Pellerano & Herrera The Pellerano & Herrera Foundation

Doing Busines in the Dominican Republic 2012, Practical Law

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Legal system
1. What is the legal system (civil law, common law or a mixture of both)?

The Dominican Republic has a civil law based legal system.

Foreign investment
2. Are there any restrictions on foreign investment (including authorisations required by central or local government)?

There are only restrictions relating to (Article 5, Foreign Investment Law No. 16-95):

·Disposal of dangerous or radioactive toxic waste not originated in the Dominican Republic.

·Activities that are detrimental to public health and the environment.

·The manufacture of materials and equipment directly related to national security and defence, without the previous consent of the Dominican government.

3. Are there any exchange control or currency regulations?

There are no exchange control or currency regulations.

4. What grants or incentives are available to investors?

There are no specific grants or incentives available to foreign investors. However, incentives are available for specific sectors, such as tourism, for the improvement and development of some undeveloped or newly developed areas (Law No. 158-01), as well as for renewable energy (Law No. 57-07) and the textile industry (Law No. 56-07).

There are also free trade zones which benefit from a total tax exemption and industry specific incentives applicable to local companies. Recently, two new laws were enacted which make available fiscal incentives to foreign investors in the local cinematography business (Film Law No. 108-10) and in the development of the mortgage and stock market (Law No. 189-11).

Business vehicles
5. What is the most common form of business vehicle used by foreign companies in your jurisdiction, and what are the main applicable formalities, rights, restrictions and liabilities?

The most common form of business entity used by foreign companies is the limited liability corporation. A simpler structure, called the limited liability company, is also available but since it is a new form created by law in 2008 and amended in 2011 it is still not widely used. Foreign entities can also operate in the Dominican Republic, by fulfilling certain registration requirements.

Registration formalities
The following procedures must be followed:

·There must be at least two shareholders.

·The articles of incorporation or bye-laws must be signed by the founding shareholders and notarised.

·A minimum of 10% of the authorised capital of the company must be paid and issued by the shareholders and a document specifying the amounts paid and the total shares issued by each shareholder must be executed.

·The shareholders may decide to hold an incorporating general shareholders' meeting to appoint the first administrators and the vigilance officer, but these appointments can also be made in the bye-laws.

·A report from a valuation officer must be made and approved by all the shareholders in a general meeting when contributions in kind or specific advantages are granted to a group of shareholders.

·The above documents must be filed at the Internal Revenue Agency (Dirección General de Impuestos Internos) in order to obtain a National Contributors Registry (Registro Nacional del Contribuyente) (RNC) number.

·The documents must be filed at the Dominican Chamber of Commerce and Production (Cámara de Comercio y Producción) to obtain the company's mercantile registration number. At this point the company is deemed duly incorporated.

Share capital
Each shareholder has a minimum of one share. The minimum and most commonly used face value of a share is DOP100 (as at 1 November 2011, US$1 was about DOP37).

Non-cash consideration
Shares can be issued for non-cash consideration, such as property. The transfer of property must be registered at the corresponding Title Registry Office.

Rights attaching to shares
Restrictions on rights attaching to shares. There are no restrictions on the rights that can be attached to shares.

Automatic rights attaching to shares. There is a minimum of rights granted to a shareholder, such as the right to:

·Receive information.

·Receive dividends.

·Attend and vote on general meetings.

·The preferential right to issue new shares from the company.

·Free transfer of shares.

Foreign shareholders

There are no restrictions on foreign shareholders.

Management structure

Corporations have a management board, with a minimum of three members.

Management restrictions

There are no restrictions on foreign managers.

Directors' and officers' liability

Directors can be:

·Jointly liable for any fault in the company's incorporation process that results in its annulment.

·Personally responsible for any mistakes made when acting in their capacity as director, particularly in relation to the distribution of fictitious funds.

·Civilly and/or criminally liable, depending on the infraction.

In principle, directors and officers can be released from their managing responsibilities by a majority vote of the shareholders in a general meeting, after reviewing the report from the vigilance officer on management's performance in a specific year.

Officers and directors cannot be released from any liability for:

·Criminal acts.

