Investing in the Dominican Republic

Globalization being a reality inherited in the twentieth century that forced us all to implement historical changes to adapt or lose, it now transcends to the individual that trusted large scale economies that are now in dire financial status such as the North American and European ones will take longer to recover. Foreign investment to smaller economies in the Caribbean region are a safer haven due in part to the smaller markets, and thus some islands like the Dominican Republic are benefiting from this turbulent economic times.

Dominican Republic real estate has surfaced as the lifesaver for many savvy investors from overseas that learned the trade and rules of doing business in this tropical island of golden sand beaches and blue skies.

Foreign investment in the Dominican Republic bears a magic tag that makes it one of the most attractive countries in a developing economy, which is the main reason why these smaller economies are far better off when the giants are in trouble.  The term fiscal incentives is attached to most of the areas where the Dominican Republic actively needs foreign investment,  and here we begin the Golden Treasures Blog presenting a lot of news and information on investments in the DR, specially in the real estate market.

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Law No. 16-95 on Foreign Investment in the Dominican Republic was promulgated on November 20, 1995. The provisions of law are fully in accordance with rules established by the Final Act adopted during the Uruguay Round negotiations of the General Agreement on Customs and Trade, which the Dominican Republic is a member.

The most important achievement made by the Law No. 16-95 is the opening up of sectors of economic activity or who were previously screened for the registration of restricted foreign investment. Consequently, registration of foreign investments in the utilities and private, in the mines, and other domains such as banking, private insurance, media, agriculture and transportation, among others, are allowed to foreign investors.

In the same way other sectors of the economy where the registration of foreign direct investment were limited to a certain percentage of the shares of local companies serving as a link for investment, are fully open to foreign investment.

Foreign investors have rights and obligations similar to those of nationals. This implies that foreign investment under Dominican law receive equal treatment or neutral with respect to local investment. This led to an increase of foreign investment in areas such as real estate in Punta Cana and the Puerto Plata regions of Cabarete, Sosua and Cofresi where villa rentals and sales became an important part of the economy, projecting the Dominican Republic in the international scenario.

Under Law No. 16-95, the foreign investor shall have the right to send foreign currency fully convertible and without need for prior authorization of the Central Bank, the total amount of capital invested and the dividends declared for each fiscal year. The law requires that a declaration of dividends received during the fiscal year, certified by an accounting expert and proof of payment of tax obligations, be subject to Central Bank, sixty (60) days after making the remittance.

Investment in free zones is still expressly excluded from the scope of this new law, the benefit of a significantly more liberal regime under the Free Zone Law No. 8-90, 1990. With regard to investments in export processing zones, the registration of investments, including all information and conditions shall be managed by the Dominican National Council of Free Zones.

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Registration Procedure

Within ninety (90) days from the date of completion of each investment in the country, the foreign investor is a natural person or legal entity must be deposited with the Central Bank of its demand registration form accompanied by the following:

  • If it is a natural person: name, address, phone, fax and nationality of the foreign investor or the person represented.
  • If it is a legal person: name, address, telephone, fax and name of the people who make up its Board of Directors.
  • Amount of investment in freely convertible currency.
  • Names and incorporation of the company.
  • Sector of economic activity.
  • Proof of authorization for the operation of branches by setting address.
  • If the investment affects the ecosystem, it must submit a certificate issued by the prosecutor or the competent authority.
  • If it is a market capitalization of technology, the investor shall submit the contract between the parties, which specifies the amount in foreign currency.
  • Once the documentation required for registration purposes is provided, the Central Bank shall have a period of ten (10) working days to issue the registration certificate.

Article 2 of the Act governing the International Transfer of Funds No. 251 of 1964 provides that every natural or legal person is bound to exchange in the Central Bank of the Dominican Republic, through the commercial banks licensed by the Monetary Council to negotiate with foreign currencies or foreign currency at the legal rate of change, the total amount of foreign currency that can be obtained, regardless of the amount of the transaction, in accordance with applicable rules issued by the Monetary Council.

Fiscal framework

In December 2000, the President announced a tax reform plan. Namely, some excerpts from the new regulations passed by Congress and signed by the President.

The income tax of natural persons.

Under Law No. 147-00 of December 27, 2000, individuals who receive a salary of less than RD $ 120,000 per year will be exempt from tax.

