 BUSINESS GUIDELINES |
| Legal Regime of Foreign Investment |
Foreign Investment in Millions US $
Currently foreign investment is regulated by Law 16-95 on Foreign Investment, adopted on November 20, 1995, and the regulation for its application contained in Presidential Decree 380-96, later amended by Presidential Decree 163-97.
An active legal framework for foreign investors, this legalization provides one of the main tools to promote the flow of capitals to the country, and to adapt the national economy to the current trend of global markets.
Law 16-95 allows almost any type of foreign investor, without the need of prior approval from the Central Bank, to buy through the commercial banks the foreign currency needed to remit abroad all the capital invested and the dividends obtained from the investment.
 1. Equal treatment of foreign investment |
Law 16-95 sets the principle of equal treatment between national and foreign investments, securing them the same legal protection, without any discrimination. This principle is first expressed in the elimination, for the purposes of the Law, of all prohibitions and restrictions previously established to foreign investment in any economic sector.
In line with this principle, Law 16-95 abolished Article 12 of Law 173 of 1966 on the Protection of Agents and Licensees, thus allowing foreign persons and companies to register under such law as agents or representatives of foreign firms, and benefit from the protection granted to the local agent in the event of unjust termination of its agreement by the foreign company.
Nevertheless, the principle of equal treatment has certain exceptions. An example of this situation is the Insurance Law, which requires that at least 51% of national insurance companies belong to Dominican shareholders.
However, this concept has guided legal amendments already approved or in process, such as the elimination of the requirements for the purchase of real property by foreigners, and the opening up of the banking sector to foreign capital established in the Bill for Monetary and Financial Code.
Furthermore, other restrictions result from Law 16-95 itself, which sets forth certain areas where foreign investment is prohibited:
· Disposal of toxic or radioactive waste non-generated in the country.
· Activities that affect public health and the environment.
· Production of equipment and materials directly related to national defense, unless the approval of the President of the Republic has been obtained.
| 2. Definition of foreign investment. |
Foreign investment can take the form of: (I) capital contributions, (ii) in-kind contributions, (iii) intangible technological contributions, such as trademarks, product models, industrial procedures, technical assistance and (iv) financial instruments issued and traded abroad that have been authorized by the Monetary Board. Under the previous law only capital and in-kind contributions were allowed.
The foreign investment can be destined to (I) the capital of any type of business association, including branches of foreign companies, (ii) the purchase of real property, and (iii) the acquisition of shares of other financial instruments authorized by the Monetary Board.
| 3. Registration Procedure at the Central Bank |
The procedure that required Central Bank authorization was exchanged for a simple notification procedure with statistical purposes. Now it is enough for the foreign investor to notify its investment to the country in order to obtain automatically a Certificate of Foreign Investment Registration. This notice is made through the presentation of the following documents:
· Registration request with indication of the amount and area of investment;
· Proof evidencing the placement of the investment in the country; and
· Corporate documents of the company receiving the contribution or the authorization to establish legal domicile if it is a branch.
| 4. Free repatriation of dividends and capital |
The investor provided with a Certificate of Foreign Investment has the right to remit abroad in foreign currency, through the private exchange market:
· The capital invested and all capital gains,
· All dividends declared each fiscal year, after payment of the income tax. Within the 60 days the investor must send to the Central Bank the following documents:
· The annual declaration of dividends duly certified by a Certified Public Accountant; and
· The receipt evidencing the payment of taxes.
The lack of registration of foreign investment at the Central Bank does not affect in any way the validity of such investments. However the investor will have difficulty to freely repatriate its funds abroad.
| International Trade |
The preferential export rights enjoyed by the Dominican nation to enter the United States and European markets, as well as the process of regional integration undertaken by the Dominican Republic, have largely contributed to the development of the external sector and offer a wide range of export opportunities.
| 1. Imports |
Custom duties
The Customs Code, contained in Law 14-93 of August 28, 1993, harmonized the System of Codification and Designation of Goods. The wide variety of categories and rates that previously existed was in this way eliminated, and only six tariffs were established. These amendments simplified considerably the procedure for the calculation and collection of custom duties.
The requirements of the GATT, together with the fact that custom authorities use very discretional valuation methods, resulted in the country having the highest custom duties of the region.
Important documents
In some cases, such as for chemical and pharmaceutical products, import licenses are required. Furthermore, certain permits are required for the import of agricultural products. Some of these products, like rice, sugar, corn, onions, garlic and chicken parts, are subject to import quotas.
A consular invoice that approves the transaction must accompany all imports.
| 2. Exports |
The preferential rights that the Dominican Republic enjoys in order to export its products to the United States and Europe, together with the progress of trade liberalization with its neighbors of Latin America and the Caribbean, make exports an attractive sector with good perspectives of growth. Furthermore, legal measures are being taken in order to increase the competition of the sector.
