Business Entities in the Dominican Republic

Business and Companies

ALTERNATIVE VEHICLES FOR DOING BUSINESS IN THE DOMINICAN REPUBLIC

Foreign companies may conduct business in the Dominican Republic by setting up a branch office,  incorporating a local subsidiary or acquiring the shares of an existing Dominican company.

BRANCH OFFICES

Any company duly organized and existing in accordance with the laws of its country of origin can set up a branch in the Dominican Republic by registering at the Business Registry and obtaining a tax number from the Internal Revenue Agency. Additional approvals may be required in certain regulated industries.

Registration requires that (a) all incorporation documents of the foreign company be translated into Spanish and authenticated, (b) corporate minutes establishing a registered office in the Dominican Republic and naming a local representative, and (c) particulars of the local representative and the company’s shareholders.

Registration is not necessary if the activity of the foreign company is limited to acquiring equity in a local business entity or to occasional transactions in the Dominican Republic.

Local branches of foreign companies receive the same tax treatment as Dominican companies and are subject to the same local laws and regulations in labor and other matters. For tax purposes, they must keep separate accounts from their head office so as to facilitate the determination of their income.

LOCAL SUBSIDIARY

The most common structures available for investors to establish a local subsidiary as an independent local business entity in the Dominican Republic are the Limited Liability Company, the Corporation and the Simplified Corporation.

These three types of companies enjoy limited liability for its shareholders, meaning that if the company fails, they will be liable only for the amount of capital invested, and that shareholders, individually or collectively, are not liable for the debt obligations of the company. This limited liability protection afforded to shareholders of these entities is strictly observed under the law, except in case of fraud or misrepresentation.

Other business structures exist (Individual Limited Liability Companies, Partnerships, Limited Partnerships and Limited Partnerships with Shares) but they are rarely used by investors because, in the case of Individual Limited Liability Companies, the sole shareholder must be an individual, and in other cases, the partners do not have limited liability.

All business entities are taxed in the same manner, in contrast to the practice in other countries such as the United States. Please refer to the chapter on taxation for details.

NO RESTRICTIONS FOR NON-DOMINICANS

Shareholders, partners, members, officers and directors of a Dominican company do not need to be Dominican citizens or residents, except in very special circumstances.

SUITABILITY OF THE DIFFERENT ENTITIES WITH LIMITED LIABILITY

Corporations are best suited for large businesses with many shareholders  where protecting minority interests is important. They are the only entities that can raise capital through public stock offerings.

Simplified Corporations are best for medium to large-sized businesses that require special shareholder provisions for corporate governance purposes. Simple Corporations cannot raise capital through public stock offerings, but are able to issue debt instruments to the public.

Limited Liability Companies are ideal for small to medium-sized businesses, the most common in the Dominican Republic, reason why LLC’s are very popular for local investors. LLC’s cannot raise capital through public offerings.

SPECIAL CHARACTERISTICS OF THE LIMITED LIABILITY COMPANY

LLC’s must have no less than two shareholders and no more than fifty. To form an LLC, a minimum capital of 100,000 DOP is required (about $2,200 at the exchange rate current in December 2015), which must be paid in full, and divided into shares with a par value of at least 100 DOP each.

Shares in an LLC are nonnegotiable. Share transfers to third parties who are not current shareholders must be approved by 75% of the votes of the company, except in certain cases, such as when the beneficiary is a child or parent of the person doing the transfer.  Nonetheless, if the transfer is rejected, the shares in question must be purchased or redeemed by the other shareholders or the company.

Management of an LLC is in the hands of one or several managers or a board of managers. Managers must be natural persons, not other companies.

Unless otherwise stipulated in the bylaws, no inspection officer (comisario de cuentas) is required to oversee management.

SPECIAL CHARACTERISTICS OF THE SIMPLIFIED CORPORATION

Simplified corporations must have a minimum of two shareholders but, unlike in the LLC’s, there is no maximum. The minimum capital required to form a Simplified Corporation, called the company’s authorized capital, is three million DOP (about $66,000 at the exchange rate current in December 2015), of which at least 10% (300,000 DOP or $6,600) must be paid-in upon incorporation. Shares in a Simplified Corporation are negotiable, although restrictions may be established in its bylaws.

Management of a Simplified Corporation is freely determined by its shareholders in the company bylaws. It could consist of a board or of one or several individual managers. Members of the board and individual managers do not need to be natural persons.

Unless otherwise stipulated in the bylaws, no inspection officer (comisario de cuentas) is required to oversee management.

Simplified corporations can issue debentures and bonds privately, although not publicly.

SPECIAL CHARACTERISTICS OF THE CORPORATION

Corporations must have a minimum of two shareholders. There is no limit on the maximum. The minimum capital required to form a corporation (minimum authorized capital) is 30 million DOP (about $666,000 at the exchange rate current in December 2015), of which at least 10% (3,000,000 DOP or $66,600) must be paid-in upon incorporation. Shares in a corporation are negotiable, although certain restrictions may be established in its bylaws.

Corporations can be private or public. Only public corporations can offer the sale of stock and bonds to the general public.

The management of corporations must consist of a board of directors of at least three members, which do not have to be natural persons.

An inspection officer (comisario de cuentas) is required to oversee management and to render an annual report to the shareholders meeting about the company’s financial statements and the performance of the board of directors.

SHARES IN FOREIGN CURRENCY

The value of company shares as well as its capital can be stated in foreign currency.

PREFERRED SHARES

All companies can issue common shares and preferred shares. Preferred shares may grant the shareholder the right to a fixed dividend or a fixed percentage of profits, or both at the same time, as well as priority rights over the company capital in case of liquidation.

COMPANY FORMATION PROCESS

Company formation is best managed by a local attorney, and carefully monitored by you. If your attorney does not guide you in selecting the best company structure for your needs by explaining the advantages and disadvantages of the various options, change your attorney. Make your selection only after you are well-informed.

