Law No. 222-20, which modifies Law No. 506-19, on the General State Budget for fiscal year 2020, modified by Law. 68-20, and which in turn modifies articles 7 and 8 of the Law 46-20 of Transparency and Asset Revaluation.
BACKGROUND
The presidency of the Dominican Republic, in order to mitigate the economic and health crisis that the country is suffering as a result of Covid-19, on September 7 enacted Law 222-20 that modifies Law 506-19 of December 20, 2019 of the General State Budget for this year 2020, in turn modified by Law 68-20 of June 13, 2020 (the “Law”), establishing a Supplementary Budget, and authorizing the Executive Power, via the Ministry of Finance, to increase the financial sources in the budget that is in execution.
That said, and with the objective of designing and implementing public policies, programs and activities that are necessary to impact the deficit that affects the country, and especially vulnerable sectors, the Law seeks to rationalize public spending and adopt a contingency plan to promote all productive sectors, and, among other things, contemplates the collection, by the treasury, of a proportion of the income tax generated by residents or domiciled persons, according to their income.
For the purposes of this newsletter, we will raise the aspects of the Law that impact and facilitate the compliance of the tax obligations by taxpayers, remaining out team at your disposal to clarify these, or any other aspects referred to in the analyzed regulation.
This document contains general information on the subject of reference. Its purpose is merely informative and therefore does not constitute a legal opinion of Franco. It is recommended to seek legal advice for each particular case.
Income tax advances exemption for the periods August-December 2020 and First Quote Exemption from Assets Tax (ISA) for Micro and Small Businesses for fiscal year 2020.
Resolution No. DDG-AR1-2020-00001 issued by the Internal Revenues General Direction (“DGII”).
Purpose of the Resolution:
- Advance Income Tax (ISR) exemption in the period between August and December 2020.
- Exemption over the First Installment of the Asset Tax (ISA) to Micro, Small and Medium Enterprises (MIPYMES) and taxpayers of the hotel sector whose registered activities are limited to the economic activities of the International Standard Industrial Classification.
Individuals or single-owned businesses that are micro and small companies benefit from these exemptions (total gross sales do not exceed RD $ 58,314,600 per year)
The taxpayers that do not apply for the exemption established in paragraph (i) above, may request a total or partial exemption of advances, provided that they present and demonstrate a significant reduction in their income during 2020 in comparison to 2019. For such purposes, the applicant must complete the form provided by the Tax Administration at least fifteen (15) days before the expiration date, and send the request including the corresponding justification.
The hotel sector will benefit from both exemptions established in sections (i) and (ii) above, if its registered activities comply with the provisions contained in the International Standard Industrial Classification (ISIC).
The following are excluded from the exemption of the first installment of the Asset Tax (ISA):
- Legal entities holding real estate that do not carry out commercial activity, whose subscribed and paid capital does not reflect the cadastral value, do not have organized accounting entries or present income tax with operations
- Large national taxpayers
- Taxpayers who did not present operations in their ITBIS returns in 2019
- Taxpayers registered as an investment company
Automatic payment agreement for taxpayers who do not qualify for the exemption of the first installment of the Asset Tax (ISA).
Asset tax (ISA) payment agreement:
A payment agreement applicable to the first installment of the ISA of fiscal year 2020 is granted, in order to pay three (3) equal and consecutive installments beginning on August 31, 2020.
This document contains general information on the subject of reference. Its purpose is merely informative and therefore does not constitute a legal opinion of Franco. It is recommended to seek legal advice for each particular case.
Regulation 04-2020, issued by the Tax Administration of the Dominican Republic (“DGII”) dated July 13, de 2020 (the “Regulation”).
On February 19, 2020, by means of Law No. 46-20 of Transparency and Equity Revaluation, as amended (the “Law”), a transitory tax regime is created so that taxpayers, paying a single 2% tax, declare and revalue their assets, while granting more favorable conditions to taxpayers who choose to rectify or settle tax debts recognized before the DGII.
Object of the Regulation:
Establish the requirements, forms and procedures that must be met by taxpayers to benefit from the special tax regime provided by law.
The term to receive the benefits of the special tax regime is 180 calendar days
Deadline to submit application:
Within 180 days from the date of publication of the Regulation, taxpayers must complete the corresponding form before the Virtual Office (VO) or in person before the Local Administration.
