The Dominican Republic has the best legal framework for foreign investment.
Legal System
The Constitution of the Dominican Republic defines the government system as democratic, republican, and presidential. It also provides that the exercise of power is divided among three independent branches:executive, legislative, and judicial.
Executive Power
The President of the Republic exercises the ExecutivePower. The President is elected through direct vote, together with theVice-president, for a four-year period. To be elected President, the candidate must gain a majority vote of at least 50% plus one. The President of theRepublic is the Head of State, Government, and Public Administration, as well as the Commander in Chief of the Armed Forces.
Legislative Power
The Legislative Power is vested in the National Congress, composed of two chambers: the Senate and the Chamber of Deputies. The members of both chambers are elected through direct majority vote for four-year periods. Re-election is always possible, without any limitation.
Judicial Power
The Judicial Power is in the hands of the Supreme Court ofJustice and other judicial courts established under the Constitution and the laws. It has administrative and financial autonomy. The Judicial Power is charged with administering justice to ensure the respect, protection, and supervision of rights recognized under the Constitution and laws. Its higher organ is the Supreme Court of Justice, which is composed of 16 judges appointed by the National Council of Magistrates.
Foreign Investment
Law 16-95 regulates foreign investment in the country; its promulgation has allowed the Dominican Republic to have notable advantages over other legislations that compete with our country. This law recognizes that foreign investment and the transfer of technology contribute to the economic growth and social development of the country, favoring the generation of revenues and employment, which contribute to efficient production and trade.
Forms of Association
On December 11, 2008, the General Law on Companies andIndividual Enterprises with Limited Liability No. 479-08 was enacted with the main goal of modernizing and updating the existing legislation on corporate matters. Among the most relevant changes and innovations of the Law, the following are of principal importance:
A.It provides a new and improved classification of legal entities with the purpose of providing more flexibility to the current system and enabling corporate structures to better and more accurately reflect the reality of business ventures and the relationship among the partners.
B.It details, more clearly and unequivocally, principles that in corporate legal practice, to date, were followed as a result of interpretations of principles of law or of general legal rules rather than on consistent and clear legal provisions.
C. It regulates corporate procedures that, until now, were followed without a proper set of legal guidelines and were more a result of administrative regulations or internal shareholder rules.
D. It sets forth new rules that modify current practices or legal provisions, in some cases with the purpose of prohibiting certain practices and in other cases to enable previously prohibited ones.
E. It undertakes to address, in a more detailed fashion, matters that had been previously subject to very little or no regulation, such as those concerning fiduciary duties of the managers and administrators, related-party transactions, and others.
F. It introduces new penal sanctions establishing new fines and prison sentences to be imposed for violations of the Law on founding partners, directors, and administrators, and upon the corporate entities themselves, thus creating the possibility of imposing penal sanctions upon them.
Corporate Control
Corporate control may be achieved in different ways. The most common methods are quorum and voting requirements, stock transfer restrictions, and pre-emption rights. Irrevocable proxies and share holder pooling agreements are not commonly used, though there does not seem to be any legal obstacle. Other standard control mechanisms like voting trusts, non voting shares, or cumulative voting rights lack suitable legal basis. Plural vote is however allowed, there being no one-share one-vote rule. Furthermore, it is possible to provide for different share classifications, such as the common preferred share scheme.
Establishment of Branches
Since the enactment of Law 16-95 on Foreign Investment, investors do not need to incorporate a Dominican company to be able to register their investment. Now any investment made by foreign companies in the country through branches may be registered, and the profits obtained therein may thus be freely repatriated in foreign currency. The establishment of branches of foreign companies is made through the procedure for fixing legal domicile in the country, which applies both to persons and companies. It should be noted that, although from a strictly legal standpoint this procedure is not mandatory, given that a foreign company may operate in the country without having fixed its domicile in the Dominican territory, in practical terms the fulfillment oft his requirement is advisable, since it is necessary for certain administrative procedures, such as the registration of the investment. Finally, it should be noted that for tax purposes branches of foreign companies receive the same treatment as Dominican companies, given that the Tax Code requires that companies incorporated in the country, as well as establishments of foreign companies pay the same income tax rate.
Tax Law
The tax or tributes of the Dominican Republic are organized based on the Tributary Code. This tax structure has been modified several times. The National registry of contributors (RNC) was created to establish common numbering for handling and payment of the different taxes, contributions, right and rates. The RNC applies for individuals and corporations. The most important taxes that are imposed by means of theTributary Code, and that are relevant to the Dominican Corporate and commercial life are: (1) Income tax (ISR); (2) transfer tax over industrialized goods and services (ITEBIS); and (3) selective tax to consumers (ISC).
