Taxpayers with a fiscal year ending 30 September 2018 are reminded of the opportunity to acquire and use “transferrable tax credits” by 1 October 2018 (because this year, 30 September 2018 falls on a Sunday, the last day for this opportunity is Monday, 1 October 2018).
Dominican tax law affords many types of tax incentives to companies. Examples of tax incentives include, but are not limited to, measures relating to foreign trade zones, alternative energy, tourism, border development, and film production tax incentives.
To lure film companies to the Dominican Republic, Law 108-11 provides a transferrable tax credit (TTC) in an amount equal to 25% of the qualifying expenses incurred to produce the film in the Dominican Republic. Article 39 of Law 108-11 provides that these TTCs can be used against the film producer’s own income tax liability or may be transferred in whole or in part by the film company (the transferor) to one or more corporate and/or individual taxpayers (the transferee).
To entice taxpayers to purchase these TTCs, some film companies have been willing to transfer the TTCs at a discount (for example, at an exchange of 0.95 per 1.00 dollar credit) and this in turn allows a transferee to settle its Dominican income tax liability at a discount—in this example, a tax liability of $100 is settled at a discount of $5 because the TTCs are exchanged dollar for dollar to pay the income tax, at a price at $95.
Some film producers may not be able to fully use their income tax credits because their tax liability is not sufficient or is lower than the amount of TTCs granted to them. Thus, the transferee may realize a difference between the face value of the TTC and the amount of the TTC acquired. In this example, the transferee will “earn” $5 per each $100 dollar credit. Note the law provides that TTCs may not be sold for less than 60% of the face value of the TTCs.
It is also important to mention that before these TTCs are granted, the film producer must have completed a rigorous validation process by the DGCINE, a certified public accountant auditor, and the tax authorities. Once the requirements have been satisfied, the tax authorities will issue the TTC certificates to the film producer and these in turn can be transferred to a transferee. The law only permits one transfer.
Taxpayers with a 30 September fiscal year-end and that are considering using the TTC mechanism to legally reduce their income tax (due 31 January 2019) and to improve their cash position have until 1 October 2018 to purchase the TTCs and to comply with other requirements for the year ending 30 September.
Unused TTCs may also be applied against the asset tax liability and liability for income tax advance (estimated) payments. The remaining TTCs may be carried forward for the three following tax years.
For more information, contact a KPMG tax professional in the Dominican Republic:
Marco Banuelos | +1 809 566 9161 | email@example.com
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