SETTING UP BUSINESS IN
DOMINICAN REPUBLIC
General Aspects
The Dominican Republic is located in the Caribbean, occupying the eastern two-thirds of the island of Hispaniola, which it shares with Haiti. The Dominican Republic has the largest economy in the Caribbean and Central America, and the main industries are Tourism, agriculture, mining, free trade zones, and manufacturing. Its monetary unit is the Dominican Peso (DOP). Population is Approximately 11 million people, and official language is Spanish. Government type is Democratic Republic and the capital is Santo Domingo
Legal Forms of Business Entities
Type of Entity Feature
Permanent Establishment or Branch
Limited Liability Company or
Sociedad de Responsabilidad
Limitada (S.R.L.)
Simplified Joint Stock Company or Sociedad Anónima Simplificada (S.A.S.)
A Branch refers to an extension of a foreign company established in the Dominican Republic. This entity has complete legal recognition as of the moment it is registered at the corresponding Chamber of Commerce. There is no minimum share capital. The parent company’s bylaws and corporate document authorizing the establishment must be registered.
Has no minimum social capital. A minimum of 2 partners are needed to incorporate. The social parts are transferable t with the previous consent of ¾ of the partners. Management can be individual (one manager) or a Board of Managers. To incorporate, social bylaws must be subscribed and registered before the Chamber of Commerce of the company’s domicile.
Minimum authorized share capital of RD$3,000,000.00, with at least 10% of it completely subscribed. A minimum of 2 shareholders are needed to incorporate. The shares are freely transferable unless restricted through the bylaws. Management can be individual (one President) or a Board of Directors. An auditor is not required except when issuing private securities. To incorporate, social bylaws must be subscribed and registered before the Chamber of Commerce of the company’s domicile.
Remarks
Suitable for foreign companies looking for a presence in the Dominican Republic to initiate business with no separation of juridical personality. The source company is directly liable for any and all obligations generated in the Dominican territory.
The most popular legal form for corporations, Limited Liability Companies have high flexibility and few governance rules. Costs of the incorporation process are also low. The intuitu-personae relation predominates in this corporate type due to the nature of its rules about ownership and its changes.
Shares can be transferred easily. It is a flexible type of entity suited for mediumto-large investors looking to make considerable investments while maintaining operational flexibility.
Joint Stock Company or Sociedad Anónima (S.A.)
Minimum share authorized capital of RD$30,000,000.00. A minimum of 2 shareholders are needed to incorporate, with at least 10% of it completely subscribed. The shares are freely transferable unless restricted through the bylaws. Management executed by a Board of Directors. A commissioner of accounts is required. To incorporate, social bylaws must be subscribed and registered before the Chamber of Commerce of the company’s domicile.
Shares can be transferred easily, the Company can be listed publicly on the stock exchange and enjoys a high market reputation.
The costs of the incorporation process can be relatively higher in comparison to other company types. The organizational and accounting obligations and the publication requirements are the most extensive out of all entity types.
Limited Liability
Individual Company
Is incorporated by one physical person and is granted with a separate legal identity. No minimum share capital. The owner of the company is not personally responsible for the company’s obligations as long as they have contributed the share capital. The company can be responsible for the owner’s debts if the credits were registered by the creditors before the commercial registry within 3 months of the company’s incorporation.
Suitable for individual and/or small investors/asset holders looking to separate its business from its personal assets
Organizational Questions
Topic Feature
Commercial Register Companies of all legal forms must be entered in the commercial register (Registro Mercantil).
The commercial register is administered in electronic form through (https:// www.camarasantodomingo.do/) or physically through the corresponding Chamber of Commerce.
Trade Name Register Registration of the company’s Trade Name with the local National Intellectual Property Office is not legally required but highly recommended, especially in cases where the company will have operations and compete within the local market.
Bank Account To open a bank account individuals need a valid I.D./passport. Companies need the appropriate incorporation documents, i.e. company bylaws and incorporation assembly, mercantile registration and tax ID.
Transfer of Goods and Machinery
Transfer of determined goods are subject to registration. Purchase and sale of goods is subject to VAT tax.
Transfer of Capital Capital can be moved within the country freely. There is also free repatriation of capitals to the country of origin.
Remarks
The commercial registry is mandatory for all companies in the Dominican Republic and is required before starting operations in the country.
For companies with foreign shareholders, banks require identification of final beneficial owners.
According to Law 155-17 of money laudering capital must held the form of checks and bank transfer for determined transactions and amounts, as cash payment is prohibited.
Employment
Topic Feature
Work permit This permit is obtained through the Business Visa for Work Purposes NM1 or Work Visa, which can be acquired through: (1) Private Company; (2) Multinational Companies; (3) Free Trade Zones; (4) International Organizations or Public Institutions of the Dominican State.
Remarks
Observations: Visas are obtained at the Dominican Consulate in the foreigner’s country of origin. The visa must be entered into Dominican territory. Then, the process of obtaining Dominican work residency corresponding to the employment contract begins, the delivery of residency taking 90 to 120 working days.
Labour law Dominican Republic has a labor code that regulate employment relationship. 14 days of paid holiday is guaranteed. Normal working hours are 8 hours daily and a maximun of 44 hours per week. There are diferente types of employment contract, the most common is indefinite time contract. The notice period for termination of employment of indefinite time contract depends on seniority of the employee. There are specifics rules for the termination of that kind of contract in labor code.