Formation should be customized to fit the needs of company members. Note that a member need not be a Dominican citizen or resident to form a Dominican company, except in very special circumstances. As a member, you will be required to provide certain particulars such as your full name, nationality, occupation, marital status, and address, and where applicable, a copy of your passport, “cédula” (Dominican identification), and/or driver’s license. The process involves five basic steps.

1. Register the company name

Clearing a company name can be time consuming as most commonly selected names are already in use by others. Therefore, if time is important and the company name is not immediately critical, you have some options. Many law firms retain shelf companies that are ready to go and available for purchase at a premium price. However, if cost is a factor, you can still expedite the registration process by selecting a “numbered” company (e.g., 12345 S.R.L.), and opting to change the name later. This two-step process will incur extra costs, but will expedite the registration process with the advantage that you will establish a legally recognized company more quickly.

2. Prepare and sign company documents

The documents required will depend on the particular structure selected, but will include at a minimum the articles of incorporation and by-laws (“estatutos”).

3. Pay the organization tax

Be forewarned that Dominican company organization taxes are higher than those imposed on American companies. This particular tax amounts to 1% of the authorized capital for corporations and simplified corporations, and paid-in capital for S.R.L. and E.I.R.L. structures.

4. Register the company documents at the Business Registry (Registro Mercantil)

The incorporation documents must be filed at the Business Registry for the area where the company’s registered office is located. Registration fees for corporations and simplified corporations are calculated on the basis of the company’s authorized capital; fees for LLC’s are calculated on the basis of its paid-in capital.

A company is deemed to legally exist from the time its documents are recorded at the Business Registry.

After incorporation, any documentation related to important corporate activities must be also registered at the Business Registry.

Company registration at the Business Registry must be renewed every two years.

5. Register the company at the Internal Revenue Agency

To begin operation, newly-formed companies must obtain a tax number at the Dominican Internal Revenue Agency. Also, shareholders of the company, foreign or local, who do not already have an individual tax number must obtain it at this time. Without a tax number, a company cannot open bank accounts, buy real estate, nor, in general, operate within the country.

ANNUAL MEETINGS

All Dominican companies must hold an annual shareholders’ meeting to review the company’s operation during the previous year.  Minutes of this meeting must be recorded at the Business Registry.

JOINT VENTURES

Joint ventures in the Dominican Republic generally consist of a contractual arrangement between two or more existing business entities for the purpose of carrying out a particular project or task. The joint venture itself is not a legal person nor enjoys limited liability unless a new business entity is formed according to Dominican company law.

GUZMÁN ARIZA EXPERTISE ON COMPANIES

Knowledge is the cornerstone of Guzmán Ariza’s service in company law. We actively produce and disseminate information that shapes this practice area in the country.

Fabio J. Guzman-Ariza, name partner and prolific writer on Dominican law, co-authored the only current book on company forms, Modelos para la práctica societaria. Partner Alfredo Guzman contributed further to Fabio Guzman’s seminal work with El funcionamiento de las sociedades de responsabilidad limitada, a book explaining how limited liability companies work in the Dominican Republic. Together, the two have contributed to preparing regulations to assist existing companies in the transition to current Company Law 479-08, and have co-authored additional articles on the SRL (LLC) company structure in the only Dominican law review, Gaceta Judicial.

Our knowledge of company law is widely available, respected, and regularly referenced, and covers company formation, corporate governance, mergers and acquisitions, and dissolution; and related business areas such as contracts, employment, labor, company finance, company tax, litigation, dispute resolution, and intellectual property.

Modelos para la práctica societaria (Company Forms)

FormSocPortadaModelos para la práctica societaria (Company Forms):
Gaceta Judicial, Santo Domingo, 2009

By Guzmán Ariza name partner Fabio J. Guzmán-Ariza.

The Functioning of Limited Liability Companies

El funcionamiento de las sociedades de responsabilidad limitadaEl funcionamiento de las sociedades de responsabilidad limitada (The Functioning of Limited Liability Companies: Santo Domingo, Pontificia Universidad Madre y Maestra, 2009.

By Guzmán Ariza partner Alfredo A. Guzmán-Saladín.

Securities Law

The Dominican Republic’s securities exchange, Bolsa de Valores de la República Dominicana (www.bolsard.com), created in 1989, is one of the most active in the Caribbean. Most large national companies are registered in the exchange, and in the first half of 2011, US$1.3 billion was traded, more than doubling the amount traded the year before.

There are several incentives to invest in the Bolsa de Valores (BVRD). Interest and dividends on approved securities traded on the exchange are exempt from all taxes, and securities placed on the BVRD by the Ministry of Treasury are afforded special exemptions under the laws governing their issuance. Paperless or electronic securities are also available reducing the risk of loss, theft, or forgery, and improving the speed of transfers, liquidation, and compensation. Finally, the law expressly permits the sale of approved securities in foreign currency and the payment of dividends in the currency consigned in the certificate.

Stock Market Law No. 19-00, dated May 8, 2000 and accompanied by Decree No. 729-04 dated August 3, 2004, regulates all activities relating to the stock exchange and promotes fair and full disclosure of material information to attract investors and accelerate national development. The law establishes the agencies responsible for supervising the market, and governs who can offer securities, the public offering procedure, and the roles of all market participants involved in the exchange of securities.

DEFINITIONS

The law defines a security (valor) as a right or amalgamation of rights having economic value, and that is freely negotiable on a securities market. The definition includes stock shares, stock options, bonds, warehouse receipts and other documents representing present or future commodities, certificates, debentures, securitized forms of debt, and any other type of negotiable commercial document.

A public offering is an invitation delivered to the public via some form of mass communication to sell, purchase, or trade securities.

MARKET OVERSIGHT

Two agencies are responsible for monitoring market activities: the Superintendent of Securities (Superintendencia de Valores) and the National Securities Council. The Superintendent of Securities is an autonomous institution subordinate to the Monetary Board, and the agency constitutionally vested with the authority to regulate the nation’s monetary and financial systems. The Superintendent of Securities regulates the BVRD and classifies and approves offerings and the companies that issue them, and publishes complete information to promote market transparency. A listing of issues and the issuing companies is maintained at. The agency also imposes administrative penalties specified by law.

