The Dominican Republic is the number one tourist destination in the Caribbean, experiencing a record number of 4.1 million visitors in 2010. Three key strengths have driven growth: the size, quality and number of beaches; the country’s six international airports; and strong foreign direct investment in the infrastructure. Traditional tourism activities and complementary activities capable of servicing the sector offer the investor a diverse base for investment. Attractiveness to investors is further boosted by the government’s proactive policies that promote and protect investments in the sector and offer some of the lowest tax regimes in the region.
Law 158-01, dated October 9, 2001, complemented by its enabling regulations Decrees #1125-01 and #74-02, and amended in some minor details by Law #184-02, provides tax incentives to investments in underdeveloped regions that offer the most tourism potential in the Dominican Republic. These incentives, targeting primarily underdeveloped provinces and municipalities around the country but also including developed areas such as Punta Cana and Puerto Plata, grant priority to infrastructure construction, and provide channels for international financing and selling or leasing state-owned land for tourism. Tourism operations such as hotels, convention centers, cruise companies, theme parks, port and tourist infrastructure, golf courses, and complementary activities benefit from these current government incentives.
Tax exemptions extend for 10 years from the date of completion of construction or project installation, and include the following:
• Income Tax;
• Incorporation taxes and capitalization increases;
• Real property transfers upon presentment of a guarantee bond at 3% of the tax due;
• Real estate property tax (IPI);
• Contractor fees, duties, and quotas for project oversight;
• International financing taxes and withholdings granted to beneficiary companies;
• Import taxes and other import fees; and
• ITBIS (value added tax) on machinery, equipment, materials, and personal goods necessary for the project start up.
An additional incentive is a tax deduction of up to 20% on annual net taxable income on approved investments.
Projects must respect the environment, show sustainable and rational development, and be classified by the Ministry for Tourism to benefit from the tax exemptions and deduction. Classification requires an application, an approved environmental impact study, preliminarily approved architectural design and engineering details, a description of the promotional entity or investor, a marketing and promotion plan, and bank and commercial references. The submission is evaluated and recommendations are sent to the Tourism Promotion Council (CONFOTUR) which justifies its decisions with a formal resolution.
Free Trade Zones represent a pillar of the Dominican economy and are an attractive investment opportunity for any investor interested in producing goods or services for overseas markets in government designated areas within the country. The Dominican Republic boasts more than 50 zones, comprising more than 500 companies. It has one of the most advanced free-trade systems in the world and ranks fourth in terms of quantity.
The National Council for Export Free Zones regulates the industry dominated by Apparel and Textiles (69.1%), Tobacco (6.4%), Electronics (5.3%) and Pharmaceuticals (5.3%). Almost half the free zone businesses are owned by U.S. investors, more than a third by Dominicans, and the remainder predominantly by Asians.
Law #8-90 provides the following generous array of customs and tax incentives to free trade zone investments for a period of fifteen years.
• Exemption from income tax.
• Exemption from all corporate taxes on tangible and intangible assets and net worth.
• Exemption from all taxes on construction, conveyance, and registration of real property.
• Exemption from incorporation and capitalization taxes.
• Exemption from the ITBIS tax (value-added tax).
• Exemption from municipal taxes.
• Exemption from existing export or re-export taxes, except those expressly stated in Law #8-90.
• Exemption from import taxes, customs duties and related charges on raw materials, equipment, construction materials, vehicles, office equipment and any other goods necessary for the construction, preparation and operation of a free trade zone business.
• Exemption from consular duties for goods or services destined to other free trade zones.
• Exemption from import taxes and customs duties on raw materials imported by a
• Dominican company for use in finished or semi-finished products destined for export to a free trade zone. This exemption requires prior authorization from the national regulatory agency.
Also, goods and services from one free trade zone can be sold or transferred to another free trade zone with prior authorization from the national regulatory agency. However, goods and services sold in the Dominican market are subject to all import taxes, customs duties, and quota requirements, except those that qualify as a priority sector under Law #56-07 (textile and accessory manufacturing, leather and shoe manufacturing, and furs), which enjoy more liberal import tax and duty treatment.
