How to do business in SD

Business Climate in the Dominican Republic

The Dominican Republic is located in a strategic geographic 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 prevails in the country is based primarily on freedom of enterprise, a fundamental right enshrined in the Dominican Constitution. In fact, the Dominican State recognizes and guarantees free enterprise, trade and industry, providing by constitutional mandate that business activity, whether public or private, receives the same legal treatment, guaranteeing equal conditions for national and foreign investment (articles 50 and 221 of the Constitution).

The tourism sector, a pillar of our economy as it represents an important source of income and also of job creation, is a clear example of the confidence of investors in the legal framework for investment and business protection in the Dominican Republic. Renowned hotel chains and groups have been operating in the country for several decades, attracted by the significant flow of tourists, which annually experiences statistical growth.
Thus, the regulation of sensitive sectors for the national economy has directly influenced the business climate and sustainability of the Dominican Republic.
Let's look at some aspects of interest for the start and management of commercial operations in the country:

1. Corporate and business vehicles.

People who wish to invest in the country have a catalogue of different options to structure the operating form of their businesses. The General Law of Commercial Companies and Individual Companies of Limited Liability number 479-08, enacted on December 11, 2008, and modified by Law number 31-11, recognizes, as corporate structures and business forms of doing business, the following:
– General partnerships;

– Simple limited partnerships;

– Limited partnerships with shares;

– Limited liability companies;

– Public limited companies;

– Simplified public limited companies (SAS);

– Accidental or joint venture companies, and

– The Limited Liability Sole Proprietorship (EIRL).
It should be noted that commercial companies established abroad are also fully recognized in the Dominican Republic, subject to verification of their legal existence by the corresponding authority.

Each of the types of companies and businesses described above has its own particularities. The choice of the most suitable corporate vehicle will depend closely on the interests of the investor, the purpose and magnitude of the investment, the corporate purpose and the commercial business to be exploited.

2. Financial Markets.

The Dominican Republic has a solid Financial Market, with regulatory bodies in the areas of banking, insurance, stock market and pensions. The case of the regulatory regime of the monetary and financial system of the Dominican Republic is enshrined in the Monetary and Financial Law number 183-02 of November twenty-six (26) of the year two thousand two (2002) and its different implementing regulations. This legal framework seeks to ensure compliance with the conditions of liquidity, solvency and management 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 of the eighth (8) of May of the year two thousand (2000) and its implementing regulations, the legislator has come to promote and regulate the securities market, seeking an organized, efficient and transparent market that contributes to the economic and social development of the country. The Dominican securities market includes the supply and demand of securities representing capital, credit, debt and products. Likewise, it includes derivative instruments, whether on securities or products. The scope of application of this law and its regulations covers the public offering of securities - both in national and foreign currency -, their issuers, the commodity exchanges, the participants in the securities market, as well as any natural or legal person, national or foreign, that participates in the securities market in the Dominican Republic.
In the area of insurance, the country has Law number 146-02 dated twenty-six (26) September of the year two thousand two (2002), on Insurance and Surety Bonds in the Dominican Republic. The legislation introduces technical concepts in order to provide maximum protection to the insured and to create guarantees that are necessary in the insurance business, so that the contracting parties have the certainty that the contracts are faithfully fulfilled. This Law conferred legal personality and its own assets to the Superintendency of Insurance, the regulatory body of the sector.

The Superintendency of Pensions, created by Law No. 87-01 as a state entity, autonomous, with legal personality and its own assets, is at the head of the pension sector. Its function is to ensure strict compliance with the law and its complementary regulations in its area of responsibility, protect the interests of members, monitor the financial solvency of the Pension Fund Administrators (AFP) and contribute to strengthening the Dominican pension system.

3. Labor regime and Social Security.

Another aspect that interests national and foreign investors is the legal framework that regulates the relations between employers and workers in the country. This legal framework is mainly comprised of the Labor Code of the Dominican Republic adopted by Law number 16-92, dated June seventeen (17) of the year nineteen hundred and ninety-two (1992), the various conventions adopted by the International Labor Organization (ILO) and the resolutions issued by the Ministry of Labor.

These instruments protect and safeguard all the rights of people, whether Dominican or foreign, who are in the labor field of the Dominican Republic. Thus, their provisions are territorial in nature and apply without distinction to Dominicans and foreigners, except for the derogations admitted in international agreements.

