Meritas has published the “Business Guide for Latin America and the Caribbean: Legal Guide for Investment and Business Expansion.” This comprehensive resource offers a detailed overview of investment and expansion opportunities in 25 markets across the region.
In the chapter dedicated to the Dominican Republic, our partner Georges Santoni and the team at Russin, Vecchi & Heredia Bonetti provide an in-depth analysis of the country’s investment landscape. This chapter covers 10 key commercial and legal topics, offering essential information for investors interested in the Dominican market.
Below, we present the chapter:
Dominican Republic Chapter
RUSSIN, VECCHI & HEREDIA BONETTI (RV&HB) is the Dominican Republic office of the international law firm Russin & Vecchi, which has a presence in Asia, Europe, North America, and the Caribbean. Founded in 1969, RV&HB boasts a team of professional, multilingual lawyers specializing in various legal fields to serve both local and international clients. Committed to excellence and innovation, the firm enhances the legal business framework in the Dominican Republic while adhering to ethical standards and the rule of law.
RV&HB has pioneered unique legal practices in the country, managing landmark national and cross-border transactions including energy enterprise concessions, corporate restructuring, financing, international bidding, project development, government procurement, and foreign investment. The firm has developed expertise in transactions involving M&A and structured finance in numerous sectors, including the food and beverage industry, finance, mining, and energy.
The firm has been frequently recommended by top legal directories and has been shortlisted by Chambers & Partners as the ‘Best Law Firm in the Dominican Republic’ several times over the years.
- What role does the government of Dominican Republic play in approving and regulating foreign direct investment?
The Dominican Republic offers outstanding advantages to foreign and national investors. The significant incentives and facilities offered by the Dominican State complement the many inherent factors that make this Caribbean country an attractive target for investments, positioning itself as the main recipient of foreign direct investment (“FDI”) in Central America and the Caribbean in 2022, in an environment where global FDI flows experienced a generalized slowdown.
The Foreign Investment Law No. 16-95 of 1995 and its Ruling of Application No. 380-96 grants foreign investors the same rights as domestic investors, eliminating any discrimination against foreign investment, which is highly encouraged by our government. The most important achievement provided by Law No. 16-95 is the opening of sectors of economic activity that were previously restricted for the registration of foreign investments.
Investment in the Dominican Republic generally has significant guarantees against political risks, inconvertibility, and expropriation granted by institutions such as the U.S. International Development Finance Corporation (DFC), the United States of America agency that provides financing and insurance for major international projects, which in December 2023, announced a new $200 million loan, as well as a plan to open a regional office in the capital city, and the Multilateral Investment Guarantee Agency (MIGA), a World Bank agency.
The Center of Export and Foreign Investment of the Dominican Republic (CEI-RD), created by Law 98-03 of the year 2003, is the official agency of the Dominican Government for the promotion and development of Dominican exports and for attracting foreign investment to the country in order to contribute to the competitive insertion of the Dominican Republic in international markets.
In addition, the Dominican Republic has created, through Decree No. 626-12, a well-established and efficient one-stop investment window to speed up and streamline the processes of domestic and foreign investments and, by Decree No. 175-17, ProDominicana, a coordination and execution mechanism to promote the exportations and attract FDI.
2. Can foreign investors conduct business in the Dominican Republic without a local partner? If so, how does the Dominican Republic government regulate commercial joint ventures between foreign investors and local firms (include information on common corporate structures)?
Yes, foreign investors can conduct business in the country without a local partner and, in general, the Government does not intervene with joint ventures between foreign investors and local firms, except in the construction works ordered by the Dominican State.
In that sense, Law No. 322 of 1981 establishes that in order for a foreign company or individual to participate in a public procurement process for construction of works ordered by the Dominican State, it requires the association with a national or mixed capital company, according to the case. The mandatory participation of the national company will be between 30 and 50% in the contract with the Dominican State.
