Simple Tax Guide for Americans in Dominican Republic

At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Dominican Republic for over 8 years. Our clients hail from all parts of the country - Santo Domingo and Santiago de los Caballeros, La Romana and San Cristóbal, Concepción de La Vega and San Pedro de Macorís.

As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.

We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS

The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.

We have many clients living in Dominican Republic and know how to integrate your U.S. taxes into the local income taxes you pay. Any Dominican Republic's income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.

As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Dominican Republic for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.

There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.

We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.

Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.

Below we include information on the Dominican Republic's Tax System for the American Expatriates.

Dominican Republic tax rates for individuals are progressive up to 25%.
Taxable Income (DOP) Tax Rate
Up to DOP 330,301 0%
DOP 330,301.01 - 495,450 15%
DOP 495,450.01 - 688,125 20%
Over DOP 688,125.01 25%

Basis – The Dominican Republic primarily operates a territorial system of taxation, although resident individuals are subject to tax on certain foreign investment income. Nonresident individuals are taxed only on Dominican-source income.

Residence – An individual is considered a resident if he/she remains in the country for more than 182 days in a fiscal year, whether or not continuous. Foreign individuals who become resident are subject to tax on their foreign-source income as of the third taxable year or period in which they become resident. For tax purposes, partnerships are treated as separate taxable persons from their members.

Filing status – Married individuals report their income separately from their spouses.

Taxable income – The Dominican Republic applies a broad concept of income, which is defined as all income constituting earnings or profits resulting from goods or activities, all benefits and earnings accrued or collected, and capital gains, whatever their nature, origin or description. For resident taxpayers, business income includes foreign-source investment income.

Capital gains – Capital gains derived from the disposal of capital assets, whether the sale is of an occasional nature or otherwise, must be included in the gross income of resident individuals and is taxed at progressive rates. Disposals include all inter vivos transfers of assets, regardless of whether the transfer is made for consideration.

Deductions and allowances – Resident individuals who carry out activities other than employment activities may deduct all expenses incurred that are necessary to obtain, maintain and preserve the taxable income or its source.

Tax Rates – Progressive rates apply to net taxable income as stated above.

Other taxes on individuals:

Capital duty – A 1% levy applies on the total amount of capital and capital increases.

Stamp duty – Stamp duty is levied on most written contracts; the registration and renewal of trademarks; documents evidencing loans, debts, shares and guarantees; and all documents prepared or registered by notaries and registrars. The rates vary depending on the taxable event.

Capital acquisitions tax – 25%

Real property tax – Real estate tax is levied on residential and commercial property valued at more than DOP 5 million, at a rate of 1% on the value exceeding DOP 5 million.

Inheritance/estate tax – Inheritance and gift tax is levied on personal and real property that forms part of the gross estate of a deceased person, a gift of property located in the Dominican Republic and foreign situs personal property of a deceased person who had Dominican nationality or whose last domicile was in the country. The tax rate is a flat tax rate of 3% of the amount of the inherited estate. Gifts are subject to a flat rate of 25%. Exemptions apply.

Net wealth/net worth tax – The net worth tax is payable by individuals and companies carrying on a trade or business. The tax is levied at a rate of 1% of the taxpayer's average total net worth, wherever located, including the net value of real estate, without taking into account inflation adjustments.

Exemptions apply to shares held in other companies, real estate located in rural areas and amounts paid as advance tax payments. The net worth tax is reported and filed in the same period as that which applies for income tax purposes. The tax is payable in 2 instalments: the first instalment matches the income tax due date and the second instalment is due 6 months after that date.

Amounts of tax actually paid may be credited against the income tax liability for the same period. If the income tax liability is equivalent or higher than the total net worth tax liability, the latter can be considered as having been complied with.

Social security – Dominicans and foreigners residing in the Dominican Republic must contribute to the social security system.

Contributions are calculated on the basis of each employee's earnings (i.e. the daily salary increased by any additional payment in cash or in kind, although certain deductions apply). Contributions are deductible for calculating the employee income tax due. The employee rates for 2009 are 3.04% for family health insurance, 2.87% for the pension fund and 0.5% for technical and vocational training.

