Tax Question on Non-resident company

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gace777

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Feb 8, 2014
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Hello Everyone.

My employer asked me to relocate to the Dominican Republic about 4 1/2 years ago. I am a permanent DR resident, American Citizen and work for an American firm that does not have a physical office in the Dominican Republic. My salary is earned and paid in the USA. I have not been classified as an ex-pat and use the Dominican Republic only as my home residences. I work as a salesperson that travels to various countries primarily in Latin America, making chemical sales. After concluding a sale, all of the sales contracts come from the USA and we pay no income taxes on these sales we do not nationalize the materials in the foreign countries. We sell in other words, on an FOB basis, which means that the sales conclude once the products are loaded onto the ocean vessel in USA territory. The customer imports the materials, pays local duties and reimburses my employer for the products directly to the USA. I receive no commission on the sale. We follow the exactly the same format with our sales in the Dominican Republic.

My question is if my USA employer is liable for income taxes on the sales made in the Dominican Republic when the actual purchase is made over the internet and all legal paperwork come from the USA? Again, we do not import the materials; sell our products locally or anything of that nature. My employer is concerned that we may have to pay income taxes on Dominican sales as I do live here on the island and do not have a physical office in the country. Because of this, I am I maybe forced to relocate back to the USA, which is something that I don?t want to do. Also, can the Dominican Republic consider me as "working from the DR" because of my overseas business trips and living here at the same time?

Thank you all for helping me with this situation.
 
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Fabio J. Guzman

DR1 Expert
Jan 1, 2002
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Any income generated in the DR is subject to Dominican taxes notwithstanding the location of the seller or supplier.

Payments made by Dominican or resident entities or persons to suppliers outside of the DR are subject to a 25% withholding tax (Art. 305 of the Tax Code).
 
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gace777

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Feb 8, 2014
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Fabio J. Guzman said:
Any income generated in the DR is subject to Dominican taxes notwithstanding the location of the seller or supplier.

Payments made by Dominican or resident entities or persons to suppliers outside of the DR are subject to a 25% withholding tax (Art. 305 of the Tax Code).
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Mr. Guzman, I sincerely would like to thank you for your reply and understand your answer. However, the sale is done in the USA not in the Dominican Republic. In order words, the Dominican customers places the orders directly in the USA and not locally. In other words, if a local Dominican companies orders a PC from a USA producer who does not have an office in the DR, does that mean that he owes taxes to the DR government? Is the revenue generated locally or was it generated in the USA? My employer tells me its because I live in the DR that may cause the tax problem. I just a little confused.

thanks in advance for you kind reply.

Best Regards,
 
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rubio_higuey

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Feb 7, 2007
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Yeah, what Fabio says - that's one of the reasons why imports are so expensive (besides huge import tax and 20% ITBIS on top of that). If you buy a US$1,000 product, for a Dominican company to claim US$1,000 in tax deduction it has to pay 25% withholding tax. That means, at the end, the company must pay US$1,250 for the product. (see note *1 below to learn why).

This means the Dominican company is financially indifferent into paying US$1,000 and not claiming it as a deduction, and not paying 25% withholding tax, or claiming it as a deduction and paying 25% withholding tax. I think in products there is a process to reclaim part of the witheld tax back when completing the import process, but for services, there is none. If you need to pay for a foreign-rendered service US$1,000, in order to claim the deduction, you must pay to government additional US$250in withholding tax. For that reason it is better not to claim it as a deduction ... yes your tax base is greater by US$1,000 but maybe you can get enough gas station receipts to cover those and reduce your tax liability. But for services, once tax is withheld, it's gone.

Another prime example of Dominican tax abuse. I am sure most of the people here on DR1 did not even know about it.

*1) Back to the OP - it will be Dominican company that will be tax liable and will need to withheld 25%. I am sure that if they buy US$1,000 of products from you, they will need to pay US$1,000 to you ... if they withhold 25% FROM the US$1,000 and just sent S$750...you will simply not ship the product. So there is no other option for them than just to pay the US$250 to the government while paying you the US$1,000, for the total cost for them of US$1,250. They would need to withhold regardless of the fact if you live in the USA or the DR or Colombia.
 
