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Lexology Getting The Deal Through is delighted to publish the fifteenth edition of Project Finance, which is available in print and online at www.lexology.com/gtdt. Lexology Getting The Deal Through provides international expert analysis in key areas of law, practice and regulation for corporate counsel, cross-border legal practitioners, and company directors and officers.
Throughout this edition, and following the unique Lexology Getting The Deal Through format, the same key questions are answered by leading practitioners in each of the jurisdictions featured. Our coverage this year includes new chapters on India and Taiwan. Lexology Getting The Deal Through titles are published annually in print. Please ensure you are referring to the latest edition or to the online version at www.lexology.com/gtdt. Every effort has been made to cover all matters of concern to readers. However, specific legal advice should always be sought from experienced local advisers.
Lexology Getting The Deal Through gratefully acknowledges the efforts of all the contributors to this volume, who were chosen for their recognised expertise. We also extend special thanks to the contributing editor, Aled Davies of Milbank LLP, for his continued assistance with this volume.
Fabio J Guzmán Saladín, Alfredo A Guzmán Saladín and Alberto Reyes Báez
CREATING COLLATERAL SECURITY PACKAGES
Types of collateral
1) What types of collateral and security interests are available?
Under Dominican laws, security interests, such as mortgages, liens, privileges, encumbrances, pledges or endorsements, may be granted on the following assets:
• real estate properties (collateral may cover the land and the improvements built therein);
• movable assets (motor vehicles, boats and vessels, aircraft, machinery, equipment, inventory – fix or revolving, present and future agricultural crops, and other goods);
• intellectual and industrial property rights (patents, industrial designs, trademarks, trade names);
• contractual rights (credits, receivables, concessions, licences, promissory notes, insurance policies, future productions); and
• financial instruments and securities (bank accounts, investments, certificates of deposit, shares, bonds, and income derived from securities or instruments). It is important to note that Dominican law does not recognise the possibility of granting blanket security interests over an entire business; security interests must be granted over specific assets, which must be determined or determinable, and then the lien and priority established. However, with the enactment of Dominican Trusts Law No. 189-11, a single collateral instrument denominated Warranty Trust can now be created, comprising all or some of the assets listed above.
2) How is a security interest in each type of collateral perfected and how is its priority established? Are any fees, taxes or other charges payable to perfect a security interest and, if so, are there lawful techniques to minimise them? May a corporate entity, in the capacity of agent or trustee, hold collateral on behalf of the project lenders as the secured party? Is it necessary for the security agent and trustee to hold any licences to hold or enforce such security?
Requirements for perfection of collateral for real estate properties and how priority is established
Mortgage securities are created by the execution of a mortgage agreement, in compliance with local law requirements. To perfect real estate collaterals, mortgage agreements must be executed between the registered owner of the property or its authorised representative and the creditor, and later recorded at the local Registry of Titles.
A regulation enacted in 2016 requires foreign entities to obtain a Dominican tax identification number to be able to register and perfect a mortgage. Although credit agreements may be subject to foreign legislation and their registration is not required locally, a mortgage contract done and registered according to local law is mandatory if the collateral (real estate) is located in the Dominican Republic. Priority and enforcement rights against third parties are perfected by filing the mortgage agreement and other required documentation before the competent local Registry of Titles, based on the jurisdiction where the property is located. The first creditor who files a mortgage obtains a first- ranked security via the issuance of a creditor’s registry certificate, which enables the creditor to collect its debt through the foreclosure of the collateral, before all other lower-ranked registered mortgage creditors. The documents required to record a mortgage are:
• mortgage agreement, authenticated by a Dominican notary;
• owner’s certificate of title;
• certification showing that the owner is up to date with property tax obligations;
• legal status certification of the property;
• banking proof or evidence of the disbursement of funds to the debtor or other in-kind payment for which the collateral is being secured (to be enforced once the Registrar of Titles enacts their internal AML regulations);
• receipt showing payment of the 2 per cent mortgage registration tax;
• local tax ID of the creditor;
• creditors’ and debtors’ registered assembly meeting minutes or corporate resolution authorising the registration of the mortgage (for corporate entities); should the signing parties be physical individuals, they are required to file a copy of their national Dominican
IDs, including those of their spouses. Foreign individuals are required to provide a copy of their passport photo page and that of a second ID (driver’s licence, etc.); and
• registration of the Power of Attorney, if one is used.
