Legislation for Foreign Investment Statutes in Countries in the Americas
Comparative Study
1. Legal bases for foreign investment
Objective: Indicate if there is a Foreign Investment Statute and describe it. In the paragraphs below, indicate the legal rank of the norms contained in the Statute, i.e., regulations for expropriation fall under which rank?
1.1 Constitutional
1.2 Legal
Law No. 861 on Foreign Investment, of July 22, 1978. (The Executive Power submitted for the consideration of the National Congress of the Republic a bill to reform the foreign investment regime).
1.3 Administrative
2. Concept and subject of foreign investment
Objective: It is essential that both the investor and the nature of the investment be identified, so as to determine to which activity and to whom the regulations will be applied. This is also essential at the international level, especially in case of dispute and arbitration.
Is foreign investment in your country legally defined or conceptualized?
Yes.
2.2 Are there registered records or mechanisms to clearly identify both the foreign investor and the nature of the investment?
Article 2 of Law No. 861 on Foreign Investments establishes the Directorate of Foreign Investment, the agency to which applications are made for the registration of investments. The Executive Secretariat of the Directorate of Foreign Investment has a list of registered investments and their amounts.
2.3 Is it possible for a natural person to resort to the foreign investment legislation?
Yes.
2.4 Is it possible for a citizen or resident to resort to the foreign investment regime?
The provisions of Law No. 861 are applied specifically to foreigners. (This is modified in the bill submitted to the National Congress.)
2.5 Can a recipient company funded with both domestic and foreign capital resort to foreign investment regulations? Is this subject to restrictions?
Article 1 of Law No. 861 provides definitions of national enterprise, mixed enterprise and foreign enterprise, all of which are recipients of foreign investments. The designation of these enterprises changes depending on the proportion of foreign investment involved. The purpose of this classification is to determine the percentage of foreign participation permitted in specific areas of investment.
2.6 Is there a time limit for a foreign investor to be considered as such?
No.
2.7 Are restrictions imposed on the executive body or other staff of an enterprise. Are there nationality quotas? Under what conditions can the executives or other staff hired abroad send their earnings to their country of residence?
Article 135 of the Labor Code of the Dominican Republic establishes that at least 80% of the total number of employees must be nationals, with certain exceptions, including management or executive staff. Such contracts must be reported to the central bank to allow access to the private foreign exchange market.
3. Scope of foreign investment activities
Objective: Define the legal scope of foreign investment in your country, as well as their conditions and limitations.
3.1 Describe the regulating principles of economic activity in your country.
a) Describe how economic freedom is guaranteed.
This right is enshrined in the Constitution of the Dominican Republic as an individual right (Article 8, Section 12).
b) Is the principle of economic nondiscrimination guaranteed? Describe how.
This right is embodied in the Constitution and therefore enjoys the guarantees of the rights stipulated in the Constitution.
c) Public and private enterprises (local and foreign): do they compete on equal terms, or does the State have higher benefits?
As indicated above, the right to free enterprise, trade and industry is guaranteed and monopolies are only permitted at the state level. State monopolies have been gradually disappearing.
3.2 Indicate the scope of foreign investment, i.e., does it include movable and immovable property, assets, concessions, claims to money, intellectual property, industrial property, leasing, technology, etc.
(The bill submitted to Congress includes the concept of assets, and industrial and intellectual property as foreign investments.)
Movable property: equipment, tools, stocks.
Current legislation prohibits the registration of investments in real estate, since they are considered to be speculative; nevertheless, purchase of real estate for constructing tourist projects or by individuals for establishing their residence in the country are not considered speculative.
Intellectual property as well as industrial property are contemplated in existing legislation as transfer of technology.
3.3 Reserved sectors
a) Indicate the sectors or economic activities reserved exclusively for the state in your country. Explain the regulations pertinent to these areas.
In Dominican legislation, there are no sectors or activities reserved exclusively for state investment.
b) Indicate the sectors or economic activities in which only foreign investment is excluded, restricted or limited in your country. Explain in what consists said exclusion, restriction or limitation.
In accordance with Article 5 of Foreign Investment Law No. 16/95 of 1995, foreign investment is prohibited in the following sectors:
a) Toxic, dangerous or radioactive wastes not produced in the country.
b) Activities affecting public health and environmental balance.
Up to 20% foreign participation is permitted in the following areas:
a) Enterprises dedicated to the production of materials and equipment directly linked to national defense and security.
b) Enterprises dedicated to advertising, radio broadcasting, television, newspapers, magazines, publishing, and mass communications.
c) Internal surface and air transport, coastal and international shipping.
Foreign investment of between 30% and 49% is allowed in the following areas:
a) Agricultural, poultry and cattle exploitation
b) Fishing
c) Commercial and investment banks and other financial institutions
d) Insurance
In addition and in accordance with Decrees 365/88 and 354/88, there are restrictions for foreigners who buy real estate.
c) Does the Principle of International Reciprocity exist in the legislation of your country?
Our legislation does not provide for this.
d) Is foreign investment subject to performance requirements?
Our legislation does not provide for this.
e) Can foreign investors take part in the privatization processes of your country?
(The bill submitted to Congress stipulates national treatment of foreign investors.)
