Setting Up a Subsidiary in the Dominican Republic: Comprehensive Guide

Introduction

The Dominican Republic is a stable and business-friendly country in the Caribbean, with favorable tax policies and free trade agreements that make it an attractive destination for foreign investment. 

Its young and growing population, skilled workforce, and diversified economy in tourism, manufacturing, agriculture, and mining sectors make it a prime location for foreign companies to establish subsidiaries and invest in its promising future.

What Are the Types of Subsidiaries in The Dominican Republic?

There are several types of subsidiaries if you want to go through the incorporation of wholly owned subsidiaries in the Dominican Republic. Some of the subsidiaries are as follows:

Single Member Limited Liability Corporation

SMLLCs are popular in the Dominican Republic as they have a single owner and an independent patrimony that separates them from the owner’s other assets.

Key features of SMLLCs include:

• “Single Member Limited Liability Corporation” or “SMLLC” must be in the company name.
• A natural person is the owner of the business.
• It is a separate legal person.
• The owner has the option to contribute money or assets.
• It is established according to a founding member act.
• No share capital is necessary.
• The management is given the authority to make decisions.
• The business is permitted to engage in both civil and commercial operations.
• The owner can perform managerial duties themselves or appoint a manager.

Simplified Public Limited Company

Simple Public Limited Companies are founded by at least two individuals who are only answerable for the value of their investments.

The primary benefit of SPLC is the legal independence that allows shareholders to determine everything linked to the business in the Bylaws and the operational restrictions required for the firm’s operation.

The key elements of an SPLC feature:

• A minimum of two partners is required, with no upper limit.
• You can choose the company’s name with “Simplified Public Limited Company” or SPLC.
• The approved share funds must be at least RD$3,000,000
• The company’s management structure can be determined in the bylaws, with the possibility of a board of directors and one or more executives.
• The administrators do not need to be natural persons.
• It is optional to appoint one or more account commissioners to oversee management.

Limited Liability Company (LLC)

In the Dominican Republic, a Limited Liability Company (LLC), also known as the Sociedad de Responsabilidad Limitada (SRL) in Spanish, is a business entity in which liability is restricted to the capital which has been contributed. 

It means that if the company incurs debts, the personal assets of its partners will not be affected. 

As a result of this feature, LLCs are a popular choice of company formation in the country.

Components of an LLC include:

• The company name of an LLC must have the words “LLC” or “Limited Liability Company.
• An LLC must have at least two partners and no more than 50.
• Partners of an LLC can be individuals or entities.
• An LLC is always a commercial enterprise.
• An LLC can engage in civil and commercial activities, except for banking and insurance reserved for Public Limited Companies.
• An LLC’s manager(s) oversee the functioning and have the authority to represent the company.

Public Limited Company

Article 154 of the Commercial Companies Code describes Public Limited Companies as organizations comprising two or more individuals operating under a company name.

A PLC comes in two forms, Privately Owned Public Limited Companies and Publicly Owned Public Limited Companies. 

General Partnership

This business entity involves two or more associates who assume joint liability for the company’s obligations.

Some of the features of a general partnership include:

• If not all partners are named, the company’s name must contain the name of one or more partners, followed by “and Company” or its abbreviation.
• The company must have at least two partners.
• The bylaws will determine the company’s capital in the bylaws.
• All partners are managers by default unless otherwise stated in the bylaws.
• The transfer of claims or stakes in the company is subject to the approval of the other partners.

How to Set Up a Subsidiary in The Dominican Republic?

When setting up a subsidiary in the Dominican Republic, choosing the company that best fits your needs is crucial.

While most entrepreneurs prefer to establish an LLC or S.R.L. due to their ease of incorporation and benefits, simplified limited companies, public limited companies, branches, or representative offices are also options.

The process of establishing a Dominican Republic subsidiary involves the following steps:

• Draft and file a registration request for a trading name with the Dominican Trademark Office.
• Draft by-laws and other incorporation documents.
• Pay 1% incorporation taxes on the company’s registered capital.
• Prepare a business registration application and file it with your company incorporation documents.
• Prepare and file a request to get a Tax Identification Number.
• Enroll employees in the social security program and with the Ministry of Labor.

Benefits of Setting Up a Dominican Republic Subsidiary

There are various benefits of setting up a subsidiary company in the Dominican Republic, including:

• Tax benefits: A parent business can lower its tax bill by establishing subsidiaries and taking advantage of government-authorized deductions.
• Increased efficiency: There are instances where the parent firm manages to boost the effectiveness of its activities via one or more subsidiaries since managing many small enterprises is more straightforward than managing a massive organization.
• Risk deduction: When a subsidiary business in the Dominican Republic declares bankruptcy, it is accountable for the bankruptcy procedures’ sanctions and can be sued by an external party without the involvement of the parent business.

Documents to Prepare When Opening a Subsidiary in The Dominican Republic

You will need the following documents during the incorporation of a foreign subsidiary in the Dominican Republic:

• Certified duplicates of the constituent documents.
• A certified copy of the Commercial Registry, Incorporation, or equivalent certificate.
• A Certificate of Validity, if not specified in the commercial register or its equal from the origin country.
• Photocopies of the passports of the representatives and administrators of the applicant company.
• Minutes of the competent Corporate Body that specifies the company’s address in the country and grants jurisdiction to the relevant Chamber of Commerce and Production.
• An appointment of a legal representative in the Dominican Republic.