Those who earn more than this amount must pay tax as follows:

RD $ 120,000.01 to RD $ 200,000.00 15%

RD $ 200,000.01 to RD $ 300,000.00 20%

Over 25% RD $ 300,000.01

The income tax of legal entities

The tax rate to the corporations is currently 25% on net income for each fiscal year.

New wages

Tourism sector employees, sectorial industries approved by the Ministry of Labor have increased by 15%. Workers in businesses receive an increase of 18%, meaning that the minimum wage will increase from RD $ 2,985.00 RD $ 3,416.00.

The selective consumption tax (ISC)

This tax applies to the transfer processing of certain products manufactured in the country, the importation of certain goods and certain services. Examples of these products and services are derived from alcohol and snuff, vehicles, jewelry, hotel rooms, etc.

The tax rate varies from 5% to 80%, the highest rates being those of certain vehicles and luxury items. This tax is paid monthly.

Law No. 146-00 establishes an excise tax for vehicles, passenger cars, and any other vehicle used to transport people.

The tax on transfer of goods and services (ITBIS)

The ITBIS applies (i) the transfer of industrialized goods calculated on the basis of the net of transfer plus ancillary services, (ii) the importation of industrial goods, calculated on the basis of CIF value of property rights over Customs and (iii) the provision and rental services, calculated on the basis of the value of the service, excluding mandatory gratuities.

Tax reform ITBIS increased the rate of 8% to 12%. Advertising services are recorded with a minimum rate of 6%.

A wide range of agricultural and livestock products are exempt from the ITBIS as live animals, meat, fish for breeding, dairy products, to grow trees, vegetables and fruits for public consumption, coffee, cereals, sugar, cocoa, as well as fuel and energy, books and magazines, personal computers and accessories.

Payments abroad

A 25% rate is applied to all payments made from the country to overseas, the Dominican Republic is obliged to withhold the tax and pay to the administration.

Customs duties

The reform, according to the 15 CARICOM countries, lowered customs duties on imports from 5% to 20% maximum depending on the customs tariff, instead of 5% to 35%. The calculation is always done on the CIF value. For textbooks, the tax is only 3%.

The tax amnesty

The tax amnesty declared by the Law No. 11-01 dated January 2001, aims to promote the implementation of taxes and the transparency of taxpayer obligations. The amnesty concerns the inventory of assets and taxpayers about the tax benefits, the ITBIS and Excise Tax. This amnesty expired on May 31, 2001.

A 25% rate is applied to all payments made from the country to overseas, the Dominican Republic is obliged to withhold the tax and pay to the administration.

Sanctions

The amounts of the penalties for overtaking have been reduced 10% for the first month of delay instead of 25% and 4% for each additional month instead of 5%. A consignment for speedy payment is expected that allows payment of 60% to 70% of the amount determined by an overshoot.

Intellectual property protection

Intellectual property rights receive adequate legal protection in the Dominican Republic. The country is a member of major international conventions in this area and there are various special laws and regulations governing this area.

Patents

Patents can be obtained to protect inventions, utility models and industrial designs. Inventions are defined as any idea or creation of human intelligence, products or processes, capable of being applied in industry. Inventions contrary to public order or morality cannot be patent holder also for those that are harmful to health, life or the environment / atmosphere. Similarly, there can be no plants, animals and essentially biological processes for their production. In this sense, only the non-biological and micro biological can be patented.

Patent applications must be directed to the National Office of Intellectual Property. The date of claim and the date of deposit must be given on condition of fulfill certain basic requirements prescribed by law. All foreign patent claims should be directed to the National Office of Industrial Property. The date of claim and filing date provided that meets basic requirements provided by law. An alien may apply for a patent in the Dominican Republic. The owner of a foreign patent may also request a certificate but cannot exceed the period for which it has been agreed abroad.

Trademarks

The law also protects all kinds of brands, understanding the collective marks and certification marks, defining in a comprehensive manner. Registration states the exclusive right of use over the trademark. The new marks are registered for the first person who made the request. Applications for registration are made in the National Office of Industrial Property. Registration is granted for a period of twenty years, renewable for consecutive periods of ten years. Renewal applications must submit proof of use of the mark.

Trade Names

The law protects trade names such as labels, emblems, slogans, appellations of origin, etc.. The exclusive use of a trade name does not come from his record but his first commercial. Trade names cannot be composed of signs or signs contrary to public order or morality or which may create confusion regarding the nature, activities or any other aspect. Registration is not required and operates as a presumption that its holder lawfully adopted and used the trade name. Law 65-00 of August 21, 2000 on Copyright.

