Most Common Mistakes When Managing ITBIS – And How to Avoid Them

“In the daily practice of handling the Tax on the Transfer of Industrialized Goods and Services (ITBIS)—known as VAT in several countries—it is common to encounter errors that, although seemingly minor, can have significant consequences for the company.

What is ITBIS?

ITBIS is a consumption tax that applies to the transfer of industrialized goods and the provision of services in the Dominican Republic. Its general rate is 18%, although some products are exempt or subject to reduced rates. The tax is administered by the General Directorate of Internal Taxes (DGII).

Businesses act as intermediaries in collecting and remitting this tax, which is why proper management is essential to avoid errors, penalties, or the loss of tax credits.

Who withholds ITBIS?

Legal entities that contract taxable services from individuals, purchase from informal suppliers, or receive professional services from other legal entities are required to withhold a portion of the ITBIS charged. Instead of paying the full amount to the supplier, they must remit the withheld portion directly to the DGII. In some cases, they must withhold 100% of the ITBIS charged, depending on the type of service received.

Below are the most common mistakes when withholding ITBIS:

1. ITBIS on a purchase recorded as an advance payment, especially in companies that sell exempt goods.
2. Incorrect handling of ITBIS withholdings.
3. Selective Consumption Tax (ISC) recorded as an ITBIS advance.
4. Failure to correctly record tax credits.
5. Failure to correctly record tax credits.

Withholding Agent’s Obligations When Retaining ITBIS

The withholding agent is required to:

1. Properly identify when the withholding of this tax is applicable.
2. Properly identify when the withholding of this tax is applicable.
3. Accurately report the transaction in the sworn ITBIS tax return (Form IT-1) and in the Purchase of Goods and Services Report (Form 606).
4. Keep supporting documents for the withholding, such as invoices, contracts, payment receipts, etc.

Failure to comply with these obligations may result in penalties ranging from 5 to 30 minimum wages, surcharges of 10% for the first month or partial month, and 4% per month thereafter. Additionally, a compensatory interest of 1.10% per month will apply, and repeated infractions may even lead to the suspension of the ability to issue tax receipts.

Type of service	ITBIS  Withholding
Services provided by individuals	100%
Liberal professional services between companies (lawyers, accountants, architects, engineers, doctors, consultants, etc.)	30%
Security or surveillance services between companies	100%
Advertising services provided by NGOs to legal entities	100%
Purchases of goods and services from informal suppliers using NCF type (B11)	100%
Credit and debit card payments	2 % of total sales (applied by acquiring companies)
Construction services provided by individuals	100%
Construction services between two companies	30%

What happens if payment is made after the deadline?

Late payment automatically triggers penalties for late filing, compensatory interest, and administrative sanctions. It may also prevent the validation of tax receipts (NCFs) in the DGII system, affect the deductibility of the expense, and damage the company’s fiscal reputation during audits.
Sources: Dominican Tax Code, Articles 252 and 253.

The consequences:

These errors can lead to a series of complications—from the inability to claim tax credits to penalties imposed by the DGII for inconsistent or incorrect reporting. They also impact the company’s image before the Tax Administration and create administrative rework, consuming time and resources.

How to avoid these mistakes?

Here are some key recommendations:

• Seek expert guidance: Having tax advisors who not only clarify doubts but also train your internal team is a smart investment.
• Stay up to date: Tax regulations change frequently, and it is essential to know the current rules to operate with confidence.
• Double-check records before submitting reports: An internal self-review process can help detect errors in advance.
• Avoid last-minute filings: Preparing tax forms ahead of time allows for a smoother process with less room for mistakes.
• Make sure tax receipts (NCFs) are issued to the company and are valid.

To reduce the risk of these types of errors, the best strategy is to work with tax experts who can answer questions, provide ongoing support, and train the internal team over time.