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Copyright Martínez Servicios Jurídicos, MSJ, S.R.L. All rights reserved.
The Dominican Republic is located in a strategic geographical area for the global exchange of goods and services. The economic stability and social peace that characterize the Dominican nation, represent an excellent environment for local and foreign entrepreneurs to invest in the different productive sectors of the economy.
The protection and promotion of business activities that prevail in the country, considered a first basis to freedom of enterprise, is a fundamental right enshrined in the Dominican Constitution. In effect, the Dominican State recognizes and guarantees free enterprise, commerce and industry. It provides, by constitutional mandate, an equal legal treatment for public or private entrepreneurial activities, by guarantying equal status for national and international investments (article 50 and 221 of the Constitution).
The tourism sector, pillar of our economy as an important source of income and job creation, is a tangible example of investor confidence in the legal framework that protects investments and business in the Dominican Republic. Attracted by the significant tourist inflows, that show anual statistical growth, renowned chains and hotel groups have been operating in the country for several decades.
Thus, the regulation of sectors that are sensitive for the national economy has directly influenced the business climate and sustainability of the Dominican Republic. Let’s see some interesting aspects for the start and management of commercial operations in the country:
1. Corporate and business foundations.
People who wish to invest in the country, have a catalog of different options to structure the operational form of their business. The General Law of Commercial Companies and Individual Limited Liability Companies number 479-08, promulgated on December 11, 2008 and amended by Law number 31-11, recognizes the following corporate structures and forms to operate business:
It should be noted that commercial companies that are incorporated abroad, are, after verification of their legal existence by the corresponding authority, also recognized as of right in the Dominican Republic,.
Every type of companies and companies described above, present their own particularities. The choice of the ideal corporate foundation will depend closely on the interests of the investor, the object and magnitude of the investment, the corporate purpose and the commercial business to be exploited.
2. Financial Markets.
The Dominican Republic has a solid and expanding financial market, with regulatory bodies in the areas of banking, insurance, stock market and pensions. The regulatory regime for monetary and financial system in the Dominican Republic is enshrined in the Monetary and Financial Law number 183-02 of the twenty-sixth (26) of November of the year two thousand two (2002) and its different regulations of application. This legal framework seeks to ensure compliance with the liquidity, solvency and management conditions that financial intermediation entities must comply with at all times, under the supervision of the Monetary and Financial Authority.
For its part, through the Securities Market Law number 247-17 the legislator has come to promote and regulate the securities market, seeking protection for investors, ensuring that markets are fair, efficient and transparent and reducing the systemic risk. The scope of application of this law and its regulations covers the public offering of securities -both in national and foreign currency-, its issuers, the stock exchanges, the participants in the stock market, as well as any individual or legal entity, national or foreign, that participates in the stock market in the Dominican Republic.
Both, the banking and the stock market have experienced great advances in the recent years. The diversification of financial products to attract investment is demonstrated by certificates of deposits, investment funds (open and closed), fixed-income securities, such as corporate bonds, Treasury bonds, Central Bank bonds, the Dominican Republic, ordinary bonds, commercial papers, subordinated bonds, and securities of public offer trusts, securitized securities and repurchase agreements.
The consecration of trust in our country through the Law 189-11, has contributed enormously to the invigoration of the national and foreign investment. The trust, understood as the act by which one or more persons, called trustors, transfer property rights or other real or personal rights, to one or several legal persons, called fiduciaries, for the constitution of a separate patrimony, called trust patrimony (Art. 3 Law 189-11), can adopt several objects, without limitation, namely:
Additionally, there are other investment instruments of growing expansion in our country. Such is the case of investment funds, autonomous assets constituted by the collection of contributions from natural or legal persons, for their investment in securities, goods and other assets determined by the Law, the general regulations and norms established by the superintendency and / or the Securities Board, as appropriate, at the expense and risk of the contributors.
Asset securitization operations, through which assets of any nature are transformed into securities that can be traded on the secondary market, and repo transactions, in which public or private securities are purchased in cash, and where simultaneously the reverse operation of purchase / sale or repurchase is agreed on to a specific term, for an agreed price, called a premium, are also worth mentioning.
According to figures provided by the Superintendency of Securities, the country has 17 stock exchange positions, 10 investment fund administrators, 3 public offering trust funds and 1 public offering trust. The operations of the stock market reach US $ 25,000 millions, and trust emissions generate over US $ 200 million.