Dominican Center for Export Promotion (CEDOPEX)
Cedopex was created in 1971 to promote the improvement of the international competitiveness of exportable goods, and to increase and diversify their offer and target markets, through a number of services addressed to export productive sectors. CEDOPEX offers services to promote Dominican exports in international markets, to provide information on those markets and to grant assistance, advice and know-how to the export sector.
| 3. Industrial Free Zones |
Industrial free zones are regulated by Law 8-90 of January 15, 1990, which seeks to promote the establishment of free zones and the growth of existing ones.
3.1. Installing a free zone company
Free zone companies are persons or companies, which have been authorized by the CNZF to install themselves in a free zone and whose production is destined for export. Usually a Dominican company is incorporated to make the request, which can belong entirely to foreign investors. In order to obtain an installation permit the following documents must be submitted:
· CNZF installation permits form duly completed.
· Rent contract with the corresponding free zone.
· Incorporation documents of the company.
· Samples of the product to be manufactured.
· Proof of solvency of the main investors.
· Certified checks for the payment of newspaper publications.
3.2. Incentives to free zone companies
Free zone companies are exempt from the following taxes and duties:
· Income tax.
· Taxes on constructions, registration or transfer of real property rights.
· Taxes for incorporation of companies and increase of capital.
· Municipal charges.
· ITBIS.
· Consular fees.
· Export or re-export taxes.
Furthermore, they are exempt from the payment of all custom duties, import taxes and related charges on:
· Raw materials, equipment, construction materials, office Equipment and any other goods necessary for the construction, preparation and operation of the company.
· Materials and equipment needed for the construction of housing facilities, cafeterias, health services or other established for the benefit of workers.
· Transportation vehicles, including cargo trucks, garbage collectors, buses for workers, etc., upon approval of the CNZF.
Free zone companies can sell all their production in the local market, after payment of all applicable custom duties, as long as (I) the goods or services are not produced or imported in the country, and (ii) the goods or services have local components accounting for 25% of their value.
| 4. Mining |
4.1 Obtaining mining concessions
Law 146 allows any national or foreign person or company to register the discovery of mineral deposits and request a concession in order to explore or exploit such deposits.
The exploration concession grants its holder the right to carry out activities above or below the earth surface in order to define the areas containing mineral deposits by using any technical and scientific methods.
The exploitation concession may be requested at any time during the exploration stage, and grants the right to prepare and extract all mineral substances found in the area, allowing the beneficiary to exploit, melt and use for any business purpose the extracted materials. This concession is granted for a period of 75 years.
There are certain requirements for granting concessions: (I) concessions are limited to an area of 20,000 hectares; (ii) foreign governments cannot obtain concessions; and (iii) foreign companies must fix legal domicile in the country by appointing a legal representative.
Apart from the provisions of the Tax Code, the pursuance of mining activities requires the purchase of a mining business patent issued by the Ministry of Industry and Trade.
Furthermore, exports are charged with a 5% tax calculated on the FOB price of the minerals exported.
| 5. Telecommunication services |
Law 153-98 applies to the following telecommunication services:
· Public services for the transport of telecommunications, such as telephone, telegraph, telex and any transfer of information between two or more points, without any change from one point to the other in the form or contents of such information. These services may be carrier services, final or tele-services and value added services.
· Broadcasting services, which may be radiobroadcasting services by sound or television, by earth waves or satellites, or cable or other broadcasting service, and are provided to the public in general.
5.1 Obtaining concessions, licenses and/or certification of equipment
Law 153-98 sets the principle of free provision of telecommunications services, and thus any company that complies with the established requirements (which include the need to be organized as a Dominican limited liability company) is entitled to request concessions for the provision of telecommunications services, which are granted by INDOTEL for renewable periods of five or twenty years.
There are certain telecommunication services that do not require concessions, being only subject to special registration systems. These services are maritime and aeronautic services, value added services, resale of services and private telecommunications services.
Finally, any telecommunications equipment to be connected to any network or sold in the country must have a Certificate of Ratification issued by INDOTEL after carrying out the relevant technical verifications.
| 6. Public Companies |
Law 141-97 on the Reform of Public Companies was adopted on June 24, 1997. This legislation seeks to improve the efficiency of public enterprises and the quality of services they provide to the public by opening up such enterprises to private investment, and sets forth the necessary measures to regulate and give transparency to the participation process of the private sector in the property and management of public enterprises.
Law 141-97 provides the general framework under which the partial privatization process of public companies will take place, and will thus offer interesting investment opportunities.
6.1. Capitalization process
Law 141-97 sets forth a capitalization process of public companies which comprises the following steps:
· Valuation of the enterprise, by one or more audit firms hired through international public bidding;
· Transformation of the enterprise into a limited liability company;
· Contribution, by the President of the Republic, of the assets and/or interests of the State to the capital of the newly created company;
· Authorization of the capitalization through presidential decree;
· Increase of the company's capital through contributions from private investors.