What Business Forms Can the Dominican Republic Subsidiaries Take?

After the incorporation of a wholly owned subsidiary in the Dominican Republic, foreign companies can set up subsidiaries in the country through various business forms, including:

• Limited Liability Company (LLC): A limited liability company (LLC) is a distinct legal entity that restricts the liabilities of its stockholders to the sum of their investments. A minimum of two shareholders and $2,000 in cash are needed to form an LLC in the Dominican Republic.
• Corporation (SA): Another distinct legal entity is a corporation, which restricts the responsibility of its stockholders to the value of their contribution. It demands a minimum investment of $2,000 and at least two shareholders.
• Joint Venture: It is an agreement between two or more businesses to carry out a specific task. The partnership agreement may be used to control the joint venture even though it is not a separate legal organization.

The Dominican Republic Subsidiary Laws

The Dominican Republic has specific laws and regulations governing the establishment and operation of foreign subsidiaries in the country. 

Here are some fundamental laws and regulations that companies setting up a subsidiary in the Dominican Republic must follow:

• Law No. 479-08 on Commercial Companies: This law regulates the formation, governance, and dissolution of commercial companies in the Dominican Republic, including subsidiaries. It sets out the requirements for articles of incorporation, bylaws, and registration with the Dominican Republic’s commercial registry.
• Law No. 16-95 on Foreign Investment: This law establishes guidelines for the formation and management of foreign businesses, including subsidiaries, and governs foreign investment in the Dominican Republic. It stipulates the processes for acquiring licenses and authorizations and guarantees equal treatment for domestic and foreign investors.
• Law No. 557-05 on the Development of Free Zones: This law establishes the framework for the Dominican Republic’s free zones, which are places set aside for businesses engaged in production, assembly, and other export-related activities. Sub-subsidiaries might operate in free zones to take advantage of tax breaks and extra benefits.
• Tax Code: The tax legislation of the Dominican Republic governs how domestic subsidiaries and other businesses are taxed. It lists the requirements for filing, calculating, paying, and fulfilling tax-related obligations.
• Labor Code: The Dominican Republic’s labor laws, particularly those relating to subsidiaries, are outlined in the Labor Code. It addresses topics like employment agreements, working conditions, pay, benefits, and dismissal from a job.

Post Incorporation Compliance

After setting up a subsidiary company in the Dominican Republic, some post-incorporation compliance requirements include:

• Registering for taxes
• Securing required licenses and permits
• Maintaining precise corporate records
• Submitting annual reports
• Complying with the labor laws
• Paying taxes and social security contributions
• Keeping a registered address

Taxes on Subsidiaries in The Dominican Republic

Taxation of foreign subsidiaries in the Dominican Republic is subject to various taxes, including:

• Corporate Income Tax: 27% tax on profits earned in the country.
• Value-Added Tax (VAT): Standard 18% VAT on sales of goods and services.
• Withholding Tax: Applied to payments made to non-residents, including dividends, interest, and royalties.
• Municipal Taxes: Taxes like property taxes and business taxes may be imposed by municipalities.
• Social Security Contributions: Employers must make social security contributions on behalf of their employees based on their salaries.

It is recommended to work with local accountants or tax specialists when setting up a subsidiary in the Dominican Republic. 

Tax Incentives for Businesses Setting Up a Subsidiary in The Dominican Republic

Businesses forming subsidiaries in the Dominican Republic can take advantage of several tax benefits. These incentives are intended to attract foreign investment and advance economic development.

Some of the key tax incentives for businesses setting up a subsidiary company in the Dominican Republic include:

• Tax exemptions: Newly formed companies can qualify for complete tax exemptions on income tax, value-added tax (VAT), and customs duties for up to 15 years.
• Free trade agreements: Businesses have an advantaged entry into the Dominican markets thanks to free trade agreements between the Dominican Republic and nations like the  Canada, United States, and the European Union.
• Special Economic Zones: The Dominican government introduced Special Economic Zones (SEZs) throughout the country, providing significant tax breaks and other advantages to companies that locate their activities there.

Other Important Considerations

Besides the previously mentioned information, there are more significant factors to consider while setting up a subsidiary in the Dominican Republic. A few of these are:

Business Licenses and Permits: Get the necessary licenses and permits before starting operations.

• Employment Law: Follow minimum pay, work hours, and employee benefits regulations.
• Language and Culture: When conducting business, consider cultural and linguistic variations.
• Banking and Financial Services: Select a bank that offers essential services.
• Intellectual Property Protection: Defend your rights to intellectual property to prevent infringement and safeguard your assets.

Opening a subsidiary in the Dominican Republic requires careful planning and attention to legal, financial, and cultural considerations. 

Working with local professionals can help ensure compliance and mitigate risks associated with the business in a foreign country.

How Multiplier’s Employer of Record Can Help You Hire and Expand in The Dominican Republic?

Outsourcing employee compensation and benefits to Multiplier’s team of local experts can simplify the complex process of setting up a subsidiary in the Dominican Republic, ensuring compliance with local laws and regulations while providing competitive compensation and benefits for your employees.