3. Legal Regime
Transparency of the Regulatory System
The national government manages all regulatory processes. Information about regulations is often scattered among various ministry and agency websites and is sometimes only available through direct communication with officials. It is advisable for U.S. investors to consult with local attorneys or advisors to assist with locating comprehensive regulatory information.
On the 2019 Global Innovations Index, the Dominican Republic’s overall rank remained flat (87) compared to 2018. In sub-sections of the report, the Dominican Republic ranks 98 out of 129 for regulatory environment and 74 out of 129 for regulatory quality. The World Economic Forum 2019 Global Competitiveness Report ranked the Dominican Republic 87 out of 141 countries with respect to the efficiency of the legal framework in challenging regulations, and 108 out of 141 regarding burden of government regulations.
The World Bank Global Indicators of Regulatory Governance report states that Dominican ministries and regulatory agencies do not publish lists of anticipated regulatory changes or proposals intended for adoption within a specific timeframe. Law 200-04 requires regulatory agencies to give notice of proposed regulations in public consultations and mandates publication of the full text of draft regulations on a unified website: http://www.consultoria.gov.do/ . Foreign investors, however, claim that these requirements are not always met in practice and many businesses note that the scope of the website content is not always adequate for investors or interested parties as not all relevant Dominican agencies provide content, and those that do often do not keep the content up to date. U.S. businesses reported that some laws went into effect before agencies issued implementing regulations to guide the businesses on how to comply with requirements.
The process of public consultation is not uniform across government. Some ministries and regulatory agencies solicit comments on proposed legislation from the public; however, public outreach is generally limited and depends on the responsible ministry or agency. For example, businesses report that some ministries sometimes upload proposed regulations to their websites or post them in national newspapers, while others may form working groups with key public and private sector stakeholders participating in the drafting of proposed regulations. Public comments received by the government are generally not publicly accessible. Some ministries and agencies prepare consolidated reports on the results of a consultation for direct distribution to interested stakeholders. Ministries and agencies do not conduct impact assessments of regulations or ex post reviews. Affected parties cannot request reconsideration or appeal of adopted regulations.
The Dominican Institute of Certified Public Accountants (ICPARD) is the country’s legally recognized professional accounting organization and has authority to establish accounting standards in accordance with Law 479-08, which also declares (as amended by Law 31-11) financial statements should be prepared in accordance with generally accepted accounting standards nationally and internationally. The ICPARD and the country’s Securities Superintendency require the use of International Financial Reporting Standards (IFRS) and IFRS for small and medium-sized entities (SMEs).
By law, the Office of Public Credit publishes on its website a quarterly report on the status of the non-financial public sector debt, which includes a wide array of information and statistics on public borrowing (www.creditopublico.gov.do/publicaciones/informes_trimestrales.htm).
In addition to the public debt addressed by the Office of Public Credit, the Central Bank maintains on its balance sheet nearly USD $12 billion in “quasi-fiscal” debt. When consolidated with central government debt, the debt-to-GDP ratio is near 53 percent, and the debt service ratio is near 30 percent.
International Regulatory Considerations
Since 1995, the Dominican Republic has presented 280 notifications to the WTO Committee on Technical Barriers to Trade (TBT). In recent years, the Dominican Republic has frequently changed technical requirements (e.g., for steel rebar imports and sanitary registrations, among others) and has failed to provide proper notification under the WTO TBT agreement and CAFTA-DR.
Legal System and Judicial Independence
The judicial branch is an independent branch of the Dominican government. According to Article 69 of the Constitution, all persons, including foreigners, have the right to appear in court. The basic concepts of the Dominican legal system and the forms of legal reasoning derive from French law. The five basic French Codes (Civil, Civil Procedure, Commerce, Penal, and Criminal Procedure) were translated into Spanish and passed as legislation in 1884. Some of these codes have since been amended and parts have been replaced. Subsequent Dominican laws are not of French origin.
The World Economic Forum 2019 Global Competitiveness report ranked the Dominican Republic 123 out of 141 countries in judicial independence and 87 of 141 in the efficiency of the legal framework in settling disputes. On the 2018 Global Innovations Index, the Dominican Republic ranked 91 out of 129 countries for rule of law.
