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FREE ZONES IN THE DOMINICAN REPUBLIC
Free Zones in the Dominican Republic Through time, the Dominican Republic has come to be one of the most attractive countries for foreign investors, specially in the field of Exportation Free Zones. In the present, the country has over 50 Industrial Free Zone Parks with about 500 working companies, which in the year 2000 exported merchandise valued in over US$ 4,655 millions and generated an estimated of 200,000 jobs. Due to the increasing arrival and development of foreign free zones in the country, several laws have been passed to regulate and facilitate the installation of the companies. The Dominican Republic to this day is the largest exporter of textiles to the United States from Central America and the Caribbean, second in Latin America and fifth in the world. Installing a Free Zone Company in the Dominican Republic In order to install a free zone company in Dominican Republic, it is necessary to follow specific steps: I. Company Incorporation The company can be incorporated according to the Dominican laws or any other country laws. If the company would be incorporated according to the Dominican legislation, must fulfill the follow requisites. 1.1 Availability and Registration of the Company Name. 1.2 Preparation and Signature of the Bylaws. 1.3 List of Subscribers and Statement of Payment of Shares. 1.4 Payment of Capitalization Tax. 1.5 Notary Statement. 1.6 General Formative Meeting 1.7 Mercantile Registry 1.8 Contributors National Registry II. Initiating Activities Registry In the beginning of the company’s activities it is necessary a procedure in this order: 2.1 Special authorization to initiate the company’s activities This authorization should be solicit at the Commerce and Industry Department of the Commerce and Industry Secretary. 2.2 Industrial Inscription The companies dedicated to industrial activities should be provided of a Industrial Inscription Certificate from the same department (Commerce and Industry). 2.3 Mercantile Registry (MR) The company must be registered in the Mercantile Registry Department at the Chamber of Production and Commerce. III Adherence to the Free Zone Management In order to establish an exportation free zone company and obtain the benefits of the 8-90 law, the following documents must be submitted: 1. CNZF installation permit form duly completed. 2. Rent contract with the corresponding free zone. 3. Incorporation documents of the company. 4. Samples of the product to be manufactured. 5. Proof of solvency of the main investors. Certified check for the payment of newspaper publications. IV Exportation Registry Once obtain the installation permit resolution of the Free Zone National Counsil, the company must be provided of a registry, wich can be obtained in the Centro Dominicano de Promoción de Exportaciones (CEDOPEX). * Detailed Steps to follow for the establishment of a company a) Availability and Registration of the Company Name It must be determined if a name identical or similar to the name chosen by the founder(s) is already registered with the Ministry of Industry and Commerce (Departamento de Marcas de Fábricas y Nombres Comerciales de la Secretaría de ndustria y Comercio), enclosing Internal Revenue stamps worth RD$1.25 plus a RD$50.00 fee inj cash or certified check upon deposit. As soon as the name availability is settled and the chance of framing two different companies under the same name is eliminated, it is convenient to register the name in the book of commercial names. A registrtion valid for 20 years needs upon deposit: a RD$170.00 receipt from the Chamber of Production and Commerce for publication of the name, 2 receipts from the Internal Revenue Collector worth RD$25.00 and RD$10.00, 4 Internal Revenue stamps worth RD$6.00 each and a RD$0.25 one, in addition to the RD$4,500.00 payment in cash or by certified check. b) Preparation and Signature of the Bylaws. The bylaws are prepared and signed by the founder(s) of the company, in at least 7 originals. c) List of Subscribers and Statement of Payment of Shares. A list of subscribers, or first shareholders, is prepared, indicating their personal credentials, the value of the contributions and the number of shares. A description or inventory of any contribution in kind must be included. d) Payment of Capitalization Tax. Tax must be paid on the authorized capital to the local Internal Revenue Collector. Appendix 1 contains a tax table. e) Notary Statement. Prior to the General Formative Meeting, the recipient of the contributions in cash must make a statement of cash contributions before a Notary. A copy of the by-laws, a list of Subscribers and the Statement of the Payment of the Shares must be given to the Notary, as well as the receipt for the payment of the capitalization taxes. d) General Formative Meeting. Once the above requirements have been met, the first shareholder meeting, called the General Formative Meeting, is held. A list of the shareholders present and represented is prepared, cointaining their personal credentials, the amount of shares the posses, and the number of votes corresponding to each share. Independently of his or her mnumber of shares, no shareholder shall have more than ten (10) votes in The General Formative Meeting. This meeting approves the by-laws and the statement prepared before the notary, elects the first administrators and the