Project finance transactions have been executed in the Dominican Republic for several years now, mainly for infrastructure projects. Although the existing regulatory framework in the country does not contemplate these types of operations, the regulations have actually demonstrated to be favourable to the creation of a body of contracts and documents that provides a viable structure for financing large projects in Dominican territory.
In general terms, there are no restrictions imposed on foreign institutions when granting loans to local companies or the government. Dominican law also provides for a wide array of options for structuring a collateral package, which may include real estate mortgages, share pledges, securities over receivables, intangible assets including contractual rights, and moveable assets such as motor vehicles, boats, and aircrafts. Other provisions for controlling cash flow and expenses can also be legally established contractually and are enforceable under local law.
As a result of the Dominican principle of contractual freedom, foreign laws may be chosen as the applicable laws for a project finance transaction, to the extent that the law chosen is not contrary to public policy. As for matters governed by domestic law, securities involving real estate properties and movable assets (non-possessory liens) located in the Dominican Republic are subject to Dominican law as a matter of public policy.
Dominican law does not restrict the repatriation of earnings, and in fact contains no restrictions or controls and imposes no fees on the remittance of investment returns or loan payments abroad. With respect to taxes, the general rule is that income derived from investments or interests located in the Dominican Republic is subject to taxation. Interest payable to financial institutions abroad is subject to 10% withholding tax and interest payable to non-financial institutions is subject to 29% withholding tax, which is also the applicable general income tax rate.
For now, local and foreign financial institutions remain the most frequently chosen options for providing project financing but a potential tax reform that is likely to create incentives for investors in the local public securities market may change that.