U.S. companies and investors seeking opportunities abroad often read articles about a specific law or regulation in a particular country that explain how that law or regulation can protect a corporation’s property or workers. That kind of information certainly can be crucial for a business executive to receive while he or she is in the process of evaluating a destination where it might be advantageous to move some or all of a company’s operations, or in which it might expand.
Indeed, many times over the years in articles in this very publication, my firm has highlighted a particular statute or legal development and explained its significance to U.S. corporations and their senior business people.
For instance, among other things, our recent articles here have discussed a new regulation that simplified the Dominican stock market and securitization processes in the country, that explored the Dominican Republic’s recent adoption of a law to promote and encourage the film industry, and that reviewed new rules expanding the Dominican Republic’s transfer pricing program so that it now applies to a much larger group of foreign companies doing business in the Dominican Republic than it did previously.
All of these articles were intended to, and, we believe, actually did, provide valuable information to readers. In this article, however, we are going to do something a little different. This article will explore a variety of Dominican laws and regulations, some that have been around for a while and some that are relatively new, that all help to demonstrate one fact: that the Dominican Republic, its government, and its people all welcome U.S. businesses and investors and offer a broad range of incentives and a business environment that is intended to encourage American companies to begin doing business in the Dominican Republic or to expand their existing operations in the country.
Consider, for example, the Dominican law on tourism development, which formally is known as Law No. 158-01. This law establishes a foundation for the development and construction of projects ranging from hotels and resorts to amusement parks and harbors. It creates incentives for utility companies to develop in specific areas in the Dominican considered to be favorable for the development of tourist facilities.
The law provides a number of tax incentives. For instance, qualifying developers are completely exempt from paying the following taxes:
In addition, financings provided to entities qualifying for these incentives are exempt from all taxes and withholding, and individuals and businesses involved in tourist projects may deduct up to 20 percent of their annual profits when calculating their taxable income.
The law also provides a tax exemption in connection with machinery and equipment needed for products including kilns, incubators, production control treatment plants, and laboratories used when a tourism project is established.
For quite some time, the Dominican Republic has actively supported the creation and expansion of free trade zones. Law No. 8-90, on the Promotion of Free Trade Zones, aims to foster the establishment of new free trade zones as well as the development of pre-existing zones – and it has been quite successful. Consider the scope of incentives set forth by this law:
Yet another law, Law 28-01, creates a Special Zone of Frontier Development for the Dominican provinces of Pedernales, Independencia, Elias Piña, Dajabón, Montecristi, Santiago Rodriguez, and Bahoruco. The governing regulatory body for purposes of this law is the Council of Coordination of Border Development Special Zone.
The incentives under this law are varied and have been very well received. Entities that install and conduct their operations in these provinces enjoy a 100 percent exemption from income tax and ITBIS, import duties and taxes, and other tariffs on raw materials, equipment, machinery, and fuels (subject to the requirement that there be a substantial transformation in the Dominican Republic so that the aggregate final product resulting from the transformation corresponds to a different customs heading than that of the imported raw material). They also are entitled to an exemption of 50 percent of transportation costs and the costs of using the country’s ports and airports (for a term of 20 years).
Similarly, they are entitled to a reduction of 50 percent of any other tax, fee, or contribution in effect at the time or enacted in the future, for a period of 20 years.
Finally, it is important to highlight Law No. 42-08, on the Defense of Competition. The primary objective of this law is to promote and defend the competitiveness of all industries to increase the economic efficiency of all markets for goods and services in the Dominican – something of crucial importance to all businesses in the Dominican Republic, domestic and foreign.
This law recognizes, as a constitutional right, the right of free enterprise, compatible with economic efficiency and commercial good faith. Thus, the law prohibits all actions, agreements, and arrangements among competitors, express or implied, verbal or written, that have the object or effect of imposing unjustified barriers in the market. In particular, it prohibits, among other things, agreements to do the following:
In addition, the law prohibits activities that constitute an abuse of a dominant economic position in a relevant market that may create unjustified barriers against third parties. The following activities are among those considered to be an abuse of a dominant position prohibited by the law:
The law also bans unfair competition, including specified deceptive and confusing practices. It is enforced by the National Commission on the Defense of Competition. Businesses – domestic and foreign – that believe that they have been harmed by any prohibited practice may go to court, seeking an order requiring that the prohibited conduct be stopped and rectifying false or deceitful information. They also may seek damages. In addition, the law provides for the imposition by the Commission of civil and criminal penalties.
The message of this law is clear: The Dominican government is intent on ensuring fair competition by all.
The Dominican Republic has put up a “Welcome” sign for American companies and businesses from other countries and, as explained here, that sign is more than just a word. The Dominican Republic, through a host of acts, clearly welcomes foreign businesses to its shores. The country’s leaders recognize the benefit of foreign investment to Dominicans, as well as the benefits that foreign businesses obtain from operating in the Dominican Republic. It is a win-win for everyone.
Ricardo A. Pellerano, the Managing Partner of the Dominican Republic law firm of Pellerano & Herrera (www.phlaw.com), is Head of the firm’s Financial Services Department resident in the firm’s office in Santo Domingo.