Tax Advice (foreign income)

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Metapod

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Jul 22, 2018
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Hi guys,

Thinking of moving to the DR and have been reading up on the tax situation. Hoping some of you can help to clarify it for me. My current understanding is that DR has territorial taxation for foreign earned income (outside of financial income like shares/stock/capital gains etc).

I have an LLC based in Hong Kong which doesn't tax earnings made outside of Hong Kong.

If I move to the DR, which also doesn't tax earnings outside of the DR, I would essentially be tax free (at least from dividends/income tax)?

My business is run remotely online, so looking for somewhere to base myself with a good tax situation and quality of life.
 
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LTSteve

Gold
Jul 9, 2010
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Metapod said:
Hi guys,

Thinking of moving to the DR and have been reading up on the tax situation. Hoping some of you can help to clarify it for me. My current understanding is that DR has territorial taxation for foreign earned income (outside of financial income like shares/stock/capital gains etc).

I have an LLC based in Hong Kong which doesn't tax earnings made outside of Hong Kong.

If I move to the DR, which also doesn't tax earnings outside of the DR, I would essentially be tax free (at least from dividends/income tax)?

My business is run remotely online, so looking for somewhere to base myself with a good tax situation and quality of life.
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You shouldn't have to worry about declaring income, except to whatever your country of citizenship is. To live in the DR you would need to get residency, which is a process that starts in your home country in getting together the necessary documents and pre approval by the closest Dominican Consulate before continuing the process in the DR with an attorney. If you currently live in Hong Kong moving to the DR will be a huge learning curve. Good luck and good travels.
 
M

Metapod

New member
Jul 22, 2018
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LTSteve said:
You shouldn't have to worry about declaring income, except to whatever your country of citizenship is. To live in the DR you would need to get residency, which is a process that starts in your home country in getting together the necessary documents and pre approval by the closest Dominican Consulate before continuing the process in the DR with an attorney. If you currently live in Hong Kong moving to the DR will be a huge learning curve. Good luck and good travels.
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I'm not from the US, so most countries require you to declare tax based on residence status (or more accurately, tax resident status as you can be a tax resident while being a non-resident).

Looking to plant a residency flag in a low tax juristricton and pay my taxes legally (albeit not pay a lot of it).

I have citizenship for 3 countries and none of them are Hong Kong. Hong Kong is just where I am incorporated. Living in DR won't be a problem, I've been all over the world. Just looking for a sustainable tax/living plan before I ramp up my business over the next few years.
 
M

Metapod

New member
Jul 22, 2018
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Is anyone here a resident of DR and earning income abroad (either through online employment or through an overseas company). How does that work for tax in DR? I've read through tax summaries from KPMG and similar companies and it looks like I would be paying 0% on dividends or income sourced abroad as a DR resident?
 
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william webster

Platinum
Jan 16, 2009
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Advice that has been given here is that foreign income is not being taxed at this point.

Apparently there is a law about foreign passive income but to date, not enforced.
 
M

Metapod

New member
Jul 22, 2018
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william webster said:
Advice that has been given here is that foreign income is not being taxed at this point.

Apparently there is a law about foreign passive income but to date, not enforced.
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Do you know anyone who has filed tax in DR with declared foreign income? Or possibly a local tax advisor I could speak to?

I've read a lot of documents and feel like I have a grasp of the situation on paper, but it's always nice to have tangible experience from those who have already been through it.

All the documents that I've read say that there are no CFC (controlled foreign corporation) laws in the DR, along with territorial taxation on foreign income / dividends, which is music to my ears. ;)
 
W

william webster

Platinum
Jan 16, 2009
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I file my property and company annual reports that call for a minimum tax.
Nothing else

There are big firms in Sto Domingo that could advise you
You sound the type that wants a professional opinion, which you won’t get here
 
C

Chirimoya

Well-known member
Dec 9, 2002
17,850
982
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I'm registered as a taxpayer in the DR with an SRL company. We are given invoice numbers in three categories.
Most of my income comes from overseas clients. They are not charged ITBIS and I only have to declare the income if the invoice exceeds RD$250,000.
We invoice our local customers with regular invoices adding ITBIS (18%) and declare and pay the ITBIS to the DGII.
Some local customers like non-profits/NGOs are tax-exempt so we declare those invoices (facturas de régimen especial) as income.
 
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rhanson1

Active member
Feb 23, 2012
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According to this article from Guzman, income earned from financial investments abroad are subject to Dominican income taxes for resident foreigners. https://www.hg.org/legal-articles/an-overview-of-dominican-tax-law-4953

The tax rates range from 15% to 25%. At the time this article was written, foreign investment income less than 290,243 pesos per year is exempt from Dominican income taxes, but that threshold limit is adjusted every year. I do not know what the exempt limit is today. Earnings from wages or social security or pension income is also exempt from Dominican income taxes. The article states that anyone living in the Dominican Republic for more than 182 days per year is considered a resident for tax purposes and that this tax obligation kicks in only after 3 years of residency.

