This content is from: Local Insights

US Overseas Investment Report 2017: Dominican Republic

Mariangela Pellerano and Caroline Bonó, Pellerano & Herrera

SECTION 1: Market outlook

1.1 What is the outlook for US investment into your jurisdiction over the next 12 months, given the new US administration's protectionist focus?

Given the Trump administration's protectionist focus, it is anticipated that US investments in the Dominican Republic will decrease during the next 12 months as investors will be more cautious when investing abroad.

1.2 Are there any industries in particular that you think are more likely to be affected by the US's new economic stance?

The export free zones, manufacturing and tourism industries are more likely to be affected by the US's new economic stance.

SECTION 2: Approving foreign investments

2.1 Explain the foreign investment approval process and approval timetable.

The Center for Export and Investment (CEI-RD) is the entity in the Dominican Republic charged with promoting foreign investment in the country and developing the export sector. The registration of investments before the CEI-RD is not mandatory and even without it foreign investors may remit profits and repatriate capital without prior authorisation, provided they comply with their local tax obligations. However, registration in the CEI-RD allows access to preferential treatment and expedited residence for investors and management positions.

2.2 Are there any investment restrictions in specially regulated sectors and is the government entitled to any special rights in these sectors?

Dominican law accords equal treatment to domestic and foreign investment. The only restrictions on foreign investment apply to some particularly sensitive sectors from a strategic point of view, such as mining, in the sense that no other sovereign state may invest in Dominican mining projects. Aviation, health projects such as hospitals and pharmacies, the handling of toxic waste and radio transmissions require a minimum of Dominican capital. Public media managers must be Dominican, among other industry-specific restrictions.

2.3 Which authority oversees competition clearance and give a brief overview of the merger clearance process?

In 2008, Law 42-08 on the Defense of Competition was enacted in the Dominican Republic; however it was not until the beginning of 2017 when the law entered into force. Such law creates the National Commission for the Defense of Competition (Procompetencia), which is the governmental authority responsible for administering compliance of such law, as well as promoting and ensuring the existence of competition to increase economic efficiency in the services and goods market.

It is important to highlight that Law 42-08 does not provide for an antitrust review of transactions prior to the completion of the same and thus, there is no requirement for the filing of business combination documents before Procompetencia. Nonetheless, dominant positions in the market may not be abused and the antitrust authority is empowered to initiate investigations relating to behaviours deemed anticompetitive.

2.4 Are there further approval requirements that foreign investors should be aware of?

The prior consent of certain governmental authorities or additional filings may be necessary for investments being made in regulated industries such as banking, telecommunications and energy.

SECTION 3: Investment techniques

3.1 What are the most common legal entities used for US investment in your jurisdiction?

The main business vehicles used in the Dominican Republic are the following:

  • corporations (sociedades anónimas);
  • limited liability companies (sociedades de responsabilidad limitada or SRL); and
  • simplified corporations (sociedades anónimas simplificadas).

Of the above, the most common form used by foreign companies is the SRL. This is mainly because:

  • There is no mandatory corporate governance.
  • The manager is its sole authorised official (however, there could be more than one manager).
  • There is a minimum capital of RD$100,000 ($2,500).

Foreign entities can also operate through a branch in the Dominican Republic by fulfilling certain registration requirements.

US investors also channel their investments locally through mergers with or acquisitions of local companies, through joint-ventures with local parties (corporate or contractual) and through distribution/agency agreements.

3.2 What are the key requirements for establishment and operation of these legal entities?

In general terms, the process for incorporating a local entity involves the following steps:

  • registration of the trade name at the National Office of Industrial Property (Onapi);
  • payment of the capitalisation taxes before the Tax Administration;
  • filing of the company's incorporation documents before the corresponding Chamber of Commerce in order to obtain a Mercantile Registration Certificate. At this point, the company is deemed to be duly incorporated; and
  • filing of documents before the Tax Administration in order to obtain a tax identification number.

SECTION 4: Dispute resolution

4.1 How effective are local courts' enforcement and dispute resolution proceedings, and what should US investors be particularly aware of?

Litigation processes before Dominican courts can take many, many years. Additionally, local courts have certain limitations as to their degree of specialisation with respect to certain matters.

For the above reasons, in addition to the enactment of the Commercial Arbitration Law in 2008, arbitration as an alternative method of dispute resolution has experienced an unexpected boom in the Dominican Republic. Its advantages are not only evident in time and price for the parties involved, but provide a degree of specialisation often standard for foreign litigants, but that the local judicial courts not necessarily have.

4.2 Does your jurisdiction have a bilateral investment protection treaty with the US and is that commonly used by investors?

The Dominican Republic does not have a bilateral investment protection treaty with the US.

4.3 Do local courts respect foreign judgments and are international arbitration awards enforceable?

Foreign judgments and arbitral awards are enforceable in our jurisdiction. The enforcement of foreign arbitral awards is subject to the rules of the New York Convention, to which the Dominican Republic is a party.

