In 2024, the Dominican Republic received more than 11 million tourists. Of which more than 80% arrived by air; tourism being one of the pillars of the Dominican economy.
The insular status of the Dominican Republic requires it to promote civil and commercial aviation as a fundamental element of its economic development. In this direction, October 6, 2023, Law 57-23 comes into force, which institutes a regime of tax incentives for commercial aviation, which is complemented by Regulation 128-25.
This regulation is in addition to many others that in the last 3 decades the Dominican State has implemented in the interest of promoting civil and commercial aviation. It is part of the nation's strategic plan that seeks to create the legal and economic conditions for the country to become a regional logistics center, thus taking advantage of its geographical location in the center of the Caribbean.
The main purpose of this law is to incentivize commercial aviation in the Dominican Republic through tax incentives. Moreover, this law seeks to increase the flow of tourists and passengers and position Dominican airports as an air interconnection point or operations center.
The scope of application of this law includes both national and foreign air operators that have a permanent establishment in the country and that are engaged in the commercial operation of civil aircraft for the international transport of passengers to and from the Dominican Republic as their main activity.
The legal text suggests that tax incentives exclude cargo andaeronautical operators whose primary focus is not passenger transport. However,the law is ambiguous about cargo transport, and the regulations do not clarifythis point.
I understand that this is a point for improvement in the law, since cargo transport is essential in the promotion and development of commercial aviation.
Strategic Routes.
One aspect to highlight in the law is the concept of strategic routes, defined as those air routes that are not commercially operated or operated at a non-optimal capacity. The Civil Aviation Board (JAC) with the assistance of the Ministry of Tourism oversees establishing a list of strategic routes each year, to which the Dominican authorities will give priority when evaluating and analyzing applications for tax incentives.
Tax Incentive Structure.
Law57-23 provides tax incentives affecting income, value added, asset, and importtaxes for commercial aviation. The following outlines each incentive byapplicable tax.
I.- Income tax
A)Exemption from Withholding for Payments Abroad. Under the current tax system inthe Dominican Republic, a 27% tax is levied on all payments made to foreignproviders of aeronautical services, including aircraft lessors, enginesuppliers, and those offering aircraft maintenance services, among others. Thistax incentive enables air operators to obtain an exemption from this tax,thereby substantially reducing their operational expenses.
B)The withholding tax on foreign providers of training and training services forflight crew members, as well as licensing fees for computer programs andsoftware related to aircraft operations and insurance, is reduced to 5%.Previously, these services were subject to a withholding tax rate of 27%. Thismeasure significantly lowers the operating costs for airlines that utilizeinternational services.
II.-Tax on the transfer of industrialized goods and services (ITEBIS): Fullexemption from the 18% ITEBIS applies to Dominican airlines selling entire flighto foreign companies for routes from abroad to the Dominican Republic, makingthese operators more competitive with international tour operators.
III.- Import Tax. ITEBIS exemption for the import of aircraft. Law 57-23 establishes an exemption from import tariffs for aircraft weighing more than 2,000kg. This incentive fundamentally benefits Dominican airlines, facilitating the acquisition of new aircraft, promoting the modernization and growth of their fleets.
IV. Taxes on Assets. General exemption from the tax on the assets of air operators. At present the applicable tax is 1%
Regulatory Body.
TheCivil Aviation Board (JAC) is responsible for reviewing and making decisions ontax exemption requests in accordance with the relevant law. With the support ofthe Ministry of Finance, the JAC will issue a resolution within 30 days thateither approves or rejects tax exemption applications submitted by national andinternational air operators.
The tax incentives will last for 15 years from the enactment of the law. As for the exemption from asset tax, its duration will be 5 years from the installation and operation of the company.
Conclusion.
Law57-23's tax incentives help lower operating costs for airlines. However, thelaw currently excludes cargo airlines, maintenance workshops, airports, andtraining centers. Including these operators in future reforms would furthersupport the aeronautical sector's growth.