The Directorate General of Internal Revenue (DGII) of the Dominican Republic issued a consultation letter offering clarification regarding the taxation of foreign dividends received by residents on 15 August 2024.
The letter clarifies that:
- Tax rate inquiry:
The query is regarding whether dividends received from foreign entities are taxed at a 25% rate under Article 296 of the Tax Code, or at 10% on gross income as a final payment under Article 308.
- Foreign revenue classification:
Dividends received by Dominican residents from abroad are considered foreign-source incomes and are subject to the Income Tax (ISR), according to Articles 269 and 283 of the Tax Code and Article 2 of Decree No. 139-98.
- Obligations for tax residents:
Dominican tax residents must include these foreign-source incomes in their gross income, file the appropriate tax return, and pay the corresponding tax.
- Use of foreign tax credit:
Taxpayers can use the credit for taxes paid abroad against their local Income Tax, but this credit cannot exceed 27%, which is the rate for Dominican-source incomes, as per Article 316(a) of the Tax Code and Article 83 of Decree No. 139-98.
- Documentation and procedure:
To claim the foreign tax credit, taxpayers must follow the prescribed procedure and provide necessary proof of the tax withholding and payment abroad.
