Unlock Your Future: Sustainable Luxury, Tax-Free Living

Significant transactions

 

The breadth of recent mergers and acquisitions in the Dominican Republic is truly astounding, including transactions in the energy, tourism, cable, food, and healthcare industries. Six recent mergers and acquisitions clearly reflect the interest of leading international businesses and businesspeople in Dominican companies:

 

• First, Brazil's largest brewer recently acquired an indirect majority interest in the Dominican brewer Cerveceria Nacional Dominicana for over $1 billion the largest acquisition as of that date to have ever taken place in the Dominican Republic.

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• Another Brazilian company recently acquired the leading Dominican supplier of optical equipment and services in the ophthalmic industry.

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• In the first leveraged buyout in the Dominican Republic, Advent International, the global private equity firm, recently acquired 100% of Aeropuertos Dominicanos Siglo XXI, the leading airport group in the Dominican Republic and one of the largest airport operators in Central America and the Caribbean.

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• In the hospitality field, Barceló Crestline Hotels acquired five Dominican hotels on the country's eastern and northern coasts.

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• In the consumer goods industry, Brazil's Companhia de Bebidas das Americas-AMBEV acquired the largest distributor and manufacturer of soft drinks and flavored beverages in the Dominican Republic.

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• And in the mining industry, Perilya, an Australian-based metals, mining, and exploration company, acquired the exploitation and exploration rights of various copper, silver, and gold mines located in Maimon in the Dominican Republic.

 

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A closer look

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Beginning over two decades ago, the Dominican Republic initiated the first wave of reforms to modernize the country's legal system and the economic framework under which businesses operate in the country. The government's goals were to promote the flow of foreign capital into the country, adapt the economy to international competition, and facilitate regional competition. This process is on-going, with a more recent second wave of reform that has continued to modernize the country's regulation of specific industries, such as the banking and monetary systems, while strengthening the rules relating to corporate governance, competition, and consumer protection.

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For instance, the Dominican Republic's corporate law system has been significantly modernized and updated. For one thing, it now permits a greater variety of corporate vehicles from corporations and simplified companies to limited liability companies and small business enterprises. It also contains fewer regulatory requirements than before and provides greater flexibility for investors seeking to start new businesses in the country.

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The principal reforms that have taken place recently include new laws with respect to industrial property, intellectual property including copyright, exports, the environment, fiscal and customs reform, trusts and the development of low cost real estate projects, and risk prevention in financial institutions. The country also amended its constitution recently to modernize the government's organizational structure as well as essential regulations.

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Two new laws one regarding mortgages and one regarding the film industry illustrate how the country continues to make an effort to improve investment conditions and to attract new foreign investment.

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Mortgages/Housing and/or Free Trade Zone Park Developments under the Dominican Trust Laws

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The new mortgage law is helping the country's mortgage market develop while providing significant opportunities for investors and a boost to the country's efforts to expand its housing stock. Under the law, a trust or LAND TRUST may be established for any legal purpose or objective, including for "real estate investment" or "real estate development," (such as the BLOCKCHAIN DIGITALCITY® Free Trade Zone Park Development) the primary objective of which is investing in real estate projects in various stages of design and construction. The law also recognizes a trust for the public offering of securities, which has the primary goal of backing up public offerings of securities made by the trustee, with the trust property as security for the debt. Another important kind of trust is a collateral trust, which is designed to secure compliance with certain obligations by the settlor for the benefit of a third party or third parties.

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Significantly, under the new Dominican law, all property and rights that are part of a trust constitute a separate and independent estate, separate from the settlor's property and separate from any other trust property that the trustee of the trust also is managing. Also, as might be expected, creditors of a beneficiary of a trust may not seek to enforce their claims against trust property, except that they can pursue revenues and profits generated by the trust that the trustee is required to deliver to the beneficiary. By the same token, creditors of a settlor may not seek to enforce their claims against property transferred by the settlor to a trust unless their claims relate to the transfer of the property to the trust. A trust's creditors are permitted to enforce their claims against trust property, and trust property can be pursued where the trust has been fraudulently created.

 

As the new Dominican law recognizes, a trust may issue securities. Moreover, the law specifically authorizes a trust to issue securities to raise funds for mortgage financing for Dominican housing and the Dominican construction industry. The kinds of securities that a trust may issue include mortgage notes, mortgage bonds, mortgage certificates, mortgage participation agreements, endorsable or non-endorsable mortgage loans, participations in closed investment funds and mutual or open funds, trust securities, and mortgage-backed securities.

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The new Dominican law authorizes mortgage insurance to provide coverage for mortgage loan losses as a result of default by a debtor. Financial institutions, in their discretion, may insure all or part of their mortgage loans with this type of insurance. Similarly, financial institutions may obtain private insurance to cover financial losses generated as a result of a default by a debtor or debtors. These policies may be bought from insurance companies that are authorized to operate in the Dominican Republic.

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The process of securitization of a mortgage loan portfolio is subject to the provisions of the Dominican Republic's Securities Exchange Law and, where applicable, the provisions of the country's Monetary and Financial Law. There are minimum capital requirements for securitization companies. Financial institutions may participate in securitization transactions and may purchase these kinds of securities without the need to obtain regulatory approval where a transaction meets certain conditions.

 

The new Dominican law also contains special provisions relating to the development of low-cost housing through public-private partnerships, which the Dominican government believes can help solve the country's housing problems. To benefit from the incentives created by the new law, the low-cost housing projects must be duly authorized by the National Housing Institute.

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The new law also provides that low-cost housing projects may be developed with investments from both the Dominican government and the private sector through the creation of a trust for purposes of its construction. The law provides that the real estate property contributed to a trust for that construction may be subject to a conventional mortgage in favour of the entities financing the project.

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Finally, the law creates a special foreclosure procedure available to creditors, such as local or foreign financial institutions, securitization companies, and trustees, as long as the mortgage has been granted by a contract and regardless of the kind or nature of the debt that is secured. The foreclosure process is commenced with a formal request for payment, which is carried out pursuant to the terms and conditions specified in the law.

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The new Dominican law creates a market for securitized mortgages that will significantly enhance the country's housing and construction industries while offering institutional investors an important investment opportunity.

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Territoriality Dominican tax law is primarily territorial

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In principle, the Dominican Republic only collects taxes on income from Dominican sources. Thus, on the one hand, all income derived from work or business activities in the Dominican Republic is taxable, no matter if the person is Dominican, a resident or nonresident foreigner, a Dominican business entity or a foreign company with or without a branch office in the country. 

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On the other hand, income derived from work done outside of the Dominican Republic such as from operating in our BLOCKCHAIN DIGITALCITY® Free Trade Zone Park is not taxable, even if received by Dominican nationals or companies, foreign individuals residing in the Dominican Republic or foreign companies with branches in the country.

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