Administration and compliance:

Tax year – Calendar year

Tax Filing and payment – The tax return must be filed by 31 March of the year following the taxable year.

Tax Penalties – Penalties and interest apply for late filing or failure to file.


Dominican Republic Corporate Tax Rate

Corporate tax rate in Dominican Republic is 25%.

Resident or branch corporations are subject to Dominican Corporate income tax (ISR) on their local income (only) or income generated by activities within the country. Non-resident companies also pay ISR on income sourced in Dominican territories where there is an absence of a permanent business. The Resident Corporation in the Dominican Republic will withhold 25% of the payment for items including publicity, royalties, interest (15% from overseas banks), etc.

The general IRC rate is 25% for tax or 1% of the company's total assets (after deducting depreciation) or 1.5% of the gross sales (after deducting discount and devolution). Companies will pay monthly advance taxes (1/12th) of the equivalent of the amount paid as taxes from the prior year and, at the end of the year, it should match the aforementioned 25% or 1% calculated taxes. When the taxes for the current year are calculated, the monthly payment is compensated in the following period. If the monthly payment was below, then the corporation completes the payment.

Tax payments for the current year are based on the previous tax year's liability less any tax withheld at source. This amount is limited to the higher of the prior year tax (for those with turnover) paid in 12 instalments or one percent of total assets.

Residence – A company is resident if it is incorporated under the laws of the Dominican Republic or if its place of effective management is in the Dominican Republic.

Basis – The Dominican Republic taxes primarily on a territorial basis, whereby business income derived from activities performed in, property situated or economically used in, or economic rights used in, the Dominican Republic are taxed regardless of the nationality, domicile or residence of the participants or the contracting location.

Taxable income – Corporate tax is levied on the aggregate net income of various sources of business income, including capital gains derived from the transfer of business assets.

Certain items of investment income derived by resident corporate taxpayers from foreign sources also are subject to Dominican tax, including dividends, interest on loans and bank savings, and gains from banking or financial operations, bonds, shares in capital companies, bills of exchange and other movable capital or securities on the capital markets.

Taxation of dividends – Dividends paid by a Dominican company to another Dominican company are not subject to income tax at the level of the recipient if tax was withheld on the distribution. The recipient must set up a separate dividend account for such distributions; any subsequent distributions made by the recipient company will be deemed to have been paid from that account and will not be subject to further withholding tax.

Capital gains – Capital gains derived from the sale of fixed assets, immovable property or securities are normally included in gross income and subject to corporate income tax at the standard rate. The taxable amount of the capital gain is calculated as the difference between the amount received from the sale, alienation or other disposal of the asset (or its market value in the case of undervalued disposals) and the purchase or production cost, as adjusted for inflation.

Losses – Net operating losses may be carried forward for 5 years but carryback is not allowed. However, the deduction is limited to 20% of the annual total net losses carried forward. For the fourth year, the 20% deduction may not exceed an amount equivalent to 80% of taxable income and for the 5th year, the 20% deduction may not exceed 70% of taxable income. For newly formed entities, losses from the first year of operations should be fully deducted in the second year.

Incentives – A free trade zone regime offers an exemption from all taxes, duties, charges and fees for production and export. These incentives normally apply for 25 years for entities located near the Dominican-Haitian border and 15 years for those located in other areas of the country.

Withholding tax:

Dividends – Dominican-source dividends paid to individuals or legal entities (regardless of where they are resident) are subject to a withholding tax of 25%. If the distributing company fails to withhold tax on a payment to a nonresident, the foreign recipient will be obliged to pay the tax due.

Interest – Interest from Dominican sources paid or credited to nonresident taxpayers, other than financial institutions, is subject to a final 25% withholding tax. Interest paid to foreign financial institutions is subject to a 10% withholding tax. Interest paid on certain approved loans to the Dominican government or its institutions/entities is exempt. Interest on bonds issued by Dominican-domiciled entities and all interest on loans secured wholly or partially on immovable property located in the country are considered to be Dominican-source interest.

