How to pay tax in the Dominican Republic
There's a broad range of taxes in the Dominican Republic to consider, and this article will explain the different types and their rates. We understand that this might be one of the most complex topics to consider when moving abroad. Hence, we have tried our best to keep it short and simple. Hopefully, you will gain a better understanding of the tax system in the DR and look out for the ones you have to look out for!
General information
Taxation in the Dominican Republic is governed by Law No. 11-92 of May 31, 1992, and people usually know it as the Tax Code. The Taxation Office, Dirección General de Impuestos Internos (better known as DGII), collects the taxes in the DR.
On the other hand, the Customs Agency collects and administrates all duties related to customs.
The territorial principle rules tax law in the Dominican Republic. This means that the Taxation Office (DGII) can only collect taxes from earnings that were made on Dominican territory - hence the name.
Sounds like a pretty sweet deal to some foreigners, right?
The only catch is that by law, the DGII can collect all income related to business activity in the DR. It doesn't matter if the taxpayer is a Dominican citizen, a foreigner with or without residency in the Dominican Republic. This national or foreign company does or does not have a branch office in the DR.
However, if you earn money outside the country, this is not subject to taxation within the Dominican Republic. This also includes projects where Dominicans pay the derived income, foreigners that hold Dominican residency or companies owned by Dominicans, or foreigners with offices in the DR.
Nevertheless, there is one exception: The only income that is considered subject to Dominican taxation received from outside the country are stocks, bonds, deposit certifications, etc.
Once you've moved to the Dominican Republic, your obligation to pay taxes on income derived from outside the DR only starts after you've got your residency.
If you're here to spend your retirement in the Dominican Republic, your pension money and social security payments are not subject to taxation.
If you spend more than 182 days in the Dominican Republic within a year (more than six months), you will be considered a tax resident. Therefore, you're obligated to get your tax number, which you'll obtain once you've registered with the IRA (Internal Revenue Agency.)
Types of taxes in the Dominican Republic
The main tax categories in the Dominican Republic are:
- Income Tax
- Corporation Tax
- Capital Gains Tax
- Tax on goods and services/ sales tax (ITBIS)
- Property Tax (Real Estate Tax)
- Property Transfer Tax
- Excise Tax
- Tax on Transfer of Motor Vehicles
- Inheritance Tax
Income tax
All income that comes from work or business activities within the Dominican Republic is taxable, but not work from overseas. Everyone has to pay tax if they earn sufficiently within the country, whether they are a Dominican, a resident foreigner, or a non-resident foreigner. You are said to be a resident if you have been in the country for more than 182 consecutive days.
Income derived from work done outside of the Dominican Republic by Dominicans or resident foreigners is not taxable in the Dominican Republic. However, Dominicans and resident expats must pay taxes in the Dominican Republic on any income from overseas investments once the expat has been a legal resident for three years. Note that any pensions or social security are not taxable.
However, you do not have to pay tax unless you earn RD$416,220 a year or a monthly salary of RD$34,685. In US dollars, that is US$8,671 annually or US$722 a month. This means, given the wages in the Dominican Republic, that not many people pay income tax. Those who earn over that amount up to RD$624,329 (US$13,006) a year pay 15% on the amount over RD$416,220, and the following rate is up to 20% for those earning over RD$624,329 a year.
The levels are adjusted every year in January.
As an individual taxpayer, you can only deduct expenses due to educational purposes but not for medical expenses, mortgages, or charity, as in other countries. You and your partner have to file your taxes separately if you are married. As an individual, you have to file your declaration every year before or on March 31st for non-salary income over RD$409.281,01.
Corporation tax
Corporations and any other for-profit organizations pay a flat 27% income tax rate on net taxable income, and they must file a tax declaration before April 30.
Unlike most other countries, taxation is different depending on whether the entity is a partnership, a corporation, or an LLC.
Tax return:
Every company in the Dominican Republic has to file an annual income tax return report with the Dirección General de Impuestos Internos. It does not matter if the company had an income or not, as well as if there was significant business activity or non.
The rule to file before April 30 is only directed at those companies that operate on a fiscal calendar year. The ones that work on a non-calendar year have to file their tax return within a period of 120 days, starting on the end date of their fiscal year. They have to include statements about their finances that have been issued or examined by a certified accountant.
Good to know:
Companies have to pay their income tax in advance! This happens monthly and is calculated in the following way: One 12th of the full amount they have spent in the year before will be paid every month and later deducted from the actual payment for this year. So it is advisable to take this into account every year and to put this amount aside so you do not have to worry about paying these installments.
Capital Gains Tax
Capital gains are defined as the difference between the sale price of an asset and the acquisition or production price adjusted for inflation, and they are taxed like regular income (0 % - 25 % for individual taxpayers and 27 % for companies.)
