Exploring the Tax System in Dominica: A Comprehensive Guide

Are you thinking of doing business in Dominica or perhaps considering it as your second home? If so, understanding the tax system in Dominica is essential.

Dominica is often regarded as a tax-friendly jurisdiction and has implemented various measures to attract foreign investment. It offers several tax incentives and benefits that can be advantageous for individuals and businesses seeking to optimize their taxes.

Moreover, Dominica offers a program called the Economic Citizenship Program (ECP), also known as the Dominica Citizenship by Investment (CBI) Program. By making a qualifying investment, individuals can obtain Dominican citizenship and take advantage of the country's tax benefits.

This comprehensive guide will walk you through everything you need to know about taxes in Dominica, including tax residency, tax rates, tax filing, common exemptions and incentives, etc., and ways to obtain a Dominica passport through investment.

Tax System in Dominica

Dominica is an island country located in the Caribbean known for its natural beauty, friendly people, and attractive tax system. The tax system in Dominica is designed to attract both local and foreign investors with low tax rates and various incentives. The tax system in Dominica is governed by the Income Tax Act, the Value Added Tax Act, and the Property Tax Act.

Dominica operates under a territorial tax system, where taxes are primarily imposed on income and activities within the country.

Over and above that, Dominica has entered into double taxation agreements with several countries to prevent the same income from being taxed in both Dominica and the foreign country. These agreements provide relief from double taxation and promote international trade and investment.

Tax Residency of Dominica

In Dominica, tax residency is determined by the provisions of the Income Tax Act. An individual is considered a tax resident of Dominica if they meet one of the following criteria:

Physical Presence Test: An individual who spends 183 days or more in Dominica during a tax year is considered a tax resident.
Permanent Home Test: An individual who has a permanent home in Dominica and is present in the country for at least 30 days during the tax year is considered a tax resident.
Economic Domicile Test: An individual who is not a tax resident of any other country and has an economic domicile in Dominica is considered a tax resident.

It's worth noting that even if an individual is not considered a tax resident of Dominica based on the above criteria, they may still be liable for taxes on income earned within the country.

Residents of Dominica are subject to personal income tax on their worldwide income, including income earned both within Dominica and abroad. Non-residents, on the other hand, are generally taxed only on their income derived from Dominica.

If you hold a Dominica economic passport, it does not indicate that you are a tax resident. The citizenship by investment program does not require you to become a tax resident of Dominica or to reside there. You can have Dominica citizenship and be a non-resident for tax purposes.

Taxes for Legal Entities in Dominica

In Dominica, legal entities are subject to taxation under the provisions of the Income Tax Act.

Companies incorporated in Dominica are taxed on their worldwide income. Dominica has a 25% corporate tax rate but no capital gains tax, withholding tax, or branch tax. However, if your business is registered outside of Dominica and generates income there, you may be taxed on that income.

Residency Type	Corporate Tax	VAT	Withholding Tax (dividends, interests, royalties)	Social Contribution on the Salary
Tax Residents	25% on the global income	Up to 15%	0%	7%
Non-tax Residents	25% on the income earned within the country	15%	Up to 15%	7%

VAT in Dominica

The Value Added Tax (VAT) in Dominica is a consumption tax that is applied to most goods and services. The standard VAT rate in Dominica is 15%, and it is charged on the value of the goods or services supplied, unless the supply is classified as accommodations and diving activities, in which case the rate is 10%.

There are also goods that are taxed at zero percent (zero-rated items). These include goods for export, medical supplies, and basic food (rice, flour, sugar,etc.).

Some goods and services are exempt from VAT in Dominica, including financial services, real estate, and rent.

Businesses that meet certain minimum revenue thresholds are required to register for VAT in Dominica. The registration threshold may vary, and businesses exceeding the threshold must apply for VAT registration within a specified period. Registration enables businesses to charge and collect VAT on their taxable supplies and claim input VAT credits.