·Fraud.

·Self-dealing.

·Gross negligence.

Parent company liability
A parent is not liable for the acts of a subsidiary company but can be liable for the acts of a branch in civil, contractual, tax, labour or criminal law. However, the corporate veil can be lifted in cases of fraud.

Reporting requirements
Companies must notify the Internal Revenue Agency and the Dominican Chamber of Commerce and Production of, among other things:

·Resolutions from the company's shareholder or board meetings.

·Increases in the company's authorised share capital.

·Changes to the company's articles of association or bye-laws.

·Changes to the company's shareholders.

·The dissolution of the company.

·Changes of the company's domicile or registered address.

·Changes in the company's contact details.

Employment
Laws, contracts and permits

6. What are the main laws regulating employment relationships?

The main employment legislation is the Labour Code (No. 16-22 of 1992). It applies to Dominicans and foreign persons working in the Dominican Republic. The employer and the employee are subject to the employment contract, although its provisions can never release or limit the rights under the Labour Code.

Contract requirements
7. Is a written contract of employment required, and if so, must it contain any particular language? Are any agreements and/or implied terms likely to govern the employment relationship?

A written contract of employment is not required. In the absence of a written contract, the Labour Code governs the employment relationship. However, where a contract is provided it cannot release or limit the rights under the Labour Code.

8. Do foreign employees require work permits and/or residency permits?

Foreign employees must obtain either a work permit or a residency permit. Since residency allows the foreign employee the same rights as any Dominican national (except for the right to vote), including the issuance of an identification card, it is more advisable to obtain this instead of a work permit.

The following documentation must be filed with the National Direction of Migration to obtain a work permit/residency permit:

·Three frontal photos of the applicant's face to certain requirements.

·A completed visa application (Form 509).

·A certificate of good behaviour issued by the police department of the applicant's original place of residence. 

·A letter of guarantee from a Dominican citizen or legal resident of the Dominican Republic.

·An employment agreement or, if a real estate investment has been made, a copy of the purchase agreement, or any other documentation proving the applicant's financial solvency in the Dominican Republic.

·If a real estate investment has been made, a copy of the presidential authorisation if one had been obtained.

·The results of a medical examination certified by a notary public and authenticated by the Dominican consul.

·Power of attorney of the applicant certified by notary public and legalised.

·Original of the applicant's birth certificate, duly apostilled (that is, legalised for international purposes).

Residency is provisional for the first year and then permanent, renewable every two years. The provisional and permanent residency application fees each cost about DOP3,800. There is an optional fee of DOP1,500 for an expedited service.

Termination and redundancy
9. Are employees entitled to management representation and/or to be consulted in relation to corporate transactions (such as redundancies and disposals)?

Employees are not entitled to management representation and consultation. However, employees can enter into written agreements with the company providing them with such rights.

Agreements/implied terms
10. How is the termination of individual employment contracts regulated?

A dismissal is deemed to be without just cause, unless it is for one of the reasons established under Article 88 of the Labour Code, which include:

·Lack of integrity.

·Abandonment of the workplace without a just cause.

·Lack of dedication to the job.

The employer must notify the employee and the Labour Department within 48 hours of the dismissal taking place.

The minimum notice period is seven working days and the minimum severance payment is the ordinary salary for six working days (both for employees with three to six months' uninterrupted work).

Employees can be dismissed without just cause if, at the time of their dismissal, their employment rights were observed by the employer, for example:

·They were given the correct notice period.

·They received any compensation that they were entitled to.

Employees dismissed without just cause and without receiving their entitlements can file a claim against the employer for unfair dismissal and certain payments, such as severance and damages.

11. Are redundancies and mass layoffs regulated?

The Labour Code does not expressly establish the redundancy procedure. Generally redundancy is understood to mean the termination of labour agreements under the following two scenarios:

·If the reduction of personnel is due to a voluntary decision of the company (meaning that it is not due to bankruptcy or a lack of resources that does not allow operations to continue) the termination of labour agreements can be exercised either:

-by dismissal without cause, in which case, the employer pays termination benefits to the employee and notifies the Labour Department, in writing, within 48 hours of the dismissal;

-by mutual agreement, in which case the termination must be done before the labour authorities or before a notary-public (in the latter case, the Labour Department must be notified after the enactment of the authentic act (that is, the termination agreement executed before a notary public)).

