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Real Estate 2020 – Dominican Republic – Chambers Global Practice Guide

By:  Alfredo Guzmán Saladín, Fabio Guzmán Ariza, Julio Brea Guzmán

1. General

 1.1 Main Sources of Law

Since gaining its independence in 1844, the Dominican Republic had a legal system based on French law, specifically on the Napoleonic Code; however, since the first half of the 20th century, there has been a move away from the French model, with the adoption of many statutes and codes inspired by other legal systems, such as the Land Registry Law of 1920, based on the Australian Torrens system. In the real estate area, the authors can mention as a key source Real Estate Registration Law No 108-05 (2015), as well as the resolutions issued by the Judicial Branch’s Council.

The Constitution of the Dominican Republic lays out the fundamental framework for the organisation and operation of the Dominican government and its institutions, and recognises an impressive list of civil rights for all individuals, Dominicans and non-Dominicans, including an equal protection clause for non-Dominican citizens and investors. Article 25 of the Constitution expressly states that foreign nationals are entitled to the same rights and duties in the Dominican Republic as Dominican nationals, except, understandably, for the right to take part in political activities. Article 221 of the Constitution sets forth that the government will ensure equal treatment under the law for local and foreign investments.

Individuals and entities, domestic and foreign, have a quick and inexpensive remedy for the protection of their constitutionally protected rights: the writ of amparo, which is granted by all courts and is subject to an appeal to the Constitutional Court.

Cases in Dominican courts are decided by judges, not by juries. Judges rule based on the texts of the Constitution and existing statutes, the precedents of the Constitutional Court (which are binding), and the precedents of other courts (which are not binding). They do not rule in equity, as in some common law countries, but the principle of good faith is recognised by statutory law and grants the courts some discretion. Punitive damages are not awarded in injury cases – just compensatory damages.

Regarding evidence, parole evidence is admissible in criminal, labour and commercial matters, and, under certain circumstances, in civil and real estate matters.

Finally, real estate laws are national in scope and application.

 1.2 Main Market Trends and Deals

The main trends in the real estate market in the Dominican Republic continue to be the development of important projects in the tourism sector, as well as new projects for the cruise sector after the success story of Amber Cove project in Puerto Plata. Many well-known international developers have started projects, some of which are already operational, in the areas of Punta Cana, Bani, Miches, Puerta Plata, Santo Domingo and the southwest provinces of Pedernales, Barahona and Peravia – Bani.

Of note in the last 12 months can be mentioned Club Med’s Miches Playa Esmeralda hotel, a five-star, 400-room hotel just built in a 93 acres beachfront property in Miches, Dominican Republic, the first major hospitality venture in the Miches area, destined to become the next Punta Cana in terms of tourism development in the Dominican Republic. The firm assisted Club Med in both the acquisition, permits and tax exemption matters under the country’s Tourism Incentive Tax Law (CONFOTUR).

 1.3 Impact of Disruptive Technologies

Tech adoption in commercial real estate, although increasing, is still slow compared to other industries.

At this point in time it is very difficult to navigate the many technological offerings available and in development for real estate professionals without a clear idea on how these tools will affect the business. As trends begin to emerge on how companies are using these technologies and the competitive advantage they provide, adoption rates will increase at a faster rate.

So far, the biggest adoption has been on data analytics and streamlining workflows to work more efficiently, propelled by international franchises operating in the country, and it is obvious that they will be a big influence on what technology is adopted and how fast. The outlook is that in the next 10 to 12 years the industry will look very different from what it does today.

 1.4 Proposals for Reform

On the legislative front, the much-anticipated new statute on Real Estate Evictions, Law 396-2019, has been in force since October 2019. This new law regulates a formerly relaxed practice in real estate evictions and at the same time brings added security to the protection of real estate rights against unlawful eviction processes.

 2. Sale and Purchase

 2.1 Categories of Property Rights

Dominican real estate law recognises the following interests in real estate: absolute ownership, usufruct, easements, betterments, leases, condominium regimes, and privileges and mortgages. It does not recognise co-operative ownership arrangements or other occupancy interests.

 2.2 Laws Applicable to Transfer of Title

Registration rules are established by the General Director of the Registries of Title and are applicable nationwide. The Dominican Civil Code states that buyers pay all the fees, expenses and taxes required for conveyances, unless agreed otherwise by the parties.

The legal requirements for recording conveyances are the following:

  • a deed of sale (sales contract), authenticated by a Dominican notary;
  • a certificate of title issued to the seller by the Registry of Title;
  • a certification showing that the seller is up to date with its property taxes;
  • a receipt attesting to the payment of the real estate transfer taxes;
  • a copy of the ID card or passport of the parties, or tax card if a legal entity; and
  • non-resident foreigners need to provide an additional ID document from their country of origin in addition to their passports.

 2.3 Effecting Lawful and Proper Transfer of Title

The legal requirements for recording conveyances are the following:

  • a deed of sale (sales contract), authenticated by a Dominican notary;
  • a certificate of title, issued to the owner by the Registry of Title – a completely different document from the deed of sale, which serves as the only proof of ownership;
  • a certification showing that the seller is up to date with its property taxes;
  • a receipt attesting to the payment of the real estate transfer taxes (currently 3% of the government-appraised value of the property); the buyer is exempt from this tax in some cases (eg, first purchases in certain tourism projects and low-cost housing acquired with a bank loan);
  • a copy of the identity card or passport of the parties, or tax card if a legal entity (non-resident foreigners need to provide an additional identity card from their country of origin in addition to their passports); and
  • a copy of evidence of purchase price or mortgage payment through a non-cash method, for operations involving more than DOP1 million.

 2.4 Real Estate Due Diligence

The typical real estate due diligence overseen by the buyer’s attorney regarding title consists of the following:

  • obtaining a certification from the Registry of Title stating the legal status of the property;
  • obtaining a certified report from an independent surveyor confirming that the official survey coincides with the property and that there are no overlapping surveys;
  • obtaining a certificate from the internal revenue stating that the property tax, if any, has been paid;
  • confirming that the property to be purchased may be used for the purposes sought by the buyer; and
  • due diligence at the local real estate, civil and labour courts to ascertain any liabilities in those fronts.

 2.5 Typical Representations and Warranties

Warranties typically specify that:

  • the property is registered to the seller and is of the dimensions mentioned on the title;
  • there are no overlapping parcels;
  • there are no liens, mortgages, or third-party registered rights;
  • the conveyance will not be affected by any tax liabilities;
  • the seller will have to provide any documentation and sign any additional set of documents required for the final conveyance of the title to take place; and
  • all liabilities, including utility bills and contractors’ fees, are paid up to the date of closing.

The warranties are provided both in relation to the property and to the shares of the holding entity being purchased, if that is the case.

 2.6 Important Areas of Law for Investors

In the Dominican Republic, before buying real estate, investors must consider tax law, real estate law, environmental legislation and administrative law for licences, planning and the registration of the title of ownership.

 2.7 Soil Pollution or Environmental Contamination

Issues of environmental clean-ups in real estate transactions are still very rare in the Dominican Republic. So far, this has been a problem only in the mining sector. Therefore, there are no general covenants in use. Of course, the parties to a contract are free to insert mutually agreed terms regarding long-term environmental liability and indemnity issues.

 2.8 Permitted Uses of Real Estate Under Zoning or Planning Law

All planning and land use matters are handled by municipalities, the Ministry of Tourism (in tourist areas) and the Ministry of Environment. The municipalities and the Ministry of Tourism establish the general rules regarding use (residential, commercial, industrial, mixed, density, maximum height, etc).

 2.9 Condemnation, Expropriation or Compulsory Purchase

The Constitution and Law 344 of 1943 establish the legal regime for the government’s compulsory purchase or condemnation of real estate.

The Dominican Constitution states: “No person shall be deprived of his or her property, except on justified grounds of public utility or social interest, for which a person shall be paid a fair value before expropriation, as determined by the mutual consent of the parties or by the judgment of a court of competent jurisdiction, pursuant to the law. In case of the declaration of a State of Emergency or Defence, compensation may not be paid before the expropriation.”

Law 344 establishes the specific procedure that the government must follow in any case of expropriation. Because the provisions of this law are of public order, allocations cannot be modified by contractual arrangements between the parties.

 2.10 Taxes Applicable to a Transaction

A conveyance tax must be paid before registering the purchase of real estate. The conveyance tax amounts to 3% of the price of sale or the market value of the property as determined by the tax authorities, whichever is higher.

Also, a 1% annual tax is assessed on real estate properties owned by individuals, based on the cumulative value of all the properties they own as appraised by government authorities. Properties are valued without taking into consideration any furniture or equipment in them. In 2020, for built lots, the 1% is calculated only for values exceeding DOP7,710,158.20. The amount of the exemption is adjusted annually for inflation.

For unbuilt lots, the 1% tax is calculated on the actual appraised value without the exemption. The real estate tax is payable every year on or before March 11th, or in two equal instalments: 50% on or before March 11th, and the remaining 50% on or before September 11th.

The following properties are exempt from paying real estate taxes:

  • properties valued below DOP7,710,158.20;
  • properties in rural areas destined for farming and agribusiness;
  • homes whose owners are 65 years old or older, and have no other properties to their name;
  • properties registered under Law No 158-01 on Tourism Promotion, belonging to first-time buyers (Individuals);
  • the low-income housing and public offering trusts; and
  • properties owned by companies, which pay a separate 1% tax on company assets.

 2.11 Legal Restrictions on Foreign Investors

There are no restrictions on foreign individuals or entities owning or leasing real estate in the Dominican Republic.

The process for purchasing or leasing real estate for foreigners is exactly the same as for Dominicans; there are no national defence or security limitations. Foreign individuals and entities, and Dominicans, must register locally with the tax authorities before registering purchases of real estate. Individuals must submit their application directly at the Internal Revenue office, while entities must first register at the Chamber of Commerce and obtain a mercantile registry certificate, before applying for their tax number. These are mere formal requirements that can be easily fulfilled.

 3. Real Estate Finance

 3.1 Financing Acquisitions of Commercial Real Estate

In general, Dominican law does not distinguish between commercial and residential properties; the same rules apply for both. However, regarding ownership, properties held by commercial entities are taxed differently from those owned by individuals.

Financing sources are mixed, depending on the type of investment. For example, major infrastructure financing is obtained through foreign banks and institutions, while real estate developments in the tourism sector have been more dependent on local banks, most of which have entire departments catering to the real estate-tourism industry.

Large real estate transactions are acquired through syndicated loans and low-income housing projects developed through Trust Law No 189-11 are being financed by the local banks through their recently created fiduciary entities.

There are major financial institutions, publicly traded funds and private investors with interests in the country, as it is the largest recipient of foreign direct investment (FDI) in the region.

 3.2 Typical Security Created by Commercial Investors

Mortgages (financing from third parties) and privileges (seller’s financing) are the customary security interests. Both grant the lender a registered right on the property (collateral) that can be enforced in the event of default through a foreclosure process. Holders of mortgages and privileges must go through a court-supervised foreclosure procedure to execute the mortgage. Automatic defeasible conveyances in the event of default are illegal. Dominican trust law offers the possibility of setting up real estate security trusts.

 3.3 Restrictions on Granting Security over Real Estate to Foreign Lenders

A foreign lender does not need specific authorisation to do business in the Dominican Republic. To register a mortgage in its favour, the foreign lender should obtain a local tax number. Once this tax number has been obtained, the lender is no longer subject to the general withholding taxes established for payments sent abroad (28% in general, or 10% for interest paid to foreign financial institutions). The lender will be taxed as a permanent establishment, under the same conditions as a Dominican entity.

Regarding required documents and registration taxes, the same rules that apply for local lenders apply to foreign lenders.

Mortgages and underlying credits can be transferred without paying additional taxes.

 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security

The Civil Code states that buyers pay all the fees, expenses and taxes required for conveyances unless agreed otherwise by the parties. Each party covers their own attorney’s fees.

 3.5 Legal Requirements Before an Entity Can Give Valid Security

There are no mandatory legal rules or requirements that must be complied with before an entity can give valid security over its real estate assets, except for those imposed on financial entities by the Financial and Monetary Code.

