Simple Tax Guide for Americans in the Dominican Republic
The beautiful weather, a legal system friendly to expats, and a haven from high taxes, the Dominican Republic is a very popular location for Americans who choose to live abroad. Still, because of the reasonable tax rates in the Republic, Americans are subject not only to reporting requirements like FBAR, but also expat taxes owed to the United States government.
Expat Taxes - the Dominican Republic
US citizens, as well as permanent residents, are required to file expatriate tax returns with the federal government every year regardless of where they reside. Along with the typical tax return for income, many people are also required to submit a return disclosing assets which are held in bank accounts in foreign countries by using FinCEN Form 114 (FBAR).
The United States is among only a few governments who tax international income earned by their citizens, as well as permanent residents, residing overseas. There are, however, some provisions that help protect from possible double taxation. These include:
- The Foreign Earned Income Exclusion. This exclusion allows one to exclude USD 101,300 (this amount is for 2016 taxes) in earned income from foreign sources.
- A tax credit allowing tax on remaining income to be reduced based on the taxes paid to foreign governments.
- An exclusion on foreign housing that allows additional exclusions from their income for some amounts paid to cover household expenses due to living abroad.
Preparing a quality tax return following proper tax planning should allow one to use these, as well as other strategies, in minimizing or possibly eliminating tax liability. Note that in most cases the filing of a tax return is required, even if taxes are not owed.
Who Qualifies as a Resident of the Dominican Republic?
When a person has been in the Republic over 182 days during any fiscal year, they are considered to be a resident. It is allowable for the days to have gaps between them as long as they add up to over 182 days. Once a person is a resident for three years, they must pay taxes based on their income worldwide.
Tax Rates for the Dominican Republic
Income tax rates in the Dominican Republic are progressive. The rates max out at 25%. Tax rates as of 2016 are:
|Tax Rate||Taxable Income|
|0%||On||DOP 0 - DOP 399,923|
|15%||DOP 399,923.01 - DOP 599,884|
|20%||DOP 599.884.01 - DOP 833,171|
|25%||Over DOP 833,171.01|
Income is considered to be any income as a result of activities, good, earnings (whether collected or only accrued), benefits, and capital gains.
Does the Dominican Republic Tax Foreign Income?
If a person is a resident, and has been for a minimum of three years, they will pay taxes based on their income worldwide.
When Are Dominican Republic Taxes Due?
For corporations, they can choose from four possible end dates for the fiscal year - March 31, June 30, September 30, and December 31 (which is the most popular). Tax returns must be filed within 120 days following the end of the chosen fiscal year. They are sent to the Direccion General de Impuestos Internos (DGII). An extension of the date due can be requested as long as the request is made before the deadline. Also note that married couples cannot file joint returns - each must file a separate return.
Dominican Republic Social Security
Everyone living in the Republic - whether Dominican citizens or foreigners - must make contributions to the Dominican system of social security. Social security taxes are based upon employee earnings. At the present time, 3.04% is taxed for health insurance. The tax for the pension fund is 2.87%. The maximum contribution for health insurance is 4,100. For the pension fund it is 20 times minimum salary. When calculating the amount of income tax due, contributions to social security are deductible.
Although the Dominican Republic does have tax treaties with some countries, unfortunately, the US is not one of them. Because of this, it is important to use the options the IRS makes available for minimizing double taxation, including the exclusion on foreign income, and the tax credit.
Dominican Republic Taxes
Along with the income tax, there are taxes of other types in the Republic.
Compensation not in cash is taxable. This applies to benefits like housing stipends, relocation expenses, clothing allowances, meal allowances, club memberships, commuting costs, education reimbursement, and other benefits. Although some exceptions apply, generally, expats will be taxed on all of their compensation, including non-cash forms of compensation.
There are also taxes on capital gains, which include antiques, art, entrepreneur’s equipment and machinery, patents, bonds, and memberships. The tax rate is progressive from 0 - 25%. Capital gains taxes are required to be reported during the same tax period as when the disposal of the assets occurred.
When the value of real estate exceeds six-and-a-half million, it is subject to a tax of 1%. Gift and estate taxes are imposed on the estates of Dominican nationals, as well as gifts located in the Dominican. In these cases, the tax rate is 3% of total value.
Finally, expatriates must be cognizant of the 18% VAT. This tax is due every month on day 20.
Questions About Dominican Republic Taxes?
Contact us! We have an expert team to provide tax advice to expats, and give you all the information you need to know to file your United States expat tax return while living outside the country.