International Trade and Investment Archives - Guzmán Ariza

Enabling Regulation for the Dominican Foreign Investment Law (Decree 380-96)

ARTICLE 1 – THE FOLLOWING DEFINITIONS SHALL BE A PART OF THESE REGULATIONS IN ADDITION TO THOSE CONTAINED IN LAW NO. 16-95:

Financial Assets: Instruments to be exchanged in financial markets, such as promissory notes, stocks, bonds, shares, and Bills of Exchange, among others, to which the Monetary Board attributes the category of foreign investment under the regulations to be issued for this purpose.

Repatriable or remittable capital: The fully paid-in capital owned by registered foreign investors, less the net losses suffered by the enterprise, if any.

Certificate of Foreign Investment Registration: Document to be issued by the Central Bank in favor of a foreign investor as evidence that his investment has been duly registered.

Fiscal year: The period of one year in which the results of a company’s business are presented in its financial statements.

Enterprise: An economic unit, whether a single proprietorship, partnership, limited partnership or corporation.

Blocked earnings: Earnings obtained by foreign investors registered under Law No. 861 which, having been reported to the Central Bank within the deadline established by said Law, could not be remitted abroad because they exceeded the percentage limitation.

Law No. 16-95: The Foreign Investment Law passed by the National Congress on 8th November 1995.

Law No. 861: The Foreign Investment Law passed by the National Congress on 22nd July 1978, as amended by Law No. 138 of 24th June 1983, and revoked by Law No. 16-95.

Freely Convertible Currency: Foreign currency that can be exchanged in a banking institution according to existing norms.

Free Zone Enterprise: Any national or foreign company licensed under Law No. 8-90 of 15th January 1990 or any other legislation which it substitutes.

ARTICLE 2.- ATTRIBUTIONS AND OBLIGATIONS OF THE CENTRAL BANK OF THE DOMINICAN REPUBLIC.

The Central Bank of the Dominican Republic shall have the following attributions:

a) To receive and analyze applications for registration related to direct foreign investments, foreign reinvestments, new foreign investments and licensing agreements for the transfer of technology, and to proceed with their registration after having determined that all legal and regulatory preconditions have been satisfied;

b) To receive information from the National Free Zone Council in relation to the registration of foreign enterprises authorized by said Council to operate as free zone enterprises, and to register the respective foreign investments;

c) To request from applicants for foreign investment registration the information and documents necessary to support their applications, as established in Law No. 16-95 and in these Regulations;

d) To issue Certificates of Registration of Foreign Investment or of Transfer of Technology, as the case may be;

e) To verify that the funds remitted abroad as earnings, the payments derived from contracts for technology transfer or repatriation of capital are made pursuant to Law No. 16-95 and these Regulations;

f) To approve the schedules for the gradual remittance of blocked earnings;

g) To provide upon request information concerning the requirements to obtain a Certificate of Registration of Foreign Investment or of Transfer of Technology;

h) To make an annual report to the National Congress, via the Executive Power, on the flow of foreign investment in the country, as part of the annual Central Bank report.

ARTICLE 3.- FORMALITIES FOR THE REGISTRATION OF FOREIGN INVESTMENTS.

Within the 90-day period established in Law No. 16-95, from the date on which each foreign investment is made, any foreign investor or corporation must file at the Central Bank its application for registration with all the information required for the issuance of the Certificate of Registration.

Upon completion of the documentation required for registration, the Central Bank will have a period of ten (10) working days in which to process same and issue the Certificate of Registration.

PARAGRAPH I. All applications for foreign investment registration must contain the following information:

a) If a foreign individual: name, address, telephone and fax number, and nationality of the foreign investor and of the person acting on his behalf, if any;

b) If a corporation:corporate name, place of business, telephone and fax number, and names of its Directors;

c) Amount of the investment, expressed in a freely convertible currency;

d) Name and incorporation papers of the local company that will receive the investment;

e) Type of economic activity in which the local company is or will be engaged;

f) In the case of a branch office of a foreign corporation, evidence of the authorization to establish a domicile in the Dominican Republic;

g) When the foreign investment has an impact on the environment, the foreign investor must submit a certificate from the competent ministry or agency which describes the manner in which any damage to the environment will be remedied, and

h) When foreign technology is capitalized, the foreign investor must also submit the contract executed by the parties which sets forth the amount of foreign exchange to be received in exchange for the technology;

PARAGRAPH II. In the case of a direct foreign investment, made in freely convertible foreign currency, the investor must submit:

a) Documentary evidence of entry into the country of the foreign currency via copies of check(s) or wire transfer(s) from the foreign banking institution and

b)Exchange receipt issued by a local bank authorized by the Monetary Board to deal in foreign currency.

PARAGRAPH III. In the case of a direct foreign investment in kind, the following documents must be submitted, whenever pertinent:

a) In cases involving investments in kind of imported goods and/or services:

– Commercial invoice

– Proof of payment

– Bill of lading, and

– Customs clearance documentation

b) In cases involving investments in kind made in installments over a given period of time, the investor must submit an affidavit describing the goods to be imported, the estimated value of customs duties, and the period of time during which the imports will take place. In such a case, a provisional certificate of registration will be issued for the estimated value of the imports, based on the proof of payment, letter of credit or purchase order for the goods or services to be received from abroad.

