10 challenges for the new President (PDF)
By Pellerano & Herrera
Our country is facing a very particular situation in which coincide, from one side, the circumstances known by all derived from COVID-19, which is not only local or regional but global; while in the other side, the political transition to the composition of a new congress to which new actors shall be incorporated and moreover, the installation of a new government independently of which may be the outcome of the national elections. Due to the conjunction of such factors, Pellerano & Herrera considered appropriate to share publicly some ideas, which to our understanding, must be taken into consideration by the national leadership, both from the public and the private sectors for the adoption and implementation of a most needed national agenda that includes all of the initiatives with an administrative, legislative, municipal character or of any other nature deemed useful to overcome the challenges caused by Covid-19 to all economic sectors and to the society in general.
It is most advisable that this agenda ends up in a national pact framed in the pursuit of the fair balance between the rights that our Constitution and laws guarantee to each economic and social sectors, may it be by the Dominican State, its decentralized entities, or, the financial, industrial, services sectors, or investors, the tourism sector, free zones, etc., and always keeping in mind the fair treatment of the interests linked to the relations between employers and employees.
Since the manifestation of the first effects of the pandemic, a group of Pellerano & Herrera professionals in several practices, among which you may find, Mariangela Pellerano, Vitelio Mejía, Isabel Andrickson, Caroline Bonó, Carolina León, Alessandra Di Carlo, Joanna Bonelly, Lucy Objío, Félix Fernández, Sheila Oviedo, Yolemny Cruz, Isel Bisonó and Laura Patiño has been working in the identification of the needs and formulation of proposals that may constitute our contribution to said national agenda.
In this first article, we share in summary and in a general manner some of those needs and proposals:
I. Regulation of Teleworking.
Being the social distancing among the remedies for this pandemic, the phenomenon of the
work delocalization, the telework and telecommuting were adopted by all actors of our economy during the national emergency declaration decreed by the Dominican Government, as mechanisms to assure the continuation of the economic activities and the maintenance of the productive network.
However, regardless of several legislative projects introduced in the Chamber of Deputies and that up to date most companies continue operating totally or partially under the umbrella of this modality of work, said figure is not ruled in our legal framework reason why its implementation has been empirical.
Clearly, the pandemic brought with it new game rules and the forthcoming adaptation of the business structure of our country to an unprecedented reality in the labor frame through the implementation of the Communications and Information Technologies (ICT) becoming vital to have a clear and robust legal frame -regardless that the obligations derived from the original employment contract may remain in place- ruling this figure, its conceptual framework, fundamental principles, rights and obligations of the parties, among other relevant aspects.
For its implementation it will be necessary to establish a regulatory framework with respect to important aspects such as definition of work shift which can be differentiated from the vacations period and leaves, determining the workplace, the modality of work, that is to say, whether it will be partial or total teleworking, duration of the teleworking agreement, employees’ digital rights which include, among others, the right to digital disconnection, as well as the fundamental right to intimacy in what concerns the control mechanisms such as geolocation or video surveillance. In that line of argument, it is indispensable to rule the supervision or control mechanisms that any employer could use while guaranteeing the employee’s domicile privacy ,and, at the same time assuring the protection of the confidentiality of the employer’s information in what concerns cybersecurity.
Other sensitive issues that are to be considered in case of enacting a legal frame on teleworking in the Dominican Republic, are: (i) compensation of costs incurred due to the use of this modality of work; (ii) the conditions to assure coverage under social security law of any incident arisen to the employee while working from home; (iii) digitalization of the services provided by the Ministry of Labor mainly, notices, registration of employment contracts, requirements, among others; (iv) the limitations of any Ministry of Labor inspection to safeguard the compliance with workplace obligations with the prior consent of the employee; (v) the tools required by each actor which shall include training on teleworking and on the Information and Communication Technologies (ICT) focused in the most vulnerable sectors and small and medium enterprises (Mipymes by its acronym in Spanish language), issuance of guides and recommendations on cybersecurity and privacy, more access to internet, among others.
The regularization and promotion of teleworking brings with it great advantages, both for the employers and the employees and even for the government, starting from the reduction of costs associated with the operations of the businesses, ability to establish performance management systems based, increase of productivity and retention of qualified personnel. It also promotes the work shift flexibilization, improves the living standards and employees’ satisfaction levels, encourages the social inclusion, environmentally friendly through traffic alleviation being the latter among the constant demands of the society in general.
