A U.S.-DR Tax Treaty: The Opportunity
The United States and the Dominican Republic do not have an income tax treaty, leaving investors in both countries exposed to double taxation, high withholding rates, and limited tools to resolve cross-border tax issues. The existing 2016 FATCA agreement improves information exchange but does not reduce tax burdens or provide the structural certainty needed for modern investment flows.
A U.S.-DR tax treaty presents a clear opportunity to strengthen economic ties and reduce friction for businesses, individuals, and financial institutions. Evidence from comparable U.S. treaties-such as those with Canada, Spain, and Mexico-shows consistent outcomes: lower withholding taxes, clearer permanent establishment rules, stronger dispute-resolution mechanisms, and increased foreign direct investment (FDI). Applying these benchmarks suggests that the Dominican Republic could see meaningful investment gains across free-trade zones, tourism, real estate, energy, and financial services.
For the United States, a treaty would reduce tax uncertainty for American companies operating in the DR, support more secure investment environments, and reinforce commercial and strategic priorities in the Caribbean. For the Dominican Republic, it would enhance competitiveness, expand access to U.S. capital, and align its tax framework with international standards.
This report outlines the immediate economic value of a US-DR Double Taxation Treaty. By mirroring the successful frameworks, the U.S. holds with partners like Mexico and Spain, the DR could unlock an estimated $400M+ in additional annual FDI and secure its position as the Caribbean’s premier investment hub.
Figure 1: Key U.S. Economic Interests in the Dominican Republic
Area | U.S. Exposure / Relevance | Why a Treaty Matters |
Exports | DR is among top U.S. export markets in the Caribbean US exports to DR reached ~$9.8B in 2024. | Lower tax friction supports sales, services, financing |
FDI | Strong U.S. presence in tourism, manufacturing, energy | Treaty lowers withholding & PE uncertainty |
Services | Engineering, construction, logistics, management | Clear PE rules reduce tax disputes |
Diaspora | Large U.S.-DR population with business ties | Treaty improves remittance & investment efficiency |
Source: USTR; U.S. Department of Commerce; Dominican Republic Investment Climate Statement (U.S. State Dept.)
The United States and the Dominican Republic maintain active commercial and financial ties, but no income tax treaty governs cross-border taxation between them. In the absence of a Double Tax Treaty (DTT), all Dominican and U.S. taxpayers operating in the other jurisdiction are subject to full domestic withholding tax rates, with limited mechanisms to avoid double taxation. For U.S. payers, this means the standard 30% withholding on U.S.-sourced dividends, interest, and certain service payments generally applies-significantly above the reduced rates typically found in U.S. treaty relationships.
The primary tax-related instrument between the two countries is the 2016 FATCA Intergovernmental Agreement, which facilitates information exchange and supports transparency initiatives. However, FATCA does not reduce withholding taxes, define permanent establishment standards, or provide access to a mutual agreement procedure (MAP). As a result, taxpayers face heightened exposure to double taxation and limited avenues to resolve cross-border disputes.
The Dominican Republic has established tax treaties with several countries-including Spain and Canada-which offer reduced withholding, clear residency rules, and modern anti-abuse provisions. These agreements demonstrate the DR’s willingness and capacity to administer treaty frameworks, but the absence of a treaty with the United States represents a competitive gap. U.S. investors operating in the Caribbean region often benefit from treaty protections in neighboring jurisdictions, putting the Dominican Republic at a relative disadvantage.
A U.S.-DR tax treaty would modernize the bilateral framework, align the relationship with international tax norms, and provide the clarity and balance that investors expect in comparable markets.