Upon completion of the foreign investment, the foreign investor shall submit to the Central Bank the documents mentioned in section a) of this paragraph and the provisional registration certificates, in order to replace them with definite certificates of registration;

c) In cases of foreign loans or financing, the investment will be registered only if the loan or financing is given to the foreign investor, not when it is granted to the local company in which the investment is being made, and

d) In the case of intangible technological contributions, the foreign investor must submit a copy of the agreement with the local company receiving the investment, as well as the evidence of ownership of the technology.

PARAGRAPH IV. In cases of new investment or of reinvestment of earnings, after being registered, will receive the same treatment as direct foreign investments. For this purpose, the foreign investor must, within ninety (90) calendar days from the date on which the local company declares the dividends, submit the following:

a) Copy of the audited financial statement of the company declaring the dividend;

b) Minutes of the shareholders’s meeting at which the dividend was declared, if required;

c) Documentary proof of payment of the taxes owed by the foreign investor in the Dominican Republic.

d) In case of reinvestments of profits, the documentation mentioned in Paragraph I, Section c) of this article will also have to be submitted and

e) In case of new investment, the documentation mentioned in Paragraph I, sections c), d), e), f), and g) of this Article will also have to be submitted.

PARAGRAPH V. Foreign persons and corporations may engage in the Dominican Republic, in the same manner as nationals, in the promotion or procurement of imports, sale, distribution, rental or any other use of foreign goods or products, whether manufactured abroad or in the country, whether acting as agents, representatives, exclusive distributors, concessionaires or under any other name, provided, however, that if such person or corporation has maintained commercial relations with a local concessionaire, it must enter into a written agreement and pay a fair and complete indemnity arising therefrom based on the elements mentioned in Article 3 of Law No. 16-95.

ARTICLE 4. REMITTANCE OF EARNINGS.

A foreign investor shall have the right to remit without the prior authorization of the Central Bank, all earnings accrued during the fiscal year ending after the entry into force of Law No. 16-95, as well as the pending portion of the earnings which were authorized in part after the entry into force of Law No. 16-95, as well as dividends paid in anticipation within the current fiscal period, provided that the corresponding tax obligations have been fulfilled.

The same treatment will be accorded to earnings accrued during fiscal years ending within the period of two (2) years mentioned in Law No. 861, in case the same have not been submitted to the Central Bank for approval. However, earnings not declared to the Central Bank, within the two (2) year period mentioned in Law No. 861 shall not qualify for remittance abroad.

After the remittance abroad of dividends declared during any given fiscal year, the investor will be required to submit the documentation mentioned in Article 3, Paragraph IV, sections a), b), and c), as well as a copy of the form evidencing the sale of foreign currency duly stamped by the bank which sold the same, which must be a bank licensed to deal in foreign currency.

Regarding dividends paid in anticipation within the current fiscal period, the documentation to which Article 3, paragraph IV, section c) refers to shall be presented, in addition to a copy of the Resolution of the Board of Directors where the dividends paid in advance during the current fiscal year were declared. Once the Assembly has ratified the dividends for said period, the minutes or the pertinent document must be remitted to the Central Bank, as well as the audited financial statements.

PARAGRAPH I. In case the remittance made by a foreign investor exceeds the benefits produced by his investment, as evidenced by the minutes of the shareholdersÕÕ meeting mentioned in Article 3, Paragraph IV, section b), the Central Bank shall act as if a repatriation of capital had taken place and shall reduce the amount of the registered investment and amend the corresponding certificate. This step will be notified to the foreign investor.

PARAGRAPH II. Blocked earnings may be remitted abroad subject to prior authorization of the Central Bank. To this end, the foreign investor must apply for approval of a gradual schedule of repatriation and attach the documentation mentioned in this Article for the case of dividends.

ARTICLE 5. REMITTANCE OR REPATRIATION OF CAPITAL.

The foreign investor whose capital is registered at the Central Bank shall have the right to remit or repatriate same upon the sale of his shares or interests to national or foreign investors or when the company in which he has made his investment is liquidated, provided he is up to date in his tax obligations to the Dominican Republic.

He will also be allowed to remit abroad, without prior authorization of the Central Bank, the capital gains realized and registered in the books of the company, as set forth in Article 12 of Law No. 16-95.

The sale session or transfer of shares or interests by one foreign investor to another foreign investor or to a national investor must be reported to the Central Bank within sixty (60) calendar days from the date on which the sale or transfer takes place or on which the company is liquidated.

PARAGRAPH I. The foreign investor must deliver to the Central Bank his original certificate of registration for purposes of cancellation before repatriating his foreign capital.

PARAGRAPH II. For the purpose of a joint registration of transactions involving the sale and purchase of foreign capital, the buyer shall be granted a period of sixty (60) calendar days to obtain the new certificate of registration and shall thereafter enjoy the same rights and obligations as his transferor.

Within the sixty (60) day period mentioned above, the following documents must be filed with the Central Bank:

a) The original certificate of foreign investment registration involved in the transaction;

b) Documentary evidence of the payment of Dominican Republic taxes by the foreign investor who is transferring his investment;

c) Documentation satisfactory to the Central Bank evidencing the transfer of ownership of the foreign capital;

d) A request by the new foreign investor of a Certificate of Foreign Investment Registration, and

e) The information mentioned in Article 3, Paragraph I, sections a), b), c), and f) of these Regulations.