The challenge in this case is to develop a legal framework which includes all the fundamental aspects for the implementation of teleworking, which at the same time guarantees all the particularities of this figure jointly with the principles of decent work in accordance with the constitutional precepts by means of a process strengthening a change in culture making this modality of work an option in the labor market.
II. Other labor aspects.
Due to the declaration of COVID-19 as pandemic by the World Health Organization and its global economic impact and in a particular manner, in the Dominican Republic allowed us to notice the lack of regulations in certain areas which existence could reduce the uncertainty of businesses in the decision making face to similar events.
Similarly, it becomes necessary to boost the private initiative for employment creation with the purpose to reactivate the economy reason why we have included some recommendations in such topics.
Herein below we present certain legislative proposals for minimizing the social and economic impact of these events:
a) Guarantee of Employment.
Among other fundamental rights found in our Constitution you may find the right to work and the right to social security. Nevertheless, face to this unprecedented circumstances as tht originated by the COVID-19 pandemic, our labor and social security legislation did not allow the employers to guarantee such rights since face to a forthcoming lockdown our Labor Code only provides for the suspension of the effects of the employment contract with its direct consequence of releasing the employer from paying salaries which entails lack of social security coverage being this aggravated due to the fact that the social security law does not provide for any coverage to the employees in circumstances of events of force majeure or due to a situation inherent to the employer, as it does occur when the suspensions originate from employees’ conditions, such as, the subsidy on ordinary illness or maternity subsidy, or temporary disability due to workplace accident of professional illness, among others.
Therefore, it is necessary to introduce amendments to the Labor Code, to the Social Security Law, to the Law on Professional and Technical Training (INFOTEP) as well as to the Emergency law to guarantee income to the employees during periods of suspension of the effects of the employment contracts generated by pandemic, without adding further social charges to the employer.
The mechanisms adopted to implement the Solidarity Aid to the Employee (FASE by its acronym in Spanish language) served to identify that contributions to the Worker’s Compensation insurance could constitute the source of creation of a Guarantee of Employment Insurance, subject to economic and feasibility studies that could define the percentage to be allocated for said purposes.
Said Guarantee of Employment Insurance not only will grant to the employees an income of a non-salary nature during certain scenarios of suspension of the effects of the employment contract but also coverage under the Family Health Insurance of the social security law and even of better use of time during such suspension through virtual training with INFOTEP according to its interest area or the employers’ demands.
To guarantee employment in exceptional situations where the employers and employees agree to a flexibilization of the work shift, any adjustment on the salary could be compensated with said insurance.
b) Law on the Promotion and Encouragement of the First Employment in the Dominican Republic.
The goal of said law is to provide access to unemployed, sub-employed, or informally employed young people to formal and registered employment, meanwhile promoting more opportunities to the labor market through an employment of quality with social protection.
The target population who shall benefit from this legislation ranges from 18 to 25 years old individuals that must fulfill the requirement of a high school degree and not having worked before as an employee.
Employers hiring the target population under this special regime may be entitled to receive a tax credit against Income Tax, or, in the case of micro and small businesses the Dominican State should assume the cost of contributions to the social security corresponding to the salaries paid to said employees.
The Labor Ministry shall act as the guarantor of the rights of said employees for which a Job Bank for First Employment shall be enabled to which the centers for higher education shall provide pertinent information on the target population who are studying at them, and to which employers interested in hiring those individuals shall have access; in addition, said Ministry shall keep the National Registry for the First Employment which shall consist in a database for the access, registration and surveillance of said employment contracts, which duration shall not exceed 1 year, after which period, they shall be considered as employment contract for an indefinite period of time, unless any of the parties terminate the contract before.
c) Unemployment insurance.
The experience regarding the consequences of COVID-19 in the labor relationship as per the restrictions imposed, has evidenced the need that our country adopt a legal frame which object may be to provide temporary economic aid to unemployed individuals whose employment contracts were ruled by the Labor Code, thus, balancing the social obligation of the State and the participation of the employer and the employee in the financing sources of said insurance.