Documents that taxpayers must provide[1]:
| Cash | Duly signed and stamped certification of the depository entity of the funds |
| Nominees Shares | Share certificate or meeting minutes |
| Bonds | Investment certificate issued by the intermediary entity, through which the financial instrument is acquired |
| Receivables | Contract, promissory note or certification of credit issued by the debtor |
| Trust Rights | Document that consents the credit with the trust whether as settlor or beneficiary |
| Other Rights | Intangible commercial or industrial rights, such as intellectual property that can support the value to be declared |
| Real Estate | Notarized Purchase and Sale Agreement, copy of the Title Deed and identity documents of the Parties |
| Assets | For companies, the document that supports the accounting record and declared value; and, for individuals, the documents that guarantee the acquisition and value of the goods |
| Assets subject to registration | Registration document of the competent entity |
| Inventory | Documents that evidences acquisition values (invoice and means of payment). In addition, evidence of quantity, cost and expiration date, along with a certification issued by a certified public accountant (CPA). |
| Decreased Assets | Documentation with its corresponding accounting record certified by a CPA |
Taxpayers are obliged to provide the documentation that accredits them as the owner of the assets that are part of the application
[1] Not a limited list
Forms:
- Declaration and revaluation of assets or rights: Request Form Transparency and Equity Revaluation Law
Rectification and balance of tax debt: Request Form for Payment Facilities Law of Transparency and Equity Revaluation
Valuation criteria
- Real Estate:
- Declared or revalued according to market value if it is greater than the book value
- Value supported by documents that evidence acquisition cost or, lacking that, by an appraisal carried out within the previous 6 months by an appraiser accredited to the Dominican Institute of Appraisers (ITADO).
- Appraised value can be objected by the DGII.
- Real Estate located abroad, taxpayer will provide a valuation arising from a real estate broker, appraiser or insurance or banking entity of the corresponding jurisdiction.
In absence of a document that evidences the acquisition cost, an appraisal of the last 6 months is allowed by an appraiser accredited in the ITADO
- Assets:
- The requested revaluation must coincide with reliable documentation that proves the acquisition, including the amount paid in the transaction.
- Value will be reduced by the depreciation that has benefited according to the Tax Code.
The Regulation provides that taxpayers’ accounting records must be updated to reflect the real costs of the assets
- Increase due to revaluation and / or declaration of assets:
- As a counterpart it shall include the supported assets of the declarant as established above (reliable documentation evidencing acquisition cost or, lacking that, required documents).
Future transfers:
- Once the assets have been declared or revalued, the declared value will be the reference worth for future transactions.
- In the case of capital assets transferred in a period not exceeding 1 year from the declaration, the amount will be reduced in a 20% as adjusted fiscal cost to determine ISR.
- When it involves a real estate or a vehicle transfer, the payment of 2% remedies the transfer tax and the increase in assets.
In the event that the DGII, for the first time, notifies a rejection of an application after the 180 days granted for the taxpayer to submit an application, the latter has 10 calendar days to submit a new application. The DGII will have 15 days to approve or reject the second request
Tax debts:
- Single payment or installment payment of up to 12 installments. Both scenarios should not exceed 365 days.
- In the event that the debt is the subject of a tax appeal, the taxpayer will provide documentation that proves a pure and simple withdrawal of any current appeal.
- The partial withdrawal will be admitted as long as it refers to a specific tax and period and that it does not take effect with respect to the other taxes and periods pending resolution.
This document contains general information on the subject of reference. Its purpose is merely informative and therefore does not constitute a legal opinion of Franco. It is recommended to seek legal advice for each particular case.
Law No. 46-20 of Transparency and Equity Revaluation
The objective of Law No. 46-20, on Transparency and Equity Revaluation (the “Law”) is to provide a specific period, so that taxpayers, exceptionally and voluntarily, declare, revalue and enter the Tax Administration, a fixed tax, established to encourage this transparency process in the aforementioned term.
Rate: 2%
A single and definitive payment of 2% of the total of the declared goods is established. The tax base will be determined at the time of declaration or revaluation according to provisions of the Law.
Once the assets are included in the taxpayer’s assets, they will be subject to ordinary tax obligations, and future transfers will be based on the value at which the assets have been declared.
Temporary regulation that allows a single payment of 2%
Deadline for application: 90 days (180 days in modification project)
In order to benefit from the special tax regime, an application must be submitted within a period of 90 calendar days, counted from the enactment of the Law. The proposed amendment to the Law extends this period to 180 days.