In order to avoid that, people have to pay a higher price due to increased inflation; in the Dominican Republic exists, an adjustment if the asset is subject to depreciation. The inflation rate is related to the salvage value. It is also worth mentioning that the capital gains are only determined in the local currency (Dominican Pesos.)
Tax on the Transfer of Industrialized Goods and Services (ITBIS) or Sales tax
The ITBIS (GST in the United States) is a value-added or sales tax applicable to the transfer and importation of most goods and most services, and currently, the rate of ITBIS is 18%.
The ITBIS on imported goods is based on the CIF value (cost, insurance, freight) plus duty.
However, there are many exemptions, including exported goods, some basic foodstuffs, medication, fuel, fertilizers, books, educational materials, transport, home rentals, and utilities.
On certain products, a reduced rate of 16% is applied.
For every receipt provided for services or goods, the company (taxpayer) must add the 18% tax and later pay it to the DGII within 20 days of the following month. Refusal of payment or delay will cost an extra 10% for the first month, and after that 4% for every next month, the taxpayer has missed the payment. Additionally, the seller/company will be subject to a 1,1% fine each month. Any GST that has been paid to suppliers or customs, for example, can be deducted.
Property Tax/ Real Estate Tax
A 1% annual tax is payable on any property owned by individuals, based on the value of the property as appraised by the government authorities. However, the 1% is calculated only for values exceeding 6.5 million pesos which is currently around US$135,000. For lots with no buildings on them, the 1% tax is calculated on the actual appraised value without the 6.5 million pesos exemption. You have to pay this tax every year on or before March 11 or in two equal installments: 50% on or before March 11, and the remaining 50%, on or before September 11.
The 6.5 million pesos threshold is adjusted annually for inflation, and there are some exemptions to the tax as well as those properties below that value. These include a) farms and b) properties whose owners are 65 or above, and it is the only property under their name, and they have owned it for more than 15 years, or c) company-owned properties because they pay a separate tax for corporate assets - annually 1%. However, this amount can be seen as a form of credit that goes directly towards their obligation to pay income tax, which can significantly decrease it.
Property Transfer Tax
A 3% tax is assessed on any real estate transfer of ownership. The transfer tax is paid based on the property's market value as determined by the appraisal done by the DGII, not on the price of purchase stated in the deed of sale. The deed of sale cannot be filed at the Title Registry Office without paying this tax, and the buyer must pay it within six months of the date of the deed of sale.
Excise Tax
This type of tax has to be paid when you buy or import specific types of goods or services. This includes motor vehicles, any products derived from tobacco, alcohol, electronics, insurance, jewellery, guns, telecommunication services, and any payments made via check. The rate depends on the taxed goods or services. For example, the tax rate for insurance services is 16%, whereas payments via check only have a 0,15% excise tax rate.
Tax on Transfers of Motor Vehicles
This tax might be an interesting one for every person considering moving to the Dominican Republic. There is a 2% tax on any change of ownership of motor vehicles, and the buyer of the vehicle has to pay said transfer tax within three months of the vehicle's date of acquisition.
Inheritance Tax
The estate of any person, Dominican or foreign, who lived in the Dominican Republic prior to death is subject to Dominican inheritance taxes irrespective of nationality.
Inheritance tax is 3% of the value of the estate after deductions. Deductions can include medical and funeral expenses, as well as outstanding debts and mortgages.
Beneficiaries to the estate must file a declaration with the tax authorities within 90 days of the death. Still, if the case is complex, an additional three-and-a-half month extension can be granted.
Double Taxation
That topic is rather crucial for all foreigners wanting to move to the Dominican Republic. So far, the Dominican Republic has ratified only two treaties concerning double taxation: one in 1977 with Canada, which includes income taxes, and the other in 2014 with Spain, which additionally covers capital gains taxes. All the other citizens are still subject to double taxation and can only hope there will be more treaties with other nations in the future too.
The Foreign Accounts Tax Compliance Act
This is also known as FATCA - an exchange of financial information between the IRS of the United States (Internal Revenue Service) and the DGII about US residents, trusts, companies, etc., in the Dominican Republic. So basically, all Dominican banks are reporting to the DGII, which then sends all the tax-related information to the IRS to verify their compliance.
Important:
If you work for a Dominican company, it is standard for them to retain 10% of your salary to pay tax.
You also have to pay taxes every month based on estimated earnings if you are self-employed.
Some countries have a double taxation agreement with the Dominican Republic, such as Canada, but the United States and the United Kingdom do not. For those who are from the United States, the Dominican banks now report their assets to the United States taxation authorities.
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