A Receptive Environment for Investors
During the last two decades, the Dominican Republic has sought to foster a highly receptive environment for international investors, adopting policies that minimize regulatory obstacles and, at the same time, provide assistance and incentives to foreign companies and individuals to bring their capital into the country. As a result, the country has become the number one recipient of direct foreign investment in the region: 21 billion dollars’ worth from 2006 to 2015.
The Dominican Constitution accords foreign and local investors equal treatment under the law, stating expressly that foreigners in the Dominican Republic are entitled to the same rights as Dominican nationals, except for participating in local political activities. At the same time, foreign investors are bound by the same rules and regulations applicable to local investors.
Foreign investors can freely hold equity in local businesses and joint ventures, as well as buy real estate in their names.
Foreign Investment Law 16-95, enacted on November 20, 1995, and its enabling regulations, eliminated all barriers formerly imposed on international investments in the Dominican Republic. Investors contributing capital to companies operating in the Dominican Republic are granted unlimited access to all sectors of the Dominican economy, except for investments related to national security and other sensitive industries.
Registration of foreign investments is optional. No government approval is required for the repatriation of profits.
Government Assistance to Foreign Investors
The Center for Exports and Investment of the Dominican Republic (CEI-RD), a government agency created in 2013 with the explicit purpose of attracting foreign investment and fostering exports, assists foreign investors in their business ventures in the Dominican Republic, providing them with timely advice and information, as well as assistance in coordinating their applications for government permits. In 2012, a one-stop investment office was set up within the Center to assist foreign investors in streamlining government permit applications related to free zones, tourism, renewable energy, and the film industry, among others
The Center also sponsors events to promote the Dominican Republic as an investment destination and to provide information to potential investors on how to plan and implement successful business projects in the country.
Government Guarantees for Foreign Loans
The Dominican government also assists investors by pledging its full faith and credit to loans provided by international agencies for significant infrastructure projects in the Dominican Republic. Foreign investors in large Dominican projects commonly use capital and political/exchange insurance risk facilities provided by the Multilateral Investment Guarantee Agency (MIGA) and the Overseas Private Investment Corporation (OPIC). The Dominican Republic has signed agreements with both entities.
The Multilateral Investment Guarantee Agency (MIGA) is an independent development cooperation institution created by the World Bank in 1988 to provide, in addition to guarantees to investors against losses caused by political risks, technical assistance to promote investments to developing countries.
The Overseas Private Investment Corporation (OPIC) is an independent federal agency of the United States federal government that helps American companies to compete in emerging markets by providing insurance against political violence, expropriation, and the inability to convert foreign currency.
Incentives for Investors
In a deliberate effort to attract investment capital, the Dominican Republic has set up one of the most wide-ranging systems of incentives for investors. The most important initiatives in this regard are described below.
Incentives to Investors in Free Zones
Under Free Trade Zones Law 8-90, its amendments and regulations, companies operating in free zones function in a nearly free trade environment and benefit from considerable tax exemptions for renewable 15-year periods, such as no income, goods and services, municipal or export or re-export taxes, no import duties nor related charges on raw materials, equipment, construction materials, vehicles, office equipment and other goods necessary for the preparation, construction, and operation of the business.
All trade in goods or services from and to a free zone is considered an import or an export, even when the source or destination is another location in the Dominican Republic. As a result, goods and services from the free zones sold in the Dominican market are subject to applicable taxes, such as customs duties and goods and services taxes, except (a) textiles, leather goods, and shoes that benefit from a special program set up under a special statute (Law 56-07); and (b) trade between different free zones if approved beforehand by the authorities. However, companies in the free zones exporting goods or services to the Dominican market pay a preferential income tax rate of 3.5% on gross sales.
Free zones are regulated and supervised by the National Council for Free Zones, which issues the permits allowing companies to operate within a particular free zone, and enforces all applicable legislation.
Special Incentives for Border Region Free Zones
Under Law 28-01, companies established and operating in free zones within the border region with Haiti are entitled, in addition to the exemptions listed before, to additional benefits such as an extension of the exemption period from 15 to 20 years, government subsidies to lease space in the free zone, and preferential loans with lower interest rates.
Special incentives for International Financial Free Zones
Under Law 480-08, companies in special free zones can offer all types of financial and support services to persons or entities located outside the Dominican Republic without having to pay taxes for a 30-year period.
Partners and shareholders of companies in financial free zones are exempted from paying taxes on the profits or dividends received.
International financial free zones are regulated and supervised by the National Council for International Financial Zones, which issues the permits allowing companies to operate within a particular free zone and enforces all applicable legislation.
Special Incentives for Logistic Operators
Executive Order 262-15 defines logistic operators as companies authorized by the Customs Department of the Dominican Republic to supply, within a logistic center, services such as storage, inventory administration, classification, consolidation, cargo distribution, packaging, labeling, division of cargo, refrigeration, re-export, and transport.