Assets that can be declared or revalued
o National or foreign currency in a regulated and authorized entity, according to its nominal value.
o Financial or securities instruments issued by any entity, and they will be recorded according to their acquisition cost (registered shares, bonds, credits agreed in contracts, trusts, promissory notes or other instrument that confers the right to be valued).
o Personal property located in the country, which will be valued according to the market value (acquisition value less depreciation established in the Tax Code).
o Real Estate after providing the document, duly legalized, that justifies property rights according to the corresponding legislation and whose declaration or revaluation will be made in accordance with the market value. The market value will be supported by documents that allow the validation of the acquisition cost or, failing that, by means of an appraisal carried out by an accredited professional.
o Inventories of goods available for sale or production, according to documentation that allows to validate their due acquisition.
o All assets whose revaluation leads to a reduction of assets (accounts receivable from partners, movable and immovable property, among others). Any good expressed in foreign currency will be valued in national currency in accordance with the exchange rate for the purchase of the spot market, according to the publication of the Central Bank of the Dominican Republic.
Personal property, real estate, investments, inventories and all types of assets susceptible of valuation, as well as certain tax debts
Excluded assets
o Goods or assets resulting or acquired as a result of illicit activities
o Currency deposited in foreign financial entities and securities held in jurisdictions of countries classified as high risk or non-cooperative by the Financial Action Task Force (FATF). Countries that are in the process of cooperation are exempt from this classification.
Tax Debts
Tax debts that have been determined may be settled by taxpayers by paying taxes and up to one year of interest, without considering late fees. If the debt is in the process of appeal before the administrative jurisdiction, pure and simple withdrawal is required by the taxpayer.
Payment facilities are extended to taxpayers who have been omitted or who have made corrections
COVID-19 Tax Measures
We hereby refer to the presence and spread of the Coronavirus (COVID-19) in the country, in order to inform and follow up on the tax measures that have been issued to date by the Dominican Tax Administration (DGII), to facilitate compliance, by taxpayers, of their respective tax obligations.
For such purposes, please find below a summary of the main decisions that have been made by the tax administration during the months of March and April, by virtue of the Notices indicated, and which we attach for reference. For your convenience, the most recent measurements are presented in blue.
| Taxpayer | Obligation | Measure | Source |
| All taxpayers | Transfer Tax on Industrialized Goods and Services (ITBIS) or VAT (Added value tax) of February 2020 to be paid on or before March 20, 2020 | A payment agreement for up to 4 installments may be requested without said installments being subject to the indemnifying interest for each month of validity | A23-20and A33-20 |
| Payment of the Transfer Tax on Industrialized Goods and Services (ITBIS) for the fiscal period March 2020 whose deadline is April 20, 2020 | A payment agreement for 3 equal and consecutive monthly installments may be requested without said installments being subject to the indemnifying interest for each month of validity | A45-20 | |
| Todos los contribuyentes | Payment agreements made to date | The value of the installments of all the payment agreements in force to date is reduced by half, extending in the same sense, the term for the payment of said installments until the total amount agreed in said agreement is completed;Regularization facilities for overdue fees will be granted without penalty;Those who present an unpaid balance may settle the income tax in 4 equal installments without monthly indemnification interest; and,The term of all payment agreements is automatically extended for three months. | A23-20y A36-20 |
| Individual with Sole Owner Business | Presentation and Payment as of April 29, 2020:(i) Income Tax Affidavit (IR-2) dated December 31(ii) First Installment of the Asset Tax | Extension until May 29, 2020 | A23-20 |
| Individuals | Presentation and Payment as of April 29, 2020 of the first and second installment of the Asset Tax | Extension until May 29, 2020 | A23-20and A45-20 |
Non-Profit Institutions | Presentation and Payment as of April 29, 2020 of the Informative Affidavit with closing date December 31 | Extension until May 29, 2020 | Extension until May 29, 2020 |
Taxpayers covered by Simplified Tax Regime (RST) based on income of individuals and the agricultural sector | Presentation and Payment of the 1st Installment of the ISR whose presentation is on March 20, 2020 | Extension until April 30, 2020 | A21-20 |
Presentation and Payment of the 1st Payment of Income Tax whose presentation is on April 30, 2020 | Extension until May 29, 2020 | A45-20 | |
