Foreign Investment

Foreign Investment Regulations and Incentives in the Dominican Republic

Transformed by globalization, the Dominican Republic has been systematically modernizing its legal and economic framework to adapt to new competitive standards and encourage the influx of foreign capital. With the highest GDP growth rate in the Caribbean, the Dominican government supports internationally accepted financing arrangements and observes international design, construction, and operation standards. Tourism, telecommunications, and free trade zones have exhibited the greatest investment growth, but additional opportunities exist in renewable energy, agriculture, mining, construction, aviation, electricity, and ports.

The Export and Investment Center of the Dominican Republic (CEI-RD) is responsible for encouraging foreign investment. Important laws and treaties in this area are: (A) The Constitution of the Dominican Republic; (B) Law #16-95 on Foreign Investments, (C)Regulation 214-04 on Registration and Capital Repatriation, and (D) the DR-CAFTA free trade agreement. In addition, Laws #8-90 and #158-01, covering Free Trade Zones and Tourism respectively, extend generous tax incentives to investments in these sectors. Finally, the government has supported investors seeking investment guarantees from external agencies by backing economically significant infrastructure projects with its full faith and credit.

The Constitution of the Dominican Republic

The 39th amendment to the Dominican Republic’s Constitution in 167 years was enacted on January 26, 2010, and establishes the general and fundamental principles governing the nation and its people. Specifically relevant to foreign investment are Articles 25 and 221.

Article 25 expressly entitles foreigners in the Dominican Republic to the same rights, except for participating in local political activities, and subjects them to the same duties as Dominican nationals. Foreigners must properly register with the Registry of Foreigners, and if necessary, can seek diplomatic protection after exhausting all available remedies and procedures afforded under Dominican law, limited only by international conventions.

Article 221 grants equal treatment to both public and prívate business activities, and guarantees equal conditions to both local and foreign investments with no restrictions but those established by the Constitution and the law.

Law 16-95 on Foreign Investments

This law reifies the important equality provision of Article 25 in the new Constitution, providing equal treatment and non-discrimination to both national and foreign investments. The statute and its enabling regulation (Decree #380-96 as amended by Decree #163-97), grant foreign investors, who are contributing capital to companies operating in the Dominican Republic, unlimited access to the Dominican economy except for activities that negatively impact the local environment or public, or compromise national defense or security.

Capital contributions can be made through several channels and in a variety of forms. Accepted channels of contributions are: 1. directly to the Dominican operating company from sources outside the country, 2. directly by reinvesting profits derived from the registered Dominican foreign investment back into that same operating company, and 3. indirectly from profits derived from one registered Dominican foreign investment and invested in a different Dominican operating company. Acceptable forms of contributions as foreign investment can be liquid currency, contributions in kind, financial instruments, or intangible technological property and knowledge.

Regulation 214-04 on Foreign Investment Registration

This regulation governs investment registration, and grants important benefits to investments that are formally registered with the CEI-RD within 180 calendar days from the date the investments are made. The CEI-RD must respond to an application for registration within 15 working days of receipt. The benefits to registration are as follows:

  • Free Fund and Currency Conversion. Investors are granted free access to international currency and fund conversion through local banks and the Central Bank of the Dominican Republic.
  • Free Repatriation of Dividends and Capital. The foreign investor has the right to remit abroad in foreign currency all capital invested, as well as capital gains and dividends, after complying with the existing tax legislation. (The corporate tax rate is presently 25% for all corporations. The investor also has the right to repatriate fee and royalty obligations resulting from a technology service agreement.
  • Expedited residency acquisition. Investors who register their investment benefit from a fast-track procedure if they decide to become residents of the Dominican Republic.

DR-CAFTA Free Trade Agreement

This free trade agreement among the United States, the Dominican Republic and the Central American countries of Honduras, Guatemala, El Salvador, Nicaragua and Costa Rica grants investors in any of the member states the following benefits:

  • Non-discriminatory treatment among member states.
  • Limited performance requirements.
  • Freely transferable investment funds.
  • Expropriation protection not governed by international law.
  • A “minimum level of treatment” pursuant to international law.
  • Freedom to contract with key managerial staff of any nationality.
  • Dispute resolution procedures between the country and the investor.
  • Binding international arbitration for investor damage claims against a member state.

Free Trade Zones (Law 8-90)

Free Trade Zones represent a pillar of the Dominican economy and are an attractive investment opportunity for any investor interested in producing goods or services for overseas markets in government designated areas within the country. The Dominican Republic boasts more than 50 zones, comprising more than 500 companies. It has one of the most advanced free-trade systems in the world and ranks fourth in terms of quantity.

The National Council for Export Free Zones regulates the industry dominated by Apparel and Textiles (69.1%), Tobacco (6.4%), Electronics (5.3%) and Pharmaceuticals (5.3%). Almost half the free zone businesses are owned by U.S. investors, more than a third by Dominicans, and the remainder predominantly by Asians.

Law #8-90 provides the following generous array of customs and tax incentives to free trade zone investments for a period of fifteen years.

  • Exemption from income tax.
  • Exemption from all corporate taxes on tangible and intangible assets and net worth.
  • Exemption from all taxes on construction, conveyance, and registration of real property.
  • Exemption from incorporation and capitalization taxes.
  • Exemption from the ITBIS tax (value-added tax).
  • Exemption from municipal taxes.
  • Exemption from existing export or re-export taxes, except those expressly stated in Law #8-90.
  • Exemption from import taxes, customs duties and related charges on raw materials, equipment, construction materials, vehicles, office equipment and any other goods necessary for the construction, preparation and operation of a free trade zone business.
  • Exemption from consular duties for goods or services destined to other free trade zones.
  • Exemption from import taxes and customs duties on raw materials imported by a
  • Dominican company for use in finished or semi-finished products destined for export to a free trade zone. This exemption requires prior authorization from the national regulatory agency.