 3.6 Formalities When a Borrower Is in Default

If the borrower is a company, joint solidarity of its shareholders is included as a provision of the contract and they are also required to sign the promissory note in that same capacity.

Additional credit enhancements can be added on separate standalone contracts depending on each type of asset, in the form of pledges against movable assets, such as deposits, a property’s movable assets, motor vehicles, receivables, machinery, inventory and others.

In the event of default, creditors have to file a foreclosure lawsuit before the competent Civil and Commercial Court in order to execute its security against the defaulting debtor. There are only two possible outcomes: (i) the property given as collateral is sold at the foreclosure process’ public action to the highest bidder, or (ii) if there are no bidders at the public auction hearing, the property is automatically adjudicated to the creditor. A 3% real estate title transfer tax is payable in order to convey ownership at the Registrar of Titles after the Court has issued its adjudication ruling.

 3.7 Subordinating Existing Debt to Newly Created Debt

Banks usually require a first-rank mortgage and will not accept subordination to an existing collateralised debt. Most credit agreements forbid the debtor from entering into additional agreements without express authorisation from the lender; if they do, the new debt will be registered as a second-rank mortgage with second priority after the initial registered lender.

 3.8 Lenders’ Liability Under Environmental Laws

There is no lender’s liability in the Dominican Republic with respect to environmental laws.

 3.9 Effects of Borrower Becoming Insolvent

During the insolvency process, guarantees are respected and payment of interest or execution of any guarantees remains suspended during the insolvency period.

 3.10 Consequences of LIBOR Index Expiry

So far, LIBOR uncertainty has created no noticeable change in the pricing dynamics of real estate properties. In addition, it could be an even smaller issue for commercial real estate compared to other types of credit, given the prevalence of fixed-rate funding.

The authors trust that regulators and policymakers are working to make sure that the transition towards a new base rate for valuing floating rate debt is as seamless as possible.

 4. Planning and Zoning

 4.1 Legislative and Government Controls Applicable to Strategic Planning and Zoning

The main law governing zoning in the country is Law 975/44, dated 29 June 1944, regarding urbanisation and public adornment.

Furthermore, Law 64-00, dated 25 July 2000, the General Environmental and Natural Resources Law, also sets forth a series of provisions regarding zoning in determined regions of the national territory, and also includes a series of limitations with regard to the use of lands declared as national parks, as well as protected areas.

 4.2 Legislative and Government Controls Applicable to Design, Appearance and Method of Construction

In the Dominican Republic, methods of construction are regulated primarily by the Ministry of Public Works and the Ministry of the Environment & Natural Resources, as they must comply with environmental regulations and construction must not harm the environment.

Exceptions apply in some areas designated as protected spaces, such as the Colonial Zone, where design, construction and appearance must be pre-approved by the Ministry of Tourism.

 4.3 Regulatory Authorities

Land use is controlled by the corresponding city councils or municipal hall, which varies depending on where the real estate property is located.

Environmental regulation is controlled by the Dominican Ministry of the Environment and Natural Resources.

In the tourism sector, building use must be authorised by the Ministry of Tourism.

 4.4 Obtaining Entitlements to Develop a New Project

In order to develop a new project, approval and permits must be obtained from the following governmental agencies.

  • City hall – land use clearance is locally processed. At the same time the plans are submitted to the local city hall for evaluation and clearance, an environmental authorisation is submitted.
  • Ministry of Environment & Natural Resources – the environmental impact of the project is evaluated. This process includes a public hearing, allowing for third parties to participate and object to the request.
  • Ministry of Tourism – for projects being developed in tourism areas, the requests and documentations are submitted to the Ministry’s Department of planning for evaluation.
  • National Water System – is in charge of evaluation and approval of the hydraulic and sanitary design plans.
  • Ministry of Public Works – once the plans are approved by the previous entities, the Ministry of Public Works issues a building permit.

 4.5 Right of Appeal Against an Authority’s Decision

If the application for permission or authorisation has been denied by any of the institutions involved in the process, the applicant has the right to appeal to the same institution where it was denied. If the reconsideration is again denied, an administrative appeal should be submitted to the immediately superior government authority.

The applicant can also have the case evaluated directly by an Administrative Court judge by submitting its claim to the administrative court, bypassing the hierarchical appeal previously mentioned.

 4.6 Agreements with Local or Government Authorities

Agreements are usually signed with the corresponding city council so that the taxes collected from the developer are used for social improvement projects. Optional agreements can also be arranged with the Ministry of Environment & Natural Resources, by signing an Environmental Management Plan, which is compulsory for projects developed in protected areas.

Large developments in the infrastructure industry can now enter into development agreements with the government through the recently enacted Public Private Partnerships Law No 47-20 (20 February 2020).

 4.7 Enforcement of Restrictions on Development and Designated Use

Restrictions are enforced on development and designated use by employing sanctions designated by the state. These sanctions include fines and penalties, closing of operations, and/or removal of licences and permissions. New regulations on environmental licences and permissions include provisions on prison sentences for violations. The government also uses tax regulations to enforce restrictions.

 5. Investment Vehicles

 5.1 Types of Entities Available to Investors to Hold Real Estate Assets

The most common entity used by foreign real estate investors in the Dominican Republic is a local individually owned enterprise, or LLC. Some, preoccupied by the complexities of reporting a foreign entity to the tax authorities in their home jurisdiction, prefer to register their domestic entity in the Dominican Republic.

There are no restrictions regarding the structure or legal form of foreign investment in real estate. If it is duly incorporated and recognised in the jurisdiction where it was formed, entities can do business in the Dominican Republic upon registration at the Chamber of Commerce and Internal Revenue.

As for Dominican entities, Dominican company law allows different types of commercial companies (LLCs) and corporations (regular or simplified stock corporations), all of which provide limited liability for their owners or shareholders. There are other investment entities recognised under the law – such as business partnerships, limited partnerships and per share limited partnerships – but they are seldom used because they do not offer full liability shields to their members, and are subject to the same tax treatment as the other entities. In 2011, Law 189-11 introduced local fiduciary vehicles as a holding option.

Dominican law does not recognise the concept of pass-through entities. Any entity, local or foreign, is subject to the same tax (27%), regardless of its legal structure. There are two exceptions: (i) entities that have obtained exemptions under Tourism Incentive Law 158-01 and (ii) closed-end real estate investment funds approved by the Dominican Republic Security and Exchange Superintendence.

 5.2 Main Features of the Constitution of Each Type of Entity

LLCs must have no fewer than two shareholders and no more than fifty. To form an LLC, with no minimum capital of DOP100,000 is required, which must be paid in full, and divided into shares with a par value of at least DOP100 each. Shares in an LLC are non-negotiable by default. Share transfers to third parties who are not current shareholders must be approved by 75% of the votes of the company, except in certain cases, and if the transfer is rejected, the shares in question must be purchased or redeemed by the other shareholders or the company.

Management of an LLC is in the hands of one or several managers or a board of managers. Managers must be natural persons, not other companies. Unless otherwise stipulated in the by-laws, no inspection officer is required to oversee management.

 5.3 Minimum Capital Requirement

To form an LLC, a minimum capital of DOP100,000 is required, which must be paid in full, and divided into shares with a par value of at least DOP100 each.

 5.4 Applicable Governance Requirements

LLCs are governed by the provisions of their by-laws. The authority over day-to-day activities falls on the managers or board of directors and shareholders are the maximum authority regarding issues relating to the dissolution process, modification of by-laws, sales of the company’s assets, and transformation of the company, among others.

Corporations incorporated with the purpose of acquiring or acting as holding companies for real estate properties are not required to obtain licences, authorisations or government permits.

 5.5 Annual Entity Maintenance and Accounting Compliance

All foreign and local entities are taxed equally regardless of structure: a flat 27% on net corporate profits and 10% tax on dividends or profits sent abroad.

The Dominican Tax Code has a general anti-tax avoidance provision (“substance over form” principle) and specific rules for the sale of shares of foreign entities that own assets in the Dominican Republic.

All companies registered in the Dominican Republic, regardless of whether they are local or foreign entities, including those with no income or operations, must file income tax returns with the Dominican Republic’s Tax Office every year. Aside from the penalties on overdue taxes, entities that do not comply with the filings and subsequent payments of both income and asset taxes run the risk of having the Tax Office begin a lien registration process against the entity’s properties.

 6. Commercial Leases

 6.1 Types of Arrangements Allowing the Use of Real Estate for a Limited Period of Time

Leases are the most common arrangements that the Dominican law recognises for a person, company or other organisation to occupy and use real estate for a limited period of time without buying it outright.

 6.2 Types of Commercial Leases

Dominican Law only contemplates leases in general terms.

 6.3 Regulation of Rents or Lease Terms

Rents or lease terms are freely negotiable for the most part as general contract law applies to them. Provisions are, however, limited by various statutes that protect tenants. For example, if there is no escalating clause for rent in the lease, the landlord cannot raise it unilaterally without undertaking a lengthy administrative procedure. Also, evictions cannot happen unless a judicial eviction process is undertaken, regardless of what has been contractually agreed. Key lease provisions include:

  • lease term;
  • tacit renewal clauses;
  • ownership of betterments made by the tenant during the lease;
  • default clauses and waiver of certain tenant-friendly statutory provisions not of public order;
  • clear distinction between minor and major repairs and which party will be responsible for covering these; and
  • specific use of the property during the lease term (type of business or family residency).

 6.4 Typical Terms of a Lease

There is no typical lease term or restrictions on such a term. Tenants of business premises do not have security of occupation or rights to renew the lease.

The law clearly assigns minor maintenance repairs to tenants, while major structural repairs are covered by landlords; all of which can be modified contractually between the parties.

The rent is commonly paid monthly; however, the parties are free to agree otherwise.

 6.5 Rent Variation

Leases commonly provide for periodic rent increases.

 6.6 Determination of New Rent

There is no legal rent level protection. Rent can be increased as long as it has been agreed contractually, otherwise it is not permitted.

 6.7 Payment of VAT

Rent payments to individuals but not to companies are subject to a 10% withholding at source. All rents are subject to 18% VAT.

 6.8 Costs Payable by Tenant at Start of Lease

At the start of the lease agreement, the tenant usually pays an amount equivalent to two months’ rent as a security deposit to guarantee the fulfilment of its obligations. This amount is to be returned by the landlord once the property is received at the end or termination of the lease. The landlord has the obligation to deposit this money, with a copy of the lease agreement and other documentation at the Agricultural Bank. Legal fees and other applicable fees are usually paid by each party.

 6.9 Payment of Maintenance and Repair of Communal Areas

The expenses of maintenance and repairs of common areas, especially in commercial buildings and shopping centres, are paid by each of the tenants and are usually established as part of the agreed rent.

For residential spaces, the costs arising from common areas maintenance are covered by each tenant, by payment of a maintenance fee, usually on a monthly basis, either to the building administrator or to the landlord, if agreed as part of the rent.

 6.10 Payment of Utilities and Telecommunications

Utilities such as electricity, cable TV, water and telecommunications are solely covered by the tenant. Expenses related to common areas of a condominium are usually covered proportionally and distributed between tenants as part of the monthly maintenance fee.

 6.11 Insuring the Real Estate that is Subject to the Lease

There is no legal obligation to obtain insurance for real estate subject to lease; this will depend on the terms and conditions agreed between the parties. Rental insurance is not commonly used.

 6.12 Restrictions on Use of Real Estate

The parties can agree on the uses of the rented property. There is no regulation and/or law that imposes further restrictions. On occasions, municipal regulations can restrict the use of real estate property for exclusively housing purposes, depending on the zone in which the property is located.

 6.13 Tenant’s Ability to Alter and Improve Real Estate

Lease contracts usually include provisions allowing tenants to waive their rights to claim any ownership to property improvements (betterments) and that they will all remain attached to the property and their ownership transferred to the landlord on termination of the lease.

 6.14 Specific Regulations

In general, Dominican law does not distinguish between commercial and residential properties; the same rules apply for both. However, properties held by commercial entities are taxed differently from those owned by individuals.

Leases to entities are subject to value-added tax and leases for residential purposes are subject to a 10% withholding tax that is credited toward the landlord’s annual income tax.