first commissary, and declares the company formally constituted. Also, this meeting authorizes the filing of documents with the corresponding courts and the publication of a notice on the formation of the company. A second Formative Meeting will be necessary if payment for shares has been made via contribution in kind. The first formative meeting approves the statement made before a Notary and designates an expert to verify the estimated value of the assets to be invested. This verification should be turned in no less than five days previous to the celebration of the second Formative Meeting. The second Formative Meeting approves the expert’s report, then names the first Directors and the commissary, and authorizes the filing of documents and the publication. f) Registro Mercantil (Mercantil Registry MR) Within a month of the General Formative Meeting, it will be necessary at least five (5)Copies of the constitutive documents. These documents must be registered in the Chamber of Production and Commerce, paying the taxes according to the capital amount and proceeding also with the Mercantile Registry (Law 3-02). g) Registro Nacional de Contribuyentes (Contributers National Registry CNR) The Company, previous the thirthy days of the beginning of commercial activities, must required to the General Income Tax Agency the CNR or Tributary Identification Card, necessary for the develop of the company operations. Estimated time: three arable days. Incentives to free zone companies Free zone companies are exempt from the following taxes and duties: 1. Income tax 2. Taxes on constructions, registration or transfer of real property rights. 3. Taxes for incorporation of companies and increase of capital. 4. Municipal charges . 5. ITBIS. 6. Consular fees. 7. Export or re-export taxes. Furthermore , they are exempt from the payment of all custom duties, import taxes and related charges on : *Raw materials , equipment, construction materials, office equipment and any orders goods necessary for the construction, preparation and operation of the company. *Materials and equipment needed for the construction of housing facilities, cafeterias, health services or others established for the benefit of workers. *Transportation vehicles, including cargo trucks, garbage colecctors, buses for workers, etc., upon approval of the CNZF. These benefits are granted for a period of fifteen years. Companies located in border free zones benefit from a longer period of twenty years, enjoying also other additional benefits such as rent subsidies, priority treatment for the export of goods limited by foreign quotas and for the assignment of development funds, etc. Sale of Production in the Local Market Free zone companies can sell all their production in the local market, after payment of all applicable custom duties, as long as the goods or services are not produced or imported in the country, and the goods or services have local components accounting for 25% of their value. When the products or services are manufactured or imported in the country the free zone company can only sell up to 20% of its production in the Dominican market. 6.2 Labor laws The Labor Code, contained in Law 16-92 of 17 June 1992 regulates the relations between companies and their employees. • Working Conditions a) Quota of Dominican workers. At least 80% of the workers of a company should be Dominican citizens. Supervising officers should preferably be Dominicans, but there are no restrictions at manager level. When a Dominican citizen substitutes a foreigner in an employment position the Dominican employee will be entitled to the same salary, rights and conditions as the foreign employee. b) Working periods. The normal working week is 44 hours, with a working day of 8 hours. The usual practice is to work 40 hours from Monday to Friday and, in some companies, the remaining 4 hours on Saturday. The working week of part-time employees cannot exceed 29 hours. c) Paid leaves of absence. Five days in the event of marriage, 3 days in the event of death of a close family member, and 2 days for the worker whose wife gives birth. d) Vacations. Pursuant to Law 97-97, workers who have completed one year of employment are entitled to a paid vacation of 14 working days. This law extended the vacation period by almost a week, by declaring that it should be calculated on the basis of working days and not calendar days, as set forth in the Labor Code. e) Sexual harassment. Labor laws forbid employers or their representatives to commit actions that may be considered as sexual harassment against an employee. Wages Minimum wage. Dominican labor laws set forth a minimum wage for private sector Employees, which is periodically fixed by the National Salaries Committee. The Current monthly minimum wage is RD$3, 416 for companies with assets over RD$500,000. Other minimum wages are fixed for certain sectors. This is the case of free zone companies (RD$2, 800 per month) and the tourist sector (RD$3,030 for companies with assets over RD$500,000). Overtime, night and holiday work. In this cases the premium to be paid by the Employer over the basic wages of the employee is 35% for overtime, 15% for night Work, and 100% for overtime implying an increase of more than 68 working hours per week, as well as for work on Sundays and holidays. Fringe benefits Legally mandated fringe benefits amount to approximately 35% of the basic wages of the employee, but