Focus: Legal

The Set Up

The Set Up

May. 1, 2013

The country's legal system is also an incentive for investment. In recent years, the Dominican economy has been supported by a continuous process of regulatory modernization, which has led to a variety of measures aimed at opening and commercially integrating the economy into international markets. Having recognized that the Dominican market depends on international economic integration, the local government has opted to generate a legal foundation that allows for sustained economic stability and growth, as well as freedom and security in the commercialization of goods and services for the economy's different participants.

Additionally, the Dominican Republic has a widespread, developed, and growing physical infrastructure that has adjusted to the requirements of a country focused on the production and commercialization of goods and services. Dominican roadways are among the best in the region, connecting practically all areas of the country. The country has modern, broad, and efficient airport and port systems formed by eight international airports and 12 significant seaports located close to key production centers. Also, the Dominican Republic's modern telecommunications system is one of the country's main competitive advantages in addition to its experienced and bilingual workforce, and relatively low costs of doing business, which have positioned the Dominican Republic as an attractive destination for international companies.

FOREIGN INVESTMENT CONTINUES TO GROW

From banking, finance, and capital markets, to telecommunications and M&A, the Dominican Republic continues to offer a very attractive foreign investment environment. Growth in industries such as construction, energy, and mining, and hospitality services remains quite strong, along with increasing numbers of general corporate transactions and new business startups.

The Dominican Republic's GDP is forecasted to grow by end-2013, according to the IMF and the Economic Commission for Latin America and the Caribbean.

The country's focus on foreign investment is illustrated by new laws that have been enacted and others that have been amended. In 2010, a law to promote the film industry was enacted. The law created and restructured public institutions involved with the film industry and established a taxation system that has stimulated foreign and domestic investment in the film industry. In 2011, the country also enacted a law aimed at helping the country's mortgage market develop and enhancing the country's housing and construction industries while providing significant opportunities for investors, in addition to boosting the country's efforts to expand its housing stock. In 2012, a fiscal reform was passed aimed at improving the business environment, enhancing competition, and reducing fiscal debt.

INTERNATIONAL COMMERCE & REGIONAL INTEGRATION

International commerce plays an important role in the Dominican economy. The government and private sector have made significant efforts to strengthen this dimension of the Dominican economy, achieving, in general, very positive results. Efforts toward regional integration have culminated in the adoption of bilateral and multilateral agreements with several countries.

The Dominican government has accelerated the process of negotiating bilateral promotion and protection agreements for investment with different nations in terms of FDI based on reciprocity. These negotiations are designed for the legal promotion and protection of investment and the Dominican Republic's economic development.

Among the agreements of this type are those signed with Spain, Ecuador, France, Taiwan, Argentina, Chile, the Swiss Confederation, Morocco, Panama, Finland, the Netherlands, Italy, South Korea, Latin America, the Caribbean, and the US, its main trading partner.

International trade agreements with the US and Central America such as the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) and the Economic Partnership Agreement (EPA) with the EU have benefited the economy of the Dominican Republic, leading to an increasing interest from foreign businesses to invest in the Dominican Republic. Other bilateral and multilateral free trade agreements (FTAs) also boost the Dominican's economy and provide expanding opportunities for foreign investment.

BUSINESS ORGANIZATIONS

The Dominican Republic provides foreigners a variety of corporate vehicles tailored to their needs as companies or individual investors, enabling them to pursue new business opportunities in the country. Dominican law recognizes different types of corporate structures and business forms, and sets forth a general framework that can be used by the parties to regulate everything from an entity's name, capital, transfer of provisions to the administration and supervision of these entities, decision making, and dissolution.

While there are business forms that are based on the identity of the owners, these are rarely used, and investors usually prefer corporate vehicles that limit their liability to the amount of their investment, except in cases of fraud, where distinction would not apply and the piercing of the corporate veil is likely to occur.

The types of corporate vehicles are:

Corporation

Corporations (SA) are entities with a legal existence formed by two or more partners who only assume risk of losses up to their capital contributions. For this reason, it is one of the most popular forms of business organizations.

Simplified Corporation

The Simplified Corporation (SAS) is a limited-liability company formed by two or more partners whose losses, with respect to the company's activities, are limited to their contributions.

Limited-Liability Companies

A Limited-Liability Company (SRL) is the entity formed by a minimum of two and a maximum of 50 partners, none of whom may have personal responsibility for company debts. This form of commercial organization is used for medium-sized businesses and closed-capital entities.

Individual Enterprise of Limited Liability (EIRL)

An EIRL is a company of limited liability that belongs to one person who has the legal ability to exercise rights and obligations, and that forms an independent and separate entity from the rest of the assets of the person who owns the EIRL. Legal entities may not incorporate or purchase companies of this type.

Foreign Entities

Dominican law recognizes the legal existence of companies incorporated abroad, upon confirmation of their legal existence by the appropriate authority. Dominican law stipulates that foreign companies' legal existence, capacity, and dissolution are governed by the law in effect in the place of their incorporation, and their operations and activities in the Dominican Republic are subject to Dominican law.

Foreign companies that wish to establish a branch or permanent establishment in the Dominican Republic, or that are conducting commercial transactions on a regular basis in the country, must be registered in the Mercantile Registry and also must obtain National Taxpayers Registration from the Dominican Tax Authority.

ARBITRATION

Persons or enterprises may opt to resolve their commercial conflicts outside the judicial courts, submitting their claims to conciliation, or local or international arbitration. This is possible when the litigation does not refer to public order laws, in which case the court is the mandatory venue.

In October 2001, the Dominican Republic became a member of the Convention on the Recognition and Enforcement of Foreign Arbitral Decrees (the New York Convention). It is also party to the Inter-American Convention on International Commercial Arbitration (the Panama Convention). Hence, the execution of foreign arbitral decrees must be ordered by a local court, based on the provisions of international conventions and local laws on the matter.

MODERNIZATION OF THE LEGAL SYSTEM

In order to promote the flow of foreign capital into the country, adapt the economy to international competition, and facilitate regional competition, substantial changes have been introduced to the legal system, while others remain in the pipeline and are close to approval.

Among the changes already passed are the following:

•Amendment to the Constitution, which focused on strengthening institutions, promoting social cohesion, and improving environmental protection;

•The enactment of the Law on Corporations and Individual Enterprises;

•Tax reform aimed at improving the business environment and reducing fiscal debt as per IMF requirements; and

•The entering into force of the Law of Competition and Consumer Protection.

As for changes to come, amendments to the Monetary and Financial Code, the Securities Law, and Social Security Law are pending approval. Also in the pipeline is an amendment to the Civil Code, which dates back to the Haitian occupation and the country's Napoleonic heritage; a new law on Bankruptcy and Debt Restructuring is also in the works, although it expired on the floor and would have to be re-introduced again.

This decade promises to bring substantial changes to the legal framework of the Dominican Republic.

CONFIDENCE IN THE DOMINICAN REPUBLIC

With the Dominican Republic's government continuing to examine the nation's laws and regulations, the country will certainly remain a leading destination for corporations from around the world to engage in a wide variety of business and financial transactions.

The range of business transactions that have recently taken place in the Dominican Republic is striking and illustrates the strength of the country's economy and the confidence that institutions and investors across the globe have in the Dominican Republic.

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