 6.15 Effect of Tenant’s Insolvency

Insolvency can be included as a default clause allowing the landlord to terminate the lease. This said, under Law 141-15, if the tenants initiate an insolvency process, they cannot be evicted from the property during the process, nor can the property suffer any type of seizure. The owner is then assigned by a judge a position in the range of creditors.

 6.16 Forms of Security to Protect Against Failure of Tenant to Meet Obligations

The most common form of security the landlord holds against the tenant in the event of failure to meet its obligations is the deposit made by the tenant in advance of the commencement of the lease. The provision of a third-party guarantor can also be agreed between the parties, and/or that failure to comply with any of the obligations agreed upon shall result in the termination of the agreement.

 6.17 Right to Occupy After Termination or Expiry of a Lease

Upon termination of the lease agreement, the tenant should leave the property and return it to the landlord in the same condition as it was originally received. If the tenant does not vacate the property upon expiry, and the landlord does not object to the tenant’s occupancy and continues to receive the rent payment without complaint, the lease agreement is considered effectively renewed but as an oral lease, not a written one, to which different rules apply in terms of eviction prior notice.

 6.18 Right to Assign Leasehold Interest

Most leases provide that any subletting or assignment is subject to obtaining the landlord’s prior consent. Landlords do not have to provide a reason for an assignment or a sublease. Where there is a legal reorganisation or transfer/sale of the tenant, there are no effects as long as the tenant remains the same legal entity.

 6.19 Right to Terminate Lease

The circumstances in which leases are usually terminated by the landlord and/or the tenant are:

  • reaching of the term of the agreement without renewal;
  • by the initiation of an eviction proceeding by the landowner in the event that the tenant fails to comply with payment obligations;
  • mutual consent among the parties;
  • the destruction of the leased property;
  • in the event the tenant uses the property for a different function than agreed upon in the lease agreement, and only in the event that such situation negatively affects the landowner;
  • in the event that the tenant subleases the property in whole or part if the lease agreement expressly prohibited sub­leasing;
  • if the tenant performs modifications to the property; and
  • renewal or extension of the lease period must be mutually agreed upon by the parties.

Usually, termination terms provide that the non-compliant party is forced to pay a penalty for the early termination. Furthermore, compensation for termination must be contractually agreed upon by the parties.

 6.20 Registration Requirements

At the start of the lease agreement, the tenant usually pays an amount equivalent to two months’ rent as a deposit to guarantee the fulfilment of its obligations. This amount is to be returned by the landlord once the property is received at the end or termination of the lease. The landlord has the obligation to deposit this money, with a copy of the lease agreement and other documentation, in Banco Agricola. Legal fees and other applicable fees are usually paid by each party.

 6.21 Forced Eviction

Tenants can sue landlords for the specific performance of any obligation assumed by the landlord in the lease and damages. The landlord, likewise, can sue for specific performance and damages, as well as for eviction.

Remedies available to landlords do not differ depending on whether the nature of the lease is commercial or residential.

The customary procedure to evict a defaulting tenant is to sue in court. The process is very time-consuming for two reasons:

  • before suing, the landlord is required in many cases to go through an administrative procedure that usually grants the tenant grace periods of six months or more; and
  • eviction orders by lower courts are subject to appeals to two higher courts, which lengthens the process to three or more years if the tenant retains the services of a savvy lawyer.

General contract law applies to the lease, but is limited by various statutes that protect the tenants. For example, if there is no escalating clause for rent in a lease, the landlord cannot raise it unilaterally without undertaking a lengthy administrative procedure.

 6.22 Termination by Third Party

No third parties are allowed to initiate the termination process of a lease agreement. However, the government can initiate an expropriation process against the property, by following the due process.

 7. Construction

 7.1 Common Structures Used to Price Construction Projects

The most commonly used structures are:

  • the fixed price system, which gives the owner of the project a comprehensive idea of the final cost of the project, establishing a fixed fee for the construction process; and
  • the construction management system, in which the project owner pays the contractor just a construction fee and the owner covers the cost of construction materials and labour.

 7.2 Assigning Responsibility for the Design and Construction of a Project

The parties are free to establish the conditions that govern their relationship, allowing any scheme to be developed for assigning responsibility for the design and construction of a project, but with the caveat that plans must be executed by a licensed architect or engineer.

 7.3 Management of Construction Risk

Construction risk is usually managed contractually through provisions and the establishment of penalties agreed in the event of delays, performance bonds and insurance cover, among others.

The Dominican Civil Code establishes a warranty on structural and hidden damages in a property, enforceable against architects and contractors for up to ten years. In practice, this timeframe is usually limited by the parties.

 7.4 Management of Schedule-Related Risk

These types of risks are managed contractually through provisions and the establishment of penalties in the event of delays; it is also common to ask for a performance bond from the contractor issued in favour of the owner and/or developer.

 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance

Owners or developers often require the contractor performing the work to provide security in the form of monetary compensation through available financial tools, in case they are not able to deliver the work on time or to meet the quality standards for which they have been paid.

These risks are usually managed contractually by means of warranties, indemnity provisions, retention provisions, penalties agreed in case of delays, performance bonds and insurance cover, among others. In addition, the Dominican Civil Code establishes a warranty covering structural and hidden damages in a property that is enforceable against architects and contractors for a period of up to ten years.

 7.6 Liens or Encumbrances in the Event of Non-payment

According to the Dominican Civil Code Article 2103, architects and builders are able to register court-ordered liens in the event of non-payment after the construction in question has been delivered to the owner. Additionally, under Dominican law, contractors and/or designers are not permitted to register any liens or encumbrances in property from non-payment, but can sue the owner for breach of contract, and if the debt is recognised by the court, then they may proceed to register the lien or encumbrance in the property. For an owner to remove the lien or encumbrance, they must provide evidence of successful completion of the obligation to the land registry.

 7.7 Requirements Before Use or Inhabitation

In the Dominican Republic, a site certificate issued by the parties or by an independent engineer is usually required, certifying that the project has been finished and is ready to be delivered and inhabited.

 8. Tax

 8.1 VAT

There is no VAT or equivalent tax liability applicable to the sale or purchase of real estate.

 8.2 Mitigation of Tax Liability

Other than the exemptions mentioned above and the option of purchasing the shares of the holding company, there is no way of avoiding the payment of the 3% title transfer tax. Large institutional holders are advised to seek the advice of expert real estate law and tax professionals to mitigate other tax liabilities.

 8.3 Municipal Taxes

There are no municipal occupation taxes. All planning and land use matters are, however, handled by the municipalities, and a land use tax is levied on developers or owners planning new construction projects.

 8.4 Income Tax Withholding for Foreign Investors

The basic tax withholdings in the Dominican Republic are as follows:

  • withholding for interest paid abroad – 10%;
  • withholding for payments abroad – 27%; and
  • dividends – 10%.

 8.5 Tax Benefits

There are no tax benefits from owning real estate in the Dominican Republic. Corporations may be compensated on the property’s depreciation in accordance with the Dominican Tax Code. Other benefits may apply depending on the type of real estate, the activities developed in the property and its location, among others.

 

Business Entities in the Dominican Republic

ALTERNATIVE VEHICLES FOR DOING BUSINESS IN THE DOMINICAN REPUBLIC

Foreign companies may conduct business in the Dominican Republic by setting up a branch office,  incorporating a local subsidiary or acquiring the shares of an existing Dominican company.

Branch Offices

Any company duly organized and existing in accordance with the laws of its country of origin can set up a branch in the Dominican Republic by registering at the Business Registry and obtaining a tax number from the Internal Revenue Agency. Additional approvals may be required in certain regulated industries.

Registration requires that (a) all incorporation documents of the foreign company be translated into Spanish and authenticated, (b) corporate minutes establishing a registered office in the Dominican Republic and naming a local representative, and (c) particulars of the local representative and the company’s shareholders.

Registration is not necessary if the activity of the foreign company is limited to acquiring equity in a local business entity or to occasional transactions in the Dominican Republic.

Local branches of foreign companies receive the same tax treatment as Dominican companies and are subject to the same local laws and regulations in labor and other matters. For tax purposes, they must keep separate accounts from their head office so as to facilitate the determination of their income.

Local Subsidiary

The most common structures available for investors to establish a local subsidiary as an independent local business entity in the Dominican Republic are the Limited Liability Company, the Corporation and the Simplified Corporation.

These three types of companies enjoy limited liability for its shareholders, meaning that if the company fails, they will be liable only for the amount of capital invested, and that shareholders, individually or collectively, are not liable for the debt obligations of the company. This limited liability protection afforded to shareholders of these entities is strictly observed under the law, except in case of fraud or misrepresentation.

Other business structures exist (Individual Limited Liability Companies, Partnerships, Limited Partnerships and Limited Partnerships with Shares) but they are rarely used by investors because, in the case of Individual Limited Liability Companies, the sole shareholder must be an individual, and in other cases, the partners do not have limited liability.

All business entities are taxed in the same manner, in contrast to the practice in other countries such as the United States. Please refer to the chapter on taxation for details.

No Restrictions For Non-Dominicans

Shareholders, partners, members, officers and directors of a Dominican company do not need to be Dominican citizens or residents, except in very special circumstances.

Suitability Of The Different Entities With Limited Liability

Corporations are best suited for large businesses with many shareholders  where protecting minority interests is important. They are the only entities that can raise capital through public stock offerings.

Simplified Corporations are best for medium to large-sized businesses that require special shareholder provisions for corporate governance purposes. Simple Corporations cannot raise capital through public stock offerings, but are able to issue debt instruments to the public.

Limited Liability Companies are ideal for small to medium-sized businesses, the most common in the Dominican Republic, reason why LLC’s are very popular for local investors. LLC’s cannot raise capital through public offerings.

SPECIAL CHARACTERISTICS OF THE LIMITED LIABILITY COMPANY

LLC’s must have no less than two shareholders and no more than fifty. To form an LLC, a minimum capital of 100,000 DOP is required (about $2,200 at the exchange rate current in December 2015), which must be paid in full, and divided into shares with a par value of at least 100 DOP each.

Shares in an LLC are nonnegotiable. Share transfers to third parties who are not current shareholders must be approved by 75% of the votes of the company, except in certain cases, such as when the beneficiary is a child or parent of the person doing the transfer.  Nonetheless, if the transfer is rejected, the shares in question must be purchased or redeemed by the other shareholders or the company.

Management of an LLC is in the hands of one or several managers or a board of managers. Managers must be natural persons, not other companies.

Unless otherwise stipulated in the bylaws, no inspection officer (comisario de cuentas) is required to oversee management.

SPECIAL CHARACTERISTICS OF THE SIMPLIFIED CORPORATION

Simplified corporations must have a minimum of two shareholders but, unlike in the LLC’s, there is no maximum. The minimum capital required to form a Simplified Corporation, called the company’s authorized capital, is three million DOP (about $66,000 at the exchange rate current in December 2015), of which at least 10% (300,000 DOP or $6,600) must be paid-in upon incorporation. Shares in a Simplified Corporation are negotiable, although restrictions may be established in its bylaws.

Management of a Simplified Corporation is freely determined by its shareholders in the company bylaws. It could consist of a board or of one or several individual managers. Members of the board and individual managers do not need to be natural persons.

Unless otherwise stipulated in the bylaws, no inspection officer (comisario de cuentas) is required to oversee management.

Simplified corporations can issue debentures and bonds privately, although not publicly.

SPECIAL CHARACTERISTICS OF THE CORPORATION

Corporations must have a minimum of two shareholders. There is no limit on the maximum. The minimum capital required to form a corporation (minimum authorized capital) is 30 million DOP (about $666,000 at the exchange rate current in December 2015), of which at least 10% (3,000,000 DOP or $66,600) must be paid-in upon incorporation. Shares in a corporation are negotiable, although certain restrictions may be established in its bylaws.

Corporations can be private or public. Only public corporations can offer the sale of stock and bonds to the general public.

The management of corporations must consist of a board of directors of at least three members, which do not have to be natural persons.

An inspection officer (comisario de cuentas) is required to oversee management and to render an annual report to the shareholders meeting about the company’s financial statements and the performance of the board of directors.

SHARES IN FOREIGN CURRENCY

The value of company shares as well as its capital can be stated in foreign currency.