National and/or foreign investors shall be selected through public international bidding pursuant to criteria fixed in advance. Selection criteria will take into account factors such as job creation, total value of production, tax contributions, construction or reparation of infrastructure, impact on the environment, levels of technology transfer, etc.
Private participation cannot exceed 50% of the company's capital. This restriction is due to limitations established in the Dominican Constitution, which require Congress approval for transfers amounting to more than 50% of the State's interests in public companies.
However, the private investors will have control over the management of the company. This will be ensured through the signature of a management contract with the Government.
If the capitalization process does not fulfill the purposes of the law, the President may authorize the use of other reform methods, such as the granting of concessions, the transfer of shares or the sale of assets. It should be noted that pursuant to Article 55 of the Constitution, Congress must approve the sale of assets or shares.
| 7. Forms of Business Organization |
The investor interested in participating in the Dominican market will wish to organize its business or channel its investment in a way that adapts to the nature of his business activities or the international strategy chosen to carry them out. Dominican laws allow him to choose freely among the different forms of business organizations, there being no restrictions in this regard.
7.1. The corporate vehicle
The most common form of business association in the country is the Limited Liability Company or corporation (compaņia por acciones), but the Commercial Code also provides for the creation of the following types of associations:
· Civil partnership (sociedad civil), which is used for pursuing noncommercial activities.
· Commercial partnership (sociedad en nombre colectivo), whose members do not enjoy limited liability, even after transferring their interests for the debts arising before their departure from the association.
· Limited commercial partnership (sociedad en comandita), in which partners who do not participate in the daily management of the association enjoy limited liability.
· Limited stock partnership (sociedad en comandita por acciones), which is limited commercial partnership whose capital is divided into shares.
· Company of participation (sociedad en participacion), which allows its members to act as single body but has no legal existence as regards to third parties.
7.2. Capital rules
Rules on corporate financial structure are very flexible, but they will certainly become more restrictive as an active capital market develops.
Apart from some highly regulated industries such as banking and insurance, there are no capitalization rules. No minimum capital is required and corporations may finance themselves on whatever debt-equity ratio they might desire. There are no statutory limits, and the courts are not allowed to disregard the limited liability rule under any circumstances, nor subordinate credits of shareholders to those of third parties
In any case, a certificate must always exist, and shareholders may transfer their interest in the manner set forth for each type of share.
7.3 Mergers and acquisitions
Except for financial institutions, there are no legal provisions regarding mergers and acquisitions, and the procedures normally used to carry them out have developed from practical experiences. Furthermore, since there are no specific laws to regulate competition or dominant positions in the market, no legal provision prohibits or restricts mergers or acquisitions in the Dominican Republic.
The merger process comprises usually the following stages:
· Signature of a merger agreement by the general shareholder meeting of each company;
· Ratification of the agreement by the general shareholder meeting of each company;
· Valuation of the assets of the absorbed company;
· Final approval of the merger by the shareholders of the absorbed company after examination of the valuation; and
· Legal dissolution of the absorbed company through the procedure established in the Commercial Code, since the company does not disappear automatically with the merger.
Acquisitions take the form of transfer of stock, pursuant to the provisions set forth in the Commercial Code for each type of share. The shareholder meeting usually ratifies the operation, although law does not mandate this requirement.
7.4 Establishment of branches
Law 16-95 on Foreign Investment abolished the only disincentives to the establishment of branches, since foreign investors no longer need to incorporate a Dominican company in order to be able to register their investment at the Central Bank. Now any investment made by foreign companies in the country through branches may be registered, and the profits obtained therein may thus be freely repatriated in foreign currency.
The establishment of branches of foreign companies is made through the procedure for fixing legal domicile in the country, which applies both to persons and companies.
| Various important laws applicable to businesses in the Dominican Republic |
There are a number of significant laws that apply to businesses operating in the country, which should be noted by any foreign investor wishing to do business in the country.
| 1. Taxation |
1.1 Taxation Of Corporate Forms Compared To Non-Corporate Forms
Non-corporate forms of business associations (including non-profit making organizations) are taxed in the same manner as corporations. This means that tax cannot be avoided by choosing a particular business structure. Any form of business association is treated as a separate entity for tax purposes.
Accordingly, partners cannot transfer their earnings or losses from their venture to their personal returns. Even though the disadvantages of this rule may be minimized by the fact that double taxation is avoided through a credit mechanism that retains earnings and losses in the venture, partners do not have a way of reducing the tax liability of their businesses.
1.2 The Corporate Income Tax
The corporate income tax is the basic tax levied on equity investments, which is the only form of investment that may be registered under the new foreign investment law. The annual corporate income tax rate is now 25%, levied on the net taxable income of a company. This tax is required to be withheld at the corporate level from dividends paid. After the tax is withheld, the resulting balance is free of liability for further tax whether paid to individuals or other companies.