Requirements for perfection of collateral for shares and how priority is established.
The requirements to perfect collateral based on shares of a Dominican company will depend on the type of entity (stock corporation, simplified stock corporation or LLC), and on the procedure established by the company by-laws.
In most cases, a shareholder who wishes to pledge his or her shares to a third party must notify the other shareholders, directly or via the board of directors, to receive approval prior to executing a share pledge agreement and registering the pledge. The pledge agreement or contract that contains the provisions pertaining the pledge over the shares must be recorded at the Electronic Collateral Registry, a system created by the Movable Assets Warranty Law No. 45-20, enacted on 18 February 2020. This law is already in effect; however, up to the date of this publication the regulation has not been released, and thus the supervisory government agency or office that will control de Electronic Collateral Registry has not been created.
The agreement must also be registered before the Mercantile Registry Office of the company domicile – the main source of information of the company’s activities opposable to third parties and shareholders. However, priority and creditors rights over the shares are enforced through the Electronic Collateral Registry. If the company operates in a regulated sector, such as telecommunications, energy or the financial/insurance sector, government approval or notification would also be required, since enforcement of ownership rights may be subject to further approval.
The following documents are required:
• company by-laws;
• mercantile registry of the company;
• share pledge agreement;
• minutes of the shareholders’ meeting approving the pledge;
• share certificate (only applicable to stock corporations);
• shares transfer book (only applicable to stock corporations); and
• the local tax ID of the creditor.
Requirements for perfection of collateral of movable assets and how priority is established.
The Dominican Republic enacted, on 18 February 2020, the Movable Assets Warranty Law No. 45-20, which was set to enter into force on 18 December 2020. The law calls for the Executive Branch to issue its
application norm before entering into force, which is still pending at the time of writing. This new law changes and unifies the old system of registry and enforcement of collateral over movable assets, previously regulated by various individual laws (Civil Code, Commerce Code, the Law of Agriculture Incentives and other specific laws). Under the new law, pledges or collateral agreements can be freely negotiated between the parties involved and can even be drafted in a foreign language, with the requirement that it must be officially translated into Spanish prior to its registration. Agreements can be standalone collateral agreements or can be within a provision of another contract based on which the collateral is granted. Moreover, the law allows the parties to freely choose how they wish to document their agreement, from one of the following methods:
• an authentic notarised act;
• a private signature agreement with or without notary public authentication of signatures; or
• an electronically signed document, with or without e-signature.
Collateral agreements for movable assets are registered and governed by Dominican law, which also sets mandatory priority rules and foreclosure proceedings.
The most important legal step to perfect a collateral or guarantee over a movable asset, regardless of its nature (goods, rights, intangibles, etc), is the registry before the Electronic Collateral Registry created by the law.
The law establishes a regime that varies depending on the type of asset and rights. The general principle is that the registry grants priority. The first to register the collateral will hold priority, with the exception of creditors that hold the possession of the assets as collateral. This particular type of collateral does not require prior registration before the Electronic Collateral Registry, granting them priority before any third-party registered creditors, as long as the collateral agreement expressly establishes that possession of the assets has been received by the creditor or third-party collateral agent.
The different types of priorities established by the law are:
• priority over movable assets in possession of the debtor;
• priority over movable assets in possession of the creditor;
• priority over guarantees for acquisition of movable assets;
• priority over collateral pledged over titles for merchandises;
• priority over collateral pledged over credit certificates;
• priority over collateral for credits or receivables;
• priority over collateral on credit instruments;
• priority over collateral on movable assets adhered or incorporated into a real estate; and
• priority over collateral from possession by control.
The following documents are required:
• pledge agreement executed in one of the three forms explained above in this section;
• inventory of assets;
• owner’s certificate of registration (for aircraft, ships and vehicles);
• inventory of the assets to be pledged referencing its type or category and a formula or determination of future assets; and
• the local tax ID of the creditor.