PREFERRED SHARES

All companies can issue common shares and preferred shares. Preferred shares may grant the shareholder the right to a fixed dividend or a fixed percentage of profits, or both at the same time, as well as priority rights over the company capital in case of liquidation.

COMPANY FORMATION PROCESS

Company formation is best managed by a local attorney, and carefully monitored by you. If your attorney does not guide you in selecting the best company structure for your needs by explaining the advantages and disadvantages of the various options, change your attorney. Make your selection only after you are well-informed.

Formation should be customized to fit the needs of company members. Note that a member need not be a Dominican citizen or resident to form a Dominican company, except in very special circumstances. As a member, you will be required to provide certain particulars such as your full name, nationality, occupation, marital status, and address, and where applicable, a copy of your passport, “cédula” (Dominican identification), and/or driver’s license. The process involves five basic steps.

1. Register the company name

Clearing a company name can be time consuming as most commonly selected names are already in use by others. Therefore, if time is important and the company name is not immediately critical, you have some options. Many law firms retain shelf companies that are ready to go and available for purchase at a premium price. However, if cost is a factor, you can still expedite the registration process by selecting a “numbered” company (e.g., 12345 S.R.L.), and opting to change the name later. This two-step process will incur extra costs, but will expedite the registration process with the advantage that you will establish a legally recognized company more quickly.

2. Prepare and sign company documents

The documents required will depend on the particular structure selected, but will include at a minimum the articles of incorporation and by-laws (“estatutos”).

3. Pay the organization tax

Be forewarned that Dominican company organization taxes are higher than those imposed on American companies. This particular tax amounts to 1% of the authorized capital for corporations and simplified corporations, and paid-in capital for S.R.L. and E.I.R.L. structures.

4. Register the company documents at the Business Registry (Registro Mercantil)

The incorporation documents must be filed at the Business Registry for the area where the company’s registered office is located. Registration fees for corporations and simplified corporations are calculated on the basis of the company’s authorized capital; fees for LLC’s are calculated on the basis of its paid-in capital.

A company is deemed to legally exist from the time its documents are recorded at the Business Registry.

After incorporation, any documentation related to important corporate activities must be also registered at the Business Registry.

Company registration at the Business Registry must be renewed every two years.

5. Register the company at the Internal Revenue Agency

To begin operation, newly-formed companies must obtain a tax number at the Dominican Internal Revenue Agency. Also, shareholders of the company, foreign or local, who do not already have an individual tax number must obtain it at this time. Without a tax number, a company cannot open bank accounts, buy real estate, nor, in general, operate within the country.

ANNUAL MEETINGS

All Dominican companies must hold an annual shareholders’ meeting to review the company’s operation during the previous year.  Minutes of this meeting must be recorded at the Business Registry.

JOINT VENTURES

Joint ventures in the Dominican Republic generally consist of a contractual arrangement between two or more existing business entities for the purpose of carrying out a particular project or task. The joint venture itself is not a legal person nor enjoys limited liability unless a new business entity is formed according to Dominican company law.

GUZMÁN ARIZA EXPERTISE ON COMPANIES

Knowledge is the cornerstone of Guzmán Ariza’s service in company law. We actively produce and disseminate information that shapes this practice area in the country.

Fabio J. Guzman-Ariza, name partner and prolific writer on Dominican law, co-authored the only current book on company forms, Modelos para la práctica societaria. Partner Alfredo Guzman contributed further to Fabio Guzman’s seminal work with El funcionamiento de las sociedades de responsabilidad limitada, a book explaining how limited liability companies work in the Dominican Republic. Together, the two have contributed to preparing regulations to assist existing companies in the transition to current Company Law 479-08, and have co-authored additional articles on the SRL (LLC) company structure in the only Dominican law review, Gaceta Judicial.

Our knowledge of company law is widely available, respected, and regularly referenced, and covers company formation, corporate governance, mergers and acquisitions, and dissolution; and related business areas such as contracts, employment, labor, company finance, company tax, litigation, dispute resolution, and intellectual property.

Intellectual Property

Trademark and Intellectual Law

Trademark Registration in the Dominican Republic

Trademark registration in the Dominican Republic is governed by Law 20-00 on Industrial Property. (You may find the text of the statute, in English, in our website

The process to register a trademark is as follows:

(1) Preliminary searches are optional to determine if the mark requested is available for registration in the desired class, under the international classification of goods and services. The search may take up to 5 business days. If time is a factor, faster service is available for a higher fee.

(2) If the search results do not preclude the registration of the mark, in case the preliminary search has been requested, the applicant may proceed to file a petition to record the mark. Government fees must be paid in full with this filing.

(3) If the application complies with the legal requirements, the National Office of Industrial Property (ONAPI) will allow the petitioner to pay for the publication of an excerpt of the application in its Journal. Third parties have 45 days from the date of publication in the Journal to file an opposition to the application. If the application is not opposed within 45 days, or if the opposition is rejected, the Office will issue the Certificate of Registration which is valid for 10 years and may be renewed.

The whole process, without opposition and including the search, takes approximately 4 to 5 months.

To proceed to file the petition for registration, the applicant must provide the following information and documents:

(1) Full name and address of the applicant.

(2) Power-of-attorney signed by the applicant, authenticated at the nearest Dominican Consulate (see attachment), or apostilled. The original copy of this document should be sent to us, since it is required to be filed jointly with the trademark application.

(3) Description of the goods and services covered by the mark, grouped by classes, according to the international classification of goods and services.

(4) If the application is to be based on a foreign registration, a certified copy of such registration, authenticated at the nearest Dominican Consulate, or apostilled.

(5) If a design is to be filed, 6 samples of the design of at least 6 in. x 6 in. (15 cm. x 15 cm.) in size.

(6) If the applicant is an individual copies of his/her passport’s first page and Identification Card. If the foreign applicants are companies, copies of the company’s incorporation certificate and passport of its signing legal representative (President, Vice President, etc…). (No authentication needed)

(7) Copy of the trademark’s certificate of registration in the foreign country, even if the registration is not going to be based directly on a foreign registration. (No authentication needed).

Renewable Energy

Renewable Energy

OVERVIEW OF RENEWABLE ENERGY

Renewable Energy is one of the fastest growing industries in the world due to the urgent problems anticipated by climate change. Driven by worldwide technological innovation and manufacturing of “green” products and systems, the sector is an excellent investment opportunity in the Dominican Republic where there is an abundance of natural resources.

LEGAL FRAMEWORK

“Going green” in the Dominican Republic is governed by the Constitution, the Renewable Energy Incentives and Special Regimes Law #57-07 (a complement to General Electricity Law #125-01), and the Environmental and Natural Resources Law #64-00.

The Constitution of the Dominican Republic, amended on January 26, 2010 for the 39th time in 167 years, devotes several articles (Articles 14 to 17, 66 and 67) to the country’s natural resources, which establish the general legal framework for dealing with natural resources. Some important principles laid down by the Constitution are:

• Exploration and exploitation of natural resources can only be done under rational and sustainable environmental conditions.

• The environment must be protected for present and future generations by prohibiting detrimental activities, promoting alternative energy sources, etc.

• Ecosystems and wildlife protected by the National System of Protected Areas can be changed only by a two-thirds vote in each of the two houses of Congress.

• Non-renewable natural resources belong to the Dominican people.

General Electricity Law #125-01, enacted July 26, 2001, is the legal umbrella under which Renewable Energy is governed. It provides for the production, transmission, distribution, and commercialization of the country’s electricity in a neutral and nondiscriminatory manner. The National Energy Commission (CNE), the Superintendent of Electricity (SIE), and the Coordinating Agency for the Interconnected Electrical System (OC) are responsible for governing the activities in the electrical sector.

Renewable Energy Law # 57-07, dated May 7, 2007, is administered by the National Energy Commission (CNE), the Superintendent of Electricity, and the Coordinating Agency for the Interconnected Electrical System as a sub-sector of the Electricity sector. Law 57-07 zeros in on sustainable energy endeavors with four main objectives: (a) to increase the diversity of energy sources; (b) reduce dependence on imported fossil fuels, (c) mitigate the negative impact of fossil fuel use on the environment, and (e) stimulate private investment in renewable energy. The primary renewable sources targeted are biodiesel, ethanol, hydro, solar, wind, tidal and oceanic.

Significantly, law 57-07 allows the use of ethanol as a motor vehicle fuel, providing a potential of up to 10% in local fuel production and a productive use of unused, fallow sugar cane acreage.

RENEWABLE ENERGY PROJECT TYPES

The law provides incentives to public, private, or a combination of both, corporate, and cooperative projects that produce energy or bio-combustibles and show physical, technical, environmental, and financial viability. The law expressly encourages the installation and exploitation of:

  • Wind farms and individual windmills with an initial installation that does not generate more than 50 M
  • Micro and small hydroelectric installations that do not generate more than 5 MW
  • Electro-solar (photovoltaic) installations with no restriction on production
  • Thermo-solar installations of up to 120 MW of concentrated solar energy per central unit
  • Medium-temperature thermo-solar energy installations to obtain clean hot water and condition air from cooling equipment
  • Energy farms or any infrastructure of any size devoted exclusively to converting biomass into a byproduct for energy consumption, including vegetable or pressure oils to manufacture biodiesel, and plant hydrolyzation to produce ethanol or another type of bio-fuel
  • Central electrical units using primarily biomass fuels either directly, or through a transformation process that generates a minimum of 60% of the primary energy, and which produce an installed energy of no more than 80 MW per thermodynamic or central unit
  • Bio-fuel production plants (distilleries or bio-refineries) of any size and in any volume
  • Oceanic energy installations of any size and any type.

RENEWABLE ENERGY INCENTIVES

Upon compliance with certain regulatory procedures specific to each project, the following concessions and incentives are granted to operations that produce or use clean technology:

  • Exemption from import duties on equipment necessary to produce energy from renewable sources.
  • Exemption from ITBIS (value-added tax) for certain equipment expressly listed in the law.
  • Exemption from income tax for up to ten years until the year 2020. Income must be derived from sources dedicated to generating or selling renewable energy, or selling or installing renewable energy equipment, parts or systems specified under the law. Such equipment, parts, and systems must be produced locally with a minimum aggregate value of 35%.
  • A 5% tax reduction on interest on foreign financing of renewable energy projects.
  • A single tax credit of up to 75% (depending upon the energy technology) on the cost of capital equipment used in pre approved projects that change to or expand the use of renewable energy in residential, commercial, or industrial establishments. The tax credit is apportioned over a three- year period at the rate of one-third per year.

Small-scale projects destined for community use that develop renewable energy sources up to 500 Kw can apply for financing, at the lowest market rates, in an amount up to 75% of the total cost of the operation and installation of the project.

INTERNATIONAL INITIATIVES

The United States is keen on supporting clean energy, low-carbon, climate-resilient projects in the Caribbean through private investment or bilateral programs, and pledged US$30 billion in funds between 2010 and 2012 to accelerate developing countries’ progress in combating global warming. With some of the highest electricity prices in the Caribbean, the Dominican Republic offers lucrative opportunities to investors in this area. Some of the U.S. supported initiatives are:

Energy and Climate Partnership of the Americas (ECPA). Leaders of the Western Hemisphere voluntarily partner with countries in the hemisphere to accelerate clean energy development by sharing best practices, encouraging investment, and cooperating in the research and implementation of new technologies. Initiatives may be multi country or bilateral and can involve the private sector, academia, civil society, and international organizations.

The U.S. National Export Initiative, intent on doubling the number of U.S. exports by 2012, promotes the use of clean energy technologies among U.S. exporters.

The U.S.-Brazil Biofuels Partnership Initiative attempts to leverage Brazil’s global expertise in the development and use of biofuels. In 2007, the United States and Brazil entered into a memorandum of understanding and have collaborated with the Inter-American Development Bank, the Organization of American States (OAS), and the United Nations to promote scientific cooperation, development, and use of biofuels in developing countries to mitigate the effects of greenhouse gas emissions. The primary goals of this initiative are to develop sustainable biofuels for aviation, and develop common standards for, encourage research in, and create a multilateral forum in aviation biofuels. The initiative targets the Dominican Republic, Haiti, El Salvador, St. Kitts, and Nevis as the initial beneficiaries, and the Dominican Republic has already been the beneficiary of a US$300,000 private contract to obtain technical assistance in blending ethanol with domestically sold gasoline.