At present, as indicated in Article 3.3 above, foreign participation is restricted in some sectors of the national economy.
4. Rights and protection of foreign investment
Objective: Identify the type of treatment granted foreign investment i.e.: its rights, protection and incentives.
4.1 Treatment granted to the foreign investor and the investment.
a) National treatment or Most-Favored-Nation clause ? (Refer to paragraphs 3.1 and 3.3).
Our legislation does not provide for this.
4.2 Protection of Property
Right to property is guaranteed as a constitutional right in accordance with Article 8, Section 13 of our Constitution.
a) Constitutional or legal grounds that may lead to expropriation of, or limitations to property.
The Constitution establishes that a person may only be deprived of his right to property for justified cause of public utility or social interest, defined as putting the land to good use, gradual elimination of latifundia, and the promotion of agrarian reform.
b) How is compensation determined? Which value is it based on? How is it settled?
Compensation is determined on the basis of judgments by the competent court.
c) Can the authorities take possession of expropriated assets prior to paying compensation?
No. As an exception, in case of public disaster, compensation shall not be paid in advance.
d) Is property of both corporal and incorporeal assets equally guaranteed?
Yes.
a) Article 8 of the Constitution of the Dominican Republic, Sections 13 and 14.
b) Trademarks and Trade names Law.
c) Patent Law.
d) Copyright Law.
4.3 Transfers of investment, remittances of capital and benefits.
a) Under what conditions may investments in the form of foreign exchange, capital goods, technology, associated credits, etc., be brought into the country? Are there specific regulations for each item?
There are different requirements in respect of the submission of documents depending on whether the investment is in foreign or national currency, tools, equipment, and so forth.
b) Are there restrictions to the remittances of capital, benefits, debt service, or other remittances derived from foreign investment?
There is a limit of 25% of registered foreign investment in each fiscal year.
c) Are there different kinds of exchange ratets? To which does the foreign investor have access?
Based on the country’s exchange regime, they have access to the private market operated exclusively by commercial and multiple-service banks.
4.4 Taxes and incentives to foreign investment.
a) Explain briefly the taxes that foreign investments are subject to.
Profits, benefits, dividends 25% of dividends from Dominican sources, whether resident or not in the country, including foreign shareholders.
Reinvestment of profits 25%
Remittances abroad 25%
Interest on foreign loans 15%
Royalties 25%
Services contracted abroad 25% on payments to a person not resident in the country
Investments in capital goods. Subject to Article 270 of the Tax Code
b) Are there special tax rules for foreign investment?
Remittance of profits from national companies are exempt from the tax on remittances.
c) Has your country signed agreements with other countries in the Americas to avoid double taxation? If yes, list those countries.
The Dominican Republic signed a convention to avoid double-taxation with Canada.
d) Are there other incentives to foreign investment, such as access to domestic credit, investment insurance, industrial parks, customs exemptions, etc.?
National treatment, that is, the same benefits to local and foreign investors.
5. Dispute settlement
Objective: Because Bilateral Investment Treaties (BITs) will be part of another study, only an overview of the subject is required here.
5.1 Domestic settlements: Can the foreign investor resort to the same procedures as the national investor? Are there special forms of appeal available to foreign investors? Please describe.
Yes (First question)
No (Second question)
5.2 International settlements: Is your country a member of ICSID or other international arbitration mechanisms on the subject of investment?
No.
5.3 Has your country signed BITs with other countries in the Americas? What is the present status of said agreements, i.e., approved, ratified, in effect?
The conventions signed by the Dominican Republic in this area are not with countries in the Hemisphere.
5.4 Where in the juridical hierarchy of your country are international treaties and specifically the Investment Protection Agreements? Analyze your response in relation to the Constitution and domestic laws.
Law 16/95 on Foreign Investments makes no reference to investment protection or disputes related to investments, and therefore leaves open the possibility of establishing arbitration agreements with international organizations.
Once international agreements are approved, they have the same juridical weight as a law passed by the National Congress, and therefore take precedence over other adjective laws of the country.
Nevertheless, Public International Law is the prevailing juridical standard and takes precedence over other national and international laws, agreements, conventions or treaties.
5.5 Do said agreements have "direct effect", that is to say, can they be invoked by the parties directly before the Courts and then applied to the case in question? If not, under what circumstances can they be invoked and applied?
Any existing international convention or treaty, that has been ratified by the National Congress, has direct effect and may be invoked through the government of the Dominican Republic.
6. National authorities
Objective: To identify the agencies in charge of foreign investment, their organization and functions.
6.1 Is foreign investment handled by specially appointed offices in your country? What is their hierarchical status? How are their actions integrated? What are their main attributions?
The Directorate of Foreign Investment is a collegiate body comprising government officials and representatives of the private sector. It is responsible for approving applications for registration of investments, policy designs and treatment to be given to foreign investments.
It consists of the Governor of the Central Bank, the Secretary of State for Industry and Commerce, the Secretary of State for Finance, the Technical Secretary of the President, the Executive Director of the Dominican Center for Export Promotion (CEDOPEX), and a representative of the Dominican Association of Farmers, a representative of the Official Chamber of Commerce of the National District, a representative of the Association of Industries, and a representative of each of the country’s eight regions. The governor of the Central Bank is the chairperson.