institution, professionals such as lawyers and accountants and others that need to be followed in accepting and handling customers or clients. The Ministry of Finance is currently working on additional regulations for each sector to specify its obligations and rules of compliance.

There is no doubt that this new law and its regulations are already revolutionising how business will be conducted in the Dominican Republic, and it remains to be seen what impact these new rules will have on the overall economy and on tax compliance. The general expectation is that, as occurred in Spain or France, the legislator will enact an amnesty law in the near future, allowing the taxpayer to become fully tax-compliant before these very strict rules will be applied. An initial middle ground has already been reached for tax fraud purposes, as the new enabling regulation established that in order for tax offences to be classified as predicate offences for money laundering the amounts involved would have to surpass at least 700 minimum salaries (roughly US$137,000) per fiscal year. The benefit of this new threshold will not apply if the person has already received a warning or been given notice by the Tax Office.

Tax disputes are usually avoided because taxpayers can request from the DGII a formal and binding opinion for their cases case beforehand.7 Also, the fines and interest for late payments can very often be negotiated with the DGII,8 and before starting litigation, there is a mandatory administrative procedure that suspends the possible tax obligations and gives both parties the opportunity to explain their positions and settle the dispute. In general, only cases that involve fundamental legal questions9 or that are clear-cut10 end up in court: taxpayers are well aware that litigation does not stop interest and fines from accumulating, although it does prevent the tax authorities from collecting while it is pending.


The process usually starts without any prior warning with a written notice by the DGII to the taxpayer assessing the taxpayer's liability under a particular statute.11 The liability could arise from not filing a specific tax return – such as the yearly income tax return, monthly tax return for VAT or a specific declaration in regards to transfer pricing rules12 – from not paying a specific tax, such as the property tax, corporate asset tax, VAT, capital gains tax, etc., or from the DGII disputing a filed return. The notice establishes a new deadline for the pending tax return or the specific amount of tax that is due, assessing the taxpayer with the corresponding fines for the non-compliance.

Upon receipt of this notice, the taxpayer can immediately either start to negotiate a settlement with the DGII or file an objection within 20 days,13 attaching all the necessary documents and evidence. Once the objection is filed, the payment of the taxes and penalties is suspended until the DGII has ruled on the objection. Upon request by the taxpayer, the DGII can grant an additional 30 days to the taxpayer to substantiate the objection. The DGII has to decide on the objection within three months. After this internal administrative ruling, the DGII can start the collection procedure and attach the assets of the taxpayer.14

This procedure applies to all taxpayers and all taxes. The general statute of limitations for tax collection is three years,15 starting one day after the filing or the payment was due.16


If the DGII rejects the objection filed by the taxpayer, a recourse can be filed in the tax court against the administrative ruling within 15 days. The decision of the tax court, composed of a minimum of three judges, is subject to review as follows: review by the same tax court under specific circumstances;17 cassation procedure at the Third Chamber of the Supreme Court;18 and review by the Constitutional Court.19

In cases of excessive delays of the DGII to resolve certain matters, a taxpayer can file a writ of amparo, a quick and inexpensive remedy for the protection of constitutionally protected rights. In tax matters, this is filed at the same tax court as other matters; the decision by the tax court is subject to appeal before the Constitutional Court.

In the case of urgency when no constitutional issue is involved, the taxpayer can seek an injunction in the tax court.

All cases in Dominican courts are decided by judges, not juries. Judges rule based on the texts of the Constitution and existing statutes, the precedents of the Constitutional Court (which are binding) and the precedents of other courts (which are not binding). They do not rule in equity, as in some common law countries, but the principle of good faith is recognised by statutory law, which grants courts some discretion.


The Tax Code distinguishes between fines, for simple non-compliance, and criminal sanctions, in cases of intentional tax fraud. According to Article 46 of the Tax Code, the DGII can impose fines on a taxpayer without prior authorisation from the courts. As previously mentioned, non-compliance notices usually contain a fine: for example, a fixed amount of 25,790 Dominican pesos for a pending income tax return, or a percentage of the taxes owed per month (11.1 per cent for the first month and 5.1 per cent for each following month). In cases of tax evasion, there can be an additional fine of up to twice the amount of taxes owed.