1.3 Taxation Of Securities
To obtain a mortgage on Dominican real estate, the taxes and duties that have to be paid include:
· 5/1,000 of the total amount of the secured loan;
· Internal Revenue stamps of RD$8.00 for the first RD$2,000.00 of the secured loan, and RD$2.00 for each remaining RD$1,000.00 or fraction thereof; and
· Other minor taxes ranging from RD$1.00 to RD$5.00 for registration and cancellation purposes;
· Issuance or annotations made before the Registrar of Deeds and the Land Court.
There are no taxes payables when a creditor takes a pledge on movable property, other than minor taxes and duties (and occasional fees) that are payable at the time the pledge of the collateral is registered.
1.4 Taxation Of Foreign Loans
The Dominican Tax Code imposes a 15% tax on any interest paid or credited into an account resulting from loans executed with financial institutions located abroad. This tax, which must be withheld by the payer of such obligations, constitutes the sole and definitive payment of income tax imposed on such interest.
In addition, both the Dominican Central Bank and commercial banks must charge a fee to purchase, at the applicable exchange rate, foreign currency to pay obligations abroad, including the payment of installments under a foreign loan.
1.5 Taxation Of Payments Made Abroad
A 25% tax is imposed on all payments made abroad, other than interest due or credited to the account of a foreign financial institution, dividends or income from permanent establishments of foreign undertakings in the Dominican Republic. The payment abroad of royalties that derive from obligations existing under a duly registered licensing agreement is an example of payments that are subject to this tax.
1.6 Other Taxes
Other taxes to be considered are incorporation taxes, which are minimal and which depend on the amount of a company' s capital, and the personal income tax, which is withheld by employers on salaries and wages paid to employees and then remitted to the Tax Administration. The first RD$90,720 of an individual's annual income is exempt from taxation; the applicable tax rate then increases in proportion to income, and at its highest level reaches the same rate as the corporate income tax rate.
1.7 Tax Exemptions
As mentioned above, there are numerous tax advantages for businesses operating in free zones, including an exemption of 100% of the corporate income tax.
Traditionally, the amount of taxes levied on investments made in the mining industry, including the exploration of oil, hydrocarbons and other fuels, as well as investments in public services and works, had been subject to negotiation between the foreign investor and the Dominican government. This system is undergoing review as a result of the enactment of the Tax Code. Now, for example, the ordinary corporate income tax applies to investments in the mining industry.
| 2. Intellectual Property |
The Dominican Republic offers strong protection to patents, trademarks and copyrights. Indeed, the country is a signatory to many important international conventions (and their revisions), including:
· The Paris Convention for the Protection of Industrial Property;
· The Pan American Convention for Patents of Invention, Drawings and Industrial Designs (Buenos Aires, 1910);
· The Pan American Convention for the Protection of Trade, Commerce and Agricultural Marks (Chile, 1923);
· The Convention for the International Deposit of Drawings and Industrial Designs (The Hague, 1925);
· The Universal Convention on Copyrights (Geneva, 1952); and
· The Madrid Convention for the International Registry of Trademarks.
The Dominican Republic has enacted special laws and regulations applicable to these matters as well. Furthermore the Ministry of Industry and Commerce has recently submitted to the consideration of the private sector a draft Code of Intellectual Property, prepared in cooperation with officials from the Intellectual Property Organization of the United Nations, that encompasses the various laws in the area and provides for more effective and modern legislative measures to protect intellectual property rights.
| | 3. Protection Of Patents |
Under Dominican law, a patent is an ownership right granted by the Dominican government to the person who invents or discovers new devices, methods of manufacturing industrial products, machinery for manufacturing such products, industrial products and applications or pharmaceutical items. A Dominican patent provides the inventor with the exclusive right to produce, use and/or sell the patented invention in the Dominican Republic for five, 10 or 15 years. In other words, it provides the holder with a limited monopoly on the use of the invention or discovery, preventing its use by another party.
A patent will be found to be void and invalid in the event it is discovered that the invention or application is not genuinely new or if the patent causes conflict with the public order, national security or the law. The patent is lost if the discovery or invention is not exploited on Dominican territory within five years, if its use ceases for three consecutive years or if the holder imports articles manufactured abroad similar to those that it has patented. No patents are granted for credit instruments or financial products.
The patent application process begins with the lodging of an application at the Ministry of Industry and Commerce containing a description of the discovery, invention or application. This description must be in Spanish. Drawings should be attached to the application in case they are necessary for the understanding of the invention. After an official examination and review, the Ministry of Industry and Commerce issues a certificate that specifies the period of duration of the patent. Patents of five to 10 years may be extended to 15 years after paying the difference in the applicable fees.
