I’m often contacted by U.S. based entrepreneurs looking to structure their businesses in such a way to increase their asset protection and minimize their taxes. Surprisingly, the Dominican Republic is often mentioned as a possible jurisdiction of choice for setting up a new company. However, if you are thinking about Company Formation in the Dominican Republic caution should be applied.
- An Introduction to Company Formation in the Dominican Republic
- LLC Shareholder & Director Requirements
- The Dominican Republic Simplified Limited Company (S.A)
- Company Formation in the Dominican Republic – Banking Options
- Global Tax Treatment
- Conclusions on Company Formation in the Dominican Republic
- More Articles & Guides:
An Introduction to Company Formation in the Dominican Republic
The Dominican Republic provides many of the same company structures as most of the other Caribbean island nations. It is relatively simple to establish an operating entity and the island provides LLCs (Known as SRL’s), standard corporations or Sociedad Anonima (S.A), and also provision for foreign branch offices.
Company formation can be executed successfully in less than 4-weeks and your newly minted offshore corporation or LLC will be ready for use. However, you will need a local agent to lodge the application on your behalf and there are some key requirements that you should be aware of.
In particular, if the founding shareholders are not present in the Dominican Republic you will be forced into signing a Power of Attorney to allow your local representative to lodge and undertake all of the formation business on your behalf. I don’t know about you, but I’m never a fan of signing enduring, binding POA’s and am always concerned about how they will be used in foreign legal jurisdictions.
In the case of an LLC (SRL) the entity requires two separate shareholders to be listed in the formation documents and upon the company register. They can be natural persons or companies/body corporates and need not be a resident of the island nation.
Additionally, an LLC must appoint at least 3-directors with similar requirements to shareholders, and no need to be domiciled within the Dominican Republic. This can complicate matters for single-member entrepreneurs and has forced quite a few to employ local directors or friends/family to fulfill these obligations.
The authorized share capital requirements for this entity are US$2,300 which must be paid at the time of company formation.
The Dominican Republic Simplified Limited Company (S.A)
In contrast to the LLC, the simplified limited company has reduced regulatory and office holder burdens and only requires a single director to be appointed. Additionally, there is a requirement for two shareholders to be listed which can be either individuals or corporate bodies.
Authorized share capital of US$6,800 is required and must be paid in at the time of company formation.
Company Formation in the Dominican Republic – Banking Options
Once you have a formed and registered Dominican Republic entity you are then likely to want to secure banking and merchant facilities for the company. Unfortunately, this is the point where you will discover that there are limited options locally for an actual operating company.
Probably your easiest option for banking facilities is obtaining an account at 1Click 2Go Bank and Trust Limited. The normal AML/KYC procedures will apply, and you will, likely, be put through significant checks before an account is approved. The bank is relatively reliable, but its operations are very basic in scope, and you are unlikely to find merchant facilities locally.
This is really the major problem and why the Dominican Republic, in my opinion, is really only suited to holding companies. Accessing international payment services such as Stripe/Paypal/Worldpay etc is incredibly difficult and potentially impossible from the island. This means its usefulness for an operating entity is negligible.
Global Tax Treatment
The Dominican Republic levies a marginal rate of 27% in tax for their standard LLC, S.A, and PLC entities. This is not at all competitive in the scheme of other Caribbean nations but has allowed the island country to remain clear from the OECD’s blacklist.
However, the island runs its tax system on a territorial basis which means that foreign sourced income is, generally, not taxable in contrast to income sourced locally. This is a huge benefit but requires the appropriate structuring of business operations to make sure that you can avail yourself of this benefit.
Additionally, at the point of formation, you can effectively identify as a tax-exempt offshore company which absolves you of the need to pay taxes. There is also the need to be listed in the newly created National Taxpayer Registry for Foreign Companies. You should note that this brings with it some additional scrutiny and removes some of the perks of being able to buy local property etc.
Conclusions on Company Formation in the Dominican Republic
The Dominican Republic provides a range of company setup options that are ubiquitous across most Caribbean Island states. Subsequently, there really isn’t anything that the Dominican Republic can provide that can be sourced elsewhere within the region.
Additionally, I remain relatively concerned about moves towards the establishment of a register for tax-exempt foreign companies. These sorts of lists are often precursors for significant tax action and, given the global environment at the moment, I wouldn’t be surprised if that’s next on the agenda from the U.S. and OECD.
The banking sector is also relatively underpowered as far as offering services to operating companies. Subsequently, your ability to obtain merchant account solutions is limited and you will be immediately placed into the high-risk category and forced to deal with many unscrupulous offshore acquirers. This is likely to be problematic for anyone other than traditional offshore holding company structures.
Ultimately, the Dominican Republic is rapidly moving away from being a traditional offshore company and finance jurisdiction and is, now, quite compromised. This is likely to mean significant tax treatment changes, in the near future, as well as further harmonization of regulations and rates with the onshore countries.
Subsequently, do yourself a favor and look elsewhere within the broader Caribbean and Americas region for a jurisdiction that fits your business needs. In fact, Panama and Nevis still provide solutions that offer asset protection as well as access to commercial banking and merchant account services.