Protected by Law 4315, issued on October 22, 1995, and by the 997-02 Decree, commercial free zones in the Dominican Republic were created to promote tourism-related trade, providing foreign travelers the chance to purchase duty and tax-free items. The Directorate General of Customs, a dependent of the Dominican Republic’s Treasury, is tasked ith supervising and controlling the special regime’s operation.
Installed under a duty-free retail shop modality inside the country’s hotels and tourist centers, these stores must be located within specially designated areas, such as hotels, airports, tourist centers and other relevant locations, as designated by the Ministry of Tourism. These retail spots must all comply with a particular feature: their access must be restricted/limited to tourists.
The visitor and/or foreigner is then be able to purchase anything from cosmetics to perfume, cigars, alcoholic drinks, wallets and purses, men’s shirts, ties, jewelry, accessories for women, crystal-made souvenirs, local souvenirs made in a wide range of materials, Dominican coffee, chocolate, pens, sunglasses, magazines and newspapers, all produced inside the Dominican Republic’s free zones.
Tax Benefits for Free Zones in the Dominican Republic
Commercial free zones in the Dominican Republic operating under the aforementioned decree will benefit from a full (100%) exemption of duty regulations and import/export tax on items, as specified under Law 4315, issued on October 22, 1955. Applicable exemptions include, but are not limited to:
- Income tax as established under Law 5911 —issued on May 2, 1962— and its amendments, regarding stock companies;
- Tax on the establishment of commercial associations or any subsequent increase on capital;
- Any municipal taxes that may affect these activities;
- Import taxes, tariffs, customs duties and any other related charges that may affect raw materials, equipment, construction materials, building parts and office equipment, among others, destined to building, setting up and operating within the free zone areas in the Dominican Republic;
- Patent tax, tax over assets or equity, as well as the Tax on the Transfer of Industrialized Goods and Services (ITBIS);
- Consular fees for imports destined towards free-zone operators or businesses;
- Import tax.
Important Information Regarding Tax Obligations for Free Zones in the Dominican Republic
Commercial free zones operating in the Dominican Republic must provide a payment equal to 5% of all gross sales within the first five days of the month following the period of sales. This is established under Law 397, issued on January 2, 1969.
Due to the sustained growth of the tourism sector, which includes us as beneficiaries via the construction and operation of resorts throughout the nation, this modality and/or special free zone regime has found a niche to promote its evolution all around the country.
It’s also important to note that, since the local government has a plan to support sustainable development and promote every sector involved, the application of tax incentives and exemptions has permeated into other regulations, adding new elements to the equation in order to benefit visiting and non-resident tourists. These initiatives include a bill to refund the Tax on the Transfer of Industrialized Goods and Services (ITBIS), which was recently submitted to Congress for approval and its subsequent nationwide enforcement.
If approved, visitors would receive a refund on the tax over purchases of goods acquired in Dominican territory for personal or family purposes, to be used or consumed overseas. This would increase the purchasing power and the consumption amounts of the foreign visitors who patronize local shops and buy locally made products.
As with the implementation of the free zone regime in the Dominican Republic, also regulated by the Directorate General of Customs, were the aforementioned bill approved —with aims to increase the number of tourists in the country and promote spending in local businesses—, many hotel-based duty-free shops would be affected. If so, they would be compensated by the positive effects of the enforcement of a legal framework that would favour tourists from a tax standpoint.
There is no doubt about it: Shopping-based tourism could see a great opportunity for growth in the Dominican Republic.