The National Securities Council is a seven-member body comprising a representative of the Central Bank, a representative appointed by the Ministry of Treasury, the Chair of the Superintendent of Securities, and four private-sector members. It issues monthly securities market reports, imposes administrative penalties for infractions not specified by law, mediates market participant disputes, and hears appeals from the Superintendent of Securities’ decisions.

SECURITY ISSUERS

A company or individual wishing to offer securities on the stock market must first be structured as a corporation (sociedad anónima or S.A.), as defined by Company Law No. 479-08, and show a sufficient degree of capitalization. Once properly structured, capitalized, and approved by the Superintendent of Securities, a company can offer equity shares or other financial instruments on the BVRD through a public offering.

Privileged issuers such as government agencies, international organizations to which the Dominican Republic is a member, certain foreign governments, and certain foreign central banks may also offer securities on the market subject to the Superintendent of Securities’ approval through an abbreviated process.

THE PUBLIC OFFERING PROCEDURE

All security offerings must be public. The Superintendent of Securities authorizes all issuers and securities before placement on the market. The procedure for security placement is a three-step process: (1) file an application for approval to offer securities on the exchange with the Superintendent of Securities, (2) register the approved offering and other details with the Securities Exchange Registry, which then publishes the information, and finally, (3) place the securities on the primary or secondary market.

The Application

The application requirements differ for a foreign applicant and a domestic applicant. A foreign applicant must apply through a securities broker who provides the Superintendent of Securities with a registration certificate from the regulatory agency in the country from which the security originated. If the offering is a first-time offering, a foreign applicant must first be recognized by the Superintendent of Securities as a legally domiciled and registered entity in the Dominican Republic with a tax identification number, and submit additional legal and financial information, including a list of directors and their backgrounds, the issuer’s risk rating, and the terms of issue.

A Dominican applicant must attach a prospectus including (i) financial statements for the last three years audited by an external auditor that is registered with the Securities Exchange Registry, (ii) proof of the legal status of the issuer, and (iii) a description of the securities to be offered including any applicable risk rating.

The Superintendent of Securities must respond to the application within thirty days from the date of application. The Superintendent’s office simply verifies that information about the public offering is complete and truthful; it does not evaluate or guarantee the quality of the securities or the issuers.

Registration

Once the offering is approved, the securities and issuer must be registered with the Securities Exchange Registry, which will publish for public notice the name of the issuer, the types of securities and their ratings, and the broker handling placement of the securities on the exchange.

Placement

Securities are placed on either the primary or secondary market, and can be issued either in paper form as a stock certificate or in electronic form (Art. 304-1 of Company Law No. 479-08).

Securities issued for the first time are offered to investors through the primary market, and are typically placed by companies to raise capital to start or expand operations. Subsequent trading of issued securities is done on the secondary market, providing liquidity to the security holders. Primary market placement may be managed directly by the issuer or by a registered securities broker. Secondary market placement must be managed by a registered securities broker.

MARKET PARTICIPANTS

Many participants organize and coordinate market transactions to promote efficiency and transparency. All must be approved by the Superintendent of Securities or the National Securities Council.

The BSRD, supervised by the Superintendent of Securities, comprises self-regulated companies with registered seats on the stock exchange for the purpose of exchanging securities in an orderly manner.

The commodities exchange, agribusiness Exchange of the Dominican Republic, S.A. (BARD), manages trading activities related to agricultural, agro-industry, and mining products including commodity and futures contracts and commodity derivatives.

Securities brokers are registered at http://www.siv.gov.do/app/do_2011/merca.aspx. A broker can be any Dominican or foreign individual or company that is regularly engaged in broker activities either on or off the stock market.

Risk rating firms such as Fitch República Dominicana and Feller Rate evaluate and classify the risks associated with the securities offered on the stock market. All information obtained about an issuer for risk analysis is kept confidential.

Clearing House manages the purchase and sale of futures contracts, security options, and other similar instruments, and administers client and broker stock market accounts.

The centralized securities depository, negotiates and records cash transactions, maintains custody of securities, and offers transfer, compensation, and liquidation services to market participants. A security exchange, individual, or company may function as a depository upon approval by the National Securities Council.

Pension Fund Administrator (Administradora de Fondos de Pensiones) manages funds invested in the stocks and bonds of national companies that have been appraised by the Risk Classification Committee and approved by the National Council of Social Security. A company seeking working capital can put its securities into one of these pension funds.

Fund managers such as Excel Administrator de Fonds Madhouse de Inversing, S.A., Abrase Adminstradora de Fondos, and the Banco Nacional de Fomento de la Vivienda y la Producción (BNV) administer open or closed mutual funds. Closed funds involve investments in securities and commodities that are designated by law to have a fixed expiration or maturity date.

Securitization companies such as Titularizadora León, S.A. and the Banco Nacional de Fomento de la Vivienda y la Producción (BNV) issue asset-backed securities derived from an originating company’s pool of cash-flow producing assets such as mortgage obligations, leasing obligations, account receivables, and consumer credit. The types of assets that can be securitized may vary in nature, but they share the common trait of restricted liquidity. These securities are collateralized by the value reflected in the individual assets being securitized and receive a credit rating that is separate from and typically higher than that of the originating company because the securitization relies solely on the cash flow created by the pool of assets and not on the payment promise of the issuer. A separate accounting of the pool of asset-backed securities is kept, and is considered distinct from the accounting of the originating company. These companies must be approved by the National Securities Council.

External auditing firms, incorporated under the guidelines of the Accounting Institute and Dominican law, offer external auditing services to market participants and are listed atwww.siv.gov.do/mercado/registros/auditoresexternos.

TRADING ON PRIVILEGED INFORMATION

Those with access to non-public market information that has market relevance to the price of publicly offered securities (privileged information) may not legally trade using this information for their own benefit or the benefit of third parties. This is also sometimes referred to as “insider trading.” Persons in positions or functioning in roles that put them in direct contact with non-public information in the stock market are presumed to have privileged market information. Their trading activities are scrutinized by the Superintendent of Securities who is charged with maintaining the integrity of the market. Trading based on privileged information is considered a felony, and a person found guilty of insider trading faces a fine, imprisonment, or both.