Figure 2: U.S.-DR Tax Instruments Overview
Instrument Type | Exists between U.S. & DR? | Key features / immediate effect |
Income Tax Treaty (DTT) | No | No bilateral income-tax treaty in force – no treaty withholding relief, no MAP under a DTT. |
FATCA IGA (Intergovernmental Agreement) | Yes (2016) | IGA to implement FATCA (automatic/standardized reporting by financial institutions). Improves information exchange but does not provide withholding relief or treaty allocation rules. |
Competent Authority / Competent-Authority Arrangement | Yes (IGA-linked arrangement) | Competent authority arrangement accompanies FATCA IGA for information exchange; not a substitute for a DTT’s MAP or withholding articles. |
Tax Information Exchange Agreement (TIEA) | No (no standalone TIEA beyond FATCA IGA) | DR and U.S. rely on FATCA IGA for reporting; no separate TIEA listed. |
DR treaties with other countries (benchmarks) | Yes | DR has income-tax treaties (notably Canada and Spain) that include withholding relief, residency rules and anti-abuse measures – useful comparators. |
Source: IRS; U.S. Department of the Treasury; Treaty Accord
Figure 3: Withholding: No Treaty vs Example U.S. Treaty Rates (illustrative)
Income type | U.S. domestic (no treaty) | Example treaty rates – Canada | Example treaty rates – Spain | Example treaty rates – Mexico | Source |
Dividends (general) | 30% | 15% (general); reduced to 5% for certain direct holdings. | 15% (general); reduced to 5% in qualifying cases. | 10% (general); reduced to 5% in qualifying cases. | U.S. stat: Pub. 515 (NRA withholding = 30%). Example treaty rates: IRS Table 1 (treaty lines for CA/SP/MX). |
Interest | 30% | 0% (many interest items are exempt under CA treaty). | 0% (Spain – interest frequently exempt under treaty conditions). | 15% / 10% (Mexico treaty provides reduced rates; often 10% or exempt depending on article). | IRS Table 1 – interest column for CA/SP/MX. |
Royalties | 30% | 5-15% (varies by royalty type under CA treaty). | 5-15% (Spain treaty generally provides reduced rates; see treaty text/footnotes). | 5% (Mexico: reduced rates in several cases; see treaty). | IRS Table 1 – royalties column for CA/SP/MX. |
Services / Technical fees (cross-border) | Often 30% (FDAP) or taxed as ECI if PE) | Varies / often lower or subject to PE test | Varies / subject to PE or treaty article | Varies | See Pub. 515 and IRS Table 1; specific treatment depends on treaty article and PE/residency tests. |
Dominican Republic – non-treaty outbound WHT (for context) | n/a (domestic) | n/a | n/a | n/a | PwC – Dominican Republic: non-treaty WHT on payments to foreign corporations: Dividends & interest: 10%; Royalties/technical/other services: 27% (table shows Non-treaty: 10 / 27 / 27 / 27). |
Source: IRS; U.S. Department of the Treasury; PwC Tax Summaries
Note:
- Treaty rates depend on conditions. The IRS Table 1 lists treaty rates but each reduced rate typically requires entitlement (beneficial-owner test, ownership thresholds, or specific article conditions). Consult the text of the treaty and its technical explanations for precise application.
- “Typical” means illustrative. The proximate point for this report: without a treaty, the 30% statutory U.S. withholding applies; treaties commonly-and materially-reduce that burden. The exact savings depend on the income type and treaty provisions (e.g., 0-15% for many items). Use the numbers above as conservative comparators supported by IRS tables.
- DR domestic rates differ by payment type. PwC’s DR summary provides the relevant Dominican non-treaty withholding context (helpful when modeling fiscal impacts). Where DR has a treaty with Canada/Spain, PwC lists the treaty-rate outcomes in practice.
A U.S.-DR tax treaty would directly address the main tax frictions that currently raise the cost of doing business between the two countries. Today, cross-border income is generally subject to the full 30% U.S. withholding rate, and companies on both sides face uncertainty on how business profits, services, and financing flows are taxed. Without a treaty, investors lack the predictability that U.S. treaty partners typically receive.
A modern DTT would change this in three important ways:
- Lowering tax costs: Comparable U.S. treaties-such as those with Canada, Spain, and Mexico-reduce withholding on dividends, interest, and royalties to 5-15% or even zero in some cases, materially improving the economics of cross-border investment.
- Attracting & Locking in Foreign Direct Investment (FDI): DR already attracts substantial FDI. In 2024, the country remains the top FDI recipient in Central America, with inflows projected to reach USD 4.7 billion; a DTT could amplify this by improving tax efficiency and investment certainty - possibly accelerating growth especially in high-potential sectors like tourism, energy, real estate and FTZs. Increasing certainty: A treaty creates clear rules for when a business is taxable in the other country (permanent establishment) and provides access to a Mutual Agreement Procedure (MAP) to resolve disputes-tools that do not exist today in the U.S.-DR relationship.
- Strengthening competitiveness: The Dominican Republic already has tax treaties with partners like Spain and Canada, helping attract investment into priority sectors such as tourism, free-trade zones, energy, and real estate. The absence of a U.S. treaty is now a competitive gap, given the scale of U.S. trade, tourism, financial flows, and diaspora investment.
Together, these factors make a U.S.-DR DTT a practical step to reduce friction, increase predictability, and position the Dominican Republic more strongly within a highly competitive regional investment landscape.
Experience from existing U.S. income tax treaties provides a clear benchmark for what a U.S.-Dominican Republic treaty could achieve. U.S. treaties with countries such as Canada, Spain, and Mexico demonstrate how modern treaty frameworks reduce tax friction while safeguarding revenue through clear rules and anti-abuse provisions.
Across these treaties, several common features stand out. First, withholding taxes on dividends, interest, and royalties are substantially reduced, often to rates between 0% and 15%, compared to the 30% statutory rate applied in non-treaty situations. These reductions improve cash flow, lower the cost of capital, and directly enhance the attractiveness of cross-border investment.
