Doing Business Dominican Republic - Deloitte

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Doing Business Dominican Republic - Deloitte
Doing Business
Dominican Republic
Doing Business Dominican Republic - Deloitte
I. Main Economic Variables                     1
II. Doing Business in the Dominican Republic   4
III. Legal System                              15
IV. Tax Aspects                                20
References                                     27
Contact                                        28
Doing Business Dominican Republic - Deloitte
I. Main Economic
      Variables
Doing Business Dominican Republic - Deloitte
Doing Business
Dominican Republic

    I. Main Economic
    Variables
                                                                                       GDP Growth
                    GDP 2019: 88.9 mmdd
                                                                                       (Annual percentage change, original figures)

    Position
    in the World:
                         67 / 189                                                         2018         2019             2020 e         2021e

                                                                                           7.0          5.1             -5.8             4.0

                    Macroeconomic Context (figures at the end of 2019)

          GDP per              Reference                            Unemployment         Exchange
                                                 Inflation                                                 Population                FDI
           Capita                 rate                                  rate                rate

           8,583.1                  4.5             1.81                  6.17              53.09                10.6                3.01

            Dollars              Percent      Annual percentage        By Hundred          USD/DOP            Millions of         Millions of
                                                  variation                                                    people              dollars

                    Macroeconomic Context (figures at the end of 2019)

                           Primary balance,     Public debt,      Current account,   Trade balance,       Reserves,
      Fiscal balance,                                                                                                            Reserves, debt
                            percentage of      percentage of       percentage of     percentage of      percentage of
    percentage of GDP                                                                                                             percentage
                                GDP                GDP                  GDP               GDP               GDP

             -3.1                   0.5              40.4                -0.7            -10.2                  9.0                    25

         Balance, %            Balance, %        Balance, %          Balance, %        Balance, %         Balance, %               Balance, %

2
Doing Business Dominican Republic - Deloitte
Doing Business
                                                                                                                                        Dominican Republic

                                                                          Ease of Doing                                         Corruption
                   Competitiveness
                                                                          Business                                              Perception Index

                                                                                            (Doing
 Position                                              Position                                               Position
 in the World:
                   78 / 141        (WEF, 2019)
                                                       in the World:
                                                                          115 / 190         Bussiness,
                                                                                                              in the World:
                                                                                                                                137/ 180         (TI, 2019)
                                                                                            2020)

               Foreign Trade (Main Sectors, 2018 data)                                            Foreign Trade (Major Partners 2018 data)

 Exports                                                                           Exports

                                        Value                                                                        Value
 Sector                                                 Participation              Country                                              Participation
                                        (mdd)                                                                        (mdd)

 Precious metals                         1.57                19.1%                 United States                      5.44                    49.9%

 Food and tobacco                        1.52                18.6%                 Haiti                              0.87                     8.0%

 Textiles                                0.99                12.1%                 Canada                             0.78                     7.1%

 Electronic equipment                    0.93                11.3%                 India                              0.55                     5.0%

 Optical, measuring equipment            0.64                 7.7%                 Switzerland                        0.22                     2.0%

 Imports                                                                           Imports

 Mineral products                        2.63                 17.6%                United States                      8.92                    44.3%

 Electronic equipment and parts          2.06                 13.8%                China                              2.11                    10.4%

 Food and tobacco                        1.31                 8.77%                Brazil                             0.72                     3.6%

 Vehicles and their parts                1.19                 7.95%                Spain                              0.68                     3.4%

 Plastics and their manufactures         0.90                 5.99%                Mexico                             0.59                     2.9%

Source: World Bank, International Monetary Fund (IMF), World Economics Forum (WEF, By Transparency International (TI), World Intellectual Property
Organization (WIPO), Atlas of the Economic Complexity (MIT), Dominican Observatory of International Trade (ODCI), The Observatory of Economic
Complexity .

                                                                                                                                                              3
Doing Business Dominican Republic - Deloitte
II. Doing Business in the
    Dominican Republic
Doing Business Dominican Republic - Deloitte
Doing Business
                                                                                                                                    Dominican Republic

II. Doing Business in the
    Dominican Republic
a)      General Profile
The Dominican Republic is one of the economies with the highest
economic growth in Latin America and the Caribbean; In the period from
2015 to 2019 it grew at an average of 6.0% per year. It is the largest
economy in Central America and the Caribbean.1

Recent growth has been driven by strong domestic demand, remittance
growth, and the tourism sector. In addition, inflation has remained below
4% per year from 2014 to 2019.

The Dominican Republic has managed to diversify its exports, since in
addition to exporting agricultural products, it also exports manufactured
goods. In 2018 the main exported products were gold, followed by food
and tobacco, and in third place textiles.2

The main trading partner of the Dominican Republic is the United States
(USA), with whom it trades more than 40% of its imports and exports. The
Dominican government has trade agreements with Central America, the
United States, and the Caribbean Community; and a trade agreement with
the European Union and Panama, which gives it access to a market of
approximately 848 million people.3

Tourism accounted for approximately 9% of GDP and is the main source of
foreign exchange in the country. This sector is focused on beach
destinations, with more than 1,600 km of coastline and major resorts,
attractions of foreign direct investment both in services and in the real
estate sector.4

After Cuba, the Dominican Republic is the country with the largest size and
population of the island countries of the Caribbean. Its only border country
is Haiti, to the west. The country has 10.6 million inhabitants and a GDP
per capita of US $ 8,583 in 2019. The capital, Santo Domingo, is home to
3.3 million inhabitants (32% of the total). The country is divided into a
National District (capital), 31 provinces, 158 municipalities and 232
municipal districts.5

The Dominican country remains vulnerable to natural disasters such as
earthquakes and hurricanes. In addition, the country faces problems of
illegal migration, mainly of immigrants from Haiti. It is estimated that the
Haitian population in the Dominican Republic amounts to 750,000 People.5

