II. Other Permitted Types of Entities
Branches of foreign entities
- Their existence, capacity, functioning and dissolution are regulated by the law of the place of incorporation. However, their local operations are governed by Dominican laws, and they must therefore be enrolled before the Mercantile Registry and National Taxpayers Registry
- They have the same rights and obligations as local entities, subject to any exceptions established by special laws
- Foreign entities that establish a branch or permanent establishment to perform regular commercial activities in the DR will receive the same fiscal treatment as local entities incorporated under Dominican laws
- From a corporate standpoint, the foreign entity and its branch are treated as one company. However, from an accounting standpoint, they have their own separate books.
Must know: Capitalization tax (1%) is not applicable, and any transfer of funds to the parent company (in excess of the original capital contribution) would be considered profit subject to a 10% withholding, after payment of the corresponding income tax
Special purpose vehicles or partnerships
- Based in contracts whereby one or more persons (merchants) take interest in a certain and transitory commercial operation, which one of them must execute in his name and under his personal credit
- A minimum of two merchants (comerciantes) are required for its formal incorporation
Special purpose vehicles or partnerships (Cont’d).
- These entities do not have a separate legal personality and will not have a legal name, capital or social domicile (therefore not subject to registration and other formalistic requirements)
Consortiums, Strategic Alliances (Joint Ventures)
- Consortiums or Joint Ventures allow the handling of business between one or more partners and are considered as “accidental” or participation entities, which consist in commercial entities without legal personality, capital or domicile. They do not need to register before the Mercantile Registry, but they do need to register before the Taxpayers National Registry for fiscal purposes
- By virtue of the principle of contractual freedom in international private laws recognized in the DR, the governing law applicable to a joint venture agreement may be freely chosen (or modified) by the parties’ mutual agreement
- Joint ventures may be only composed by foreign persons, or a combination of Dominican and foreign citizens as partners
Must Know: Certain restrictions apply for foreign legal entities that wish to participate in public procurement bids or be engaged by the Dominican Government, since they must at least be partnered with a Dominican citizen or entity, or a mixed capital entity
Trusts
- Trusts can be incorporated over properties and rights of any nature; such properties become part of an autonomous estate registered in independent accounting and financial accounts, hence, assets in a trust cannot be required by creditors outside of such trust
- Each trust must be registered in the respective Chamber of Commerce, as well as in the National Taxpayers Registry
- Trusts in the DR are administered by a trusteeship entity, which must be duly authorized by the competent authorities. Compensation for the trusteeship is either determined when the trust is incorporated, or presumed to be 0.5% of the estate’s annual value
Must Know: Trusts are commonly used for real estate developments, as well as for purposes of estate and inheritance planning