Law No. 189-11
Law No. 189-11 for the Development of the Mortgage Market and Trusts
introduced trusts and collateral agent structures for mortgage securities as an alternative to standard mortgages. The structures benefit from an expedited process for foreclosures. Multiple service banks, savings and loan associations or any other financial intermediary or foreign bank authorised by the Monetary Board can act as collateral agents, as well as any other commercial company incorporated under the laws of the Dominican Republic or foreign laws with the specific and exclusive purpose of acting as collateral agents.
Assuring absence of liens
3) How can a creditor assure itself as to the absence of liens with priority to the creditor’s lien?
Real estate property
For real estate properties, a certification of liens and encumbrances (title search) from the Land Registry Office of the jurisdiction where the property is located can be obtained. This certification will identify the recorded owner of the property and if there are any registered mortgages, liens, etc on that property.
In the new regime established by Law No. 45-20, a certification issued by the Electronic Collateral Registry will show the status of any recorded lien or right over a movable asset of any nature, since it will be a centralised system for all types of liens affecting movable assets.
This centralised registry was conceived with the intention of havingstable information for everyone and granting legal certainty to all operations involving said assets. The applicable principle is that no creditor could claim priority rights over a movable asset without having his or her credits registered before the Electronic Collateral Registry, unless such creditor is in possession of the assets under a collateral agreement, which is the sole exception under the law which allows for creditors to claim collateral rights without prior formal registration.
As of June 2021, the law is still pending its application regulation; therefore, the prior system will remain in effect, as described below. For movable assets, pledge certifications are issued by the Justice of the Peace of the jurisdiction where the assets are located or from the domicile of the debtor, if they are not the same.
For motor vehicles, aircraft and boats, creditors can obtain information at the government offices where pledges on these assets are recorded.
For intellectual property rights, the creditor may obtain information at the National Office of Intellectual Property.
In the case of securities over shares, information is available at the office of the Mercantile Registry of the jurisdiction of the registered office of the company.
As for contractual rights and receivables, creditors must keep on file a copy of the notice given to the debtor, but there is no centralised public registry that will grant certainty to a third party investigating about liens over such rights.
Finally, for financial instruments and securities, the creditor must require its debtor to authorise the bank to disclose such information, when a bank is involved, or can search for it at the registry of the corresponding authorities.
Enforcing collateral rights
4) Outside the context of a bankruptcy proceeding, what steps should a project lender take to enforce its rights as a secured party over the collateral?
The first step every creditor should take is to register the collateral at the appropriate government registry and in the case of movable assets, after the enforceability of the new Law No. 45-20, before the Electronic Collateral Registry.
After registration, the course of action will vary depending on the type of collateral, but all will entail, first, serving the debtor a notice via bailiff indicating the existence of an event of default; and second, petitioning foreclosure on the collateral, which will ultimately lead to a public auction (judicial process for real estate collaterals), at which point, if there are no interested bidders, the creditor will have the asset adjudicated to his or her name.
In the new movable assets regime set forth by Law No. 45-20, there are several procedures that can be chosen by parties in the contract:
• a judicial foreclosure procedure;
• a non-judicial foreclosure procedure through the appointment of an executor; or
• an arbitration procedure.
In any of the chosen procedures, there are three possibilities depending on the type of movable assets being foreclosed. The creditor can either have the assets sold at a public auction through a direct sale or obtain
the direct adjudication of the assets in its favour, as partial or complete payment of the secured debt.
For movable asset collateral enforcement purposes, the collateral agreement together with the certification of its registration issued by the Electronic Collateral Registry is considered a valid executable title to proceed with the chosen foreclosure process.
As a matter of principle, Dominican law prohibits creditors from taking control and transferring ownership of collateral without the due process established by law depending on the nature of the asset given as collateral.
Enforcing collateral rights following bankruptcy
5) How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the collateral? Are there any preference periods, clawback rights or other preferential creditors’ rights with respect to the collateral? What entities are excluded from bankruptcy proceedings and what legislation applies to them? What processes other than court proceedings are available to seize the assets of the project company in an enforcement?
Proceedings against debtors are automatically stayed or prohibited once the court accepts the bankruptcy petition. During the restructuring conciliation agreement and negotiation stage, all creditors, including secured ones (registered securities, mortgages and pledges), that wish to have voting rights assigned to them for the execution of the restructuring plan must formally register their credits with the Bankruptcy Court before the court-appointed mediator submits its final report to the court.