There is a Commercial Code and a wide variety of laws governing business formation and activity. The main laws governing commercial disputes are the Commercial Code; Law No. 479-08, the Commercial Societies Law; Law No. 3-02, concerning Business Registration; Commercial Arbitration Law No. 489-08; Law No. 141-15 concerning Restructuring and Liquidation of Business Entities; and Law No. 126-02, concerning e-Commerce and Digital Documents and Signatures.
Some investors complain of long wait times for a decision by the judiciary. While Dominican law mandates overall time standards for the completion of key events in a civil case, these standards frequently are not met. The World Bank’s 2020 Doing Business report noted that resolving complaints raised during the award and execution of a contract can take more than four years in the Dominican Republic, although some take longer. Some investors have complained that the local court system is unreliable, is biased against them, and that special interests and powerful individuals are able to use the legal system in their favor.
While the law provides for an independent judiciary, businesses note the government does not respect judicial independence or impartiality, and improper influence on judicial decisions is widespread. Several large U.S. firms cite the improper and disruptive use of lower court injunctions as a way for local distributors to obtain more beneficial settlements at the end of contract periods. In order to engage effectively in the Dominican market, many U.S. companies seek local partners that are well-connected and understand the local business environment.
Laws and Regulations on Foreign Direct Investment
The legal framework supports foreign investment. Article 221 of the Constitution declares that foreign investment shall receive the same treatment as domestic investment. Foreign Investment Law (No. 16-95) states that unlimited foreign investment is permitted in all sectors, with a few exceptions for hazardous materials or materials linked to national security.
The Export and Investment Center of the Dominican Republic (CEI-RD) aims to be the one-stop-shop for investment information, registration, and investor after-care services. CEI-RD maintains a user-friendly website for guidance on the government’s priority sectors for inward investment and on the range of investment incentives (http://cei-rd.gob.do/ ).
Competition and Anti-Trust Laws
The National Commission for the Defense of Competition (PRO-COMPETENCIA) has the power to review transactions for competition-related concerns. Private sector contacts note, however, that strong public pressure is required for PRO-COMPETENCIA to act.
Expropriation and Compensation
The Dominican constitution permits the government’s exercise of eminent domain; however, it also mandates fair market compensation in advance of the use of seized land. Nevertheless, there are many outstanding disputes between U.S. investors and the Dominican government concerning unpaid government contracts or expropriated property and businesses. Property claims make up the majority of cases. Most, but not all, expropriations have been used for infrastructure or commercial development. Many claims remain unresolved for years.
Investors and lenders have reported that they typically do not receive prompt payment of fair market value for their losses. They have complained of difficulties in the subsequent enforcement even in cases in which the Dominican courts, including the Supreme Court, have ordered compensation or when the government has recognized a claim. In other cases, some indicate that lengthy delays in compensation payments are blamed on errors committed by government-contracted property assessors, slow processes to correct land title errors, a lack of budgeted funds, and other technical problems. There are also cases of regulatory action that investors say could be viewed as indirect expropriation. For example, they note that government decrees mandating atypical setbacks from roads or establishing new protected areas can deprive investors of their ability to use purchased land in the manner initially planned, substantially affecting the economic benefit sought from the investment.
Many companies report that the procedures to resolve expropriations lack transparency and, to a foreigner, may appear antiquated. Government officials are rarely, if ever, held accountable for failing to pay a recognized claim or failing to pay in a timely manner.
ICSID Convention and New York Convention
In 2000, the Dominican Republic signed the International Center for the Settlement of Investment Disputes (Washington Convention), however, the Dominican Congress did not ratify the agreement as required by the constitution. In 2001, the Dominican Republic became a contracting state to the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The agreement entered into force by Congressional Resolution 178-01.
Investor-State Dispute Settlement
The Dominican Republic has entered into 11 bilateral investment treaties that are in force, most of which contain dispute resolution provisions that submit the parties to arbitration.
