Opening A Business In The Dominican Republic - Outsourcing

1. INTRODUCTION

When opening up shop in the Dominican Republic it is important to know matters such as labour and employment law and payroll and benefits. The principal characteristics of the Labour Code of the Dominican Republic are:

excellent protection of the employees;
the prevalence of the facts;
prohibition of harmful changes of the employees; and
joint responsibility (a group of companies).

Another aspect to consider when opening up shop in the Dominican Republic is corporate law. This law regulates the incorporation and regulation of companies. In the Dominican Republic, there are several types of companies:

General Partnerships (Sociedad en Nombre Colectivo);
Ordinary Limited Partnerships (Sociedad en Comandita Simple);
Limited Partnerships with Shares (Sociedad en Comandita por Acciones);
Publicly or Privately Owned Share Companies (Sociedades Anónimas Públicas o Privadas);
Limited Liability Partnership (Sociedad en Responsabilidad Limitada);
Individual Enterprise with Limited Liability (Empresas Individuales de Responsabilidad Limitada).

However, the most popular is Limited Liability Partnership (SRL) because it is the simplest to constitute.

Every change applied in the company as the transfer of quotas, changes of members of the board of directors or managers, and so on, shall be registered before the competent Chamber of Commerce and Production and General Directorate of Internal Taxes (DGII) (some changes) to apply to third parties.

Also, there are aspects to consider depending on the type of business to practice in the Dominican Republic. For example, to establish a free zone of exports, besides the process of incorporation of the company, it is necessary to obtain a license issued by the National Council of Export Processing Zones.

At Sánchez Y Salegna, we protect our clients and help them thrive whether their corporation is a consumer products manufacturer, business process outsourcing (BPO), premium chocolate manufacturer, software products provider, or small business.

Below we will explain the requirements in labour and employment law, corporate law, and payroll and benefits for opening up a shop in the Dominican Republic.

2. LABOUR AND EMPLOYMENT LAW REQUIREMENTS

a) Employer Policy Requirements

Article 62 of the Dominican Constitution regulates the right to work. It stipulates that work is a right, a duty, and a social function exercised with the State's protection and assistance. Therefore, it is an essential purpose of the State to promote decent and remunerated employment.

The primary sources of law regulating labour relations in the Dominican Republic are Law No. 16-92 (commonly called the "Labour Code") and Decree No. 258-92 (Regulation for the Application of the Labour Code).

Also, the Dominican Republic has Law No. 87-01, which establishes the Dominican Social Security System. This law regulates and develops the reciprocal rights and duties of the State and citizens regarding financing for the protection of the population against the risks of disability, unemployment by advanced age, survival, illness, maternity, and occupation hazards.

Another essential source is Regulation No. 522-06 on Hygiene and Safety at work. This regulation establishes the norms and procedures applicable to all branches of labour activity in the Dominican Republic.

The Labour Code recognises the fundamental rights of workers, such as:

Freedom of association,
Establishment of a minimum wage,
Professional training,
Respect for the physical integrity, privacy, and personal dignity of workers.

b) Employee Training Requirements

There is no specific trial period in the Dominican Republic, but during the first three (3) months of employment, the contract can be terminated without imposing any obligations on the employer.

In practice, the employer used to give the employee a training period. But this is not established in the Labour Code.

c) Employment Agreements

There are two types of contracts in the Dominican Republic, written and verbal. Written employment agreements are not mandatory for permanent employment contracts. The only requirement that the employer should comply with is to list employees in the company workbooks and with tax authorities, pay social security, and report taxes on all wages paid to the employee.

The Labour Code establishes that the contract is not the one that appears in writing but the one executed in facts. Consequently, the facts of the labour relationship will prevail if there is a discrepancy between a written employment contract and the facts.

But in the case that exists a written employment agreement, these agreements should have some elements required by article 24 of the Labour Code. These elements are:

names and surnames, nationality, age, sex, marital status, complete addresses of the parties, and identification numbers of the parties involved;
the worker agrees to provide the service and the time and place it will be performed;
salary and payment conditions;
duration of the contract if it is of a fixed-term period (otherwise, it will be considered a contract of indeterminate duration); and
any other stipulation that the parties have agreed upon and the signatures of both parties.