If the sale concerns an asset affected by a lien, pledge or mortgage, the proportional price that corresponds to the creditors over such security will be deposited in a bank account opened for the purposes of the reorganisation process and the sums received for the sale will be distributed according to the reorganisation plan, if approved, or on a proportional basis in the case of liquidation, following the preference order of their securities.
Articles 60 and 107 of Decree No. 20-17 provide the possibility of selling a group of assets or the entire business of the debtor. Whenever the sale of assets is approved by the court, all existing mortgages and privileges will be cancelled; the new owner is only obliged to pay for the sale price and the assets are transferred free of any liens or encumbrances.
Credits originated after the commencement of the insolvency proceedings, when approved by the court, have a higher priority in relation to all other secured and unsecured claims other than those owed to the tax authorities, to the employees or originated by the insolvency proceedings.
Article 86 of Law No. 141-15 establishes the following payment priority order for debts under a reorganisation process:
• labour liabilities, whenever they have not been advanced in accordance with the provisions of the labour code or any other laws regarding social security or employees’ health;
• the costs and expenses originated by the reorganisation process, including the fees of the officials and auxiliaries involved;
• the loans approved by the court and granted by financial intermediation entities or third parties for the financing of the debtor;
• the credits of essential and public service providers or suppliers, duly authorised by the court;
• the debts resulting from the execution of contracts that remain in force after the commencement of the reorganisation process, when approved by the court and the corresponding creditor agrees to deferred payment; and
• other liabilities, according to their priority (secured credits will prevail).
Ex officio or upon petition of any creditor, the conciliator may request to the court the nullity of any transactions that took place two years prior to the reorganisation request if they constitute an unjustified dissipation of the debtor’s assets. Transactions regarding public offering securities originated prior to the reorganisation request and with subsequent payment date are not subject to the nullity action.
Transactions involving the free transfer of assets or any other entered into by the debtor after the commencement of the insolvency proceedings may be annulled. Some transactions are expressly considered to be null and void, such as:
transfers of assets free of charge or at a price below market value;
• when the compensation given to the debtor or the creditor is notoriously superior or inferior than the compensation given or the obligation performed by the other party;
• the partial or full compensations made by the debtor;
• payment of obligations not due by the debtor;
• grant of new securities or increase of existing securities for debts originated prior to the reorganisation request with no justification;
• transfers of property in favour of creditors that result in the payment of a higher amount than that received as a result of the liquidation; or
• transactions with related entities or companies where the debtor or any of the creditors serve as an administrator or are members of the board of administrators, among others.
Furthermore, Law No. 141-15 deems null and void any contractual clauses that, within 60 days prior to the commencement of the negotiation phase or after the initiation of the proceedings, aggravates the situation of the debtor or accelerates the enforceability of claims not due. Under the terms of the law, no legal provision or contractual clause could give rise to the division, termination, resolution or annulment of the contract solely due to the acceptance of a reorganisation request or designation of the conciliator.
Law No. 141-15 is applicable to all national or foreign companies and businesspersons with domicile or permanent presence in the country, but expressly excludes commercial entities that have a majority stake belonging to the state or controlled by it; financial entities are governed by the Monetary and Financial Law No. 183-02, dated November 2002, and its modifications; securities intermediaries, investment funds management companies, centralised security deposits, stock exchanges, securitisation companies and any other entity considered to be a stock market participant, with the exception of publicly traded companies and companies are governed by Law No. 19-00 on Securities. Electrical, insurance, trustees and other regulated entities are also excluded and subject to their governing laws.
In the transition regime, prior to the enforceability of Law No. 45-20, aside from movable or chattel pledges procedures recognised by Law No. 6186 or the commercial pledge of the Commerce Code, the law does not contemplate the possibility of seizing the assets of a business outside of a court proceeding, except for those assets that were already awarded to a creditor by a court judgment prior to the commencement of the insolvency proceedings.
Under Law No. 45-20, the creditor and debtor can agree in their contract to undergo either a judicial procedure, and extrajudicial procedure or arbitration for the enforcement and foreclosure of the assets given as collateral.
Bankruptcy proceedings in the Dominican Republic are governed by Bankruptcy and Restructuring Law No. 141-15 and Decree No. 20-17, in effect since February 2017.