The Labor Code prohibits any discrimination, exclusion or preference based on sex, age, race, color, national ancestry, social origin, political opinion, union membership or religious belief. It also grants marginal benefits to workers, such as payment of the thirteenth salary and vacation pay. It also highlights the preeminence of the real contract, that is, that the employment contract is the one that is executed in fact.
For its part, the current social security system, established by Law No. 87-01, provides mandatory universal coverage under conditions of non-discrimination, to all Dominican citizens and foreign residents in the country, against risks of old age, disability, unemployment due to advanced age, survival, illness, maternity, childhood and occupational risk.

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 has Law number 108-05 on Real Estate Registration, which aims to regulate the sanitation and registration of all real estate rights, as well as the charges and liens susceptible to registration in relation to the properties that make up the territory of the Dominican Republic, and to guarantee the legality of their mutation or affectation with the intervention of the State through the competent bodies of the Real Estate Jurisdiction. Hence, any right registered in accordance with the aforementioned law is imprescriptible and enjoys the absolute protection and guarantee of the State.

In another order, the Dominican Constitution recognizes and protects the right of exclusive ownership of scientific, literary, artistic works, inventions and innovations, names, brands, distinctive signs and other productions of the human intellect for the time, in the form and with the limitations established by law (article 52). Thus, the constitutional protection of literary works, patents, industrial designs, utility models and distinctive signs of products and services, enshrines Intellectual Property as a fundamental right, and complements the legal protection of Copyright and Industrial Property established by Laws numbers 65-00 and 20-00, and their respective modifications.

5. Tax Regime.

By Law No. 11-92, the current Tax Code of the Dominican Republic was adopted. This piece, amended on multiple occasions, and the various special tax laws, constitute the legal framework for the generation, collection and payment of the country's internal taxes, with the General Directorate of Internal Taxes (DGII), the agency in charge of collecting internal taxes, at the head of the tax system. The tax system of the Dominican Republic is based on the principle of territoriality. Therefore, in principle, all income from a Dominican source is subject to local taxes, regardless of the nationality of the person who generates it. The main taxes in the Dominican Republic are the following:

Income Tax: This tax is levied on all income, revenue, profit or benefit obtained by individuals, companies and undivided estates in a given fiscal period. The regulations establish that all natural or legal persons resident in the Dominican Republic and the undivided estates of decedents domiciled in the country are subject to paying taxes on their income from Dominican sources and from sources outside the Dominican Republic from investments and financial gains. Natural persons resident or domiciled in the country will pay a graduated rate of 15%, 20% and 25% on the net taxable income of the fiscal year, as appropriate. For their part, legal persons will pay a rate of 29% on the net taxable income of the fiscal year.
Tax on the Transfer of Industrialized Goods and Services (ITBIS): The ITBIS is a value-added tax, which taxes the transfer and import of manufactured goods, and the provision and rental of services. Both individuals and legal entities are subject to the obligation to pay this tax, provided they carry out transfers and imports of manufactured goods, or provide services. The rate of this tax is 16%, and is calculated on the price of the taxed transfer or the service provided.

Real Estate Property Tax (IPI): The IPI is a tax applied to homes and plots of land located in urban areas where no construction has been erected, the value of which, including the plot, is greater than RD$ 5,000,000.00, adjusted annually for inflation. The rate applied is 1% applied to the surplus of the value of the home, or 1% applied to the surplus of the value of the land.

Tax on Assets: The Asset Tax is levied on all assets listed on the taxpayer's balance sheet, not adjusted for inflation, after applying deductions for depreciation, amortization, reserves for doubtful accounts, investments in shares in other companies, land located in rural areas, real estate by nature of agricultural operations and advance taxes or advance payments. The tax rate is 1% per year, calculated on the total amount of taxable assets.

Other Taxes: In addition to the above, the taxpayer of the Dominican Republic is subject, depending on the origin of the tax obligation, to the payment of: Selective Consumption Tax; Taxes on Inheritances and Donations; Taxes on Motor Vehicles; Tax on Casinos; Tax on Conditional Sale of Furniture, among others.

Along with the taxes described above, in order to encourage investment in certain productive sectors, the legislator has voted tax incentive laws, which constitute legal frameworks tending to reorganize the application of fiscal policy, in relation to a given productive regime. These laws have constitutional recognition, since our Magna Carta establishes that the law can grant special treatment to investments located in areas with a lower degree of development or in activities of national interest, particularly those located in border provinces (Article 221 of the Constitution).

