Regarding the question of whether users can request foreign digital service companies to issue invoices with tax receipts, the DGII (Dominican Republic's tax authority) points out that as long as the international provider "does not constitute a permanent establishment in the Dominican Republic, it will not be subject to the invoicing formalities of Decree 254-06 and General Rule 06-21 or any tax document for its operations in Dominican territory.".
SANTO DOMINGO.– Following yesterday's publication of the draft regulations through which the Dominican government proposes to tax Airbnb and other products, the General Directorate of Internal Taxes (DGII) issued a statement assuring that the ITBIS (Value Added Tax) levied on digital services from foreign companies will not be directly charged to users in the Dominican Republic.
The threats that the government had been making since 2020 to tax digital services finally materialized yesterday, when the DGII announced, through its portal, the "Regulation for the application of the ITBIS to digital services captured in the Dominican Republic and provided by foreign suppliers.".
Airbnb, the trendy platform that has processed $336 billion in payments worldwide since 2013, is included alongside services like Amazon, Google, Netflix, Spotify, DiDi, Uber, Indriver, and other foreign digital service providers in the Dominican Republic.
The oversight body, together with the Legal Counsel of the Executive Branch, invited all those interested to make their comments, observations and suggestions on the draft regulations, which may be made in writing, “accompanied by the documents that support them”, to the email address iconsultoriajuridica@consultoria.gov.do; or deposited with the Legal Counsel, at the reception of the Dominican Presidency Palace.
“In the case of online intermediation services where there is facilitation of deliveries of goods or provision of underlying services directly between users, the proportion that the number of users located in the Dominican Republic represents with respect to the total number of users involved in that service, regardless of where they are located, will be applied to the total income obtained,” the document states.
DGII Press Release
Diario Libre today publishes the information from the statement issued by the DGII, where it clarifies the mechanism that will be carried out and establishes that, as in some Latin American countries, companies providing digital services abroad would have to pay taxes through special mechanisms in the Dominican Republic, in this case it would be a rate of 18% for the Tax on Transfers of Industrialized Goods and Services (ITBIS).
“They will pay taxes virtually, submitting the ITBIS through a special declaration that must be settled before the 20th of each month,” specifies the DGII regarding the collection initiative for the use of platforms such as Amazon, Expedia, Google, Netflix, Spotify, DiDi, Uber, Airbnb, Indriver, among others.
In Chile, since June 1, 2020, digital foreign service providers have been required to file value-added tax (VAT) returns, which are 19%, through an online system. Similar mechanisms have been adopted in Argentina and Mexico, in effect since 2018; Colombia, since 2019; and Costa Rica, since 2020.
It will not be to the user
In response to questions about whether this tax will be directly withheld from users in the Dominican Republic when they pay for the digital service, the DGII (Dominican Republic's tax authority) has given a resounding "no." "No. The Decree does not establish withholding agents for the Dominican user's consumption of the service," the statement reads.
In another paragraph of the text, when the question is raised of whether the tax will be applied when the digital service is contracted or consumed, it explains that “the international provider will pay the ITBIS with respect to its intermediation service (commission). This ITBIS cannot be passed on or offset in the Dominican Republic, unless these providers establish a permanent establishment in this country.”.
This method, applied in most Latin American countries that have approved this tax, is different from that of Ecuador, where 12% of the VAT is levied directly on users' credit card payments.
Regarding the question of whether users can request digital service to issue invoices with tax receipts, the DGII ( ) points out that as long as the international provider "does not constitute a permanent establishment in the Dominican Republic, it will not be subject to the invoicing formalities of Decree 254-06 and General Rule 06-21 or any tax document for its operations in Dominican territory."
The reasons
The DGII dedicates a large part of the statement to explaining the reasons why the Dominican Government seeks to establish the collection of ITBIS on digital services from foreign companies.
“In accordance with the principle of destination in the case of the Tax on Transfers of Industrialized Goods and Services when it taxes the consumption of services and intangible goods subject to international trade, it is designed to ensure that said tax is applied in the tax jurisdiction where the final consumption or collection occurs, which maintains the neutrality of the system,” the agency explains.
Another reason is the principle of tax equity. “Dominican companies that provide similar services pay their taxes. In this sense, the DGII has the obligation to guarantee and facilitate equity in the balanced application of tax laws to ensure a suitable climate of competitiveness in all economic sectors.”.
It also clarifies that these services are not exempt from the payment of ITBIS, “according to article 344 of the Tax Code; therefore, the provisions of the Tax Code and Regulation No. 293-11 for the Application of Title III of the aforementioned Code are applicable to them.”.
After addressing questions and concerns about this project, the DGII reiterated its call to interested parties to participate in the public consultation on this initiative, which began yesterday and will end on March 21, through its website.
Previous proposals
This is the third time the Dominican government has attempted to charge these foreign providers, who have an increasingly strong presence in the country. The first attempt was in the 2020 budget bill, presented in 2019 during the administration of President Danilo Medina of the Dominican Liberation Party (PLD). The bill stipulated that, starting in 2020, a surcharge would be applied to the sale of digital content from international platforms. However, due to public outcry, the government withdrew the measure.
The justification at the time was that several countries had promoted the application of a tax rate to online subscription platforms such as Netflix, Spotify, Airbnb and others.
The 2020 budget bill, drafted in the midst of the pandemic, also contemplated applying taxes to digital services starting in 2021. “During the 2021 budget year, digital services used or contracted in the Dominican Republic will be taxed with the corresponding taxes, as applicable, in accordance with the Dominican Republic Tax Code No. 11-92, dated May 16, 1992, and its amendments, regardless of the location of the server or technological platform that supports them,” the bill stated at the time.
This would be one of the main policy measures implemented to increase state revenue and combat the effects of the coronavirus (COVID-19) pandemic.
Once again, the initiative was met with strong opposition because the population was at a critical juncture.
Text compiled using publications from Listín Diario and Diario Libre