Proceedings against debtors are automatically stayed or prohibited once the court accepts the bankruptcy petition.
FOREIGN EXCHANGE AND WITHHOLDING TAX ISSUES
Restrictions, controls, fees and taxes
6) What are the restrictions, controls, fees, taxes or other charges on foreign currency exchange?
There are no local restrictions, controls or taxes on foreign currency exchange in the Dominican Republic.
According to the Monetary and Financial Code, the US dollar and the euro are considered freely convertible currencies and hence authorised to be enforceable in contracts; this also has been acknowledged by the Supreme Court.
Other currencies would need to be converted according to the exchange rate applicable on the day of payment or execution; however, these can be pre-established in the contract by the parties.
7) What are the restrictions, controls, fees and taxes on remittances of investment returns (dividends and capital) or payments of principal, interest or premiums on loans or bonds to parties in other jurisdictions?
No restrictions or controls apply on the remittance of investment returns or loans repayments abroad. As for taxes, the general principle is that Dominican source income (income derived from investments or interests located in the Dominican Republic) is subject to taxation. In that regard:
• interest payable abroad to financial institutions or by a branch office domiciled in the Dominican Republic is subject to a 10 per cent withholding tax;
• remittance of dividends is subject to a 10 per cent withholding tax; and
• all other payments made abroad are subjected to a 27 per cent withholding tax, considered as a final and definitive payment of the taxes owed for the operation.
Regarding the restrictions of payments of principal, interest or premiums loans, the control and limitations established by the Dominican Internal Revenue Office are, among others:
• interest rates must be in the range of the rates offered in the market to avoid transfer pricing regulations enforcement;
• interest payments will only be considered deductible if the required retentions have been paid; and
• the leverage ratio of the company must be 3:1 of the amount of its social capital for the debtor to be allowed to consider the debt payment as deductible.
8) Must project companies repatriate foreign earnings? If so, must they be converted to local currency and what further restrictions exist over their use?
There are no restrictions in terms of repatriation of earnings or currency conversion.
9) May project companies establish and maintain foreign currency accounts in other jurisdictions and locally?
Yes, they may establish and maintain foreign currency accounts in other jurisdictions as well as locally. US dollar and euro savings accounts are the only types of foreign currency accounts allowed at local financial institutions.
FOREIGN INVESTMENT ISSUES
10) What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?
There are no restrictions with respect to the ownership of project companies. The Dominican Constitution accords foreign and local investors equal treatment under the law, stating expressly that foreigners in the Dominican Republic are entitled to the same rights as Dominican nationals, except for participating in local political activities. At the same time, foreign investors are bound by the same rules and regulations applicable to local investors. Foreign investors can freely hold equity in local businesses and joint ventures, as well as buying real estate in their names.
Foreign Investment Law No. 16-95, enacted on 20 November 1995, and its enabling regulations, eliminated all barriers formerly imposed on international investments in the Dominican Republic. Investors contributing capital to companies operating in the Dominican Republic are granted unlimited access to all sectors of the Dominican economy, except to those related to national security and certain sensitive industries.
Moreover, there is currently a bill that aims to amend the Foreign Investment Law under discussion in Congress.
11) What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?
Insurance in the Dominican Republic is regulated by Law No. 146-02. Pursuant to this law, insurance policies on assets and interests located in Dominican territory must be issued by companies authorised to operate as insurance companies in the country. However, insurance policies issued by local companies may be reinsured by foreign insurers, which also need a licence as ‘non-domiciled reinsurers’.
Insurance policies issued for assets located in the country may be paid, as instructed by the owner or beneficiary of the asset, into the hands of the secured creditors, local or foreign, without restriction. Assignments of proceeds to both insurance and reinsurance policies are common practice locally.
12) What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?
There are no restrictions on bringing foreign workers to work on a project in the Dominican Republic; however, article 135 of the Dominican Labour Code requires that at least 80 per cent of a company’s workforce be Dominican. Likewise, no less than 80 per cent of the payroll, with the exception of salaries for technical or executive positions, must correspond to wages earned by Dominicans. These rules do not apply to employees carrying out executive or managerial duties, or occupying technical positions for which there is no available Dominican substitute.
13) What restrictions exist on the importation of project equipment?
