DOMINICAN REPUBLIC Law and Practice Contributed by: Luis Miguel Pereyra, Pereyra & Asociados
1. Corporate Structures, Residence and Tax Treatment 1.1 Corporate Forms and Their Tax Treatment Businesses generally adopt corporate forms. The most used forms are shareholding companies, limited liability entities and branches of foreign entities. There are also individual limited liability entities, owned by a single individual (single-owner businesses), and de facto entities (consortiums), which may operate as separate entities (from the entities that form them) from a tax point of view, subject to registration require - ments. The tax obligations of all entities are basically the same, with certain exceptions. The most utilised corporation types mainly differ in terms of minimum capital requirements, governance LLCs are formed by two or more people or entities, with contributions made by each of the partners. Part - ners are not personally liable for the debts of such companies. LLCs are considered to be intuitu perso - nae entities, since the quotas (equivalent of shares) are not considered to be freely marketable; rather, company partners must approve a potential sale of quotas. In this case, the minimum amount of paid capital is DOP100,000, and the position of vigilance officer – an external officer that supervises the com - pany’s financial situation – is optional. The company is managed by general managers. The managers have ample authority to represent the company in its com - mercial transactions. Stock Company (SC) or Sociedad Anónima (SA) These companies have two or more shareholders operating under a single commercial name, with the contributions of such shareholders forming the com - pany’s capital. The shareholders are liable for the debts of SCs, although only up to the amount of their contribution to the company’s capital. The author - ised capital must be set to DOP30 million, of which at least 10% must be fully subscribed and paid. The company is managed by a board having at least three members. One or more vigilance officers will have to be designated, and they must be authorised public accountants with at least three years of experience in and/or liabilities vis-à-vis third parties. Limited Liability Companies (LLCs)
the auditing of companies. The capital of the company is divided in freely negotiable shares. Simplified Stock Company (SSC) or Sociedad por Acciones Simplificada (SAS) SSCs are, to some degree, hybrids of the previous two company types. The minimum authorised social capital of the company is DOP3 million, or its equiva - lent in a freely exchangeable foreign currency such as US dollars. At least 10% of said capital must be fully subscribed and paid. The capital of the company is divided in freely negotiable shares. SSCs can be administered by either a board of direc - tors or a single president. If the shareholders decide to have the company administered by a board of direc - tors, the same rules established by law that are appli - cable to the board of directors of SAs would apply. SSCs can freely decide whether or not to name a vigi - lance officer. If the company were to decide to name a vigilance officer, the same rules applicable to vigilance officers in SCs would apply. It is possible to operate through a branch of a foreign entity or through a consortium, except in very spe - cific cases in which the formation of the local entity is required, albeit without general restrictions as to the nationality of the shareholders or participants. None - theless, the following should be noted. • A branch of a foreign entity shall be a permanent establishment but shall be registered and taxed on income generated locally. It shall also be obligated to keep separate records from those of its parents, and shall essentially have the same obligations (and treatment) as a local entity. • The fact that a foreign entity operates through a local subsidiary does not mean that such foreign entity has a local permanent establishment for tax purposes. Such foreign entity will be solely taxed (withholding tax) on dividends distributed by the local entity to which it is a shareholder, to the extent the foreign entity does not engage directly in any activities that might trigger permanent estab - lishment status. • The foregoing applies similarly in the case of form - ing a consortium. Technically speaking, although a consortium is not a separate legal entity (from the
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