There are several legal provisions that regulate or affect business transactions in the Dominican Republic. The most important are those related to taxation, labor, the protection of the environment, intellectual property, and most recently electronic commerce.
TAX SYSTEM
The Dominican tax system levies Dominican source income and financial income generated abroad from in- vestments and financial gaits. The primary taxes in the Dominican Republic are the following:
INCOME TAX (ISR) Any legal entity or individual residing in the Dominican Republic as well as the group of heirs that are part of an undivided succession, residing in the country, are subject to the payment of taxes over their income from Domin- ican sources and from sources outside the Dominican Republic deriving from investments and financial gains. Individuals residing or domiciled in the country pay an income tax from any employment, as well as from in- come earned from the exercise of a profession, commercial activities, return on investments, or financial earn- ings from abroad. The tax rate varies depending on their income and there is an exempt amount of income that is yearly adjusted by inflation. Companies, public entities carrying out business activities, and any other form of organization are considered legal persons for purposes of this tax. In accordance with Dominican tax law, these entities are subject to the payment of taxes on their net income. The applicable income tax rate for legal entities with domicile in the country is 29% over net income. Although income tax is payable on a yearly basis, the law establishes mandatory monthly advanced payments of that tax, which ultimately are reconciled with the annual payment required to be made at the end of the year. Individuals or legal entities carrying out commercial and industrial activities do not have to pay the ad- vanced payment as long as the annual income from those activities is equal to or less than RD$5,000,000.00.
CAPITAL GAINS Capital gains are also subject to tax. In order to determine the taxable capital gain amount, a taxpayer de- ducts, from the price or value of an asset being transferred, the cost of acquisition or production of such asset, adjusted by inflation. The capital gain that is received by a taxpayer is subject to the payment of a tax of 29%.