A LEGAL GUIDE TO INVESTING IN THE DOMINICAN REPUBLIC
ECONOMY
The Dominican Republic is categorized as an upper-middle developing country, with a gross domestic product (GDP) per capita, in 2019, of $19,291 PPP (purchas- ing power parity), the fifth highest in Latin America. The size of the economy, the eighth in Latin America and the first in the Caribbean and Central America region, increased tenfold between 1991 and 2019, growing at a rate of 6.3% in the period 2012-2019, the highest high in the Western Hemisphere. Inflation in that interval period remained below 4%, falling, in 2019, to 1.81%.
During the last three decades, the Dominican economy, formerly dependent on the export of agricultural commodities (mainly sugar, cocoa and coffee), has transitioned successfully to a well-diversified mix of services, manufacturing, agriculture, mining, and trade. The service sector accounts for almost 60% of GDP; manufacturing, for 22%. Diversification also prevails within the service sector: none of its three most important components —tourism, telecommunications and finance— represents more than 15% of the total.
The sectors and subsectors that receive most of the foreign direct investment (FDI) in the Dominican Republic are described below. In 2019, FDI to the country reached 3,012.8 million dollars, the highest in Central America and the Caribbean.
TOURISM
With about 1300 kilometers (800 miles) of beaches, the oldest colonial settlement in the Western Hemisphere, and spectacular mountains and landscapes, the Domin- ican Republic is the single most-visited tourist destination in the Caribbean. In 2019, the country received 26% of all tourists visiting the region, hotel capacity grew to more than 90,000 rooms. Tourism revenues now surpass those of Brazil and rank second in Latin America, behind Mexico.
Investment in the tourism industry is broadly diversified across various subsec- tors such as leisure (hotels, vacation homes, cruise ports, spas, etc.), health and ecotourism.
A Receptive Environment for Investors
Over the past three decades, the Dominican Republic has fostered a highly recep- tive environment for international investors, adopting policies that minimize red tape and offering them significant tax incentives. For this reason, the country has become the main recipient of foreign direct investment (FDI) in the region. In 2019, FDI reached 3.1 billion dollars, of which 31.5 came from the United States; 21.2% from Mexico, 13.1% from Spain, and 7.9% from France.
Equal Treatment
The Dominican Constitution accords foreign and local investors equal treatment under the law, stating expressly that foreigners in the Dominican Republic are enti- tled to the same rights as Dominican nationals, except for participating in local polit- ical activities. At the same time, foreign investors are bound by the same rules and regulations applicable to local investors.
Foreign investors can freely hold equity in local businesses and joint ventures, as well as buy real estate in their names.
Legal Framework
Foreign Investment Law 16-95, enacted on November 20, 1995, and its enabling regulations, eliminated all barriers formerly imposed on international investments in the Dominican Republic. Investors contributing capital to companies operat- ing in the Dominican Republic are granted unlimited access to all sectors of the Dominican economy, except to those related to national security and certain sensi- tive industries.
Registration of foreign investments with government authorities is not mandatory. Nor is state approval required for the repatriation abroad, in foreign currency, of the capital invested or the benefits received by investors.
Government Assistance to Foreign Investors
The Center for Exports and Investment of the Dominican Republic (PRO DOMINICANA) is a government institution, created in 2013, with the purpose of promoting exports and facilitating and expediting foreign investment in the country. PRO DOMINICANA assists foreign investors in their business activities in the Dominican
A LEGAL GUIDE TO INVESTING IN THE DOMINICAN REPUBLIC
Republic by providing free advice and information, as well as coordinating their permit applications with various government entities.
The Center also sponsors events to promote the Dominican Republic as an invest- ment destination and to provide information to potential investors on how to plan and implement successful business projects in the country.
Government Guarantees for Foreign Loans
The Dominican government also assists investors by pledging its full faith and credit to loans provided by international agencies for significant infrastructure projects in the Dominican Republic. Foreign investors in large Dominican projects commonly use capital and political/exchange insurance risk facilities provided by the Multilateral Investment Guarantee Agency (MIGA) and the Overseas Private Investment Corpo- ration (OPIC). The Dominican Republic has signed agreements with both entities.
The Multilateral Investment Guarantee Agency (MIGA) is an independent devel- opment cooperation institution created by the World Bank in 1988 to provide, in addition to guarantees to investors against losses caused by political risks, technical assistance to promote investments to developing countries.
The Overseas Private Investment Corporation (OPIC) is an independent federal agency of the United States federal government that helps American companies to compete in emerging markets by providing insurance against political violence, expropriation, and the inability to convert foreign currency.
Incentives to Investments
In a deliberate effort to attract investment capital, the Dominican Republic has set up one of the most wide-ranging systems of incentives for investors. The most important initiatives in this regard are described below.
Incentives to Investors in Free Zones
Under Free Trade Zones Law 8-90, companies operating in free zones function in a nearly free trade environment and benefit from considerable tax exemptions for renewable 15-year periods, such as no income, goods and services, municipal, or export taxes, no import duties nor related charges on raw materials, equipment,
A LEGAL GUIDE TO INVESTING IN THE DOMINICAN REPUBLIC
construction materials, vehicles, office equipment and other goods necessary for the preparation, construction, and operation of the business.
All trade in goods or services from and to a free zone is considered an import or an export, even when the source or destination is another location in the Domin- ican Republic. As a result, goods and services from the free zones sold in the Dominican market are subject to applicable taxes, such as customs duties and goods and services taxes, except (a) textiles, leather goods, and shoes that bene- fit from a special program set up under a special statute (Law 56-07); and (b) trade between different free zones if approved beforehand by the authorities. Further- more, companies in the free zones exporting goods or services to the Dominican market pay a preferential income tax rate of 3.5% on gross sales.
Free zones are regulated and supervised by the National Council for Free Zones, which issues the permits allowing companies to operate within a particular free zone, and enforces all applicable legislation.
Special Incentives for Border Region Free Zones
Under Law 28-01, companies established and operating in free zones within the border region with Haiti are entitled, in addition to the exemptions listed before, to additional benefits such as an extension of the exemption period from 15 to 20 years, government subsidies to lease space in the free zone, and preferential loans with lower interest rates.
Special incentives for International Financial Free Zones
Under Law 480-08, companies in special free zones can offer all types of financial and support services to persons or entities located outside the Dominican Republic without having to pay taxes for a 30-year period.
Partners and shareholders of companies in financial free zones are exempted from paying taxes on the profits or dividends received.
International financial free zones are regulated and supervised by the National Council for International Financial Zones, which issues the permits allowing companies to operate within a particular free zone and enforces all applicable legislation.
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