Logistic operators benefit from a significant reduction in their income tax, which is set at just 3.5% of sales made in the local market, and from import duties on merchandise brought into the country, repackaged and then exported, if done within a specified time period.
Incentives for Investors in the Tourism Industry
The inflow of tourists to the Dominican Republic began with the enactment, in 1971, of a special statute granting incentives to investors willing to risk their capital in what was then the last tourist destination in the region. Nowadays, when the country is the undisputed tourism leader in the Caribbean, companies still benefit from very attractive enticements to invest in the industry. Law 158-01 on Tourism Incentives, as amended by Law 195-13, and its regulations, grants wide-ranging tax exemptions, for fifteen years, to qualifying new projects by local or international investors.
The projects and businesses that qualify for these incentives are: (a) hotels and resorts; (b) facilities for conventions, fairs, festivals, shows and concerts; (c) amusement parks, ecological parks, and theme parks; (d) aquariums, restaurants, golf courses, sports facilities, and any other tourist facility; (e) port infrastructure for tourism, such as recreational ports and seaports; (f) utility infrastructure for the tourist industry such as aqueducts, treatment plants, environmental cleaning, and garbage and solid waste removal; (g) businesses engaged in the promotion of cruises with local ports of call; and (h) small and medium-sized tourism-related businesses such as shops or facilities for handicrafts, ornamental plants, tropical fish, and endemic reptiles.
As for existing projects, hotels and resort-related investments that are five years or older are granted 100% exemptions from taxes and duties related to the acquisition of the equipment, materials and furnishings needed to renovate their premises. In addition, hotels and resort-related investments that are fifteen years or older will receive the same benefits as a new project if the renovation or reconstruction involves 50% or more of the premises.
Finally, individuals and companies get an income tax deduction for investing up to 20% of their annual profits in an approved tourist project.
The Tourism Promotion Council, known by its Spanish acronym of CONFOTOUR, is the government agency in charge of reviewing and approving applications by investors for these exemptions, and, generally, of supervising and enforcing all applicable regulations. Once CONFOTOUR approves an application, the investor benefitting from the incentives must start and continue work in the authorized project within a three-year period to avoid losing all benefits under the program.
Incentives for Investors in Renewable Energy
The Dominican Republic encourages investment in the renewable energy sector. Under Law 57-07 on the Development of Renewable Sources of Energy, investors in this area are granted, among other benefits, the following incentives: (a) no custom duties on the importation of the equipment required for the production, transmission and interconnection of renewable energy; (b) no tax on income derived from the generation and sale of electricity, hot water, steam power, biofuels or synthetic fuels generated from renewable energy sources; and (c) exemption from the goods and services tax in the acquisition or importation of certain types of equipment.
The National Energy Commission is the governmental entity in charge of granting incentives in this industry, which has attracted substantial interest from international investors.
Incentives for Investors in the Film Industry
Film Industry Law 108-10, as amended by Law 257-10, and its enabling regulation, created a legal framework to promote the development, production, distribution and preservation of movies, TV shows, music videos, and other audiovisual productions, as well as the construction of film-making studios and movie theaters. The most important incentives contemplated in the legislation are exemption from payment of the goods and services tax, income tax exemption for the construction of movie theaters and film or recording studios, and a transferable tax credit equal to 25% of expenditures in the Dominican Republic, subject to certain requirements.
To benefit from these incentives, investors need to be registered and authorized with the Dominican Republic Film Commission, which is the regulatory agency in charge of implementing the law.
General Incentives for Innovation and Competitiveness in Manufacture
Industrial Innovation and Competitiveness Law 392-07, as amended by Law 542-14, creates an institutional framework to enhance the ability of Dominican industry to compete in international markets by promoting horizontal and vertical integration and granting incentives to qualified operators such as exemption from custom duties and goods and services tax on raw materials, machinery and capital goods, accelerated depreciation of goods and industrial equipment, and reimbursements of certain taxes to exporters.
To qualify for these incentives, industries must be certified by the Center for Development and Industrial Competitiveness (PROINDUSTRIA), the agency of the Dominican government created to implement Law 392-07.
Incentives for Immigrant Investors
Law 171-07 grants foreign nationals who invest a minimum of $200,000 in the Dominican Republic or meet certain criteria as retirees with special benefits such as expedited residency in the country, exemption from duty for the importation of household goods, exemption from transfer taxes for the first purchase of real estate, exemption from taxes on dividends and interest, and 50% reduction on property and capital gains taxes.
GUZMAN ARIZA ON FOREIGN INVESTMENT
Guzman Ariza has advised investors on investments and trade incentives in the Dominican Republic through the decades. As a firm with national presence, we know the investment health of localities around the island and combine this with our legal expertise to help you maximize the enormous investment opportunities available in the country in tourism, real estate, free trade zones, renewable energy, telecommunications, mining, sports, etc. No project is beyond our legal capability, nor is any project too small. Whatever your interest, we will help you achieve your investment goals in the Dominican Republic.