PENALTIES FOR VIOLATIONS OF THE LAW

Any individual or company that violates the law is subject to administrative, civil, and criminal penalties. Moreover, charges made to a company are extended to members of the board and other decision makers in the company in a position to know of the violation.

Administrative penalties are imposed by the Superintendent of Securities and include verbal or written warnings, suspension from the market, cancellation of market activities, and monetary fines. Administrative fines ranging from 50,000 to 1,000,000 pesos (approx. US$1,400 to $28,000) are payable within fifteen days from notice, and are separate from any additional civil and criminal penalties that may be imposed. Repeated offenses may result in double the last fine and permanent disqualification from market participation.

A request for reconsideration of an administrative decision can be made to the Superintendent of Securities within ten days following notice of the decision, and the Superintendent’s office must respond with an official ruling within thirty days, which can be appealed to the National Securities Council.

Civil and criminal penalties are imposed by the courts and consist of a monetary fine between a half million and five million Dominican pesos (approx. US$14,000 to US$139,000), imprisonment (six months to two years), or both, depending on the seriousness of the violation. More stringent sanctions are imposed for violations expressly listed in the law covering acts of fraud and misrepresentation that substantially affect market decisions, and carry an enhanced fine of one million to ten million Dominican pesos (approx. US$28,000 to $278,000), longer imprisonment (two to ten years), or both. Where a grave violation not expressly listed in the law is committed, a court will determine the applicable penalties.

GUZMÁN ARIZA ON SECURITIES LAW

Guzman Ariza is well versed in the areas of law that complement the registration and public offering of equity and debt securities on the Dominican Republic stock market. Our attorneys can properly structure your business to meet stock market requirements, assist and represent you in regulatory, reporting, compliance and enforcement issues, manage your relationships with market participants, and provide advisory services in general corporate matters related to the Dominican stock market and its regulations.The Dominican Republic’s securities exchange, Bolsa de Valores de la República Dominicana (www.bolsard.com), created in 1989, is one of the most active in the Caribbean. Most large national companies are registered in the exchange, and in the first half of 2011, US$1.3 billion was traded, more than doubling the amount traded the year before.

There are several incentives to invest in the Bolsa de Valores (BVRD). Interest and dividends on approved securities traded on the exchange are exempt from all taxes, and securities placed on the BVRD by the Ministry of Treasury are afforded special exemptions under the laws governing their issuance. Paperless or electronic securities are also available reducing the risk of loss, theft, or forgery, and improving the speed of transfers, liquidation, and compensation. Finally, the law expressly permits the sale of approved securities in foreign currency and the payment of dividends in the currency consigned in the certificate.

Stock Market Law No. 19-00, dated May 8, 2000 and accompanied by Decree No. 729-04 dated August 3, 2004, regulates all activities relating to the stock exchange and promotes fair and full disclosure of material information to attract investors and accelerate national development. The law establishes the agencies responsible for supervising the market, and governs who can offer securities, the public offering procedure, and the roles of all market participants involved in the exchange of securities.

Law Nº 8-90 on the Promotion of Free Zones, Official Gazette 9775, January 15, 1990

CHAPTER ONE
PURPOSE OF THIS LAW, GENERAL CONCEPTS AND DEFINITIONS

Article 1.- The object of this law is to promote the establishment of new free zones and the growth of existing ones, regulating their operation and development, defining the bases to identify all such goals and objectives as may be in the nation’s best interests, in order for the public and private sectors to concert their efforts to achieve the ends proposed.

Article 2.- A free zone is defined as a geographical area of this country subject to special fiscal and customs controls established in this law, where the installation of companies whose products of services are intended for the foreign market is permitted, granting them the necessary incentives to foment their development.

Paragraph: The sale in the territory of the Dominican Republic of articles produced by free-zone companies shall be considered as exports made by the free zone and imported into the Dominican Republic. The sale of goods produced in other companies in the Dominican Republic to a free-zone company shall be considered as exports from the Dominican territory imported by such free-zone company.

Article 3.- The free-zone areas shall be duly demarcated by insurmountable fences or walls, in such a manner that persons, vehicles and loads have to enter and exit exclusively through doors watched and controlled by Customs personnel.

Article 4.- This law applies to any natural person or body corporate that may contribute to this country’s development by increasing production and generating sources of employment and foreign currency.

CHAPTER TWO
BENEFICIARIES OF THIS LAW

Article 5.- The following natural persons or bodies corporate may benefit form this law:

a) FREE-ZONE OPERATORS–natural persons or bodies corporate having free-zone operating permits granted under a Decree of the Executive Power upon recommendation of the National Council on Free Zones, and whose main activities are purchasing and/or leasing land, developing infrastructures thereon, selling or buying buildings and facilities to companies already established or to be established, and conducting promotion and marketing activities in order to attract national or foreign companies.

b) FREE-ZONE COMPANIES–natural persons or bodies corporate having an installation permit under this law, and whose products and/or services are intended for export.

c) FREE-ZONE INVESTORS— natural persons or bodies corporate investing in the capital, financing or titles and securities of free-zone operators and/or companies.

CHAPTER THREE
TYPES OF LOCATIONS FOR FREE ZONES

Article 6.- The following restrictions have been established for the location of free zones.

a) INDUSTRIAL OR SERVICE-PROVIDING FREE ZONES. These may be installed throughout the national territory, to engage in the manufacture of goods and for providing services.

Paragraph: In the National District, the Executive Power may restrict the installation of free zones to advanced technological processes, industrial or service free-zones requiring highly qualified labor.

b) BORDER FREE-ZONES, which will be granted special incentives such as those stipulated in Article 29 of this Law, and such other incentives as may be granted by the Executive Power within its constitutional functions. These free zones should be located at a distance of not less than three (3) nor more than twenty-five (25) kilometers from the border between the Dominican Republic and Haiti.

c) SPECIAL FREE ZONES are those which, by the nature of their production process, require the use of immovable resources whose transformation would be rendered difficult if such companies were not established near the natural sources, or when the nature of the process or the geographical, financial or infrastructure conditions of the country so require. Existing companies using raw material requiring temporary confinement shall also qualify as such. They may operate temporarily or permanently.

