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Thin capitalization in the Dominican Republic: the 3 to 1 interest limit and three year carryforward

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Last verified: 2026-10-30 · Status: Stable

Art. 287 caps deductible interest at total interest multiplied by three times average equity over average interest bearing debt. Debts to residents who include the interest in income at the general rate are left out, and regulated financial entities are exempt. Disallowed interest can be used over the next three years.

USD figures use the Banco Central de la República Dominicana reference selling rate of RD$60.8594 per US dollar for 28 October 2026, the latest row in its published rate file on the verification date, rounded to the cent.

Key facts

Debt to equity ratio implied by the formula3:1 ratioLey 11-92 art. 287, as of 2026-10-30 · in force
Carryforward of disallowed interest3 yearsLey 11-92 art. 287, as of 2026-10-30 · in force

The rule

1. Deductible interest cannot exceed interest accrued in the period multiplied by three times the ratio of average equity to average interest bearing debt, written I*3(C/D).
Example: Interest RD$10,000,000, equity RD$30,000,000, debt RD$150,000,000: limit RD$6,000,000. / Interest US$164,313.15: limit US$98,587.89.Ley 11-92, Código Tributario, art. 287 paragraph III literal a, paragraph I, 2012-11-09 official text · verified 2026-10-30
2. Debts owed to resident persons or entities that include the interest in their tax base at the art. 297 rate are excluded from "all debts", and their interest is not limited.Ley 11-92, Código Tributario, art. 287 paragraph III literal a, paragraph II numeral i, 2012-11-09 official text · verified 2026-10-30
3. Equity is the sum of share capital, legal reserve and undistributed retained earnings, excluding the result of the year. Averages are the opening and closing balances divided by two.Ley 11-92, Código Tributario, art. 287 paragraph III literal a, paragraphs II and III, 2012-11-09 official text · verified 2026-10-30
4. The limit does not apply to entities of the financial system regulated by the monetary and financial authority.Ley 11-92, Código Tributario, art. 287 paragraph III literal a, paragraph IV, 2012-11-09 official text · verified 2026-10-30
5. Interest not deducted can be deducted in following years, up to three years from when it accrued.Ley 11-92, Código Tributario, art. 287 paragraph III literal a, paragraph V, 2012-11-09 official text · verified 2026-10-30
6. An advance pricing agreement can cover third party financing where the taxpayer could fall under the limit, with reasons and duration of the over borrowing.Ley 11-92, Código Tributario, art. 281 bis, 2012-11-09 official text · verified 2026-10-30
EquityDebtRatioDeductibleDisallowed
RD$50,000,000RD$150,000,0003:1RD$10,000,000RD$0
RD$30,000,000RD$150,000,0005:1RD$6,000,000RD$4,000,000
RD$15,000,000RD$150,000,00010:1RD$3,000,000RD$7,000,000

Limit by leverage on RD$10,000,000 of interest

Worked example

  • With RD$10,000,000 (about US$164,313.15) of interest, average equity of RD$30,000,000 (about US$492,939.46) and average debt of RD$150,000,000 (about US$2,464,697.32), leverage is 5 to 1. The limit is RD$6,000,000 (about US$98,587.89), so RD$4,000,000 (about US$65,725.26) is disallowed this year, costing RD$1,080,000 (about US$17,745.82) of tax now and available for up to three years.

Step by step

  1. Separate debts to residents taxed at the general rate from other debts.
  2. Compute average equity without the current result.
  3. Apply the art. 287 withholding proportion first, then this limit, and test the rate under transfer pricing.
  4. Track disallowed interest by year of accrual.

Common traps

  • Current year profit does not count as equity.
  • Foreign bank debt counts as debt, so the limit is not only for related lenders.
  • Capitalizing a loan raises equity and lowers debt, which moves the ratio twice, but check the registration and contribution rules first.

Sources

Related pages

Related: Dominican Republic country profile · live dashboard · central bank and release calendar · our posts on X · where Argentina is involved, see The Argentine Thread guide

← Transfer pricing in the Dominican Republic: arm's length rule, DIOR, local and master files and penaltiesTax losses in the Dominican Republic: five years, 20% a year and profit caps in years four and five →

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