In the insurance field, the country has adopted the Law number 146-02 of September twenty six (26) of the year two thousand and two (2002) on Insurance and Bonds in the Dominican Republic. The legislation introduces technical concepts in order to provide maximum protection for the insured persons and to create the securities that are necessary in the insurance field. These concepts are created to ensure the contracting parties of a faithful compliance of the contracts. This Law, conferred legal personality and own patrimony to the Superintendence of Insurance, regulator of the sector.
At the head of the pensions fields stands the Superintendence for Pensions, established under the Law number 87-01 as an autonomous state entity with legal personality and its own patrimony, whose function is to ensure the strict compliance of the law and its complementary norms within the area of its authority, to protect the interest of its members, monitoring the financial solvency of the Pension Fund Administrators (APFs), which, at the end of 2015, according to official figures, manage resources of about 325,000 million DOP, and contribute to strengthen the Dominican Welfare system.
3. Labor Regime and Social Security.
Another aspect that may be of interest to the national and international investor is the regulatory legal framework of relations between employers and workers in the country. This legal framework is essentially constituted upon the Labor Code of the Dominican Republic trough Law number 16-92, dated seventeen (17) of June of the year one thousand nine hundred and ninety two (1992), the different agreements adopted by the International Labor Organization (ILO) and resolutions issued by the Ministry of Labor. These instrument regulations protect and safeguard all the rights of persons, Dominican or foreigners, who are part of the Dominican Republic’s labor environment. Its provisions are territorial and apply without distinction to Dominicans and foreigners, except derogations allowed in international conventions.
The Labor Code prohibits any discrimination, exclusion or preference based on grounds of sex, age, race, color, national ancestry, social origin, political opinion, union militancy or religious belief. Similarly, it grants marginal benefits to employees, such as the payment of the thirteenth salary and the payment of vacations. It also highlights the preeminence of the contract-reality, which means that the employment contract is the one which is in fact executed.
For its part, the current social security system, established by Law number 87-01, provides to all Dominican citizens and foreigners residing in the country mandatory universal coverage under conditions of non-discrimination against old age risks, disability, unemployment due to advanced age, survival, illness, maternity, childhood and occupational risk.
The Labor Reform Commission is currently in the process of reforming the Labor Code. The purpose of the reform is to promote changes in the regulations that are in line with the new challenges in the Dominican society, especially in terms of creating jobs and improving the country’s competitiveness.
4. Real Estate Rights and Intellectual Property.
The Dominican Constitution recognizes the right to property as a fundamental right (Article 51). Under this premise, our country applies the Law number 108-05 on Real Estate Registration, which aims to regulate the reorganization and registration of all real estate rights, as well as charges and encumbrances subject to registration in relation to real estate on the territory of the Dominican Republic, and guarantee the legality of their mutation or affectation with the intervention of the State through the competent bodies of the Real Estate Jurisdiction. Hence, all rights registered in accordance with the aforementioned law, are imprescriptible and enjoy the absolute protection and guarantee of the State.
The Real Estate Jurisdiction of the Dominican Republic is composed of:
The Council of the Judicial Power of the Dominican Republic, (CPJ) ordered the creation of an Express Counter in the Real Estate Jurisdiction, in order to potentiate and enhance the streamlining of the services provided by the Real Estate Jurisdiction, especially in the National Directorate of Cadastral Measurements. This Express Counter will be open from Monday to Friday, from 7:30 am to 6:00 pm, for the system users to submit and receive documents.
In addition, the Dominican Constitution recognizes and protects the right of exclusive ownership of scientific, literary, artistic works, inventions and innovations, denominations, trademarks, distinctive signs and other productions of the human intellect for the time, in the form and with the limitations established by law (article 52). This way the constitutional protection of literary works, invention patents, industrial designs, utility models and the distinctive signs of products and services, enshrines Intellectual Property as a fundamental right and complements the legal protection of the Author’s right and of the Industrial Property established by the laws 65-00 and 20-00, and their respective modifications.
Recently the National Strategy of Intellectual Property for the Dominican Republic has been implemented. The overall objective of the Strategy is to incentive and promote the strategic use of intellectual property in every field of national productive activities by the customers and sectors of interest. The creativity and innovation will be encouraged through its use and protection, and its exploitation contributes to the economic, social and cultural development of the Dominican Republic. This initiative has been promoted by the National Office of Industrial Property (ONAPI) and the National Copyright Office (ONDA), with the cooperation of the World Intellectual Property Organization (WIPO).