Also, goods and services from one free trade zone can be sold or transferred to another free trade zone with prior authorization from the national regulatory agency. However, goods and services sold in the Dominican market are subject to all import taxes, customs duties, and quota requirements, except those that qualify as a priority sector under Law #56-07 (textile and accessory manufacturing, leather and shoe manufacturing, and furs), which enjoy more liberal import tax and duty treatment.

Promotion of Tourism (Law 158-01)

The Dominican Republic is the number one tourist destination in the Caribbean, experiencing a record number of 4.1 million visitors in 2010. Three key strengths have driven growth: the size, quality and number of beaches; the country’s six international airports; and strong foreign direct investment in the infrastructure. Traditional tourism activities and complementary activities capable of servicing the sector offer the investor a diverse base for investment. Attractiveness to investors is further boosted by the government’s proactive policies that promote and protect investments in the sector and offer some of the lowest tax regimes in the region.

Law 158-01, dated October 9, 2001, complemented by its enabling regulations Decrees #1125-01 and #74-02, and amended in some minor details by Law #184-02, provides tax incentives to investments in underdeveloped regions that offer the most tourism potential in the Dominican Republic. These incentives, targeting primarily underdeveloped provinces and municipalities around the country but also including developed areas such as Punta Cana and Puerto Plata, grant priority to infrastructure construction, and provide channels for international financing and selling or leasing state-owned land for tourism. Tourism operations such as hotels, convention centers, cruise companies, theme parks, port and tourist infrastructure, golf courses, and complementary activities benefit from these current government incentives.

Tax exemptions extend for 10 years from the date of completion of construction or project installation, and include the following:

  • Income Tax;
  • Incorporation taxes and capitalization increases;
  • Real property transfers upon presentment of a guarantee bond at 3% of the tax due;
  • Real estate property tax (IPI);
  • Contractor fees, duties, and quotas for project oversight;
  • International financing taxes and withholdings granted to beneficiary companies;
  • Import taxes and other import fees; and
  • ITBIS (value added tax) on machinery, equipment, materials, and personal goods necessary for the project start up.

An additional incentive is a tax deduction of up to 20% on annual net taxable income on approved investments.

Projects must respect the environment, show sustainable and rational development, and be classified by the Ministry for Tourism to benefit from the tax exemptions and deduction. Classification requires an application, an approved environmental impact study, preliminarily approved architectural design and engineering details, a description of the promotional entity or investor, a marketing and promotion plan, and bank and commercial references. The submission is evaluated and recommendations are sent to the Tourism Promotion Council (CONFOTUR) which justifies its decisions with a formal resolution.

INVESTMENT GUARANTEES

Investments in developing foreign markets present opportunities, but also pose perceived risks associated with noncommercial activities. Investors can mitigate these risks and improve their creditworthiness with lenders through international and U.S. agencies designed to insure eligible projects against possible losses. Three commonly used agencies are MIGAEx-Im Bank, and OPIC.

Multilateral Investment Guarantee Agency (MIGA)

MIGA is an autonomous division of the World Bank, an international financial institution that provides loans to developing countries, as part of its commitment to promote foreign investment, international trade and facilitate capital investment. Founded in 1988, MIGA is today a multilateral development agency comprising 175 member countries and promoting the flow of foreign direct investment (FDI) to developing countries by offering guarantees to investments in socially and environmentally sound projects. It partners with other global organizations, donors, and insurance providers to offer a comprehensive array of services to investors.

In 2008, a project of 106 kilometers of highway linking the capital city, Santo Domingo in the south, to the burgeoning tourist market in the Samana peninsula to the north, was partially funded through a critical guarantee from MIGA. The guarantee opened financial doors by securing an investment rating higher than the domestic requirement and attracting investors keen on opportunities in Latin America. The high rating also lowered the perceived risks associated with the project, and permitted investors to arrange financing through capital markets. This north-south corridor now provides growth opportunities for agricultural production, agribusiness, and tourism.

Export-Import Bank of the United States (Ex-Im Bank)

If you plan to import capital goods and services from the United States, this independent U.S. federal agency fills the gap in trade financing left by the private lending sector. Designed to improve the export potential for certain U.S. products and services, it provides working capital guarantees (pre-export financing) and export credit insurance to U.S. suppliers, and loan guarantees and direct loans to foreign buyers. The agency focuses primarily on the telecommunications, oil and gas, electricity, transportation, environmental, and manufacturing sectors. Recently, it provided a loan guarantee of US$34.5 million to a major investor for the construction of a highway along the Dominican Republic’s eastern coast, which is a globally popular tourist destination, attracting up to 75% of the country’s visitors. Referenced as the Coral Highway (Autopista del Coral), this project involves a 70-kilometer corridor that completes a strategic link between the eastern city of La Romana and the luxury resort area of Punta Cana. Backed by this guarantee, the investor was able to secure more competitive term financing from lenders and tap into a new funding source. Representing Ex-Im Bank’s largest market in the Caribbean, the Dominican Republic offers investors export credit opportunities through this agency for U.S. goods and services used for their projects.

Overseas Private Investment Corporation (OPIC)

This U.S. government financial institution fosters U.S. business entry, growth, and competition in emerging markets. Private U.S. investors can obtain financing, guarantees, political risk insurance, and support for private equity investment funds upon meeting certain project eligibility requirements. Emphasis is placed on meeting environmental and worker and human rights standards. Detailed information of all projects is publicly disclosed and open to public comment. Projects are initially and continuously reviewed for social and environmental impact, and investors must conduct consultations with locally affected communities where the impact is significant. Housing and renewable energy are two sectors to benefit from OPIC support. In 2007, OPIC allocated US$100 million for housing construction loans for low- and middle-income housing, emphasizing the eligibility of DR-CAFTA countries. In 2008, the agency made a historic commitment to renewable energy by approving funds to mobilize capital investment, and within a year, had considered over 100 proposals totaling US$ 2 billion. Financial incentives in this sector are expected to increase.
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.Foreign Investment

Foreign Investment Regulations and Incentives in the Dominican Republic

Transformed by globalization, the Dominican Republic has been systematically modernizing its legal and economic framework to adapt to new competitive standards and encourage the influx of foreign capital. With the highest GDP growth rate in the Caribbean, the Dominican government supports internationally accepted financing arrangements and observes international design, construction, and operation standards. Tourism, telecommunications, and free trade zones have exhibited the greatest investment growth, but additional opportunities exist in renewable energy, agriculture, mining, construction, aviation, electricity, and ports.

