Applicable taxes for foreigners and companies residing and operating in the Dominican Republic
Like any individual residing abroad for the first time, foreigners who reside in the Dominican Republic question whether the payment of taxes is mandatory or not, taking into account they are paying taxes at the same time in their country of origin. The truth is, most of the times, this doubt emerges when foreigners have obtained their Dominican residence permit and ID or when they carry out lucrative activities in the country.
When foreigners work for a company in the country or when they want to incorporate their own through a Dominican or Off-Shore company (http://www.elexpersona.com/EN/infocenter/articles/Pages/off-shore_companies-a_good_option_for_doing_business_in_the_dominican_republic.aspx) , the doubt of when is the correct moment? and what is the corresponding procedure? arises. They also question the applicable taxes they must pay as individuals if they are already paying taxes back home and whether presenting their foreign tax declarations in the Dominican Republic will suffice to help waiver the double payment. On the other hand, when talking about companies, usually foreigners question the possibility of waivering the obligation of presenting those declarations, if their companies are not operating or having earnings, in the country.
In reference to the questions posed above, this article will describe the tax obligations foreigners must comply with by when residing in the Dominican Republic as well as those that correspond for Dominican or Off-Shore companies operating in the country.
Applicable taxes for foreigners residing in the Dom. Rep.
Regardless foreigners residing in the Dominican Republic have their Dominican residence and cédula or not, they have the obligation of presenting a sworn declaration for any income arising from personal or professional work performed in Dominican territory when staying for more than 182 days (consecutive or not) in the same fiscal period. The 182 days are counted and considered continuous although foreigners may have traveled abroad; therefore such interruptions will not be considered at the moment of calculating such period.
However, in the case a foreigner is working for a Dominican company prior to reaching the 182 days stay in the country, the employer must act as the withholding agent of 25% of income tax (as a non-resident in the Dom. Rep.) of the total amount to be paid by the employer, since this will be considered as an income arising from Dominican source, perceived by physical persons or companies non-residents or not domiciled in the country.
Once the foreigner complies with the 182 days period mentioned above, the employer must act as withholding agent of the income tax on salaries paid to their employees, depending on the salaries paid, and according to the rate established by Dominican Fiscal authorities, which are described below:
Annual Rate Percentage (%)
Annual Salaries up to RD$349, 326.
Exemption
Annual Salaries between RD$349,326.01 and
RD$523, 988.00
15% of the exceeding amount RD$349,326.01
Notwithstanding the above mentioned, in order for the employer to register the foreigners information in the company’s payroll and withhold the corresponding tax (this report must be conducted through the Social Security Treasure (TSS), since both the TSS and DGII are interconnected), the foreigner must have his Dominican ID, since such systems do not allow the registration with passports.
Nevertheless, if the foreigner is not working in the Dominican Republic but will be offering his services in an independent manner, the person or company hiring the foreigner must withhold 25% of his gross income; declaration which must be presented before the Internal Revenue Office. (www.dgii.gov.do<http://www.dgii.gov.do>).
Applicable taxes for companies operating in the Dom. Rep.
Another common question foreigners ask is the timing and deadlines for filing the corresponding tax declarations and if such declarations are mandatory although they have no earnings. The answer to this question is quite simple. It is mandatory for all companies that operate in the Dominican Republic to file a sworn declaration before the Internal Revenue Office, depending on the company’s fiscal year end; either December 31, March 31 or September 31.
In the same order, such companies are obliged to file periodical declarations regarding the Ad-Valorem taxes, IVA (known as ITBIS in the D.R.), withholdings made to their employees and third parties, among others.
In this sense, all companies which operate in the country must pay 25% of its net taxable income, (gross income minus deductions). In the event the company is not operating in the country, such companies must pay 1% of its taxable assets, which is considered as the minimum payable tax.
In this sense, both physical foreigner’s persons and companies must complete their taxes declaration in the country for any income of Dominican source, and unfortunately, the Dominican Republic has only signed a double fiscal agreement with Canada, therefore although foreigners have paid taxes in another country, they must pay the corresponding taxes in the country for any income arising from personal or professional work performed in the Dominican territory.