1.   IMF World Economic Outlook Database October 2019, https://www.imf.org/external/pubs/ft/weo/2019/02/weodata/index.aspx.
2.   Central Bank of the Dominican Republic. https://www.bancentral.gov.do/
3.   Ministry of Industry, Trade and MYPIMES, https://www.micm.gob.do/direcciones/comercio-exterior/acuerdos-comerciales-vigentes
4.   Ministry of Tourism of the Dominican Republic. http://mitur.gob.do/config/barometro-turistico/
5.   CIA. The World Factbook: Dominican Republic. https://www.cia.gov/library/publications/the-world-factbook/geos/dr.html                               5
Doing Business Dominican Republic - Deloitte
Doing Business
Dominican Republic

b) Political Regime

               Constitution

    Dominican Republic maintains a democratic, representative, and presidential state structure. Constitutional article 4 states that "the
    government of the nation is essentially civil, republican, democratic, and representative", which is divided into the Legislative Power,
    Executive Power, and Judiciary. The three powers are independent in the exercise of their respective functions.6

    The sovereignty of the country resides exclusively in the people, from whom all the powers emanate, which it exercises through
    representatives or directly, in the terms established by its Political Constitution. The Constitution is based on respect for human
    dignity and the indissoluble unity of nation.7

    For the government and the administration of the state, the territory is politically divided into a National District and 31 provinces.
    The city of Santo Domingo de Guzmán is the National District, capital of the Republic, and seat of the national government.7

               Powers of the Political System

    The Executive Branch is represented by the President of the Republic, who is elected by direct vote every four years. The President has the
    possibility of being re-elected in consecutive terms, and if so, prohibited from opting for office, or vice-presidency, again in the future. Luis
    Abinader, modern Revolutionary Party (PRM), was elected for the 2020-2024 mandate in the extraordinary elections held July 2020.6

    The Legislative Power resides in the National Congress, which is composed of the Senate of the Republic and the Chamber of Deputies,
    whose members are elected by direct vote. The Senate is composed of 32 members, elected one by each province and one by the National
    District. The Chamber of Deputies is composed of 190 members elected for a period of 4 years.6

    The Judiciary Power is represented by the Supreme Court of Justice, the Courts of Appeal, the Courts of First Instance, and the Courts of
    Peace. The judiciary power has functional, administrative, and budgetary autonomy.6

               Rule of Law

    The Dominican Republic is a social and democratic state of law, organized in the form of a unitary republic. The essential function of the
    State is the effective protection of the people‘s rights, within a framework of individual freedom and social justice, compatible with
    public order and general welfare.

    The Political Constitution establishes individual, economic, social, cultural, sporting, collective, and environmental rights. The
    government must ensure the effectiveness of fundamental rights, through guardianship and protection mechanisms linked to the three
    political powers, which must ensure their effectiveness.

    The government decentralizes its management into local governments. The National District and the local governments are legal
    entities of Public Law, responsible for their actions and enjoy their own assets, budgetary, and administrative autonomy. They are
    subject to the supervisory power of the State, which encourages the transfer of powers and resources to local governments.

    The Supreme Electoral Court is the competent body to judge and decide definitively on electoral contentious matters. The state
    guarantees the free formation of political parties, groups, and movements, in order to guarantee citizen participation in political
    processes, contributing to the strengthening of democracy.

    The regulation of the nation's monetary and financial system is the responsibility of the Monetary Board as the top body of the Central
    Bank. The Monetary Board, represented by the Governor of the Central Bank, will be responsible for the direction and proper
    implementation of the nation's monetary, exchange rate, and financial policies.

    Reforms to the Constitution must be presented to the National Congress with the support of a third of the members of one or the
    other chamber, or if it is submitted by the Executive Branch6.

               6. Authorities of the Dominican Republic. http://dominicana.gob.do/index.php/pais/2014-12-16-20-49-27
6              7. Political Constitution of the Dominican Republic. https://www.ifrc.org/docs/idrl/751ES.pdf
Doing Business Dominican Republic - Deloitte
Doing Business
                                                                                                        Dominican Republic

 c) Economic Structure
 GDP is the sum of all the goods and services that a country produces and
 the most important way of estimating the productive capacity of an
 economy. The three main economic sectors that make up the Dominican
 Republic´s GDP are:
 • Primary Sector : agricultural activity, livestock, mining, forestry, and
   fisheries.
 • Secondary Sector : local and free zone manufacturing industry,
   construction, and beverages and tobacco products.
 • Tertiary Sector : transport, financial services, tourism, and other services.
 Dominican Republic represents the largest economy in Central America
 and the Caribbean. The Tertiary Sector makes up the main area of
 Dominican GDP with 59.9%, followed by the Secondary Sector with 25.7%
 and is completed by the Primary Sector with 7.0%. Within the Secondary
 Sector, local manufacturing and free zones contribute the most to GDP
 with 13.8%.2

    Table 1
    Sectoral Composition of GDP
    (Thousands of Millions of dollars and percentage contribution)

   GDP 2019                                                                            Value    % GDP

  Total                                                                            88,921
  Primary                                                                              6,255   7.0%
  Secondary                                                                        22,861      25.7%
      Construction                                                                 10,626      12.0%
      Local manufacture                                                                9,395   10.6%
      Free zone manufacture                                                            2,839   3.2%
  Tertiary                                                                         53,224      59.9%
      Trade                                                                            8,959   10.1%
      Transport and storage                                                            7,369   8.3%
      Real estate activities                                                           6,661   7.5%
      Hotels, bars, and restaurants                                                    6,551   7.4%
      Teaching                                                                         4,865   5.5%
      Financial intermediation, insurance, and others                                  3,717   4.2%

  Source: Central Bank of the Dominican Republic. Current values at the end of 2019.

