Dominican Republic Tax Exempt LLC
A Dominican Republic Tax Exempt LLC is a limited liability company with total tax exemptions. Their LLC’s are also known as an “offshore company” because they are formed to do business outside of the country. Foreigners can own 100% of the corporate shares. Many foreigners use the LLC for international trading activities.
Do not become confused with Dominica which is a completely different island country in the Caribbean.
The Dominican Republic shares 5/8ths of an island with Haiti located in the Caribbean Sea. The island country was colonized by the Spanish since 1492 when Christopher Columbus landed on the Haiti side. Spain actually occupied the Dominican Republic two times in its history. From 1916 to 1924, the country was occupied by the United States and became an independent country.
Its political system is described as a unitary presidential republic with a president and a two house congress. Its official language is Spanish.
A Dominican Republic Tax Exempt LLC takes advantage of these benefits:
• 100% Foreign Ownership: Foreigners may own all of the shares in the LLC.
• No Taxes: All income earned outside of the country are exempt from all taxes. However, U.S. residents and all others subject to global income taxes must report all income to their governments.
• Limited Liability: Shareholders’ liabilities limited to their share capital contributions.
• Two Shareholders: A minimum of two shareholders are required to form the LLC.
• One Director: Only one director is required to manage the LLC who could be one of the shareholders.
• Low Minimum Capital: The minimum authorized capital is $2,300 USD.
Dominican Republic Tax Exempt LLC Name
The LLC’s name must not duplicate or closely resemble another legal entity’s name in the Dominican Republic. Incorporators recommend submitted three potential company names in order of priority in case the first one is already taken there are two more options.
The LLC can use an English company name but must end with the abbreviation of a typical Dominican Republic corporation “S.A” or a limited company “Ltd.”
A local attorney needs to be hired to handle the formation process. The Articles of Incorporation defines how the LLC operates, is managed, and how profits are distributed. In addition, by-laws (“estatutos”) providing the rules and process for daily operations will need to be filed with the Articles of Incorporation. The two documents will be filed with the Business Registry in the district where the registered office is located.
The registration fees for the LLC are calculated on the amount of the paid-in capital.
As soon as the two documents are filed with the Business Registry, the LLC legally exists.
The next step is to register with the local Internal Revenue Agency to obtain a tax number which is needed to open bank accounts, purchase real estate, and operate within the country.
A shareholder’s liability is limited to the total shares contribution in the company.
A minimum of two shareholders are required to form the LLC. Shareholders can all be foreigners from any country. They can also be natural persons or corporate entities. The maximum number of shareholders is 50.
The names of the shareholders are included in the public records.
Shares can be issued as common shares or preferential shares. The preferential shares can grant shareholders the right to a fixed dividend or a set percentage of the profits. In addition, they obtain priority rights over the capital in case of liquidation.
Shares can be stated in any foreign currency. LLC’s cannot sell shares to the public or raise capital through public offerings.
LLC shares are non-negotiable. Sale of shares (or transfers) to third parties cannot occur without obtaining approval of at least 75% of the voting shares in the LLC. If the transfer is rejected, the shares can be purchased by the other shareholders or kept by the original shareholder.
Only one director is required to manage the LLC. There is no requirement for a resident director to manage the LLC. Directors can be citizens of any country residing anywhere in the world.
Directors may be natural persons or corporate entities. Shareholders can also be directors. The Articles of Incorporation may require a three person board of directors. Unless the bylaws or the articles require it, no inspection officer is required to oversee the directors.
A company secretary is not required. However, the directors may wish to delegate their powers and duties to appointed officers who can consist of a president, treasurer or a secretary.
Registered Agent and Office
LLC’s must appoint a local registered agent and may use that person or company’s local address as the registered office.
The minimum authorized capital is $2,300 USD.
Then only required minimum paid up share capital is $1 USD.
The Dominican Republic is a territorial based tax country because only income earned within the country’s borders are taxed. So, all income earned outside of the country is tax free. There are no withholding taxes when making payments to foreign shareholders.
Note: U.S. taxpayers like others in countries imposing income taxes on all worldwide income must report all income to their tax authorities.
The normal corporate tax rate is 27% with a 10% withholding tax on dividends. Neither of these taxes apply to a tax exempt LLC.
Annual tax returns are required even if no taxes are owed.
The Value Added Tax (VAT) is 18% when selling products or services to the locals. This does not apply to international sales such as those made by a tax exempt LLC.
Audits are not required. However, an annual financial statement must be filed with the tax authorities verifying that all income is derived outside of the country.
Annual General Meetings
Every LLC must hold an annual meeting of the shareholders to review and approve the company’s operations during the prior year. Minutes of the meeting must be created and filed with the Business Registry. The meetings can be held anywhere in the world.
The names of the shareholders and directors are part of the public records.
Time for Formation
It may take up to one month to complete the formation process.
Shelf companies are available to purchase in the Dominican Republic.
A Dominican Republic Tax Exempt LLC can enjoy these benefits: 100% foreign shareholders, two shareholders, one director, tax free income, and a low minimum capital.