Dominican Republic has about 800 miles of beaches, the oldest colonial settlement in the Western Hemisphere, and spectacular mountains and landscapes, the Dominican Republic is the single most-visited tourist destination in the Caribbean.
There is no restrictions for foreigners to purchase or own property in the Dominican Republic. In 2019, the country received 26% of all tourists visiting the region, hotel capacity grew to more than 90,000 rooms. Tourism revenues now surpass those of Brazil and rank second in Latin America, behind Mexico.
Investment in the tourism industry is broadly diversified across various subsectors such as leisure (hotels, vacation homes, cruise ports, spas, etc.), health and ecotourism.
The inflow of tourists to the Dominican Republic began with the enactment, in 1971, of a special statute granting incentives to investors willing to risk their capital in what was then the least-visited tourist destination in the region. Nowadays, when the country is the undisputed tourism leader in the Caribbean, companies still benefit from very attractive enticements to invest in the industry. Law 158-01 on Tourism Incentives, as amended by Law 195-13, and its regulations, grants wide-ranging tax exemptions, for fifteen years, to qualifying new projects by local or international investors.
The projects and businesses that qualify for these incentives are: (a) hotels and resorts; (b) facilities for conventions, fairs, festivals, shows and concerts; (c) amusement parks, ecological parks, and theme parks; (d) aquariums, restaurants, golf courses, and sports facilities; (e) port infrastructure for tourism, such as recreational ports and seaports; (f) utility infrastructure for the tourist industry such as aqueducts, treatment plants, environmental cleaning, and garbage and solid waste removal; (g) businesses engaged in the promotion of cruises with local ports of call; and (h) small and medium-sized tourism-related businesses such as shops or facilities for handicrafts, ornamental plants, tropical fish, and endemic reptiles.
As for existing projects, hotels and resort-related investments that are five years or older are granted 100% exemptions from taxes and duties related to the acquisition of the equipment, materials and furnishings needed to renovate their premises. In addition, hotels and resort-related investments that are fifteen years or older will receive the same benefits granted to new projects if the renovation or reconstruction involves 50% or more of the premises.
Finally, individuals and companies get an income tax deduction for investing up to 20% of their annual profits in an approved tourist project.
The Tourism Promotion Council, known by its Spanish acronym of Confotour, is the government agency in charge of reviewing and approving applications by investors for these exemptions, and, generally, of supervising and enforcing all applicable regulations. Once Confotour approves an application, the investor benefitting from the incentives must start and continue work in the authorized project within a three-year period to avoid losing all benefits under the program. Due to the COVID- 19 pandemic, the Tourism Development Council extended the three-year period for starting construction for an additional period of two years. This extension will apply to all projects approved during 2020 and to those, previously approved, operating within the initial three-year term.
Law 171-07 grants foreign nationals who invest a minimum of $200,000 in the Dominican Republic, or meet certain criteria as retirees, with special benefits such as expedited residency in the country, exemption from duty for the importation of household goods, exemption from transfer taxes for the first purchase of real estate, exemption from taxes on dividends and interest, and 50% reduction on property and capital gains taxes.
The Dominican Republic was one of the first countries in Latin America to privatize telephone service. Greater competition and significant foreign direct investment in the industry (close to one billion dollars in the last five years) have resulted in rapidly increasing telecom coverage and reduced rates. As of December 2019, there were about 11 million fixed and mobile phones in operation, as well as 6 million Internet accounts. The Dominican government is currently developing a nationwide fiber optic infrastructure that will make the Dominican Republic the undisputed leader in telecommunications in the Caribbean.
The monetary unit in the Dominican Republic is the peso (DOP or RD$). As of June 30, 2019, one dollar buys 58 pesos. The US dollar is widely accepted. Contractual obligations can be legally stipulated in US dollars or any other foreign currency. There are no exchange controls: exchange rates are set freely by the market. Currency exchange transactions are done at commercial banks and at authorized currency exchange agents. Accounts in dollars or euros can be opened at local banks.
