US Expat Taxes for Americans Living in the Dominican Republic – What You Need to Know
It has been estimated that there are several thousand Americans living in the Dominican Republic.
Living in the Dominican Republic is an incredible experience for a number of reasons, including the friendly locals, the climate and beaches, and the quality of life. As an American expatriate living in the Dominican Republic though, what exactly do you need to know regarding filing US expat (and Dominican) taxes?
All US citizens and green card holders who earn a minimum of around $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in the Dominican Republic, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040. While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on the request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“Spouses are required to file separate income tax returns covering their respective incomes. Income from property held in common is included in the return of the husband, so it should not be included in the spouse’s return.” – PwC
If you pay income tax in the Dominican Republic, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS. The main one is the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a Dominican resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in the Dominican Republic. These exemptions can be combined if necessary. Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
The US and Dominican governments share taxpayer info, and Dominican banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/Dominican dual citizen, and you have been living in the Dominican Republic but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
Dominican taxes – what you need to know
Dominican residents and non-residents are taxed on their Dominican sourced income on a scale of 0% to 25%. Residents are also taxed on foreign investments and financial gains.
Foreigners living in the Dominican Republic are considered a resident for tax purposes if they they spend more than 182 days in the Dominican Republic in a tax year.
The Dominican tax year is the same as in the US, which is to say the calendar year. If your only income is from employment in the Dominican Republic, tax will be deducted at source by your employer and you won’t need to file a Dominican tax return. Otherwise, income tax returns are due by March 31. The Dominican tax authority is called the Dirección General de Impuestos Internos.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in the Dominican Republic that you contact a US expat tax specialist.