This law protects all sorts of original intellectual creation, whether literary, artistic or scientific work that can be fixed transmitted or reproduced by any other existing or to be printing, reproduction, or disclosure. She also protects independent creations derived from original works, such as those resulting from adaptation, translation or any other manner the transformation of the original work.

Similarly, the law regulates and protects the exercise of rights related to copyright in order to effectively prevent an illegal retransmission of television and the unauthorized reproduction of musical productions. The law protects works of authors or Dominicans residing in the country or who are nationals or residents of the country belonging to international treaties ratified by the Dominican Republic.

The Dominican Republic National Office of Copyright (ONDA) is the authority responsible for ensuring the protection of copyright and the application of the Act WAVE can also take precautionary measures as may be necessary even prevents the violation of author rights.

Business Organization

The most common formula of business organization in the country is the stock company, rather than the Commercial Code also allows the creation of other types of companies such as civil societies, societies collective name, limited partnerships, limited partnerships by actions, joint partition. The Commercial Code required a minimum of seven shareholders for the construction of a stock company (see new company law below).

Mergers and acquisitions of commercial companies are not covered by the Code of Commerce, therefore, the procedure used to conduct arose from practical experience.

Any investment by foreign companies in the country made by the branches can be recorded, which will allow you to repatriate profits in hard currency obtained. The establishment of branches of foreign companies in the country is made through the procedure for establishing legal domicile, which is established both for individuals and for corporations. It should be noted that from the standpoint of taxes, branches of foreign firms receive the same treatment that Dominican companies.

The foreign company decides to appoint agents or dealers in the local market should take into account mainly the two legal texts: Law 173 of 1966 (protects workers against the unfair local dissolution of its contracts for its foreign concessionaires) and Law 16 – 95 foreign investment.

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A new change in the law allows for a more flexible set up that can be done by a single person in the case of really small new ventures:

 Dominican Republic launches new company law

The executive branch enacted on 11 December 2008 the General Law of Corporations and Limited Liability Companies Individual No. 479-08. The new Act will modernize the way we do business in the Dominican Republic, to put the country on par with global corporate structures and rules.

The most important of the new law is the inclusion of two new corporate structures: the limited liability company (LLC) and the individual limited liability company (EIRL), whose main features are described below.

Limited liability companies’ structure based mainly on the current “Sociétés à responsabilité limitée” French, with some common features to their Spanish counterparts and U.S. LLC. :

  • The administration is in charge of one or more managers.
  • Formed with a minimum of two shareholders and a maximum of 50.
  • Have a minimum authorized capital of RD $ 100,000 pesos.
  • The capital must be fully subscribed and paid at the time of its formation and deposited in a financial intermediary, so prior to registration in the Commercial Register.
  • Membership fees in principle cannot be transferred freely.
  • The partners’ liability is limited to the amount of their contributions to society.
  • Ideal corporate form for small and medium enterprises and family businesses.
  • Individual limited liability company – one person owns the company.
  • Only individuals can be the sole owners, they are forbidden to corporations.
  • The owner’s liability is limited to the amount of their contributions to the company.
  • There must maintain a minimum share capital.
  • The administration is headed by a manager or owner thereof, if it wishes to assume such functions.
  • Ideal corporate form of sole proprietorship business.

Corporations, which so far represent more than 99% of commercial companies registered in the Dominican Republic have been strengthened for use as a tool ideal for large corporate enterprises.

Among other developments, we can mention the regulation of public subscription companies, which creates an important milestone in the development of capital markets in the Dominican Republic.

The new law became effective on June 19, 2009.

Mergers and acquisitions of commercial companies are not covered by the Code of Commerce, therefore, the procedure used to conduct arose from practical experience.

Any investment by foreign companies in the country made by the branches can be recorded, which will allow you to repatriate profits in obtained hard currency. The establishment of branches of foreign companies in the country is made through the procedure for establishing legal domicile, which is established both for individuals and for corporations. It should be noted that from the standpoint of taxes, branches of foreign firms receive the same treatment that Dominican companies.