Any foreigner can apply for a patent in the Dominican Republic. The holder of a foreign patent can also apply for a certificate, but this certificate cannot exceed the duration of that obtained abroad.
| 4. Trademark And Trade Name Protection |
Under Dominican law, a trademark is a distinctive word, term, sign, symbol or mark printed on a product' s wrapper or container to distinguish it from other goods of a similar nature. Terms may be used as trademarks if they do not conflict with the law or damage any rights of third parties. Although Dominican law does not specifically recognize service marks, logos or slogans, it is possible to obtain protection for these kinds of terms, too.
Trade names are a distinctive and original style of a business or commercial establishment. A trade name differs from a trademark in that a trade name designates a business, while a trademark identifies a product or service given or provided by that business.
The owner of a trademark or trade name need not register the mark or name to acquire ownership rights in the mark or name. Registration, however, is the only way to guarantee the exclusive use of the trademark or trade name.
Registration also guarantees the protection of a trademark or trade name for a specified time period that, as with patents, can be five, 10 or 15 years. The term can be renewed at its termination date for a period equal to the prior term.
Significantly, if a trademark or trade name is not used during the first year of its registration, it will be considered void and invalid.
To register a trademark or trade name, a company first must file a request with the Trademarks and Trade Names Department of the Ministry of Industry and Commerce. This department will search its files to see if the mark or name requested is available for registration; if it is too similar or identical to a previously registered mark or name, registration will be denied.
If the department issues a certificate of availability, the applicant must formally request registration within 30 days. (If this 30-day limit is not met, the applicant must file another request to determine availability before requesting registration.)
Once a formal request for registration has been filed, the department publishes all trademarks and trade name requests on the last day of each month in a newspaper with national circulation.
If the registration application is not opposed within 45 days, or if the opposition is rejected, the Ministry of Industry and Commerce will issue a certificate of registration.
If registration is granted to a trademark or trade name that is identical or confusingly similar to a previously registered mark or name, the owner of the previously registered mark or name has three years to protest the later-registered mark or name, at which point the later-registered mark or name shall be declared invalid. If no protest is lodged within the appropriate time, the mark or name that was registered in error shall remain in effect. The invalidity of a trademark or trade name obtained in a fraudulent manner, however, can be pursued at any time.
Dominican law specifically prohibits the registration as trademarks or trade names of the following:
· National or foreign weapons or public insignias;
· An indication of a locality that is not the origin of the article;
· Words or designs offensive to public decorum, or that refer to a person without that person' s consent;
· Reproduction or imitation of previously registered marks under the same item classification;
· The form or color of a product or its container;
· Terms of general use;
· Terms that refer to the nature or type of a product; and
· Geographical names standing alone.
It should be noted that the classification scheme under Dominican law is different from the International Classification of Goods and Services. Therefore, companies must identify the appropriate class for a product before they request registration of a trademark. (Because a trade name identifies businesses, not products, it is not necessary to identify a particular classification for trade names.)
| 5. Copyright Protection In Accordance With The Universal Copyright Convention |
Copyrights are protected in the Dominican Republic under laws and regulations adopted in accordance with the Universal Copyright Convention, which was ratified by the Dominican Republic in October 1992.
Under Dominican law, authors have rights over any kind of literary or artistic work from the time of the original creation. Although copyrights should be registered in the National Copyright Register to enable authors to document their rights in their works, registration is not required for copyright protection.
Copyright owners of cable signals and videos may ask the General Telecommunications Office to enter any place where illegal copies of videos are made or stored, or where illegal cable signals are being copied or transmitted. The General Telecommunications Office is empowered to seize the illegal copies and, in case of repeated offenses, can shut down the business, store or shop without a prior court order. In these cases, the unauthorized business shall pay such royalties as are appropriate to the copyright owner, without prejudice to the owner' s right to file civil and criminal suits.
| 6. Licensing, Franchising and Technology Transfer Agreements |
The Dominican Republic generally does not regulate licensing, franchising and technology transfer agreements. With the exception of some provisions in the criminal laws regarding confidentiality and antitrust regulations, trade secrets, protection of digital data, breach of contract and royalty arrangements are governed primarily by private agreements between interested parties.
However, it should be noted that the new foreign investment law, which as has been explained before eases the restrictions on the payment abroad of royalties resulting from these agreements, as well as the law relating to the protection of agents for imported products and services, which as will be explained below, grants licensees special protection against the unilateral termination of the agreement by the licenser, are of significant importance in this area.
| 7. Commercial Representation in the Dominican Market |
Law 173 of August 6, 1996 on the Protection of Agents for Imported Goods and Services grants an effective protection to distributors, agents, representatives or licensees acting in the Dominican market in the event of unilateral termination of their agreements by their foreign counterparts, even when the agreement allows such action. Therefore, it is very important that American companies take this law into account at the moment of appointing representatives in the Dominican Republic or deciding to carry out themselves distribution activities in the local market.
| 8. Equal Treatment of Foreign Importer Agents |
The new foreign investment law, which recognizes the principle of equal treatment on behalf of foreign investors, eliminated the nationality requirements that prevented foreign persons and companies from benefiting from the protection granted to local agents.
