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This article gives an overview of key recent developments affecting doing business in Dominican Republic as well as an introduction to the legal system; foreign investment, including restrictions, currency regulations and incentives and business vehicles and their relevant restrictions and liabilities. The article also summarizes the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law, data protection, and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency, and intellectual property rights over patents, trade marks, registered and unregistered designs.
In February 2017, the new Law No 141-15 on the Restructuring and Liquidation of Entities and Merchants entered into force. It modernizes the legal framework applicable to insolvency procedures by providing a reorganization procedure that will allow entities under financial distress to continue to operate while safeguarding the rights of both creditors and employees. For those cases where such operational continuity is not possible, the law establishes proceedings for the liquidation of the distressed company's assets and payment of debts. Law No 141-15 creates specialized courts to oversee this process.
Also, Law No. 155-17 against Money Laundering and the Financing of Terrorism was enacted on 1 June 2017 (repealing and replacing Law No. 72-02 on the Laundering of Assets arising from Illicit Drug Trafficking, dated 2002) to adapt the local legal framework to international standards in the fight against money laundering and terrorism financing. The new Law is an important step forward as it introduces to the Dominican legal system the new international standards recommended by the Financial Action Task Force (FATF) (issued in February 2012 and updated in 2016). Importantly, Law No. 155-17 widens the scope of activities that constitute money laundering by introducing the "precedent or determinant offence", including for fiscal services, to describe an offence that generates assets susceptible to money laundering activities.
The Law extends the obligation to prevent, detect, evaluate and mitigate money laundering and terrorism financing risk to new financial and non-financial parties (both individuals and legal entities). This includes the implementation of policies and procedures such as:
- Due diligence based on risk.
- The appointment of a high-level executive with the technical capacity to supervise the strict observance of the compliance program and serve as the liaison between the entity and its supervisory body.
- The registration and reporting to the relevant regulatory authorities customer transactions that exceed the thresholds set out in the Law.
- The maintenance of records related to customer transactions for at least ten years from the end of the business relationship or from the date of an isolated transaction.
In January 2018, the Government passed the Regulation for the Implementation of Title IV of the Excise Tax Code of the Dominican Republic (No. 01-18) (Reglamento para la Aplicación del Título IV del Impuesto selectivo al Consumo del Código Tributario de la República Dominicana), which established new provisions for excise taxes applying to entities that manufacture, produce and/or import alcoholic beverages or tobacco products, and those that provide related services. The new ruling:
- Establishes a different calculation method (weighted average) for the excise tax base.
- Requires a suggested retail price (after taxes) to be included in invoices.
- Requires a customs declaration (declaración unica aduanera) to be filed on import, which should include a suggested retail price (after taxes).
- Requires manufacturers and importers to report to tax authorities the suggested retail price, on a quarterly basis, and any time when it varies by more than 5%.
- Imposes new control mechanisms.
What is the legal system based on (for example, civil law, common law or a mixture of both)?
The Dominican Republic has a civil law based legal system.
Are there any restrictions on foreign investment (including authorisations required by central or local government)?
There are only restrictions relating to:
- Disposal of dangerous or radioactive toxic waste not originating in the Dominican Republic.
- Activities that are detrimental to public health and the environment.
- The manufacture of materials and equipment directly related to national security and defence, without the prior consent of the Dominican government.
(Article 5, Foreign Investment Law No 16-95.)
Are there any restrictions on doing business with certain countries or jurisdictions?
There are no restrictions on doing business with different countries and/or jurisdictions. However, for transfer pricing (TP) purposes, there is a 180-day period at year-end during which Dominican residents that carry out operations with an entity resident in a tax haven or low taxing jurisdiction need to disclose such transactions (which should be at arm’s length) to the Dominican tax authorities. Pursuant to Law 11-92 and its modifications, these entities will be considered related for TP purposes, and a corresponding TP study will serve as evidence of the transaction values.
Are there any exchange control or currency regulations?
There are no exchange control or currency regulations. The Monetary and Financial Law provides that monetary and financial operations are to be undertaken under free market conditions, with the exchange market based on the principle of free convertibility of the local currency with foreign currencies. Economic agents may freely undertake transactions in the currencies of their choosing. The Central Bank cannot limit international exchange operations in a manner that affects the free determination of price. However, the Monetary and Financial Board, with an extraordinary majority, may resolve to establish limits, on a temporary basis (not greater than a year), to the introduction of short term capital in a foreign currency, provided that these limits are imposed in accordance with international standards, under fair conditions and in good faith. However, it should be noted that no measures of this nature have been imposed during at least the past 15 years.
What grants or incentives are available to investors?
There are no specific grants or monetary incentives available to foreign investors, but there are certain benefits regarding the process for obtaining residency permits. However, incentives are available for investments in specific sectors of the economy, and specific situations, such as:
- Tourism; that is, for the improvement and development of under-developed or newly-developed areas (Law No 158-01).
- Renewable energy (Law No 57-07).
- The textile industry (Law No 56-07).
- Incentives granted to companies establishing their business in the area bordering Haiti (Law No 28-01).
- Free trade zones, which benefit from a total tax exemption.
- Special incentives for retired foreign nationals and passive investors (Law No 171-07).
- Industry-specific incentives applicable to local and foreign companies.
- to foreign investors in the local film industry (Film Law No 108-10); or
- for the development of the mortgage and stock market (Law No 189-11).