5. Tax Regime.
Through Law No. 11-92, the current Tax Code of the Dominican Republic was adopted. This Law, which has been modified in various occasion, and the different special tax laws constitute the legal framework of the generation, enforcement and payment of the ation’s internal taxes. The General Directorate of Internal Taxes (DGII) is the head of the tax system, an authority in charge of the enforcement of domestic taxes.
The tax system of the Dominican Republic rests on the principle of territoriality. Hence, in principle, all income from a Dominican source is subject to local taxes, regardless of the nationality of the person who generates them. The main taxes in the Dominican Republic are the following:
Along with the taxes described above, in order to encourage investment in certain productive sectors, the legislator has voted tax incentive laws, a legal frameworks aimed at reordering the application of fiscal policy, against a given productive regime . These laws have a constitutional recognition, by consecrating our Magna Carta, that the law can grant special treatments to investments located in areas of lesser degree of development or activities of national interest, particularly those located in the border provinces (Article 221 of the Constitution).
Likewise, the Constitution regulates the granting of exemptions, exonerations, reductions or limitations of taxes, contributions or fiscal or municipal rights that affect certain works or companies to which it is convenient to attract the investment of new capital for the promotion of the national economy or for any other object of social interest, such as, for example, the tourism sector.
In the Dominican Republic, the following incentive laws stand out:
6. Foreign Investment.
Law no. 16-95, of November twenty (20), one thousand nine hundred and ninety five (1995), and its implementing Regulation contained in the Presidential Decree no. 380-96, later amended by the Presidential Decree no. 163-97, contain the main regulatory framework for foreign investment in the country. The regulation aims to strengthen the foundations where the processes of attracting wealth from other countries have to be supported, which means, it seeks to lay the foundations for the development of a firm foreign investment in the country.
The main incentives granted in Law no. 16-95 are:
As a leading actor in this scenario, the Center for Exports and Investment of the Dominican Republic (CEI-RD), a decentralized governmental institution dedicated to promote export activities and the promotion of foreign direct investment, is created.
7. Free Trade Zones.
The Dominican Republic has the required structure for the development of Free Trade Zones for the export of products and services that generate efficient operations within the current competitive market. In addition, the Dominican Republic possesses essential elements for a strong performance and greater profitability such as skilled labor and port and airport infrastructures.
Law No. 8-90 on Free Trade Zones in the Dominican Republic and its implementing regulations establish the regulatory aspects for operations, recognizing all the benefits acquired by the entities belonging to that regime, such as tax aspects, under the coordination and supervision of the National Council of Free Trade Zones. This regulation encourages the establishment of new free trade zones and the growth of existing ones, regulating their operation and development, and granting incentives in terms of the special regime of customs control and tax exemptions of up to 100% in certain lines established in the legislation.
It should be noted that companies established under the Free Trade Zones regime are not subject to foreign exchange restrictions. In principle, they have no obligation to remit or give accounts of the profits of the company, except for the monthly report of their operating expenses, which must be paid in Dominican pesos (RD $).
At present, according to the official data offered by the National Council of Free Zones (CNZF), about 60 Free Trade Parks and 614 companies located in free trade zones currently operate in the country.
8. E-commerce.
In order to regulate the electronic commerce of goods and services, Law no. 126-02 on Electronic Commerce, Documents and Digital Signatures was promulgated, dated day four (4) of the month of September of the year two thousand and two (2002), which allows the formalization of contracts for goods or services to operate legitimately in electronic form. In this regard, the legal regulation establishes that in the relations between the originator and the recipient of a data message, or between the signatory parties of a digital document, when there are any, legal effects, validity or obligatory force will not be denied to a manifestation of will or other declaration for the sole reason of having been made in the form of digital document or data message.
According to official statistics published by the Central Bank of the Dominican Republic, the value of transactions completed via Electronic Commerce in the Dominican Republic, generated RD $ 11,476.3 millions in the first 9 months of this year.