Minimum Revenue	Services and Foods
EC$250,000	Any types of services and goods
EC$62,500	Accommodations and diving activity

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Personal Taxes in Dominica

Individuals who are residents of Dominica are subject to personal income tax on their worldwide income. Non-residents are generally taxed only on income derived from Dominica. The income tax rates in Dominica are progressive from 0% to 35%, meaning that higher income levels are subject to higher tax rates.

Income Range	Tax Rate
EC$0 - 30,000	0%
EC$30,001- 50,000	15%
EC$50,001 - 80,000	25%
EC$80,001 and above	35%

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Property Tax in Dominica

In Dominica, there is no tax on the sale or purchase of real estate.

The owner is exempt from paying property taxes. However, a municipal tax exists: 1.27% of the assessed property value in Roseau and Canefield, the two largest cities. If the owner leases the property, he is required to pay a state fee equal to approximately 1% of the annual rental amount. The owner of real estate must pay 2.5% stamp duty on the transaction amount.

The purchaser contributes to the insurance fund and mandatory fees, including stamp duty and legal and judicial fees. About 11% of the transaction amount is comprised of additional fees for the purchaser.

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Tax Filing in Dominica

Personal Income Tax Filing

Category	Description
Who Files	Individuals who are residents of Dominica and earn income above the threshold specified by the tax laws are generally required to file a personal income tax return. Non-residents of Dominica are not required to file a tax return unless they earn income from a business or trade in Dominica.
Filing Period	Each year, by March 31, all individuals who qualify as residents are required to submit tax returns to the Inland Revenue Division.
Reporting Income	Individuals must report their income from all sources, including employment, self-employment, investments, and other taxable sources.
Deductions and credits	Taxpayers can claim deductions, allowances, and credits permitted by the tax laws to reduce their taxable income and tax liability.
Filing Process	Individuals can file their personal income tax returns with the local tax authority, either in person or electronically, following the prescribed forms and guidelines.

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Corporate Income Tax Filing

Category	Description
Who Files	Companies and corporations that are tax residents of Dominica and earn taxable income are generally required to file a corporate income tax return. Non-tax-resident companies must file a tax return if they earn income within Dominica.
Filing Period	The Annual Tax Return for Corporations (Form IR-2) must be filed within 120 days of the end of the tax year. On request, tax authorities may grant extensions of up to sixty days.
Reporting Income	Companies must report their worldwide income, deductions, and other relevant financial information in their tax returns.
Filing Process	Corporate income tax returns are filed with the local tax authority, accompanied by financial statements, supporting documentation, and any other required forms.

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Value Added Tax (VAT) Filing

Category	Description
Who Files	Businesses that are registered for VAT in Dominica are generally required to file monthly VAT returns.
Filing Period	The payment of VAT is due on the 20th of the month that follows.
Reporting VAT Transactions	VAT-registered businesses must report their VATable sales, VATable purchases, and other relevant information in their VAT returns.
Filing Process	VAT returns are filed with the local tax authority, either electronically or through manual submission, along with the necessary supporting documentation and payment of any VAT liability.

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Common Tax Exemptions and Incentives

Dominica offers various tax exemptions and incentives to attract foreign investment and promote economic growth. Some of the most common tax exemptions and incentives include tax holidays for new businesses, duty-free concessions for approved investment projects, and tax exemptions for certain types of income.

Fiscal Incentives Act

Incentives
Tax holidays: Eligible businesses may be granted a specified period of exemption from corporate income tax. Import duty waivers: Businesses may receive exemptions from import duties on certain imported machinery, equipment, and raw materials. Stamp duty exemptions: Exemptions from stamp duty may be granted on certain transactions related to investment, property acquisition, and share transfers. Accelerated depreciation: Certain capital investments may qualify for accelerated depreciation allowances, enabling businesses to deduct a larger portion of the cost in the early years.

