Tax Regime of Trusts in Dominican Republic

On August 24th of 2012, the Tax Authorities (DGII) issued Ruling 02-12 regarding the Tax Regime of Trusts with the purpose of establishing the regulations and procedures to be complied with by trusts and the parties thereto involved, with respect to their tax duties and obligations.

Pursuant to the provisions set forth under Law No.189-11 for the Development of the Mortgage Market and of Trusts in the Dominican Republic, the applicable tax regime on trusts provides for similar and different rules depending on the type of trust to be created.

The mentioned Revenue Ruling 02-12 established mechanisms aiming at benefiting purchasers of low cost households, construction fiduciaries and the State in the interest of facilitating the acquisition of houses by the needy and boosting the construction and financing business. Such mechanisms include the compensation of the Tax on the Transfer of Industrialized Goods and Services (ITBIS) paid by fiduciaries in the acquisition of goods and services for the construction of Low Cost Households, and that of deferring the construction benefits until finalization and sale of the household units.

Formal Duties

Corporations interested in acting as fiduciaries must register before the DGII and its sole activity should be the management of trusts. Likewise, trustees must request the DGII a Tax Identification Number for the trust.

Trusts should file Informative Income Tax Returns annually, and trustees must submit certain informative data pursuant to the form provided by the DGII.

Tax

When transferring assets to the trust, applicable transfer taxes should be taken into account. With respect to real estate assets and motor vehicles, taxes should be paid within the 6 months following the date of the trust agreement. On the other hand, the potential Tax on the Transfer of Industrialized Goods and Services (“ITBIS”, which works as a Value added tax) should be filed and paid by the trustee (on behalf of the trust) in the period wherein the trust is registered before the DGII.

With regards the trust beneficiaries, the same shall file Ordinary Income Tax Returns annually, reflecting any gains or losses incurred.

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