Also, Article 90 of the Labour Code establishes that all employment written contracts must be written or translated into Spanish to be enforceable because Spanish is the official language of the Dominican Republic.

The contracts can be for an indefinite period or fixed term, depending on the services provided by the worker. When jobs are permanent, the employment contract is for an indefinite period.

In indefinite-term contracts, the employee must provide their services every working day or those agreed between employer and employee, as long as there is continuity extending indefinitely.

On the other hand, it is necessary to emphasise that when an employee works successively with the same employer in more than one specific job, the Dominican labour legislation can consider it an employment contract for an indefinite period.

In principle, a fixed-term contract can be concluded in one of these cases:

if the nature of the service provided by the employee requires that it be for a specific period; or
it is necessary for the employee to replace another while on leave, vacation, or any temporary impediment; or
it is in the interests of the employee.

In the case of fixed-term/open-ended contracts, the requirements can vary. In this case, it is mandatory a written employment agreement. Employers can use this type of contract when extraordinary demands or production needs are anticipated. It also occurs when the relationship begins and ends with the execution of the work or the specific service for which the employee was hired.

3. CORPORATE LAW REQUIREMENTS

a) Compliance for Incorporation

The requirements to incorporate a company in the Dominican Republic may vary depending on the type of company to incorporate. As we mentioned before, in the Dominican Republic, there are different types of companies, such as: i) General Partnerships, ii) Ordinary Limited Partnerships, iii) Limited Partnerships with Shares, iv) Limited Liability Companies (SRL), v) Publicly or Privately Owned Share Companies (SA), and vi) Simplified Corporations (SAS).

But the most popular and recommended companies to set up are the following:

i) Limited Liability Partnership (SRL): It is formed by two or more people, under a company name, through contributions from all the partners, who are not personally liable for company debts and whose responsibility for losses is limited to their contributions which are called quotas.

The amount of the minimum share capital is RD$100,000.00 (US$1,807.99 approx.), and the minimum value of each share is RD$100.00 (US$1.81 approx.).

These companies can have 50 partners as a maximum and two (2) as a minimum. Can have one or more managers, who must be a physical person and could be a partner of the company.

ii) Publicly or Privately Owned Share Companies (SA): The corporation can have two or more people under a corporate name. The liability for losses is limited to the partners' contributions, called shares, which are essentially negotiable and must be fully subscribed to and paid before their issuance.

Corporations may form or increase their authorised share capital through:

Public savings.
Listing their shares on the stock exchange.
Contracting loans through the public issuance of negotiable obligations.
Using mass media or advertising to place or trade any instrument in the stock market.

The Superintendency of Securities will supervise publicly subscribed corporations regarding their formation and organisation process, modification of their bylaws, changes in capital stock, issuance of negotiable titles, transformation, merger, spin-off, dissolution, and liquidation.

Corporations that form their capital through private sources are considered corporations with a private subscription and will be under the supervision of the Mercantile Registry.

The minimum amount of share capital is RD$30,000,000.00 (US$542,397.40 approx.), the minimum subscribed capital is RD$3,000,000.00 (US$54,239.74 approx.), and the minimum nominal value of the shares will be RD$1.00 (US$0.02 approx.) each. Still, in practice, the minimum value of the shares is generally RD$100.00 (US$1.81 approx.).

This company will be managed by a board of directors composed of a president, a vice president, a secretary, and a treasurer.

iii) Simplified Corporations (SAS): It may be constituted by two or more people, who will only be responsible for their respective contributions, and which will have legal personality.

The rules that regulate the Publicly or Privately Owned Share Companies will apply to the simplified corporation.

The minimum share capital is RD$3,000,000.00 (US$54,239.74 approx.), the minimum share capital is RD$300,000.00 (US$5,423.97 approx.), and the nominal value of the shares is RD$100.00 (US$1.81).