On the other hand, different types of legal vehicles have traditionally existed in the Dominican Republic to organize business. While there are several corporate forms, the most used corporate vehicles are:
Limited Liability Company – LLC (Sociedad de Responsabilidad Limitada, S.R.L.): An LLC can be formed with a minimum of two partners and a maximum of 50.
Its social capital is divided into quotas of at least DOP$100, represented in nonnegotiable titles, and the partners’ liability is limited to the value of their contribution. Although not expressly provided, since at least two partners are required and considering the minimum capital of the social quotas, the minimum capital of an LLC would be RD$200. The tax for incorporating commercial entities is 1% of their corporate capita; however, the minimum tax to be paid is of RD$1,000.
Corporation (Sociedades Anónimas, S.A.): For its incorporation, a minimum of two shareholders is required, and there is no maximum. To date, the authorized capital requirement is at least DOP$30,000,000.00 (equal to USD510,000 approx.) from which at least 1/10 must be paid in, and its shares, which are freely negotiable, must have a nominal value of at least DOP$1.00.
Simplified Corporation (Sociedad Anónima Simplificada, SAS): It is incorporated with the participation of two or more shareholders, and there is no maximum number of shareholders that can be part of it. The minimum authorized capital must be at least DOP$3,000,000.00 (equal to USD51,000 approx.) of which at least one-tenth must be paid in. The value of its shares is established by the bylaws.
In all entity types, only nominative shares/quotas are permitted.
3. What laws influence the relationship between local agents and distributors and foreign companies?
There are two main laws that influence the relationship between local agents and distributors and foreign companies, Law No. 173-66 and DR CAFTA. The purpose of Law No. 173-66 of 1966, on the Protection of Importer Agents of Merchandise and Products, is the protection of individuals or legal entities acting as concessionaires, engaged in promoting and/or managing the importation, distribution, sale, rental, or any other form of exploitation of goods or products from abroad or when they are manufactured in the country, against the damages that may result from the resolution without just cause of the relations by virtue of which they carry out such activities. This is a public order law whose provisions may not be superseded by private contracts.
After an agent or distributor is appointed, the foreign supplier may have very little flexibility in terminating the agent or distributor, even in the face of marginal performance. The law shall regulate the contractual relations between the parties, provided that such contracts are duly registered in the Central Bank of Dominican Republic in accordance with the procedure established in it. The protection under Law No. 173 consists of the imposition of substantial sanctions for termination of agencies or distributorships made without just cause. Law No. 173 makes no distinctions between agents or distributors. They are referred to as concessionaires.
Termination without just cause may result in a compensation requirement as outlined by Article 3 that includes gross profits of the local concessionaire for the last five years, amongst other elements for compensation.
It should be noted that under the Free Trade Agreement signed with the United States in 2004 (DR-CAFTA), the Dominican Republic undertook, in the context of its relations with the United States, that the contracting parties are entitled to be regulated by Law 173-66 or by the civil laws of the Dominican Republic, which allows them the possibility of opting for the application of this law. Consequently, if the contracting parties wish to be subject to the provisions of Law 173-66, they must expressly consent to it in the distribution agreement they subscribe to.
Similarly, under the Free Trade Agreement signed with the Caribbean Community in 1998 (CARICOM), particularly Article IV of its Protocol, the contracting parties are entitled not to be regulated by Law 173-66, but inversely as it is in DR CAFTA for the United States, an express provision in the distribution agreement must be made in order to exclude the application of Law 173.
4. How does the Dominican Republic government regulate proposed merger and acquisition activities by foreign investors, and are there any areas of the economy where they are prohibited (e.g., natural resources, energy or telecommunications)?
Mergers and acquisitions are not subject to merger control, solely to the previous authorization from the local income tax agency, according to the Dominican Tax Code. The Dominican Republic does not have a specific text that regulates in a general and detailed way the control over mergers and acquisitions, insofar as corporate general rules from Dominican General Companies Law that outlines the corporate requirements for a merger between Dominican companies.
