Dominican Republic Continues Efforts To Encourage American InvestmentPublished on:
Over the past year, this column has described and analyzed a variety of new laws and regulations enacted by the Dominican Republic with one primary goal: to open itself to foreign trade. The country's efforts have met with incredible success. As noted recently by the International Monetary Fund, the Dominican Republic, since the mid 1990s, has become one of the world's "fastest growing economies."
The country's leaders have acted on multiple fronts.
The Dominican Republic already has enacted a revised tax code, labor code and foreign investment law, which gives equal treatment to foreign and national investors.
The country also has focused on more narrow topics. Recently, the Dominican Republic passed a new environmental law creating a Department of Environment and Natural Resources and streamlining the environmental review process required for development. The country also has enacted a new general law of electricity that recognizes the importance of the private sector in the generation, transmission, distribution and commercialization of electricity and that seeks to achieve expansion of the industry and more efficient service, while allowing the government to maintain the exclusive right to regulate the industry.
A new telecommunications law has deregulated the telecommunications industry, and a new statute promotes tourist zones within the country, allowing the Dominican Republic to further expand the growth of its tourist industry, especially in regions with great potential and locales attractive to tourists.
The Dominican Republic is a world leader in the use of the "free zone," a physically isolated area that offers special incentives to investors, typically in connection with import and export duties. For more than a quarter of a century, the county has been developing its free zones. Now, more than 500 companies employing hundreds of thousands of Dominicans operate in free zones here. Products produced in free zones are quite diverse, and range from textiles, garments, and shoes to cigars, electronic components, hospital supplies, fur, and marine equipment.
Recently, in fact, the country enacted yet another law relating to free zones, covering the provinces of Pedernales, Independencia, Elías Piña, and Montecristi along the border plus the underdeveloped provinces of Santiago Rodríguez and Bahoruco. The law is intended to stimulate industrial, agricultural, agri-business, energy, and metallurgical industries -- as well as tourism.
In essence, the new law provides that companies in the targeted industries that operate in the new zone are entitled to a 100 percent exemption on the payment of internal taxes, customs duties on raw materials, equipment, and machinery for 20 years.
Specifically, companies in the new zone are entitled to a complete exemption on payment of "Net Taxable Income" under the income tax rules; all amounts that otherwise would be payable as a "Tax on Transfers of Industrialized Goods and Services" (ITBIS); and various "customs tariffs, unified taxes, and internal consumption taxes," including those that apply to (i) fuels and lubricants used for industrial processing (except gasoline), and (ii) machinery, equipment, replacement parts, industrial parts and accessories that are imported to form part of the corresponding industrial unit.
The government recently promulgated regulations to implement this new free zone law. A key feature of these regulations is the establishment of a coordination council with powers to implement the statute and to coordinate and direct the national policy in favor of development in this area -- and to help avoid delays. Among other things, the council has authority to:
Hear, examine, and rule on applications for projects in the zone; Intervene in disputes, as a conciliator and arbitrator, between interested parties who operate in the region or who propose to do so; Advise the executive branch with respect to additional legislative and executive actions necessary to reach the objectives established by the law; Coordinate the country's participation in national and international fairs and expositions, for the purposes of promoting and seeking investments in the free zones protected by the law; Work with the National Planning Office, the General Directorate of Border Development, and other governmental entities that have a direct relationship with the development of the region; and Engage in "[a]ny activity or action which may be necessary or convenient and which has not been entrusted by another law to a different entity" in support of the law's objectives.
Under the statute, the government created a "technical office" as the entity in charge of receiving and processing the applications of projects and companies interested in applying for the benefits of the law and submitting them to the coordination council for its consideration.
The procedures for filing an application with the technical office are quite straightforward. A company that wishes to take advantage of the benefits of the new law simply presents its request for classification to the technical office accompanied by the following documents:
Letter of application containing the name, address, and nationality of the company; Description of the applicant and certified copy of its by-laws; Proof of the deposit with the Secretary of State for the Environment, of the project's Terms of Reference; Analysis of the financial feasibility of the project; Letter of no objection of the corresponding urban planning entities; Composition and origin of the capital; Type of product or service to be manufactured; Estimated number and types of jobs to be created, national and foreign; Any other information that, because of the category of the project, the technical office may request for its evaluation.
Once the application has been received and recorded by the technical office, it publishes a summary of it (at the applicant's expense) twice in two of the country's daily newspapers. Publication must occur quickly -- within five days following the recording of the application. The summary is quite basic, containing at least the name of the applicant, its nationality, the amount of the investment, the location of the company or the project, and a list of the product or products that it manufactures or proposes to manufacture.
After verifying compliance with all of the requirements established by the law and the implementing regulations, the technical council must have the project's feasibility evaluated -- which must occur within five business days of receiving the application. Then, the coordination council must be informed to that it can convene and hear, classify and rule on the application as soon as possible.
After it receives an application, and after it determines whether the project or company meet the requirements of the law and regulations, the coordination council is required to approve or reject, in part or whole, the application. When it approves an application, its resolution is required to set forth, among other things, a summary of the technical, economic and social factors that have served as the basis for its recommendation, based on its study, analysis, and evaluation of the project; the incentives to which the company is entitled, indicating whether there has been opposition by third parties and the decision taken on same; and the financial, administrative, and technical conditions with which the applicant must comply.
OBLIGATIONS OF THE BENEFICIARY COMPANIES
The projects and companies that receive the benefits of the law have a minimum number of obligations that they must fulfill as a result. These requirements would appear to be within the normal recordkeeping procedures of most companies.
For example, they must maintain records that will permit the Dominican government to determine their inventories, fixed assets, and depreciation according to the country's applicable laws and regulations.
Additionally, they must be able to provide, when requested, data and other information concerning the benefits that have been granted to them.
At first glance, the likely impact of this new law may seem minor in relation to the other laws enacted by the Dominican Republic in recent times. But this law should demonstrate just how dedicated the country is to making itself available to foreign investment.
The Dominican Republic is not just a major tourist center (although it certainly is that). It is a growing destination for U.S. businesses seeking to establish or expand overseas operations and it offers investors a broad choice of opportunities -- from tourism and ecotourism, mining, and transportation, to energy, agriculture, technology, electronics and telecommunications. Economically and politically stable, the Dominican Republic is the Caribbean's largest democratic country. As this law demonstrates, the government is intent on continuing to expand its role in the world economy and to continue attracting U.S. businesses to its shores.