In a deliberate effort to attract investment capital, the Dominican Republic has set up one of the most wide-ranging systems of incentives for investors. The most important initiatives in this regard are described below.
Under Free Trade Zones Law 8-90, companies operating in free zones function in a nearly free trade environment and benefit from considerable tax exemptions for renewable 15-year periods, such as no income, goods and services, municipal, or export taxes, no import duties nor related charges on raw materials, equipment, construction materials, vehicles, office equipment and other goods necessary for the preparation, construction, and operation of the business.
All trade in goods or services from and to a free zone is considered an import or an export, even when the source or destination is another location in the Dominican Republic. As a result, goods and services from the free zones sold in the Dominican market are subject to applicable taxes, such as customs duties and goods and services taxes, except (a) textiles, leather goods, and shoes that benefit from a special program set up under a special statute (Law 56-07); and (b) trade between different free zones if approved beforehand by the authorities. Furthermore, companies in the free zones exporting goods or services to the Dominican market pay a preferential income tax rate of 3.5% on gross sales.
Free zones are regulated and supervised by the National Council for Free Zones, which issues the permits allowing companies to operate within a particular free zone, and enforces all applicable legislation.
Under Law 28-01, companies established and operating in free zones within the border region with Haiti are entitled, in addition to the exemptions listed before, to additional benefits such as an extension of the exemption period from 15 to 20 years, government subsidies to lease space in the free zone, and preferential loans with lower interest rates.
Under Law 480-08, companies in special free zones can offer all types of financial and support services to persons or entities located outside the Dominican Republic without having to pay taxes for a 30-year period.
Partners and shareholders of companies in financial free zones are exempted from paying taxes on the profits or dividends received.
International financial free zones are regulated and supervised by the National Council for International Financial Zones, which issues the permits allowing companies to operate within a particular free zone and enforces all applicable legislation.
Executive Order 262-15 defines logistic operators as companies authorized by the Customs Department of the Dominican Republic to supply, within a logistic center, services such as storage, inventory administration, classification, consolidation, cargo distribution, packaging, labeling, division of cargo, refrigeration, re-export, and transport.
Logistic operators benefit from a significant reduction in their income tax, which is set at just 3.5% of sales made in the local market, and from import duties on merchandise brought into the country, repackaged and then exported, if done within a specified time period.
Over the past three decades, the Dominican Republic has fostered a highly receptive environment for international investors, adopting policies that minimize red tape and offering them significant tax incentives. For this reason, the country has become the main recipient of foreign direct investment (FDI) in the region. In 2019, FDI reached 3.1 billion dollars, of which 31.5 came from the United States, 21.2% from Mexico, 13.1% from Spain, and 7.9% from France.
The Dominican Constitution accords foreign and local investors equal treatment under the law, stating expressly that foreigners in the Dominican Republic are entitled to the same rights as Dominican nationals, except for participating in local political activities. At the same time, foreign investors are bound by the same rules and regulations applicable to local investors.
Foreign investors can freely hold equity in local businesses and joint ventures, as well as buy real estate in their names.
Foreign Investment Law 16-95, enacted on November 20, 1995, and its enabling regulations, eliminated all barriers formerly imposed on international investments in the Dominican Republic. Investors contributing capital to companies operating in the Dominican Republic are granted unlimited access to all sectors of the Dominican economy, except to those related to national security and certain sensitive industries.
Registration of foreign investments with government authorities is not mandatory. Nor is state approval required for the repatriation abroad, in foreign currency, of the capital invested or the benefits received by investors.
The Center for Exports and Investment of the Dominican Republic (PRODOMINICANA) is a government institution, created in 2013, with the purpose of promoting exports and facilitating and expediting foreign investment in the country. PRODOMINICANA assists foreign investors in their business activities in the Dominican Republic by providing free advice and information, as well as coordinating their permit applications with various government entities.
The Center also sponsors events to promote the Dominican Republic as an investment destination and to provide information to potential investors on how to plan and implement successful business projects in the country.