Only in cases of intentional tax fraud20 are criminal penalties triggered. They consist of penalties between two and 10 times the amount of the evaded tax and imprisonment of between six months and two years. These penalties must be imposed by a court following criminal proceedings.


i Recovering overpaid tax

The Tax Code provides a specific procedure for the return of any amount paid in excess or paid without an obligation to do so. The Tax Code actually obliges the executive branch to set up a special fund to reimburse the taxpayer in these cases.21 The taxpayer can file for the refund at the DGII in an administrative procedure, provided that he or she is up to date with all his or her fiscal obligations. The DGII has to rule on the request within two months. In the normal course of events, the DGII either rejects the request, which can then be appealed before the tax court, or just does not respond. In this latter case, the amount of the requested refund automatically becomes a tax credit, allowing the taxpayer to compensate it against future taxes.

ii Challenging administrative decisions

The same procedure applies as described above.

iii Claimants

The persons liable for the tax obligation, the corresponding possible fines and criminal penalties are, in addition to the taxpayer, their legal representatives, their assistants, their withholding agents and the persons who acquire assets from them in transactions subject to taxation.22


The costs of any dispute, administrative or judicial, consist basically of the legal fees for the attorney. These fees usually cannot be recovered from the opposing party, no matter the outcome of the administrative or legal procedure. With the exception of the general procedures at the tax court against a ruling of the DGII, all other legal procedures (amparo, cassation, reviews) do not generate court costs for any of the parties involved.


There is no alternative dispute resolution in tax matters in the Dominican Republic. Law 489-08 on Commercial Arbitration explicitly prohibits arbitration in public matters, such as tax matters.


The Tax Code includes a general anti-avoidance provision whereby the tax authorities may ignore the existence of legal entities or certain transactions when used to secure a tax advantage, based on the substance-over-form doctrine.23 However, the provision has been applied only in high-profile cases, such as the sale by Verizon of the largest phone company in the country. Verizon argued that no capital gains taxes were due since the transaction was done through the sale of shares in an offshore company, outside of the territory of the Dominican Republic, that controlled the Dominican subsidiary. The DGII countered that the only purpose of the transaction was the acquisition of the local telecom business of the company, and that, therefore, capital gains taxes had to be paid, the real purpose of the offshore corporate structure being to artificially locate the capital gains in an offshore jurisdiction. The case was settled, and Verizon paid a substantial amount of the original sum demanded by the DGII. As a result of this case, the Tax Code was amended and now expressly states that the sale of shares of foreign companies having assets, directly or indirectly, in the Dominican Republic are to be considered as taking place in the Dominican Republic, and therefore subject to Dominican capital gains taxes.24

With the tax reform of 2012, much more extensive transfer pricing rules were established as were, for the first time, rules on thin capitalisation. The latter have not yet become an area of focus for the DGII. Transfer pricing instead has become one of its priorities.


The Dominican Republic has signed and ratified two double taxation treaties: with Canada, in 1977, and with Spain, in March 2014. The treaty with Canada only covers income taxes, and has become obsolete with regard to taxes on dividends since the 2012 tax reform abolished the provision to avoid double taxation on company profits and introduced a 10 per cent dividend tax. The new treaty with Spain deals with all the possible taxes on income, but not with VAT. Considering that many hotel owners and operators in the Dominican Republic are Spanish, the treaty with Spain has much more relevance than the one with Canada.


The main focus of the DGII is on collecting VAT taxes and income taxes through the invoicing system described in Section I. Since only expenses supported by an official invoice can be deducted for tax purposes, businesses are forced to use these official invoices, which are then automatically subject to VAT and income tax. In addition, services rendered by foreigners in the Dominican Republic – for example, in the tourism or mining industry – can now easily be identified and taxed correspondingly. Furthermore, the DGII has widened the application of VAT taxes, attempting to collect 1 per cent on imports from members of Proindustria, the Centre for Industrial Development and Competitiveness, as an advance on the VAT tax. Most likely, this will be disputed soon, since these members have been exempt from advancing any VAT taxes.

Capital gains are also being targeted by the DGII in corporate transactions, such as sales of shares, contributions in kind, and mergers and acquisitions. Very often, the necessary approval of the transaction by the DGII already provides an assessment of the capital gains taxes due.