- Any new project that is to be classified under any of the laws that grant special tax incentives must be submitted to the Ministry of Finance for approval.
The main business vehicles used in the Dominican Republic are:
- Corporations (sociedades anónimas) (SA).
- Limited liability companies (sociedades de responsabilidad limitada) (SRL).
- Simplified corporations (sociedades anónimas simplificadas).
The business vehicle most commonly used by foreign companies is the SRL. This is mainly because:
- There is no mandatory corporate governance.
- There need only be one authorised official, namely the manager (however, there can be more than one manager).
- The minimum capital requirement is DOP100,000.
Foreign entities can also operate through a branch in the Dominican Republic by fulfilling certain registration requirements.
Registration and formation
The following procedures and requirements are necessary for the incorporation of a limited liability company:
- The chosen trade name must be registered before the National Industrial Property Office (ONAPI).
- There must be a minimum capital of DOP100,000 and at least two partners.
- The articles of incorporation or bye-laws must be executed by the founding partners.
- The capital of the company must be paid in full by the partners.
- Where the partners of the company are other companies, they are required to file certified copies of the:
- relevant by-laws;
- Mercantile Registration Certificate, or its equivalent in the jurisdiction of origin;
- corporate documentation relating to the appointment of the legal representative; and
- legal representative’s valid passport.
- All documentation written in a foreign language must be translated into Spanish by a local judicial translator.
- The partners may decide to hold a general incorporation meeting to appoint the first managers and directors (if applicable), but these appointments can also be made in the by-laws.
- If contributions to the social capital are made in kind, a report from a valuation officer must be prepared and approved by all the partners in a general meeting.
- The incorporation documents must be filed at the Dominican Chamber of Commerce and Production (Cámara de Comercio y Producción) in order to obtain the company's Mercantile Registration Certificate. Following the issuance of the certificate, the company is deemed to have been duly incorporated.
- The above listed documents must be filed before the General Directorate of Internal Revenue (Dirección General de Impuestos Internos) (DGII) in order to obtain a National Taxpayers Registration (Registro Nacional del Contribuyente) (RNC) number.
- Any ultimate beneficiary owners (natural persons) holding 20% or more of the share interest in the company, or having effective control of it, must be declared before the tax authorities.
The incorporation procedure takes between three and six weeks from the date of the initial filing before the Chamber of Commerce and Production.
Companies incorporated in the Dominican Republic, and branches of foreign entities registered there, must register before the Mercantile Registry of the Chamber of Commerce and Production and obtain a Tax ID before the DGII. These processes entail the following being registered before both Authorities:
- Resolutions from the company's shareholder or board meetings.
- Increases in the company's social capital.
- Changes to the company's articles of association or by-laws.
- Changes to the company's shareholders.
- Any mergers, spin-offs or conversion of the company (these need to be registered before their effective date to benefit from potential tax neutrality, which may be applicable depending on the case).
- The dissolution and liquidation of the company.
- Changes of the company's domicile or registered address.
- Changes in the company's contact details.
- Any increase in social capital is subject to a 1% tax, although registered branches of a foreign entity do not need to pay it.
Each shareholder/partner must have a minimum of one share or one social quota. The minimum and most commonly used par value of a share/social quota is DOP100.
Shares/social quotas can be issued for non-cash consideration, such as property. The transfer of property must be registered at the corresponding Title Registry Office.
Rights attaching to shares
Restrictions on rights attaching to shares. There are no restrictions on the rights that can be attached to shares. However, in the case of an SA-type entity, voting rights may be restricted on preferred shares. For the SRL type of entity, the voting rights remain the same for all shares. In addition, SRLs require 75% partner approval to make transfers.
Automatic rights attaching to shares. There are minimum rights granted to a shareholder or partner, such as the right to:
- Receive information.
- Receive dividends.
- Attend and vote in general meetings.
- The issue of new shares from the company (preferential right).
The management of a limited liability company is held by a single manager or group of managers designated by the partners.
There are no restrictions on foreign managers. However, in the case of a board of directors, at the time of de-registry or liquidation of the entity, the president, who normally acts as the guarantor of the entity’s liabilities before the DGII, must be a resident individual. The entity itself may appoint a specific resident individual for such purposes.
Directors' and officers' liability
The following can give rise to manager liability:
- In their dealings with third parties, managers are invested with the broadest powers to act on behalf of the company under any circumstances. The company is generally liable for the acts of the managers, even if such acts are not related to the main purpose of the company; however, some exceptions apply.
- Managers cannot participate, by themselves or on behalf of third parties, in commercial activities that compete with the company they represent unless specifically authorised by the partners.
- Managers cannot hold a direct or indirect interest in any company or business or deal with the company they represent, or on behalf of it, unless explicitly authorised to do so by the partners.
- Managers, their spouses, ascendants or descendants, are prohibited from:
- taking loans in cash or assets from the company; or
- using the assets, services or remedies of the company for their own benefit, or that of their relatives or related persons or entities.
The managers will be liable, jointly or individually (when applicable), vis-à-vis the company or third parties, for the violation to the provisions applicable to an SRL, and also for the violation of by-laws and for faults committed during their management.
Parent company liability
A parent entity is not liable for the acts of a subsidiary company, but can be liable for the acts of a branch in civil, contractual, tax, labour or criminal law. In addition, the corporate veil can be pierced in cases of fraud.