There are no restrictions applicable to the importation of project equipment to the Dominican Republic, provided that the applicable customs duties are paid. There are laws, such as the Competition and Industrial Innovation Law No. 392-07, that grant classified and registered companies exemptions for imported equipment and machinery necessary to carry out their industrial processes.
14) What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?
Article 51 of the Constitution of the Dominican Republic states that no person can be deprived of property rights unless there is a public utility or social interest need, in which case the owner will be entitled to receive payment for the property at a fair value determined by a competent court. Any expropriation process followed by the Dominican government must comply with this and other constitutional and legal provisions, including the guarantee of due process. There are no forms of investment specially protected from expropriation.
FISCAL TREATMENT OF FOREIGN INVESTMENT Incentives
15 What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?
According to the equal treatment principle set by Law No. 16-95 on Foreign Investment and the Dominican Constitution, foreign investors are entitled to the same rights and obligations available to national investors.
Interest payments on foreign loans are subject to 10 per cent with- holding tax.
Also, depending on the type of collateral, other taxes will apply. This is the same for local or foreign creditors.
Generous tax incentives are granted in the Dominican Republic to projects in the following sectors: tourism, renewable energy, free zones, film production and manufacturing, among others.
16) What are the relevant government agencies or departments with authority over projects in the typical project sectors? What is the nature and extent of their authority? What is the history of state ownership in these sectors?
The relevant government agencies or departments with authority over projects in the typical project sectors are:
• oil and gas: the Ministry of Industry and Commerce regulates, supervises and controls the distribution, importation and commercialisation of oil and gas in the Dominican Republic; however, the
Ministry of Energy and Mines regulates the exploration, exploitation, extraction and policies concerning these natural resources;
• mining: the Ministry of Energy and Mines is the governing body in charge of overseeing mining activities in the country and granting exploration, exploitation and extraction permits and concessions to private parties. The Ministry of the Environment and Natural Resources also grants environmental licences and permits to mining projects in the country;
• public private partnerships: PPP projects are regulated and supervised by the General Direction of Public Private Partnerships. This government agency is in charge of the supervision of PPP Law No. 47-20. The purpose of the law is to create a new source of executing public interest projects using private capital and initiative along with government cooperation; chemical refining is regulated by the Ministry of Public Health, the Ministry of Environment and Natural Resources, and the Ministry of Energy and Mines;
• water is regulated by the National Institute of Potable Water and Sewerage, the General Directorate of Water Resources and each city’s local water and sewer system administrator;
• tourism and real estate development are regulated by the Ministry of Tourism, and the Ministry of Environmental and Natural Resources;
• free zones are under the authority of the National Free Zones Council and Association of Free Zones;
• the energy sector is regulated by the General Electricity Law No. 25-01. The government entities in charge of regulating the sector are the Superintendence of Electricity, the National Energy Commission and the Dominican National Electrical Corporation. The Ministry of the Environment and Natural Resources and the
Ministry of Energy and Mines are also involved in granting licences and permits to energy projects in the country;
• the transportation sector is divided into three subsectors:
• ground transportation, regulated by National Institute of Transit and Ground Transportation;
• air transportation, regulated by the National Institution of Civil Aviation; and
• maritime transportation, regulated by the Dominican Navy and the National Authority for Maritime Affairs;
• ports and public construction projects are under the authority of the Ministry of Public Works, the Dominican Port Authority and the Dominican Navy. The Ministry of the Environment and Natural Resources also grants environmental licences and permits in this sector; and
• telecommunications: the Dominican Telecommunications Institute is in charge of telecommunication projects.
REGULATION OF NATURAL RESOURCES
17) Who has title to natural resources? What rights may private parties acquire to these resources and what obligations does the holder have? May foreign parties acquire such rights?
The Dominican government has ownership over all natural resources and may grant concessions to private parties, local or foreign, to exploit, extract or use such resources as regulated in the appropriate concession agreement. The obligations of the holder are stipulated in the concession agreement. Also, according to the recently enacted Public Private Partnerships (PPP) Law No. 47-20, of 20 February 2020, the term ‘concessions’ is being replaced by the term PPP and from now on, with only a few exceptions, the regime for the type of exploitation considered for concessions will be structured under PPPs.