The Export and Investment Center of the Dominican Republic (CEI-RD) is responsible for encouraging foreign investment. Important laws and treaties in this area are: (A) The Constitution of the Dominican Republic; (B) Law #16-95 on Foreign Investments, (C)Regulation 214-04 on Registration and Capital Repatriation, and (D) the DR-CAFTA free trade agreement. In addition, Laws #8-90 and #158-01, covering Free Trade Zones and Tourism respectively, extend generous tax incentives to investments in these sectors. Finally, the government has supported investors seeking investment guarantees from external agencies by backing economically significant infrastructure projects with its full faith and credit.

The Constitution of the Dominican Republic

The 39th amendment to the Dominican Republic’s Constitution in 167 years was enacted on January 26, 2010, and establishes the general and fundamental principles governing the nation and its people. Specifically relevant to foreign investment are Articles 25 and 221.

Article 25 expressly entitles foreigners in the Dominican Republic to the same rights, except for participating in local political activities, and subjects them to the same duties as Dominican nationals. Foreigners must properly register with the Registry of Foreigners, and if necessary, can seek diplomatic protection after exhausting all available remedies and procedures afforded under Dominican law, limited only by international conventions.

Article 221 grants equal treatment to both public and prívate business activities, and guarantees equal conditions to both local and foreign investments with no restrictions but those established by the Constitution and the law.

Law 16-95 on Foreign Investments

This law reifies the important equality provision of Article 25 in the new Constitution, providing equal treatment and non-discrimination to both national and foreign investments. The statute and its enabling regulation (Decree #380-96 as amended by Decree #163-97), grant foreign investors, who are contributing capital to companies operating in the Dominican Republic, unlimited access to the Dominican economy except for activities that negatively impact the local environment or public, or compromise national defense or security.

Capital contributions can be made through several channels and in a variety of forms. Accepted channels of contributions are: 1. directly to the Dominican operating company from sources outside the country, 2. directly by reinvesting profits derived from the registered Dominican foreign investment back into that same operating company, and 3. indirectly from profits derived from one registered Dominican foreign investment and invested in a different Dominican operating company. Acceptable forms of contributions as foreign investment can be liquid currency, contributions in kind, financial instruments, or intangible technological property and knowledge.

Regulation 214-04 on Foreign Investment Registration

This regulation governs investment registration, and grants important benefits to investments that are formally registered with the CEI-RD within 180 calendar days from the date the investments are made. The CEI-RD must respond to an application for registration within 15 working days of receipt. The benefits to registration are as follows:

  • Free Fund and Currency Conversion. Investors are granted free access to international currency and fund conversion through local banks and the Central Bank of the Dominican Republic.
  • Free Repatriation of Dividends and Capital. The foreign investor has the right to remit abroad in foreign currency all capital invested, as well as capital gains and dividends, after complying with the existing tax legislation. (The corporate tax rate is presently 25% for all corporations. The investor also has the right to repatriate fee and royalty obligations resulting from a technology service agreement.
  • Expedited residency acquisition. Investors who register their investment benefit from a fast-track procedure if they decide to become residents of the Dominican Republic.

DR-CAFTA Free Trade Agreement

This free trade agreement among the United States, the Dominican Republic and the Central American countries of Honduras, Guatemala, El Salvador, Nicaragua and Costa Rica grants investors in any of the member states the following benefits:

  • Non-discriminatory treatment among member states.
  • Limited performance requirements.
  • Freely transferable investment funds.
  • Expropriation protection not governed by international law.
  • A “minimum level of treatment” pursuant to international law.
  • Freedom to contract with key managerial staff of any nationality.
  • Dispute resolution procedures between the country and the investor.
  • Binding international arbitration for investor damage claims against a member state.

Free Trade Zones (Law 8-90)

Free Trade Zones represent a pillar of the Dominican economy and are an attractive investment opportunity for any investor interested in producing goods or services for overseas markets in government designated areas within the country. The Dominican Republic boasts more than 50 zones, comprising more than 500 companies. It has one of the most advanced free-trade systems in the world and ranks fourth in terms of quantity.

The National Council for Export Free Zones regulates the industry dominated by Apparel and Textiles (69.1%), Tobacco (6.4%), Electronics (5.3%) and Pharmaceuticals (5.3%). Almost half the free zone businesses are owned by U.S. investors, more than a third by Dominicans, and the remainder predominantly by Asians.

Law #8-90 provides the following generous array of customs and tax incentives to free trade zone investments for a period of fifteen years.

  • Exemption from income tax.
  • Exemption from all corporate taxes on tangible and intangible assets and net worth.
  • Exemption from all taxes on construction, conveyance, and registration of real property.
  • Exemption from incorporation and capitalization taxes.
  • Exemption from the ITBIS tax (value-added tax).
  • Exemption from municipal taxes.
  • Exemption from existing export or re-export taxes, except those expressly stated in Law #8-90.
  • Exemption from import taxes, customs duties and related charges on raw materials, equipment, construction materials, vehicles, office equipment and any other goods necessary for the construction, preparation and operation of a free trade zone business.
  • Exemption from consular duties for goods or services destined to other free trade zones.
  • Exemption from import taxes and customs duties on raw materials imported by a
  • Dominican company for use in finished or semi-finished products destined for export to a free trade zone. This exemption requires prior authorization from the national regulatory agency.