Second, U.S. treaties establish clear permanent establishment (PE) standards, ensuring that business profits are taxed only where there is meaningful economic presence. This clarity is particularly important for services, infrastructure, and project-based investments, where uncertainty over PE status can deter expansion. Treaties also provide access to a Mutual Agreement Procedure (MAP), allowing tax authorities to resolve disputes and prevent double taxation-an important risk-mitigation tool for multinational firms.
Finally, modern U.S. treaties incorporate robust anti-abuse protections, including limitation-on-benefits (LOB) clauses and enhanced information exchange. These provisions protect tax bases while still enabling genuine investment. The Dominican Republic’s existing treaties with Canada and Spain already reflect many of these standards, indicating institutional readiness to implement a similar framework with the United States.
Taken together, these comparators show that a U.S.-DR tax treaty would not be an experiment, but rather a tested and widely adopted policy instrument-one that balances investment promotion with fiscal responsibility.
Figure 4: Withholding Tax Comparison (No Treaty vs U.S. Treaty Partners)
Income Type | U.S.-DR (No Treaty) | U.S.-Canada Treaty | U.S.-Spain Treaty | U.S.-Mexico Treaty |
Dividends | 30% | 15% (5% for qualified holdings) | 15% (5% qualified) | 10% (5% qualified) |
Interest | 30% | 0% | 0% | 10-15% depending on type |
Royalties | 30% | 5-15% | 5-10% | 5% |
Source: IRS
A U.S.-Dominican Republic tax treaty would deliver meaningful economic benefits by lowering barriers to investment and improving the quality and stability of capital inflows. The United States is one of the Dominican Republic’s most important economic partners, and a treaty would directly enhance the country’s ability to attract long-term, higher-value U.S. investment across priority sectors.
Lower withholding taxes on dividends, interest, and royalties would reduce the cost of capital for projects in the Dominican Republic, improving returns and making marginal investments economically viable. This is particularly relevant for tourism, real estate, energy, manufacturing, and free-trade zones, where projects are capital-intensive and sensitive to tax treatment. Clear permanent establishment rules would further reduce uncertainty for U.S. firms operating locally, supporting expansion rather than short-term or fragmented investment structures.
The Dominican Republic has already demonstrated strong investment performance, with foreign direct investment inflows exceeding USD 4 billion annually in recent years. A tax treaty would help convert this momentum into sustained growth by encouraging reinvestment, lengthening investment horizons, and supporting more complex business activities such as regional headquarters, financing platforms, and shared-services operations.
In addition, a treaty would strengthen the Dominican Republic’s position within a competitive regional landscape. As neighboring and peer economies benefit from U.S. treaty protections, the absence of a treaty increasingly represents an opportunity cost. A U.S.-DR tax treaty would help close this gap, enhance investor confidence, and reinforce the country’s reputation as a predictable, rules-based destination for international capital.
Overall, a well-designed treaty would not only increase investment volumes but also improve investment quality-supporting job creation, technology transfer, and sustainable economic development.
Figure 5: Potential FDI Uplift from a U.S.-DR Tax Treaty (Illustrative)
Scenario | Incremental FDI Impact | Annual FDI Range |
Conservative | +5% | +USD 200-250M |
Moderate | +10% | +USD 400-450M |
Upside | +15% | +USD 600M+ |
Sources & Basis: UNCTAD studies on treaty effects; OECD investment policy analysis
Note: Estimates are indicative and based on comparator-country treaty outcomes; actual impact depends on treaty design and implementation.
A U.S.-Dominican Republic tax treaty would also deliver clear benefits for the United States by improving tax certainty, reducing compliance risk, and supporting the expansion of U.S. businesses in a strategically important regional partner. The Dominican Republic is one of the largest economies in the Caribbean and a major destination for U.S. exports, investment, tourism, and financial flows. A treaty would help U.S. companies operate more efficiently in this market.
Reduced withholding taxes on dividends, interest, and royalties would improve cash flow for U.S. investors and lower the cost of financing projects in the Dominican Republic. Clear permanent establishment rules would reduce uncertainty for U.S. firms providing services, managing regional operations, or undertaking project-based investments. Together, these provisions would encourage U.S. companies to expand operations, reinvest earnings, and structure investments on a longer-term basis.
A treaty would also enhance tax administration and risk management for U.S. taxpayers. Access to a Mutual Agreement Procedure (MAP) would provide a formal mechanism to resolve disputes and avoid double taxation-an important safeguard for U.S. multinationals. In addition, modern treaty standards, including limitation-on-benefits provisions and information exchange, would protect the U.S. tax base while facilitating legitimate business activity.
Beyond commercial considerations, a U.S.-DR tax treaty would reinforce broader U.S. economic and strategic interests in the Caribbean by promoting a stable, rules-based investment environment. By strengthening bilateral economic ties and supporting transparent tax cooperation, a treaty would advance U.S. policy objectives while creating new opportunities for American businesses.