Paragraph: If a company already established and operating under the category of temporary confinement desires to operate under this Law, it should export 80% of its production and have a minimum of 200 employees in one location or facility.

To be approved, established companies will only have one year from the enactment of this law.

CHAPTER FOUR
FREE-ZONE OPERATORS

Article 7.- The promoters, organizers and creators of projects for the installation, development and administration of free zones need to obtain a permit issued by the National Council on Free Zones and ratified by the President of the Dominican Republic, prior to beginning the operations and activities described in this Law.

Paragraph 1.- Free-zone operation permits may be granted to public, mixed, national or foreign entities.

Paragraph 2.- Free zone operators will be represented by investors and boards of directors, if any, and these may be either natural persons or bodies corporate. They may issue titles, securities, or bonds to finance the construction of buildings and/or the development and acquisition of land, with the approval of the Superintendence of Banks, when required under the laws governing this matter.

Article 8.- Free-zone operators may construct office buildings, warehouses, industrial plants or services, which may be used individually or collectively through the sale or lease thereof by the companies to be established.

Article 9.- Before beginning operations , free-zone operators should fulfill the following basic requirements:

a) The existence of inhabitable areas for adequate industrial work, with the basic and essential services, according to generally accepted modern architectural practices.

b) Green and relaxation areas that would ensure an adequate surrounding environment, aerated shelters and proper general working conditions.

c) Sewage installations, as well as potable and industrial-use water, according to generally accepted practices.

d) Incineration or waste-removal facilities that would allow for maintaining adequate hygiene and physical appearance in the companies and common areas.

Adequate physical facilities and equipment for food, emergency medical services, etc., both for the workers and for the employees engaged in continual office work.

f) Facilities to house customs, administrative, and other offices.

Article 10.- Free-zone operators may freely determine the rental, lease or sale price of the premises used by the corporations established. Likewise, they may set their price for services rendered, such as waste collection, customs matters, security, medical assistance, and others. The lease agreements for buildings and services should be recorded at the Secretary’s office of the National Council on Export Free-Zones.

Article 11.- All free-zone operators have to pay an annual fee determined by the National Council on Export Free-Zones, to enable such council to fulfill its own financial obligations.

Article 12.- Free-zone operators are required to submit a monthly report to the Central Bank of the Dominican Republic in connection with their income and expenses under this law, so that appropriate currency exchange control may be maintained.

CHAPTER FIVE
ON EXPORT FREE-ZONES

Article 13.- A free zone corporation is a natural person or a body corporate having received an installation permit from the National Council on Free Zones to adhere to the provisions of this Law, and whose production and/or services are intended for export.

Paragraph.- The sale or transfer of goods, equipment or services from one free-zone company to another, as well as among companies established within the same free zone, and even among any of these and those which operate under Law Nº69 of November 16, 1979, will be permitted upon approval by the National Council on Free Zones and provided that all such legal formalities as are prescribed in these cases are fulfilled.

Article 14.- A free zone wishing to establish itself under the free zone regime should submit a formal request to the National Council on Free Zones, stating:

a) The name, address and nationality of the individual or of the company and/or its shareholders;

b) The authorized, subscribed and paid capital;

c) The capital composition and origin;

d) The type of product or service to be produced;

e) The number and kinds of national and foreign employments to be created;

f) The national added value to be generated;

g) A description of the raw material, semi-manufactured products, containers, machinery, labels, equipment to be imported, as well as an estimation of the value thereof.

h) Any other information that, on account of the project’s category, is required for evaluation by the National Council on Free Zones.

Paragraph: A summary of such request will be published in the written media during two (2) consecutive days, so that any individual or body corporate may have the opportunity to oppose it.

Article 15.- The requesting company should pay, upon receiving the appropriate documentation, an amount that will be determined by the National Council on Free Zones, for paying the expenses of proceedings and information processing.

Article 16.- In order to be able to establish themselves in an export free-zone and to submit to this Law, individuals and bodies corporate should obtain an installation permit from the National Council on Free Zones.

Article 17.- A company authorized to operate in an export free-zone may:

a) Introduce, store, pack, recycle, display, unpack, manufacture, install, assemble, refine, process, operate and handle all kinds of products, goods and equipment.

b) Provide design, diagramming, telemarketing, telecommunications, printing, digitizing, translation, computer services, and any other similar or related services.

c) Introduce into the export free-zones all such machinery, equipment, parts and tools as are necessary for its operation.

d) Transfer raw materials, equipment, machinery, etc., as well as labor and services among various companies within the same free zone, or among companies from different free-zones, provided that the regulations of transit from one company to another are complied with, as stipulated in Chapter Eight (8) of this Law, which deals with CUSTOMS REGULATIONS.

e) Export up to 20% of its production to the local market and/or the Dominican territory, in the case of products made in this country if the import thereof is permitted by law, under the control and vigilance of the Direction General of Customs and the National Council on Free Zones, upon payment of 100% of all appropriate taxes.

f) Export its goods and/or services to the Dominican territory, upon payment of 100% of the tariffs and taxes established for similar imports, provided that one of the following conditions is met:

1) That the product to be exported is not manufactured in the Dominican Republic outside the free zone, or,

2) That at least twenty-five percent of the total components or raw materials of the product to be exported is manufactured locally, i.e. in the Dominican Republic.

Paragraph.- The Industrial Development Directorate, upon recommendation by the National Council on Free Zones, will issue a certification specifying the percentage of customs fees to be paid under this article.

g) Acquire, for industrial processing or service, exempted from all export taxes, the raw materials, containers, labels, services, etc. required by the production sectors that are not subject to the free zone regime, excepting sugar, coffee, cacao, gold, and products subject to an export fee higher than 20% of their net value, or those imported under a subvention for popular consumption.