9. Foreign and Global Trade:
As an open economy, the Dominican Republic has adopted a policy of active insertion in world trade, signing international agreements and treaties that move global competition to the local sphere. Among the agreements of great significance for international trade signed by our country in recent years, the signing of the Free Trade Agreement signed between the Dominican Republic, Central America and the United States of America (“DR-CAFTA” for short) stands out, which establishes the rules that govern the commercial relationship between the contracting countries, through an area for the exchange of goods and services.
Since its entry into force, DR-CAFTA has modified the regulation of distribution relations between an American and a Dominican party, which until then was governed by Law no. 173 on the Protection of Import Agents of Merchandise and Products, of May nineteen ninety-six (1966), a legal text that is responsible for providing adequate protection to persons engaged in promoting and selling goods and merchandise manufactured by foreign companies. Thus, these relations are currently governed by the provisions contemplated in Section B of Chapter 11 on Cross-Border Trade in Treaty Services.
In the same way stands out the signing of the Economic Association Agreement and the commitments in matters of cooperation for development, trade, social aspects and institutional arrangements, subscribed between the Cariforum States, on one side, and the European Community and its members, on the other/ This agreement has immense potential for our country in terms of promotion of trade for the service sector, including the tourism sector.
On the other hand, the General Directorate of Customs (DGA), implemented in 2012 the Foreign Trade Single Counter of the Dominican Republic (VUCE), in order to expedite cross-border buying and selling operations and international transportation and through which all the customs procedures will be carried out trough a single point of contact.
Among the benefits, result of the implementation of the VUCE project for all the procedures related to import, export and customs transit, the following stand out:
Currently, the VUCE continues to develop plans and develops its functions on a national level, integrating various state institutions, such as the Ministry of Agriculture, the Ministry of Environment and Natural Resources, the Ministry of Public Health, the Ministry of Finance, the Dominican Institute for Quality, among others, for the purpose of regulating the import and export processes of the Dominican Republic.
10. Commercial restructuring.
Law no. 141-15 establishes the restructuring and judicial liquidation procedures in order to protect creditors in the face of the financial difficulty of their debtors. The restructuring can be requested before the competent Court of Restructuring and Liquidation of First Instance by the debtor or by a creditor whose debts represent at least fifty (50) minimum wages. The purpose of the Restructuring is to create a plan that will allow the business to resolve the difficulties or situations that the economic agent goes through in order to recover the value of the same amount and allow the creditors to obtain the payment of their credits, the workers continue working and the State can perceive income, all under the supervision of a conciliator and subject to the approval of the competent court.
Faced with an unfeasible restructuring, the law creates the procedure of judicial liquidation before the competent Court of Restructuring and Liquidation of the First Instance. The liquidator must prepare an inventory of the debtor’s assets and a balance sheet closed to the date on which the opening of the judicial liquidation is ordered. The judgment ordering the judicial liquidation implies in full legal right, as of its notification, the disempowerment of the debtor in the administration and disposition of the acquired property in any capacity and until the judicial liquidation is closed. The liquidator assumes all the prerogatives and powers of administration from this moment. The court can pronounce the closure of the judicial liquidation, when insufficient sums to satisfy the creditors are available.
11. Asset laundering and financing of terrorism.
Law No. 155-17 against the Laundering of Assets and Financing of Terrorism and its implementing regulations create the guidelines to prevent people from giving legitimate appearance to illicit assets or assets derived from the offenses enshrined in said law. Likewise, it intends to avoid operations that finance or transfer money to be used in the commission of terrorist offenses, typifying the infractions of said law as very serious, serious and minor.
The law creates a list of institutions or persons summoned to fulfill certain obligations to prevent and mitigate the risk of money laundering and terrorist financing. These are: factoring companies, real estate agents, gemstone dealers, lawyers, notaries, accountants, financial intermediation or securities entities, etc. These obligated parties will have the obligation to adopt policies and procedures appropriate to the operations they perform that include due diligence to their clients, risk assessment, etc.
The law considerably limits cash transactions, prohibiting paying or accepting payments that exceed the amounts established by law: RD $ 1,000,000 for real estate operations, RD $ 500,000 for motor vehicle operations, RD $ 250,000 for transfer of shares, RD $ 250,000 for lottery or casino games, etc. Likewise, all cash operations that exceed US $ 15,000.00 or its equivalent in national currency must be reported to the Financial Analysis Unit (UAF).
Copyright Martínez Servicios Jurídicos, MSJ, S.R.L. All rights reserved.