Dominican Republic country report

Economic overview

The Dominican Republic has played a leading role in the Latin American area for years.

It is among the countries with the highest and most constant growth, thanks to political stability and various international agreements.

Despite some slowdowns due to external factors (increase in oil prices and interest rates on global markets), the Dominican Republic’s economy has proved to be solid and trustworthy.

It remains deeply linked to the agri-food sector, alongside which the construction, trade and tourism sectors play a certain role.

The openness of Dominican governments to foreign trade and investment, regardless of color, makes this destination an attractive destination. However, there are critical issues within a highly unequal context, characterized by high poverty rates (a quarter of the population), corruption, crime and an inefficient judicial system. Our country is the second European supplier after Spain (and the eighth in the world) but there is room for a further leap in quality given the deep historical and cultural ties between the two countries.

What differentiates the Dominican Republic from other economies in the area is the lower dependence on tourism (contribution 16% of GDP vs 25% of peers), especially cruise ships, and a well diversified economy.

Main sectors of industry

Agriculture. Although it is the backbone of the economy, agriculture is an activity that is not very profitable in various respects, poorly mechanized, but which can have large developments with adequate irrigation works; the arable land still occupies about 30% of the territorial surface. As in all countries with a prevalently neo-colonial economy, in the agricultural field, we must clearly distinguish the sector of large plantations in which, with modern techniques and a large use of capital, products destined for export are obtained, and that of small and medium-sized properties, which provide the domestic consumer goods. The plantations are mainly intended for the cultivation of sugar cane, particularly widespread in the southern coastal plain, from Barahona to La Romana, and in the northern one in the Province of Puerto Plata, from which 6 million q of sugar are obtained annually. To diversify the agricultural landscape, however, the government has intensified the production of coffee and cocoa.

Mineral resources and industry. Mineral resources are varied and often abundant, but currently only the deposits of bauxite, nickel-ferrous minerals, gold, silver and rock salt are adequately exploited. The very high costs of oil imports have delayed the expansion of the energy sector and consequently of industrial activities. The manufacturing activity is almost exclusively limited to the transformation of local agricultural products, thus including sugar refineries, alcohol and rum distilleries, tobacco factories, cotton mills, oil mills, breweries; there are also some cement factories, small chemical factories and foundries, furniture factories, shoe factories.

 

Communications. The network of communication routes reaches a fair level, in particular for the road system, which extends for a total of 12,000 km (half of which are asphalted) and is based on three main road arteries, which branch off from the capital to the northern regions and western; the railways, whose development reaches 1,655 km, are practically at the service of the large plantations, providing for the transport of agricultural products, in particular sugar, to port export centers. The major maritime outlet of the country is the modernly equipped port of Santo Domingo, through which almost all the commercial movement with foreign countries passes; the capital is also served by the important international airport of Punta Caucedo.

Trade. About 40% of trade takes place with the United States, followed by Venezuela for oil imports, Japan and some European countries; Switzerland ranks second for food exports. However, exports are still based on raw materials: sugar alone accounts for 25-30% of the total value followed by coffee, cocoa, tobacco and some metals (iron-nickel and gold-silver alloys). Imports are represented by petroleum products, foodstuffs, vehicles, machinery etc. An important economic sector is now tourism, to which the government dedicates substantial investments.

Taxation for businesses in the Dominica Republic

Individuals are taxed only on income generated in the territory of the State, with the exception, for residents, of some investment income from foreign sources. For foreigners who move their residence in the country, foreign source investment income is exempt in the first three years of stay. Income from employment or self-employment, income from capital, real estate, etc. are subject to taxation.

Income tax for legal entities

  • The tax, equal to 27% of taxable income, is applied to all nationally sourced income obtained by legal entities during the tax period, including capital gains from the sale of properties and equity interests. Taxable income also includes some investment income from abroad such as dividends and interest.
  • Capital companies, public enterprises with commercial activities, undivided succession, irregular companies, partnerships and de facto companies are subject to taxation. A company is considered resident if it is established under Dominican law or is present in the territory with a permanent establishment.

Taxable income is determined as the difference between gross income and the costs incurred for its achievement and maintenance.

The valuation of inventories for tax purposes must be carried out using the LIFO (Last In First Out) method, although other methods may be authorized upon request. 

Depreciation is carried out according to specific tables with a value of fixed assets that is revalued according to inflation.

Interest is generally deductible even if there are limitations if the beneficiary is located in territories with privileged taxation. The deduction of interest from shareholders is limited to an amount of debt equal to three times the share capital.

Taxes on wealth

The taxation of assets takes place in different ways depending on the type of taxpayer.

For legal persons, on the other hand, the entire value of the assets is affected, deducted from write-downs and depreciation. Legal persons exempt from income tax and, temporarily and upon request to the Tax Administration, those that fall under certain economic conditions provided for by law are excluded from payment. The rate is 1%. The wealth tax represents a sort of minimum tax compared to the income tax and is paid in place of this when it is higher. The tax on the value of assets must be paid in two half-yearly installments.

Investing in the Dominican Republic 

A very important thing foreign investors need to do before making investments is to know the place well.

Many foreign investors (large and small) invest in the Dominican Republic because the taxation is not exaggerated (as in Europe), in fact, the taxation in R.D. is equal to 30%.

As for tourism (the main sector), there are many people who buy a property in a tourist area (such as Las Terrenas), so they have their own home for the holidays and when they don’t use it they rent it, so they have a small income.

Furthermore, thanks to the tax incentives on tourism, there are several large foreign investors who are investing large sums of money in the tourism development of the less developed areas of the country, through the construction of resorts, hotels, sports facilities, etc., as various taxes they will pay them from 10 years of activity.

In addition, there are several people who invest in bank certificates, as they currently have an interest rate of 10%.

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