Project Finance 2009Published on:
1 What types of collateral are available?
Real estate, operating and other license rights or concessions, leaseholds, buildings, moveable property, contractual rights, receivables, shares, securities, onshore and offshore bank accounts, entire enterprises, after-acquired property, proceeds from investments and the sale of collateral are all available.
Subject to limited restrictions, security may be granted on real estate property (the land and/or improvements), moveable property (motor vehicles, boats, aircraft) – including proceeds from their sale
– contractual rights, credits, receivables, shares, bank accounts and intangible goods.
Perfection and priority
2 How is a security interest in each type of collateral perfected and how is its priority established? Are any fees or taxes payable to perfect a security interest and, if so, are there lawful techniques to minimize such fees or taxes?
3 How can a creditor assure itself as to the absence of liens with priority to the creditor’s lien?
In general terms, you may request a certification of liens and encumbrances from the authority in charge or the registration of such lien. For instance, for real estate assets, such certification may be issued by the Land Registrar’s Office of the jurisdiction where the property is located; for moveable assets, the certification may be issued by the Peace Court of the jurisdiction where the assets are located (except with respect to aircraft and boats).
4 What are the restrictions, controls, fees and taxes on foreign currency exchange?
5 What are the restrictions, controls, fees and taxes on remittances of investment returns or loan payments to parties in other jurisdictions?
No restrictions, controls or fees apply on the remittance of investment returns or loans payments abroad. As for taxes, the general principle is that Dominican source income (that is, income derived from investments or interests located in the Dominican Republic) is subject to taxation. In that regard, interest payable to financial institutions abroad is subject to a 10 per cent withholding; interest payable to non-financial institutions is subject to a 25 per cent withholding, which is also the applicable general income tax rate.
6 Must project companies repatriate foreign earnings? If so, must they be converted to local currency and what further restrictions exist over their use?
There are no restrictions in terms of repatriation of earnings.
Offshore and foreign currency accounts
7 May project companies establish and maintain foreign currency accounts in other jurisdictions and locally?
Foreign investment and ownership restrictions
8 What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?
There are no restrictions as to ownership of project companies. As for registration, the applicable requirements vary depending on the industry. For instance, registration of the company (including its shareholders and directors) is required in sectors such as financial services, telecommunications, energy and mining.
9 What government approvals are required for typical project finance transactions? What fees and other charges apply?
In general terms, no governmental approvals are required. However, in most cases notice of the transaction shall be provided to the regulator of the sector or industry involved in the transaction.
10 What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?
None. However, under local law, assets located in the Dominican Republic shall be insured by companies located in the Dominican Republic.
Foreign employee restrictions
11 What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?
In principle, there are no restrictions on bringing in foreign workers to work on a project. However, the Labor Code provides that the workforce of companies operating locally shall be composed at least of 80 per cent Dominican personnel.
Equipment import restrictions
12 What restrictions exist on the importation of project equipment?
In principle, there are no restrictions or limitations on the import of machinery and equipment or services.
Nationalization and expropriation
13 What laws exist regarding the nationalization or expropriation of project companies and assets? Are any forms of investment specially protected?
According to articles 8-13 of the Dominican Constitution, no one can be deprived of their property rights, but for justified cause of public utility or social interest and not before receiving payment for the property at a fair value that shall be determined by decision of a competent tribunal. Any expropriation process followed by the Dominican government must comply with this and all other constitutional provisions, including the guarantee of due process. There are no forms of incorporation or investment specially protected.
Fiscal treatment of foreign investment
14 What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?
According to the equal treatment principle set by Law 16-95 on Foreign Investment, foreign investors are entitled to the same rights and obligations available to national investors.
Tax incentives are granted in the Dominican Republic to tourism projects located in specific areas of the country, free zone companies, projects settled in the provinces located near the border with Haiti, energy generation companies and other industries.
Under Securities Market Law No. 19-00, interest payments derived from securities traded in the public local securities market are exempted from income tax payment if payable to individual (not corporate or institutional) investors. Otherwise, dividends and all other income paid abroad by a local entity to foreign investors are subject to a 25 per cent withholding tax.
In addition, Congress frequently ratifies special agreements whereby local tax incentives have been granted for government projects in the mining, construction and energy industries.
