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Hiring in Dominican republic
Dominican Republic is a country in the Caribbean. Santo Domingo is the capital and the largest city of the Dominican Republic. The service sector that includes tourism, financial services and telecommunication are the major contributors of the GDP. Its main trading partners are the United States, China, Haiti, European Union, Japan and the United Kingdom. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Dominican Republic’s legal and tax regulations. Employment regulations including probation, holidays and termination are covered by the Labor Code. The Labor Code stipulates that employees are entitled to 14 days of annual leave after one year of service. Dominican-source income is subject to tax, while foreign-source income is generally not. Global PEO’s or Employer of Record (EOR) facilitate companies by ensuring compliance with the Dominica’s Labor Code and tax laws.
statutory labor requirements
Probation Period
- Probationary periods are allowed, but cannot last longer than three months.
Annual Leave
- Employees are entitled to 14 days of vacation after working for a company for more than a year, and the 13 public holidays in the country.
Public Holidays
- New Year's Day (1st January)
- Epiphany (6th January)
- Altagracia Day (21st January)
- Duarte Day (26th January)
- Dominican Republic Independence Day (27th February)
- Good Friday (10th April)
- Labour Day (4th May)
- Dominican Republic National Election Day
- Corpus Christi (11th June)
- Restoration Day (16th August)
- Our Lady of Mercy Day (24th September)
- Constitution Day (9th November)
- Christmas Day (25th December)
Maternity Leave
- The Labor Code of the Dominican Republic had previously provided in its article 236 that: "The pregnant worker has a right to a mandatory rest during the six weeks that precede the probable date of the childbirth and the six following weeks.
- However, maternity leave was extended by 2 weeks in 2018
Paternity Leave
- Fathers are entitled to 2 days of paid paternity leave
Sick Leave
Employees generally use their vacation time as sick time as employees are not entitled to separate sick pay.
Work Hours
- A regular workweek is 44 hours, with most employees working 8 hours a day.
Overtime
- Work for more than 44 hours a week is considered overtime and must be paid with a 35% premium over regular hours.
- Hours worked in excess of 68 hours a week are paid at a 100% premium.
- Overtime pay does not apply to managers.
Notice Period
- The party that terminates the employment contract must give an advance notice to the other party, the extent of which depends on the length of the employment, as follows:
-
- 7 days of notice for 3 to 6 months of employment
- 14 days of notice for 6 to 12 months of employment
- 28 days of notice for more than 12 months of employment
Severance
- Employers who exercise their right to terminate their employees without cause must make severance payments to the terminated employee as detailed below:
-
- 6 days of salary for 3 to 6 months of employment
- 13 days of salary for 6 to 12 months of employment
- 21 days' salary per year of employment for 1 to 5 years of employment
- 23 days' salary per year of employment for more than 5 years of employment
13th / 14th Month Pay
- Yes
- There is a statutory requirement to pay the 13th month salary.
- This payment must be completed by the 20th of December.
- The employer is also required to share their profits with the employee for their participation.
income tax
- The Dominican Republic follows a territorial concept for the determination of taxable income.
- Dominican-source income is subject to tax, while foreign-source income is generally not.
- However, residents are subject to taxation on foreign investments and financial gains.
- In the case of individuals who become residents, this foreign-source income is taxed only after the third year.
- Individuals pay tax on income in excess of 416,220 Dominican pesos (DOP).
- Personal income is taxed at the following rates (the scale is based on annual income):
|
Taxable income (DOP) |
Tax on column 1 (DOP) |
Tax on excess (%) |
|
|
Over (column 1) |
Not over |
||
|
0 |
416,220 |
0 |
0 |
|
416,220 |
624,329 |
0 |
15 |
|
624,329 |
867,123 |
31,216 |
20 |
|
867,123 |
and above |
79,776 |
25 |
deductible expenses
Personal Deductions
- Individuals (who are income taxpayers) may deduct educational expenses incurred by them and their direct dependent non-wage earners from gross income subject to tax.
