By: José Maldonado Stark
On February 19th, 2020, the Law of Transparency and Patrimonial Revaluation, No. 46-20 (hereinafter, the “Law”) was promulgated. This Law creates a mechanism that allows the General Directorate of Internal Taxes (DGII) to obtain updated information on natural persons, undivided estates and legal persons that carry out activities in the Dominican Republic, and their assets and rights located in the territory or abroad. The Law implies a special reduced rate tax regime, of a transitory nature, so that taxpayers can regularize and/or revalue certain tax obligations, voluntarily and exceptionally.
The applicable rate is two percent (2%) on the total value of the declared or revalued assets, as a single and final payment. Once declared or revalued, the assets will be subject to ordinary tax obligations. The tax obligations that may result from the revaluation will take effect in the future. In the following sections, we synthesize some of the main elements of the Law:
1.- The assets susceptible of declaration or revaluation that may qualify for the Law are the following:
- National or foreign currency deposited in a regulated and authorized institution (local or foreign).
- Financial instruments or securities issued by any entity, registered shares, bonds, credits established by contract, promissory note or similar, rights inherent to the quality of beneficiary of trusts or other types of assets of similar affectation and any rights susceptible of economic value.
- Real estate.
- Movable property located in the country, including, but not limited to: automobiles, light trucks for common use, office equipment and furniture, as well as any other depreciable property.
- Inventories available for sale or production may be corrected, and declared as new inventories subject to certain conditions.
- Any other type of patrimony, provided that the revaluation implies a decrease in assets, including, but not limited to, accounts receivable from shareholders, real estate, movable property and inventories.
2.- The declaration or revaluation of the assets must comply with the following formalities:
- Currency holdings will be registered at their nominal value.
- Financial instruments will be registered with their justified acquisition cost.
- Assets and rights expressed in foreign currency will be valued in national currency, conforming to the exchange rate provided by the Law.
- Movable property and real estate shall be declared and revalued at market value as determined by the Law.
- In the case of revalued or incorporated assets that are transferred or contributed in nature to a company, the fiscal cost adjusted for capital gain will decrease by 20%, provided that it is carried out within the year following the revaluation or declaration.
- The contribution for future capitalization that arises as a result of the revaluation of assets made by legal entities, must be capitalized at the end of the next fiscal year, otherwise the corresponding adjusted fiscal cost will not be recognized. This revaluation will have no fiscal impact on shareholders.
3.- The excluded assets and rights that may not qualify for the Law are the following:
- Those acquired illegally; and
- Currency in financial entities and securities registered or guarded in jurisdictions of countries classified as “High Risk or Non-Cooperating” by the International Financial Action Task Force (FATF).
Additionally, the Law also introduces payment facilities for tax debts determined at the date of entry into force of the Law.
Any tax debt, regardless of type of tax, whether or not it has been appealed by administrative or jurisdictional headquarters, may be discharged by paying the amount to which the tax amounts, and up to one year of compensatory interest, without considering the surcharges.
4.- The term to abide by the Law is ninety (90) days from the entry into force. The DGII can reject the request when the requirements are not met.
Currently, the draft of the General Rule for the application of the provisions of the Law, in compliance with the Regulations of the General Law of Free Access to Information dated February 25th, 2005, is under discussion.
This document contains general information on the subject matter, therefore it does not constitute a legal opinion of Russin, Vecchi & Heredia Bonetti. Seeking legal advice for each particular case is recommended.