The Constitution also regulates the granting of exemptions, exonerations, reductions or limitations on taxes, contributions or fiscal or municipal rights that affect certain works or companies that should attract new capital investment 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:

– Law No. 84-99 on the reactivation and promotion of exports;

– Law number 28-01 creating a Special Border Development Zone, covering the provinces of Pedernales, Independencia, Elías Piña, Dajabón, Montecristi, Santiago Rodríguez and Bahoruco, amended by Law number 236-05;

– Law number 158-01 on Tourism Incentives, amended by Law number 184-02;

– Law number 56-07 which declares the sectors belonging to the textile chain as national priority;

– Law number 57-07 on Incentives for Renewable Energy and Special Regimes;

– Law number 171-07 on Special Incentives for Pensioners and Annuitants of Foreign Sources;

– Law No. 392-07 on Competitiveness and Industrial Innovation;

– Law number 108-10 for the Promotion of Cinematographic Activity, modified by Law number 257-10.

6. Foreign Investment.

Law number 16-95, of November twentieth (20) of one thousand nine hundred and ninety-five (1995), and its implementing regulations contained in Presidential Decree number 380-96, later modified by Presidential Decree number 163-97, contain the main regulatory framework for foreign investment in the country. The regulations seek to strengthen the foundations on which the processes of attracting wealth from other countries are to be based, that is, 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:

– National treatment for foreign investors;

– Minimal restrictions on investments;

– Repatriation of 100% profits;

– Free convertibility of funds;

– Free access to international currency through local banks and the Central Bank of the Dominican Republic;

– Quick and simple registration procedures.
The Center for Exports and Investment of the Dominican Republic (CEI-RD), a decentralized government institution dedicated to export promotion activities and the promotion of foreign direct investment, is a leading player in this scenario.

It is worth noting that, in the area of investment protection, the Dominican Republic is above 118 other economies in the world, according to the new report by the World Bank and the International Finance Corporation (IFC) entitled: “Doing Business 2012: Doing business in a more transparent world,” which shows that the Dominican Republic continues to adopt reforms for the protection of investors, legal security and the defense of transparency. Likewise, in the 2012 Index of Economic Freedom published by the Heritage Foundation and The Wall Street Journal, which analyzes the business climate and public policies that are attractive for investments in a country or nation, the Dominican Republic is above 94 world economies with a score of 60.2 points, a score higher than the world average (59.5).

7. Export Free Zones.

The Dominican Republic has the structure required for the development of Free Trade Zones for the export of products and services that generate efficient operations within today's competitive market. In addition, the Dominican Republic has essential elements for good performance and greater profitability, such as qualified labor and port and airport infrastructure.

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 entities belonging to this regime, such as fiscal aspects, under the coordination and supervision of the National Council of Free Trade Zones.

This legislation encourages the establishment of new free zones and the growth of existing ones, regulating their operation and development, and granting incentives regarding the special customs control regime, and tax exemptions of up to 100% in certain areas established in the legislation.

8. Electronic commerce.

In order to regulate electronic commerce of goods and services, Law number 126-02 on Electronic Commerce, Documents and Digital Signatures was enacted, dated the fourth (4) of September of the year two thousand two (2002), which allows the formalization of contracts for goods or services to be validly operated electronically.

In this regard, the legal regulations provide that in the relations between the originator and the recipient of a data message, or between the signing parties of a digital document, where applicable, legal effects, validity or binding force shall not be denied to a manifestation of will or other declaration for the sole reason that it has been made in the form of a digital document or data message.

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 transfer global competition to the local level. Among the agreements of great importance for international trade signed by our country in recent years, the signing of the Free Trade Agreement between the Dominican Republic, Central America and the United States of America ("DR-CAFTA" stands out), which establishes the rules that govern the commercial relationship between the contracting countries, through a zone for the exchange of goods and services.

Since its entry into force, DR-CAFTA modified the regulation of distribution relations between the North American and Dominican parties, which until then had been governed by Law No. 173 on the Protection of Importing Agents of Merchandise and Products, of May 1996 (1966), a legal text that is responsible for providing protection to people who are dedicated to promoting and selling articles and merchandise manufactured by foreign companies.

Thus, these relations are currently governed by the provisions contained in Section B of Chapter 11 on Cross-Border Trade in Services of the aforementioned treaty.

Likewise, the signing of the Economic Partnership Agreement and the commitments in the areas of development cooperation, trade, social aspects and institutional arrangements, signed between the CARIFORUM States, on the one hand, and the European Community and its members, on the other, are noteworthy. This agreement has immense potential for our country in promoting trade in the services sector, including the tourism sector.


On the other hand, the efforts of the General Directorate of Customs (DGA) are highlighted, who recently announced on February 9, 2012, the beginning of the work for the implementation of the Single Window for Foreign Trade of the Dominican Republic (VUCE), a system that will streamline cross-border purchase and sale operations and international transport and through which all customs procedures will be carried out through a single route.