·The company must notify the Labour Department to obtain its prior approval for the reduction in personnel if the reduction of personnel is due to:

-the company's bankruptcy;

-the company's operations ceasing altogether;

-a definitive closing or definitive reduction of personnel arising from the lack of resources to allow the company's operations to continue;

-the unprofitability of the same or other similar cause.

In this case, the employer is not obliged to give termination benefits (prior notice and severance) and the dismissals must be made in the following order:

-unmarried foreign employees;

-married foreign employees;

-foreign employees married to Dominican nationals;

-foreign employees with Dominican children;

-unmarried Dominican employees;

-married Dominican employees.

Tax
Taxes on employment

12. In relation to employees, what constitutes tax residency in your jurisdiction?

A physical person or an entity residing in the Dominican Republic for more than 182 days is considered tax resident (Article 12, Tax Code). However, foreign employees working in the Dominican Republic are considered tax residents from the moment they are hired.

13. What income tax or social security contributions must be paid during the employment relationship?

Tax resident employees
Tax resident employees must pay income tax on their gross Dominican-source income to the Internal Revenue Agency at the following progressive rates:

·Income between DOP0 to DOP371,124: exempt from tax.

·Income between DOP371,124.01 to DOP556,685: 15%.

·Income between DOP556,685.01 to DOP773,173: 20%.

·Income over DOP$773,173.01: 25%.

Tax resident employees must also pay:

·0.5% of their gross salary to the National Training Institute (Instituto Nacional de Formación Técnico Profesional) (INFOTEP), a technical and training institute for employees (this is not currently being enforced).

·2.87% of their gross salary into a pension plan payment scheme.

·3.04% of their gross salary to the health social security.

Non-tax resident employees
Non-tax resident employees must pay tax at 29% on their Dominican Republic-source net income.

Employers
Employers must pay:

·7.1% of the employee's gross salary into a pension plan payment scheme.

·1.2% of the employee's gross salary into the Workers Compensation Plan.

·1% of the company's payroll to the INFOTEP, on a monthly basis.

·7.09% of the employee's gross salary on the health social security.

·A complementary retribution tax (Impuesto Sobre Retribuciones Complementarias) of 29% on all other non-cash benefits that an employee receives (such as school tuition, car and property leases, and mobile phones).

Business vehicles
14. What constitutes tax residency in relation to business vehicles?

A business entity is considered tax resident, in relation to Dominican-source income (in the case of foreign companies either from a subsidiary or a branch), when it operates in the Dominican Republic for a period of at least six months within a year.

15. What are the main taxes that potentially apply to a tax resident business vehicle (including rates)?

Companies incorporated or tax resident in the Dominican Republic must pay:

·Tax on their worldwide income: 29%.

·Tax on their assets: 1%.

·Tax on complementary retribution for employees: 29%.

·Tax on transfers of industrialised goods and services (Impuesto de Transferencia a los Bienes Industrializados y Servicios) (ITBIS): 16%. This tax is similar to value added tax (VAT) in other jurisdictions.

·Consumption tax on the import and transfer of luxury items at variable rates depending on the item. Luxury items include alcohol, tobacco, jewellery, watches and rugs (section 375, Tax Code).

16. How are the activities of non-tax resident business vehicles taxed?

Non-tax resident companies must pay tax on their Dominican-source income at 29%.

Dividends, interest and IP royalties
17. How are the following taxed:

·Dividends paid to foreign corporate shareholders?

·Dividends received from foreign companies?

·Interest paid to foreign corporate shareholders?

·Intellectual property (IP) royalties paid to foreign corporate shareholders?

Dividends paid
Dividends paid to foreign or local corporate shareholders are subject to a withholding tax at the rate of 29%. The company that withholds the 29% can offset it against its own income tax.

Dividends received
Dividends received from foreign companies are not subject to any tax after the withholding tax at the rate of 29% has been made.