most firms estimate that the amount of fringe benefits usually paid by them amounts to 45% of the salary. a) Christmas bonus. All employees are entitled to receive, latest on December 20, an additional month’s salary. b) Participation in company profits. Workers are entitled to receive a 10% participation in the yearly net profits of the company. The amount received by the employee may not exceed 45 days salary for workers with less than three years in the company, an 60 days salary for those with more. c) Payment of vacations . The amount to be paid to the employee for yearly vacations depends on his seniority, being 14 days salary if he has been in the company from 1 to 5 years, and 18 days salary for more than 5 years seniority. Dismissal of employees During the first three months of employment workers can be dismissed without the Employer having to make any severance payments. Afterwards employees can be Dismissed in accordance with the provisions of the Labor Code. In the event of justified dismissal made pursuant to the causes and procedures set Forth in the Labor Code, the employer does not have to pay any indemnity to the Employee. In the event of unjustified dismissal, employees are entitled to severance payments calculated as follows: - from 3 to 6 months seniority, 6 days’ salary - from 6 to 12 months seniority, 13 days’ salary - from 1 t 5 years seniority, 21 days’ salary for every year of fraction - from 5 years seniority or more, 23 days’ salary for every year of fraction The employer must also give prior notice of the dismissal to the employee, as follows: - from 3 to 6 months seniority, 7 days - from 6 to 12 months seniority, 14 days - from 1 year seniority or more, 28 days. Prior notice is not necessary if the employer pays the worker the salary corresponding to such period. None of these payments is subject to income tax. If the employer does not make the payment on time, the worker will be entitled to receive an additional day’s salary for each day of delay. Labor Obligations The Labor Code and Rule No. 7676, establish the obligatory use of the following labor forms For all companies realizing operations in the country, which are: a)Work and Vacation form (Form. DGT-3), which indicates the hours from the beginning to the end of the journey of each employee, intermediate rest periods during work hours and a weekly full rest day and vacation period for each worker. This form is on sale at the Secretaría de Estado de Trabajo (Work State Secretary) and should be filled out by the company within the first fifteen days of January of each year or from the beginning of the company’s operations and be sent to the Work Department of that Secretary to be stamped. The indicated department will give you back one of your original leafs duly stamped, to be placed in a visible place of the company. b) Extra Hours form(Form. DGT-2): It can also be found on sale in the Work State Secretary and should be filled in two originals and sent to the Work Department of the Secretary, within the first fifteen (15) days of january of each year or from the beginning of the company’s operation. The indicated department will give you back one of your original leafs duly stamped, to be placed in a visible place of the company. c) Permanent Staff Form (Form. DGT-3): This form is also on sale at the Work State Secretary, two original forms shall be filled and sent to the Work Department, of the indicated Secretary, within first fifteen(15) of January of each year or at the beginning of operations. The indicated department will give you back one of your original leafs duly stamped, to be placed in a visible place of the company. d) Visit Book(Form. DGT-8): This form is also on sale at the Work State Secretary and contains a file wich will be filled by the employer and be returned to the National Inspections Director, of the indicated Secretary, within 72 hours of this particular form being acquired. Maternity The employer cannot terminate without just cause the work contract of a female employee during her pregnancy and up to three months after the birth. Furthermore, in order to dismiss her with just cause the employer must obtain the prior authorization of the Ministry of Labor, among other formalities. Otherwise the employer would have to pay an indemnity amounting to 5 months of salary plus the corresponding severance payments. Pregnant women may request their vacation immediately after their pre and postnatal leave, which must be paid on the basis of her normal salary, are entitled for the next year to a leave of half a day per month in order to take the child to the pediatrician. Particular points of Labor Law 8-90 which should be pointed out: i) There is a special regimen for Training(or beginner’s) contracts in free zones. ii) Free Zone operators and company’s are exempt from paying the 10% annual net profit’s tax to employees, established by Dominican law for other companies. iii) In case of closure of activities the Free Zone companies have to notify the Consejo Nacional de Zonas Francas de Exportacion (CNZFE) and the labor authorities with at least 3 month’s notice to ensure that the rights of the employees will be respected. Infotep Any Free Zone Corporation must pay to the INFOTEP according to the article 41 of the Law No.8/90 a 1% of the total amount of the ordinary salary pay to all the permanent personnel.
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