Paragraph I.- The National Council on Free Zones may authorize the processing in free zones of sugar, coffee, cacao, gold and products submitted to an export tax regime exceeding 20% of their net worth, provided that their added value is proved to be equal to or higher than 50% of their gross value.

Paragraph II.- The raw materials imported by companies established in Dominican territory are exempted from the payment of all import taxes, tariffs, customs duties and other related fees, when intended for the production of finished or semi-finished goods to be exported to free zones, upon authorization of the National Council on Free Zones and the Industrial Development Directorate.

h) To change, whenever deemed necessary, simply by previously informing the National Council on Free Zones, the lines and production processes used.

Article 18.- All companies established in free zones should submit a monthly report to the Central Bank of the Dominican Republic, with copy to the appropriate operator and the National Council on Free Zones, regarding the operations conducted under this law. Such report should be submitted within the first 15 days of every month, stating also the total expenses incurred in this country, so that appropriate currency controls are maintained.

CHAPTER SIX.
THE NATIONAL COUNCIL ON FREE ZONES

Article 19.- For the purposes of its regulation and application, this law shall be under the responsibility of the National Council on Free Zones, which shall have the following functions:

a) To identify, evaluate, and recommend to the Executive Power the installation of export free-zones, as established in Chapter Three hereof.

b) To identify, evaluate, approve or reject applications to install free-zone corporations, as well as any appropriate renovation upon the expiration of the periods of authorization or operation of the ones already installed.

Paragraph.- All applications for installation shall be filed with the Executive Director of the National Council on Free Zones or his/her representative, and they shall be processed in a period not exceeding thirty (30) business days from the date when such application was filed with receipt acknowledged.

c) To outline an integral promotion and development policy for the free zones sector.

d) To take part in national and foreign negotiations, agreements, treaties, etc. in connection with the operations and activities of export free-zones, as well as to take care of the statistics, procedures and controls necessary for the full performance of all agreements, negotiations etc. executed.

e) To regulate and define the relations between the operators and the free zones, as well as between the latter and the National Council on Export Free-Zones or any other entity whose activities are closely related to the operation of export free-zones.

f) To see to the strict compliance with this Law and all such legal provisions as may be established concerning this matter, and to take appropriate action in the event of any violation of same.

Article 20.- The National Council on Free Zones consists of representatives from the public and private sectors. Its members are:

a) The State Secretary of Industry and Commerce, who shall preside it;

b) The State Secretary of Finances;

c) The Director General of the Corporación de Fomento Industrial (Industrial Advancement Corporation).

d) The Executive Director of the Centro Dominicano de Promoción de Exportaciones (Dominican Center for Export Promotion);

e) The President of the Foreign Investment Promotion Council (Consejo Promotor de Inversiones Extranjeras);

f) The Executive Director of the National Council on Free Zones, who shall be its secretary. He/she shall have voice but not vote;

g) Two representatives from the free zone operators, freely chosen by all the operators in this country, with the exception of the free zones controlled and operated by the Corporación de Fomento Industrial. Such designation shall be made for a period of two years, in a rotating fashion.

h) Two representatives from the associations of free-zone corporations, chosen freely by all of them and appointed for two-year rotations.

i) The Governor of the Central Bank of the Dominican Republic.

j) One member of the Dominican Exporters’ Association (Asociación Dominicana de Exportadores [ADOEXPO]) chosen by such association.

k) For special occasions, having voice but not entitled to vote, the following officers shall be invited:

– The State Secretary of Labor.

– The Director General of Customs.

– The Director General of the Internal Revenue Service.

– The Director General of the Instituto Dominicano de Seguros Sociales (Dominican Social Insurance Institute).

– The Executive Director of the National Institute for Technical and Professional Training. ( Instituto Nacional de Formación Técnico Profesional ).

Article 21.- The National Council on Free Zones shall meet regularly according to its needs. However, regular sessions shall be held at least every thirty (30) days. The decisions made at such meetings shall be valid if fifty percent plus one of the council members are present, and final decisions shall be made with the favorable vote of fifty percent plus one of those present. In the event of a tie, the Council’s President shall be entitled to a second and casting vote.

Article 22.- The National Council on Export Free-Zones shall have an Executive Director, who shall be chosen by the Executive Power from a list of three (3) candidates proposed by the National Council on Free Zones.

Article 23.- The members ex officio of the National Council on Free Zones may be represented in their deliberations by employees of their respective dependencies appointed expressly for that session. In the case of absence of the President of the National Council on Free Zones or his/her representatives, the session shall be presided by the senior member of such council. The representatives of the operators and of the associations of free-zone corporations may be represented by deputies designated before the National Council on Free Zones.

CHAPTER SEVEN
INCENTIVES AND EXEMPTIONS IN FREE ZONES

Article 24.- Free zone operators and the companies established in free zones shall be protected under the customs and fiscal regime defined in Article 2 hereof, and shall therefore be 100% exempted from the following:

a) Payment of the income tax established by Law No. 5911 of May 22, 1962, and the amendments thereof, regarding stock companies.

b) Payment of construction taxes, and taxes on loan contracts and on the registration and transfer of real property, from the moment of the constitution of the appropriate free zone operator.

c) Payment of taxes on the formation of business companies or on the increase of the capital thereof.

d) Payment of municipal taxes likely to affect such activities.

e) All import taxes, tariffs, customs fees and other related duties affecting raw materials, equipment, construction materials, parts of buildings, office equipment, etc. intended to build, furnish or operate in a free zone.

f) All existing export or re-export taxes, excepting those established under letters f) and g) of Article 17 of this Law.

g) Taxes on patents, assets or net worth, as well as the tax on the transfer of industrialized goods (“ITBIS”).

h) Consular fees regarding all imports intended for free zone operators or companies.

i) Payment of import taxes regarding equipment and tools necessary for installing and operating budget diners, health services, medical care, child care, entertainment or amenities, and any other equipment for the well-being of the working class.

j) Payment of import taxes on transportation equipment other than cargo vehicles, waste collection vehicles, microbuses, minibuses for transporting employees and workers to and from work, upon approval, in each case, of the National Council on Export Free-Zones. These vehicles shall be non-transferable for at least five (5) years.