The Global Bioenergy Partnership, comprising the U.S., Brazil, and thirty other governments and international organizations, promotes the sustainable use of bioenergy in developing markets by converting biomass to energy. It brings together public, private, and civil society to create a forum for suggesting tools, facilitating investments, implementing projects, and fostering research and development in bioenergy. The three strategic areas of interest are sustainable development, climate change, and food and energy security.

In 2010, the Organization of American States (OAS), the world’s oldest regional organization uniting thirty-five member states in political and social discussions to improve economic development, received a U.S. grant to assist Caribbean energy ministries, in partnership with CARICOM, to conduct renewable energy dialogues within the region, and to provide technical assistance to qualified projects.

INTERNATIONAL FUNDING

Funding assistance needed to harness reliable and affordable energy in developing countries is delivered through traditional U.S. channels such as Embassy programs and AID missions, the Peace Corps, and the Millennium Challenge Corporation (MCC), and international channels such as the United Nations Framework on Climate Change (UNFCCC), and multilateral financing organizations such as the Climate Investment Fund and the Global Environment Facility.

The Millennium Challenge Corporation (MCC) is an independent U.S. foreign aid agency created in 2004 to grant aid to well-performing developing countries to achieve sustainable economic growth and reduce poverty.

The United Nations Framework on Climate Change (UNFCCC), conceived in 1992 as an international environmental treaty, is dedicated to stabilizing greenhouse gas emissions globally to prevent further interference with the climate by setting mandatory emission limits through protocols. The principal protocol is the Kyoto Protocol under which member countries commit to reduce a cluster of greenhouse gases within their territories.

The Climate Investment Fund is a funding agency of the World Bank formed in 2008 to combat global climate change. It comprises two funds. One, the Clean Technology Fund, is aimed at public and private investments promoting low-carbon economies, and provides an innovative model for development and climate control financing by working with embedded national plans and strategies. Fund recipients must be ODA eligible and have an active Multilateral Development Bank program. The sister fund, the Strategic Climate Fund, is designed to help developing countries create climate-resistant economies, reduce deforestation, and increase new economic opportunities with renewal energy.

The Global Environment Facility (GEF), established in 1991 as an independent financial organization, partners 182 member nations with international organizations and the private sector to assist developing countries in identifying, developing, and implementing eligible projects in biodiversity, climate change, international waters, land degradation, persistent organic pollutants, and agricultural, forest and grazing adaptation. It serves as the financial mechanism for several international conventions, including UNFCCC, and is heralded as the largest funder of global environmental projects. Since the organization’s inception, the Dominican Republic has been the beneficiary of eight grants with the latest received in 2009.

GUZMÁN ARIZA ON RENEWABLE ENERGY

Guzman Ariza’s service in the renewable energy sector is informed and responsive. We are attuned to continually evolving legislation and international initiatives that address the intertwined challenges of mitigating climate change and obtaining energy security for the Dominican Republic. We rapidly deploy the information you need to invest wisely, and apply our legal expertise to help you develop, produce, transport, and market your green project. Our practice areas span energy, tax, environment, finance, real estate, public procurement, contracts, business and companies, intellectual property, and labor and employment. We will help you procure your site, obtain regulatory approvals and permits, secure intellectual property rights, negotiate construction contracts and clean technology licensing agreements, and meet labor and employment requirements. The time to “go green” in the Dominican Republic is now, and Guzman Ariza has the background and dedication to clients needed for a vital renewable energy investment.

Enabling Regulation for the Dominican Foreign Investment Law (Decree 380-96)

ARTICLE 1 – THE FOLLOWING DEFINITIONS SHALL BE A PART OF THESE REGULATIONS IN ADDITION TO THOSE CONTAINED IN LAW NO. 16-95:

Financial Assets: Instruments to be exchanged in financial markets, such as promissory notes, stocks, bonds, shares, and Bills of Exchange, among others, to which the Monetary Board attributes the category of foreign investment under the regulations to be issued for this purpose.

Repatriable or remittable capital: The fully paid-in capital owned by registered foreign investors, less the net losses suffered by the enterprise, if any.

Certificate of Foreign Investment Registration: Document to be issued by the Central Bank in favor of a foreign investor as evidence that his investment has been duly registered.

Fiscal year: The period of one year in which the results of a company’s business are presented in its financial statements.

Enterprise: An economic unit, whether a single proprietorship, partnership, limited partnership or corporation.

Blocked earnings: Earnings obtained by foreign investors registered under Law No. 861 which, having been reported to the Central Bank within the deadline established by said Law, could not be remitted abroad because they exceeded the percentage limitation.

Law No. 16-95: The Foreign Investment Law passed by the National Congress on 8th November 1995.

Law No. 861: The Foreign Investment Law passed by the National Congress on 22nd July 1978, as amended by Law No. 138 of 24th June 1983, and revoked by Law No. 16-95.

Freely Convertible Currency: Foreign currency that can be exchanged in a banking institution according to existing norms.

Free Zone Enterprise: Any national or foreign company licensed under Law No. 8-90 of 15th January 1990 or any other legislation which it substitutes.

ARTICLE 2.- ATTRIBUTIONS AND OBLIGATIONS OF THE CENTRAL BANK OF THE DOMINICAN REPUBLIC.

The Central Bank of the Dominican Republic shall have the following attributions:

a) To receive and analyze applications for registration related to direct foreign investments, foreign reinvestments, new foreign investments and licensing agreements for the transfer of technology, and to proceed with their registration after having determined that all legal and regulatory preconditions have been satisfied;

b) To receive information from the National Free Zone Council in relation to the registration of foreign enterprises authorized by said Council to operate as free zone enterprises, and to register the respective foreign investments;

c) To request from applicants for foreign investment registration the information and documents necessary to support their applications, as established in Law No. 16-95 and in these Regulations;

d) To issue Certificates of Registration of Foreign Investment or of Transfer of Technology, as the case may be;

e) To verify that the funds remitted abroad as earnings, the payments derived from contracts for technology transfer or repatriation of capital are made pursuant to Law No. 16-95 and these Regulations;

f) To approve the schedules for the gradual remittance of blocked earnings;

g) To provide upon request information concerning the requirements to obtain a Certificate of Registration of Foreign Investment or of Transfer of Technology;

h) To make an annual report to the National Congress, via the Executive Power, on the flow of foreign investment in the country, as part of the annual Central Bank report.

ARTICLE 3.- FORMALITIES FOR THE REGISTRATION OF FOREIGN INVESTMENTS.

Within the 90-day period established in Law No. 16-95, from the date on which each foreign investment is made, any foreign investor or corporation must file at the Central Bank its application for registration with all the information required for the issuance of the Certificate of Registration.

Upon completion of the documentation required for registration, the Central Bank will have a period of ten (10) working days in which to process same and issue the Certificate of Registration.

PARAGRAPH I. All applications for foreign investment registration must contain the following information:

a) If a foreign individual: name, address, telephone and fax number, and nationality of the foreign investor and of the person acting on his behalf, if any;

b) If a corporation:corporate name, place of business, telephone and fax number, and names of its Directors;

c) Amount of the investment, expressed in a freely convertible currency;

d) Name and incorporation papers of the local company that will receive the investment;

e) Type of economic activity in which the local company is or will be engaged;

f)  In the case of a branch office of a foreign corporation, evidence of the authorization to establish a domicile in the Dominican Republic;

g) When the foreign investment has an impact on the environment, the foreign investor must submit a certificate from the competent ministry or agency which describes the manner in which any damage to the environment will be remedied, and

h) When foreign technology is capitalized, the foreign investor must also submit the contract executed by the parties which sets forth the amount of foreign exchange to be received in exchange for the technology;

PARAGRAPH II. In the case of a direct foreign investment, made in freely convertible foreign currency, the investor must submit:

a)  Documentary evidence of entry into the country of the foreign currency via copies of check(s) or wire transfer(s) from the foreign banking institution and

b)Exchange receipt issued by a local bank authorized by the Monetary Board to deal in foreign currency.

PARAGRAPH III. In the case of a direct foreign investment in kind, the following documents must be submitted, whenever pertinent:

a) In cases involving investments in kind of imported goods and/or services:

– Commercial invoice

– Proof of payment

– Bill of lading, and

– Customs clearance documentation

b)  In cases involving investments in kind made in installments over a given period of time, the investor must submit an affidavit describing the goods to be imported, the estimated value of customs duties, and the period of time during which the imports will take place. In such a case, a provisional certificate of registration will be issued for the estimated value of the imports, based on the proof of payment, letter of credit or purchase order for the goods or services to be received from abroad.

Upon completion of the foreign investment, the foreign investor shall submit to the Central Bank the documents mentioned in section a) of this paragraph and the provisional registration certificates, in order to replace them with definite certificates of registration;

c)  In cases of foreign loans or financing, the investment will be registered only if the loan or financing is given to the foreign investor, not when it is granted to the local company in which the investment is being made, and

d) In the case of intangible technological contributions, the foreign investor must submit a copy of the agreement with the local company receiving the investment, as well as the evidence of ownership of the technology.

PARAGRAPH IV. In cases of new investment or of reinvestment of earnings,  after being registered, will receive the same treatment as direct foreign investments. For this purpose, the foreign investor must, within ninety (90) calendar days from the date on which the local company declares the dividends, submit the following:

a) Copy of the audited financial statement of the company declaring the dividend;

b) Minutes of the shareholders’s meeting at which the dividend was declared, if required;

c) Documentary proof of payment of the taxes owed by the foreign investor in the Dominican Republic.

d) In case of reinvestments of profits, the documentation mentioned in Paragraph I, Section c) of this article will also have to be submitted and

e) In case of new investment, the documentation mentioned in Paragraph I, sections c), d), e), f), and g) of this Article will also have to be submitted.

PARAGRAPH V. Foreign persons and corporations may engage in the Dominican Republic, in the same manner as nationals, in the promotion or procurement of imports, sale, distribution, rental or any other use of foreign goods or products, whether manufactured abroad or in the country, whether acting as agents, representatives, exclusive distributors, concessionaires or under any other name, provided, however, that if such person or corporation has maintained commercial relations with a local concessionaire, it must enter into a written agreement and pay a fair and complete indemnity arising therefrom based on the elements mentioned in Article 3 of Law No. 16-95.

ARTICLE 4. REMITTANCE OF EARNINGS.

A foreign investor shall have the right to remit without the prior authorization of the Central Bank, all earnings accrued during the fiscal year ending after the entry into force of Law No. 16-95, as well as the pending portion of the earnings which were authorized in part after the entry into force of Law No. 16-95, as well as dividends paid in anticipation within the current fiscal period, provided that the corresponding tax obligations have been fulfilled.

The same treatment will be accorded to earnings accrued during fiscal years ending within the period of two (2) years mentioned in Law No. 861, in case the same have not been submitted to the Central Bank for approval. However, earnings not declared to the Central Bank, within the two (2) year period mentioned in Law No. 861 shall not qualify for remittance abroad.

After the remittance abroad of dividends declared during any given fiscal year, the investor will be required to submit the documentation mentioned in Article 3, Paragraph IV, sections a), b), and c), as well as a copy of the form evidencing the sale of foreign currency duly stamped by the bank which sold the same, which must be a bank licensed to deal in foreign currency.

Regarding dividends paid in anticipation within the current fiscal period, the documentation to which Article 3, paragraph IV, section c) refers to shall be presented, in addition to a copy of the Resolution of the Board of Directors where the dividends paid in advance during the current fiscal year were declared. Once the Assembly has ratified the dividends for said period, the minutes or the pertinent document must be remitted to the Central Bank, as well as the audited financial statements.

PARAGRAPH I. In case the remittance made by a foreign investor exceeds the benefits produced by his investment, as evidenced by the minutes of the shareholdersÕÕ meeting mentioned in Article 3, Paragraph IV, section b), the Central Bank shall act as if a repatriation of capital had taken place and shall reduce the amount of the registered investment and amend the corresponding certificate. This step will be notified to the foreign investor.