As a practical matter however, I understand that these income tax obligations for foreign investments are not enforced. Furthermore it is unclear to me how the Dominican tax authorities would even know about a foreign resident's investment income from abroad. I am not aware of any reciprocity between Dominican and American tax authorities but I could be wrong. It is also unclear what penalties, if any, may be due for a foreign resident's failure to pay the legally mandated income taxes.

Here is another article about Dominican income tax requirements for expats. It appears to echo what Guzman says except for the fact that the theshold limit for income exempt from taxation is much higher. Probably this is because it is a more recent article and reflects some of the annual increases to those limits. https://www.taxesforexpats.com/dominican_republic/us-tax-preparation-in-dominican_republic.html
 
M

Metapod

New member
Jul 22, 2018
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rhanson1 said:
According to this article from Guzman, income earned from financial investments abroad are subject to Dominican income taxes for resident foreigners. https://www.hg.org/legal-articles/an-overview-of-dominican-tax-law-4953

The tax rates range from 15% to 25%. At the time this article was written, foreign investment income less than 290,243 pesos per year is exempt from Dominican income taxes, but that threshold limit is adjusted every year. I do not know what the exempt limit is today. Earnings from wages or social security or pension income is also exempt from Dominican income taxes. The article states that anyone living in the Dominican Republic for more than 182 days per year is considered a resident for tax purposes and that this tax obligation kicks in only after 3 years of residency.

As a practical matter however, I understand that these income tax obligations for foreign investments are not enforced. Furthermore it is unclear to me how the Dominican tax authorities would even know about a foreign resident's investment income from abroad. I am not aware of any reciprocity between Dominican and American tax authorities but I could be wrong. It is also unclear what penalties, if any, may be due for a foreign resident's failure to pay the legally mandated income taxes.

Here is another article about Dominican income tax requirements for expats. It appears to echo what Guzman says except for the fact that the theshold limit for income exempt from taxation is much higher. Probably this is because it is a more recent article and reflects some of the annual increases to those limits. https://www.taxesforexpats.com/dominican_republic/us-tax-preparation-in-dominican_republic.html
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That is financial investment, not income or dividends, which are a different tax classification. I will be either paying myself a salary or taking dividends. My understanding is that both foreign income and dividends are clasified differently to financial income (stocks/bonds/funds etc).

Do you know a local tax attorney by any chance?

I actually want to file taxes, even if I could get away without doing so. One of the big reasons is that it makes any potential future audits from my 'home' country a lot easier to fight.

The ATO much like the IRS hates to see people leave. ;)
 
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rhanson1

Active member
Feb 23, 2012
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Metapod said:
That is financial investment, not income or dividends, which are a different tax classification. I will be either paying myself a salary or taking dividends. My understanding is that both foreign income and dividends are clasified differently to financial income (stocks/bonds/funds etc).

Do you know a local tax attorney by any chance?

I actually want to file taxes, even if I could get away without doing so. One of the big reasons is that it makes any potential future audits from my 'home' country a lot easier to fight.

The ATO much like the IRS hates to see people leave. ;)
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Sorry, I do not know any local tax attorneys. Good luck with that. In regards to dividend income, I believe that would be classified as investment income. However taking money from your own company in lieu of salary would be a distribution - not a dividend - and I agree that distributions in lieu of salary that you work for and earn would likely not qualify as investment income. I am certainly no expert in this area, but I think that investment income would cover things like income from real estate investments, stocks, bonds, mutual funds, CD's, etc., or passive income from distributions from partnerships or other business ventures that you have an investment in but do not directly work for or control. But that's just my uneducated opinion.
 
M

Metapod

New member
Jul 22, 2018
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rhanson1 said:
Sorry, I do not know any local tax attorneys. Good luck with that. In regards to dividend income, I believe that would be classified as investment income. However taking money from your own company in lieu of salary would be a distribution - not a dividend - and I agree that distributions in lieu of salary that you work for and earn would likely not qualify as investment income. I am certainly no expert in this area, but I think that investment income would cover things like income from real estate investments, stocks, bonds, mutual funds, CD's, etc., or passive income from distributions from partnerships or other business ventures that you have an investment in but do not directly work for or control. But that's just my uneducated opinion.
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Thanks. I'll try to contact some tax advisors online and see if I can get them to weigh in on this. If it works out for me, ill be over at the end of the year.
 
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Fabio J. Guzman

DR1 Expert
Jan 1, 2002
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www.drlawyer.com
What is said in the article quoted is still correct.
The exempt limit for income tax is now up to 416,220 pesos.
Income tax obligations for foreign investments are still not being enforced.
 
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