PARAGRAPH III. It is a condition for the new registrations that the repatriation of has not taken place. If the repatriation of capital has been effected, the purchasing foreign investor will be subject to the provisions contained in Article 3, Paragraph II, of these Regulations.

ARTICLE 6. TRANSFERS OF TECHNOLOGY.

Applications for registration of contracts for the transfer of technology must be accompanied by a copy of such contracts and documentary evidence that the transferor is the owner of such technology. Further, the requirements established in Article 3, Paragraph I, section g) of these Regulation must be met.

SOLE PARAGRAPH. Within sixty (60) days of having remitted a royalty payment abroad, the transferee must submit to the Central Bank:

a) A copy of the form for sale of foreign currency duly stamped by the banking institution selling the currency. This institution must be authorized to make foreign currency transactions;

b) Documentary evidence of compliance with the tax obligations of the transferor in the Dominican Republic;

c) A communication from the conceding corporation containing the calculations made for the determination of the amount of royalty paid;

d) Evidence that the foreign grantor of the technology received the royalty payment being documented.

ARTICLE 7.- REQUISITES FOR THE SALE OF FOREIGN CURRENCY.

Only financial institutions authorized to deal in foreign currency will be permitted to sell foreign currency for the remittance abroad of earnings, repatriations of capital and capital gains, and for the payment of royalties derived from contracts for the transfer of technology. For such sales, the prior authorization of the Central Bank will not be required, except in the cases provided in these Regulations.

To this end, said institutions shall request to be shown the original Certificate of Foreign Investment Registration and shall request the filing of one copy of said copy together with the following documentation:

a) An affidavit by the foreign investor or his authorized representative expressing the right under Law No. 16-95 to purchase the foreign currency being sought in the amount and for the reason stated and, further, that he has complied with his tax obligations in the Dominican Republic. Regarding the remittance of dividends paid in advance during the current fiscal year, a copy of the corresponding Resolution of the Board of Directors must be included;3

b) When a repatriation of capital is involved, the foreign investor shall be required to submit a proof from the Central Bank attesting that it has received the original certificate of registration. This proof shall substitute the requirements of exhibiting the original certificate and submitting a copy thereof, and

c) In cases involving the purchase of foreign currency to make payments derived from contracts for the transfer of technology, a copy of the Certificate of Registration issued by the Central Bank and the affidavit of the transferee mentioned in section a) of this Article will be required.

PARAGRAPH I. All cases of sales of foreign currency by banking institutions under these Regulations shall be handled according to the procedures established for cash sales over the counter. Such sales shall, however, not be subject to the quantitative limits established for such operations. Payment of the Delegation Fee shall be required in each case, pursuant to the rules in effect.

PARAGRAPH II. Banking institutions shall remit to the Central Bank the documents received from the purchasers of foreign currency, as described in the present article, together with the original form for the sale of foreign currency, pursuant to the banking norms in effect at the relevant times.

ARTICLE 8.- MISCELLANEOUS.

The following procedures shall be applicable to the cases set forth below:

PARAGRAPH I. In case of loss of a Certificate of Foreign Investment Registration, the foreign investor shall request the Central Bank to issue a duplicate upon submission of an affidavit of loss.

PARAGRAPH II. If found to have been obtained by fraudulent means the Certificate of Foreign Investment Registration or of Transfer of Technology shall be revoked. Upon making this determination, the Central Bank shall notify the owner of the registration.

Further, if through indirect information received by the Central Bank, it is determined that the foreign investor does not appear in the list of stockholders of the company registered as the recipient of his investment or if his share in the capital does not coincide with the information submitted for registration, the Central Bank, prior notification to the foreign investor, shall proceed to cancel or adjust the amount of the registration, as may be required.

PARAGRAPH III. When there is a change of address and/or business name and/or of the authorized representative, the foreign investor shall so inform the Central Bank, since the Central Bank when sending notices to the foreign investor, shall rely on the latest information on file.

PARAGRAPH IV. In the case of a foreign investment made in several currencies, the registrations at the Central Bank of new foreign investment, reinvestment or earning or changes in the amount of direct foreign investment shall be adjusted proportionately to the currencies of the original registration, using the exchange rate in effect at the time of each application.

ARTICLE 9.- TRANSITORY PROVISIONS.

At the request of the foreign investor, blocked earnings may be treated as reinvested earnings or as new foreign investment, as the case may be. To this end, the provisions established in Article 3, Paragraph IV of these Regulations must be complied with.

Applications for registrations of foreign investment, reinvestment of earnings, contracts for the transfer of technology, and renewals of such registrations, which were submitted to the Central Bank prior to the entry into force of Law No. 16-95 and which have not been registered for lack of session of the Board of Foreign Investment, shall be dealt with under Law No. 16-95 and these Regulations, and the owners thereof shall be entitled to:

a) Remit abroad the earnings derived from such foreign investments during the fiscal years ending after the date of filing of their applications for registration at the Central Bank, and

b) Remit abroad the payments under contracts for the transfer of technology, which became due after the date of filing at the Central Bank of the application for registration.