Therefore, now all agents acting in the Dominican market on behalf of foreign companies, regardless of their nationality, may enjoy the rights granted by law 173, which are highly significant.
| 9. Extent Of Protection Afforded to Agents |
According to the law, and regardless of the provisions contained in a license or distribution agreement, the licenser may only terminate the agreement, or refuse to renew it on its expiration, for "just cause."
"Just cause" is a flexible term that means any non-compliance with the essential obligations of the agreement or any action or omission on the part of the licensee that might adversely and substantially affect the business interests of the licenser. If the licenser terminates the licensing agreement without "just cause," the licensee is entitled to compensation in an amount sufficient to cover (i) the material losses suffered by the licensee as a result of the termination, (ii) the investments made by the licensee during the duration of the agreement, and (iii) the loss of profits calculated on the basis of the preceding five years. The licenser will not be able to offer its products or services in the Dominican market, either directly or through another licensee, until it pays the total amount of any such award.
It should be noted that the protection granted by the law is not automatic. The local agent, in order to benefit from its provisions, must register the distribution agreement at the Central Bank within a certain period of time after the date in which the agreement has been signed. Rules Regulating Security Interests In Collateral
The Dominican Republic permits property to be used as collateral security in many instances. Creditors may obtain mortgages on real estate and liens on personal property.
| 10. Mortgages on Real Estate |
Real estate mortgages are regulated through a combination of rules, some of them having their genesis in the country' s Civil Code and others arising from the 1947 Real Property Registration Act, which established the Torrens System in the country.
In general, any real property rights (including certain rights of exploration and use) may be mortgaged. (Creditors may not obtain mortgages on other creditors' mortgages due to the concern that might have on inter-creditor relations.) Fixtures are considered to be both real property and personal property; thus, they can be subject to a mortgage or a security interest. (The law provides that a lender with a lien on a fixture will have priority over a mortgagor provided the lender had registered its interest first.) Because a real estate lease is not considered to be real property, creditors may not include them in mortgages; they may, however, obtain a lien on a lease as they can do with other forms of personal property.
| 11. Mortgages On "Future" Property Or For "Future" Debt |
A lender' s interest in mortgaged property extends to improvements made after the granting of the mortgage. Improvements already existing at the time that the documentation is signed also are included, unless a lien on the improvements has already been registered by another creditor. Improvements are the only instances of mortgages on "future" property. Other than that, Dominican law does not provide for security interests on "real-property-to-be," even if there is a certainty as to its future existence. This prohibition primarily affects people who acquire or would like to acquire a unit currently under construction without being the owners of the land on which construction is taking place (so the improvement rule does not apply).
There are some solutions to this problem, however. The law allows a creditor to ask a court to register a mortgage on the future property of its debtor when property previously given to it as security has been lost or considerably damaged. In addition, a creditor could be validly granted a mortgage over a "unit-to-be" if the Real Property Court "creates" a right upon it before construction takes place. As a result, the creditor' s right can be registered and a certificate would be issued. In such cases, the mortgage itself would be valid, although the creditor is at a financial risk by not having any tangible security.
Because a mortgage is an accessory to a secured obligation, the obligation should be certain, clear and valid. If it were declared void for any reason, the mortgage would also be considered void. The law nonetheless does permit a secured obligation to be conditional or "eventual." In this case, a mortgage would be extinguished together with the secured obligation if the condition or event does not take place. It is also widely recognized by the courts and experts in the field that a mortgage on real estate can be granted for a "future" obligation, that is, an obligation that does not exist at the time the interest is granted but that will exist in the future according to some kind of legal arrangement. This allows the securing of credit lines, credit cards and other financial mechanisms.
| 12. Requirements To Obtain And Foreclose On A Mortgage |
A debtor may grant a lien on property it owns to secure its own obligations or a third party' s debt. The lien must be in writing, the writing must contain a complete description of the property and the obligation secured and the parties' signatures must be notarized. The security agreement together with the Certificate of Property must be filed, and taxes paid, at the appropriate registry. Upon filing, the register will issue a Certificate of Mortgage to the creditor.
After a debt is due, the creditor may follow a statutory execution proceeding (which includes mandatory deadlines) and foreclose on its registered mortgage, taking the property ahead of all other parties except those who may have a prior recorded lien.
| 13. Liens On Personal Property |
Under Dominican law, creditors may take liens on consumer goods, equipment, inventory, farm products, stock, documentary credits and intangibles such as accounts, contracts, commercial paper or other kinds of instruments or documents. For "movable" assets (other than those for which a registration system exists), Dominican law presumes that whomever possesses the asset physically has title to the asset. (The rule applies to intangibles only when they are contained in a bearer document. In addition, documents such as shares of stock that name a specific beneficiary may be pledged only by that beneficiary).