This company may be administrated by one or more managers, who must be natural persons and may or may not be partners of the company.

b) Post Incorporation Registrations

Once the company is incorporated, it will be necessary to register all the modifications that occur in it before the Mercantile Registry and the National Directorate of Internal Taxes (DGII).

The Mercantile Registry is an organ in charge of the registration, renewal, and registration of books, acts, and documents related to industrial, commercial, and service activities carried out by companies habitually dedicated to commerce.

The Chambers of Commerce and Production, under the supervision of the Ministry of Industry and Commerce, oversee the Mercantile Registry. In the Dominican Republic, there are different Chambers of Commerce and Production in different provinces to regulate the companies established in each of them.

4. PAYROLL AND BENEFITS PROVIDERS

Outsourcing is the economic practice of transferring resources and specific business tasks to another, which provides specialised services.

A third-party service provider does a business function in the outsourcing process. For example, the hiring company transfers part of its administrative and operational management to an outsourcing firm. In this way, the outsourcing firm can operate away from the hiring business's normal relation and its clients.

Many companies employ specialised firms to manage part of their business. These include IT, human resources, asset management, real estate, and accounting. Many companies also outsource technical user support and call handling, manufacturing, and engineering.

Overall service costs are usually lower if these areas are outsourced, allowing many businesses to close their customer relation centres and transfer them to a third party.

The main goal of outsourcing is to reduce production costs. However, outsourcing is also a source of competition, as it allows businesses to reduce production costs by outsourcing firms that offer the best quality at a lower price.

In the Dominican Republic, labour laws provide high protection for employees. Dominican law seeks to ensure that their employers are solvent. One way to ensure solvency is to give employee protection by making several companies jointly responsible for labour debts.

Because of this requirement, we need to look at the various labour relations patterns that can lead to outsourcing and differ from the traditional employer-worker relationship.

Here are the different forms:

The subcontracting business. In this case, a company relies on another firm to provide goods and services. This firm agrees to work at its own risk and with its own financial, material, and human resources.
Labour market intermediary. In this case, an apparent employer exists between the worker and the actual user or recipient of its services.

Various kinds of contracts govern labour relations for outsourcing contracts in the Dominican Republic. However, depending on the different circumstances affecting the agreement – although it is a commercial contract, this might develop into a labour subcontract.

a) The Subcontracting Business

There is no employment relationship between the service recipient and the subcontractor for a subcontracting business. It is possible because of how a subcontracting company works. In most cases, it provides services outside the client's headquarters. It works with its budget, administration, and no apparent link to the service recipient.

In the Dominican Republic, the outsourcing method of subcontracting work occurs mainly in the free zone sector. Subcontracting companies (textiles, medicine, pharmaceuticals, electrical parts, voice, and data services) serve large multinationals and form part of their global outsourcing chain.

No labour disputes have emerged in the practical application of Dominican labour law involving this type of subcontracting business.

b) Intermediation

In these forms, we have commercial subcontracting arrangements that are:

Traditional labour market intermediary. In this type of contract, an intermediary is limited to managing and placing staff on assignments. At no point does this intermediary perform or take part in the performance of the labour contract.
Apparent employer. In this case, the intermediary becomes an "apparent employer" for all the contracted workers who were generally unaware of their "actual employer".
Supplier of temporary labour. In the Dominican Republic, it is not intermediaries but employers who engage employees to work for others without being supervised by the contractor. But if the intermediary is an insolvent company, the courts could declare jointly responsible the contractor for paying employment benefits to the intermediary's employees.

In the Dominican Republic, employees receive high protection from labour laws in the Dominican Republic. In particular, the law gives employee protection by ensuring that businesses are held jointly responsible for their employees to ensure the financial safety of their work benefits.

For this reason, it is recommended that when you commit to outsourcing contracts of any form, the labour implications should be scrutinised by a legal expert.

Originally published November 15th, 2022

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Dominican Republic: Opening A Business In The Dominican Republic