Tax Office Announces New Measures for Businesses Operating under the Law of Competitiveness and Industrial Innovation

The General Office of Internal Revenue Service announced the extension of the obligation to withhold Income Tax of Individual Workers or foreign earners who offer professional services related to development projects involving products, materials, production processes, research and technology development, personal training and education, research, training and the protection of the environment.

Once the Tax Administration has received the application for the authorization of an exemption, the applicant will have 60 days from the date of reception of the document in which to respond.

Also exempt will be those who offer all types of consultation and/or technical advisory services, such as those that fall under Articles 47 and 48 in Law 392-07 which covers Competitiveness and Industrial Innovation.

The Tax Administration establishes the new measure based on the General Norm 04-08 relating to the Creation of Innovation and Industrial Modernization which is circulating today in the national press.

To adjust to the new norms, taxpayers should consult the Definitive Qualification Resolution of PROINDUSTRIA and formalize their application for an extension of their IRS retention obligations to service Internal Taxes. This is indicated explicitly when pertaining to types of services contracted outside the country, the amount and estimated time duration should be stated as such. Included in the application should be the signed contract or any preliminary documents that demonstrate the intention of carrying out business dealings on the part of both involved parties.

Once the Tax Administration has received the application for the authorization of an exemption, the applicant will have 60 days from the date of reception of the document in which to respond.

Other Benefits

The new tax norm will present new benefits for these industries relative to the renovation and modernization process accepted by the transitory tax scheme of the past five years, established in Article 50 of Law 392-07 on Competitiveness and Industrial Innovation.

Individual Workers or foreign earners will be able to more quickly deduct, by multiplying by two, the percentages stipulated by the Tax Code for machinery and equipment and acquired technology once they have been calculated. They will also be able to deduct their net annual taxes for the fiscal year when they have invested in machinery and technology up to the amount of the investment that does not exceed 50% of the net imposed taxes for the previous fiscal year.

To opt for these tax incentives, the machinery, equipment and technology must have been acquired between the beginning of the fiscal year in which one has received the Qualification Resolution of the industry and the date in which the five-year period culminates since the establishment of Law 392-07 for the renewal and modernization of industry.

The industries qualified by PROINDUSTRIA who wish to receive the above-mentioned benefits must formalize their application at least 90 days before the presentation date of the sworn IRS statement from the first fiscal exercise chosen by the taxpayer.

Law 392-07 Covering Competitiveness and Industrial Innovation

Article 50 of this Law establishes the need for a transitory regiment of five years for qualified industries, in existence since the law went into effect, in order to promote the renovation and modernization of industries establishing a series of fiscal incentives.

Meanwhile, Article 48 of Law number 392-07 indicates that these activities, subject to regulations established for each DGII case in coordination with PROINDUSTRIA, are to be considered activities of management for innovation, research, training and environmental protection.

For individual taxpayers or foreign earners qualified by PROINDUSTRIA to be able to efficiently implement the innovation process, that will ultimately improve productivity, products and industrial services, Articles numbered 46, 47, 48 and 49 of Law No. 392-07 on Competitiveness and Industrial Innovation must be established clearly and precisely along with conditions and requirements to be fulfilled by industries in order to benefit from the tax extensions of Article 48 pertaining to the transfer of technology, innovation and technological development of these industries.

Article 35 of the Tax Code facilitates the Tax Administration to decree the norms it considers necessary to fulfill its tax collection function and to facilitate the fulfillment of tax obligations of the contributors.

See the complete tax norms.