2. Central Bank of the Dominican Republic. https://www.bancentral.gov.do/

                                                                                                                             7
Doing Business
Dominican Republic

Industries Under Free Zone Regime, Dynamizing Export Sector

The relaunch of the Free Zones is considered one of the great successes of the
government in the period 2012-2019. The sector now has regional leadership in job
creation, number of companies, and exports.8

By 2019, the sector contributed 54% of the country's total exports. The manufacture
of medical and surgical equipment is the activity with the highest exports with 27% of
the total of Free Zones, followed by the manufacture of electrical products, textiles,
tobacco, and jewelry.2

Dominican Republic has 74 parks in operation, 21 more than in 2012. Within them,
690 companies operate under the Free Zone regime. FDI in the Free Zones rose from
US$163 million in 2012 to US$274 in 2019, up 69% in nominal terms.8

The Free Zone sector generated about 172,000 direct jobs in 2019. The country is
the third largest footwear exporter in Latin America. More than 22,000 people work
in Call Centers serving customers in the United States, Latin America, and Europe.8

Graph 1
Export Composition
(Contribution exports)

                           2%

                             4%                                                                                      15%
                        4%
                 7%                                                                                                                         27%
                                                                                                          9%

            14%
                                                    54%
                                                                                                          15%
                                                                                                                                             18%
                   15%
                                                                                                                          17%

    Industria - Zonas
    IndustryFree  zoneFrancas
                                                                                                                    Equipos   médicos
                                                                                                                    Medical and         y quirúrgicos
                                                                                                                                  surgical equipment
    Industria nacional - Otros
    Local industry-Other       productos
                          products
                                                                                                                    Productos   eléctricos
                                                                                                                    Electrical products
    Minerales (Oro)
    Minerals (Gold)
                                                                                                                    Textiles
    Agropecuarios
    Agriculture                                                                                                     Tabaco
                                                                                                                    Tobacco
    Minerales (Otros)
    Minerals (Others)                                                                                               Joyería
                                                                                                                    Jewelry yand
                                                                                                                              conexos
                                                                                                                                 related
    Industria nacional
    Local industry-     - Combustible para aeronaves
                    jet fuel                                                                                        Others
                                                                                                                    Otros
    Local industry-sugar,
    Industria              cane rum,
              nacional - Azúcar,     andcaña
                                 ron de  wheat  flour de trigo
                                             y harinas

Source: Central Bank of the Dominican Republic, at the end of 2019.

2. Central Bank of the Dominican Republic. https://www.bancentral.gov.do/
8. Exports of Free Zones. Presidency of the Dominican Republic.
   https://presidencia.gob.do/noticias/en-solo-siete-anos-rd-relanza-zonas-francas-y-obtiene-liderazgo-regional-en-generacion

8
Doing Business
                                                                                                                                                      Dominican Republic

Foreign Exchange Income to the Country

Tourism is the main foreign exchange-generating activity in the                           In 2019, 53% of FDI came from the United States (32%) Mexico
Dominican Republic. The sector contributed $7.5 trillion dollars in                       (21%). Of the total, 29% were earmarked for tourism, 15% to the
2019, equivalent to 8.5% of the country's Gdp.9                                           real estate sector, 12% to investment in energy and 11% to
                                                                                          Telecommunications.2
While remittances added $7.1 trillion in 2019 (8% of GDP), second
area of foreign exchange entry into the Dominican country                                 Within exports highlights gold. Dominican Republic went from
according to central bank figures. Remittances have grown to an                           exporting US$1.190.6 million in gold in 2013 To US$1.544 million in
average annual rate of 9.3% between 2015 and 2019. 77% of                                 2019, annual growth of 4.4%. The mineral represents the product of
remittances came from the United States and 10% from Spain,                               increased export of the Country.2
accounting for 87% of the total remittances of 2019.2
                                                                                          De combined form, The domestic industry exported $2.4 trillion in
The Foreign Direct Investment (FDI) is the next item in foreign                           2019, disaggregated production into multiple products. The largest
exchange contribution. FDI has maintained a growing sustained                             of these, raw sugar and derivatives, represented $128 million export
trend, an average annual rate of 8% over the past four years. 2                           in 2019, 5% of all products Industrial.2

Graph 2
Main Dollar Sources in the Dominican Republic
(Thousands of Millions of dollars)

  8.0

  7.0

  6.0
                                                                                                                                            Turismo
                                                                                                                                            Tourism

  5.0                                                                                                                                       Remesas
                                                                                                                                            Remittance

                                                                                                                                            IED
                                                                                                                                            FDI
  4.0
                                                                                                                                            Export. (Oro)
                                                                                                                                            Export (Gold)

  3.0                                                                                                                                       Export. (Otros minerals)
                                                                                                                                            Export (Other  minerales)

                                                                                                                                            Export.
                                                                                                                                            Export (Agropecuarios)
                                                                                                                                                    (Agriculture)
  2.0                                                                                                                                       Export. (Industria
                                                                                                                                            Export (Local      Nacional)
                                                                                                                                                          industry)

  1.0

    -
            2010        2011        2012        2013        2014       2015        2016        2017        2018        2019

Note: All items include only dollar entries to the country. Exports correspond to exports of national activities, they are not considered exports from free zones. Tourism
considers the foreign exchange income of international travelers according to estimated figures from the National Association of Hotels and Tourism of the Dominican
Republic. Remittances and FDI represent the entry into the country in dollars.

Source: Central Bank of the Dominican Republic

2. Central Bank of the Dominican Republic. https://www.bancentral.gov.do/
9. National Association of Hotels and Tourism of the Dominican Republic.

