Dominican Republic Personal Income Tax

Resident individuals are subject to tax on their Dominican Republic-source income as well as on their foreign-source income derived from investments and financial gains. Income tax paid abroad with respect to foreign-source income may be credited against the Dominican Republic tax liability. However, such credit is restricted to the portion of Dominican Republic tax allocated to the foreign-source income that is taxed abroad.

Nonresidents are subject to tax on their Dominican Republic-source income and on income derived from technical assistance services provided to residents in the Dominican Republic, re­gardless of the location from where the technical assistance is provided.

Individuals who become residents of the Dominican Republic are subject to tax on foreign-source income after the third year of residency. In addition, individuals who become residents may qualify for a special retirement regime if certain conditions are met. This regime may exempt foreign-source income from income tax and provide other tax benefits.

For tax purposes, individuals who spend more than 182 con­tinuous or non-continuous days in a tax year in the Dominican Republic are considered residents of the Dominican Republic.

Income subject to tax. The taxation of various types of income is described below.

bonuses, premiums, commissions and allowances (for example, housing and education allowances). Allowances are considered taxable compensation only if they are paid in cash to the employ­ee. Benefits in kind are subject to fringe benefits tax, which is payable by the employer.

Self-employment and business income. Income derived from self-employment or from a trade or business is subject to tax.

Investment income. Dividends paid in cash or credited by local companies or entities to resident and nonresident individuals are subject to a 10% withholding tax. This withholding tax is consid­ered to be a final tax payment.

All interest paid from Dominican sources to nonresident indi­viduals is subject to a 10% withholding tax. This tax is consid­ered to be a final tax payment. Interest received from abroad is subject to tax in accordance with the tax rate schedule set forth in Rates.

Local interest payments to resident or domiciled individuals are also subject to a 10% withholding tax, which is considered a final tax payment.

Royalties from franchises, payments for technical assistance ser­vices and similar payments made or credited by local companies or individuals to nonresidents are subject to a 27% withholding tax.

Directors’fees. Dominican-source directors’ fees paid or credited to individuals who are not resident or domiciled in the Dominican Republic are subject to a 27% income withholding tax.

Capital gains. Capital gains derived from the sale of Dominican Republic capital assets (for example, shares of Dominican Republic companies) by residents or domiciled individuals are taxed at the individual progressive income tax rates, which range from 0% to 25%. The tax base for capital gains tax purposes is the difference between the transaction value (sale price) and the asset’s historical cost adjusted by local inflationary rules. Capital gains derived from the sale of Dominican Republic capital assets by nonresidents or non-domiciled individuals are subject to a flat 27% tax rate.

Capital assets do not include inventory to be sold in the ordinary course of a trade or business, depreciable assets used in the ordi­nary course of a trade or business, or accounts receivable corre­sponding to the ordinary course of a trade or business.

Deductions

Personal deductions and allowances. Employee contributions to social security may be deducted for income tax purposes.

Individuals may deduct education expenses for themselves and their dependents up to a maximum of 10% of the individual’s taxable income. However, this deduction may not exceed the 25% of the minimum exempt amount established in Section 296 of the Dominican Tax Code. The deduction does not apply to self-employed individuals.

Business deductions. Individuals may deduct all costs and expenses that are necessary to generate, maintain and conserve taxable income and protect investments.

Rates. For 2016, ordinary income derived by resident individuals is taxable at the following rates.

Annual taxable income (DOP)

Exceeding               Not exceeding

 

Tax on lower
amount
DOP
Rate on
excess
%
0 409,281 0 0
409,281 613,921 0 15
613,921 852,667 30,696 20
852,667 78,445.20 25

 

Other taxes

Individuals who own real estate with a value exceeding DOP6,858,885 are subject to a 1% tax on the excess value. For this purpose, the value of all the real estate owned by an indi­vidual is computed.

Donations are subject to a tax at a rate of 27%, which is payable by the recipient.

Social security

Retirement contribution. A social security retirement contribu­tion is payable on salaries at a rate of 7.1% for employers and 2.87% for employees, with a cap of 20 legal wages per month. The monthly legal minimum wage is DOP9,855.