With respect to a foreign judgment, at this time the Dominican Republic is not a party to any convention for the validation of such. However, both arbitral awards and foreign judgments may be enforceable once the interested party obtains an exequatur (local validation judgment) from the local courts. The exequatur would be granted if the decision at hand is final and not subject to further remedies, if all parties were duly summoned, if the due process of law was observed and if the decision does not contravene public policy.

SECTION 5: Forex controls and local operations

5.1 What foreign currency or exchange restrictions should foreign investors be aware of?

There are no foreign currency or exchange restrictions in the Dominican Republic.

SECTION 6: Tax implications

6.1 Are there tax structures and/or favourable intermediary tax jurisdictions that are particularly useful for US investors into the country?

Favourable intermediary tax jurisdictions would include Spain and Canada since the Dominican Republic maintains a double tax treaty with these countries. However, the use of these jurisdictions in a tax structure shall have economic substance, otherwise, the Dominican Tax Adminsitration could disregard the structure and apply the corresponding taxes.

Panama is also a popular intermediary jurisdiction. Although it does not have a tax treaty with the Dominican Republic, it provides tax relief depending on the structure type.

However, it is worth noting that the Foreign Account Tax Compliance Act (Fatca) requires that foreign financial institutions and certain other non-financial foreign entities report on the foreign assets held by their US account holders or be subject to payment subject to withholding. Moreover, due to the recently effective Law against Money Laundering and Financing of Terrorism, the investor shall disclose to the government institutions, financial institutions and service providers such as lawyers, accountants, notary; the ultimate beneficiary of any given structure.

6.2 Has your jurisdiction benefited from the recent trend of US companies pursuing inversion structures? If yes, do you believe this will be threatened under the new administration?

Yes to both questions.

6.3 What are the applicable rates of corporate tax and withholding tax on dividends?

As of July 2017, the corporate income tax rate is 27% and 10% on dividend distribution/profit remittance.

6.4 Does the government have any tax incentive schemes in place?

Yes, tax incentive laws exist for different industries. For example: specific tax incentives exist for tourism development, which lessens the tax expenses on hotel construction/refurbishment; export and export free trade zones; border zone development (manufacturing); the temporary customs regime; temporary asset exclusion (for assets tax purposes); renewable energy development; cinematography development; international financial free zones; and non-profit organisations.

In addition, services provided to the government regarding a significant project (railroad construction for example), could have some tax incentives, and including income tax on salaries of the work force, but the relevant service agreement shall be approved by Congress in order for the project to enjoy tax benefits.

6.5 Are there any reciprocal tax arrangements between your jurisdiction and the US? If so, how can they aid investors?

The effective reciprocal tax arrangements between the Dominican Republic and the US seek transparency. The Dominican Republic Tax Authorities subscribed a Tax Information Exchange Agreement with the US government in 1989 in order to ensure transparency.

6.6 Do you think that the introduction of new rules and regulations in the US, such as the Bring Jobs Home Act, is likely to have an impact on investment into your country?

The Bring Jobs Home Act could impact US investment in the manufacturing industry (export free trade zones). For example, in 2016 USA was the second largest investor in this industry where, due to OECD guidelines and fairly recent Dominican tax laws, the incentives have been decreasing. Therefore, the Bill and the more limited incentives could eventually have an important impact for the specific manufacturing industry in the Dominican Republic, in which the leading investors are US citizens.

About the author

Mariangela Pellerano
Partner, Pellerano & Herrera

Santo Domingo, Dominican Republic
T: +1 (809) 541 5200
F: +1 (809) 567 0773

Mariangela Pellerano joined Pellerano & Herrera in 2003 and became a partner in 2012. She has 13 years of experience practicing law, concentrating her practice at the firm in the areas of project finance, mergers and acquisitions, trusts, mining, energy and corporate and banking law.

She advises local and international companies in connection with project financing and corporate matters, and has broad experience in mergers and acquisitions.

She has participated in highly complex business deals in the Dominican Republic. She assisted Barrick Gold Corporation, the largest gold producer in the world, with the complete installation and operation of the Pueblo Viejo gold mine project. Valued at $2.7 billion, it is the largest foreign investment project in the history of the Dominican Republic. Likewise, she served as local counsel of Barrick Gold Corporation in securing a $1.2 billion syndicated financing for the operation of its gold mine at Pueblo Viejo.

Pellerano regularly assists local and foreign banks and multilateral institutions in syndicated and private equity investments.

Pellerano has been recognised by the International Financial Law Review (IFLR1000) as a Rising Star. She has been recognised by Chambers & Partners Latin America, Legal 500 and Who's Who Legal in Corporate and Finance.

About the author

Caroline Bonó
Senior associate, Pellerano & Herrera

Santo Domingo, Dominican Republic
T: +1 (809) 541 5200
F: +1 (809) 567 0773

Caroline Bonó joined Pellerano & Herrera in 2017 as senior associate in the firm's tax practice group.

Bonó has more than 13 years of experience in tax, corporate, regulatory and labour matters. She has advised national and multinational companies belonging to a diverse range of industries: free zone, renewable energy, electric, industrial, financial, automotive, tourism, mining, telecommunication, and non-profit organisations.

For over 12 years, Bonó worked at PwC Dominican Republic, one of the 'big four' international audit and business consultancies in the tax and legal sectors.

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