| Taxpayers covered bySimplified Tax Regime (RST) based on income from legal entities and from purchases | Presentation and Payment of the 1st Payment of the ISR whose presentation is on March 31, 2020 | Extension until April 30, 2020 | A21-20 |
| Presentation and Payment of the 1st Installment of the Income Tax whose presentation is April 30, 2020 | Extension until May 29, 2020 | A45-20 | |
| Individuals | Income Tax of Individuals and Undivided Successions (IR-1) whose obligation is as of March 30, 2020 | Extension until April 30, 2020 | A21-20 |
Income Tax for Individuals and Undivided Successions (IR-1) whose obligation is as of April 30, 2020 | Extension until May 29, 2020 | A45-20 | |
| All taxpayers | Presentation and Payment of the Tax on Transfer of Industrialized Goods and Services (ITBIS) or added value tax (VAT) corresponding to the fiscal period February 2020, whose new date is March 30, 2020 | Deferred 10 days in order to adapt non-contact channels and automate payments. At the time of the tax return, 4 payment authorizations will be generated for 25% each. | A24-20 |
| All taxpayers | Motor vehicles transactions | Motor vehicle services will be limited to the following transactions, with other services being suspended until further notice, namely: (i) Transfer; (ii) Cease of oppositions associated with transfers; (iii) Duplicate registration due to loss; and, (iv) Plate duplicate due to loss. In the case of an individual, motor vehicle services will be offered only to the owners, without intermediaries. | A25-20 |
| All taxpayers | Informative Declaration of Operations with Related Parties (DIOR) with closing date September 30 | Extension until April 30, 2020 | A27-20 |
| Taxpayers covered bySpecial regimes | Exemption from the Tax on the Transfer of Industrialized Goods and Services (ITBIS) or Added Value Tax (VAT) and Selective Consumption Tax (ISC) | Digital request through the Virtual Office | A29-20 |
| All taxpayers | Declaration and Payment of taxes on bankslotteries, sports betting banks, casinos and machinesslot machines | Extension in the next threefiscal periods (March, April and May) | A32-20 |
| All Income Tax (ISR) Taxpayers, Legal Persons or Sole Owner Businesses[i] | Payment of Advances of Income Tax (ISR) whose due date is April 15, 2020 | Payment exemption for the fiscal period March 2020 | A37-20 |
| All taxpayers | Motor Vehicle Display Plates expired as of March 19, 2020 | Extension of validity until April 30, 2020 | A38-20 |
| All taxpayers | Rectification of the Tax on the Transfer of Industrialized Goods and Services (ITBIS) or Added Value Tax (VAT) for the periods 2019 and 2020 | Digital request through the Virtual Office | A40-20 |
| Free Zone Companiesand Operators of Free Trade Zones | Tax Exemption Card for the Transfer of Industrialized Goods and Services (ITBIS) or Added Value Tax (VAT), with an expiration date as of March 19, 2020 | Extension of validity until June 30, 2020 | A41-20 |
| All taxpayers | Selective Consumption Taxes (ISC) on Fuels and Special Contribution of Liquefied Petroleum Gas (LPG): IH4-032020: Fiscal Week March 28 to April 03, 2020.GLP Contribution: Fiscal Week March 30 to April 5, 2020.IH1-042020: Fiscal Week April 04 to 10, 2020.GLP Contribution: Fiscal Week March 30 to April 5, 2020. | Extension until April 23, 2020 | A44-20 |
| All taxpayers | Selective Consumption Taxes (ISC) on Fuels and Special Contribution of Liquefied Petroleum Gas (LPG): IH2-042020: Fiscal Week April 11 to 17, 2020.GLP Contribution: Fiscal Week April 13 to 19, 2020. | Extension until April 30, 2020 | A44-20 |
| All taxpayers | Other Withholdings and RemunerationComplementary (IR17) whose presentation is April 13, 2020 | Extension until April 24, 2020 | A45-20 |
| All taxpayers | Selective Consumption Tax (ISC) for Alcohol and Tobacco products whose filing date is April 20, 2020 | Agreement for the payment of three equal and consecutive monthly installments without said installments being subject to indemnification interest for each effective month | A45-20 |
| All taxpayers | Tax onTransfer of Industrialized Goods and Services (ITBIS) or Added Value Tax (VAT) applicable to medical materials and equipment | Temporary suspension of application on the following products: – Hydrogen peroxide (hydrogen peroxide), even solidified with urea – Rubber gloves for surgery – Disposable gloves for use in medical examinations and laboratories – Non-woven fabric masks – Garments and clothing accessories – Medical, surgical or laboratory sterilizers – Resuscitation breathing equipment – Tomography devices governed by an automatic data processing or processing machine – Thermometers for clinical use | A47-20 |
[i] Measure not applicable for those considered as large national taxpayers, except those unable to operate during the state of emergency; such as: a) Airports, airlines, travel agencies; b) Construction activities and hardware stores; c) Hotels, tour operators, passenger transport and complementary services; d) Games of chance; e) Sale and repair of vehicles, pieces and parts; f) Trade in electrical appliances, clothing, footwear, beauty items, toys and personal property; g) Entertainment services: shopping malls, cinemas, gyms and fast food.
