Leonel Melo Guerrero of OMG in Santo Domingo looks at the latest financial and corporate developments in the Dominican Republic
The Dominican Republic's economy continues to grow steadily in an environment of reduced inflation and overall political stability. The country’s real gross domestic product (real GDP) registered a 7.3% increase during 2014, surpassing all expectations and forecasts – as well as outperforming the rest of the region. Foreign direct investment (FDI), mining and energy, and tourism have been some of the key drivers fuelling this economic expansion.
Recent reforms have been primarily aimed at developing regulations and institutions in order to optimise a more efficient allocation of resources throughout the economy and provide policy continuity to the programs than have been implemented during the past years. Another clear objective of the latest reforms has been fine-tuning a modern and robust regulatory framework for the key economic sectors that are most likely to attract direct investments in the future. In addition, several key projects are expected which aim to improve the business climate and raise the country’s profile as a hub for FDI in the region.
Some of the most relevant legislative and institutional changes that have taken place in the past year include: a) a constitutional reform in order to modify presidential term limits; b) a resolution approving the Dominican-Spanish Convention for the Avoidance of Double Taxation; c) Monetary Board resolutions aimed at promoting the construction, financing and purchase of low cost housing; and d) new transfer pricing regulations.
On June 13 2015, the Dominican Constitution was reformed in order to modify presidential term limits and allow the incumbent president to run for re-election in 2016. This is the second constitutional reform within the last six years. The move has been regarded as paving the way for policy continuity during the following years.
Congress has issued Resolution No. 115-14, which ratifies the Convention for the Avoidance of Double Taxation and Tax Evasion Prevention, signed between the Dominican Republic and Spain. The convention was subscribed on November 16 2011, and it received a favourable dictum from the Constitutional Court in May 2012. The object and purpose of the convention is to avoid double taxation – mainly with regards to income taxes and capital gains – for economic agents operating across both jurisdictions.
The Dominican Republic’s Monetary Board has issued several resolutions in order to stimulate the construction, financing and purchase of low-cost housing (defined as housing with a value of up to DOP2.4 million). The first measures entered into force in April 2015, and targeted the liberalisation of up to DOP10 billion of bank required reserves in order to incentivise loans for the construction and purchase of low-cost housing at capped interest rates. The second wave of reforms were adopted in late June 2015, and consist of a set of multipronged reforms in order to further motivate banks to lend funds for housing and infrastructure projects.
New Transfer Pricing Regulations were issued via presidential decree in March 2014. The Regulations repeal the pre-existing transfer pricing rules with the objective of reinforcing legal certainty and clarity for the Tax Administration, as well as for taxpayers.
In addition to the aforementioned reforms, other regulatory changes in the horizon include: a) discussions on revamping and revising the Dominican Labour Code; b) reforming the country’s Securities Law; c) an updated draft Bill on Insolvency and Mercantile Restructuring; and d) a new Customs Law.
The executive power started consultations on revising the Dominican Labour Code (which dates from 1992) in order to adapt it and update it to recent legislative and institutional changes. The public consultations purport to foster dialogue between the relevant stakeholders and discuss potential policy improvements that could promote economic growth and help fight unemployment while adhering to the protection of fundamental rights. The goal is to achieve a social compact on labour reform.
On the capital markets front, the Central Bank, the Monetary Board and the Securities Superintendency have coordinated their efforts for the preparation of a new draft Securities Law. Market participants largely contested the previous draft legislation. The new proposal is set to be publicly discussed with all interested stakeholders.
Law No. 189-11 remains an important piece of the puzzle for the reinvention of the local securities market as well as for the Monetary Board’s stimulus to the construction and housing sectors. Combined with other policies, the law seeks to promote the channelling of low-cost funds to the development of real estate projects and does so by a comprehensive set of rules and legal instruments ranging from new vehicles for structuring assets (such as the trust-like fideicomiso and the collateral agents) to new financing products (dedicated bank accounts) to procedural enhancements aimed at speeding up judicial recoveries. The fideicomiso is already proving to be instrumental – not only through direct issuances of securities – but also by enhancing other products and structures, such as investment funds and securitisation, which were instituted by the original Securities Law No. 19-00 but have not been successful for lack of proper asset segregation in the law, something that Law No. 189-11 has resolved.
Some other important pieces of legislation are still under discussion with active participation from international financial institutions, experts and the business community. These draft laws include the eagerly awaited Bill on Insolvency and Mercantile Restructuring. A new and widely supported version of this draft bill has received a favourable commendation in congressional committees and is expected to be enacted in the following year. Moreover, there is private and public consensus behind the promulgation of a new Customs Law, which is expected to revamp the Dominican customs, promote international commerce and enhance the country’s competitiveness as a regional logistics centre.
As in previous years, all of these new initiatives share the common thread that the business community has worked alongside legislators and international financial organisations in order to guarantee the sustainability of the institutions, statutes and regulations, through ample discussions with all government and private sector instances likely to be impacted and also by ensuring that complementary norms, institutions, courts and regulators are established from the outset.
President and Director General
About the author
In 2001 he founded the consulting firm OMG, where he acts as President and Director General. He has 26 years of experience as an attorney, being responsible for the organization and direction of legal and interdisciplinary teams for high profile cases. He specializes in corporate and financial law, tax and business planning.
He holds a Bachelor of Laws from Pontificia Universidad Católica Madre y Maestra – PUCMM (1989) and a Master of Arts with concentration in Financial Law, Corporate Law, Tax and Business Planning from University of Notre Dame (1993). In addition he attended the Program of Instruction for Lawyers at Harvard Law School and completed IESE Business School's Advanced Management Program.
He served as Telecom Commissioner during the 2004-2012 period. He seats in many board of directors and committees in industries as diverse as banking, securities, insurance, food, construction and tourism. He is a member of the Advisory Board of the LEGUS International Network of Law Firms.
Additionally, he is President of the OMG Institute, an institution dedicated to promoting the formulation of strategy and sound public policy for the Dominican Republic through research and teaching. He directs OMG Institute’s Master’s Program in Legal Strategy and teaches Business Planning, Tax and Contracts.