Income Tax
a) Taxable Income Dominican citizens and residents must pay taxes on the income they generate in the country and on income originating abroad. Foreigners must only pay taxes on income of Dominican origin, and after the third year of residence, also on income of foreign source, there are some exceptions to this rule. Any person or entity that pays taxable income has the duty to withhold the respective tax amount and pay it to the administration.These withholding agents are liable to the tax office for the payment of the corresponding taxes.
b) Corporate Tax Rate The income tax rate for corporations is currently 27% on the taxable income of each fiscal year. This tax must be withheld at a corporate level from the dividends paid by the company. The remaining balance is not subject to any other tax, whether it is paid to persons or companies.
c) Payments Abroad A 27% rate applies to all payments made abroad. This rate does not apply to interests owed to foreign financial institutions, which under Law 92-04 on Bank Risk Prevention are taxed with a lower rate of 15%. In all cases, the Dominican party is obliged to withhold the tax and pay it to the administration.
d) Income from Business Activities A 10% tax rate applies to income obtained during business activities, such as fees, commissions, etc.,which has to be withheld by the person or company making the payment. A higher rate of 20% applies to income obtained from the lease of property, 15% to income obtained from lottery games, 1.5% to payments made by State agencies for independent services, and 10% to any other income.
Tax on Transfer of Industrialized Goods and Services(ITBIS)
This tax is applicable to the transfer of industrialized goods, as well as the rendering of services. These services include all those related to telecommunications, bars, discos, hotels, restaurants, vehicles, among others. This tax is paid by private persons and corporations executing any transfer, import, or rendering of service. The Tributary Code establishes a specific list of the products that are exempt from the payment of (ITEBIS),which is basically determined by first necessity, rice, eggs, milk, etc. The levy of ITEBS is of 18% above the price of each transfer or rendered service.Some sectors have special levies.
Tax to Consumption (ISC)
This tax is imposed on a series of articles considered as luxury items. Each product is imposed with a percentage determined by law.
Tax Compensation
The tax administration may, without, or at, the request of the taxpayer, set off tax liabilities against credits for taxes, interests, orfines paid in excess.
Labor Law
The Labor Code, regulates the relations between companies and their employees. The Ministry of Labor sees to the compliance of these provisions, while Labor Courts have jurisdiction over labor disputes.
Working Conditions
Quota of Dominican Workers At least 80% of the workers of a company should be Dominican citizens. Supervising officers should preferably beDominicans, but there are no restrictions at the manager level. When aDominican citizen substitutes a foreigner in an employment position theDominican employee will be entitled to the same salary, rights, and conditions as the foreign employee.
Working Periods
The normal working week is 44 hours, with a working day of8 hours. The usual practice is to work 40 hours from Monday to Friday and, in some companies, the remaining 4 hours on Saturday. The working week of part-time employees cannot exceed 29 hours.
Paid Leaves of Absence
Mandatory paid leaves of absence are the following: 5 daysin the event of marriage, 3 days in the event of the death of a close family member, and 2 days for the worker whose wife gives birth.
Vacations
Pursuant the labor law 9, workers who have completed one year of employment are entitled to a paid vacation of 14 working days. This law extended the vacation period by almost a week, by declaring that it should be calculated based on working days and not calendar days, as set forth in theLabor Code.
Maternity Protection
The employer cannot terminate without just cause the work contract of a female employee during her pregnancy and up to three months after the birth. Furthermore, to dismiss her with just cause the employer must obtain the prior authorization of the Ministry of Labor, among other formalities.Otherwise, the employer would have to pay an indemnity amounting to five months of salary plus the corresponding severance payments. Pregnant women may request their vacation immediately after their pre and postnatal leave, which must be paid on the basis of her normal salary and are entitled for the next year to a leave of half a day per month in order to take the child to the pediatrician.
Wages
Dominican labor laws set forth a minimum wage for private sector employees, which is periodically fixed by the National SalariesCommittee of the Ministry of Labor. In the event of overtime, night, and holiday work, the premium to be paid by the employer over the basic wages of the employee is 35% for overtime, 15% for night work, and 100% for over time implying an increase of more than 68 working hours per week, as well as for work on Sundays and holidays.
Fringe Benefits
Christmas Bonus All employees are entitled to receive, latest on December 20, an additional month's salary.