The Dominican government also assists investors by pledging its full faith and credit to loans provided by international agencies for significant infrastructure projects in the Dominican Republic. Foreign investors in large Dominican projects commonly use capital and political/exchange insurance risk facilities provided by the Multilateral Investment Guarantee Agency (MIGA) and the Overseas Private Investment Corporation (OPIC). The Dominican Republic has signed agreements with both entities.
The Multilateral Investment Guarantee Agency (MIGA) is an independent development cooperation institution created by the World Bank in 1988 to provide, in addition to guarantees to investors against losses caused by political risks, technical assistance to promote investments to developing countries.
The Overseas Private Investment Corporation (OPIC) is an independent federal agency of the United States federal government that helps American companies to compete in emerging markets by providing insurance against political violence, expropriation, and the inability to convert foreign currency.
The Dominican Republic is categorized as an upper-middle developing country, with a gross domestic product (GDP) per capita, in 2019, of $19,291 PPP (purchasing power parity), the fifth highest in Latin America. The size of the economy, the eighth in Latin America and the first in the Caribbean and Central America region, increased tenfold between 1991 and 2019, growing at a rate of 6.3% in the period 2012-2019, the highest high in the Western Hemisphere. Inflation in that interval period remained below 4%, falling, in 2019, to 1.81%.
During the last three decades, the Dominican economy, formerly dependent on the export of agricultural commodities (mainly sugar, cocoa and coffee), has transitioned successfully to a well-diversified mix of services, manufacturing, agriculture, mining, and trade. The service sector accounts for almost 60% of GDP; manufacturing, for 22%. Diversification also prevails within the service sector: none of its three most important components —tourism, telecommunications and finance— represents more than 15% of the total. The sectors and subsectors that receive most of the foreign direct investment (FDI) in the Dominican Republic are described below. In 2019, FDI to the country reached 3,012.8 million dollars, the highest in Central America and the Caribbean.
Free zones are industrial parks located in restricted areas where companies can manufacture goods and provide services in a free trade environment and under special tax incentives. Free zones are an important pillar of the Dominican economy and an attractive investment opportunity for any investor.
The free zone system in the Dominican Republic is one of the most advanced in the world, encompassing financial, logistic and other services, alongside the more traditional manufacturing. For example, during the last decade, many North American companies have relocated their customer service and call center operations to Dominican free zones, and more than 70 software development companies have set up shop there.
Exports from the Dominican free zones have increased steadily in recent years as a result of the growing diversification of the goods and services offered. Goods exported in 2019 amount to 6.3 billion dollars. As of December 2019, the main industries installed in the free zones are, in order of the value of their exports, medical and pharmaceutical products (26.5%), electrical and electronic products (17.2%), textile clothing (16.7%), tobacco (14.2%) and jewelry (8.5%). It should be added that the Dominican Republic is currently, through its free zones, the number one exporter of quality cigars in the world and the third largest producer of medical equipment.
The Dominican Republic is a representative democracy, with three branches of government, each with separate and independent powers and areas of responsibility: a legislature, an executive, and a judiciary. For administrative purposes, the country is divided into 31 provinces and a National District (the capital of Santo Domingo).
The executive branch is headed by the President, who is simultaneously the head of state and the head of government, and is elected every four years by popular vote. The President enacts laws passed by the legislature, appoints the cabinet, provincial governors and other administrative personnel, and is commander in chief of the armed forces.
The legislature or National Congress is bicameral, composed of a Senate and a Chamber of Deputies.
The Senate has 32 members, elected by simple majority vote, one for each province ant the National District. The Chamber of Deputies has 190 members, elected directly in multiseat constituencies by proportional representation vote. Both senators and deputies serve four-year terms and may be reelected for additional terms.
A thirteen-member Constitutional Court rules on whether laws and treaties are in conflict with constitutionally-established rights and freedoms. The Constitutional Court can also review the constitutionality of the definitive rulings of other courts. The decisions of the Constitutional Court are final and irrevocable, and constitute binding precedents for the three branches of government. Members of the Constitutional Court are appointed by the National Judicial Council for a single term of nine years. Appointments are staggered so that a partial turnover of the membership occur every three years.