Also, goods and services from one free trade zone can be sold or transferred to another free trade zone with prior authorization from the national regulatory agency. However, goods and services sold in the Dominican market are subject to all import taxes, customs duties, and quota requirements, except those that qualify as a priority sector under Law #56-07 (textile and accessory manufacturing, leather and shoe manufacturing, and furs), which enjoy more liberal import tax and duty treatment.

Promotion of Tourism (Law 158-01)

The Dominican Republic is the number one tourist destination in the Caribbean, experiencing a record number of 4.1 million visitors in 2010. Three key strengths have driven growth: the size, quality and number of beaches; the country’s six international airports; and strong foreign direct investment in the infrastructure. Traditional tourism activities and complementary activities capable of servicing the sector offer the investor a diverse base for investment. Attractiveness to investors is further boosted by the government’s proactive policies that promote and protect investments in the sector and offer some of the lowest tax regimes in the region.

Law 158-01, dated October 9, 2001, complemented by its enabling regulations Decrees #1125-01 and #74-02, and amended in some minor details by Law #184-02, provides tax incentives to investments in underdeveloped regions that offer the most tourism potential in the Dominican Republic. These incentives, targeting primarily underdeveloped provinces and municipalities around the country but also including developed areas such as Punta Cana and Puerto Plata, grant priority to infrastructure construction, and provide channels for international financing and selling or leasing state-owned land for tourism. Tourism operations such as hotels, convention centers, cruise companies, theme parks, port and tourist infrastructure, golf courses, and complementary activities benefit from these current government incentives.

Tax exemptions extend for 10 years from the date of completion of construction or project installation, and include the following:

  • Income Tax;
  • Incorporation taxes and capitalization increases;
  • Real property transfers upon presentment of a guarantee bond at 3% of the tax due;
  • Real estate property tax (IPI);
  • Contractor fees, duties, and quotas for project oversight;
  • International financing taxes and withholdings granted to beneficiary companies;
  • Import taxes and other import fees; and
  • ITBIS (value added tax) on machinery, equipment, materials, and personal goods necessary for the project start up.

An additional incentive is a tax deduction of up to 20% on annual net taxable income on approved investments.

Projects must respect the environment, show sustainable and rational development, and be classified by the Ministry for Tourism to benefit from the tax exemptions and deduction. Classification requires an application, an approved environmental impact study, preliminarily approved architectural design and engineering details, a description of the promotional entity or investor, a marketing and promotion plan, and bank and commercial references. The submission is evaluated and recommendations are sent to the Tourism Promotion Council (CONFOTUR) which justifies its decisions with a formal resolution.

INVESTMENT GUARANTEES

Investments in developing foreign markets present opportunities, but also pose perceived risks associated with noncommercial activities. Investors can mitigate these risks and improve their creditworthiness with lenders through international and U.S. agencies designed to insure eligible projects against possible losses. Three commonly used agencies are MIGAEx-Im Bank, and OPIC.

Multilateral Investment Guarantee Agency (MIGA)

MIGA is an autonomous division of the World Bank, an international financial institution that provides loans to developing countries, as part of its commitment to promote foreign investment, international trade and facilitate capital investment. Founded in 1988, MIGA is today a multilateral development agency comprising 175 member countries and promoting the flow of foreign direct investment (FDI) to developing countries by offering guarantees to investments in socially and environmentally sound projects. It partners with other global organizations, donors, and insurance providers to offer a comprehensive array of services to investors.

In 2008, a project of 106 kilometers of highway linking the capital city, Santo Domingo in the south, to the burgeoning tourist market in the Samana peninsula to the north, was partially funded through a critical guarantee from MIGA. The guarantee opened financial doors by securing an investment rating higher than the domestic requirement and attracting investors keen on opportunities in Latin America. The high rating also lowered the perceived risks associated with the project, and permitted investors to arrange financing through capital markets. This north-south corridor now provides growth opportunities for agricultural production, agribusiness, and tourism.

Export-Import Bank of the United States (Ex-Im Bank)

If you plan to import capital goods and services from the United States, this independent U.S. federal agency fills the gap in trade financing left by the private lending sector. Designed to improve the export potential for certain U.S. products and services, it provides working capital guarantees (pre-export financing) and export credit insurance to U.S. suppliers, and loan guarantees and direct loans to foreign buyers. The agency focuses primarily on the telecommunications, oil and gas, electricity, transportation, environmental, and manufacturing sectors. Recently, it provided a loan guarantee of US$34.5 million to a major investor for the construction of a highway along the Dominican Republic’s eastern coast, which is a globally popular tourist destination, attracting up to 75% of the country’s visitors. Referenced as the Coral Highway (Autopista del Coral), this project involves a 70-kilometer corridor that completes a strategic link between the eastern city of La Romana and the luxury resort area of Punta Cana. Backed by this guarantee, the investor was able to secure more competitive term financing from lenders and tap into a new funding source. Representing Ex-Im Bank’s largest market in the Caribbean, the Dominican Republic offers investors export credit opportunities through this agency for U.S. goods and services used for their projects.

Overseas Private Investment Corporation (OPIC)

This U.S. government financial institution fosters U.S. business entry, growth, and competition in emerging markets. Private U.S. investors can obtain financing, guarantees, political risk insurance, and support for private equity investment funds upon meeting certain project eligibility requirements. Emphasis is placed on meeting environmental and worker and human rights standards. Detailed information of all projects is publicly disclosed and open to public comment. Projects are initially and continuously reviewed for social and environmental impact, and investors must conduct consultations with locally affected communities where the impact is significant. Housing and renewable energy are two sectors to benefit from OPIC support. In 2007, OPIC allocated US$100 million for housing construction loans for low- and middle-income housing, emphasizing the eligibility of DR-CAFTA countries. In 2008, the agency made a historic commitment to renewable energy by approving funds to mobilize capital investment, and within a year, had considered over 100 proposals totaling US$ 2 billion. Financial incentives in this sector are expected to increase.
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.Foreign Investment

Foreign Investment Regulations and Incentives in the Dominican Republic

Transformed by globalization, the Dominican Republic has been systematically modernizing its legal and economic framework to adapt to new competitive standards and encourage the influx of foreign capital. With the highest GDP growth rate in the Caribbean, the Dominican government supports internationally accepted financing arrangements and observes international design, construction, and operation standards. Tourism, telecommunications, and free trade zones have exhibited the greatest investment growth, but additional opportunities exist in renewable energy, agriculture, mining, construction, aviation, electricity, and ports.

