do business in the Dominican Republic - Pellerano & Herrera

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DOING BUSINESS INTHE DOMINICAN REPUBLICgrowth was the result of the installation of many new companies that wereattracted by the benefits resulting from the Textile Parity Law passed by theUnited States, which allows a greater variety of textile products to be exportedduty-free to the US.In order to increase the competitiveness of the sector against the adverse internationalenvironment of that year, several measures were adopted by presidentialdecree on behalf of free zone companies, such as the granting of more flexibilityto working schedules, elimination of certain technical hindrances to customsclearance of imports, and the construction of new industrial parks in less economicallydeveloped regions, and the establishment of additional incentives tocompanies that set their operations in those areas.The jobs in the free zones correspond to 84.7% workers, 10% technicians and5.3% management personnel. 52.6% women and 47.4% men occupy free zoneemployment.Industries generating the higher number of direct jobs are:Apparels and Textiles,Tobacco and derivatives, Electronics and Pharmaceutical Products. Free zoneactivities have been gradually diversifying, although textile activities still predominate.As to the origin of investments, 47.08% of the free zone companies are owned byUS investors, followed by Dominican investors who own 33.90%, and byEuropean and Asian investors.In relation to destination markets, 93% of free zone products are exported to theUnited States and Puerto Rico, followed by European countries like France,Belgium, United Kingdom, Holland and Germany.The growth of the free zone sector reflects also in the increase of exports, as itmay be appreciated in the following table for the year 2004:Year 2004Total exports (MILES DE US$) 4,416,450.60 100%Textiles 2,076,155.20 47.0%Electronic products 587,740.30 13.3%Jewelry 556,279.60 12.6%Pharmaceutical products 347,462.90 7.9%Tobacco manufacture 324,223.90 7.3%”Shoe manufacture 195,589.20 4.4%Others 328,999.40 7.4%56
Pellerano & HerreraAttorneys at lawADVANTAGES OF THE DOMINICAN FREE ZONE NETWORKThe advantages offered by the Dominican free zone network which have contributedto its fast development are the following:Attractive legal framework which exempts free zone companies from thepayment of import duties, income tax and most other tax obligations.Preferential access rights that allow Dominican exports to enter the marketsof United States and Europe without having to pay custom duties.Possibility of obtaining financing from local or foreign institutions.Facilities to freely repatriate abroad the profits in foreign currency.Workforce available at low cost.Background of political stability.LEGAL FRAMEWORK: LAW 8-90a) National Free Zone Council (CNZF)Industrial free zones are regulated by Law 8-90 of January 15, 1990, which seeksto promote the establishment of free zones and the growth of existing ones. Itcreated the National Free Zone Council (CNZF), which is the entity charged ofregulating and supervising the sector and has, among others, the following attributions:1. To recommend to the Executive Power the installation of free zones.2. To approve or not the requests for granting installation permits to free zonecompanies.3. To enforce all applicable laws and provisions regarding free zones.The CNZFis formed of representatives of both the public and private sectors.b) Definition and Types of Free ZonesLaw 8-90 defines a free zone as a geographic zone of the country subject to specialcustom and tax controls, which provides for the installation of companieswhose production is destined to foreign markets,through the granting of the necessaryincentives for their development.The creation of a free zone needs to be authorized by the Executive Power.Thereare three different kinds of free zones according to location:Industrial or services free zones,which can be located anywhere in the country;Border free zones, which must be located near the Haitian border and aregranted additional incentives; andSpecial free zones, which due to the nature of the manufacture process oftheir products need to be located in particular places (i.e. close to the sourceof raw materials).The permit for the installation of industrial parks has a cost of RD$200,000.c) Management of Free ZonesFree zones are managed by “free zone operators”, who are charged of negotiatingand contracting with the companies wishing to operate in the free zone.57
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