We also have some other laws that touch this point directly or indirectly for regulated sectors of the economy; among these texts we have A) Law No. 125-01 of Electricity; B) Law No. 153-98 on Telecommunications; C) Monetary and Financial Law No. 183-02; D) Law No.146-02 on Insurance and Bonding; and E) Renewable Energy Law No. 57-07, that require the previous authorization from the competent regulator in said sectors.
It should be noted that we also have in effect Antitrust Law (Law No. 42-08), that creates Pro-Competencia; nonetheless, it doesn’t have an established merger and acquisition control system.
5. How do labour statutes regulate the treatment of local employees and expatriate workers?
In the Dominican Republic, the labor relationships are governed by the Dominican Labor Code, the implementing regulation, and related laws. This Code is from 1992, so in practice, many times it shows inconsistencies with current labor practices and is a little outdated. It is very protective and beneficial to the employee.
The employer and the employee are subject to the employment contract, although its provisions can never supersede the rights under the Labor Code. A written contract of employment is not required. In the absence of a written contract, the Labor Code governs the employment relationship. However, when parties decide to execute employment contracts in writing, the Labor Code requires two originals to be filed at the local Labor Department. The rights included in the contract can only improve minimum rights under the Labor Code since all employees’ rights are of public order and shall not be renounced or waived by the employees.
Dominican labor laws are territorial in nature, i.e., any work carried out in Dominican territory will be subject to the provisions of the Labor Code, regardless of the nationality or residence of the parties involved.
Wages are freely negotiated between the employer and the employee but cannot be less than the legally-established minimum wage for each industry. Salaries must be paid in cash (or bank deposit) and the interval between payments cannot exceed one month.
The Dominican Labor Code confers certain rights to workers after working uninterruptedly for a time of three months, including:
- A Christmas bonus.
- A profit-sharing bonus.
- Paid vacation leave.
- Severance and other benefits proportional to job tenure in the event of unjustified dismissal (the Code defines just cause in detail).
- 14 weeks of paid maternity leave, and between 2 and 5 days in cases of marriage, childbirth by wife or companion, and death of a spouse, child, parent, or grandparent.
- The right to associate into unions to defend their interests, and special protection for employees engaged in forming a labor union.
- The right to strike by unions. Strikes can only involve the peaceful interruption of the work carried out by the employees.
These rights are well known to the labor force and claims against employers are common. Labor Courts tend to favor the workers. Therefore, employers must be careful to adhere to the detailed provisions of the Code.
Concerning expatriate workers, it must be noted that at least 80% of a company’s workforce must be Dominican. Likewise, no less than 80% of the payroll, except for salaries for technical or executive positions, must correspond to wages earned by Dominicans. These rules do not apply to employees carrying out executive or managerial duties or occupying technical positions not available in the country, as well as to foreign individuals with a Dominican spouse or children, subject to approvals of the Labor Ministry.
The law requires a labor contract to be filed with the Ministry of Labor before hiring foreigners to work in the country in order to determine if the contract is justified, i.e., if local personnel could not perform the work. This is a prerequisite for a labor visa or residency. As a rule, contracts for technicians or management personnel are routinely approved.
Companies wishing to relocate their employees to the Dominican Republic are required to obtain a temporary residency for work purposes or a short-stay permit, depending on the period the employee will be working in the Dominican Republic. A temporary residency is issued for a one-year period, renewable. Short-stay permits are granted for a period from two to eleven months.
6. How do local banks and government regulators deal with the treatment and conversion of local currency, repatriation of funds overseas, letters of credit, and other basic financial transactions?
The official currency of the Dominican Republic is the Dominican Peso (DOP). There are no exchange controls in the country. Foreign currency operations are carried out under free market conditions and convertibility. Interest rates for transactions denominated in domestic or foreign currency are freely determined among market agents. The Dominican Republic guarantees full convertibility and rights of repatriation of 100% of a foreign investor’s dividends, after the payment of the corresponding applicable taxes.
