U.S. Expat Taxes Explained: Filing as an American Living in the Dominican Republic
How Working in the Dominican Republic Impacts US Expat Taxes
How will your US expat taxes be affected by a move to the Dominican Republic? With its beautiful weather, expat-friendly legal system, and status as a tax haven, the Dominican Republic remains among the most popular destinations for Americans moving abroad. Nevertheless, any American enjoying the low tax rates of the Dominican government are going to be subject to US expat taxes and other reporting requirements (FBAR, Form 8938, etc.) that must be submitted to the US government.
US Expat Taxes in the Dominican Republic
If you are a citizen or permanent resident of the United States then you are obligated to file US taxes with the IRS each year no matter where you live.
In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.
While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:
- The foreign earned income exclusion allows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
- The foreign tax credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
- The foreign housing exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad.
With proper planning and a skilled tax preparer, you should be able to take advantage of these and other strategies to minimize or even eliminate your US tax bill. Please note that even if you do not believe that you owe any US income taxes you will still be required to file a return.
Dominican Republic Income Tax Rates
The national income rates from the Direccion General de Impuestos Internos (website in Spanish) are progressive and capped at 25%. The current income tax rates are as follows:
|Taxable Income (DOP)||Rate Applicable to Income Level (%)|
|Up to 330,301||0%|
|330,301.01 – 495,450||15%|
|495,450,01 – 688,125||20%|
Income is explained as being any income resulting from goods or activities, benefits and earnings accrued or collected, and any capital gains.
Dominican Republic Residency
An individual is considered a resident of the Dominican Republic once they have stayed in the Dominican Republic for more than 182 days in any given fiscal year. Note that these days do not need to be consecutive. Gaining Dominican residence requires that individuals pay taxes on their worldwide income after three years of residency in the Dominican Republic.
Is Foreign Income Taxed Within the Dominican Republic?
Individuals will be required to pay taxes on their worldwide income if they are a resident of the Dominican Republic and have been a resident for at least three years.
Dominican Republic Tax Due Date
The Dominican Republic offers four fiscal year ends for corporations to operate under. These years end March 31st, June 30th, September 30th, and (most popular) December 31st. Tax returns need to be filed with the Direccion General de Impuestos Internos (DGII) 120 days after the fiscal year comes to an end. This date can be extended if your request for the extension is filed prior to the deadline and your request is granted by the tax authorities. Note that individuals are not able to file jointly; married couples must file separately.
Social Security in the Dominican Republic
All Dominicans and foreigners residing in the Dominican Republic are required to contribute to the social security system of the Dominican Republic. The contributions are based on employee earnings. Currently, 3.04% of earnings are for family health insurance and 2.87% are for a pension fund. The upper limits for these contributions are $4,100, and 20 times the minimum salary, respectively. These contributions are deductible from taxable income when calculating income tax.
US – Dominican Republic Tax Treaty
The Dominican Republic has only one tax treaty in place, and unfortunately, that country is not the United States. For that reason, you will need to optimize the tools the IRS has in place to minimize double taxation on your US expat taxes. These include the foreign tax credit and foreign earned income exclusion.
Other Taxes in the Dominican Republic
In addition to income tax on salaries paid, there are other forms of taxation in the Dominican Republic.
Non-cash compensation is considered taxable. This includes housing stipends, benefits, relocation expenses, meal and clothing allowances, commuting costs, club memberships, education reimbursement, or home leave payments. There are exceptions, but expats can generally expect to pay taxes on all non-cash compensation in the Dominican Republic.
Any capital gains are also going to be taxed, including the sale of art or antiques, machinery or equipment by an entrepreneur, and the sale of patents, memberships, or bonds. These are taxed at 25% and must be reported in the same period the assets were disposed of.
Real estate is taxed at 1% of the total value of the real estate after DOP 5 million has been exceeded. Estate and gift taxes are levied on estates that were related to Dominican nationals and any gifts that were located within the territory of the Dominican Republic. For either, the rate is a flat 3% of the total value of the gift or estate.
The last tax expatriates should be aware of is the 16% value added tax (VAT). Registration is included in general registration as a taxpayer, and payment is required monthly on the 20th of every month.
Saving on US Expat Taxes
The Dominican Republic offers attractive tax relief for those wanting to work and live overseas. That said, it is important to understand that living in a tax haven can translate into higher US expat tax burdens. Be sure to qualify for and apply all the applicable deductions and exclusions on your US expat taxes.