                                                                                                                                                                             9
Doing Business
Dominican Republic

Investment and Foreign Trade

43% of Foreign Direct Investment (FDI) in the Dominican
Republic during the last 4 years (2016-2019) has come from the
North American hemisphere: the United States, Canada, and
Mexico (43%). 2

Brazil and Spain appear as relevant trading partners for the
country in terms of FDI, contributing 21% of investment in that
period.2

Tourism is the sector with the greatest attraction of foreign
investment (28% in the 2016-2019 period), and it is also the
main sector of entry of foreign currency to the country. 2

Commerce, industry, real estate and mining are the next in
terms of attracting FDI, reflecting 52% of the total invested
between 2016 and 2019. 2

Table 2
Main Countries of Origin of FDI
(Billions of dollars, accumulated 2016 - 2019)

             Total                             US                           Canada                 Brazil     Spain

            $11.53                            $2.75                          $1.54                 $1.24      $1.17

        % of the Total                         24%                           13%                   11%         10%

Source: Central Bank of the Dominican Republic

Table 3
Main Investment Sectors
(Billions of dollars, accumulated 2016 - 2019)

               Tourism                               Trade/Industry                  Real Estate            Mining

                 $3.23                                     $2.57                        $2.10               $1.36

                 28.0%                                     22.3%                       18.3%                11.8%

Source: Central Bank of the Dominican Republic

2. Central Bank of the Dominican Republic. https://www.bancentral.gov.do/

10
Doing Business
                                                                                                                                                                       Dominican Republic

Monetary and Fiscal Policy
The main objective of the Central Bank of the Dominican Republic (BCRD) is price stability, as
required by the Monetary and Financial Law. The BCRD uses an inflation targeting scheme
(EMI) as its monetary policy scheme. Since 2015, the inflation rate target established is 4.0%
± 1.0% .10

The BCRD also uses a monetary policy rate (MPR) as a reference rate for expansion and
contraction operations within one business day. To affect the level of the interbank interest
rate, the BCRD carries out daily interventions resulting from the auction of BCRD bills and /
or overnight repos, with yields equivalent to the MPR ± 150 basis points.10

In exchange policy, the BCRD uses a flexible system, in which the exchange rate
results from the pressures of supply and demand for foreign exchange in the
market. In turn, the BCRD has the power to carry out exchange operations for the
purchase and sale of foreign currency with authorized entities under free market
conditions, so that it can intervene at any given time. 10

Ease of Doing Business

The Doing Business 11 report prepared by the World Bank measures the ease with
which business can be done in the Dominican Republic, through various variables.
Currently, the Dominican Republic is in position 115 out of 190 countries
evaluated in the 2020 Edition, having a score of 60.0 points (graph 3).

Graph 3
The Environment to Do Business in the Dominican Republic Compared to Its Peers in Latin America.
(Position of various economies in the World Bank Doing Business Report)

                                                                                                                                                                                 142
                                                                                                                                                            129       133
                                                                                                                            124      125        126
                                                                                                      115
                                                                                96          101
                                                         86       91
                                     74           76
                          67
      59        60
                                                  Perú

                                                                  El Salvador

                                                                                                                                                                                 Nicaragua
                                                         Panamá
                México

                                                                                                               Dominicana

                                                                                                                                     Paraguay
                                                                                                                            Brasil
                          Colombia

                                     Costa Rica

                                                         Panama

                                                                                Guatemala

                                                                                                                                                Argentina
                Mexico

                                                                                                                            Brazil

                                                                                                                                                                      Honduras
                                                                                                                                                            Ecuador
                                                                                                                 Republic
      Chile

                                                                                            Uruguay
                                                  Peru

                                                                                                       Dominican
                                                                                                      Repúbica

The ranking classifies where each of these countries is located with respect to 190 economies (the closer to 1 the better and vice versa).
Source: Doing Business, World Bank, 2020.

10. Monetary Policy Report 2019. Central Bank of the Dominican Republic. https://bancentral.gov.do/Publicaciones/Consulta?CategoryId=93
11. Doing Business 2020. World Bank. https://espanol.doingbusiness.org/es/reports/global-reports/doing-business-2020

                                                                                                                                                                                             11
Doing Business
Dominican Republic

Within the categories of the ranking of Doing Business prepared by
the World Bank, the Dominican Republic scored better in the areas
of "Opening a business" and "Cross-border trade", where in the latter
it rates better than its regional peers, including Mexico, Colombia,
and the Latin American average.

The Dominican country rates worse evaluated in the 2020 edition
in the variable of "Protection of Minority Investors" and in the
"Insolvency Resolution".11

Graph 4
Doing Business In Dominican Republic
(Ranking of DR in the world -general and variable index- and rating in points)

DR                115          112                         80                                 116                          74                        119                    143                                150                  66                         133                          124
Ranking

Rating

                               85.4
                                                                                                                                                                                                                                    83.5

                                                         70.7
                                                                                              68.0                         67.2
                 60.0
                                                                                                                                                                                                               57.4
                                                                                                                                                                                                                                                               50.6
                                                                                                                                                     45.0
                                                                                                                                                                                                                                                                                            38.0
                                                                                                                                                                               34.0
                                                                                                             electricity

                                                                                                                                    deregistration

                                                                                                                                                                                        Investor protection

                                                                                                                                                                                                                                                                                                           resolution
                                            a business
                 Total

                                                                                                                                                                                                                                                                             de execution
                                                                                    permits

                                                                                                                                                                   credit

                                                                                                                                                                                                                          payment

                                                                                                                                                                                                                                                      trade
                                                                                                                                                                                                                     Taximpuestos
                                                                            de construcción

                                                                                                                                                                                                                                             transfronterizo
                 Total

                                                                                                           electricidad

                                                                                                                                                               de crédito
                                                                                                                                       propiedad