A new ninety (90) calendar days period, as of this date, is hereby granted for the acceptance of applications for foreign investment registrations and registration of contracts for transfer of technology which to this date, had not been submitted to the Central Bank for registration.4

To this end, the interested parties shall submit the information called for in Article 3 of these Regulations, as the case may be. After compliance with this requirement, such investors shall be permitted to remit abroad the earnings obtained during the fiscal years ending after the registration of their investments and the payment of royalties due after the date of registration of the contract for the transfer of technology.

Foreign Investment Law of the Dominican Republic #16-95 (LAW 16-95)

THE NATIONAL CONGRESS
IN THE NAME OF THE REPUBLIC

WHEREAS: The Dominican State recognizes that foreign investment and technology transfers contribute to the economic growth and social development of the country insofar as they favor the generation of jobs and foreign currency, promote the process of capitalization and provide efficient production, marketing and management methods;

WHEREAS: It is advantageous that investors, whether foreign or national, should have similar rights and obligations in the investment fields;

THE FOLLOWING LAW HAS BEEN GIVEN

Art. 1.- For the purposes of this law on foreign investment, the following shall be understood to be:

a) Direct Foreign Investment:

Contributions originating from abroad, belonging to foreign individuals or corporations or individual nationals residing abroad, to the capital of a company operating in national territory;

b) Foreign Reinvestment:

That foreign investment made in whole or in part from the profits originating from a registered foreign company into the same company that generated them;

c) New Foreign Investment:

Foreign investment made in whole or in part from the profits originating from a duly registered direct foreign investment into a company different from that which generated the profits;

d) Foreign Investor:

The owner of a duly registered foreign investment;

e) National Investment:

That made by the State, municipalities and national corporations domiciled or resident in the National territory, as well as by foreign individuals residing in the national territory that do not meet the conditions for obtaining the certificate of foreign investor;

f) Central Bank:

This is the Central Bank of the Dominican Republic.

Art. 2.- Foreign Investment can assume the following forms:

a) Contributions in freely-convertible currency, exchanged in a banking institution authorized by the Central Bank.

b) Contributions in kind, such as industrial plants, new and re-conditioned machinery, new and re-conditioned equipment, replacements, spare parts and parts, raw material, intermediate products and final goods, as well as intangible technological contributions; and

c) Those financial instruments the Monetary Board relegates to the category of foreign investment, except those that may be the product of contributions or internment of an operation for the re-conversion of the Dominican foreign debt.

PARAGRAPH I: Independently of the investments foreseen in item b) of this article, contracts for technology transfer can be signed with foreign individuals or corporations, such as contracts for the license of technology, for technical assistance, basic and detailed engineering.

PARAGRAPH II: Intangible technological contributions are understood to be funds originating from technology, such as Trademarks, product models or industrial processes or services, technical assistance and technical knowledge, franchise and management assistance. The application regulation of this law shall determine the general framework that will be applied to technology, including those areas in which the capitalization of intangible technological contributions will be allowed.

Art. 3.- Targets of Foreign Investment:

a) Investments in the capital of an existing or new company, as per the provisions contained in the Commercial Code of the Dominican Republic, including the establishment of branch offices, pursuant to the conditions set by the laws.

Foreign Investment in share companies must be represented in nominative shares.

b) Investments in real properties located in the Dominican Republic, with the limitations in effect and applicable to foreigners; and

c) Investments towards the acquisition of financial assets, pursuant to the general norms issued in this area by the monetary authorities.

Art. 4.- Within 90 days of making its investment, any foreign company or investor must register it with the Central Bank of the Dominican Republic. For these purposes, the following documents will be filed:

a) Application for registration, containing all the information relevant to the invested capital and the area in which the investment has been made;

b) Proof of entry into the country of the foreign currency or physical or tangible goods.

c) Formative documents of the commercial corporation or the authorization of the operation of branch offices via the setting of domicile.

PARAGRAPH I: Once the document filing requisites have been met, the Central Bank will issue immediately to the applicant a Registration Certification of Direct Foreign Investment.

PARAGRAPH II: Foreign Re-Investment and New Foreign Investment, described in article 1 of this law, shall also be registered with the Central Bank, meeting the requisites provided by the regulation for applications.

PARAGRAPH III: In the case of companies operating in Industrial Free Zones, the registration and delivery of information shall be made in the National Council of Export Free Zones, which shall have the obligation of communicating this immediately to the Central Bank.

Art. 5.- Foreign Investment will not be allowed in the following categories:

a) Disposal and remains of toxic, dangerous or radioactive garbage not produced in the country;

b) Activities affecting the public health and the environmental equilibrium of the country, pursuant to the norms that apply in this regard; and

c) Production of materials and equipment directly linked to national defense and security, except for an express authorization from the Chief Executive.

PARAGRAPH I: When the Foreign Investment affects the eco-system in its area of influence, the investor must present a proposal with the provisions for recovering the ecological damage it may cause.

PARAGRAPH II: The competent authorities related to the area in question shall have the responsibility for compliance with the provisions contained in this article.

PARAGRAPH III: Foreign investments shall be made in each area of the national economy, pursuant to the conditions and limitations imposed by the laws and regulations governing each one of said areas.