Article 25.- Free-zone companies and operators wishing to build housing for employees and workers along the border and/or in any province specified herein, shall be exempted 100% from taxes on imported construction materials and on the equipment needed for any such construction, if in the opinion of the National Council on Free Zones they qualify for such preferential treatment under the law.

Article 26.- All profits and/or reinvestments declared as taxable net income by natural persons or bodies corporate shall be exempted from paying the income tax established by Law Nº 5911 of May 22, 1962, and the amendments thereof, if invested in the establishment and development of free zones according to the following percentages and rates:

Paragraph.- In no event may an annual deduction for exemptions and exonerations exceed fifty per cent (50%) of the annual income, as established in Law No.71-86-30 of December 22, 1986, published in Official Gazette No.9701.

a) One hundred percent (100%); i.e. the total deductible income, in the case of operators of free zones established along this country’s border zones, etc., according to section c) of Article 6 hereof.

b) Eighty per cent (80%) of the total deductible income, for the National District and a geographic area within a radius of 50 kms.

c) Ninety per cent (80%) of the total deductible income, for operators whose geographic location does not correspond to the descriptions set forth under sections a) and b).

Article 27. Any investment in shares, titles or securities should remain as such for a period of not less than three (3) years, and the exempted amount invested may not be returned either directly or indirectly to the investors by any agency, before such period. These investments should be concentrated in: constructing buildings, purchasing and developing land, building materials, and/or working capital.

Paragraph: The National Council on Free Zones shall require an annual investment report, audited by a firm of authorized public accountants, showing the amount of exempted investments and the use given to such resources. In the event of violation of this provision, the National Council on Free Zones shall inform the Internal Revenue Service, which could leave without effect the exemptions established in the preceding article.

Article 28.- Free-zone companies and operators shall enjoy the exemptions granted by this Law, after their first complete year of operation for the following periods:

a) Free zones situated along the border, for twenty (20) years.

b) Free zones situated in the rest of the country, for fifteen (15) years.

Paragraph: The National Council on Free Zones may extend their operation permits when deemed necessary based on the spirit of this Law.

Article 29.- In order to make viable the establishment and development of free zones in the border region made up by the provinces of Montecristi, Elias Piña, Dajabon, Independencia, Pedernales, Bahoruco and Santiago Rodriguez, the following special benefits are hereby granted:

a) The Corporación de Fomento Industrial, as a State institution in charge of promoting and developing industrial parks and free zones, may lease physical space to the companies installed in such region, at a subsidized price.

b) The National Council on Free Zones may assign preferential export quotas, if this country is subject to such a restriction.

c) The National Council on Free Zones may grant the classification of special free zones to companies wishing to establish themselves in the border region, even if they do not meet the requirements stipulated in Section c) of Article 6 of this Law.

d) Free-zone companies and operators established in this country’s border region are eligible to benefit from such preferential interest rates as are granted by the Central Bank, with its FIDE resources, on loans for the border region.

e) In addition to the above-mentioned advantages, the National Council on Free Zones may suggest to the Executive Power other advantages for the benefit of the border region.

CHAPTER EIGHT
THE CUSTOMS REGIME

Article 30.- Free-zone companies and operators, according to the definitions given in this Law, may introduce to or withdraw from their facilities any machinery, equipment, furniture, raw material and all kinds of merchandise pertaining to the industrial activity conducted by them, subject to the customs regulations and exemptions herein provided.

Article 31.- The Direction General of Customs shall establish in every export free-zone a collections agency or office which shall be in charge of exercising the necessary mechanisms and controls so that all articles are verified upon entry or exit.

Paragraph.- Free-zone operators should provide all such facilities as are necessary for complying with this article, as provided by the National Council on Free Zones.

Article 32.- Given the specialized work of customs agencies in export free-zones, as well as the large volume of incoming and outgoing merchandise, a Sub-Direction of Customs is hereby established, intended exclusively for service in the free zones existing in this country or those that may be installed under this Law. This Sub-direction shall report to the Director General of Customs.

Paragraph.- A Customs Inspectors Special Corps is hereby established, rotational as to its membership and work location, intended exclusively to give service to the export free-zones. These officers shall report to the sub-direction mentioned in Article 32 hereinabove.

Article 33.- The following articles may not be imported by free zones under this law:

a) Firearms, gunpowder, ammunition, or war supplies in general. The regulation weapons to be carried by the security personnel of the operators and the companies shall be tax- exempted, but they should comply with all such import and use proceedings as are established by the State Department of the Armed Forces, Interior and Police. This provision does not apply to warfare instruments manufactured in export free-zones.

b) False currency, whether paper or metal, of any country, as well as quoins, facsimiles, negatives, or plates to manufacture or print the same.

c) Sewage residue or waste likely to contaminate or threaten the physical integrity of the Dominican territory or the health of its inhabitants.

d) Foodstuff, drinks, candy or other types of food for consumption by free-zones employees.

Article 34.- All imports to a free zone shall be duly sealed upon arriving in this country, and shall be transported from ports and airports to their destination under the surveillance and responsibility of the Customs Inspectors Special Corps, who shall deliver such goods to the customs collection agency operating in every free zone, and the latter shall only be responsible for verifying and checking the declarations and contents of the imported merchandise.

Paragraph: Any discrepancy found by customs collectors in the shipping documents regarding the contents of the products imported should be informed to the Director General of Customs and to the National Council on Export Free-Zones, but the addressee shall not be deprived of their use, except in the case of expressly forbidden goods. The Direction General of Customs shall subsequently take action as appropriate, within the time provided by the regulations herein contained.

Article 35.- Exports made from the free zones shall be verified by customs inspectors at the appropriate collection agency, and after having been sealed shall be transported under the supervision of the Customs Inspectors Special Corps until their port of shipping, where they shall be placed in the hands of the appropriate collector, who shall in turn send such exports to the carrier that will transport them to their next destination.

