Dominican Republic transfer pricing laws align with the Guidelines set by the Organization for Economic Co-operation and Development (OECD). They are incorporated within Decree 78-14 and Decree 256-21.
Arm’s Length Principle
The Dominican Republic follows the arm’s length principle, requiring that transactions between related parties follow market prices and conditions similar to those agreed upon between independent parties. If the prices are not fair or don’t make economic sense, the tax authority can change them.
Related Party Definition
Two parties are considered related under Dominican tax rules if one controls or owns at least 50% of the other, directly or indirectly. They are also related if:
- One manages or influences the other,
- One has a branch (permanent establishment) in another country,
- One is the exclusive seller or distributor for the other,
- One sells or buys at least 50% of its goods or services to/from the other,
- Or one covers the other’s losses or expenses.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in the Dominican Republic are:
- Comparable uncontrolled price method
- Resale price method
- Cost plus method
- Transactional net margin method
- Profit split method
In the Dominican Republic, transfer pricing rules follow the “most appropriate method” approach, based on how closely the method reflects the company’s activities, how reliable the available data is, how applicable or similar the comparable companies or transactions are, and how much adjustments are required.
Comparability Analysis
In the Dominican Republic, the OECD Transfer Pricing Guidelines are used to help interpret the rules, as long as they don’t conflict with local law. The law says that when comparing related-party transactions to market conditions, companies should consider things like the nature of the goods or services, contract terms, functions, assets, risks, business environment, and strategies.
The process of finding and analyzing comparable transactions also follows the OECD approach, including reviewing the company’s financial and business details, finding reliable market data, choosing the right method, comparing results, and making adjustments if needed.
The law does not allow for the usage of secret comparables, and neither provides a preference between domestic/foreign comparables.
Documentation Requirements
Companies in the Dominican Republic that fall under transfer pricing rules must file an annual information return within 180 days after the end of their fiscal year, along with their corporate tax return.
If they are part of a multinational group and have related-party transactions, they must also submit:
- A master file with information about the whole group (structure, activities, finances).
- A local file (or transfer pricing study) showing how they set prices with related parties.
Both must be filed 180 days after the information return deadline, in electronic format.
They must provide other documents (like contracts and invoices) if the Tax Authority asks, and translate them into Spanish if needed.
Exemptions apply if:
The total amount of related-party transactions is below a set limit (approximately 14 million pesos), and there is no deal with tax havens.
The company only deals with Dominican-related parties and doesn’t reduce or delay taxes through those deals.
Country-by-Country Reporting
If a company in the Dominican Republic is the main parent company of a multinational group and the group made at least 38.8 billion pesos in the previous year, it must file a Country-by-Country (CbC) report within 12 months after the fiscal year ends.
If the company is not the main parent, it still has to file the report if:
- The parent company doesn’t file CbC reports in its country,
- There’s no agreement for the automatic exchange of reports with that country, or
- The Dominican tax authority (DGII) says that the country failed to exchange reports properly.
Only one company in the Dominican Republic must file the report if there are several in the group. If another group company (called a surrogate parent) has already filed the report in another country and certain conditions are met, the Dominican company doesn’t need to file but must notify DGII.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
A company in the Dominican Republic can make a special agreement with the tax authority to set the prices it will use in deals with related companies (called an Advance Pricing Agreement or APA). Each agreement is made individually with each company, not for whole industries or sectors. Once approved, the agreement is valid for three years.
Mutual Agreement Program (MAP)
If a taxpayer faces double taxation due to a conflict between countries’ tax rules, they can request a MAP. This is a process where tax authorities from both countries work together to fix the issue. In the Dominican Republic, MAP is available for transfer pricing and other treaty-related problems. It can be requested even if the case has already gone through the court or tax administration. There is no fee, and taxpayers must follow deadlines set by each tax treaty.
Approach to Transfer Pricing Audits
The Dominican tax authority reviews transfer pricing closely and may audit companies to check if their prices with related parties follow the arm’s length principle. There is no set deadline for companies to submit their transfer pricing documentation once requested. If the tax authority finds that prices are not correct, they can adjust them and apply penalties, interest, and surcharges. Although the rules are still relatively new, companies should be ready to defend their prices and file the required reports on time.
Penalties
If a company doesn’t follow the rules, it could be fined up to 0.25% of its income from the previous year. Also, if the tax authority changes the prices and this leads to more tax being owed, the company will have to pay extra charges and interest, just like with any other unpaid taxes. However, these penalties for incorrect pricing are not often used.
Taxation at a Glance
The Dominican Republic has a territorial tax system, meaning most taxes apply only to income earned within the country. The tax system is based on the Dominican Tax Code. Income taxes are only charged at the national level, not by local governments. Both individuals and companies are generally taxed on Dominican-source income, though some foreign investment income is also taxed. There is also an asset tax that applies if it’s higher than the regular income tax.
The currency of the Dominican Republic is the Dominican peso. The official name of the Dominican Republic tax authority is the General Directorate of Internal Taxes (GDII).
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 27% |
VAT | 18% |
Withholding tax on dividends to non-residents | 10% |
Withholding tax on interest to non-residents | 10% |
Withholding tax on royalties to non-residents | 27% |
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