                                                                                                                                                                            Protección de los inversionistas

                                                                                                                                                                                                                                                                                contratos
                                               negocio

                                                                                                                                                                                                                                                                                                       de insolvencia
                                                                                                                                                                                                                                       Cross-boarder
                                                                                                                                                         Obtaining
                                                                       Construction
                                        de un

                                                                                                                                                                                     minoritarios
                                                                                                        deto

                                                                                                                                                                                                                                                                       Contract
                                                                                                                                                     Obtención

                                                                                                                                                                                                                                                                                                Insolvency
                                                                                                                                                                                                                Pago de
                                      Start

                                                                                                                            Property
                                                                                                   Access

                                                                                                                                                                                                                                                                Cumplimiento
                                                                                                                           Registro
                               Apertura

                                                                                                                                                                                                                                                                                            Resolución
                                                                                              Obtención

                                                                                                                                                                                                                                    Comercio
                                                         Manejo de permisos

The ranking classifies where the Dominican Republic is located compared to 190 other countries (the closer to 1 the better and vice versa).The score is a score
between 1 and 100 points, where the ease of each of the variables is measured (the closer to 100 the better and vice versa).
Source: Doing Business, World Bank, 2020.

11. Doing Business 2020. World Bank. https://espanol.doingbusiness.org/es/reports/global-reports/doing-business-2020

12
Doing Business
                                                                                                                                    Dominican Republic

 Current Economy

 Graph 5
  GDP Growth and Contribution of the Components of Aggregate Demand
 (percentage points, left axis; percentage growth of GDP, right axis)

   10%                                                                                                                                           9%

                                                                                                                                                 8%
    8%
                                                                                                                                                 7%

    6%                                                                                                                                           6%

                                                                                                                                                 5%
    4%
                                                                                                                                                 4%

    2%                                                                                                                                           3%

                                                                                                                                                 2%
    0%
                                                                                                                                                 1%

    -2%                                                                                                                                          0%
              2008        2009        2010          2011      2012          2013     2014   2015      2016        2017      2018      2019

                  Consumo
                  Private    Pirvado
                          consumption             Consumo
                                                  Public     Público
                                                         consumption          Inversión
                                                                              Investment    Exportaciones
                                                                                            Net exports   netas          PIB
                                                                                                                         GDP(%,
                                                                                                                             (%, eje
                                                                                                                                 rightderecho)
                                                                                                                                       axis)

 Source: Central Bank of the Dominican Republic

 At the end of 2019, total consumption contributed 4 percentage points (PP) to GDP growth, i.e. private consumption 3.4 PP and
 public consumption 0.6 PP. For its part, the investment contributed PP 1.3 to GDP; while net exports subtracted 0.2 PP from growth
 across the economy.2

 Dominican Republic represents the fastest growing economy in Central America and the Caribbean. In recent years, between 2015
 and 2019, the country recorded an average growth rate of 6.05%.2 GDP is estimated to fall in 2020 by 5.8%, as a result of the global
 pandemic, and a 2021 recovery of 4.0% GDP growth.

2. Central Bank of the Dominican Republic. https://www.bancentral.gov.do/

                                                                                                                                                         13
Doing Business
Dominican Republic

Graph 6                                                                              Graph 7
In recent years the Central Bank has maintained stability in                         Dominican peso exchange rate per US dollar
monetary policy rates and inflation                                                  (RD$/USD)
(Inflation rate of thereference)

                                                                                       55.0
 9.0%                                             Inflation (% annual)

 8.0%
                                                  Rate Objective(%)
                                                                                       50.0
 7.0%

 6.0%
                                                                                       45.0
 5.0%

 4.0%
                                                                                       40.0
 3.0%

 2.0%                                                                                  35.0

 1.0%

 0.0%                                                                                  30.0
                                                                                              2010

                                                                                                     2011

                                                                                                            2012

                                                                                                                   2013

                                                                                                                          2014

                                                                                                                                 2015

                                                                                                                                        2016

                                                                                                                                               2017

                                                                                                                                                      2018

                                                                                                                                                             2019

                                                                                                                                                                    2020
        2010

               2011

                      2012

                             2013

                                    2014

                                           2015

                                                  2016

                                                         2017

                                                                2018

                                                                       2019

                                                                              2020

Source: Central Bank of the Dominican Republic                                       Source: Central Bank of the Dominican Republic

In recent years, the Dominican Republic has had inflation levels                     The exchange policy established by the Central Bank is flexible. The
below the Central Bank's target of 4.0%, (1.0%). In 2019, interannual                perceived depreciation of the Dominican peso responds to supply
inflation to December resulted in 3.66%.                                             and demand pressures for the currency in the international
                                                                                     market.
The Central Bank has been reducing the monetary policy target rate
for the last four years. The decision is made in response to an                      The exchange rate of the Dominican peso against the US dollar
international context of greater uncertainty and with the aim of                     has shown a consistent depreciation, in the period from 2010 to
establishing expansionary monetary measures aimed at providing                       2019 the depreciation was 28%. The average exchange rate in
liquidity to the private sector and stimulating aggregate demand.                    2019 was 51.4 Dominican pesos per US dollar.

At an extraordinary meeting of the Central Bank held on March 16,
2020, the decision was made to reduce the target rate by 100 basis
points from 4.50% to 3.50%, as a preventive measure given the
global context of uncertainty in the face of the global pandemic
generated by coronavirus.

14
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III. Legal System

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                                                                                                 Dominican Republic

III. Legal System
       To) Legal Persons

Commercial companies regulated by the General Law of Commercial Companies and Individual Limited Liability
Companies:

• Limited Liability Company

• Individual Limited Liability Company

• Stock Company

• Simplified Stock Company

• Collective Name Society

• Simple Limited Partnership

• Simple Limited Partnership by Shares.

• Foreign Company registered as a Branch.