PARAGRAPH II. Blocked earnings may be remitted abroad subject to prior authorization of the Central Bank. To this end, the foreign investor must apply for approval of a gradual schedule of repatriation and attach the documentation mentioned in this Article for the case of dividends.

ARTICLE 5. REMITTANCE OR REPATRIATION OF CAPITAL.

The foreign investor whose capital is registered at the Central Bank shall have the right to remit or repatriate same upon the sale of his shares or interests to national or foreign investors or when the company in which he has made his investment is liquidated, provided he is up to date in his tax obligations to the Dominican Republic.

He will also be allowed to remit abroad, without prior authorization of the Central Bank, the capital gains realized and registered in the books of the company, as set forth in Article 12 of Law No. 16-95.

The sale session or transfer of shares or interests by one foreign investor to another foreign investor or to a national investor must be reported to the Central Bank within sixty (60) calendar days from the date on which the sale or transfer takes place or on which the company is liquidated.

PARAGRAPH I. The foreign investor must deliver to the Central Bank his original certificate of registration for purposes of cancellation before repatriating his foreign capital.

PARAGRAPH II. For the purpose of a joint registration of transactions involving the sale and purchase of foreign capital, the buyer shall be granted a period of sixty (60) calendar days to obtain the new certificate of registration and shall thereafter enjoy the same rights and obligations as his transferor.

Within the sixty (60) day period mentioned above, the following documents must be filed with the Central Bank:

a) The original certificate of foreign investment registration involved in the transaction;

b) Documentary evidence of the payment of Dominican Republic taxes by the foreign investor who is transferring his investment;

c) Documentation satisfactory to the Central Bank evidencing the transfer of ownership of the foreign capital;

d) A request by the new foreign investor of a Certificate of Foreign Investment Registration, and

e) The information mentioned in Article 3, Paragraph I, sections a), b), c), and f) of these Regulations.

PARAGRAPH III. It is a condition for the new registrations that the repatriation of has not taken place. If the repatriation of capital has been effected, the purchasing foreign investor will be subject to the provisions contained in Article 3, Paragraph II, of these Regulations.

ARTICLE 6. TRANSFERS OF TECHNOLOGY.

Applications for registration of contracts for the transfer of technology must be accompanied by a copy of such contracts and documentary evidence that the transferor is the owner of such technology. Further, the requirements established in Article 3, Paragraph I, section g) of these Regulation must be met.

SOLE PARAGRAPH. Within sixty (60) days of having remitted a royalty payment abroad, the transferee must submit to the Central Bank:

a) A copy of the form for sale of foreign currency duly stamped by the banking institution selling the currency. This institution must be authorized to make foreign currency transactions;

b) Documentary evidence of compliance with the tax obligations of the transferor in the Dominican Republic;

c) A communication from the conceding corporation containing the calculations made for the determination of the amount of royalty paid;

d) Evidence that the foreign grantor of the technology received the royalty payment being documented.

ARTICLE 7.- REQUISITES FOR THE SALE OF FOREIGN CURRENCY.

Only financial institutions authorized to deal in foreign currency will be permitted to sell foreign currency for the remittance abroad of earnings, repatriations of capital and capital gains, and for the payment of royalties derived from contracts for the transfer of technology. For such sales, the prior authorization of the Central Bank will not be required, except in the cases provided in these Regulations.

To this end, said institutions shall request to be shown the original Certificate of Foreign Investment Registration and shall request the filing of one copy of said copy together with the following documentation:

a) An affidavit by the foreign investor or his authorized representative expressing the right under Law No. 16-95 to purchase the foreign currency being sought in the amount and for the reason stated and, further, that he has complied with his tax obligations in the Dominican Republic. Regarding the remittance of dividends paid in advance during the current fiscal year, a copy of the corresponding Resolution of the Board of Directors must be included;3

b) When a repatriation of capital is involved, the foreign investor shall be required to submit a proof from the Central Bank attesting that it has received the original certificate of registration. This proof shall substitute the requirements of exhibiting the original certificate and submitting a copy thereof, and

c) In cases involving the purchase of foreign currency to make payments derived from contracts for the transfer of technology, a copy of the Certificate of Registration issued by the Central Bank and the affidavit of the transferee mentioned in section a) of this Article will be required.

PARAGRAPH I. All cases of sales of foreign currency by banking institutions under these Regulations shall be handled according to the procedures established for cash sales over the counter. Such sales shall, however, not be subject to the quantitative limits established for such operations. Payment of the Delegation Fee shall be required in each case, pursuant to the rules in effect.

PARAGRAPH II. Banking institutions shall remit to the Central Bank the documents received from the purchasers of foreign currency, as described in the present article, together with the original form for the sale of foreign currency, pursuant to the banking norms in effect at the relevant times.

ARTICLE 8.- MISCELLANEOUS.

The following procedures shall be applicable to the cases set forth below:

PARAGRAPH I. In case of loss of a Certificate of Foreign Investment Registration, the foreign investor shall request the Central Bank to issue a duplicate upon submission of an affidavit of loss.

PARAGRAPH II. If found to have been obtained by fraudulent means the Certificate of Foreign Investment Registration or of Transfer of Technology shall be revoked. Upon making this determination, the Central Bank shall notify the owner of the registration.

Further, if through indirect information received by the Central Bank, it is determined that the foreign investor does not appear in the list of stockholders of the company registered as the recipient of his investment or if his share in the capital does not coincide with the information submitted for registration, the Central Bank, prior notification to the foreign investor, shall proceed to cancel or adjust the amount of the registration, as may be required.

PARAGRAPH III. When there is a change of address and/or business name and/or of the authorized representative, the foreign investor shall so inform the Central Bank, since the Central Bank when sending notices to the foreign investor, shall rely on the latest information on file.

PARAGRAPH IV. In the case of a foreign investment made in several currencies, the registrations at the Central Bank of new foreign investment, reinvestment or earning or changes in the amount of direct foreign investment shall be adjusted proportionately to the currencies of the original registration, using the exchange rate in effect at the time of each application.

ARTICLE 9.- TRANSITORY PROVISIONS.

At the request of the foreign investor, blocked earnings may be treated as reinvested earnings or as new foreign investment, as the case may be. To this end, the provisions established in Article 3, Paragraph IV of these Regulations must be complied with.

Applications for registrations of foreign investment, reinvestment of earnings, contracts for the transfer of technology, and renewals of such registrations, which were submitted to the Central Bank prior to the entry into force of Law No. 16-95 and which have not been registered for lack of session of the Board of Foreign Investment, shall be dealt with under Law No. 16-95 and these Regulations, and the owners thereof shall be entitled to:

a) Remit abroad the earnings derived from such foreign investments during the fiscal years ending after the date of filing of their applications for registration at the Central Bank, and

b) Remit abroad the payments under contracts for the transfer of technology, which became due after the date of filing at the Central Bank of the application for registration.

A new ninety (90) calendar days period, as of this date, is hereby granted for the acceptance of applications for foreign investment registrations and registration of contracts for transfer of technology which to this date, had not been submitted to the Central Bank for registration.4

To this end, the interested parties shall submit the information called for in Article 3 of these Regulations, as the case may be. After compliance with this requirement, such investors shall be permitted to remit abroad the earnings obtained during the fiscal years ending after the registration of their investments and the payment of royalties due after the date of registration of the contract for the transfer of technology.

An Overview of Trademarks and Intellectual Property

Trademark registrations in the Dominican Republic are governed by Industrial Property Law # 20-00. The National Office for Industrial Property (ONAPI) is the government entity in charge of processing all trademark-related filings in the Dominican Republic, the local equivalent to the United States Patent and Trademark Office (USPTO).

Since ONAPI’s main offices are located in the city of Santo Domingo, our firm handles all trademark matters through our Guzman Ariza office in Santo Domingo. This way we can assure our clients that their trademark applications will be submitted directly to the office responsible for making the final decision.

Guzman Ariza attorneys believe that specialization leads to maximizing efficiency and service value for our trademark clients. In an effort to reach this goal, we have limited our Intellectual Property practice to three complementary areas: trademark registration, trademark litigation and sanitary registration (Drug Marketing Approval).

Our specialized trademark lawyers provide trademark owners and international attorneys with an all-inclusive service covering all aspects of Dominican Trademark Law, ranging from the drafting and filing of the trademark applications to client representation in trademark infringement litigation. The services offered by our firm include:

An Overview of Taxation in the Dominican Republic

Introduction

Taxation in the Dominican Republic is governed by Law No. 11-92 of May 31, 1992, commonly known as the Tax Code (“Código Tributario”), its amendments and regulations (“Reglamentos”).
This overview is a brief summary of the Tax Code’s most relevant provisions. All references in parentheses refer to articles in the Tax Code unless otherwise specified.

Taxes are collected by the Bureau of Internal Revenue (Dirección General de Impuestos Internos or DGII), an autonomous government entity which may also issue its own regulations (“Normas”).

Dominican income tax law is primarily territorial. All income derived from work or business activities in the Dominican Republic is taxable, no matter if the person is a Dominican, a resident foreigner or a nonresident foreigner (Articles 269 and 270).

Income derived from work done outside of the Dominican Republic, by Dominicans or resident foreigners, is not taxable in the Dominican Republic.

The exception to the principle of territoriality is income from financial sources abroad (Articles 269 and 271). A Dominican or a resident foreigner receiving income from financial investments (stocks and bonds, certificates of deposits, etc.) must pay taxes in the Dominican Republic on their income from those investments (Art. 269). Pensions and social security benefits are exempt (Art. 2 of Reglamento #139-98). For the resident foreigner, this obligation only starts three years after obtaining residency (Art. 271); however, those who have obtained their residence as retirees are exempt from paying taxes on the income they have declared for resident purposes. (Art. 10 of Law 171-07).

For tax purposes, any person residing in the Dominican Republic for more than 182 days in a year is considered a resident (Art. 12).

The Tax Code includes a general anti-avoidance provision whereby the tax authorities may ignore the existence of legal entities or certain transactions when used to secure a tax advantage (Art. 2).

Law #53 of 1970 makes it mandatory for all taxpayers to register with the tax authorities and obtain a tax or RNC (“Registro Nacional de Contribuyentes”) number.

The most important taxes in the Dominican Republic are the following:

Income Tax

For Individuals

Individuals obtaining income from a Dominican source or from financial investments abroad shall pay taxes according to the following scale (Art. 296), in Dominican pesos (RD$):

Income up to RD$399,923.00 annually    –     exempt
RD$399,923.01 to RD$599,884.00        –     15%
RD$599,884.01 to RD$$833,171.00        –    RD$29,994.00 plus 20% of income above     RD$599,884.01.
Income above $833,171.01            –    RD$76,652.00 plus 25% of income above     RD$833,171.01

This scale is adjusted for inflation every January based on the rate of inflation calculated by the Central Bank of the Dominican Republic. This adjustment has been recently suspended for the period 2013 to 2015 (Art. 3 of Law 253-12).

Employers must retain and pay to the DGII, within the first ten days of each month, any income tax due on the salaries paid to their employees the previous month (Art. 307). Individuals who receive incomes from non-wage sources must file a tax declaration every year, on or before March 31 (Art. 110 of Regulation #139-98).

For Corporations and Other Entities

Corporations and any other for-profit organizations pay a flat 29% income tax on net taxable income (Art. 297). The rate will be reduced to 28% for fiscal year 2004 and to 27% thereafter. Unlike in the United States and other countries, in the Dominican Republic the tax treatment for corporations, partnerships and limited liability companies is exactly the same.

Net taxable income is determined after deducting from gross income those deductions, credits and advance payments admitted by law (Articles 284 to 287).

All corporation and for-profit entities must file a tax declaration every year, on or before April 30, if their business year coincides with the calendar year. Otherwise, the filing must be done within 120 days after the end of the business year (Art. 112 of Regulation #139-98)

Capital Gains Tax

Capital gains are defined as the difference between the sale price of an asset and the acquisition or production price adjusted for inflation (Art. 289). Capital gains are taxed as regular income.

An example: if an individual with an annual income higher than RD$833,171.01 purchases a house for RD$4 million pesos and sells it two years later for $6 million pesos, while inflation during the two-year period is a cumulative 15%, the tax due on capital gains is calculated as follows:

RD$6 million pesos – $4.6 million pesos ($4 million pesos + 15%) x 25% tax = $350,000 pesos.