Even though Law No. 87-01 which creates the Dominican Social Security System provides the enactment of said insurance, the same has not been implemented due to the lack of reaching an agreement between the different actors involved, reason why it is necessary to introduce amendments to Law No. 87-01 through clear provisions which collaborate to harmonize the interests of said actors to reach the agreement after 20 years of promulgation of the law; said amendment should define in a clear manner, the object of the insurance, the amounts of the unemployment subsidy, its characteristics, obligations of the unemployed beneficiary and the conditions under which the benefit can be lost, as well as procedural regime on the sanctions for the incompliance with the law.
III. Transitory tax measures for the reactivation of the economy.
The measures proposed for the consideration of the Tax Administration are addressed to provide oxygen to the businesses, to the micro, small and medium enterprises, startups and, to individuals under an employment contract or independent workers during the reactivation of the economy. These measures present opportunities for the generation of new businesses and for the attraction of foreign capital.
Nevertheless, we consider appropriate that the Dominican Government revisit the National Development Strategy particularly in the tax section to widen the base, simplify payment processes, cutting costs and to align the tax system to Covid-19 reality.
a) Recoverable balances from taxes, compensations, and deductions.
Application of recoverable balances from taxes to compensate current tax obligations may it even be an extended time for payment. Request for reimbursement of recoverable balances from taxes without requiring a previous audit, but only an expedite review for the reimbursement to be concluded within 30 calendar days. 100% Corporate Income tax deduction on the donations to non-for-profit entities exclusively related to COVID-19; may it be for only 1 fiscal period or several (not more than 3) depending upon the amount donated. All the costs of the companies related to face the sanitary contingency and protection of the personnel and/or clients vis-à-vis COVID-19, shall be accepted as deductible costs subject to complying with the requirements set forth for such deductibility. Due to material losses that companies shall have during the recession of the economy, they should be able to compensate it in the same fiscal period or in the next 2 periods (waiving the current rule established to profit the losses in a term of 5 years).
b) Elimination or reduction of taxes and retentions.
Directs. Elimination or reduction of the advance payments for the fiscal periods 2020-2022. In case of reduction, to establish biannual advance payment with a reduced base. Elimination of Tax on Assets. Deferral or reduction (by means of a law) of the taxes that could derive from the corporate restructuring (deals, M&A, split, assets transfer). Implementation of an efficient and simple procedure. Temporary suspension of Income Tax on the salaries and reporting a minimum salary to the Social Security Treasury.
Indirects. To establish payment of VAT-like tax (ITBIS by its acronym in Spanish language) quarterly and based on cash effectively collected, for the enterprises not being compelled to finance said payment from their receivables. To set forth a reduced income tax rate of 5% for the tourism industry including restaurants. To implement the application of a reduced ITBIS to streaming, including those non- residents in the Dominican Republic which provide services from abroad, and to increase it until arriving to the 18% tax rate upon reactivation of the economy. Reduction of ITBIS to telecommunications, like the above description pertaining to the streaming.
c) Incentives.
Incentives for companies that manufacture essential products: gloves, masks, clothing for medical teams and patients; any materials or substances required by hospitals and medical centers including the temporary elimination of income tax payment to the gross sales done by free zones to the local market.
To establish tax benefits through enactment of a law for the near shoring and export logistic centers using our excellent geographical location (such as, VAT-like exemption).
Implementation of tax measures for the micro, small and medium enterprises.
Application of tax credit to the tax payer making contributions to said enterprises and to entrepreneurship projects (similar to the credit established in the Law No. 108-10 for the Improvement of the Film Activity in the Dominican Republic).
d) Transfer Price.
Regarding transactions between related parties the tax authorities may allow the amendment of the studies and contracts evidencing the price agreed upon by the parties in transactions between related parties to adapt it to the market reality.
As we mentioned before, this is a summary of our first contribution and we will be referring in detail to this and other proposals in next articles relating to energy, air transportation, sports, as well as concessions and public private alliances.
IV. Reactivation of the tourism sector.
Face to the current circumstances it is most relevant to have a legal frame which defines a structured promotion plan of the Dominican tourism which is a column of our economy from which many other sectors depend upon. In that sense, please note that we will be referring in the next article to several measures that need to be undertaken in this sector.