Royalties and taxes
18) What royalties and taxes are payable on the extraction of natural resources, and are they revenue- or profit-based?
Royalties and taxes vary according to the industry. Most are revenue based and specific to the type of exploitation.
19 What restrictions, fees or taxes exist on the export of natural resources?
Concession agreements provide general guidelines for the export of natural resources. At the present time, the taxes or fees applicable for such exports are negotiated on a case-by-case basis.
LEGAL ISSUES OF GENERAL APPLICATION
20) What government approvals are required for typical project finance transactions? What fees and other charges apply?
Government approval of project finance transactions is only required in certain sectors, such as in free zones, telecommunications, and energy, mining, and port concessions.
Registration of financing
21) Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable?
All security agreements must be executed or translated into Spanish, notarised and registered as described above. If executed abroad, agreements must be apostilled.
The financing agreement only needs to be translated if it will be enforced pursuant to local laws.
22) How are international arbitration contractual provisions and awards recognised by local courts? Is the jurisdiction a member of the ICSID Convention or other prominent dispute resolution conventions? Are any types of disputes not arbitrable? Are any types of disputes subject to automatic domestic arbitration?
The Dominican Republic has been a member of the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards since 2001. The country is also a signatory, since 2008, to the Inter-American Convention for International Commercial Arbitration. Local courts are bound to recognise arbitration agreements as well as the mandatory referral of disputes relating to these agreements to arbitration.
According to Law No. 489-08, matters of public order cannot be judged in arbitration; nor can matters that cannot be part of a private settlement enter into arbitration, including cases about family law (divorce, child support, alimony), foreclosure procedures, land litigation (related to the matters of the Land Law), and criminal cases.
According to Law No. 489-08, judicial enforcement of foreign arbitral awards is subject to a court order, called an exequatur, issued by local courts. The main requirements for the Dominican courts to grant an exequatur are that the legal requirements in the country of origin have been correctly applied and that the ruling has been authenticated and apostilled, and has complied with the formalities required by the law of origin.
Law governing agreements
23) Which jurisdiction’s law typically governs project agreements? Which jurisdiction’s law typically governs financing agreements? Which matters are governed by domestic law?
As a result of the principle of contractual freedom, and according to Law No. 544-14, foreign law may be chosen as the applicable law to an agreement to the extent that such a choice of law is not contrary to public policy. New York law and the laws of England and Wales are frequently chosen for finance agreements.
As for matters governed by domestic law, it should be noted that securities involving real estate assets and movable assets collateral located in the Dominican Republic are subject to Dominican law as a matter of public policy order, although overlying credits agreements can be subject to foreign law.
Submission to foreign jurisdiction
24) Is a submission to a foreign jurisdiction and a waiver of immunity effective and enforceable?
Yes. However, judgments from foreign jurisdictions are not enforceable in the country until the Civil and Commercial Chamber of the National District’s Court of First Instance authorises their validity and enforce- ability in the Dominican Republic via an exequatur.
ENVIRONMENTAL, HEALTH AND SAFETY LAWS
25) What laws or regulations apply to typical project sectors? What regulatory bodies administer those laws?
Principal business structures
26) What are the principal business structures of project companies? What are the principal sources of financing available to project companies?
Under certain regulated sectors, such as telecommunications and insurance, the project company needs to be organised under the laws of the Dominican Republic, even though in most cases there are no limits or restrictions as to their shareholders’ nationality. Subject to certain limitations, the same applies when the project is state-owned. Pursuant to local law, a percentage of the company’s equity must be held by a local investor in state-owned projects. The typical form of a project company is a sociedad anónima (joint-stock corporation), which is, among other corporate vehicles, an entity that requires stricter corporate governance, and which brings a perception of safety to both the lenders and the sponsors. Local and foreign financial institutions are the principal sources of financing available to project companies.
PUBLIC-PRIVATE PARTNERSHIP LEGISLATION
27) Has PPP-enabling legislation been enacted and, if so, at what level of government and is the legislation industry-specific?
Yes, the Dominican Republic has recently enacted Public Private Partnerships Law No. 47-20 of 20 February 2020. This is a general law that replaces the old concessional regime (with a few exceptions) for a regime of PPP for public utility or mixed-interest projects involving the private and public sectors.
