A Modern Legal Framework

The Dominican Republic’s political and business elites share responsibility for the numerous legislative and institutional reforms approved in recent years and the importance of the proposals currently under discussion. Thanks to this updating of the regulatory framework, the business climate is improving visibly in a country that offers excellent opportunities for trade and investment in a context of rapid growth and macroeconomic stability. The will to proceed with reform has been strong enough to overcome the difficulties in obtaining a consensus.

The reform process dates back to the beginning of the 1990s, when the Monetary Policy Board introduced foreign currency liberalization measures and reduced import tariffs (Law 14 of 1993). Around this time, the current free trade zone regime was also adopted (Law 8 of 1990), labor legislation was improved (Law 16 of 1992) and tax reform was also approved (Law 11 of 1992). Other positive changes that are worth noting include the law on foreign investment (Law 11 of 1992), which gave equal treatment to foreign investors and free remittance of profits. The constitutional reform of 1994 initiated a process of improvements in the judicial system, increasing its autonomy, efficiency and probity. Another important change was the approval of the state companies reform law (Law 141 of 1997), which opened the way for the privatization process.

By 2000, a new wave of basic reforms had gained momentum in the Dominican Republic, stimulated by the country’s increased trade liberalization and free trade agreements in the framework of the World Trade Organization, Free Trade Area of the Americas and other sub-regional processes. A package of new laws and regulations contribute to a trend that favors free competition, transparency, environmental protection and consumer rights, as well as the solvency and reliability of the financial system. Fully up-to-date rules are being adopted in key areas such as telecommunications, electric power, capital markets, the banking system, the environment, intellectual property, foreign trade and in taxation. Those interested in investing or trading with the Dominican Republic should carefully monitor these changes to be aware of the advantages and challenges that the new rules bring.

Telecommunications

For instance, telecommunications, which is one of the Dominican Republic’s most dynamic sectors, thanks to the management, technological and financial capabilities of the private sector, is governed by modern legislation (Law 153 of 1998) that places the sector’s development under the control of the Dominican Telecommunications Institute (Indotel), a decentralized and autonomous body equipped with the technical and financial resources needed to efficiently carry out its role as regulator.

Another, more recent law that affects the telecommunications sector is Law 126 approved in 2002, which establishes the legal requirements for electronic commerce and digital documents to ensure trust, protection and due process in electronic transactions.

Electric Power

In the electrical power sector, it is advisable to pay attention to the General Law on Electricity (Law 125 of 2001), which entrusts the sector’s regulation to the National Energy Commission and the Superintendence of Electricity, with broad regulatory and punitive powers.

Environment

It is also worth noting that recent legislation on the environment and natural resources (Law 64 of 2000), which created the department of state for the environment and natural resources as the regulatory agency in this area. From now on, all investment projects must include an environmental impact study prior to issuing an environmental permit or license.

Intellectual Property

With regard to intellectual property or copyright, adjustments have been approved to bring local regulations into line with commitments arising from the agreement with the World Trade Organization (WTO) on trade-related intellectual property law (TRIPS). Law 65 of 2000 on copyright protects literary, artistic and similar creations, including computers (software) and databases. Furthermore, Law 20 of 2000 on industrial policy protects inventors’ patents, trade marks, commercial names, geographical place names and denominations of origin.

Tax Reform

Tax legislation also has continued advancing. In 2000, the Tax Reform Law 147-00 was adopted, which introduced the requirement of a minimum advance payment of income tax, equivalent to 1.5 times a company’s monthly gross revenues; raised to 12% the Selective Consumption Tax and the Industrial Goods and Services Transfer Tax (ITBIS); and the increase in the Selective Consumption Tax for a few non-essential products such as alcoholic beverages. Another law, Law 146-00, deepened trade reform, establishing import tariffs of 0%, 3%, 8%, 14% and 20%.

Financial and Monetary

The legislative changes with the greatest economic impact are occurring in the field of financial and monetary legislation. In 2000 the country enacted the 19-00 Stock Market Law, which regulates the public issuance of securities in local or foreign currency, and instituted the Securities Superintendency as the regulatory and supervisory entity. The law establishes a regime for a stock market and a commodities exchange. Detailed regulations of the law were approved in 2001.

Law 87-01, which created the Dominican social security system, was approved in May 2001, and is due to come into effect gradually beginning this November. This law organizes a modern system for the protection of the risks of old age, incapacity, maternity and workplace accidents. The system covers all the public and private institutions that carry out activities related to social security. Affiliation to the system is compulsory but users are free to choose the provider of their choice.

Recently approved legislation, Law 146-02, adopted in September, updates the regulations governing the private insurance and trust industries, establishing requirements that raise the level of solvency and reliability of insurance and reinsurance companies. The role of the Insurance Superintendency is reinforced.

Money Laundering

Recently adopted Law 72-02 tightens controls on laundering the proceeds of drug trafficking and other serious crimes which punishes those who launder assets, that is to say the use, administration or concealment of funds, goods or instruments produced by a serious criminal offense. In these cases, the right to bank secrecy is suspended and suspects may not be released on bail.

Pending Legislation

Last but not least, we should note the existence of a draft Financial and Monetary Law, which has been studied and debated for several years and is now about to be adopted with considerable consensus. It proposes to update and collate all the pertinent legislation and the resolutions of the Monetary Policy Board liberalizing foreign currency regulations and has incorporated prudential norms according to the so-called Basel Consensus. The new text reinforces the Board’s autonomy as the regulatory authority, as well as for the Central Bank and Banking Superintendency. It introduces prudential norms and rules increasing transparency to guarantee that the formulation and execution of monetary and exchange policies strengthen the country’s economic stability and solvency of the financial system.

These examples of new laws in the Dominican Republic illustrate the depth and speed with which the country has advanced in updating its regulatory framework to meet the challenges of globalization. There are many other new laws that are important for people with business activities in the country or those planning to invest here. They include the 112-00 Hydrocarbons Law, the 3-02 Trade Registration Law, the 1-02 Law on Unfair Competition, Law 158-01 concerning the development of tourism and Law 158-01 on Tourism Development. Other important pieces of draft legislation awaiting approval are the new version of the Commercial Code. If the effort to update its legislation is an indicator of the will to continue progressing, then it is undeniable that the Dominican Republic has embarked on a journey with a promising future.

Luis Heredia Bonetti and Miguel Angel Heredia Bonetti are corporate lawyers and consultants with Russin, Vecchi&Heredia Bonetti in Santo Domingo.