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DOMINICA

Table of Contents

ECONOMIC OVERVIEW

Dominica, a small island developing state, relies heavily on tourism and agriculture to drive its economy. Tourism contributes to nearly a quarter of its GDP and employment. The Commonwealth of Dominica, a member of both the Organization of Eastern Caribbean States (OECS) and the Eastern Caribbean Currency Union (ECCU), actively promotes foreign direct investment, particularly in sectors that foster job creation, foreign currency earnings, and positive societal impact. However, Dominica remains susceptible to external shocks such as climate change effects, natural disasters, and global economic downturns. As of 2022, its GDP stood at approximately $612.0 million or 1,652.5 million Eastern Caribbean dollars. The nation, like others in the Eastern Caribbean, faces challenges stemming from the COVID-19 pandemic, supply-chain disruptions, and escalating food and fuel prices linked to the conflict between Russia and Ukraine. Despite these obstacles, the International Monetary Fund (IMF) projected a 4.9% economic growth for Dominica in 2023. Reconstruction efforts persist following the 2017 devastation caused by Hurricane Maria, with losses amounting to $1.37 billion, equivalent to 226% of GDP. Although hindered by the pandemic, the government has resumed infrastructural projects in housing and tourism.

The Corporate Income Tax

The Corporate Income Tax in Dominica, as outlined in the Income Tax Act Chapter 67:01, applies to non-individual entities such as companies. These entities are required to pay tax on their gains or profits constituting assessable income. The due date for Corporate Income Tax is every three months, coinciding with the end of the company’s financial year. This requires three quarterly installment payments, with rates of 25%, 35%, and 40% respectively. The tax rate applied to the net profit is 25%. Returns must be filed within three months after the financial year ends, and the company’s financial statement should be included upon filing.

Excise Tax

The Excise Tax Act No. 8 of 2005 governs the Excise Tax system in Dominica. This tax applies to manufacturers and importers of specific taxable goods.
Both importers and local manufacturers are required to make payments by the 20th day of each calendar month.

Tax rates vary depending on the type of product.


Stoute/Beer $1.2/Litre
Wine $1.2/Litre
Shandy $0.28/Litre
Brandy/Ginger/Vodka $8.50/Litre
Whiskey $12.60/Litre
Rum $2.60/Litre
Cigarette $22/kg
Petrol (jet fuel,kerosene) $1.14/gallon
Petrol (diesel) $2.38/gallon
Petrol (Gas) $3.00/gallon
Vehicles 15% & 28%
Liquor & Cordial $2.6/Litre

Taxable Items

Taxable items include alcohol, cigarettes, vehicles, and various types of petrol.

Filing

Returns must be filed on a monthly basis.

Pay As You Earn (P.A.Y.E.)

Pay As You Earn (P.A.Y.E.) is governed by the fourth schedule of the Income Tax Act, Chapter 67:01 of the Laws of the Commonwealth of Dominica 1990. It applies to employed individuals whose income exceeds the income tax threshold and is chargeable on their employment or business income.


The tax rate for P.A.Y.E. is structured as follows: after deducting tax-free allowances from the taxable earnings, tax is charged at 15% on the first $20,000.00, 25% on the next $30,000.00, and 35% thereafter.


P.A.Y.E. must be paid by the person responsible for making the deductions within 15 days after the end of the month during which the tax was deducted or deductible. Returns must be submitted monthly by the 15th of the following month, along with an annual return due by January 31 of the following year, irrespective of whether tax is deducted from the individual’s income.

Penalties:

Penalties for non-compliance include a fixed penalty of 10% on the original tax balance and monthly interest of 1% on the outstanding amount. Civil penalties are outlined in sections 110- 116, while criminal penalties include fines and imprisonment for various offenses, such as failure to furnish returns or documents, failure to comply with notices, or obstruction of duties. Employers have specific obligations and can face penalties for offenses such as failure to register, deduct, or pay tax, among others. Similarly, employees can be penalized for failing to lodge required declarations in a timely manner.

Objections /Appeals

Procedures for objections and appeals are outlined in Sections 87-93 of the Income Tax Act.

Personal Income Tax

Personal Income Tax obligations in Dominica mandate that all individuals considered residents must file returns to the Inland Revenue Division by March 31st each calendar year. Residents are defined as individuals present in Dominica for over 183 continuous days.

 

Tax liability extends to various sources of income, including partnerships, individuals incurring losses in the previous assessment year, and those earning income from businesses, employment, rentals, royalties, interest, commissions, fees, annuities, and more. However, individuals whose sole income is from employment and falls below $30,000 are exempt from filing. Deductions are allowed for expenses incurred in generating taxable income, provided they are wholly necessary. Common allowances include a resident allowance of $30,000, mortgage interest up to $25,000, donations to approved institutions, and student loan relief up to $5,000 per student. Self-employed individuals, including bus drivers, contractors, professionals, and business owners, are also required to file returns with the appropriate documentation.