As a signatory to CAFTA-DR, the Dominican Republic is bound by the investment chapter of CAFTA-DR, which submits the Parties to arbitration under either the ICSID or the United Nations Commission on International Trade Law (UNCITRAL) rules. There have been three U.S. investor-state dispute cases filed against the Dominican Republic under CAFTA-DR. One case was settled; in the other two, an arbitration panel found in favor of the government. Dual nationals of the United States and Dominican Republic should be aware that their status as a Dominican national may interfere with their status as a “foreign” investor if they seek dispute settlement under CAFTA-DR provisions. U.S. citizens who contemplate pursuing Dominican naturalization for the ease of doing business in the Dominican Republic should consult with an attorney about the risks that may be raised by a change in nationality with regard to accessing the dispute settlement protections provided under CAFTA-DR.
There are at least 27 U.S. investors who are involved in ongoing legal disputes with the Dominican government and parastatal firms involving payments, expropriations, contractual obligations, or regulatory obligations. The investors range from large firms to private individuals and the disputes are at various levels of legal review.
International Commercial Arbitration and Foreign Courts
Law 489-08 on commercial arbitration governs the enforcement of arbitration awards, arbitral agreements, and arbitration proceedings in the Dominican Republic. Per law 489-09, arbitration may be ad-hoc or institutional, meaning the parties may either agree on the rules of procedure applicable to their claim, or they may adopt the rules of a particular institution. Fundamental aspects of the United Nations Commission on International Trade (UNCITRAL) model law are incorporated into Law 489-08. In addition, Law 181-09 created an institutional procedure for the Alternative Dispute Resolution Center of the Chamber of Commerce Santo Domingo (http://www.camarasantodomingo.do/).
Foreign arbitral awards are enforceable in the Dominican Republic in accordance with Law 489-09 and applicable treaties, including the New York Convention. U.S. investors complain that the judicial process is slow and that domestic claimants with political connections have an advantage.
Law 141-15 provides the legal framework for bankruptcy. It allows a debtor company to continue to operate for up to five years during reorganization proceedings by staying legal proceedings. It also authorizes specialized bankruptcy courts; contemplates the appointment of conciliators, verifiers, experts, and employee representatives; allows the debtor to contract for new debt which will have priority status in relation to other secured and unsecured claims; stipulates civil and criminal sanctions for non-compliance; and permits the possibility of coordinating cross-border proceedings based on recommendations of the UNCITRAL Model Law of 1997. In March 2019, a specialized bankruptcy court was established in Santo Domingo. The national juridical school is still training specialized bankruptcy judges.
The Dominican Republic scores lower than the regional average and comparator economies on resolving insolvency on most international indices.
The Dominican Republic has a legal framework that includes laws and regulations to combat corruption, and which provide criminal penalties for corruption by officials. However, the government did not implement the law effectively, and officials frequently engaged in corrupt practices with impunity. Enforcement of existing laws is often ineffective. Individuals and NGOs noted the greatest hindrance to effective investigations was a lack of political will to prosecute individuals accused of corruption, particularly well-connected individuals or high-level politicians. Government corruption remained a serious problem and a public grievance.
The Dominican Republic’s rank on the Transparency International Corruption Perception Index fell from 129 in 2018 to 137 in 2019 (out of 180 countries assessed). The World Economic Forum’s 2019 Global Competitiveness report ranked the Dominican Republic as 110 of 141 countries for incidence of corruption.
In September 2019, the Dominican Supreme Court began a trial against six of the 14 defendants indicted in 2017 for alleged links to $92 million in bribes paid by the Brazilian construction company Odebrecht to obtain public works contracts. A 2016 plea agreement between the U.S. Department of Justice and Odebrecht implicated high-level public officials in the Dominican Republic; the six current defendants include a senator, a lower house representative, a former senator, and a former minister of public works. Civil society welcomed the trial as a step forward in the fight against corruption, but activists highlighted what they perceived as a lack of political will to investigate thoroughly the case, which involved the country’s political and economic elites.
U.S. companies identified corruption as a barrier to FDI and some firms reported being solicited by public officials for bribes. It appears most pervasive in public procurement and the awarding of tenders or concessions, but complaints from U.S. investors indicate corruption occurs at all phases of investment. At least one firm said it intended to back out of a competition for a public concession as a result of a solicitation from government officials. U.S. companies also frequently cite the government’s slow response to the Odebrecht scandal as contributing to a culture of perceived impunity for high-level government officials, which fuels widespread acceptance and tolerance of corruption at all levels. U.S. businesses operating in the Dominican Republic often need to take extensive measures to ensure compliance with the Foreign Corrupt Practices Act.