7. What types of taxes, duties, and levies should a foreign investment in the Dominican Republic expect to encounter?
INCOME TAX
The Dominican Republic has a taxation system that is mainly territorial. As a result, individuals and legal entities, nationals, and/or foreigners are subject to tax payment for their income originating from a Dominican source.
All individuals whose annual income amounts to DOP$416,220.00 or more will be subject to the payment of income tax at a rate of 15% to 25%, depending on the amount of their income. This amount is annually adjusted by inflation.
A fixed rate of 27% is applied to legal entities domiciled in the country, no matter if they are local or foreign, in accordance with the tax reform enacted in November 2012.
Additionally, individuals and legal entities, nationals, and/or foreigners who are residents in the Dominican Republic are subject to tax payments from their income from investments and financial earnings generated abroad. For foreign individuals, this is triggered after the third year of residence in the Dominican Republic.
DIVIDENDS
A dividend is all distribution in cash made by a legal entity to its shareholders or partners but does not include the distribution made in shares or quotas in favor of its shareholder or partner. The Dividends from Dominican sources disbursed to individuals or corporations are taxed at a rate of 10% and are subject to withholding.
TAX ON TRANSFER OF INDUSTRIALIZED GOODS AND SERVICES – VAT TAX The tax on the transfer of Industrialized Goods and Services (Impuesto sobre Transferencia de Bienes Industrializados y Servicios, ITBIS) or
valued-added tax is levied on:
- The transfer of industrialized goods that have been submitted to some type of transformation process (industrialization), including imports;
- The import of industrialized goods; and
- The provision of services and leases.
Individuals, as well as legal entities that perform one of the activities enumerated above, are subject to the payment of said tax, which rate is currently 18%.
TAX ON ASSETS
Commercial entities must annually pay a 1% tax on all their assets, unless income tax is greater, i.e., only one (income tax or asset tax) is paid. Said payment can be made in two quotas, six months apart from one another, the first payment being due on the same date as the income tax.
8. How comprehensive are the intellectual property laws of the Dominican Republic, and do the local courts and tribunals enforce these laws regardless of the nationality of the parties?
The Dominican Republic recognizes and protects the right to the exclusive property of scientific, literary, and artistic works, inventions, trademarks, and other productions of the human intellect. This right has constitutional rank. The Industrial Property Law, No 20-00 of May 8, 2000, as amended, and Law No 65-00 on Copyright, of 21 August 2000, represent considerable legal and institutional progress and compliance with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) of Marrakech 1995. These laws promote the effective protection of intellectual rights, contribute to the dissemination and transfer of technology, socio-economic and scientific benefits, and the development of the literary and artistic heritage of the country.
9. If a commercial dispute arises, will local courts or will international arbitration offer a more beneficial forum for dispute resolution to foreign inventors?
Arbitration is the preferred conflict resolution forum because of its confidentiality and efficient processes. Although the Dominican Republic has an adequate judicial system, judges may not have particular technical skills and experience on the subject at hand for a favorable result. Additionally, the court’s resolution of a conflict usually takes much longer than arbitration.
Furthermore, the use of arbitration to settle conflicts that arise in commercial activities keeps growing. Due to this, the Law of Commercial Arbitration, No. 489-08 was enacted. This law overrules the articles of the Civil Procedure Code that previously reigned on the matter.
This law is applied to all arbitration that takes place in the Dominican Republic, whether parties are nationals or internationals.
Some subjects are not able to be arbitrated, including real estate matters, family, and public order matters.
10. What advice can you provide for how best to negotiate or conduct business in the Dominican Republic?
The Dominican Republic has a system of government which governs the freedom of enterprise, free competition, and circulation of foreign currencies, and where there is a general regulatory system that governs business, both nationally and internationally.
Although there are special laws for each commercial activity, it is advisable when doing business in the Dominican Republic to be advised and consult with a good law firm, which is characterized by an exercise that assures its nonparticipation in an act of corruption and that has dominion in the area for which the service is requested.
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