Taxes are levied based on the capital gains calculated in Dominican pesos.

Tax on the Transfer of Industrialized Goods and Services (ITBIS)

The ITBIS is a value-added  tax applicable to the transfer and importation of most goods , and to most services (Art. 335). The rate of the ITBIS is 18% (Art. 341). For imports, the ITBIS is charged on the CIF value of the goods plus applicable duty (Art. 339).There are many exemptions to the ITBIS tax (Arts. 342 and 343), among them, the following:

•    exported goods
•    some basic foodstuffs
•    medicines
•    fuels
•    fertilizers
•    books and magazines
•    educational materials
•    financial services
•    transportation services
•    home rentals
•    utilities
•    educational and cultural services

The 18% IBIS must be added to every bill for goods and services that are not exempt. The individual or entity receiving the ITBIS must disburse it to the GII within the first 20 days of the following month (Art. 353). Noncompliance is subject to a 10% surcharge for the first month and 4% for each month thereafter, in addition to 2.58% interest for each month or fraction of a month (Art. 252).  From the total ITBIS received, the individual or entity is allowed to deduct any ITBIS paid to suppliers, customs, etc. (Art. 346).

Selective Consumption Tax (ISC)

The Selective Consumption Tax is applied to the acquisition or import of certain goods and services, such as the following (Articles 361,  381 to 383):

•    motor vehicles
•    guns
•    tobacco products
•    alcohol products
•    jewelry
•    Electronic products
•    long distance phone calls
•    insurance

The ISC rate varies according to the good or service taxed.

Tax on Assets

Businesses and corporations must pay a 1% annual tax on assets (Arts. 401 and 404) in two instalments due on April 30 and October 30 (Art. 405). For the purposes of this tax, all assets are taken into account, minus depreciation and amortization, except: a) stock holdings in other corporations, b) real estate in rural areas, c) real estate used for agriculture or animal  husbandry, d) tax advances and e) provisions for bad debts (Art. 402).

The tax on assets operates as a kind of minimum income tax.  If the income tax paid by the business or corporation is equal or higher than the amount of the tax on assets, then the business will have no obligation to pay the tax on assets (Art. 407). If the income tax paid is less than the amount of tax on assets due, the business must pay the difference.

New capital-intensive businesses may obtain a temporary exemption from this tax if certain conditions are met.

The tax on assets will be eliminated in 2015. Also, the tax rate for 2014 will be reduced to 0.5%. After 2015, real estate properties held by corporations will pay the same property tax as individuals.

Real Estate Tax

A 1% annual tax is assessed on any real property owned by individuals, based on the cumulative value of the properties owned by the same individual, as appraised by the government authorities.  (Articles 1  to 3 of Law #18-88). Properties are valued without taking into account any furniture or equipment to be found in them.  For built lots, the 1% is calculated only for values exceeding RD$6.5 million pesos. For unbuilt lots, the 1% tax is calculated on the actual appraised value without the RD$6.5 million pesos exemption. Individuals must pay this tax every year on or before March 11, or in two equal instalments: 50% on or before March 11, and the remaining 50%, on or before September 11.

The RD$6.5 million pesos threshold  is adjusted annually for inflation.

The following properties are exempt from this tax:

(1) Built properties valued at RD$6,500,000 or below.
(2) Farm properties.
(3) Properties whose owners are 65 years old or older, who have owned it for more than 15 years and have no other property in their name.
(4) Properties subject to the Tax on Assets.

Real Property Transfer Tax

A 3% tax is assessed on any transfer of ownership of real estate  (Art. 20 of Law #288-04). The transfer tax is paid based on the market value of the property as determined by the appraisal done by the DGII, not on the price of purchase stated in the deed of sale. The deed of sale cannot be filed at the Title Registry Office without paying this tax. The transfer tax must be paid within six months of the date of the deed of sale (Art. 7 of Law #173-07). Noncompliance is subject to fines.

Properties worth less than RD$1 million pesos acquired through a bank loan are exempt from the transfer tax   (Art. 20 of Law #288-04). The RD$1 million pesos exemption is adjusted annually for inflation.

Tax on Mortgages

A 2% tax is levied on all mortgages recorded in the Dominican Republic (Art. 8 of Law #173-07).

Tax on Transfers of Motor Vehicles

A 2% tax is levied on any change of ownership of motor vehicles (Art. 9 of Law #173-07).  The transfer tax must be paid within three months of the date of the acquisition. Noncompliance is subject to fines.

Inheritance and Gift Taxes

The estate of any person, Dominican or foreign,  whose last domicile was in the Dominican Republic is subject to Dominican inheritance taxes. The inheritance of property located in the Dominican Republic is subject to Dominican inheritance taxes, irrespective of the nationality or domicile of the deceased (Art. 1 of Law #2569 of 1950).

Law #288-04 lowered inheritance taxes to 3% of the value of the estate, after deductions, as determined by the tax authorities. Medical and funeral expenses, as well as outstanding debts and mortgages, are some of the allowed deductions.

Beneficiaries must file a declaration with the tax authorities within 90 days of the death of the decedent. An extension for an additional three and half months is possible in complex cases (Art. 26 of Law #2569). Delays in filing are subject to a 2% per month penalty, up to a maximum of 50% of the tax owed (Art. 9 of Law #2569).

Gifts are taxed at a 25% rate (Art. 6 of Law #2569) except the following, which are exempt;

•    Gifts for less than RD$500
•    Gifts to government institutions or recognized nonprofit organizations
•    Gifts to the family homestead (“bien de familia”).

Withholding or Retentions at the Source

The Tax Code establishes the following withholdings:

•    Payments abroad to persons or entities not domiciled or resident in the Dominican Republic are subject to a 29% withholding on the amount paid (Art. 305). This withholding is considered as final and definitive payment of the taxes owed for the operation. No deductions are allowed. The only exceptions to this provision are interest payments to financial institutions abroad which are subject to a 10% withholding instead (Art. 306).

•    Also, payments abroad by a branch office domiciled in the Dominican Republic to its headquarters abroad are subject to a 10% withholding (Art. 308).

•    Payments to workers. Employers must retain income taxes as per the table published by the DGII (Art. 307)

•    Dividends. Corporations must retain 10% of the dividends paid to shareholders (Art. 308).

•    Rentals. Payments to individuals (not corporations) are subject to a 10% withholding (Art. 309).

•    Fees for services and commissions. Payments to individuals (not corporations) are subject to a 10% withholding (Art. 309).

•    Prizes. All payments are subject to a 10%  to 25% withholding, depending on the amount of the prize.

•    Government payments to suppliers are subject to a 5% withholding.

[Updated: December 31, 2012].

Divorce Statute (Law 1306-bis of 1937)

 

DIVORCE LAW

CHAPTER I

Article 1.- (Amended by Law 3932 of September 20, 1954, O.G. 7749). Marriage is dissolved by the death of one of the spouses, or by divorce.

Paragraph 1.- However, in accordance with the essential properties of catholic marriage, it is understood that the fact itself of choosing to be joined in catholic marriage implies that the spouses waive their civil right to file for divorce, which for this reason may not be applied by Civil Courts to canonical marriages.

Paragraph II.- The provisions contained in the foregoing paragraph shall apply to catholic marriages celebrated on or after August 6. 1954, which was the date of the ratification of the Concordat between the Dominican Republic and the Holy See on June 16, 1954, pursuant to article 28, paragraph 1 thereof.

CHAPTER II

GROUNDS FOR DIVORCE

Article 2.- (Amended by Law N­2669 of December 31, 1950, G.O. 7231). The grounds for divorce are:

a) The spouses’ mutual consent.

b) Irreconcilable differences, justified by facts the magnitude of which as a cause of unhappiness for the spouses and social disturbance constituting sufficient grounds for divorce shall be assessed by the judge.

c) Absence decreed by a court of law in accordance with the prescriptions contained in Chapter II of Heading IV of Book One of the Civil Code.

d) Adultery by any of the spouses.

e) Conviction of one of the spouses on a criminal charge.

Paragraph.- A suit for divorce may not be brought by this reason if such conviction is a punishment for political offenses.

f) Abuse of or serious insults to one spouse by the other.

g) Voluntary abandonment of the home by one spouse, if he/she does not return within two years. Such time shall be the starting point for an authenticated summons served on the spouse who has abandoned the home, by the other spouse.

h) Habitual drunkenness of one of the spouses, or the habitual or immoderate use of narcotic drugs.

SECTION ONE

Divorce Proceedings for Cause

Article 3.- All actions for divorce for cause shall be brought before the court of first instance of the judicial district of the respondent’s place of residence, if he/she has a known domicile in the Dominican Republic;otherwise such action shall be brought before the court of first instance of the judicial district of the plaintiff’s place of residence.

Article 4.- The plaintiff shall have a summons served on the respondent, in the usual manner, so that the respondent appears personally, or through a proxy provided with an authenticated written document, to the closed hearing to be held on such date and at such time as stated in the summons; and at the head of such summons, the respondent shall be given copies of the documents that shall be used to substantiate the plaintiff’s charges, if any.

Paragraph I.- Together with the suit for divorce, the plaintiff shall give the respondent the list of the witnesses whom he/she intends to have depose at the hearing.

Paragraph II.- Every suit for divorce shall set forth briefly, under penalty of nullity, the plaintiff’s petition regarding custody of the children, or it shall mention what the parties shall have agreed to through a contract made to that end.

Paragraph III.- A woman shall need no authorization to file for divorce.

Article 5.- If any of the facts alleged by the plaintiff should lead to prosecution of the respondent by the District Attorney, the action for divorce shall be suspended until the proper court of law shall have made a final decision regarding such matter.

Article 6.- At the expiration of the term for summons, whether or not the respondent appears at the hearing, the plaintiff, personally or by proxy, with the assistance of his/her attorney, shall state the reasons for his/her suit, shall submit all substantiating documents, shall have his/her witnesses heard, if any, and shall conclude as to the merits of the case.

Article 7.- If the respondent appears at the hearing, whether personally or by proxy, he/she may state his observations about the reasons for the divorce suit, about the documents produced by the plaintiff, or about the witnesses heard at the plaintiff’s request. The respondent may also have his/her witnesses testify at the same hearing, against whom, the plaintiff may in turn make observations. The respondent shall have no right to have his/her witnesses heard if he/she has not given the plaintiff a list of their names at least two days before the day of the hearing, exclusive of the date of the hearing.

Article 8.- The Court Clerk shall make a record of the parties’ presence at the hearing, of their statements and observations, of their confessions, of the witnesses’ testimony and of any objections regarding them. Such record shall be read to the parties, who shall be required to sign it, and an entry shall be made thereon of their signatures or their declaration of not being able or willing to sign. The witnesses shall sign the record at the foot of their respective declarations, after such record shall have been read and approved, and if they should not be able or willing to sign, an entry of such circumstance shall be made thereon.

Article 9.- Any objection of witnesses shall be judged at the same hearing, the Judge not leaving the courtroom, and the rules set forth in articles 282 et seq. of the Code of Civil Proceedings shall be followed regarding the witnesses’ evidence in the matter of divorce, excepting any special provisions to the contrary established in this law.

Paragraph.- The parties’ relatives shall not be objected, excepting their children and descendants, and neither shall be their servants by reason of such relationship.

Article 10.- When the hearing shall have finished, the Court shall order that the file be remitted to the District Attorney, so that he/she makes a decision within a term of five days, exclusive of the day when such remittance and such decision are made.

Article 11.- Before ordering the remittance of the file to the District Attorney, the Judge, if he/she shall judge it appropriate and if, in his/her opinion, the documents submitted to substantiate the action for divorce are not convincing, may order an inquiry in such manner as established by the Code of Civil Proceedings.

Paragraph: When the Judge shall have ordered an inquiry, the Court Clerk shall give a copy of the judgment containing such order to the plaintiff, so that the plaintiff shall have it served in due time on the respondent and on the witnesses whose names are listed in such judgment. The respondent may request that the witnesses presented by him/her and whose names are included in the aforesaid judgment be summoned.