The Export and Investment Center of the Dominican Republic (CEI-RD) is responsible for encouraging foreign investment. Important laws and treaties in this area are: (A) The Constitution of the Dominican Republic; (B) Law #16-95 on Foreign Investments, (C)Regulation 214-04 on Registration and Capital Repatriation, and (D) the DR-CAFTA free trade agreement. In addition, Laws #8-90 and #158-01, covering Free Trade Zones and Tourism respectively, extend generous tax incentives to investments in these sectors. Finally, the government has supported investors seeking investment guarantees from external agencies by backing economically significant infrastructure projects with its full faith and credit.

The Constitution of the Dominican Republic

The 39th amendment to the Dominican Republic’s Constitution in 167 years was enacted on January 26, 2010, and establishes the general and fundamental principles governing the nation and its people. Specifically relevant to foreign investment are Articles 25 and 221.

Article 25 expressly entitles foreigners in the Dominican Republic to the same rights, except for participating in local political activities, and subjects them to the same duties as Dominican nationals. Foreigners must properly register with the Registry of Foreigners, and if necessary, can seek diplomatic protection after exhausting all available remedies and procedures afforded under Dominican law, limited only by international conventions.

Article 221 grants equal treatment to both public and prívate business activities, and guarantees equal conditions to both local and foreign investments with no restrictions but those established by the Constitution and the law.

Law 16-95 on Foreign Investments

This law reifies the important equality provision of Article 25 in the new Constitution, providing equal treatment and non-discrimination to both national and foreign investments. The statute and its enabling regulation (Decree #380-96 as amended by Decree #163-97), grant foreign investors, who are contributing capital to companies operating in the Dominican Republic, unlimited access to the Dominican economy except for activities that negatively impact the local environment or public, or compromise national defense or security.

Capital contributions can be made through several channels and in a variety of forms. Accepted channels of contributions are: 1. directly to the Dominican operating company from sources outside the country, 2. directly by reinvesting profits derived from the registered Dominican foreign investment back into that same operating company, and 3. indirectly from profits derived from one registered Dominican foreign investment and invested in a different Dominican operating company. Acceptable forms of contributions as foreign investment can be liquid currency, contributions in kind, financial instruments, or intangible technological property and knowledge.

Regulation 214-04 on Foreign Investment Registration

This regulation governs investment registration, and grants important benefits to investments that are formally registered with the CEI-RD within 180 calendar days from the date the investments are made. The CEI-RD must respond to an application for registration within 15 working days of receipt. The benefits to registration are as follows:

  • Free Fund and Currency Conversion. Investors are granted free access to international currency and fund conversion through local banks and the Central Bank of the Dominican Republic.
  • Free Repatriation of Dividends and Capital. The foreign investor has the right to remit abroad in foreign currency all capital invested, as well as capital gains and dividends, after complying with the existing tax legislation. (The corporate tax rate is presently 25% for all corporations. The investor also has the right to repatriate fee and royalty obligations resulting from a technology service agreement.
  • Expedited residency acquisition. Investors who register their investment benefit from a fast-track procedure if they decide to become residents of the Dominican Republic.

DR-CAFTA Free Trade Agreement

This free trade agreement among the United States, the Dominican Republic and the Central American countries of Honduras, Guatemala, El Salvador, Nicaragua and Costa Rica grants investors in any of the member states the following benefits:

  • Non-discriminatory treatment among member states.
  • Limited performance requirements.
  • Freely transferable investment funds.
  • Expropriation protection not governed by international law.
  • A “minimum level of treatment” pursuant to international law.
  • Freedom to contract with key managerial staff of any nationality.
  • Dispute resolution procedures between the country and the investor.
  • Binding international arbitration for investor damage claims against a member state.

Free Trade Zones (Law 8-90)

Free Trade Zones represent a pillar of the Dominican economy and are an attractive investment opportunity for any investor interested in producing goods or services for overseas markets in government designated areas within the country. The Dominican Republic boasts more than 50 zones, comprising more than 500 companies. It has one of the most advanced free-trade systems in the world and ranks fourth in terms of quantity.

The National Council for Export Free Zones regulates the industry dominated by Apparel and Textiles (69.1%), Tobacco (6.4%), Electronics (5.3%) and Pharmaceuticals (5.3%). Almost half the free zone businesses are owned by U.S. investors, more than a third by Dominicans, and the remainder predominantly by Asians.

Law #8-90 provides the following generous array of customs and tax incentives to free trade zone investments for a period of fifteen years.

  • Exemption from income tax.
  • Exemption from all corporate taxes on tangible and intangible assets and net worth.
  • Exemption from all taxes on construction, conveyance, and registration of real property.
  • Exemption from incorporation and capitalization taxes.
  • Exemption from the ITBIS tax (value-added tax).
  • Exemption from municipal taxes.
  • Exemption from existing export or re-export taxes, except those expressly stated in Law #8-90.
  • Exemption from import taxes, customs duties and related charges on raw materials, equipment, construction materials, vehicles, office equipment and any other goods necessary for the construction, preparation and operation of a free trade zone business.
  • Exemption from consular duties for goods or services destined to other free trade zones.
  • Exemption from import taxes and customs duties on raw materials imported by a
  • Dominican company for use in finished or semi-finished products destined for export to a free trade zone. This exemption requires prior authorization from the national regulatory agency.