Incentives

Tax holidays: Eligible businesses may be granted a specified period of exemption from corporate income tax.
Import duty waivers: Businesses may receive exemptions from import duties on certain imported machinery, equipment, and raw materials.
Stamp duty exemptions: Exemptions from stamp duty may be granted on certain transactions related to investment, property acquisition, and share transfers.
Accelerated depreciation: Certain capital investments may qualify for accelerated depreciation allowances, enabling businesses to deduct a larger portion of the cost in the early years.

Tourism Development Act

Incentives
Exemption from import duties and consumption tax on specified items such as furniture, fixtures, and equipment for tourism-related businesses. Tax holidays are provided for qualifying tourism projects, providing a period of exemption from corporate income tax. Exemptions from property taxes and land transfer taxes for approved tourism developments

Agriculture Incentives

Incentives
Deductions for certain agricultural expenses, such as farm equipment and infrastructure investments. Exemptions from import duties and consumption taxes on agricultural inputs, such as seeds, fertilizers, and machinery. Tax holidays for agro-processing and value-added agricultural projects

Export-Oriented Activities

Incentives
Exemptions from import duties and consumption taxes on inputs used in the production of goods for export. Tax holidays for qualifying export-oriented enterprises

Offshore Sector

Incentives
Exemption from corporate income tax on foreign-sourced income. Exemption from withholding tax on dividends, interest, and royalties paid to non-residents. There is no capital gains tax on the sale of shares in offshore companies.

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Tax Benefits for Citizens of Dominica

As a citizen of Dominica, you are entitled to various tax benefits, including lower personal income tax rates and exemptions from certain types of taxes.

If you're a citizen of Dominica but live outside of the country, you are not subject to tax on your worldwide personal income. There is no tax on inheritance, capital gains, foreign income, dividends, interest, or royalties.

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Dominica CBI Program: Detailed Overview

Eligibility Criteria	The program is open to individuals and families from around the world who meet the eligibility requirements set by the Government of Dominica. Applicants must be at least 18 years old, of good character, and in good health. There are no restrictions based on nationality or residence.
Investment Options	a. Contribution to the Economic Diversification Fund (EDF): Applicants can make a non-refundable contribution to the EDF, which is a government fund supporting various sectors of the Dominica economy. The minimum contribution amount starts at $100,000 for a single applicant, with higher amounts for families. b. Real Estate Investment: Applicants can invest in approved real estate projects in Dominica. The minimum investment amount is $200,000 for a single applicant. The real estate investment must be held for at least three years, and additional fees and taxes apply.
Application Process	The application process for the Dominica CBI Program involves several stages, including the submission of required documentation, due diligence checks, and the payment of applicable fees. The government conducts thorough background checks on applicants to ensure they meet the program's integrity requirements.
Processing Time	The processing time for the Dominica CBI Program is generally efficient, with citizenship applications typically processed within a few months. However, the actual processing time may vary depending on the complexity of the case and the volume of applications.

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Benefits of Dominica Citizenship:

Visa-Free Travel: Dominica citizens enjoy visa-free or visa-on-arrival access to over 145 countries and territories, including the United Kingdom, Schengen Area, China, and many other desirable destinations.
Second Passport: Obtaining Dominican citizenship provides individuals and their families with a second passport, which can offer increased mobility and expanded opportunities for travel and business.
Economic Opportunities: Citizenship of Dominica grants access to the country's growing economy, potential investment opportunities, and participation in the Caribbean Community (CARICOM) membership benefits.
Tax Advantages: Dominica offers several tax advantages, including no wealth, inheritance, or capital gains taxes.
Dual Citizenship: Dominica allows dual citizenship.

Apply for Dominica CBI with Golden Harbors. If you are interested in obtaining citizenship in Dominica through the CBI program, Golden Harbors can help. Our team of experts can guide you through the application process and start your journey to a second passport and a better tax future.

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