- Educational expenses include those incurred in connection with elementary, medium, technical, and university education.
- The deduction is allowed only up to 10% of gross taxable income.
- Other non-business expenses are not deductible.
Standard Deductions
- Residents have a standard deduction of DOP 399,923 annually, which is adjusted by the annual inflation rates.
- Christmas bonuses, severance, and pre-notice payments are tax exempt.
Business Deductions
- Individuals performing commercial or industrial activities can deduct expenses incurred in the production of business activities, whether or not they keep organized accounting records.
- Otherwise, they have the option to deduct 40% on the gross revenue as total deductions to get the net taxable income.
- In these cases, the standard/fixed deduction is not applicable.
|
Deductible Expenses |
|
|
Personal Deductions |
|
|
Standard Deductions |
|
|
Business deductions |
|
immigration
- Depending on their country of citizenship, individuals may be required to apply for and obtain an entry visa before traveling to the Dominican Republic.
- 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.
- In addition, nonresident employees who intend to work in the Dominican Republic in a dependent employment relationship for a local entity must obtain a work visa.
- The NM1 Visa for work purposes is granted to individuals who, as a result of the nature of their occupation, remain in the country for one year.
- In general, this visa is granted to people who fulfill contracts for a specific time period.
- The visa can be renewed for one-year periods during the term of the contract.
|
Type of Visa/Permit |
Documentation |
Validity |
Eligibility |
|
Business /Working Visa (NM1) |
|
1 year (can be extended) |
|
value added tax
- Tax on the Transfer of Industrialized Goods and Services (ITBIS) is a value-added tax (VAT) applied to industrialized goods (movable) and services at a rate between 13% and 18%, with exemptions established by law to certain goods and services.
|
VAT |
|
|
Standard Rate |
18% |
|
Reduced Rate |
13% |
withholding tax
Dividends
- The withholding tax on dividends paid to a resident or nonresident is 10%
- The same withholding tax applies to dividends or benefit remittances by free trade zone entities
Interest
- The withholding tax on interest paid to a resident individual or a nonresident (individual or entity) is 10%
- No tax is withheld on interest paid to a resident legal entity
Royalties
- The withholding tax on royalties paid to a nonresident is 27%
- No tax is withheld on royalties paid to a resident legal entity, and royalties paid to a resident individual are subject to a 10% withholding tax
Fees for Technical services
- Fees for technical services paid to a nonresident are subject to a 27% withholding tax, regardless of where the services are provided
- No tax is withheld on fees for technical services paid to a resident legal entity, and fees paid to a resident individual are subject to a 10% withholding tax
|
Type of Payment |
Residents |
Nonresidents |
||
|
Company |
Individual |
Company |
Individual |
|
|
Dividends |
10% |
10% |
10% |
10% |
|
Interest |
0% |
10% |
10% |
10% |
|
Royalties |
0% |
10% |
27% |
27% |
|
Technical Service Fee |
0% |
10% |
27% |
27% |
termination
There are 4 ways to terminate an employment contract
- At Will Termination ("desahucio")
-
- Any party to an employment contract has the right to terminate it unilaterally without having to specify a cause.
- The party that terminates the employment contract must give an advance notice to the other party
2.For Cause Termination by the Employer ("despido")
-
- Employers may dismiss their employees alleging one or several of the specific causes listed in the Labor Code.
- For cause termination by an employer (despido) requires evidence of the commission by the employee of one or several of the listed grounds for termination.
- It also requires that the employer give notice of the termination and the grounds on which it is based to the Department of Labor within 48 hours of the dismissal.
- The right of the employer to base the dismissal on a specific cause for termination expires 15 days after the employee has committed the act alleged as grounds for termination.
-
- An employee may resign from his or her job for cause (dimisión).