Health contribution. A health contribution is payable on salaries at a rate of 7.09% for employers and 3.04% for employees, with a cap of 10 legal minimum wages per month.

Labor risk contribution. Employers must pay a labor risk security contribution at rates ranging from 1% to 1.6%, depending on the classification of the activity of the employer. This contribution consists of a fixed 1% tax and a variable tax at a rate ranging from 0.2% to 0.6%. The social security law provides a cap of 10 legal minimum wages for this contribution, but, in practice, a cap of 6 legal minimum wages is applied.

Contribution to the Institute for the Development of Technical Professionals. A contribution of 1% of payroll is payable by employers to the Institute for the Development of Technical Professionals (Instituto de Formación Técnico Profesional, or INFOTEP). Employees contribute an additional 0.5% on annual profit-sharing compensation.

Totalization agreement. The Dominican Republic and Spain have entered into a totalization agreement regarding social security contributions.

Tax filing and payment procedures

Employers are responsible for withholding income taxes and social security contributions from the employees’ salaries on a monthly basis.

Individuals must file an annual income tax return by 31 March. Employees are not required to file an annual income tax return if their only source of income is employment compensation unless they are deducting education expenses. In the event of excess withholding, the employer applies the overpayment to future withholding tax obligations.

Nonresidents are not required to file an annual income tax return if their tax liability has been satisfied through withholding at source.

Double tax relief and tax treaties

The Dominican Republic has entered into double tax treaties with Canada and Spain.

Temporary visas

Depending on their country of citizenship, individuals may be required to apply for and obtain an entry visa before traveling to the Dominican Republic. A Dominican Republic consulate over­seas grants the visa. Because the rules indicating the countries of citizenship of individuals who are required to obtain an entry visa before entering the Dominican Republic and requirements for obtaining a visa often vary, it is necessary to check the entry visa requirements on a case-by-case basis.

Work visas (and/or permits)

The government of the Dominican Republic grants a work autho­rization to foreign employees who have special knowledge or experience in a certain field. The granting of a work authoriza­tion is subject to certain rules that must be checked on a case-by-case basis because the rules may vary.

Residence visas (and/or permits)

The government of the Dominican Republic may grant migratory statuses that allow foreigners to reside in the country. These include the following:

  • Science status
  • Athletes
  • Journalists
  • Workers
  • Businesspersons
  • Investors
  • Retired individuals
  • Religious status
  • Certain types of family relatives

Foreigners normally apply for a resident or business visa to work in the Dominican Republic. After all documents are filed with the immigration authorities, the approximate time for obtaining a business or resident visa is approximately three to six months. Business or resident visas are valid for one year and are renew­able for similar time periods.

Alternatively, employees of companies registered as foreign investors with the Dominican Center for Exportation and Importation (Centro de Exportación e Importación de la República Dominicana, or CEI-RD) may apply for an investment visa, which may be issued within a 45-day period.

Foreign investors and retirees qualifying for special incentives under Law 171-07 may apply for the Residence Permit Program for Investments in Dominican Republic. The benefits extend to the spouse and children under 18, with some exceptions.

Family and personal considerations

Family members. Spouses of foreigners who are granted work permits do not automatically receive the same treatment as the original permit holder and must apply for an independent visa or work permit.

Children of expatriates must have student visas to attend schools in the Dominican Republic.

Marital property regime. Assets obtained by any means, except by donation, after the commencement of the marriage are consid­ered to be marital property.

Forced heirship. If an individual dies without leaving a will, the beneficiaries of his or her assets and patrimony according to the law are descendants, ascendants, spouse and collaterals. The priority order is set by the Civil Code according to a series of different combinations. The amounts needed to satisfy mainte­nance and other obligations of the deceased are removed from the decedent’s estate before the estate is divided between the benefi­ciaries.

Driver’s permits. Foreigners may drive legally in the Dominican Republic using their home country driver’s licenses for up to three months. After the three-month period expires, resident for­eigners must obtain a Dominican Republic driver’s license.