The Dominican Republic, an upper middle-income country, enjoyed stable, consistent growth in a relatively diversified economy in 2019, as it has over the past decade. Foreign direct investment (FDI) provides a key source of foreign exchange for the Dominican economy, and the Dominican Republic is one of the main recipients of FDI in the Caribbean and Central America. The government actively courts FDI with generous tax exemptions and other incentives to attract businesses to the country. Historically, the tourism, real estate, telecommunications, free trade zones, mining, and financing sectors are the largest FDI recipients. In January 2020, the government announced a special incentive plan to promote high-quality investment in tourism and infrastructure in the southwest region and, in February 2020, it passed a Public Private Partnership law to catalyze private sector-led economic growth. The government’s Digital Republic program aims to create more opportunities in the digital economy for students and small businesses and ease some business operation restrictions.
Besides financial incentives, the country’s membership in the Central America Free Trade Agreement-Dominican Republic (CAFTA-DR) is one of the greatest advantages for foreign investors. Observers credit the agreement with increasing competition, improving the rule of law, and expanding access to quality products in the Dominican Republic. The United States remains the single largest investor in the Dominican Republic. CAFTA-DR includes protections for member state foreign investors, including mechanisms for dispute resolution.
Despite a stable macroeconomic situation, international indicators of the Dominican Republic’s competitiveness and transparency weakened over the past year. Foreign investors report numerous systemic problems in the Dominican Republic and cite a lack of clear, standardized rules by which to compete and a lack of enforcement of existing rules. Complaints include allegations of widespread corruption; requests for bribes; delays in government payments; weak intellectual property rights enforcement; bureaucratic hurdles; slow and sometimes locally biased judicial and administrative processes, and non-standard procedures in customs valuation and classification of imports. Weak land tenure laws and government expropriations without due compensation continue to be a problem. The public perceives administrative and judicial decision-making to be inconsistent, opaque, and overly time-consuming. Corruption and poor implementation of existing laws are widely discussed as key investor grievances.
A large public corruption scandal from 2017 continues to spark calls for institutional change and was reinvigorated by new related allegations published in June 2019 in an International Consortium of Investigative Journalists report. U.S. businesses operating in the Dominican Republic often need to take extensive measures to ensure compliance with the Foreign Corrupt Practices Act. Many U.S. firms and investors have expressed concerns that corruption in the government, including in the judiciary, continues to constrain successful investment in the Dominican Republic.
President Danilo Medina’s July 2019 decision not to contend for re-election ensured 2020 will be a year of transition for the Dominican Republic. The investment climate in the coming years will largely depend on whether the new government chooses to implement reforms necessary to promote competitiveness and transparency, rein in expanding public debt, and bring corrupt public officials to justice.
|TI Corruption Perceptions Index||2019||137 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2020||115 of 190||http://www.doingbusiness.org/
|Global Innovation Index||2019||87 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||$2,020||http://apps.bea.gov/international/
|World Bank GNI per capita||2018||$7,760||http://data.worldbank.org/indicator/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Dominican economy presents both challenges and opportunities for foreign investors. While the Dominican government promotes inward FDI and has established formal programs to attract it, lack of clear rules and uneven enforcement of existing rules complicates foreign investment.
The Dominican Republic provides tax incentives to investment in tourism, renewable energy, film production, Haiti-Dominican Republic border development, and the industrial sector. The Dominican Republic is also a signatory of CAFTA-DR, which mandates non-discriminatory treatment, free transferability of funds, protection against expropriation, and procedures for the resolution of investment disputes. However, some foreign investors indicate that the uneven enforcement of regulations and laws, or political interference in legal processes, creates difficulties for investment.
There are two main government agencies responsible for attracting foreign investment, the Export and Investment Center of the Dominican Republic (CEI-RD) and the National Council of Free Trade Zones for Export (CNZFE). CEI-RD promotes foreign investment and aids prospective foreign investors with business registration, matching services and identification of investment opportunities. CEI-RD also oversees “ProDominicana,” a branding and marketing program for the country launched in 2017 that promotes the DR as an investment destination and exporter. CNZFE aids foreign companies looking to establish operations in the country’s 74 free trade zones for export outside Dominican territory.