Interest paid
Interest paid to foreign-approved financial institutions is subject to a withholding tax at the rate of 10%. If payments are made abroad to any other non-financial institution, the applicable withholding tax rate is 29%.

IP royalties paid
IP royalties paid to foreign corporate shareholders are treated as coming from a Dominican Republic source and are subject to tax at 29%.

Groups, affiliates and related parties
18. Are there any thin capitalisation rules (restrictions on loans from foreign affiliates)?

There are no restrictions on loans from foreign affiliates.

19. Must the profits of a foreign subsidiary be imputed to a parent company that is tax resident in your jurisdiction (controlled foreign company rules)?

Profits from a foreign subsidiary cannot be imputed to a parent company that is tax resident in the Dominican Republic.

20. Are there any transfer pricing rules?

When goods and services are offered within an economic group, these operations must be performed at market value.

Customs duties
21. How are imports and exports taxed?

Imports of goods are subject to the following taxes:

·Customs duty, which is taxed at variable rates.

·Consumption tax, which is taxed at variable rates (see Question 15).

·ITBIS, which is taxed at 16% (see Question 15).

Exports of goods are not taxed.

Double tax treaties
22. Is there a wide network of double tax treaties?

The Dominican Republic has a double tax treaty with Canada. Additionally, the Dominican Republic recently executed a double taxation treaty with Spain. However, the treaty has not yet been ratified by the National Congress.

Competition
23. Are restrictive agreements and practices regulated by competition law?

All practices, acts and agreements between national or foreign economic agents, either tacit or express, written or verbal, which have the objective, or either produce or may produce the effect, of imposing unjustified barriers in the market are prohibited (Law 42-08 on the Defence of Competition (Competition Law)).

Additionally, conduct which constitutes abuse of a dominant position by national or foreign economic agents in the market and all corporate and commercial acts and behaviour that are contrary to good faith and commercial ethics, and which have as their objective the illegitimate change in consumer demand are prohibited (Competition Law).

Violations of the Competition Law are sanctioned with monetary fines established by the National Commission for the Defence of Competition, without prejudice to civil and criminal penalties available through ordinary proceedings. Individuals found to have participated directly, as accomplices or as abetters of anti-competitive practices, personally or as executives, or acting in representation of legal persons, are sanctioned under the Criminal Procedure Code.

24. Is unilateral (or single-firm) conduct regulated by competition law?

The Constitution of the Dominican Republic prohibits monopolies, except when in favour of the Dominican State. The Competition Law regulates the abuse of a dominant position in the market (see Question 23).

The possession of a dominant position in the market by itself does not constitute a violation. However, there are regulations regarding monopolies in certain industries such as:

·Telecommunications.

·Electricity.

·The monetary and financial sectors.

25. Are mergers and acquisitions subject to merger control?

Mergers and acquisitions are not subject to merger control.

However, all practices, acts and agreements between economic agents which have the objective, or either produce or may produce the effect, of imposing unjustified barriers in a local market as well as the abuse of the dominant position in the market are prohibited (Competition Law).

Intellectual property
26. What are the main IP rights capable of protection?

Patents
Nature of right. For an invention to have patent protection, it must:

·Be novel.

·Involve an inventive step.

·Be capable of industrial application.

Protection. Patents must be registered at the Patent Department of the National Office of Industrial Property to be protected.

Enforcement. Patent rights are enforced through a criminal or civil action before the relevant court. A person who breaches a patent can be subject to imprisonment and fines.

Length of protection. Protection lasts for a non-renewable period of 20 years from the date of filing the application.

Trade marks
Nature of right. A trade mark must be distinctive and must not create confusion regarding the services and products that it represents.

Protection. To be protected, trade marks must be registered at the Trade Mark Department of the National Office of Industrial Property.

Enforcement. Trade mark rights are enforced in the same way as patents (see above, Patents).

Length of protection. Protection lasts for indefinitely renewable ten-year periods.

Registered designs
Nature of right. A registered design must be new, meaning that it has not been disclosed or made accessible to the public anywhere in the world.