15 What are the relevant government agencies or departments with authority over projects in the typical project sectors? What is the nature and extent of their authority? What is the history of state ownership in these sectors?
The General Mining Office is the governing body charged with administering mining activities. Other relevant government bodies involved in mining activities and processes in general are the Mining Directorate, the Ministry of Industry and Commerce and the Ministry of the Environment and Natural Resources.
Chemical refining is regulated by the Ministry of Public Health and the Ministry of Environment and Natural Resources.
Water rights are regulated by the National Potable Water and Sewerage Institute (INAPA) and the General Directorate of Water Resources.
The energy sector is regulated by the General Electricity Law No. 125-01. Regulatory bodies are the Dominican Corporation of State Electricity Companies, the Superintendence of Electricity and the National Energy Commission. Ports and Construction are regulated by the Ministry of Public Works and the Port Authority.
The regulatory body for telecommunications is the Dominican Telecommunications Institute (INDOTEL).
16 How are international arbitration contractual provisions and awards recognized by local courts? Is the jurisdiction a member of the ICSID Convention or other prominent dispute resolution conventions? Are any types of disputes not arbitrable? Are any types of disputes subject to automatic domestic arbitration?
The Dominican Republic has been a member of the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards since 2001. Therefore, local courts are due to recognize arbitration agreements, as well as the mandatory referral by such courts to arbitration pursuant to the agreement, the judicial enforcement and the recognition of arbitration awards and the grounds for refusal of such recognition a and enforcement.
17 Which jurisdiction’s law typically governs project agreements? Which jurisdiction’s law typically governs financing agreements? Which matters are governed by domestic law?
As a result of the principle of contractual freedom, foreign laws may be chosen as the applicable law to an agreement to the extent that such choice of law is not contrary to public policy. New York law and the laws of England are frequently chosen for finance agreements. As for matters governed by domestic law, please note that securities involving real estate assets and moveable’s (non-possessory liens) located in the Dominican Republic are subject to Dominican law as a matter of public policy.
Jurisdiction and waiver of immunity
18 Is a submission to a foreign jurisdiction and a waiver of immunity effective and enforceable?
Yes. However, foreign judgments are not enforceable in the country until a Dominican court declares that such decision is valid and enforceable in the Dominican territory and issues the corresponding exequatur.
Update and trends
There are currently a great number of project finance transactions under way in the country, mainly in the energy, mining and infrastructure sectors but their structures and security packages, which have worked so well in the last couple of years, have generally been used without many significant changes.
19 What entities are excluded from bankruptcy proceedings and what legislation applies to them? What processes are available to seize the assets of a business outside of court proceedings?
Although not expressly excluded, financial institutions are subject to a special regime. Otherwise, the Dominican legal system has no available processes to seize the assets outside of court proceedings.
Title to natural resources
20 Who has title to natural resources? What rights may private parties acquire to these resources and what obligations does the holder have? May foreign parties acquire such rights?
The Dominican state has title to mineral deposits of every nature existing in national territory, including metallic minerals. Such minerals may be granted in usufruct by the state. The Dominican Mining Law No. 146 allows any national or foreign party to register the discovery of mineral deposits and request a concession in order to explore or exploit such deposits. An exploration concession grants its holder the right to carry out activities above or below the earth’s surface in order to define the areas containing mineral deposits by using any technical and scientific methods. An exploitation concession is granted for a period of 75 years. Aside from tax regulations, the pursuance of mining activities requires the purchase of a mining business patent issued by the Ministry of Industry and Trade.
Royalties on the extraction of natural resources
21 What royalties and taxes are payable on the extraction of natural resources, and are they revenue- or profit-based?
Regimes may vary according to sector. Mining concessions, for example, provide for the annual payment of a mining patent calculated on a per hectare basis.
Export of natural resources
22 What restrictions, fees or taxes exist on the export of natural resources?
Restrictions may vary according to the sector. Under Dominican law, mining concessionaires for metallic minerals can only export their production after meeting the demands of the local market.
Environmental, health and safety laws
23 What laws or regulations apply to typical project sectors? What regulatory bodies administer those laws?
24 What are the principal business structures of project companies? What are the principal sources of financing available to project companies?
Local and foreign financial institutions remain the most frequent option in terms of financing. A potential tax reform that is likely to create incentives for investors in the local public securities market may have a material impact in shifting this trend.