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gace777

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Feb 8, 2014
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Rubio, Thank you for your reply. I understand the responsibility of the Dominican Importer, however, my question deals with the USA manufacturer. Back to my original post, if a DR company buys products from the USA, retrieves the material via the own ships, and pays the invoices directly to the USA, does the USA company have to pay taxes to the DR government for a sale which was made in the United States? My employer is under the impression that we may have to, simply because I live in the DR. However, I don't make the sale here in the inland, import the goods or collect a commission when a DR customer buys. By me living in the island sufficient enough reason for the DR government to say that we owe taxes to them when (once again) the sale is made in the USA?
 
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MJSantoDomingo

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Apr 13, 2011
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I think your employer is thinking/asking if it is the same as the US... for example, if an employee lives and works from a different state than the manufacturer, then sales tax does need to be applied to any sales done in the state the employee works from as a base, if it is an end user sale...

But if it is Business to Business and the purchasing business has a resellers certificate, then the manufacturer does not apply any sales tax. It is the responsibility of the second business to apply any sales tax when they resell the product.

As this is an international sale into the DR - your company, the manufacturer, should be able to do the shipment as FOB as you have been - and any and all taxes or duties should be the responsibility of the purchasing company, according to the import laws, taxes and duties. But Sr. Guzman can give a better answer than me on exactly how this works.

I think the only taxes you personally have to worry about are any taxes that the DR government may want to collect on your income because you are a resident... you may end up paying both US and DR personal income taxes... And that is something someone else can better answer as to how to deal with that situation.
 
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ctrob

Silver
Nov 9, 2006
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Your original question was about paying taxes to the DR on your personal income earned from a US based company, correct?

Seems like we're talking about two different things here.
 
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MJSantoDomingo

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Apr 13, 2011
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The OP does need to clarify - because the OP did use the words "income taxes" but also keep referring to the sales of products and taxes the manufacturer is responsible for or not responsible for, which would fall into Sales Tax/VAT discussion...
 
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rubio_higuey

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Feb 7, 2007
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Actually I understand what OP is saying Whether there is income ta liability for his employer arising out of the profit generated from the sale transaction of the materials to the Dominican company.

The important question here would be: does the OP personally act as a sales agent for the sales to the Dominican company? If so, it can be claimed that the company has a sales office in the DR even if there is no physical office. The company may be liable for the income tax in the DR from such transaction. This is OP's concern.

If the OP does not personally assist in any such sales transaction, then I do not think US company is liable for any income tax generated in the DR.

But if the OP personally assists with DR-related sales, then I do not have exact answer. The best would be to consult international tax consultancy such as KPMG or Deloitte, etc.
 
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gace777

New member
Feb 8, 2014
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rubio_higuey said:
Actually I understand what OP is saying Whether there is income ta liability for his employer arising out of the profit generated from the sale transaction of the materials to the Dominican company.

The important question here would be: does the OP personally act as a sales agent for the sales to the Dominican company? If so, it can be claimed that the company has a sales office in the DR even if there is no physical office. The company may be liable for the income tax in the DR from such transaction. This is OP's concern.

If the OP does not personally assist in any such sales transaction, then I do not think US company is liable for any income tax generated in the DR.

But if the OP personally assists with DR-related sales, then I do not have exact answer. The best would be to consult international tax consultancy such as KPMG or Deloitte, etc.
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Rubio, Yes you fully understood what I was trying to say. I will follow your advice and get a hold of someone at KPMG or Deloitte, as to what constitutes being a sales agent or not. As I said before, the actual sales agreement is made in the USA and not in the Dominican Republic. As crazy as things are around this country, I know I have an uphill battle trying to convince everyone that we don't owe taxes to the DR.

Notwithstanding, I would once again like to thank you for your guidance as this matter is very important to me.

With Kindest Regards,
 
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