Art. 6.- Investors and the companies or corporations in which foreign investors may participate or be owners, shall have the same rights and obligations that the laws confer upon national investors, save the exceptions foreseen in this law or in special laws.

Art. 7.- The individuals or corporations that make investments defined in article 1 of this law, shall have the right to remit abroad, in freely-convertible currencies, without the need for prior authorization, the total amount of invested capital and the dividends declared during each fiscal period, up to the total amount of the net current profits of the period, upon payment of income tax, including the capital gains made and registered in the books of the company according to generally accepted accounting practices.

They can also repatriate, under the same conditions, the obligations resulting from technical service contracts where fees are established for the purposes of technology transfers and/or contracts for the local manufacture of foreign brands, which include clauses for the payment of royalties (“regalías”) as long as said contracts and the amounts or procedures for the payments involved have been previously approved by the Central Bank of the Dominican Republic or an official agency subsequently designated to coordinate, facilitate and supervise everything related to foreign investment.

Art. 8.- Within the following 60 days, the foreign investor must convey to the Central Bank the following:

a) Statement of profits contained in the fiscal year, duly certified by a Certified Public Accountant (“Contador Público Autorizado”), specifying the percentage of said profits that were subject to remittance;

b) Documentary proof of settlement of tax commitments.

Art. 9.- Non-compliance with this obligation will carry the applicable sanctions contained in the law that governs the obligation of supplying information to the Central Bank of the Republic.

The Central Bank must inform the National Congress annually of everything related to the flows of foreign investment in the country.

Art. 10.- Article 12, added to Law 622, of 28 December 1973 to Law 173, of 6 April 1966, is modified, so that hereinafter it reads in the following manner:

“Art. 10.- Foreign individuals and corporations, as well as nationals, can engage in the Dominican Republic in the promotion or handling of the importation, sale, rental or any other kind of marketing or operations of merchandise and products of foreign origin that may be produced abroad or in the country, whether acting as agent, representative, receiver of commissions, exclusive distributor, licensee or under any denomination. However, if the individual or corporation that is to engage in this activity has maintained a commercial relationship with local licensees, he or it must agree to and deliver beforehand and in writing the fair and complete indemnities for the losses and damages produced by such cause, on the basis of the factors and in the manner described in article 3 of this law.”

Art. 11.- This law repeals Law Number 861, dated 22 July 1978, and Law No. 138 dated 24 June 1983. In like manner, it repeals item d) of article 3 of Law No. 251 of 11 May 1964 on International Fund Transfers.

Art. 12.- (Transitional). In the case of accumulated profits from previous periods retained as a consequence of the limitations on remittances established by Law No. 861, each company shall have the right to request the approval of a program for gradual repatriation, with a minimum of 5 years for fully effecting it.

The reassessment surpluses registered in the capital accounts of companies that have reassessed their assets will not be regarded as foreign investment for the purposes of repatriation of capital, except when said revaluation profits have been converted into liquid assets for the sale to third parties or parties related to the company.

Art. 13.- This law repeals any other express legal provision contrary to it.

Investing in the Dominican Republic

A Receptive Environment for Investors

During the last two decades, the Dominican Republic has sought to foster a highly receptive environment for international investors, adopting policies that minimize regulatory obstacles and, at the same time, provide assistance and incentives to foreign companies and individuals to bring their capital into the country. As a result, the country has become the number one recipient of direct foreign investment in the region: 21 billion dollars’ worth from 2006 to 2015.

Equal Treatment

The Dominican Constitution accords foreign and local investors equal treatment under the law, stating expressly that foreigners in the Dominican Republic are entitled to the same rights as Dominican nationals, except for participating in local political activities. At the same time, foreign investors are bound by the same rules and regulations applicable to local investors.

Foreign investors can freely hold equity in local businesses and joint ventures, as well as buy real estate in their names.

Legal Framework

Foreign Investment Law 16-95, enacted on November 20, 1995, and its enabling regulations, eliminated all barriers formerly imposed on international investments in the Dominican Republic. Investors contributing capital to companies operating in the Dominican Republic are granted unlimited access to all sectors of the Dominican economy, except for investments related to national security and other sensitive industries.

Registration of foreign investments is optional. No government approval is required for the repatriation of profits.

Government Assistance to Foreign Investors

The Center for Exports and Investment of the Dominican Republic (CEI-RD), a government agency created in 2013 with the explicit purpose of attracting foreign investment and fostering exports, assists foreign investors in their business ventures in the Dominican Republic, providing them with timely advice and information, as well as assistance in coordinating their applications for government permits. In 2012, a one-stop investment office was set up within the Center to assist foreign investors in streamlining government permit applications related to free zones, tourism, renewable energy, and the film industry, among others

The Center also sponsors events to promote the Dominican Republic as an investment destination and to provide information to potential investors on how to plan and implement successful business projects in the country.

Government Guarantees for Foreign Loans

The Dominican government also assists investors by pledging its full faith and credit to loans provided by international agencies for significant infrastructure projects in the Dominican Republic. Foreign investors in large Dominican projects commonly use capital and political/exchange insurance risk facilities provided by the Multilateral Investment Guarantee Agency (MIGA) and the Overseas Private Investment Corporation (OPIC). The Dominican Republic has signed agreements with both entities.

