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.
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.
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.
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.
Tax Filing in Dominica
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.
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.