There are a variety of business associations that promote dialogue between the government and private sector, including the Association of Foreign Investor Businesses (ASIEX).
Limits on Foreign Control and Right to Private Ownership and Establishment
There are no general (statutory, de facto, or otherwise) limits on foreign ownership or control. According to Law No. 98-03 and Regulation 214-04, an interested foreign investor must file an application form at the offices of CEI-RD within 180 calendar days from the date on which the foreign investment took place. CEI-RD will then evaluate the application and issue the corresponding Certificate of Registration within 15 working days.
In order to set up a business in a free trade zone, a formal request must be made to the CNZFE, the entity responsible for issuing the operating licenses needed to be a free zone company or operator. CNZFE assesses the application and determines its feasibility. For more information on the procedure to apply for an operating license, visit the website of the CNZFE at http://www.cnzfe.gov.do.
The Dominican Republic does not maintain a formalized investment screening and approval mechanism for inbound foreign investment.
Other Investment Policy Reviews
The Dominican Republic has not been reviewed recently by multilateral organizations regarding investment policy. The most recent reviews occurred in 2015. This included a trade policy review by the World Trade Organization (WTO) and a follow-up review by the United Nations Conference on Trade and Development (UNCTAD) regarding its 2008 investment policy recommendations.
In the World Bank’s report, “Doing Business,” the Dominican Republic’s overall ranking for ease of doing business fell from 102 in 2019 to 115 in 2020, reflecting stagnant performance in several of the indicator categories. According to the report, starting a limited liability company (SRL by its Spanish acronym) in the Dominican Republic is a seven-step process that requires 16.5 days. However, some businesses report the full incorporation process can take two or three times longer than the advertised process.
The Dominican Republic has a single-window registration website for SRL registration (https://www.formalizate.gob.do/) that offers a one-stop shop for registration needs. Foreign companies may use the registration website. However, this electronic method of registration is not widely used in practice and consultation with a local lawyer is recommended for company registrations.
There are no legal or government restrictions on Dominican investment abroad, although the government does little to promote it. Outbound foreign investment is significantly lower than inbound investment. The largest recipient of Dominican outward investment is the United States.
6. Financial Sector
Capital Markets and Portfolio Investment
The Dominican Stock Market, the Bolsa de Valores de la Republica Dominicana (BVRD), is one of the more active stock markets in the Caribbean region. It is regulated by the Securities Market Law (No. 249-17) and supervised by the Securities Superintendency, which approves all public securities offerings.
The private sector has access to a variety of credit instruments. Foreign investors are able to obtain credit on the local market but tend to prefer less expensive offshore sources. The Central Bank regularly issues certificates of deposit, using an auction process to determine interest rates and maturities.
In recent years, the local stock market has continued to expand, in terms of the securities traded on the BVRD. There are very few publicly traded companies on the exchange, as credit from financial institutions is widely available and many of the large Dominican companies are family-owned enterprises. Most of the securities traded in the BVRD are fixed-income securities issued by the Dominican State.
Money and Banking System
The Dominican Republic hosts a robust banking sector. According to the Global Partnership for Financial Inclusion, approximately 56 percent of Dominican adults have bank accounts. While full-service bank branches tend to be in urban areas, several banks employ sub-agents to extend services in more rural areas. Technology has also helped extend banking services more widely throughout the country. The Dominican Republic’s financial sector is relatively stable, and the IMF declared the financial system largely satisfactory during 2019 Article IV consultations, citing a strengthened banking system as a driver of solid economic performance over the past decade.
The Dominican banking comprises 124 entities, as follows: 50 financial intermediation entities (including large commercial banks, savings and loans associations, financial intermediation public entities, credit corporations), 42 foreign exchange and remittance agents (specifically, 36 exchange brokers and 6 remittances and foreign exchange agents), and 32 trustees. According to the latest available information (September 2019), total bank assets were $35.33 billion. The three largest banks hold 68.3% of the total assets – Banreservas 28.56%, Banco Popular 23.84%, and BHD Leon 15.9%.