COVID-19 and the Future of the Professions with the Susskinds’
The importance of automation in the legal service, the challenges of “real time” and the replacement of work in the face of technological transformation
On May 20, 2020, we participated in the referred webinar with Richard Susskind and his son Daniel Susskind, in which they highlighted the main challenges that consultants face in the uncertain moments bequeathed by COVID-19, which force us to a full-time teleworking, shared with the other activities that being at home implies.
Automation and Transformation
In the consulting area, the automation process has been preparing and has been around for some time. However, speaking about the transformation and optimization of services involves a more sophisticated process that requires technological elements from all the actors that are part of a business process, and infers that technology does things that it did not do before.
In this sense, the Susskinds’ emphasize that working from home does not represent a digital transformation of services, but a continuity of said services, which resulted in the only alternative available to achieve a balance in the face of the normality that the world lives today for the purposes of Covid -19.
In short, and for a better understanding, the seminar distinguishes the automation from the transformation, the first being the process of carrying out activities or tasks through digital platforms, resulting in savings of time and energy for the participating users; while the digital transformation has a broader vision that tries to replace certain tasks performed by humans in a purely digital process. In the transformation, a new strategy is designed to offer products and services digitally, globalizing interactions and commercial operation so that the structure provides the user with a completely digital service.
Similarly, it has been stated that Covid-19 has impacted on precipitating automation, pausing, for the moment, attempts at digital transformation until reaching the breakeven point in a digital service. However, it is impossible to ignore the technological revolution that will change the traditional ways of working, with emerging innovative models that will change the rules of the game in a sector.
Technology progress: Job substitution?
Without a doubt, this untimely situation, due to Covid-19, has significantly impacted global and local economies, affecting the ability to purchase products and services at all levels. This situation, in theory temporary, plans to regularize over time and become the new reality in almost all economic sectors.
Due to what is stated in this webinar, digital transformation seeks to replace certain manual and face-to-face interactions with our clients with comprehensive communication through electronic means, which generates uncertainty in the legal practice, since the promotion of automatic programs that provide various functionalities could represent a replacement for tasks previously thought only human could accomplish.
Inequity in the distribution of work, the concentration of economic powers in technology companies and in political authorities, are part of the challenges facing technology, in times when the pie is not so big to be shared with everybody.
Covid-19: Precipitating Automation
It is undeniable that this catastrophe has raised the red flags in our sector, leading us to analyze even the need for lawyers to be trained in the use and implementation of technology in the university programs. It has rushed us to undertake measures in order to compete with emerging systems, anticipating a virtual ecosystem of legal services that entails not only the provision of the service, but also safe, flexible solutions, with verified contingency protocols to guarantee the same level of fluent service and communication channels between clients, the team itself and the relevant institutions for the service in question.
We are of the opinion that no sector will be immune from the need to transform to an automatic scheme. Unquestionably, countries like ours, which do not have a high rate of internet connectivity, have a greater challenge that must also lead the public sector in this same direction, projecting that within 10 years we will have a more industrialized legal practice.
Home working
This webinar allows us to confirm the impacts of digital transformation on employment, since digital configurations and information flows imply a process of substitution of practices on the occasion of a self-programmable job. However, we are of the opinion that our practice still has a time to be people-centered; In other words, technological advance does not detract from the importance of human resources, but rather allows them to be more productive, more agile and innovative.
Some of the concerns that we have raised, from a strategic point, is the need to have a large office space. Does legal service merit a significant investment in an office? especially at a time when the implementation of technology in legal service means a change for the client to receive legal advice that is accessible, affordable and reliable.
That said, our conclusion is that digital work revolves around people and follows them wherever they go, so we predict investments in tools that contribute to increasingly efficient teleworking and less in physical infrastructure. We warn that these transformations can take time, and that the digitization of work would have important impacts on the way of working, of managing human resources, on business cultures and on the way of organizing work.
Finally, a little optimism about Covid-19 is that the long process of digital transformation configures a moment capable of designing new business models to be more flexible, adaptable and capable of responding to the effects of the new digital economy. Without a doubt, physical separations, distance training and the aforementioned new business models are factors that will lead to a new path, and it only remains to turn this need for automation and transformation into an opportunity with long-term results.