Social system The social security system consists of pension insurance (9.97% of gross salary), health insurance (10.13%), a mínimum of 1.20 % as labor risk insurance paid only by the employer. In addition, the employer must pay 0.4% of ghe total salary eligible for contributions to the social solidarity fund. Both the employee and the employer have the obligation to contribute with the employee’s social security contribution, in the proportion of 7.10%, which will be covered by the employer and the remaining 2.87% by the employee, calculated on the employee’s salary, for pensions contributions. Also, employer must pay 7.09% of the salary and the employee 3.04% of the salary to the health insurance of the Dominican social security regime. In the case of the insurance for labor risk only the employer pays 1% of the salary plus 0.1 to 0.3 % depending on the risk level of the activities of the entity.
Taxation
Companies in the Dominican Republic are taxed the Corporate Income Tax and an Asset Tax at the end of each fiscal year. Other applicable taxes depend upon the products and services the companies trade or provide.
Tax Feature
Corporate Income Tax or Impuesto sobre la Renta (ISR)
Personal Income Tax
or Impuesto sobre la Renta (ISR)
The standard corporate income tax rate is 27% on all taxable earnings of the company, whether retained or distributed profits.
The rate of personal income tax starts at 15% for an annual income exceeding the taxfree allowance of RD$416,220.00. It rises progressively to a maximum personal income tax rate of 25%, which is applicable to annual earnings beyond RD$867,123.01.
Profits distributed to the shareholders are subject to personal income tax on the dividends of 10%.
Repatriation of capitals to foreign companies and main company from permanent establishments are subject to 10% retention as personal income tax.
Remarks
Asset Tax or Impuesto
sobre los Activos (ISA)
Value Added Tax (VAT) or Impuesto de Transferencia de Bienes
Industrializados y Servicios (ITBIS)
Real Estate Property
Tax or Impuesto sobre la Propiedad Inmobiliaria (IPI)
Non-resident Taxation
The Asset Tax is applied at a rate of 1% on the total taxable assets of a company. This tax is assessed annually and is calculated based on the company’s assets, net of depreciation and amortization, excluding certain exempt items.
If the company’s corporate income tax exceeds the amount due for the Asset Tax, the company is not required to pay the Asset Tax.
Rural property and non-constructed terrains are exempt of this tax.
This tax applies generally to the transfer of industrialized products and the rendering of services. The general VAT rate 18%. A lower rate of 16% is charged for convenience goods such as yogurt, butter, coffee, sugars, chocolate and cacao. Other basic products and services such as cereals, meat, fish, water, fuels, electricity services, residential leases, financial services are VAT-exempt.
Selective Consumption Tax or Impuesto Selectivo al Consumo (ISC)
Capital Gains Tax or Impuesto Sobre
Ganancia de Capital
Every physical person who is property owner of real estate in the Dominican Republic is annually liable to real estate tax. The tax rate is 1% of the property’s registered value as determined by the tax authorities, which takes into account the property size, location and type of property.
Companies are not subjected to the Real Estate Property tax as the Asset Tax covers real estate properties owned by companies.
Law establishes certain exemptions for the payment of this tax, if its under special regimes such as tourism or free trade zone, previous fulfillment of requirements and processes.
Non-resident individuals and companies in the Dominican Republic receiving income generated in the Dominican Republic, are subject to Dominican taxation. Double taxation of this income is differently managed by double taxation agreements between the Dominican Republic and other countries, though these are limited to Spain and Canada.
The deduction of expenses is only allowed if and to the extent these expenses are economically related to the taxable revenues, previous certain requirements fulfilled.
The Selective Consumption Tax (ISC) applies to certain goods and services considered specific consumption items, such as alcohol, tobacco, and fuels and services such as telecommunications, insurances, financial operations and hydrocarbons. The ISC rate varies depending on the type of product or service taxed.
All companies and individuals are subject to capital gains tax when selling aplicable capital assets such as real estate property, financial assets (stocks and shares), intangible assets (trademarks, patents, licenses). The tax rate is 27% for companies and a graduated rate of up to 25% to individuals.
Additionally, when these goods or services are purchased by the final consumer, they may also be subject to the Tax on the Transfer of Industrialized Goods and Services (ITBIS), which applies to the added value at each stage of commercialization, with a general rate of 18%. Exports are exempt of this tax.
Buyers must retain 1% of share purchase Price to report to the tax administration as advanced payment on account on behalf of seller.
This guide has been prepared by ALBURQUERQUE, an independent member of Antea
ALBURQUERQUE
Av. Gustavo Mejía Ricart, esq. Av. Abraham Lincoln, Torre Piantini, 10148, Santo Domingo, República Dominicana
Tel: +1 809 549 4646
Mail: jmap@alburquerque.com.do Web: www.alburquerque.com.do
This publication is intended as general guide only. Accordingly, we recommend that readers seek appropriate professional advice regarding any particular problems that they encounter. This information should not be relied on as a substitute for such an advice. While all reasonable attempts have been made to ensure that the information contained herein is accurate, not Antea Alliance of Independent Firms neither its members accepts no responsibility for any errors or omission it may contain whether caused by negligence or otherwise, or forany losses, however caused, sustained by any person that relies upon it.