In the area of tax avoidance, the most targeted scheme is transfer pricing. There has been a coordinated effort to crack down on transfer pricing schemes, especially in the hotel and tourism industry. The Dominican Republic now has extensive rules on this matter, and the DGII is determined to find and eliminate any possible schemes. Other schemes of tax avoidance, such as treaty shopping, dividend stripping or controlled foreign corporation schemes to park dividends abroad, are still not targeted by the DGII, mainly because no specific rules exist in this regard.

Another target is the collection of the transfer tax for real estate and vehicle sales. In the past decade, the DGII has established minimum fiscal values for these transactions to eradicate the old habit of using two sets of contracts: one with the true price and one with a lower price for tax purposes. There is also now a six-month deadline to pay the tax, and fines in the case of non-compliance.

The final area of focus is the collection of taxes on dividends (10 per cent) from free zone operators for any dividends generated after 5 October 2016.


There is no doubt that the authorities in the Dominican Republic are focused on increasing tax compliance and collection. Considering the growing debt of the country, the International Monetary Fund has been pressuring for better results in both areas, and has tried to convince the Dominican Republic to abolish tax exemption laws, especially the ones benefiting the tourism industry (Law 158-01). Considering that the Dominican Republic recently extended these incentives, the pressure by the IMF and the international community to collect taxes is higher than ever. There is still a large part of the economy that is operating in the shadows and outside the official invoicing system. There have been many suggestions and ideas to change that through an extensive tax reform, but so far nothing concrete is on the table.

It is likely that the Dominican Republic will negotiate new double tax treaties in the future, especially with the United States and European Union countries.

The new anti-money laundering law and its regulations are shaping the future of doing business in the Dominican Republic, with the expectation that a general amnesty law will be offered in the near future as a last opportunity for the taxpayer to become tax-compliant and to avoid the application of the strict penalties of the new law for activities related to tax fraud.

With these possible developments, tax planning and tax consulting will become more and more important for anyone doing business in the Dominican Republic, confirming once more that tax law shapes the nature of almost every important business transaction and has a significant impact on the way corporations behave.


1 Christoph Sieger is a partner and Fabio J Guzmán Ariza is the managing partner at Guzmán Ariza, Attorneys at Law.

2 There are some exceptions, for example, municipalities impose or collect taxes for construction or advertising. The Dominican Congress is bicameral: it is composed of a Senate and a Chamber of Deputies.

3 Individuals or entities.

4 Based on this principle, the Dominican Constitutional Tribunal struck down an old statute that established a higher inheritance tax for non-resident foreigners.

5 The Code establishes the ITBIS, the Dominican VAT, at an amount of 18 per cent on most services and transfer of goods.

6 The official website of the DGII (www.dgii.gov.do) is one of the most visited websites in the Dominican Republic, containing the most relevant information for taxpayers and also allowing them to file their tax returns online.

7 This can serve as an advanced clearance.

8 The capital gains taxes for the sale of Verizon Dominicana were negotiated directly between the former Dominican President, Leonel Fernández, and the former US Secretary of State, Condoleezza Rice.

9 For example, collecting taxes on dividends from the shareholders of free zone operators or upholding the US$200 threshold for internet purchases from abroad.

10 For example, imposing taxes by Presidential Decree.

11 Article 64 of the Tax Code.

12 The Dominican Republic has extensive transfer pricing rules, and there is a coordinated effort to crack down on transfer pricing schemes, especially in the hotel and tourism industry.

13 Article 57 of the Tax Code.

14 Article 57 of the Tax Code.

15 Article 21 of the Tax Code.

16 Article 22 of the Tax Code.

17 Decision based on false documents or new documents becoming available after the ruling, etc. (Article 168).

18 The Third Chamber of the Supreme Court, as the other two chambers, is composed of five judges. Three of them have to rule on each case.

19 In cases of constitutional issues. The Constitutional Tribunal consists of 13 judges; cases are adjudicated with a super majority of nine or more members.

20 For example, having two sets of books.

21 Article 265 of the Tax Code. The amount is 0.5 per cent of the total amount of taxes collected each month. In reality, this fund does not exist, and refunds in cash are very rare.

22 Article 11 of the Tax Code.

23 Article 2 of the Tax Code.

24 From a legal perspective, it is questionable whether this amendment was really necessary. In our opinion, the general anti-avoidance rule was and is sufficient.