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            Major Trading Companies

  The most common trading companies in the Dominican Republic and their main characteristics are:

                            Stock Company                         Limited Liability Company                Simplified Stock Company

     Shareholders/        Minimum: 2 Shareholders.                Minimum: 2 Partners.                     Minimum: 2 Shareholders.
     Partners             Maximum: Unlimited.                     Maximum: 50 Partners.                    Maximum: Unlimited.

                          Authorized Social Capital                                                        Authorized Social Capital:
                          RD$30,000,000                                                                    RD$3,000,000

                          Minimum Subscribed and Paid             Minimum: N/A                             Subscribed and Paid Social
     Social Capital
                          Capital RD$3,000,000 or 10% of                                                   Capital:RD$300,000 or 10% of
                          Authorized Social Capital                                                        Authorized Social Capital

                          The responsibility of the partners                                               The responsibility of the partners
                          in an SC is limited.                                                             in a SSC is limited.

                          The capital is represented by           The responsibility of the partners       The capital is represented by
                          shares that give their holders          in a LLC is limited.                     shares that give their holders
     Responsibility       corporate rights; There may be                                                   corporate rights; There may be
                                                                  The capital stock is divided into
     and social capital   different series of shares, which                                                different series of shares, which
                                                                  social quotas.
                          will confer different corporate                                                  will confer different corporate
                          rights: for example, limited                                                     rights: for example, limited
                          economic or corporate rights.                                                    economic or corporate rights.

                                                                  The administration can be
                          Board of Directors (minimum 3                                                    Board of Directors (minimum 3
     Administration                                               entrusted to a single manager
                          members)                                                                         members)
                                                                  or a Board of Directors

     Vigilance            Accounts Commissioner                   Optional                                 Optional

                          The three types of companies allow the issuance of Variable Capital, which provides significant flexibility for the
     Variable Capital
                          purposes of its increase and decrease.

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Doing Business
                                                                                                                        Dominican Republic

        Financial Sector

The Dominican financial system is regulated by the Monetary and Financial Law (Law No. 183-02), which regulates everything
concerning financial intermediation entities, both public and private. The regulation of each financial intermediary corresponds to
decentralized bodies. The financial authorities are, fundamentally, the following:

Central Bank of the Dominican Republic (BCRD)

The function of the Central Bank is to execute monetary, exchange, and financial policies, in accordance with the Monetary
Program approved by the Monetary Board.

Superintendence of Banks (SIB)

It is in charge of the supervision of financial intermediation entities, to verify compliance with applicable laws and regulations.

Superintendence of the Securities Market (SIV)

Regulates and supervises the domestic securities market, and seeks a concurrent, organized, equitable, transparent, and efficient
market.

Superintendence of Pensions (SIPEN)

It ensures strict compliance with the law that creates the Dominican Social Security System (SDSS) and its complementary
regulations, to protect the interests of the affiliates, to monitor the financial solvency of the Pension Fund Administrators (AFP) and
to contribute to strengthen the Dominican Pension System.

Superintendence of Insurance

Governing, regulating, and supervising entity of the insurance sector in the Dominican Republic created by Law No. 146-02 on
Insurance and Surety.

In the Dominican Republic, only multiple banks or savings and loan associations can receive deposits from the public. There is no
limitation on foreign investment in the Dominican Republic, there are no restrictions on foreign investment in Dominican banks
(except for certain legally established exceptions). In fact, foreign financial institutions can be incorporated in the Dominican
Republic through a branch.

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               Infrastructure

Public infrastructure projects can be financed through public debt or through private investment; In any case, the principles established
by the Constitution of the Republic and the laws must be followed, that is, they must be carried out through procedures that ensure the
administration of resources with efficiency, economy, effectiveness, transparency and honesty and, specifically, through public tenders.

There are, of course, procedures for exceptions to public tenders in cases, for example, of national emergency, among others; however,
even these procedures must be aimed at fulfilling the aforementioned conditions.

The main laws that govern national public contracting are the Law on Procurement and Contracting of Goods, Services, Works and
Concessions, Law 687-82 on Public Works and the Law on Public Private Associations; The latter allows the celebration of long-term
agreements or contracts, through which a private developer can finance and provide, totally or partially, the infrastructure necessary for
the adequate provision of public services, for example, hospitals, roads, etc.

               Investment

In the Dominican Republic, there are various mechanisms and ways to implement investments, for example:

•    Joint-venture agreements or partnerships.

•    Consortium.

•    Capital contributions.

•    Various types of trusts.

•    Debt contracting.

•    Investment funds.

19
Brochure / report title goes here | Section title goes here

IV. Fiscal Aspects

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                                                                                                                        Dominican Republic

IV. Fiscal Aspects
         1. General Aspects                                                     3. Tax Base and Rates

The Dominican Republic taxes primarily on a territorial basis.        Resident companies in the Dominican Republic pay taxes on the
Commercial income derived from activities carried out on property     taxable base that results from the deductible income and
located or used economically or economic rights used in the           expenses of each determined period. Non-resident companies pay
country is taxed, regardless of the domicile or residence of the      taxes only on Dominican source income.
participants or the place of hiring.
                                                                      The corporate income tax rate is 27%. The same rate applies to
The main taxes of importance for companies operating in the           branches of foreign entities under the figure of a permanent
Dominican Republic are the Income Tax (ISR), the Tax on Transfers     establishment.
of Industrialized Goods and Services (ITBIS), as well as social
                                                                      3.1 Income Tax
security contributions that must be paid on behalf of the
employees. However, there are other relevant taxes, such as the       The income tax of a company is the result of subtracting the costs,
Asset Tax and the Selective Consumption Tax.                          deductible expenses, and investments from the gross annual
                                                                      income as well as the incurred tax losses available for deduction in
The Dominican Republic has a National Free Zones Export Regime
                                                                      accordance with the conditions and requirements established by
which provides tax concessions for companies focused on
                                                                      Law.
promoting the manufacturing of goods for export, as well as some
services.                                                             3.2 Deductions