Royalties – Royalties paid to nonresident companies and individuals are subject to a final 25% withholding tax. Royalties paid by a permanent establishment to its head office abroad are considered to be a payment to a separate entity and, therefore, are subject to the 25% withholding tax.

Branch remittance tax – No
Surtax – No
Alternative minimum tax – No
Foreign tax credit – No
Participation exemption – No
Holding company regime – No

Other taxes on corporations:

Capital duty – Capital duty is levied on the formation of a corporation at a rate of 1% of the capital amount.

Payroll tax – Employers must pay a monthly tax equal to 1% of the regular payroll to finance a special training fund. Employers also must contribute annually 0.5% of income derived from profit sharing and bonuses.

Public and private sector employers must pay a fringe benefits tax on certain benefits. The fringe benefits tax is levied at a 25% rate and is payable by the employer on a monthly basis.

Real property tax – A 1% asset tax paid in two instalments applies to the value of a corporation's total immovable property as it appears in the company's financial statements.

Social security – Both employers and employees are required to make monthly contributions to the social security system. In addition to paying their own contributions, employers must withhold and remit the contributions of their employees.

Contributions are calculated on the employee's earnings (i.e. the daily salary as increased by any additional payment of bonuses and holiday allowances).

Stamp duty – Stamp duty is levied on most written contracts; the registration and renewal of trademarks; documents evidencing loans, debts, shares and guarantees; and all documents prepared or registered by notaries and registrars. The rates vary depending on the taxable event.

Transfer tax – All transfers of real property located in the Dominican Republic are subject to a transfer tax at a rate of 3% on the price of the property declared in the purchase and sale agreement.

Anti-avoidance rules:

Transfer pricing – Transfer pricing rules were introduced in 2007, but clarifying regulations have yet to be issued. The rules provide that actual results obtained in the Dominican Republic will serve as the basis of Dominican-source income of branches and other permanent establishments of foreign enterprises operating in the country. The rules also contain provisions addressing application of the arm's length principle in certain export and import transactions, using the wholesale price at the place of destination as the basis for determining the real value of the goods exported. The tax authorities may adjust the transaction prices between a head office and a branch, and between related parties, to conform to the arm's length principle. Advance pricing agreements are possible in the hotel, pharmaceutical and energy sectors.

Thin capitalisation – No
Controlled foreign companies – No
Other – No
Disclosure requirements – No

Administration and compliance:

Tax year – Generally, the calendar year closes on December 31, but a corporation can choose a closing period of 31 March, 30 June or 30 September.

Consolidated returns – Consolidated returns are not permitted; each company must file its own return.

Tax Filing requirements – Companies are required to complete a tax return and compute their own tax liability. The return must be filed within 120 days of the end of the fiscal year and must include a balance sheet signed by a certified public accountant.

Tax Penalties – Penalties may be imposed for late filing, failure to file and tax avoidance or evasion.

Rulings – Taxpayers may request rulings from the tax authorities on the tax treatment of specific transactions.

Dominican Republic Free Zone
Dominican Republic Free Zone offers some advantages to those who wants to start a business by providing reduced or zero tax rates. One advantage is that the Dominican Republic is geographically close to United States, and the country also has trade agreements with both the European Union and the United States. What this means is that an exporter exporting goods from the Dominican Republic Free Zone pays reduced taxes on customs, or doesn't pay any tax at all.

For those who wants to start a business in the Free Zone, some tax exemptions exist up to 15 years: Exemption from corporate taxes, the value added tax, transfer taxes, capital gains taxes, business and incorporation taxes, export duties and exemption from municipal taxes. This 15 year tax exemption period is also renewable.

Another tax advantage is that import duties are also waived for any vehicle, production equipment or material that are needed to carry on business activities for companies in the Free Zone.


Dominican Republic Sales Tax / Value Added Tax RateS (VAT)

The standard rate of Value Added Tax in Dominican Republic is 16%.

Value Added Tax is levied on the supply of goods and services, with the exception of some products sold in supermarkets. VAT registration is compulsory as a taxpayer. Filing of the Value Added Tax is needed each month.