The Dominican Republic offers attractive opportunities. You can enjoy tax benefits (low taxation) and an affordable cost of living. With stunning beaches, a friendly community, and a relaxed lifestyle, it is no wonder people are attracted to this tropical tax haven.
For expatriates, tax liability is determined by the territoriality principle, meaning income tax applies only to income earned within the country. To be considered a tax resident, you must stay in the Dominican Republic for over 182 days in a fiscal year, making you subject to the same tax obligations as locals, including income tax and social security contributions.
In this article, we discuss the tax system in the Dominican Republic along with key tax rules and agreements. We also cover residency permits and visa opportunities and how TaxMove can help you get benefits from the territorial tax system in the Dominican Republic.
Territorial Tax System in the Dominican Republic
In the Dominican Republic, personal income taxes for individuals who become residents are primarily imposed on income earned within the country. In the region, Panama, Costa Rica and Paraguay also apply a territorial income tax system. All income from local work or business activities is taxable, regardless of whether it is earned by citizens, residents, non-residents, or foreign companies.
Income earned outside the Dominican Republic lies under zero tax, even if received by locals who became residents or foreign residents. However, foreign financial income, like investments in stocks or bonds, is taxable after three years of residency. Social security benefits and pensions are exempt from taxation. Investors who entered the country with one of the visa types explained below (Law 171-07), may benefit from the full territorial tax regime (i.e., no taxation) for an unlimited period.
Taxes in the Dominican Republic
Value-Added Tax
The Dominican Republic applies an 18% VAT, known as the Tax on the Transfer of Industrialized Goods and Services (ITBIS), to industrial goods and services. Certain essential goods, including eggs, milk, grains, and medicines, are exempt from VAT. Services like education, healthcare, and financial services also enjoy exemptions. Exports, including sales to Free Trade Zones (FTZs), are taxed at a 0% rate.
Personal Income tax
Anyone living in the Dominican Republic for more than 182 days in a year is considered a resident for tax purposes. All taxpayers are required to register with the Internal Revenue Agency and obtain a tax ID number.
Individuals who do not become residents in the Dominican Republic are required to pay income tax on earnings exceeding 416,220 Dominican pesos (circa USD 2,000) annually. The personal income tax is applied according to a progressive scale, with the maximum rate capped at 25%.
Corporate Income Tax
In the Dominican Republic, all business entities, including corporations, LLCs, and partnerships, are taxed at a flat rate of 27%, with no distinction in tax treatment between these types of entities. Territorial income tax system does not apply to companies.
FTZ Gross Sales Tax
A 3.5% tax is imposed on the gross sales of goods and services from Dominican FTZs to the local market.
Customs Duties
Customs duties in the Dominican Republic vary based on the nature and origin of goods. Free trade agreements, such as DR-CAFTA, reduce duties on imports from member countries.
Selective Consumption Taxes
The selective consumption tax is levied on specific goods and services. This includes:
- 10% on alcoholic beverages, applied to the retail price.
- 50% on the sale of 20 tobacco units and 25% on the sale of 10 tobacco units.
- 10% on telecommunications services.
- 16% on insurance services.
- 0.0015% on checks or wire transfers made through financial entities.
Real Property Transfer Tax
The transfer of real estate ownership incurs a 3% tax on the property’s value.
Payroll Taxes
Employers must contribute 1% of payroll to the Governmental Training Institution (INFOTEP) and withhold an additional 0.5% from employees’ bonuses. Additionally, employers are required to share 10% of net profits with their employees, with a cap based on years of service.
Social Security Contributions
In the Dominican Republic, employers contribute 7.10% of salaries to pensions, 7.09% to family healthcare, and 1.2% to labor risk insurance. Additionally, they withhold 2.87% for pensions and 3.04% for healthcare from employees’ salaries. Contributions are capped based on specific minimum wage limits.
Key Tax Rules and Agreements
General Anti-Avoidance Rule
Under the substance-over-form principle, the Dominican Tax Code includes a general anti-avoidance rule. This allows the General Directorate of Internal Taxes (DGII) to disregard the existence of certain legal entities or transactions if they are used to gain an undeserved tax advantage.
Transfer Pricing Rules
The Dominican Republic has implemented transfer pricing rules that align with guidelines from the Organization for Economic Co-operation and Development (OECD). These rules apply when a local company or individual engages in commercial or financial transactions with either (a) affiliated companies or (b) entities located in jurisdictions with favorable tax regimes or blacklisted areas, whether or not they are affiliated.
Companies are required to submit an annual report to the DGII detailing transactions subject to transfer pricing rules.
Double Taxation Treaties (DTT)
The Dominican Republic has signed DTTs with Canada (in 1977) and Spain (in March 2014). The treaty with Canada covers income taxes only, while the treaty with Spain addresses both income and capital gains taxes.