Likewise, the Dominican Republic is not an active member of the       The costs, expenses, and investments will be deductible if they
Organization for Economic Cooperation and Development (OECD),         meet certain requirements. Among others, they must be duly
but it has included transfer pricing provisions applicable to         recorded in the accounting, be strictly necessary for the operations
transactions with domestic and foreign related parties.               of the company, and be supported by invoices that comply with
                                                                      the formalities and requirements that mark the fiscal provisions in
                                                                      this regard.
         2. Fiscal Residence
                                                                      3.2.1 Tax Receipts

                                                                      Tax receipts are documents that certify the transfer of goods,
A company is resident if it is established under the laws of the      delivery in use, or the provision of services. Among the most
Dominican Republic or if its main place of administration is in the   important we can point out:
country.
                                                                      •   Invoices that generate tax credit or support costs and expenses.

                                                                      •   Bills to end consumers without tax credit value.

                                                                      •   Debit notes (interest for late payment, freight).

                                                                      •   Credit notes (returns, discounts, errors, or operation
                                                                          annulments).

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                                                                                     6. Remittances Abroad

It should be noted that, in addition to the general requirements           Companies that make payments derived from Dominican
for deductions, there are specific and limiting requirements for           sources to persons or entities not resident in the Dominican
some of them. To cite a few examples, to exercise the deduction            Republic, will be obliged to withhold and pay the tax to the tax
of expenses related to workers' remuneration, the corresponding            authorities on the amount paid, on behalf of the recipient, in
obligations regarding withholding and payment of taxes, and                certain circumstances. Corresponding rates:
social security contributions must be met.
                                                                           •   Dividends: 10%

                                                                           •   Interest: 10%
4. Assets Tax
                                                                           •   Royalties 27%
This tax is equivalent to a Minimum Tax (annual) and is applied
                                                                           •   Services: 27%
whenever it exceeds the ISR, in the event that the ISR is higher
then this tax it will be considered covered.                               6.1 International Treaties

The tax base for this tax is made up of the book value of all assets       The Dominican Republic has so far signed two treaties to avoid
shown in the financial statements, minus investments in shares,            double taxation, which follow the OECD model. These were signed
land in rural areas, and tax accounts.                                     with Canada in 1977 and Spain in 2014. Among other objectives,
                                                                           the treaties generally provide a measure of relief against double
Rate: 1%
                                                                           taxation, limiting or eliminating the taxes of the contracting
                                                                           countries on the income obtained by their respective residents.

           4. Capital Gains                                                With respect to income or earnings obtained directly by foreign
                                                                           residents in the Dominican Republic, double taxation agreements
                                                                           frequently grant a benefit consisting of the reduction or
Capital gains from the sale of assets, real estate, or stocks are          elimination of tax withholdings for income from Dominican
included in the gross income and are subject to the standard income        sources, provided that various requirements and formalities are
tax rate of 27%. The capital gain is calculated by deducting the           met.
acquisition cost (adjusted by inflation) from the sales price and adding
                                                                           6.2 Anti-avoidance measures
the accumulated gains / losses (other adjustments may also apply, as
appropriate).                                                              Transfer pricing: based on OECD guidelines. The following
                                                                           methodologies are accepted: (1) comparable uncontrolled price;
                                                                           (2) resale price; (3) cost more; (4) profit split; and (5) transactional
           5. Dividend Distribution and Capital Return                     net margin.

                                                                           An annual information return must be filed no later than 60 days
                                                                           after the due date to file the corporate income tax return.
Entities that distribute dividends or profits from Dominican sources
                                                                           Advance pricing agreements are available to all taxpayers and
in any other way to resident or non-resident individuals and legal
                                                                           sectors.
entities, must retain and pay the tax administration as a single and
definitive payment 10% of the distributed amount.                          Interest Deduction Limitations: thin-cap rules limit the interest
                                                                           deduction.
Similarly, branches of foreign entities or permanent establishments
must retain and pay the 10% dividend distribution to their parent          The deductible amount cannot be greater than the result of
company.                                                                   multiplying the total amount of interest accrued in the fiscal
                                                                           period by three times the average annual balance of the equity,
                                                                           divided by the average annual balance of all the debt that accrues
                                                                           interest from the taxpayer.

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                                                                                                                            Dominican Republic

Indirect Taxes                                                             Taxes on Individuals

1.    ITBIS                                                                1. Tax Residence

The Tax on Transfers of Industrialized Goods and Services (ITBIS) is a     A natural person is considered a resident if he or she is in the
value-added tax similar to VAT, which applies at a rate of 18% to the      country for at least 182 days in a fiscal year, whether continuous or
sale of goods, to the provision of services, to the import and export of   not. Foreign persons who become residents are subject to taxes on
goods or services, and rentals.                                            their foreign income from the third year or taxable period in which
                                                                           they become residents.
Imports of services are not subject to ITBIS or any other indirect tax.

ITBIS exemptions:
                                                                           2. Tax Base and Rates
•    Basic food basket.
                                                                           Residents, regardless of their nationality, are subject to income tax
•    Fuels.
                                                                           on their income from Dominican sources.
•    Medicines.

•    Books and magazines.
                                                                           2.1 Income Tax
•    Educational material at the pre-university level.
                                                                           People pay taxes on income received in cash, in kind, or credit. Tax
•    Education.                                                            revenue includes compensation for personal services (salaries,
                                                                           bonuses, and special allowances like housing), interest, corporate
•    Health.
                                                                           dividends paid out of gross income, capital gains, rental income,
•    Others.                                                               etc.