Also, goods and services from one free trade zone can be sold or transferred to another free trade zone with prior authorization from the national regulatory agency. However, goods and services sold in the Dominican market are subject to all import taxes, customs duties, and quota requirements, except those that qualify as a priority sector under Law #56-07 (textile and accessory manufacturing, leather and shoe manufacturing, and furs), which enjoy more liberal import tax and duty treatment.

Promotion of Tourism (Law 158-01)

The Dominican Republic is the number one tourist destination in the Caribbean, experiencing a record number of 4.1 million visitors in 2010. Three key strengths have driven growth: the size, quality and number of beaches; the country’s six international airports; and strong foreign direct investment in the infrastructure. Traditional tourism activities and complementary activities capable of servicing the sector offer the investor a diverse base for investment. Attractiveness to investors is further boosted by the government’s proactive policies that promote and protect investments in the sector and offer some of the lowest tax regimes in the region.

Law 158-01, dated October 9, 2001, complemented by its enabling regulations Decrees #1125-01 and #74-02, and amended in some minor details by Law #184-02, provides tax incentives to investments in underdeveloped regions that offer the most tourism potential in the Dominican Republic. These incentives, targeting primarily underdeveloped provinces and municipalities around the country but also including developed areas such as Punta Cana and Puerto Plata, grant priority to infrastructure construction, and provide channels for international financing and selling or leasing state-owned land for tourism. Tourism operations such as hotels, convention centers, cruise companies, theme parks, port and tourist infrastructure, golf courses, and complementary activities benefit from these current government incentives.

Tax exemptions extend for 10 years from the date of completion of construction or project installation, and include the following:

  • Income Tax;
  • Incorporation taxes and capitalization increases;
  • Real property transfers upon presentment of a guarantee bond at 3% of the tax due;
  • Real estate property tax (IPI);
  • Contractor fees, duties, and quotas for project oversight;
  • International financing taxes and withholdings granted to beneficiary companies;
  • Import taxes and other import fees; and
  • ITBIS (value added tax) on machinery, equipment, materials, and personal goods necessary for the project start up.

An additional incentive is a tax deduction of up to 20% on annual net taxable income on approved investments.

Projects must respect the environment, show sustainable and rational development, and be classified by the Ministry for Tourism to benefit from the tax exemptions and deduction. Classification requires an application, an approved environmental impact study, preliminarily approved architectural design and engineering details, a description of the promotional entity or investor, a marketing and promotion plan, and bank and commercial references. The submission is evaluated and recommendations are sent to the Tourism Promotion Council (CONFOTUR) which justifies its decisions with a formal resolution.

INVESTMENT GUARANTEES

Investments in developing foreign markets present opportunities, but also pose perceived risks associated with noncommercial activities. Investors can mitigate these risks and improve their creditworthiness with lenders through international and U.S. agencies designed to insure eligible projects against possible losses. Three commonly used agencies are MIGAEx-Im Bank, and OPIC.

Multilateral Investment Guarantee Agency (MIGA)

MIGA is an autonomous division of the World Bank, an international financial institution that provides loans to developing countries, as part of its commitment to promote foreign investment, international trade and facilitate capital investment. Founded in 1988, MIGA is today a multilateral development agency comprising 175 member countries and promoting the flow of foreign direct investment (FDI) to developing countries by offering guarantees to investments in socially and environmentally sound projects. It partners with other global organizations, donors, and insurance providers to offer a comprehensive array of services to investors.

In 2008, a project of 106 kilometers of highway linking the capital city, Santo Domingo in the south, to the burgeoning tourist market in the Samana peninsula to the north, was partially funded through a critical guarantee from MIGA. The guarantee opened financial doors by securing an investment rating higher than the domestic requirement and attracting investors keen on opportunities in Latin America. The high rating also lowered the perceived risks associated with the project, and permitted investors to arrange financing through capital markets. This north-south corridor now provides growth opportunities for agricultural production, agribusiness, and tourism.

Export-Import Bank of the United States (Ex-Im Bank)

If you plan to import capital goods and services from the United States, this independent U.S. federal agency fills the gap in trade financing left by the private lending sector. Designed to improve the export potential for certain U.S. products and services, it provides working capital guarantees (pre-export financing) and export credit insurance to U.S. suppliers, and loan guarantees and direct loans to foreign buyers. The agency focuses primarily on the telecommunications, oil and gas, electricity, transportation, environmental, and manufacturing sectors. Recently, it provided a loan guarantee of US$34.5 million to a major investor for the construction of a highway along the Dominican Republic’s eastern coast, which is a globally popular tourist destination, attracting up to 75% of the country’s visitors. Referenced as the Coral Highway (Autopista del Coral), this project involves a 70-kilometer corridor that completes a strategic link between the eastern city of La Romana and the luxury resort area of Punta Cana. Backed by this guarantee, the investor was able to secure more competitive term financing from lenders and tap into a new funding source. Representing Ex-Im Bank’s largest market in the Caribbean, the Dominican Republic offers investors export credit opportunities through this agency for U.S. goods and services used for their projects.

Overseas Private Investment Corporation (OPIC)

This U.S. government financial institution fosters U.S. business entry, growth, and competition in emerging markets. Private U.S. investors can obtain financing, guarantees, political risk insurance, and support for private equity investment funds upon meeting certain project eligibility requirements. Emphasis is placed on meeting environmental and worker and human rights standards. Detailed information of all projects is publicly disclosed and open to public comment. Projects are initially and continuously reviewed for social and environmental impact, and investors must conduct consultations with locally affected communities where the impact is significant. Housing and renewable energy are two sectors to benefit from OPIC support. In 2007, OPIC allocated US$100 million for housing construction loans for low- and middle-income housing, emphasizing the eligibility of DR-CAFTA countries. In 2008, the agency made a historic commitment to renewable energy by approving funds to mobilize capital investment, and within a year, had considered over 100 proposals totaling US$ 2 billion. Financial incentives in this sector are expected to increase.
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.Foreign Investment

Foreign Investment Regulations and Incentives in the Dominican Republic

Transformed by globalization, the Dominican Republic has been systematically modernizing its legal and economic framework to adapt to new competitive standards and encourage the influx of foreign capital. With the highest GDP growth rate in the Caribbean, the Dominican government supports internationally accepted financing arrangements and observes international design, construction, and operation standards. Tourism, telecommunications, and free trade zones have exhibited the greatest investment growth, but additional opportunities exist in renewable energy, agriculture, mining, construction, aviation, electricity, and ports.

