do business in the Dominican Republic - Pellerano & Herrera

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DOING BUSINESS INTHE DOMINICAN REPUBLICThere are certain requirements for granting concessions:1. Concessions are limited to an area of 20,000 hectares.2. Foreign governments cannot obtain concessions.3. Foreign companies must fix legal domicile in the country by appointing alegal representative.TAXES ON MINING ACTIVITIESApart from the provisions of the Tax Code, the pursuance of mining activitiesrequires the purchase of a mining business patent issued by the Ministry ofIndustry and Trade.Furthermore, exports are charged with a 5% tax calculated on the FOB price ofthe minerals exported. This payment may be deducted from the income taxpayable in the same fiscal year in which the export is made, but no refund isavailable if the payment exceeds the amount of income tax owed in that year.5CONSTRUCTION68OVERVIEW AND PERSPECTIVESConstruction activities showed an interesting upturn in the last years, when publicinvestment increased significantly with the use of the funds obtained from thesovereign bonds placement made by the Government in the international markets.Public investment in construction thus grew by 16.8%.Private investment in construction also increased. Credit portfolio grew 27%,much more than the previous year, when it had increased only 11.25%.During the year 2002, the activity grew 3.2%, showing an accelerated growth of14.9% during the first half of the year, as a result of a strong expansion of publicinvestment (83.8%) caused by the sovereign bonds placed the year before, toshow then a fall of 5.4% during the second half due to the reduction of publicexpenses.51.7% of public investment in construction were financed with nationalresources and the remaining 42.9% with external sources.During the first semester of 2004, the same factors continued affecting the sector,that is, increase in the price of materials and high interest rates, which causeda reduction in the sale volumes of the main construction materials: cement (-10.6%), paint (-11.4%) and rod (-6.0%). Loan portfolio for construction hasshowed the same performance.By the end of the year 2004, there was a clear reduction in the prices of constructioninputs, but the reactivation of the activity has been still low, for some asa result of the increase of wages put recently into effect that may have neutralizedthe drop in the prices.BIDDING FOR STATE PROJECTSLaw 322 of 1981 sets forth certain requirements for foreign companies wishingto bid or participate on projects carried out by the State or any of its institutions,
Pellerano & HerreraAttorneys at lawestablishing that such companies must, either be affiliated with a Dominicancompany, or be a mixed capital company belonging to both Dominican and foreigninvestors.Foreign participation in the government contract shall not exceed 50%,but 70% maybe accepted when for whatever reasons national participation cannot exceed 30%.Furthermore, when the project is extremely complex or sophisticated foreign companiesmay request to the government agency that the project be deemed outsidethe scope of Law 322. If the government agency contracting the project agrees todo so the foreign company would be able to have all the rights over the contract,without the need of local participation.6ELECTRICITYEVOLUTION OF THE SECTORBefore the reform of the electricity sector that started in 1999, the generation,transmission and distribution of energy was in the hands of a State owned enterprise,Corporacion Dominicana de Electricidad (CDE).The inability of this companyto supply the energy required by the country was one of the most seriousproblems that hindered the sustained development of the national economy.Although the capacity of CDE had been gradually increased, it had yet to meetthe energy demand of the different sectors, which kept growing every day as aresult of the economic development experienced in the country,especially in thefree zones and tourist sectors.In order to improve its capacity CDE started in the early nineties to purchaseenergy from private companies. The increase in the quantities of energy purchasedfrom private sources did not imply however an improvement in the service,since a lot of energy was lost as a result of the bad conditions of the energydistribution network.In 1997 Law 141-97 on the Reform of Public Companies ordered the capitalizationof CDE. In 1998 the Superintendence of Electricity was created to regulatethe sector,and in the year 1999 took place the privatization of the generation anddistribution units of the CDE, which were turned into three distribution and twogeneration companies that were transferred to foreign capital companies.Energy problems were however still very serious, and the sector lacked a comprehensiveregulatory framework. Finally, in the year 2001, after almost a decadeof debate (the bill had been submitted to Congress in 1993), General ElectricityLaw 125-01 was enacted.The application regulations of the law are contained inDecree 555-02 of 19 July 2002.Nevertheless, in the year 2003, under still unclear circumstances, the DominicanGovernment repurchased two of the privatized electricity companies, whichtook the process back to its starting point and created a number of difficulties ofvery different nature, with implications surpassing energy related issues.69
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FOREWORDA place to invest ...The Do
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