Article 36.- The same transportation requirements established in Article 13 hereof shall apply to the exchange of goods or equipment between two or more free zones or with a company operating under law No. 69 of November 16, 1979.

CHAPTER NINE
CURRENCY EXCHANGE

Article 37.- Companies established in export free-zones shall be subject to the special provisions of this Law as to the exchange of currency from the Central Bank of the Dominican Republic, in connection with the export of goods and services, and the import of raw material, equipment, machinery, tools, etc.

Article 38.- Free zone companies shall exchange at the Central Bank of the Dominican Republic, at the average rate of exchange quoted by such bank on the day in question, the currency necessary to cover local fees and services in general, such as:

a) Installation expenses;

b) Salaries, wages, and daily payments;

c) Raw material, containers, labels and intermediate products acquired in the territory of the Dominican Republic.

d) Insurance, in general;

e) Taxes withheld on income or shareholders’ dividends of all national or foreign employees working in their facilities;

f) Communications and local transportation.

g) Leasing or purchasing land or buildings.

h) Any other locally created cost or expense.

Paragraph.- Transactions or operations conducted under the paragraph of Article 13 shall not be subject to currency exchanges at the Central Bank, excepting the local expenses mentioned above.

Article 39.- Any merchandise exported from the free zones to the territory of the Dominican Republic under other customs regulations shall be deemed to be imports and shall be subject to the provisions of Law No. 251 of March 1964, as amended, which governs the international transfer of funds.

Article 40.- Free-zone operators and free-zone export companies may obtain loans or warrants in national or foreign currency, from private, public, national, international, or mixed institutions, in accordance with the regulations established by the Monetary Board to that effect. In addition, they may obtain from domestic, international, private, and state-owned financing organizations–for the account of their own funds or those provided by the National Budget, funds from loans given to the Dominican Government or its institutions by international organizations or foreign governments, or guaranteed by the Dominican State–short-term, medium-term and long-term warrants or funding, subject to the regulations established in the respective agreements.

CHAPTER TEN
LABOR REGIME

Article 41.- Operators and companies installed in export free-zones under this Law should comply with all such laws, regulations and provisions in force as are contained in the Labor Code and labor laws. Furthermore, they should fulfill all such obligations as are imposed by the Social Security Law, the Law that created the Workers’ Bank, Law No. 116 which created the National Technical and Professional Training Institute [ Instituto Nacional de Formación Técnico Profesional (INFOTEP)], all international agreements entered into and ratified by the Dominican Government in connection with sanitation regulations for industrial facilities.

Article 42.- The minimum wage for apprentices established in the Labor Code shall apply to export free-zones in such manner as set forth hereon:

a) During three (3) months in free zones in general;

b) During six (6) months in free zones situated in the border zone in this country.

Article 43.- If a worker is laid-off at the end of his/her apprenticeship period and is later hired by the same company, said worker may not be qualified again as an apprentice, and, if he/she has only partially completed his/her apprenticeship, he/she may only be hired as such for the time established above, in each case.

Article 44.- Operators and free-zone companies wishing to terminate their operations in this country should give three(3) months notice to the National Council on Free Zones, which in turn shall inform the Central Bank of the Dominican Republic, the State Departments of Finances, of Industry and Commerce, and the State Department of Labor, the Dominican Institute of Social Security, the Workers’ Bank, the Direction General of Customs, and the Internal Revenue Service, for all appropriate purposes.

Paragraph.- If a company does not fulfill the foregoing provision, it may not remove its assets, and if such assets are not removed without prior justification, they shall be sold at a public auction to pay such company’s outstanding debts, if any, and the remainder shall inure to the Dominican State. The Direction General of Customs shall be in charge of any such procedure, and it should ask the party concerned to remove such assets, with the warning that failure to do so shall result in such assets being sold at a public auction.

Article 45. A free-zone company that violates the provisions of this Law and its regulations may have its installation and/or export permits cancelled by the National Council on Free Zones.

Article 46. Any free-zone operator that violates the provisions of this Law and its regulations may be denied permits for the installation of new companies or industries or the renewal of existing ones by the National Council on Free Zones, or the decree that gave it effect may be derogated by such Council.

Article 47. Any free zone company that violates the provision of this law and its regulations in relation to the introduction of merchandise and other articles indicated in the same shall be condemned to pay a fine equal to twice the amount of outstanding fees and taxes, and such merchandise and other articles shall be confiscated. Any person found guilty of complicity of any infraction penalized in this article shall be jointly liable for the financial penalties established in the same paragraph.

Article 48. Articles 45 and 46 of this Law may also apply when operators or companies prevent the competent authorities from inspecting their facilities, the records allowing for verification of tax-exempted machinery, equipment and raw-materials, or the payments made and services rendered in this country.

CHAPTER TWELVE.
GENERAL PROVISIONS.

Article 49.- This law shall apply to any natural or conventional person operating a free zone on the date hereof under another law, under a decree from the Executive Power, and/or under a contract entered into with the Dominican State, without lessening the rights heretofore acquired.

Article 50. This law shall apply to all companies classified as Category “A” under Law Nº 299 on Industrial Incentive and Protection of April 23, 1968, as amended, established in free zones before the enactment of this law, without lessening the rights heretofore acquired.

Article 51.- The Executive Power shall dictate the regulation(s) it shall deem appropriate for the best application of this Law, taking into consideration any recommendation made by the National Council on Export Free-Zones. Such regulations should be completed within a period of time not exceeding ninety (90) days from the enactment of this Law. The lack of such regulations, however, shall not hinder the application of this Law.

Article 52.- This Law repeals and replaces Law No.4315 of October 22, 1955, as amended, which created the Free Zone institutions, except as regards commercial free zones and seaport and airport free zones; Law No.299, of April 23, 1968, as regards Classification “A”; Decree No.895 of March 19, 1983, which integrated the National Council on Free Zones; Decree No. 310-88, dated June 30, 1988, which modifies Article 1 of Decree No.895. It also repeals and replaces any law, provision or regulation contrary to it, except as regards seaport and airport free zones, which are not the subject of this legislation.