Participation in Company Profits Workers are entitled to receive a 10% participation in the yearly net profits of the company. The amount received by the employee may not exceed 45 days salary for workers with less than three years in the company, and 60 days' salary for those with more.
Dismissal of Employees
During the first three months of employment workers can be dismissed without the employer having to make any severance payments.Afterwards, employees can be dismissed in accordance with the provisions of theLabor Code. In the event of justified dismissal made pursuant to the causes and procedures set forth in the Labor Code, the employer does not have to pay any indemnity to the employee. In the event of unjustified dismissal, employees are entitled to severance payments. Prior notice is not necessary if the employer pays the worker the salary corresponding to such period. None of these payments is subject to income tax. If the employer does not make the payment on time, the worker will be entitled to receive an additional day's salary for each day of delay.
Social Security Obligations
Its purpose is to provide mandatory and universal cover age under non-discriminatory conditions to all Dominican nationals and foreign ers residing in the country against risks of old age, disability, old age unemployment, sickness, maternity, childhood, and labor risks.
Environmental Law
Law 64-00 states the importance of the protection, preservation, and sustained use of natural resources for the well-being of humanity, underlining the need for special protection for the unique, butfragile, threatened, and deteriorated, natural resources of the country, and of urgent measures to correct the deforestation and dry conditions currently prevailing throughout the national territory, and to prevent, control and repair the degradation of the environment. Under Law 64-00 the effective protection of the environment is placed as an essential duty of the State, which must for such purposes adopt an integral policy to be executed with the participation of all institutions related to natural resources, to concentrate all, until then scattered, efforts, and thus ensure the effectiveness thereof.The State assumes the responsibility of protecting and restoring the environment and shares it with society in general and with each individual in particular.In this manner, the law provides for the mandatory inclusion of environmental programs in all social and economic development programs. Furthermore, the law recognizes the principle of precaution by providing that "lack of scientific absolute certainty shall not be called as a reason not to adopt preventive effective measures in any activities having a negative influence on the environment". Law 64-00 regulates soil, water, and air contamination, dangerous products, elements and substances, domestic and municipal waste, human settlements, and sonic contamination. It also regulates the granting ofrights by the SEMARN and/or municipal authorities for the use of natural resources, including the use of soil, water, coastal and sea resources, forests, caves, and mineral resources.
Obtaining Environmental Permits and Licenses
Environmental licenses and permits must be obtained by companies interested in executing works or projects that may affect, in any manner whatsoever, natural resources, environmental quality, or the health of the population, including its psychological and moral well-being.
Dispute Resolution
The Dominican Republic follows the Calvo doctrine, under which Dominican courts have jurisdiction over all disputes arising from event staking place totally or partially in the Dominican territory. Nevertheless, courts recognize that, because of the principle of contractual freedom, the parties may choose to submit their disputes to foreign courts or international arbitrators. However, important restrictions to this freedom result from the fact that disputes falling under the scope of laws or provisions considered to be of public order.
Enforcement of Foreign Judgments
Foreign judgments or awards are not enforceable in the country until a Dominican court declares that such decision is valid and enforceable in the Dominican territory. The request to obtain this declaration or "exequatur" must be made to the Court of First Instance, which reviews the decision.
Arbitration
Persons and companies may choose to avoid judicial litigation and solve their business disputes through out-of-court settlements, which generally provide faster and more efficient solutions than judicial courts. In the Dominican Republic, it is possible to submit conflicts to arbitrators or conciliators if such conflicts do not refer to public order laws.
Local Arbitration
The arbitration regulations allows Chambers of Trade andProduction to set up arbitration councils in their respective jurisdiction, theChamber of Trade and Industry of the National District created an Arbitration and Conciliation Council (ACC), which can act as arbitrator for the solution of disputes arising between individuals and/or companies. Its arbitratio regulation was largely inspired by that of the International Chamber ofCommerce (ICC) and has been working effectively since its implementation.Pursuant to Law 50-87, ACC decisions are definite and enforceable, not being subject to any appeal before
Conclusion
In conclusion, the Dominican Republic offers a robust and comprehensive legal framework that is highly conducive to foreign investment. The country's legal system, executive, legislative, and judicial branches work in harmony to ensure a stable and transparent environment for investors. The enactment of laws such as the General Law on Companies andIndividual Enterprises with Limited Liability, demonstrates the country's commitment to modernizing its legal infrastructure and providing a favorable climate for business growth and development. This legal framework not only promotes economic growth and social development but also ensures that foreign investors receive equal treatment and protection under the law.