Civil society is engaged in anti-corruption campaigns. Several non-governmental organizations are particularly active in transparency and anti-corruption, notably the Foundation for Institutionalization and Justice (FINJUS), Citizen Participation (Participacion Ciudadana), and the Dominican Alliance Against Corruption (ADOCCO).
The Dominican Republic signed and ratified the UN Anticorruption Convention. The Dominican Republic is not a party to the OECD Convention on Combating Bribery.
Resources to Report Corruption
Procuraduría Especializada contra la Corrupción Administrativa (PEPCA)
Calle Hipólito Herrera Billini esq. Calle Juan B. Pérez,
Centro de los Heroes, Santo Domingo, República Dominicana
Telephone: (809) 533-3522
Fax: (809) 533-4098
Linea 311 (government service for filing complaints and denunciations)
Phone: 311 (from inside the country)
Phone: 809 685 6200
Fax: 809 685 6631
11. Labor Policies and Practices
An ample labor supply is available, although there is a scarcity of skilled workers and technical supervisors. Some labor shortages exist in professions requiring lengthy education or technical certification. According to 2019 Dominican Central Bank data, the Dominican labor force consists of approximately 5 million workers. The labor force participation rate is 65.3 percent; approximately 63 percent of the labor force works in services, 14.8 percent in government/administration, 10 percent in industry, and eight percent in agriculture, with the remaining four percent categorized as other work. The labor force is divided roughly 50-50 between the formal and informal sectors of the economy. In 2019, unemployment fell to 5.8 percent, with youth unemployment measured at 13.2 percent. A 2017 survey by the National Statistics Office and UN Population Fund found that of the 334,092 Haitians age 10 or older living in the country, 67 percent were working in the formal and informal sectors of the economy.
The Dominican Labor Code establishes policies and procedures for many aspects of employer-employee relationships, ranging from hours of work and overtime and vacation pay to severance pay, causes for termination, and union registration. The code applies equally to migrant workers, however, many irregular Haitian laborers and Dominicans of Haitian descent working in the construction and agricultural industries do not exercise their rights due to fear of being fired or deported. The law requires that at least 80 percent of non-management workers of a company be Dominican nationals. Exemptions and waivers are available and regularly granted. The law provides for severance payments, which are due upon layoffs or firing without just cause. The amount due is prorated based on length of employment.
Although the Labor Code provides for freedom to form unions and bargain collectively, it places several restrictions on these rights, which the International Labor Organization (ILO) considers excessive. For example, it restricts trade union rights by requiring unions to represent 51 percent of the workers in an enterprise to bargain collectively. In addition, the law prohibits strikes until mandatory mediation requirements have been met. Formal requirements for a strike to be legal also include the support of an absolute majority of all company workers for the strike, written notification to the Ministry of Labor, and a 10-day waiting period following notification before proceeding with the strike. Government workers and essential public service personnel, in theory, may not strike; however, healthcare workers protested and went on strike frequently in the second half of 2019 due to government failure to comply with the retirement law for doctors and nurses.
The law prohibits dismissal of employees for trade union membership or union activities. In practice, however, the law is inconsistently enforced. The majority of companies resist collective negotiating practices and union activities. Companies reportedly fire workers for union activity and blacklist trade unionists, among other anti-union practices. Workers frequently have to sign documents pledging to abstain from participating in union activities. Companies also create and support company-backed unions. Formal strikes occur but are not common.
The law establishes a system of labor courts for dealing with disputes. The process is often long, with cases pending for several years. One exception is workplace injury cases, which typically conclude quickly – and often in the worker’s favor. Both workers and companies report that mediation facilitated by the Ministry of Labor was the most rapid and effective method for resolving worker-company disputes.
Many of the major manufacturers in free trade zones have voluntary codes of conduct that include worker rights protection clauses generally aligned with the ILO Declaration on Fundamental Principles and Rights at Work; however, workers are not always aware of such codes or the principles they contain. The Ministry of Labor monitors labor abuses, health, and safety standards in all worksites where an employer-employee relationship exists. Labor inspectors can request remediation for violations, and if remediation is not undertaken, can refer offending employers to the public prosecutor for sanctions.