The Multilateral Investment Guarantee Agency (MIGA) is an independent development cooperation institution created by the World Bank in 1988 to provide, in addition to guarantees to investors against losses caused by political risks, technical assistance to promote investments to developing countries.

The Overseas Private Investment Corporation (OPIC) is an independent federal agency of the United States federal government that helps American companies to compete in emerging markets by providing insurance against political violence, expropriation, and the inability to convert foreign currency.

Incentives for Investors

In a deliberate effort to attract investment capital, the Dominican Republic has set up one of the most wide-ranging systems of incentives for investors. The most important initiatives in this regard are described below.

Incentives to Investors in Free Zones

Under Free Trade Zones Law 8-90, its amendments and regulations, companies operating in free zones function in a nearly free trade environment and benefit from considerable tax exemptions for renewable 15-year periods, such as no income, goods and services, municipal or export or re-export taxes, no import duties nor related charges on raw materials, equipment, construction materials, vehicles, office equipment and other goods necessary for the preparation, construction, and operation of the business.

All trade in goods or services from and to a free zone is considered an import or an export, even when the source or destination is another location in the Dominican Republic. As a result, goods and services from the free zones sold in the Dominican market are subject to applicable taxes, such as customs duties and goods and services taxes, except (a) textiles, leather goods, and shoes that benefit from a special program set up under a special statute (Law 56-07); and (b) trade between different free zones if approved beforehand by the authorities. However, companies in the free zones exporting goods or services to the Dominican market pay a preferential income tax rate of 3.5% on gross sales.

Free zones are regulated and supervised by the National Council for Free Zones, which issues the permits allowing companies to operate within a particular free zone, and enforces all applicable legislation.

Special Incentives for Border Region Free Zones

Under Law 28-01, companies established and operating in free zones within the border region with Haiti are entitled, in addition to the exemptions listed before, to additional benefits such as an extension of the exemption period from 15 to 20 years, government subsidies to lease space in the free zone, and preferential loans with lower interest rates.

Special incentives for International Financial Free Zones

Under Law 480-08, companies in special free zones can offer all types of financial and support services to persons or entities located outside the Dominican Republic without having to pay taxes for a 30-year period.

Partners and shareholders of companies in financial free zones are exempted from paying taxes on the profits or dividends received.

International financial free zones are regulated and supervised by the National Council for International Financial Zones, which issues the permits allowing companies to operate within a particular free zone and enforces all applicable legislation.

Special Incentives for Logistic Operators

Executive Order 262-15 defines logistic operators as companies authorized by the Customs Department of the Dominican Republic to supply, within a logistic center, services such as storage, inventory administration, classification, consolidation, cargo distribution, packaging, labeling, division of cargo, refrigeration, re-export, and transport.

Logistic operators benefit from a significant reduction in their income tax, which is set at just 3.5% of sales made in the local market, and from import duties on merchandise brought into the country, repackaged and then exported, if done within a specified time period.

Incentives for Investors in the Tourism Industry

The inflow of tourists to the Dominican Republic began with the enactment, in 1971, of a special statute granting incentives to investors willing to risk their capital in what was then the last tourist destination in the region. Nowadays, when the country is the undisputed tourism leader in the Caribbean, companies still benefit from very attractive enticements to invest in the industry. Law 158-01 on Tourism Incentives, as amended by Law 195-13, and its regulations, grants wide-ranging tax exemptions, for fifteen years, to qualifying new projects by local or international investors.

The projects and businesses that qualify for these incentives are: (a) hotels and resorts; (b) facilities for conventions, fairs, festivals, shows and concerts; (c) amusement parks, ecological parks, and theme parks; (d) aquariums, restaurants, golf courses, sports facilities, and any other tourist facility; (e) port infrastructure for tourism, such as recreational ports and seaports; (f) utility infrastructure for the tourist industry such as aqueducts, treatment plants, environmental cleaning, and garbage and solid waste removal; (g) businesses engaged in the promotion of cruises with local ports of call; and (h) small and medium-sized tourism-related businesses such as shops or facilities for handicrafts, ornamental plants, tropical fish, and endemic reptiles.

As for existing projects, hotels and resort-related investments that are five years or older are granted 100% exemptions from taxes and duties related to the acquisition of the equipment, materials and furnishings needed to renovate their premises. In addition, hotels and resort-related investments that are fifteen years or older will receive the same benefits as a new project if the renovation or reconstruction involves 50% or more of the premises.

Finally, individuals and companies get an income tax deduction for investing up to 20% of their annual profits in an approved tourist project.

The Tourism Promotion Council, known by its Spanish acronym of CONFOTOUR, is the government agency in charge of reviewing and approving applications by investors for these exemptions, and, generally, of supervising and enforcing all applicable regulations. Once CONFOTOUR approves an application, the investor benefitting from the incentives must start and continue work in the authorized project within a three-year period to avoid losing all benefits under the program.

Incentives for Investors in Renewable Energy

The Dominican Republic encourages investment in the renewable energy sector. Under Law 57-07 on the Development of Renewable Sources of Energy, investors in this area are granted, among other benefits, the following incentives: (a) no custom duties on the importation of the equipment required for the production, transmission and interconnection of renewable energy; (b) no tax on income derived from the generation and sale of electricity, hot water, steam power, biofuels or synthetic fuels generated from renewable energy sources; and (c) exemption from the goods and services tax in the acquisition or importation of certain types of equipment.