- For cause termination by employees also requires evidence of the commission by the employer of one or several of the listed grounds for termination.
statutory benefits
- These are mandatory benefits as postulated by law
- These include probationary period, annual leave, public holidays, sick leave, maternity leave, paternity leave, overtime pay, notice period, and severance pay
- Statutory benefits also include social security benefits
|
Statutory Benefits |
|
Probationary Period |
|
Annual Leave |
|
Public Holidays |
|
Maternity Leave |
|
Paternity Leave |
|
Sick Leave |
|
Overtime Pay |
|
Notice Period |
|
Severance Pay |
|
Social Security Benefits |
payments and invoicing
- The tax year-end is 31 December.
- 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.
- Individuals are required to file a personal tax return only when income from sources different from the salaries, wages, and bonuses (in which the employer makes withholdings) is received
- If salaries are paid outside local payroll, individuals shall file a personal tax return.
- The personal tax return is due 31 March of the year after the tax year-end.
- Employers are required to withhold income tax from employees’ remuneration on a monthly basis.
- Tax on income from sources different from the salaries, wages, and bonuses received is due 31 March of the year after the tax year-end.
ease of doing business
- The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
- Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
- According to the World Bank Dominican Republic ranked 115th in the World in 2019 in terms of ease of doing business.
employee accruals
| Christmas Bonus% |
Based on one month bonus 8.33% |
| Christmas Bonus Over Vacations % |
0% |
| Severance per Year % |
Employees are entitled to severance pay that equals 21 days pay for each completed year of employment (5.76% of annual salary) |
| Vacations % | Employees are entitled to 14 days of vacation after working for a company for more than a year (3.83% of annual salary) |
| Notice % |
Employees are entitled to 28days of notice period for one year of service or more (7.69%) |
| Christmas Bonus Over Notifications% | |
| Vacations Plus% | Based on over a year service (company profit-sharing, equivalent to 45 days of work) 12.36% |
| Total percentage of Salary (yearly) | The total employment accruals as a percentage of salary per anum are equal to 37.71% |
employer accruals
Additional information (Country Accruals)
| Social Security | 7.10% |
| Family healthcare | 7.09% |
| labour risk insurance | 1.20% |
| Maternity | 12 weeks |
| Christmas Bonus | 8.33% |
| Vacations | 6.30% |
| Descritption: |
Employers contribute 7.10% of salaries and withhold 2.87% from employees’ salaries for pensions. The quotable salaries for contribution are 20 minimum wages. This contribution is mandatory. In cases where the employee already contributes in their home country, one should obtain a certification of contribution from the Social Security Ministry in their home country in order to avoid double contribution. Such document should be filed by the employer, as the withholding agent of the employee, to the Dominican Social Security Ministry in order to justify the employee’s non-contribution. |
Employer Accruals Additional information
| Employment Accruals | ||
| Annual Leave | Employees are entitled to 14 days of vacation after working for a company for more than a year, and the 13 public holidays in the country. | This equals 3.8% (14/365 days) of annual income |
| Maternity Leave | Employees are entitled to 14 weeks of maternity leave | This equals 26.9% (14/52 weeks) of annual income |
| Paternity Leave | Fathers are entitled to 2 days of paid paternity leave | This equals 0.54% (2/365 days) of annual income |
| Overtime | Work for more than 44 hours a week is considered overtime and must be paid with a 35% premium over regular hours. | This depends on the number of overtime hours worked |
| Social Security | Employers who exercise their right to terminate their employees without cause must make severance payments to the terminated employee as detailed below: • 6 days of salary for 3 to 6 months of employment • 13 days of salary for 6 to 12 months of employment • 21 days' salary per year of employment for 1 to 5 years of employment • 23 days' salary per year of employment for more than 5 years of employment Assuming 6 to 12 months of employment |
This equals 3.5% (13/365 days) of annual income. |
| 13th Month Pay | 13th month pay is mandatory and must be paid by 20th December | This equals 8.33% (1/12 months) of annual income) |
| Social Security | Employers contribute 7.10% of salaries for pensions. Employers contribute 7.09% of salaries for family healthcare. Employers contribute 1.2% of salaries for labor risks insurance. |
This equals 15.4% of annual income |