The Dominican Monetary and Banking system is regulated by the Monetary and Financial Law (No. 183-02), and overseen by the Monetary Board, the Central Bank, and the Banks Superintendency. The mission of the Dominican Central Bank is to maintain the stability of prices, promote the strength and stability of the financial system, and ensure the proper functioning of payment systems. The Banks Superintendency carries out the supervision of financial intermediation entities, in order to verify compliance by said entities with the provisions of the law.
Foreign banks may establish operations in the Dominican Republic, although it may require a special decree for the foreign financial institution to establish domicile in the country. Foreign banks not domiciled in the Dominican Republic may establish representative offices in accordance with current regulations. To operate, both local and foreign banks must obtain the prior authorization of the Monetary Board and must process it via the Banks Superintendency. Major U.S. banks have a commercial presence in the country, but most focus on corporate banking services as opposed to retail banking. Some other foreign banks offer retail banking. There are no restrictions on foreigners opening bank accounts, although identification requirements do apply.
Foreign Exchange and Remittances
The Dominican exchange system is a market with free convertibility of the peso. Economic agents perform their transactions of foreign currencies under free market conditions. There are generally no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.
The Central Bank sets the exchange rates and practices a policy of managed float. Some firms have had repeated difficulties obtaining dollars during periods of high demand. Importers may obtain foreign currency directly from commercial banks and exchange agents. The Central Bank participates in this market in pursuit of monetary policy objectives, buying or selling currencies and performing any other operation in the market to minimize volatility.
Decree No. 214-04 on the Registration of Foreign Investment in the Dominican Republic establishes the requirements for the registration of foreign investments, the remittance of profits, the repatriation of capital, and the requirements for the sale of foreign currency, among other issues related with investments.
Foreign investors can repatriate or remit both the profits obtained and the entire capital of the investment without prior authorization of the Central Bank. Article 5 of the aforementioned Decree 214-04 states that “the foreign investor, whose capital is registered with the CEI-RD, shall have the right to remit or repatriate it…”
Sovereign Wealth Funds
The Dominican government does not maintain a sovereign wealth fund.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
The Dominican Republic is an eligible country for DFC financing purposes and there are current DFC-funded programs operating in the country. As an upper-middle income country, projects in the Dominican Republic must meet additional criteria to qualify for financing. The project must be in the infrastructure sector, target women’s empowerment, have a substantial development impact, or have a U.S. nexus. For example, a current project that began in 2019 provides two $10 million loan financing facilities to support lending to small- and medium-sized enterprises, with an emphasis on women-owned businesses. Under a 1962 bilateral agreement, DFC funding for a project must also receive approval from the Dominican government. In January 2019, the Dominican government and the DFC clarified the process for obtaining this approval in a bilateral letter. The Dominican government is a party to the Multilateral Investment Guarantee Agency (MIGA).
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
* Source for Host Country Data: Central Bank of the Dominican Republic (BCRD). The BCRD does not report investment stock positions.
Table 3: Sources and Destination of FDI
No information for the Dominican Republic is available on the IMF’s Coordinated Direct Investment Survey (CDIS) website. According to the Dominican Central Bank (BCRD), total inward flows of FDI for 2019 were $3.01 billion. The BCRD provides a breakdown of FDI to the Dominican Republic by individual source country for the top investing countries. The five largest investing countries accounted for 82.3 percent of total inward FDI in 2019. Neither World Bank nor Dominican sources break down FDI from the Dominican Republic to individual destination countries
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$3,012.8||%||Total Outward||Amount||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
* Source for Host Country Data: Central Bank of the Dominican Republic (BCRD), 2019 FDI inward flows.
14. Contact for More Information
Embassy of the United States of America
Avenida República de Colombia #57
Santo Domingo, Dominican Republic
+1 (809) 567-7775