The corollary to this rule of possession is that creditors need not be too concerned with whether a debtor is the "real" owner of assets being pledged; once a security interest is given to a creditor by the holder of the property, the creditor benefits from the presumption of legality regarding its interest.
In certain instances, such as when a debtor grants a security interest in securities, a creditor must register its security interest. Registration provides the creditor with a right of priority, similar to the right granted to mortgage holders. The law does not permit debtors to offer second liens on their personal property, although if that occurs by error or debtor misrepresentation, the first cre itor to file is given priority in the collateral.
Foreclosing on security interests in personal property is similar to foreclosing on mortgages. Creditors holding liens on intangibles or possessory liens on movable assets may force a public sale or can ask a court to have the property assigned to them as payment. In the latter case, the court will name an expert to value the property and the creditor may be asked to pay any excess over the debt to the debtor.
There are special rules relating to security interests in vehicles, ships and aircraft. A creditor can file notice of a lien on a vehicle with the Motor Vehicle Bureau. Dominican law creates a special registration system for liens on ships and aircraft under which the first to file has priority over all but special creditors.
Dominican law also recognizes conditional sales of movable assets. Under such an arrangement, the seller of property retains title to the property until it is fully paid. The sale agreement is registered at an agency specially designed for this purpose, and in the event of the purchaser' s default the seller is able to recover the goods sold from whomever has possession.
Because neither the registration system for liens on personal property nor the Motor Vehicle Bureau filing systems always work efficiently in practice, creditors are at times tempted to structure their transactions as conditional sales. One drawback to this alternative, though, is that sales of goods are subject to a value-added tax (known as ITBIS) that the seller must withhold and pay within the first 10 days of the month following the sale. For sales made on credit, the value-added tax is also applied to any interest added to the basic sale price of the goods.
| 14. Labor Law Protections Afforded Dominican Workers |
The Dominican Republic' s labor laws regulate working conditions, wages and fringe benefits, legal holidays, leaves of absence and termination of employment contracts. They also provide special protections for pregnant workers and contain special provisions requiring certain numbers of "national workers." The Dominican constitution recognizes the right to work of employees and requires that all workers in an establishment be treated equally.
The usual workweek for Dominicans is 44 hours. Most employees work from Monday to Friday; many also work on Saturday. The law requires a 36-hour mandatory weekly leave, beginning at noon on Saturday.
Workers are entitled to be paid overtime at a rate of an additional 35% of the base salary for work of up to 68 hours per week and an additional 100% for work of more than 68 hours per week. Workers on the night shift (from 9:00 p.m. to 7:00 a.m.) must be paid a 15% premium. Finally, a 100% premium must be paid for work on Sundays and national holidays.
| Legal framework for foreign persons |
| 1. Entry and residence |
Entry requirements, in general, foreign citizens must obtain a Dominican visa in order to enter the country. Visas are classified in Diplomatic, Official, Courtesy, Business, Dependants, Tourism, Residence and Student. The Foreign Service of the Dominican Republic issues these visas abroad or by the Ministry of Foreign Relations in the country.
Foreigners may acquire the right to reside in the country through (i) obtaining a residence visa at the Dominican Consulates abroad or at the Ministry of Foreign Relations in the country, and (ii) obtaining a provisional and then permanent residence card at the General Immigration Office.
The applicant of a residence visa must file the following documents:
· Letter of request
· Duly completed Form 509-Ref.
· Letter of guarantee from a Dominican person or company, or a foreigner residing in the country.
· Police Record.
· Health certificate
· Work contract, bank letter or other proof of funds.
· Seven frontal photos 2'' X 2'' and three side photos.
· Copy of birth certificate.
· Passport photocopies.
· Certification from the General Immigration Office of the applicant's last date of entry in the country.
The procedure takes from 10 to 12 weeks. The residence visa is valid for 60 days, and within this term the applicant must file a residence request before the General Immigration Office.
| 2. Residence card |
The request for a provisional residence must be joined by the following documents:
· Request letter.
· Duly completed Form B-1-A.
· Photocopies of passport and residence visa.
· Certification or residence visa issued by the Ministry of Foreign Affairs.
· Letter of guarantee from a Dominican citizen or resident legalized by Public Notary.
· Six 2'' X 2'' photos (four frontal and two side photos).
· Police record issued by the National Police.
· The provisional residence card may be obtained within two months and is valid for one year.
| Dispute resolution |
| 1. Choice Of Law And Jurisdiction Provisions Are Valid |
The doctrine of freedom of contract is accepted and is fully in force in the Dominican Republic. As a consequence, the choice of a foreign law as the governing law of an investment agreement, or of a foreign loan or loan agreement, and the submission of the same to a foreign court or arbitrator would be valid and enforceable.