Article 12.- After the District Attorney returns the file with the appropriate decision, the Court shall render judgment awarding or denying the divorce in question. Such judgment shall be pronounced publicly.

Paragraph I.- All judgments of divorce for cause shall state which spouse shall have custody of the children issued from their marriage, and the Judge must first of all honor any agreement made by the parties in this respect; but failing any such agreement before or during the action for divorce, the Judge must adhere to the following directives: a) All children under four years of age shall remain in the care and custody of their mother, provided that the divorce has not been pronounced against her for the causes set forth in sections e, f and i of article two of this law; b) all children over four years of age shall remain in the custody of the spouse who shall have obtained thedivorce, unless the Court, whether at the request of the other spouse or of any member of the family or the District Attorney, and in the children’s best interest, orders that the other spouse or a third party shall have custody of all or some of the children.

Paragraph II.- Regardless of who is entrusted with custody of the children, both parents remain entitled to see to their support and education and are obligated to contribute thereto in proportion to their financial resources.

Article 13.- When a spouse files for divorce because the other one has been sentenced for a crime, the only formalities to be observed are to submit to the Court a copy of the judgment sentencing the defendant spouse to a criminal punishment, a certificate issued by the Clerk of the sentencing Court attesting that such sentence is not susceptible of being reformed through any ordinary legal means. The Clerk’s certificate shall be visaed by the District Attorney of his/her Court of Law, or by the Attorney General of the Republic.

Article 14.- (Annulled by Law N­2669 of December 31, 1950, O. G. 7231).

Article 15.- All judgment of divorce for cause shall be deemed contradictory, whether the respondent is present or not, and shall be appealable; any such appeal shall be substantiated and shall be judged by the respective Court of Appeals as a summary matter.

Article 16.-In order for an appeal to be admissible, it should be attempted within two months after the date of notification of the judgment.

Article 17.- By virtue of a final judgment of divorce, and except if a cassation appeal is instituted–which is suspensive as a matter of law–the spouse who has been awarded judgment shall be obliged to appear before the City Clerk within two (2) months therefrom, in order to have the divorce pronounced and the provision of such judgment transcribed in the office of the City Clerk, and shall have a summons served on the other party to appear before the City Clerk and hear the pronouncement of divorce. The transcription of the provision of such divorce judgment shall contain the date, the number, if any, and the court of law which rendered it.

Paragraph.- The City Clerk shall not pronounce a divorce, and neither shall he/she transcribe the provision of the judgment unless all the formalities prescribed by article 548 of the Code of Civil Proceedings have been met, and unless he/she has been shown evidence that the other spouse has been summoned to attend the pronouncement of divorce, as set forth in this article. The City Clerk who pronounces a divorce in contravention of the foregoing provisions shall be subject to dismissal, without prejudice of any appropriate civil liabilities.

Article 18.- The period of two months stated in the preceding article shall begin, in the case of judgments rendered in first instance, after the expiration of the term for appeal; and those rendered in absentia in appeal, after the expiration of the term for opposition.

Article 19.- The plaintiff spouse who has allowed the two-month term established in article seventeen to expire shall lose the benefit of the judgment awarded to him/her, and may not obtain another judgment unless it is for a new cause, which nonetheless may include the previous causes.

Article 20.- A judgment of divorce shall be deemed not pronounced or extinguished if one of the spouses dies before all legal formalities are fulfilled.

SECTION TWO

Provisional measures which may be taken in a divorce suit

Article 21.- The husband, plaintiff or respondent, shall be in charge of the provisional administration of the children, unless the Court orders otherwise, in the children’s best interests, upon request by the mother, by the family, or by the District Attorney.

Article 22.- As soon as any action or proceeding is started regarding the divorce, the provision of article one hundred and eight of the civil code which states that the domicile of a married woman is that of his husband’s shall cease to be in effect. The woman may leave the husband’s residence during the process, and she may ask for financial support in proportion to his ability. The court shall indicate the house where the woman shall be obligated to live, and shall fix, if appropriate, the support to be paid by the husband. All notices, including whatever preliminary acts intended to establish proof of abandonment or other facts regarding the divorce must be served upon her personally, under penalty of radical and absolute nullity, or upon the District Attorney of the court in charge of deciding about such divorce, who shall take all such actions as shall be necessary for any such notice to be made known to the woman.

Paragraph (Added by Law 2153 of November 12, 1949).- In all cases where a summons has to be made by the District Attorney, it shall be obligatory for the plaintiff husband, under penalty of radical and absolute nullity, to publish previously an announcement in a national newspaper with widespread circulation, for three consecutive days, warning the respondent wife that, failing information regarding her place of residence, she shall be sued for divorce before the District Attorney of the court in charge of deciding about suchdivorce. Such publication shall identify the court, the date when the action for divorce shall be filed with the District Attorney, the cause for such suit, the name of the plaintiff, the name of the woman against whom the action for divorce shall be instituted, the woman’s last place of residence known to the husband, and the day and time set for the hearing. A copy in extenso of such publication shall be given to the District Attorney in charge of the case. The judge in charge of the case shall declare the suit non-receivable if he/she is not given proof that the aforesaid publications have been made, by depositing the three newspaper copies, certified by the editors, containing the three consecutive publications ordered by this law.

Article 23.- The woman shall be obligated to justify her residency in the house indicated, whenever she is asked to do so. Failing such justification, the husband may refuse to pay for support, if he justifies that the woman has abandoned the residence indicated.

Article 24.- The woman who holds property in common with her husband, whether she is the plaintiff or the respondent, may at all times during the proceedings–from the date when the suit is filed–require for the preservation of her rights that such property be bound. Such bind may only be removed after an estimate inventory has been taken, and the husband shall be obligated to produce the inventoried goods, or he shall be answerable for the value thereof as legal custodian.

Article 25.- All liabilities of the conjugal community, any alienation of real property held in common, incurred or done by the husband after the date when the action for divorce was started shall be annullable if it is proved that they defraud the rights of the woman.

CHAPTER IV

On Divorce by mutual consent and the procedures to be followed

Article 26.- The spouses’ mutual and persevering consent, expressed in such manner as prescribed by law, shall sufficiently justify that their life in common is unbearable.

Article 27.- A divorce by mutual consent shall not be admissible before two years of marriage; it shall neither be admissible after thirty years of life in common, or when the husband is at least sixty years of age and the woman fifty.

Article 28.- The spouses shall be obligated, before appearing in front of the judge who shall hear their case, to: 1) make a formal inventory of all their personal and real assets; 2) decide which of them shall have custody of the children born from their marriage, during the divorce proceedings and after the pronouncement thereof; 3) decide at which house the wife shall reside during the proceedings, and the amount to be given to her by the husband, for support, for the duration of the divorce proceedings and until a final judgment is awarded.

Paragraph I.- All these conventions and stipulations shall be made by means of an authenticated document.

Paragraph II.- When the foregoing formalities shall have been fulfilled, the spouses– personally or by proxy warranted by means of an authenticated document–provided with the documents containing the stipulations referred to herein, as well as with a copy of the certificate of marriage and the certificates of birth of the children from their marriage, shall appear before the Judge of First Instance of their domicile, and shall state their intent to divorce by mutual consent, and that to this end, they request authorization to institute divorce proceedings.

Paragraph III.- Failing the existence of birth certificates, due to the absence thereof in the city clerk records, a declaration before a notary public by several witnesses shall be entirely valid.

Paragraph IV.- In the case of Dominican spouses residing abroad, the conventions and stipulations may be drawn up through special attorneys and signed by them before a notary public of the jurisdiction chosen by them in the document containing the proxy. In such conventions and stipulations, the parties shall expressly give competence to a Judge of First Instance of the same venue indicated by them in the proxy, to hear and render judgment in the matter of their divorce.

Paragraph V.- Foreigners who are in this country, even if they are not residents, may divorce by mutual consent, provided that at least one of them is present at the hearing and the other one is represented by a special proxy, and that they expressly agree to submit to the competence of a Judge of First Instance and state so in the act of conventions and stipulations instrumented by a notary public of the same jurisdiction of the court of law chosen by them. For the case provided in this Paragraph, the provisions of Art. 2 of this law shall not apply.

Article 29. The Judge, in view of the spouses’ declaration, shall make a record of their depositions.

Article 30. After verifying that all legal requirements have been fulfilled in order for the action for divorce to be admissible, the Judge shall authorize such action, fixing a term of not less than thirty days and not more than sixty days for the spouses to appear in court; and in view of all the documents, he/she shall render a judgment eight days after the hearing.

Paragraph I.- Such judgment shall conform in all respects to the stipulations set forth in the documents mentioned in article twenty-eight, which may not be varied unless the spouses themselves wish to do so on the day of the hearing, upon prior mutual agreement.

Paragraph II.- For the case mentioned in Paragraph V of Article 28 of this Law, the Judge shall authorize the action for divorce, setting the date therefor within a period of tree days for the spouses to appear in court. After the hearing, the Court shall order that the District Attorney be notified, so that he/she may make a decision within a three-day period, exclusive of the day of such notification and the day of such decision, and the Judge shall render judgment within the three (3) following days.

Article 31.- The spouses, or the most diligent of them, are/is obligated to have transcribed in the Civil Registry the judgment admitting their divorce, and to have such divorce pronounced, which should be done not later than eight days afterwards, exclusive of the day of such pronouncement.

Paragraph.- In the case stipulated in Paragraph V of Article 28 hereof, after judgment has been rendered, the divorce may be pronounced by any City Clerk of the jurisdiction of the Court in charge of the matter, upon presentation of a certified copy of the judgment, previously transcribed at the Civil Registry, and the provision thereof shall be published in a newspaper of nationwide circulation.

Article 32.- A judgment ordering a divorce by mutual consent shall not be subject to appeal; and for the execution thereof, the rules established in the Code of Civil Proceedings shall be complied with, in addition to the formalities set forth herein.

Article 33.- The spouses are obligated to file with the Court Clerk all documents pertaining to the action for divorce by mutual consent, in such manner as set forth in article twenty-eight.

CHAPTER V

Effects of Divorce

Article 34.- If the divorced spouses marry each other again, they may not adopt a marriage regime other than the one they had before.

Article 35.- A divorced woman may not remarry until ten months after her divorce has become final, unless her new husband is the same whom she divorced.

Article 36.- (Amended by Law N­2669 of December 31, 1950, O. G. 7231).- A spouse against whom a divorce is pronounced for any of the reasons set forth in sections d), e), f), g), and h) of article two, shall lose all the benefits accorded to him/her by the other spouse, whether by marriage contract, or during the marriage.

Article 37.- A spouse who has been granted divorce shall retain all benefits granted by the other spouse, even if those benefits have been reciprocally established and such reciprocity does not take place.

CHAPTER VI

Inadmissibility Exceptions

Article 38.- An action for divorce shall be extinguished upon the reconciliation of the spouses during such action or after it has been instituted.

Article 39.- In one case or the other, the plaintiff’s action shall be declared inadmissible; however, he or she may attempt a new action for a cause developed after the reconciliation; in which case, he/she may use the former causes to substantiate his/her demand.

Article 40. If the plaintiff claims that there has been no reconciliation, the respondent may prove that there has, whether in writing or by witnesses, in such manner as established in articles seven et sequitur.

Article 41.- The proceedings ordered by this law are prescribed under penalty of nullity, and all time periods established are exclusive of the day when the requirement is made and the day when the required action is supposed to take place.

CHAPTER VII

Article 42. (Amended by Law N­136 of June 23, O.G. 9616.58).- The provision of a judgment of divorce for cause shall be published in a local newspaper, not later than eight days after the divorce has been pronounced, including the mentions regarding the pronouncement of divorce, and a copy of such newspaper shall be filed with the Court Clerk within the eight days following such publication, under penalty of a one hundred pesos fine to the spouse who has obtained the divorce, without prejudice of any civil liability incurred on account of his/her negligence. If there is no newspaper in the locality where the divorce has taken place, the aforesaid provision shall be published in a newspaper of the nearest province or municipality.

Paragraph.- In the case of divorce for mutual consent, the obligations established in this article shall apply to both spouses, under the penalty stated above.

Article 43.- Divorce law number eight hundred and forty-three, enacted on February nineteenth nineteen hundred and thirty-five, is hereby annulled.