The National Energy Commission is the governmental entity in charge of granting incentives in this industry, which has attracted substantial interest from international investors.

Incentives for Investors in the Film Industry

Film Industry Law 108-10, as amended by Law 257-10, and its enabling regulation, created a legal framework to promote the development, production, distribution and preservation of movies, TV shows, music videos, and other audiovisual productions, as well as the construction of film-making studios and movie theaters. The most important incentives contemplated in the legislation are exemption from payment of the goods and services tax, income tax exemption for the construction of movie theaters and film or recording studios, and a transferable tax credit equal to 25% of expenditures in the Dominican Republic, subject to certain requirements.

To benefit from these incentives, investors need to be registered and authorized with the Dominican Republic Film Commission, which is the regulatory agency in charge of implementing the law.

General Incentives for Innovation and Competitiveness in Manufacture

Industrial Innovation and Competitiveness Law 392-07, as amended by Law 542-14, creates an institutional framework to enhance the ability of Dominican industry to compete in international markets by promoting horizontal and vertical integration and granting incentives to qualified operators such as exemption from custom duties and goods and services tax on raw materials, machinery and capital goods, accelerated depreciation of goods and industrial equipment, and reimbursements of certain taxes to exporters.

To qualify for these incentives, industries must be certified by the Center for Development and Industrial Competitiveness (PROINDUSTRIA), the agency of the Dominican government created to implement Law 392-07.

Incentives for Immigrant Investors

Law 171-07 grants foreign nationals who invest a minimum of $200,000 in the Dominican Republic or meet certain criteria as retirees with special benefits such as expedited residency in the country, exemption from duty for the importation of household goods, exemption from transfer taxes for the first purchase of real estate, exemption from taxes on dividends and interest, and 50% reduction on property and capital gains taxes.

GUZMAN ARIZA ON FOREIGN INVESTMENT

Guzman Ariza has advised investors on investments and trade incentives in the Dominican Republic through the decades. As a firm with national presence, we know the investment health of localities around the island and combine this with our legal expertise to help you maximize the enormous investment opportunities available in the country in tourism, real estate, free trade zones, renewable energy, telecommunications, mining, sports, etc. No project is beyond our legal capability, nor is any project too small. Whatever your interest, we will help you achieve your investment goals in the Dominican Republic.

The Dominican Republic and International Trade

The Dominican Republic at a Glance

Geographically located at the center of the Caribbean, with privileged market access to the United States, Europe, and Central America, an abundant work force, a domestic market of more than ten million people, and a decades-old policy of great openness to foreign investment and international trade, the Dominican Republic has become the largest economy in the Caribbean and Central America, the number one recipient of direct foreign investment in the region (2. 3 billion dollars in 2015), and its most-visited tourist destination (5.6 million tourists in 2015). From 1993 to 2015, gross domestic product (GDP) growth of the Dominican economy averaged 5.4% annually; in 2014 and 2015, it reached 7.3 and 7.0%, respectively, the highest by far in the Western Hemisphere.

Market Size

In 2015, the Dominican Republic bought $16.9 billion dollars’ worth of imported products and exported 9.7 billion dollars in local products. The top four countries for Dominican exports in 2014 were the United States (49%), Haiti (14%), Canada (9%), and Switzerland (2.5%). Imports came mainly from the Unites States ($7.3 billion in 2014), China ($2.1 billion), and Mexico ($1.1 billion).

In the Western Hemisphere, the Dominican Republic is the seventh largest trading partner of the United States, after Canada, Mexico, Brazil, Venezuela, Colombia, and Chile.

Participation in the International Community

The Dominican Republic maintains diplomatic relations with 129 countries and is a member of many regional and international organizations, including the United Nations, the Organization of American States, the Central American Integration System, the World Trade Organization, the International Monetary Fund, the World Bank, the International Centre for Settlement of Investment Disputes, the International Finance Corporation, the Inter-American Development Bank, the Inter-American Investment Corporation, the Central American Bank for Economic Integration, the Caribbean Development Bank, the Multilateral Investment Guaranty Agency, and the Caribbean Forum of African, Caribbean and Pacific States.

Memmbership in the World Trade Organization

The Dominican Republic has been a member of the World Trade Organization (WTO), the world-wide regulator of international trade, since its founding in 1995. The main objective of the WTO is to foster international trade by eliminating trade barriers and enforcing the multiple commercial agreements reached by its members over the decades.

As a developing country, the Dominican Republic is allowed to receive preferential, non-reciprocal treatment from other member states.

Free Trade Agreements

The Dominican Republic enjoys advantageous trade with the United States, the European Union, and countries in the Caribbean and Central America region. Two important agreements are the free trade agreement with the United States and Central America (DR-CAFTA) and the Economic Association Agreement with the European Union (AAE). Both encourage the free flow of trade among the member states by significantly reducing tariffs, opening new markets, and promoting regional integration. Furthermore, the country has initiated discussions to liberalize trade with Canada, Mexico, Mercosur, and Taiwan.