 

Failure to file returns may result in the estimation of income by the tax authorities. Penalties for non-compliance include late filing penalties, late payment penalties, and interest charges. Enforcement of revenue laws can be civil or criminal. Civil penalties are administered by the Comptroller of Inland Revenue and may include late filing and payment penalties. Criminal proceedings, sanctioned by the Comptroller but enforced by the courts, cover various offenses, including failure to comply with tax laws and evasion.

Recourse

Taxpayers have recourse to challenge assessments through objections, appeals to Appeal Commissioners, and ultimately, through the courts. Objections must be lodged within 30 days of notification, stating grounds for disagreement. If unsatisfied, taxpayers can appeal to the Appeal Commissioners within 30 days of notification, and if still unresolved, resort to the courts.

Travel Tax

The Travel Tax (Amendment) Act, 13 of 2003 governs travel taxes in Dominica. The responsibility to pay this tax falls on: Persons operating services for transporting passengers by sea or air to or from Dominica. Pilots, masters, or persons in command or control of the transporting aircraft or vessel. Agents in Dominica representing the aforementioned persons. Directors or managers of corporate entities providing transportation services.


The Travel Tax is applicable to every travel ticket:


– Purchased or issued in Dominica for journeys originating anywhere.
– Purchased or issued anywhere for journeys beginning in Dominica.
-The rate of the Travel Tax is 7.5%, payable monthly to the Comptroller by the 15th of the following month. For charter services not provided regularly, the tax must be paid before departure or within a timeframe set by the Comptroller.


Late submissions incur penalties, including a ten percent penalty on the unpaid tax amount at the time of the failure and monthly interest of one percent on any outstanding tax and penalties.

Value Added Tax (VAT)

The Value Added Tax (VAT) was introduced in Dominica on March 1, 2006, as part of a tax reform initiative to streamline the tax system. It replaced several previous taxes, including Consumption Tax, Sales Tax, Hotel Occupancy Tax, and Entertainment Tax. The governance of VAT is outlined in the Value Added Tax Act No. 7 of 2005.


Under VAT, registered persons are responsible for collecting the tax on goods and services supplied locally on behalf of the Government of Dominica. The tax rate is generally 15%, except for accommodations and diving activities, which are taxed at 10%. Certain goods are also taxed at a zero percent rate.


The due date for VAT payments is the 20th of the following month. Importers pay VAT on imported goods, while recipients of imported services are responsible for paying the tax.


Registered persons must file tax returns for each tax period within 20 calendar days after the period ends, regardless of whether tax is payable. Extensions may be granted by the Comptroller upon request, but the due date for tax payment remains unchanged. Penalties apply for late filing and late payment of VAT. Failure to obtain approval from the Comptroller for public entertainment events incurs fines and potential imprisonment. Interest is charged on unpaid taxes at a rate of one percent per month or part thereof.

Withholding Tax

Withholding tax is governed by the Income Tax Act, Chapter 67:01 of the Laws of the Commonwealth of Dominica, particularly sections 53, 55(13), 56 (1) (b), 57, and the Third Schedule of the Act. The payer is responsible for deducting the tax from payments to non-resident individuals and remitting it to the Comptroller of Inland Revenue. This tax applies to various types of income including dividends, interests, rental income, royalties, management charges, commissions, annuities, and other income payments.


The tax rate is set at 15% of the actual amount paid.
Payment is due within 15 days after the end of the month in which the tax was deducted.
The payer must submit a return indicating the tax deducted and paid, along with a certificate showing the total payment and tax calculated.
Failure to submit the tax on time may result in interest charges of 1% per month, along with other penalties.
Failure to deduct withholding tax or make timely payments is considered an offense, punishable by fines and imprisonment.
Civil penalties include fines of up to 10% of the tax due for failure to file returns or pay taxes on time.
Criminal penalties include fines and imprisonment for non-compliance with the Act, with additional penalties for continued non-compliance after notice from the Comptroller.
Individuals can raise objections to assessments within 30 days of receiving the notice of assessment.

Bilateral Investment and Taxation Treaties

Dominica has not entered into a bilateral investment treaty with the United States but enjoys benefits under the Caribbean Basin Economic Recovery Act (CBERA), which grants duty-free access to the U.S. market for most goods, aiding in the stability and growth of Caribbean Basin economies. However, it has signed bilateral investment treaties with Germany and the UK, along with bilateral tax treaties with the United States and the UK. Furthermore, Dominica participates in the OECD Inclusive Framework on Base Erosion and Profit Shifting, and it has endorsed the framework’s October 2021 agreement on addressing global tax challenges, including implementing a global minimum corporate tax.

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