The formalities required to form a valid contract are governed by the law applying in the place where the contract is executed. Furthermore, the essential requirements necessary for the formation and validity of contracts (e.g. legal capacity, consent, etc.) are governed by the law chosen by the parties in accordance with the principle of freedom of contract. Where the parties have not expressly stipulated the applicable law, Dominican law applies.
Dominican courts are competent to decide and rule upon all disputes arising from events that have taken place in the country, although they permit contracting parties to submit their disputes to foreign jurisdictions or to international arbitrators.
Notwithstanding the above, it is important to note that there are some limitations to the freedom of contract principle to the extent that contracts may not repeal laws pertaining to the public order. Rules relating to the enforceability, governing law, choice of jurisdiction and other aspects of procedure applicable to foreign investments, foreign loans and loan agreements often exclude the possibility of having a foreign law as the governing law of the agreement, or of having disputes submitted to a foreign court or arbitrator. It should be noted, though, that under the country' s prior foreign investment law, foreign investments had to be submitted to Dominican laws and jurisdiction. However, under the new law there is no mention of such a requirement, which can be interpreted as allowing these investments to be subject to foreign laws and jurisdictions. On the other hand, under a 1947 law, as amended, all disputes arising from special agreements executed between a foreign investor and the Dominican government are to be submitted to Dominican administrative courts, which have exclusive jurisdiction over all matters involving the public administration.
| 2. Dispute Resolution In Dominican Courts |
Under the Dominican Constitution, everyone is entitled to access to the justice system and the right to a judicial decision.
Unfortunately, the Dominican court system has some deficiencies, basically due to an inexperienced judiciary and inadequate funding.
As a consequence, proceedings in the civil, commercial and criminal courts are often slow, inefficient and costly. The courts also are suffocating under an excess of pending actions. It is wise to try and avoid litigation and to resolve disputes outside the courts, but under Dominican law it is difficult to obtain truly enforceable solutions in out-of-court settlements, except by arbitration.
| 3. Foreign Plaintiffs In Dominican Courts |
Any foreigner without legal domicile in the Dominican Republic who is acting as the principal plaintiff or as a voluntary intermediary in any matter before any Dominican court may be required to provide a bond as a guaranty for the payment of any costs or damages resulting from the legal action.
Because the Dominican Republic has no specific provision limiting the amount of the bond, inflated sums are frequently requested by Dominican defendants to delay the progress of the legal action filed by the foreign petitioner. A remedy of appeal may be filed by either party against the decision given by the judge concerning the amount of the bond, regardless of whether the judge' s decision was favorable or unfavorable to the foreign plaintiff; meanwhile, any decision of a lower court on the merits of the case would be postponed. In turn, the decision issued by a higher court may be brought to the Supreme Court of Justice for a final ruling. As a result of these possible courses of action, the petition for a bond by the local party to a dispute may delay resolution of the dispute for years.
| 4. Enforcing Foreign Laws And Judgments |
A foreign law may be accepted and judged as valid by Dominican courts. However, a party seeking that result must prove that the relevant foreign law differs from Dominican law. The courts have decided that when no such legal proof is produced, a presumption that the foreign law is identical to Dominican law will apply.
Foreign judgments and awards are enforceable in the Dominican Republic. A petition seeking to obtain a declaration of enforceability shall be filed at the Court of First Instance; the completion of the resulting proceedings may take years. It may well result in litigation similar to ordinary actions filed at the court, with similar delay, expense, conceptual inconsistency, lack of assurance, etc.
| 5. Benefits Of Arbitration To Resolve Disputes |
Parties may agree orally or in writing to resolve a dispute through arbitration. The country' s various Chambers of Commerce and Production are permitted to form a Council for Conciliation and Arbitration, which is able to act as the arbitrator in the solution of conflicts between individuals and/or corporations. Representation by legal counsel is not mandatory in the arbitration courts.
Although the civil and commercial chamber of the Court of First Instance has jurisdiction to conduct arbitration proceedings, arbitration at the Chamber of Commerce and Production for the National District is more convenient and efficient.
This arbitration system has been working effectively for almost a decade and it is widely used by the local business community, mainly because the decisions rendered by the arbitrators are by virtue of law definite and enforceable, not subject to review before judicial courts. This system thus offers more guarantees for a quick and equitable solution of disputes before arbitrators having a higher degree of expertise than local judges.
The basic steps of an arbitration proceeding are as follows:
· Notification of the action and the documents relating to it are sent to the defendant and the secretary' s office of the Council for Conciliation and Arbitration of the Chamber of Commerce and Production for the National District; and
· 15 days after the filing of the action the defendant submits its responsive documents to the plaintiff at the Council' s office.
One or more hearings will be held as required by the parties or the arbitrators. It should be noted that the arbitrators are empowered to make provisional awards so as to preserve certain rights involved in the proceedings |
