How Dominican Trusts Are Taxed: Ruling 02-12, Transfer Taxes and the Trustee’s Duties

A fideicomiso does not pay taxes the way a company does, but it is far from invisible to the tax authority. The rules of the game were set by Tax Authority Ruling 02-12, issued to spell out the duties and procedures that trusts, trustees, settlors and beneficiaries must observe under Trusts Law 189-11.

Start with the formalities, because that is where compliance failures start too. Corporations wishing to act as trustees (fiduciarias) must register with the DGII, the Dominican revenue service, and their sole corporate activity must be trust administration. Each trust must obtain its own Tax Identification Number, requested by the trustee. From there, the reporting cadence is annual: the trust files an informative income tax return, the trustee submits the informational data the DGII prescribes, and the beneficiaries report gains or losses from the trust in their own ordinary income tax returns. The trust, in other words, is largely transparent, the tax consequences flow through to the people behind it.

Moving assets is where real money is at stake. Contributing property to a trust can trigger transfer taxes: for real estate and motor vehicles, the applicable taxes must be paid within six months of the trust agreement’s date. ITBIS, the Dominican value-added tax, must be filed and paid by the trustee, on the trust’s behalf, from the period in which the trust registers with the DGII. Modeling these entry costs before signing the trust deed is the single most valuable exercise in the planning stage.

The ruling also had a policy engine: housing. It created mechanisms to favor low-cost housing construction, allowing construction fiduciaries to offset the ITBIS paid on goods and services used to build qualifying homes, and to defer construction profits until the units are finished and sold, part of a broader push to make homeownership attainable and to fuel the construction and financing industries.

For settlors and investors, the takeaway is that a Dominican trust is a two-layer decision: the legal structure under Law 189-11, and the tax pathway under the rulings that implement it. Getting the second layer wrong can erase the benefits of the first. Arthur & Castillo’s tax team models the full tax life-cycle of a fideicomiso, funding, operation and distribution, before you commit assets to it.

Do you want more information about Tax Regime of Trusts advisory services in Dominican Republic? Contact Us.

ABOUT THE AUTHOR: Maria Arthur Rodger is a Partner leading the Private Client, Successions and Tax areas at Arthur & Castillo Advisers and Consultants in the Dominican Republic. She specializes in private client, successions, tax, real estate valuation and advisory (Master in Tax and Finance Studies from Georgetown University in Washington, D.C. & Universitat Pompeu Fabra in Barcelona) with more than 20 years of experience. She is also a Certified Public Accountant (CPA), Certified Valuator, Business Bankruptcy Expert and English and Spanish Interpreter.

Email: marthur@aclaw.com

Disclaimer: This publication is not intended to provide advice or suggest a guaranteed outcome as individual situations will differ and the situation may have changed since publication. For specific advice on the information provided and related topics, please contact the author.

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