PPPs are supervised by the Ministry of Presidency and the General Directorate of Public Private Partnerships.
PPP – LIMITATIONS
28) What, if any, are the practical and legal limitations on PPP transactions?
According to Law No. 47-20, the delays due to the law for new projects are very long and achieving the classification of a project involves many steps.
Most of the limitations derive from the state’s ability to fulfil its obligations or delegate functions, which, under the Dominican Constitution, are subject to congressional approval.
PPP – TRANSACTIONS
29) What have been the most significant PPP transactions completed to date in your jurisdiction?
There are two main projects at the time of writing. The first is the Manzanillo Port Facility, which aims to develop the port, a shipyard, an industrial park and an energy park with LNG facilities.
The second project is the touristic development of the southwest area of the country, called Bahia de las Aguilas, which is a virgin beach. An eco-friendly development should start by 2022.
In the past, prior to Law No. 47-20, PPP projects have been in the energy sector, regarding energy generation, road construction and management, maritime ports and airports. There has also been Ciudad Juan Bosch, a real estate development of more than 12,000 homes, in which the government has contributed with land and infrastructure, while the private sector is developing low-cost housing for low-income families in the city of Santo Domingo.
UPDATE & TRENDS
Key developments of the past year
30) In addition to the above, are there any emerging trends or ‘hot topics’ in project finance in your jurisdiction?
During the pandemic, a number of project finance transactions took a toll in some economic sectors, particularly real estate and tourism, but project finance also diversified to other sectors, with a steady flow of transactions such as energy (both traditional and renewable), telecommunications, IT, fintech, education, health care, logistics, agribusiness, and consumer goods. In 2021, in addition to the aforementioned areas and with a much clearer perspective of the future and the caveats of handling the pandemic, the traditional areas have begun to show signs of improvement. Thus we are already seeing lots of opportunities in the real estate and tourism sectors.
The pandemic stimulated the second home ownership sector all over the island, and more than 20 residential and mixed touristic projects were launched in the area of Punta Cana, achieving more than 80 per cent sales in the construction process and prior to opening. This means more than 800 new rooms and apartments available for second homeowners and as offer for vacation rental. Also, three major hotel developments from world-renowned hotel chains have launched in the Miches beach area, in the east of the country, which has been conceived as a luxury destination.
Finally, some PPP initiatives have already been launched and many others are in their conception phase. We expect those initiatives to increase the project finance opportunities substantially in the coming 12 to 24 months in an array of sectors – infrastructure, tourism, transportation, health care, education, energy, agribusiness, housing, international trade and defence – among other areas that the government has set as priorities for the country’s future development.
31) What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?
The Dominican Republic government has been proactively responding to the covid-19 crisis with varied initiatives in key economic sectors. Below we have outlined some of the measures taken related to project
finance and taxation: The Central Bank, Superintendency of Banks and the Bank Association agreed on the creation of a Loan Relief Fund to benefit micro and small companies. This fund will channel tens of billions of Dominican pesos in loans to micro and small companies to allow them to refinance their current loans under better conditions and to have access to new specialised loans. Central Bank measures:
• reduce the Monetary Policy Rate by 100 points from 4.50 per cent to 3.50 per cent annually;
• authorise financial institutions to freeze debtors’ qualifications and provisions at their current level;
• decrease the interest rate of the permanent liquidity adjustment facility (1-day repos) by 150 basis points, from 6 per cent to 4.5 per cent;
• reduce the interest rate on short-term paid deposits at the Central Bank to 2.50 per cent per year;
• authorise credit restructurings entailing changes in payment terms, interest rates, time limits and fees;
• lighten coverage requirements of legal reserves in foreign currency;
• inject liquidity into foreign currency for a sum of money up to US $300 million;
• ease the reserve coverage requirements for a sum of money up to $22,321 million Dominican pesos; and
• enact Law No. 46-20 on Voluntary Wealth Disclosure. This statute establishes a special and transitory tax amnesty for taxpayers to voluntarily disclose or reassess all their movable and real estate properties located in the country or abroad. The Dominican Tax Office granted an amnesty for closed periods 2017 to 2019; and also for the non-declared assets and declaration of non-recorded assets with a minimum rate (2 per cent to 3.5 per cent); this amnesty ended on 18 May 2021.
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