Figure 6: U.S. Trade with the Dominican Republic (2020-2024)
Year | U.S. Exports to DR (USD Billion) | U.S. Imports from DR (USD Billion) |
2020 | $6.9 | $4.8 |
2021 | $7.8 | $5.1 |
2022 | $9.0 | $5.6 |
2023 | $9.5 | $5.9 |
2024 | $9.8 | $6.2 |
Source: U.S. Census Bureau – Foreign Trade Statistics; Office of the U.S. Trade Representative (USTR), Dominican Republic Country Profile
To fully capture the opportunity of a U.S.-Dominican Republic tax treaty, the agreement should reflect the core elements of modern U.S. income tax treaties while accounting for the Dominican Republic’s economic structure. Well-designed provisions would promote investment, provide certainty, and protect both countries’ tax bases.
Reduced withholding taxes would be central to the treaty’s impact. Consistent with existing U.S. treaties, withholding on dividends, interest, and royalties could be reduced from the current statutory level to treaty rates typically ranging from 0% to 15%, subject to ownership thresholds and anti-abuse safeguards. These reductions would improve cash flow and lower financing costs for cross-border investments.
Clear permanent establishment (PE) rules should define when business profits are taxable in the source country, particularly for services, construction, and project-based activities. Clear PE standards reduce disputes and allow companies to plan operations with confidence, encouraging longer-term commitments rather than short-term or fragmented structures.
Effective dispute resolution mechanisms are also essential. The treaty should include a robust Mutual Agreement Procedure (MAP), and-consistent with many recent U.S. treaties-consider binding arbitration to ensure timely resolution of double-taxation cases.
Finally, anti-abuse and transparency provisions would safeguard fiscal interests. A strong limitation-on-benefits (LOB) article, coupled with information-exchange standards aligned with international norms, would prevent treaty shopping while supporting legitimate investment. Together, these provisions would ensure that a U.S.-DR tax treaty promotes growth, certainty, and integrity.
A U.S.-Dominican Republic tax treaty can be designed to promote investment without undermining fiscal integrity. Modern U.S. treaties routinely balance reduced withholding and increased certainty with strong safeguards that protect against revenue loss and treaty abuse, and these principles should guide a U.S.-DR agreement.
Central to this balance is a robust Limitation on Benefits (LOB) article, which restricts treaty benefits to taxpayers with genuine economic ties to either country. LOB provisions are standard in U.S. treaties and are effective in preventing treaty shopping by third-country entities seeking to route income through the Dominican Republic or the United States solely for tax advantages.
In addition, clear anti-abuse language-including principal purpose tests and anti-conduit rules-would ensure that treaty benefits apply only to bona fide commercial activity. These provisions help preserve tax bases while maintaining the treaty’s credibility with tax authorities and policymakers.
From an administrative standpoint, the treaty would complement-not replace-existing transparency frameworks. The Dominican Republic already participates in international information-exchange regimes, including FATCA-related reporting. A treaty would reinforce this cooperation by providing formal mechanisms for exchange of information consistent with international standards, improving compliance and enforcement on both sides.
Finally, fiscal impacts should be evaluated dynamically. While reduced withholding may lower headline tax rates on certain payments, international experience shows that these effects are often offset over time by higher investment volumes, increased reinvestment, and broader tax bases. With appropriate safeguards in place, a U.S.-DR tax treaty can be fiscally responsible while supporting long-term growth.
The absence of an income tax treaty between the United States and the Dominican Republic represents a missed opportunity in an otherwise strong and growing economic relationship. As cross-border investment, trade, tourism, and financial flows continue to expand, the lack of a modern treaty framework imposes unnecessary costs, uncertainty, and competitive disadvantages for businesses and investors in both countries.
Experience from comparable U.S. treaties demonstrates that well-designed agreements can reduce tax friction, improve certainty, and support increased foreign direct investment-while preserving fiscal integrity through robust anti-abuse safeguards. The Dominican Republic has already shown its capacity to administer treaty arrangements through agreements with other major partners, and the United States has a well-established treaty model that balances investment promotion with revenue protection.
A U.S.-DR tax treaty would advance shared economic interests by enhancing investor confidence, lowering the cost of capital, and strengthening institutional cooperation. For the Dominican Republic, it would improve competitiveness, attract higher-quality investment, and support long-term development. For the United States, it would protect U.S. investors, support exports and services, and reinforce strategic engagement in the Caribbean.
The United States and the Dominican Republic should initiate formal discussions toward a comprehensive income tax treaty that reflects modern standards, incorporates strong anti-abuse provisions, and supports sustainable bilateral growth. Advancing such a treaty represents a practical, high-impact step to unlock economic opportunity and strengthen an already important bilateral partnership.