Protection. Protection is achieved by the registration at the National Office of Industrial Property, where the right holder will obtain a certificate of registration.

Enforcement. Registered designs are enforced in the same way as patents.

Length of protection. Protection lasts for five years and is renewable for two additional five-year periods.

Copyright
Nature of right. A new musical, artistic, scientific or literary creation can be protected by copyright.

Protection. Copyright arises automatically on the creation of a work and there is no requirement for registration. The work can also be protected by an international treaty, such as the Berne Convention for the Protection of Literary and Artistic Works 1971, to which the Dominican Republic is a signatory.

Enforcement. The right holder can use the civil, criminal or administrative legal process.

Length of protection. The protection lasts the right holder's lifetime and 50 years following the death of the author, when it will pass to his surviving spouse and heirs.

Confidential information
Nature of right. The information must:

·Be able to be used in a productive, industrial or commercial activity.

·Be transmissible to third parties.

·Not be widely known, nor easily accessible to people normally handling such information.

·Have been the subject of reasonable measures to keep it secret by the holder of the information.

Protection. It is protected by mutual agreement.

Enforcement. It is protected through a claim in civil law.

Length of protection. Confidential information is protected for as long as it is concealed or not made public.

Commercial names
Nature of right. The right over a commercial name is acquired with its first commercial use.

Protection. Protection is by registration at the National Office of Industrial Property.

Enforcement. Commercial names are enforced in the same way as patents (see above, Patents).

Length of protection. Protection lasts for ten years and is renewable for further ten-year periods.

Marketing agreements
27. Are marketing agreements regulated?

Agency
The contractual relations between the parties intervening in any agency agreement in the Dominican Republic are regulated by Law 173 of 6 April 1966, on Protection to the Importer Agents of Goods and Products (Law 173), if the contracts are registered in the Legal Department of the Central Bank of the Dominican Republic. Law 173 protects local agents from untimely termination or breach of a contract from its foreign counterpart by providing considerable compensation in these cases. However, Law 173 does not apply to agreements involving a party from the US, unless the contract states otherwise.

Distribution
Distribution agreements are regulated in the same way as agency agreements (see above, Agency).

Franchising
Franchising is regulated by Law No. 20-00. The contract must be in writing and be registered at the National Office of Industrial Property.

E-commerce
28. Are there any laws regulating e-commerce (such as electronic signatures and distance selling)?

The following laws regulate e-commerce:

·The Electronic Commerce, Documents and Digital Signatures Law 126-02 (Electronic Commerce Law), which regulates all commercial relationships, contractual or non-contractual, using data messages or other similar methods and Decree No. 335-03 which enacts the regulations in the Electronic Commerce Law for application.

·General Law of Telecommunications No. 153-98 (May 1998). This law creates and regulates the Dominican Institute of Telecommunications. It is directly related to the Electronic Commerce Law and provides that the Dominican Institute of Telecommunications (Instituto Dominicano de las Telecomunicaciones) (INDOTEL) is the governmental institution in charge of the authorisation and supervision of the certification entities for electronic signatures.

·Rules and regulations set by INDOTEL.

Data protection
29. Are there any data protection laws?

There are no specific data protection laws in the Dominican Republic. However, the Dominican Constitution protects personal data and the right to privacy and establishes the habeas data remedy (allowing any person to request any data held about them on a data register). Additionally, there are isolated provisions regarding protection of data in other laws such as the Tax Code, Monetary and Financial Code, Criminal Code and Credit Bureaus Law, among others.

Product liability
30. Are there any laws regulating product liability and product safety?

Even though the Dominican Republic does not have specific rules on product liability, the General Law No. 358-05 on the Protection of Consumer Rights, regulates suppliers' warranty obligations, liability for the vices and defects in products and establishes a repair obligation, without prejudice to remedies under civil and criminal law. The law also provides for penalties and injunctive relief as well as alternate and extrajudicial conflict resolution to be decided by the Pro-Consumer Direction Board.

For non-consumption items, there are norms issued by the General Management of Rules and Security Systems (Direccion General de Normas y Sistemas de Calidad) (DIGENOR), regarding product safety.