The foreign company that decides to appoint agents or dealers in the local market should take into account mainly the two legal texts: Law 173 of 1966 (protects workers against the unfair local dissolution of its contracts for its foreign concessionaires) and Law 16 – 95 foreign investment.

Acquisitions of real estate

The acquisition of property or rights in land by foreigners is not subject to any special conditions and applies the same rules than domestic acquirers.

In principle, the presentation of Certificate of Ownership issued by the Registrar of Titles is enough to prove that the seller has a title to transfer ownership of the property. Every mortgage or encumbrance is held in the certificate.

The registration of sale is extremely important. To do this, the customer must deposit with the Registrar of Titles an original contract of sale, (legalized by Public Notary) with the Certificate of Ownership on behalf of the seller, which will be canceled and replaced by another in the name of the buyer.

Dominican Republic real estate have transformed the economy in the past few years because of the rapid growth in the Northern and Eastern areas of the island, specially Punta Cana and Puerto Plata. Many luxury villas are built along the coast of Sosua, Cabarete, Cofresi and Cabrera, the flagship tourist towns of the North coast of the Dominican Republic.

Investment Opportunities in the Dominican Republic

Tourism

Until the 80’s, tourism is concentrated mainly in the capital, Santo Domingo and in the north, Puerto Plata, but now extends to the east and northwest.

The city of Puerto Plata is the true “heart” of tourism development in the North Coast. Government funds, to which are added for international loans to build essential infrastructure, have served as stimulating the flow of capital and investments from the private sector.

The region Bavaro-Macao-Punta Cana on the east coast has been developed by the private sector, mainly by Spanish hotel chains and the Club Mediterranee, practically without any intervention from government, clearly demonstrates the confidence that investors have in the country’s tourism potential.

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Because of these advantages and the provisions that have been made, the tourism industry is in full swing in the Dominican Republic.

Major hotels have an average occupancy rate of 85% for the high season in winter and there are regions in the country where the employment rate is 90%. The Dominican government received favorably by investors in the tourism sector, with fiscal measures to ensure the development and installation of the hospitality industry in the country.

With about 55,000 rooms and three million visitors in 2000, the Dominican Republic is the first tourist destination in the Caribbean. The expansion of the resort is in constant progress, particularly in the north, in the region of Puerto Plata and east, in the region of Bavaro-Punta Cana

The more developed regions are:

The Capital, which mostly attracts the business and cultural tourism, as this is the oldest city in America. It is also one of the largest metropolises in the Caribbean, with more than 3 million inhabitants.

In parallel, the Caribbean Coast region (Boca Chica, Juan Dolio and Guayacanes) gradually became a center of attraction of local and foreign tourism, thanks to the Dominican private sector investment mainly.

La Romana, is famous thanks to House, the first resort in the Caribbean and one of the world’s first (7000 hectares). Comprising a hotel, 1,300 villas, 18 tennis courts, 8 swimming pools, 9 restaurants, 2 polo fields, 3 golf course 18 holes over 2,000 employees and an international airport. Also known Bayahibe Beach accelerated development.

The region Bavaro-Macao-Punta Cana, on the east coast of the country has been developed by the private sector, mainly Spanish hotel chains by the Club Mediterranean, with virtually no intervention from the government sector, which shows the confidence that investors have in the country’s tourism potential.

On the north coast, the coast is occurring from Puerto Plata to Sosua and Cabarete. This area covers more than one-third of the hotels. The region benefits from a port and an international airport that will optimize the hotel investment. Cabarete has become a major center of global competition practice and surfing.

Prospects:

All professionals agree on is still considerable growth potential. The main factors of competitiveness in tourism investment are: exceptional natural sites: 432 km of white sandy beaches, the Caribbean’s highest mountains, 31 national parks, scientific reserves and 2 4 ecological reserves.

  • Dominican hospitality
  • relatively low crime
  • Beautiful scenery and natural resources
  • 9 international airports
  • no restriction for the purchase of real estate to foreigners since the decree 21-98.
  • free transfer of profits and repatriation of capital gains.
  • support from government, private sector, as well as population development of the sector.
  • abundant human resources at competitive prices (monthly minimum wage of $150 approximately).
  • local expertise in the design and construction.
  • policy of “open skies” in the field of air transport.

The Dominican Republic still possess the great benefits of a small economy in a great location such as the Caribbean and just one hour away from Miami. Daily flights to New York and other cities in Europe make it ideal for business and leisure investments.

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