Common errors when applying tax withholdings and how to avoid them
Applying tax withholdings correctly is not always as straightforward as it seems. Many taxpayers make mistakes unknowingly, which can result in penalties or undue payments. To avoid this, the first step is understanding what withholdings are and how they work.
Tax withholdings are deductions applied by certain payers—known as withholding agents—to payments for services, wages, and other income. This mechanism allows the Dominican Tax Authority (DGII) to collect taxes in advance and mitigate the risk of tax evasion.
With increasing scrutiny by the DGII, understanding how to correctly apply withholdings is essential to avoid costly errors and maintain the fiscal health of your business. Below are the most common types of withholdings:
- Income Tax (ISR):
Applies to individuals, undivided estates, non-resident entities with Dominican-source income, persons and companies receiving payments from the government, and individuals earning interest income.
- Value-Added Tax (ITBIS):
Applies to individuals and legal entities engaged in the sale, purchase, or import of industrialized goods and services within the Dominican Republic.
Most frequent errors:
- Applying 10% ISR withholding instead of the correct 2%:
The 2% rate applies primarily to individuals providing non-professional services, such as construction workers, electricians, plumbers, janitors, or cleaners. - Applying 2% ISR withholding instead of the required 10%:
The 10% rate applies to independent professionals like lawyers, accountants, architects, doctors, psychologists, designers, among others. - Failing to withhold the 30% ITBIS where applicable.
- Misreporting 5% ISR withholdings (applied by the government) as ITBIS in the IR-17 form, which may lead to accounting inconsistencies and undue payments.
Common consequences
Errors in the application and reporting of withholdings do not always result in immediate penalties, but they can generate inconsistencies, delays, or additional requirements from the DGII. Common consequences include:
- Unpaid or mismatched ITBIS withholdings with Form 606:
Discrepancies between retained ITBIS amounts and the information in Form 606 may trigger validation requests from the DGII. - ISR declaration errors (wrong percentage or incorrect line in IR-17):
Mistakes in the applicable withholding rate or placement within the tax form can cause inconsistencies and require correction. - Corrective filings (Rectificativas) for declaration errors:
In most cases, purely declarative errors—such as typos, omissions, or misclassifications—can be resolved through a Rectificativa without formal penalties. - Inconsistencies requiring cross-validation:
When discrepancies arise between what a taxpayer reports and what a third party (client or supplier) declares, reconciliations and adjustments are needed to avoid DGII notices.
Although these errors are not initially considered formal infractions or tax crimes, they should be addressed promptly to avoid becoming significant findings during an audit.
ISR withholding rates
| Payment Concept |
|
||
| Fees, commissions, and services to individuals | 10% | ||
| Technical services (plumbing, construction, etc.) | 2% | ||
| Rent paid to individuals | 10% | ||
| Dividends | 10% | ||
| Interest to non-resident individuals | 10% | ||
| Raffle and lottery prizes | 25% | ||
| Capital gains | 1% | ||
| Government payments to suppliers | 5% | ||
| Transfer of title/property (registered assets) | 2% | ||
| Foreign remittances | 27% | ||
| Phone-based gaming | 5% | ||
| Internet-based gaming | 10% | ||
| Other income (Art. 309, Code) | 10% | ||
| Other income (Decree 139-98) | 2% | ||
| Other withholdings (Norm 07-2007) | 2% | ||
| Interest from financial institutions (to companies) | 1% | ||
| Interest to resident individuals | 10% | ||
| Prizes between RD$100,001 and RD$500,000 | 10% | ||
| Prizes between RD$500,001 and RD$1,000,000 | 15% | ||
| Prizes over RD$1,000,001 | 25% |
Withholding Rates – Payments Abroad
| Type of Payment | Withholding Rate |
| Services by non-residents | 27% |
| Royalties and technical assistance | 27% |
| Dividends | 10% |
| Interest payments to non-residents | 10% |
Employee Income Tax Withholdings:
ISR withholdings on wages are applied based on the progressive scale established in Article 296 of the Dominican Tax Code.
ITBIS withholdings
| Type of Service | ITBIS Withholding |
| Services by individuals | 100% |
| Professional services between companies (lawyers, etc.) | 30% |
| Security services between companies | 100% |
| Advertising services by NGOs to businesses | 100% |
| Informal supplier receipts | 100% |
| Credit/debit card payments | 2% del total vendido |
| Construction services by individuals | 100% |
| Construction services by corporations | 30% |
Conclusion
To avoid errors in applying withholdings and their potential consequences, it is essential that businesses, professionals, and public entities stay updated on tax regulations, regularly consult applicable norms, and seek expert guidance when needed.
Correct withholding practices not only help avoid penalties and disputes with the DGII but also strengthen transparency and tax compliance within an organization. In this sense, relying on experienced tax advisors is a key strategy for reducing risk, as these professionals support and continuously train internal staff.
At Pellerano & Herrera, our legal team is available to guide and support you in fulfilling your tax obligations with confidence and compliance.