Companies can credit the ITBIS payments that they make against
ITBIS at their own expense; the part not credited, passes as a balance
                                                                           2.2 Rates
in favor to the next month. In certain cases, and under certain
conditions, the taxpayer can request a refund.                             Income tax rates on individuals are progressive from 15% to 25%.
                                                                           Employers withhold provisional tax payments on earned income.

                                                                           Capital gains of an individual, arising from the sale of publicly
2. Selective Consumption Taxes
                                                                           traded and unlisted shares, including financial derivative
The ISC applies to certain specific products and services, such as:        transactions related to such shares, are subject to capital gains
                                                                           tax of 25%.
•    Tobacco products and alcohol products (subject to two special
     taxes, one specific and the other based on value).

•    Communications (Rate 10%).                                            2.3 Deductions

•    Insurance (Rate 16%).                                                 Resident persons who carry out activities other than employment
                                                                           activities can deduct all expenses necessarily incurred to obtain,
•    Bank Debt Tax (0.15% per thousand).
                                                                           maintain, and preserve taxable income or its source. Subject to
                                                                           documentation requirements, an individual may deduct up to
                                                                           10% of their net taxable income for educational expenses
                                                                           incurred for the benefit of themselves or their independent direct
                                                                           dependents.

                                                                           3. Property Tax

                                                                           Individuals and trusts are subject to the annual payment of 1% of
                                                                           their total real estate assets. Individuals have an exemption of up to
                                                                           RD $ 7,710,159, so the tax applies on the excess of said amount.

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                                     First Steps - (Soft Landing in
                                     Dominican Republic)
                                     There is a more in-depth brochure on these activities produced by Deloitte Dominican
                                     Republic. However, for those companies looking to invest in the Dominican Republic, the
                                     most relevant steps to consider are the following:

Legal                                                                 Tax

• Legal and corporate analysis of the characteristics of the          • Analysis of the operating model transactions, to define their tax
  investment for the development of a strategy.                         implications in the Dominican Republic and / or abroad.

• Request for information related to the incorporation of the         • Application of corporate taxes to transactions, including
  company.                                                              withholding rates in the Dominican Republic.

• Management of the registration of the company name before           • Analysis of the fundamental fiscal aspects, to comply with the
  the National Industrial Property Office.                              deductibility requirements of national and / or foreign
                                                                        payments.
• Preparation of the constitutive documents and bylaws.

25
Doing Business
                                                                                                                   Dominican Republic

Accounting, Payroll, and Tax Compliance                              Expat Employees

• File annual income statements (IR-2).                              • Determination of tax residence, considering local
                                                                       legislation, as well as treaties, to avoid double taxation
• Submit monthly form (IT-1) related to ITBIS (VAT), together with
                                                                       in terms of Income Tax.
  form 606 on report of expenses and form 607 on report of
  income.                                                            • Analysis of the expatriate's investments in the
                                                                       Dominican Republic or abroad, to determine the
• Withholding and payment of contributions for Family Health
                                                                       corresponding tax treatment.
  Insurance and Pension Fund Administrator.

• Withholding at source for employees (Form IR-17)

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References
1.   National Association of Hotels and Tourism of the Dominican Republic.

2.   Central Bank of the Dominican Republic, Objectives and strategies https://www.bancentral.gov.do/a/d/2560-objetivos-y-
     estrategias

3.   Central Bank of the Dominican Republic, Gross Domestic Product (GDP) by sectors of origin
     https://bancentral.gov.do/a/d/2533-sector-real

4.   Central Bank of the Dominican Republic. https://www.bancentral.gov.do/

5.   World Bank, population at the end of 2018 https://datos.bancomundial.org/indicador/SP.POP.TOTL?locations=DO

6.   INC. The World Factbook: Dominican Republic. https://www.cia.gov/library/publications/the-world-factbook/geos/dr.html

7.   Political Constitution of the Dominican Republic. https://www.ifrc.org/docs/idrl/751ES.pdf

8.   Doing Business 2020. World Bank. https://espanol.doingbusiness.org/es/reports/global-reports/doing-business-2020

9.   National Survey of Household Income and Expenditure (ENIGH) 2018
     https://cdn.bancentral.gov.do/documents/estadisticas/encuesta-de-gastos-e-
     ingresos/documents/ENGIH_2018.pdf?v=1584977882515.

10. Exports from Free Zones. Presidency of the Dominican Republic. https://presidencia.gob.do/noticias/en-solo-siete-anos-rd-
    relanza-zonas-francas-y-obtiene-liderazgo-regional-en-generacion

11. International Monetary Fund, World Economic Outlook, https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-
    april-2020

12. English Proficiency Index 2019 https://www.ef.com/wwes/epi/#

13. Monetary Policy Report 2019. Central Bank of the Dominican Republic.
    https://bancentral.gov.do/Publicaciones/Consulta?CategoryId=93

14. Ministry of Industry, Commerce and MYPIMES, https://www.micm.gob.do/direcciones/comercio-exterior/acuerdos-
    comerciales-vigentes

15. Ministry of Tourism of the Dominican Republic. http://mitur.gob.do/config/barometro-turistico/

16. Senate of the Republic. United States of Mexico. Dominican Republic, Technical Sheet.
    https://centrogilbertobosques.senado.gob.mx/docs/F_Republica_Dominicana.pdf

27
Doing Business
Dominican Republic

Contact
Carla Coghi                          Phone: +(809) 563 5151
Managing Partner                     Email: informacioncr@deloitte.com
Central America, Panama, and
Dominican Republic

Richard Troncoso
Tax and Legal Services Partner

David Infante
Tax and Legal Services Partner

Rosa Morales
Business Process Solutions Partner

Carlos Valverde
Legal Services Partner

Tomas Guardia
Legal Services Partner

28
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