The Export and Investment Center of the Dominican Republic (CEI-RD) is responsible for encouraging foreign investment. Important laws and treaties in this area are: (A) The Constitution of the Dominican Republic; (B) Law #16-95 on Foreign Investments, (C)Regulation 214-04 on Registration and Capital Repatriation, and (D) the DR-CAFTA free trade agreement. In addition, Laws #8-90 and #158-01, covering Free Trade Zones and Tourism respectively, extend generous tax incentives to investments in these sectors. Finally, the government has supported investors seeking investment guarantees from external agencies by backing economically significant infrastructure projects with its full faith and credit.

The Constitution of the Dominican Republic

The 39th amendment to the Dominican Republic’s Constitution in 167 years was enacted on January 26, 2010, and establishes the general and fundamental principles governing the nation and its people. Specifically relevant to foreign investment are Articles 25 and 221.

Article 25 expressly entitles foreigners in the Dominican Republic to the same rights, except for participating in local political activities, and subjects them to the same duties as Dominican nationals. Foreigners must properly register with the Registry of Foreigners, and if necessary, can seek diplomatic protection after exhausting all available remedies and procedures afforded under Dominican law, limited only by international conventions.

Article 221 grants equal treatment to both public and prívate business activities, and guarantees equal conditions to both local and foreign investments with no restrictions but those established by the Constitution and the law.

Law 16-95 on Foreign Investments

This law reifies the important equality provision of Article 25 in the new Constitution, providing equal treatment and non-discrimination to both national and foreign investments. The statute and its enabling regulation (Decree #380-96 as amended by Decree #163-97), grant foreign investors, who are contributing capital to companies operating in the Dominican Republic, unlimited access to the Dominican economy except for activities that negatively impact the local environment or public, or compromise national defense or security.

Capital contributions can be made through several channels and in a variety of forms. Accepted channels of contributions are: 1. directly to the Dominican operating company from sources outside the country, 2. directly by reinvesting profits derived from the registered Dominican foreign investment back into that same operating company, and 3. indirectly from profits derived from one registered Dominican foreign investment and invested in a different Dominican operating company. Acceptable forms of contributions as foreign investment can be liquid currency, contributions in kind, financial instruments, or intangible technological property and knowledge.

Regulation 214-04 on Foreign Investment Registration

This regulation governs investment registration, and grants important benefits to investments that are formally registered with the CEI-RD within 180 calendar days from the date the investments are made. The CEI-RD must respond to an application for registration within 15 working days of receipt. The benefits to registration are as follows:

  • Free Fund and Currency Conversion. Investors are granted free access to international currency and fund conversion through local banks and the Central Bank of the Dominican Republic.
  • Free Repatriation of Dividends and Capital. The foreign investor has the right to remit abroad in foreign currency all capital invested, as well as capital gains and dividends, after complying with the existing tax legislation. (The corporate tax rate is presently 25% for all corporations. The investor also has the right to repatriate fee and royalty obligations resulting from a technology service agreement.
  • Expedited residency acquisition. Investors who register their investment benefit from a fast-track procedure if they decide to become residents of the Dominican Republic.

DR-CAFTA Free Trade Agreement

This free trade agreement among the United States, the Dominican Republic and the Central American countries of Honduras, Guatemala, El Salvador, Nicaragua and Costa Rica grants investors in any of the member states the following benefits:

  • Non-discriminatory treatment among member states.
  • Limited performance requirements.
  • Freely transferable investment funds.
  • Expropriation protection not governed by international law.
  • A “minimum level of treatment” pursuant to international law.
  • Freedom to contract with key managerial staff of any nationality.
  • Dispute resolution procedures between the country and the investor.
  • Binding international arbitration for investor damage claims against a member state.

Free Trade Zones (Law 8-90)

Free Trade Zones represent a pillar of the Dominican economy and are an attractive investment opportunity for any investor interested in producing goods or services for overseas markets in government designated areas within the country. The Dominican Republic boasts more than 50 zones, comprising more than 500 companies. It has one of the most advanced free-trade systems in the world and ranks fourth in terms of quantity.

The National Council for Export Free Zones regulates the industry dominated by Apparel and Textiles (69.1%), Tobacco (6.4%), Electronics (5.3%) and Pharmaceuticals (5.3%). Almost half the free zone businesses are owned by U.S. investors, more than a third by Dominicans, and the remainder predominantly by Asians.

Law #8-90 provides the following generous array of customs and tax incentives to free trade zone investments for a period of fifteen years.

  • Exemption from income tax.
  • Exemption from all corporate taxes on tangible and intangible assets and net worth.
  • Exemption from all taxes on construction, conveyance, and registration of real property.
  • Exemption from incorporation and capitalization taxes.
  • Exemption from the ITBIS tax (value-added tax).
  • Exemption from municipal taxes.
  • Exemption from existing export or re-export taxes, except those expressly stated in Law #8-90.
  • Exemption from import taxes, customs duties and related charges on raw materials, equipment, construction materials, vehicles, office equipment and any other goods necessary for the construction, preparation and operation of a free trade zone business.
  • Exemption from consular duties for goods or services destined to other free trade zones.
  • Exemption from import taxes and customs duties on raw materials imported by a
  • Dominican company for use in finished or semi-finished products destined for export to a free trade zone. This exemption requires prior authorization from the national regulatory agency.

