Dominican Republic | Dominican Republic appoints payment processors as withholding and collection agents for VAT

On 3 October 2023, the Dominican Tax Authority (DGII for its acronym in Spanish) issued General Norm (GN) number 06-2023 (GN 06-23 (pdf)), which appoints payment processing companies, payment aggregators and electronic payment companies as withholding and collection agents of the Value Added Tax (VAT) (ITBIS for its acronym in Spanish) and establishes the criteria regarding the financial services they provide.

Purpose and scope

The purpose of GN 06-23 is to appoint payment processing companies, payment aggregators and electronic payment entities as withholding and collection agents for the VAT on credit card and other electronic transactions. In addition, it establishes criteria for the VAT exemption for financial services offered by these companies and expands the scope of GN 04-04 (pdf) on the Tax on the Issuance of Checks and Payments by Electronic Transfers.

Payment processing companies, payment aggregators and electronic payment entities that participate in transactions through credit cards, debit cards or other electronic payment instruments, as well as the ATM network administrators and payment systems administrators, as applicable (Reached Entities), are covered by the provisions of GN 06-23. It should be noted that, previously, only payment processing companies were subject to this type of obligation (per GN 08-04 (pdf) issued by the DGII). In contrast, GN 06-23 includes within its scope new economic agents, such as payment aggregators and electronic payment entities, in accordance with the definitions of the Payment Systems Regulation of the Monetary Board of the Dominican Republic (DR).

Appointment of VAT withholding and collection agents

The Reached Entities are appointed as VAT withholding and collection agents in the following cases:

a. When the affiliate is registered with the DGII, the VAT will be withheld based on 2% of the invoiced amount.

b. When the affiliate, whether a natural or legal person, is not registered with the DGII as a taxpayer or his National Taxpayer Registry (RNC for its acronym in Spanish) status has been suspended, deregistered or is registered without recurring tax obligations, the Reached Entities must receive 18% of the invoiced amount corresponding to the VAT that must be paid for the operation in question, if the individual operation exceeds the amount of 300 thousand Dominican pesos (DOP$300k). In cases where the operation does not exceed the indicated threshold, only 2% of the invoiced amount will be withheld.

Payment aggregators will only withhold and collect when they make payments to business establishments. If the payment processing companies make the payment to the business establishment, they will be responsible for the corresponding withholding or collection.

Treatment of VAT withholdings and collections in a comprehensive manner

Affiliates that are registered in the RNCs taxpayers with active status, and whose main activity is the sale of goods and the provision of exempt services, are exempt from the withholding and collection mechanism established in the new GN, although they must request that the DGII provide a certification authorizing the exclusion.

Likewise, GN 06-23 establishes that VAT taxpayers subject to withholdings or collections in accordance with the application of the GN can deduct the VAT withheld or paid on their tax return for the corresponding period, in accordance with the ordinary provisions of the Dominican Tax Code.

Other provisions of GN 06-23

This GN also introduces certain changes to the formats for sending information related to transactions and withholdings, a task that payment processing companies, payment aggregators and electronic payment entities must perform at the end of each week.

Also, services provided by payment system administrators, electronic payment entities, payment processing companies, payment aggregators and ATM network administrators are recognized as financial services exempt from the VAT, excluding from this exemption services that are not related to payment or fund transfer operations.

Additionally, payments through any electronic payment instrument that are not considered exempt are also subject to the Tax on the Issuance of Checks and Payments by Electronic Transfer, as established in GN 04-04 of the DGII. In addition to financial entities, payment system administrators and electronic payment entities are appointed as withholding agents for this tax (but will not be subject to this obligation for a three-year period following the enforcement of GN 06-23).

The provisions of GN 06-23 come into force upon its publication, although the GN provides some exceptions to allow agents sufficient time to adapt their technological systems.

For additional information with respect to this Alert, please contact the following:

• Rafael Sayagués
• Ludovino Colón
• Cesar Peña
• René González