Dominican Republic and Central American Free Trade Agreement (DR-CAFTA)

Signed August 5, 2004, and effective in the Dominican Republic on March 1, 2007, DR-CAFTA facilitates trade and investment between its member states and promotes regional integration by eliminating tariffs, opening markets, reducing barriers to services, promoting competition, protecting intellectual property rights, and advancing transparency. Parties to the agreement are the United States, the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. These last six countries represent the third largest export market for U.S. goods in Latin America after Brazil and Mexico.

DR-CAFTA permanently guarantees the Dominican Republic the ability to export most of its products and services to the member states without customs duties. Service sectors with open access to all signatories of DR-CAFTA include financing, insurance, investments, tourism, energy, transport, construction and engineering, government contracts, telecommunications, express delivery, electronic commerce, entertainment, professional services, computer and related services, and environmental industries. Importantly, laws that protect domestic dealers by locking companies into distributorship arrangements have been loosened.

DR-CAFTA also requires member states to effectively enforce local labor and environmental regulations, and eliminate corruption, in order to ensure fair competition and a level playing field for all.

Certain obstacles to free trade remain under the treaty. Member states have kept tariffs on specific agricultural products up to a certain limit, and have prohibited the importation of certain goods. For instance, the Dominican Republic does not allow the entry of used clothes, used electric household appliances, or cars older than five years.

The administrative structure of DR-CAFTA is headed by the Free Trade Commission, consisting of cabinet-level representatives of the seven parties to the agreement. The Commission is responsible for supervising the implementation of the agreement and resolving disputes regarding its interpretation and application.

Economic Partnership Agreement (EPA)

The Economic Partnership Agreement (EPA) is a free trade treaty with financing and investment aspects signed in 2007 between the European Union (EU) and CARIFORUM, an organization of Caribbean nations, whose members are Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Granada, Guyana, Haiti, Jamaica, Saint Lucia, Saint Kitts and Nevis St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, and Dominican Republic. The EPA allows duty-free access to Caribbean products to the 28 countries of the EU and provides economic assistance to Caribbean countries with the stated purpose of reducing poverty, promoting regional integration, and encouraging regional consolidation into the world economy. It also promotes free trade within the Caribbean region. The Dominican Republic entered the EPA on October 15, 2008.

Under the terms of the EPA, access to markets is asymmetrical. Provisions for exports from Caribbean countries to the countries of the EU are generous for eligible products. In contrast, provisions for similar imports from the EU are subject to restrictions for up to 25 years, with safeguards to protect local employment and sensitive industries. This asymmetry protects certain products and sectors in the less-developed Caribbean countries from the potential unequal effect of trade with the EU while affording the less-developed member states access to EU products.

The EPA, together with DR-CAFTA, offers international investors and local producers in the Dominican Republic unprecedented free-trade access to the two largest markets in the world: The EU and the United States. Few other countries benefit from such a privileged situation.

Free Trade Agreement with CARICOM

Signed in 1998 and ratified by the Dominican Republic in February 2001, this agreement involves the Dominican Republic and 14 Caribbean nations (CARICOM), and establishes free trade zones in the region along WTO guidelines. Trade between the Dominican Republic takes place on an equal or reciprocal basis with other more developed Caribbean states, but may be differentiated with those less-developed, such as Antigua y Barbuda, Belize, Dominica, Granada, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, and Haiti.

The free trade agreement between the Dominican Republic and CARICOM coexists with free trade agreement between the Caribbean nations and the European Union (EPA). A provision in the EPA stipulates that in case of a conflict in the handling of a product or sector between the two agreements, the agreement with the less restrictive treatment will prevail.

Free Trade Agreement with Central America

A free trade agreement between the Dominican Republic and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua was signed in 1998 and came into effect in 2001. Although a regional treaty, it is, in fact, a bilateral agreement between each Central American country and the Dominican Republic. The agreement provides for free trade in all products originating in the region except those registered in a “negative list.”

This agreement coexists with DR-CAFTA, which incorporates several of the provisions of the former, including the negative lists. In case of a conflict in the handling of a product or sector between the two agreements, the agreement with the less restrictive treatment will prevail.

Partial Free Trade Agreement with Panama

This agreement was signed in 1985, but discrepancies over its application delayed implementation until 2003. Four lists of products benefit from liberalized trade, subject to rules of origin: (a) “two-way products,” which consists of those that enjoy free access to the markets of both countries; (b) Dominican products than can be freely exported to Panama; (c) Panamanian products that can be freely exported to the Dominican Republic; and (d) products manufactured in free trade zones.

A Permanent Mixed Commission consisting of representatives from both countries may add new products to the lists.

GUZMÁN ARIZA’S SERVICE IN INTERNATIONAL TRADE

Involvement exemplifies Guzmán Ariza’s experience in trade agreements. We dedicate a large part of our practice to helping international corporations meet their operational and strategic business objectives in the country. We have actively participated in the negotiation of the most important international trade agreements, giving us intimate knowledge of the local impact of their contents on your business. When DR-CAFTA was enacted, we pioneered the field of public procurement law in the Dominican Republic to meet the objectives of that trade agreement.

Our presence in and attention to trade issues enable us to monitor provisions that impact your business, such as technical barriers to commerce, rules of origin, domestic components, and tariff. Armed with timely information, we can anticipate legal changes and guide your business for the long term.