Foreign Accounts Tax Compliance Act (FATCA)
The Dominican Republic and the United States have begun sharing financial and tax information under the Foreign Accounts Tax Compliance Act (FATCA) of 2010. This U.S. law requires foreign financial institutions to provide information about U.S. citizens, residents, companies, estates and trusts to U.S. tax authorities to ensure tax compliance.
Through an intergovernmental agreement (IGA), Dominican financial institutions will report FATCA-related information to the DGII, which will then share it with the IRS. This agreement is reciprocal, meaning that the U.S. will also provide information about Dominican residents to the DGII in return.
Residency Permits in the Dominican Republic
Types of Permits
The Dominican Republic offers notable residency permits for rentiers, pensioners, and investors. These permits provide significant tax benefits and offer permanent residency, renewable every four years.
General Requirements
All visa types require:
- Criminal Record Certificate
- Passport
- Medical Certification
- Birth Certificate
- Marriage Certificate
- Specific Visa Requirements
Residency Application Process
The residency process generally takes around 6 months and involves two main steps:
- Apply for a Residency Visa: Submit your application at the Dominican Consulate in your home country.
- Travel to the Dominican Republic: Within 60 days of visa approval, present your original documents to the General Directorate of Migration in Santo Domingo and complete the necessary medical exams.
Visa Types
Rentier Residency Visa:
To qualify for this visa, you must show that you have received over $2,000 per month in passive income for the past 5 years. Passive income includes earnings from sources like rent, dividends, interest, and royalties rather than from employment. You can also include your spouse and minor children, with an additional $250 required for each extra person.
Pensioner Residency Visa
This visa requires proof of a lifetime pension, either private or public, of more than $1,500 per month. You can also bring your spouse and minor children under the same terms as the rentier visa.
Investor Residency Visa
To obtain this visa, you need to invest at least $200,000 in a Dominican corporation (new or existing), a tourism project, or property approved by the Ministry of Tourism under the CONFOTUR law. This visa can be used for residency by investment or citizenship by investment.
Residency Benefits in the Dominican Republic
Obtaining residency as a rentier, pensioner, or investor allows for full territorial taxation without an expiration date. Benefits include:
- 0% transfer tax on the first property purchase.
- 50% exemption on Real Estate Property Tax.
- 50% exemption on Capital Gains Tax.
- Full exemption on dividends and interest payments.
- Partial exemption on vehicle import taxes.
- A second passport in just six months (for investors).
Additionally, the Dominican Republic does not have CFC Rules, is not part of the CRS, and does not impose an exit tax, allowing residents to receive any type of income from any company or location outside the country without incurring taxes.
Dominican Passport: Naturalization and Benefits
Naturalization Process
The Dominican passport, though not highly ranked globally, offers advantages and is relatively easy to obtain.
To qualify for naturalization:
- General Residency: Legally reside in the country for 2 years.
- Investor Visa: Reside for just 6 consecutive months (under Law No. 1683 on Naturalization).
Citizenship Benefits
- The Dominican Republic permits dual citizenship, and countries like Spain also allow it with the Dominican Republic.
- Citizenship applications can take over a year.
- The Dominican passport facilitates accelerated naturalization in countries like Mexico or El Salvador (2 years).
- Once citizenship is granted, you can change or withdraw your investment without losing residency status.
How Can We Help You?
The Dominican Republic is one of the best destinations for individuals so if you are planning to move to the Dominican Republic TaxMove is here to assist you in every aspect. We simplify the tax system, help you take advantage of the territorial tax system in the Dominican Republic while living in paradise.
Whether you are pursuing residency through investment, passive income, or a pension, we ensure you receive all the benefits and stay compliant with the rules. Contact us now to make your transition smooth and easy.
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What are the key tax rates in the Dominican Republic?
- Corporate Income Tax (CIT): 27%.
- Personal Income Tax (PIT): progressive rates up to 25%.
- VAT: 18%.
- No wealth, gift, or inheritance taxes.
What is the territorial tax system in the Dominican Republic
What is the cost of a company in the Dominican Republic?
Setting up a business in the Dominican Republic typically involves costs ranging from $2,000 to $3,500.
This cost varies depending on the type of company being established and the specific activities you plan to undertake.
What is the process to obtain a residency visa in the Dominican Republic?
The process typically takes around 6 months and involves applying for a residency visa at a Dominican Consulate in your home country, followed by submitting required documents and undergoing medical exams in the Dominican Republic.
Various visa types are available, including Rentier, Pensioner, and Investor Residency Visas, each with specific income or investment requirements.
What are the tax benefits for expatriates under the Dominican Republic’s residency programs?
Expatriates can benefit from various tax exemptions, including 0% transfer tax on the first property purchase, 50% exemption on Real Estate Property Tax and Capital Gains Tax, full exemption on dividends and interest payments, and partial exemptions on vehicle import taxes.