Also, goods and services from one free trade zone can be sold or transferred to another free trade zone with prior authorization from the national regulatory agency. However, goods and services sold in the Dominican market are subject to all import taxes, customs duties, and quota requirements, except those that qualify as a priority sector under Law #56-07 (textile and accessory manufacturing, leather and shoe manufacturing, and furs), which enjoy more liberal import tax and duty treatment.

Promotion of Tourism (Law 158-01)

The Dominican Republic is the number one tourist destination in the Caribbean, experiencing a record number of 4.1 million visitors in 2010. Three key strengths have driven growth: the size, quality and number of beaches; the country’s six international airports; and strong foreign direct investment in the infrastructure. Traditional tourism activities and complementary activities capable of servicing the sector offer the investor a diverse base for investment. Attractiveness to investors is further boosted by the government’s proactive policies that promote and protect investments in the sector and offer some of the lowest tax regimes in the region.

Law 158-01, dated October 9, 2001, complemented by its enabling regulations Decrees #1125-01 and #74-02, and amended in some minor details by Law #184-02, provides tax incentives to investments in underdeveloped regions that offer the most tourism potential in the Dominican Republic. These incentives, targeting primarily underdeveloped provinces and municipalities around the country but also including developed areas such as Punta Cana and Puerto Plata, grant priority to infrastructure construction, and provide channels for international financing and selling or leasing state-owned land for tourism. Tourism operations such as hotels, convention centers, cruise companies, theme parks, port and tourist infrastructure, golf courses, and complementary activities benefit from these current government incentives.

Tax exemptions extend for 10 years from the date of completion of construction or project installation, and include the following:

  • Income Tax;
  • Incorporation taxes and capitalization increases;
  • Real property transfers upon presentment of a guarantee bond at 3% of the tax due;
  • Real estate property tax (IPI);
  • Contractor fees, duties, and quotas for project oversight;
  • International financing taxes and withholdings granted to beneficiary companies;
  • Import taxes and other import fees; and
  • ITBIS (value added tax) on machinery, equipment, materials, and personal goods necessary for the project start up.

An additional incentive is a tax deduction of up to 20% on annual net taxable income on approved investments.

Projects must respect the environment, show sustainable and rational development, and be classified by the Ministry for Tourism to benefit from the tax exemptions and deduction. Classification requires an application, an approved environmental impact study, preliminarily approved architectural design and engineering details, a description of the promotional entity or investor, a marketing and promotion plan, and bank and commercial references. The submission is evaluated and recommendations are sent to the Tourism Promotion Council (CONFOTUR) which justifies its decisions with a formal resolution.

INVESTMENT GUARANTEES

Investments in developing foreign markets present opportunities, but also pose perceived risks associated with noncommercial activities. Investors can mitigate these risks and improve their creditworthiness with lenders through international and U.S. agencies designed to insure eligible projects against possible losses. Three commonly used agencies are MIGAEx-Im Bank, and OPIC.

Multilateral Investment Guarantee Agency (MIGA)

MIGA is an autonomous division of the World Bank, an international financial institution that provides loans to developing countries, as part of its commitment to promote foreign investment, international trade and facilitate capital investment. Founded in 1988, MIGA is today a multilateral development agency comprising 175 member countries and promoting the flow of foreign direct investment (FDI) to developing countries by offering guarantees to investments in socially and environmentally sound projects. It partners with other global organizations, donors, and insurance providers to offer a comprehensive array of services to investors.

In 2008, a project of 106 kilometers of highway linking the capital city, Santo Domingo in the south, to the burgeoning tourist market in the Samana peninsula to the north, was partially funded through a critical guarantee from MIGA. The guarantee opened financial doors by securing an investment rating higher than the domestic requirement and attracting investors keen on opportunities in Latin America. The high rating also lowered the perceived risks associated with the project, and permitted investors to arrange financing through capital markets. This north-south corridor now provides growth opportunities for agricultural production, agribusiness, and tourism.

Export-Import Bank of the United States (Ex-Im Bank)

If you plan to import capital goods and services from the United States, this independent U.S. federal agency fills the gap in trade financing left by the private lending sector. Designed to improve the export potential for certain U.S. products and services, it provides working capital guarantees (pre-export financing) and export credit insurance to U.S. suppliers, and loan guarantees and direct loans to foreign buyers. The agency focuses primarily on the telecommunications, oil and gas, electricity, transportation, environmental, and manufacturing sectors. Recently, it provided a loan guarantee of US$34.5 million to a major investor for the construction of a highway along the Dominican Republic’s eastern coast, which is a globally popular tourist destination, attracting up to 75% of the country’s visitors. Referenced as the Coral Highway (Autopista del Coral), this project involves a 70-kilometer corridor that completes a strategic link between the eastern city of La Romana and the luxury resort area of Punta Cana. Backed by this guarantee, the investor was able to secure more competitive term financing from lenders and tap into a new funding source. Representing Ex-Im Bank’s largest market in the Caribbean, the Dominican Republic offers investors export credit opportunities through this agency for U.S. goods and services used for their projects.

Overseas Private Investment Corporation (OPIC)

This U.S. government financial institution fosters U.S. business entry, growth, and competition in emerging markets. Private U.S. investors can obtain financing, guarantees, political risk insurance, and support for private equity investment funds upon meeting certain project eligibility requirements. Emphasis is placed on meeting environmental and worker and human rights standards. Detailed information of all projects is publicly disclosed and open to public comment. Projects are initially and continuously reviewed for social and environmental impact, and investors must conduct consultations with locally affected communities where the impact is significant. Housing and renewable energy are two sectors to benefit from OPIC support. In 2007, OPIC allocated US$100 million for housing construction loans for low- and middle-income housing, emphasizing the eligibility of DR-CAFTA countries. In 2008, the agency made a historic commitment to renewable energy by approving funds to mobilize capital investment, and within a year, had considered over 100 proposals totaling US$ 2 billion. Financial incentives in this sector are expected to increase.
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.