Bank Financing

Last verified on Wednesday 28th February 2018

Dominican Republic

Ana Isabel Cáceres
Troncoso y Caceres (Santo Domingo)
  1. 1.

    What are the most common forms of bank financing in your jurisdiction?

  2. Term loans and revolving credit facilities are the most common forms of medium-term bank financing in the Dominican Republic. Commercial mortgage financing is also available as long-term financing. In addition, syndicated and bilateral credit facilities allowing financing in multiple currencies of substantial amount of funding have become very common. It is noted that under our banking legal system security packages are taken into consideration for purposes of risk allocation provisions.

  3. 2.

    Are any governmental or central bank registrations or approvals required for a foreign lender (being a lender not incorporated in your jurisdiction or operating through a branch or office outside of your jurisdiction) to lend to a borrower in your jurisdiction?

  4. No, there are not governmental or central bank approvals required for a foreign lender to provide financing to local companies or borrowers in the Dominican Republic. Likewise, the granting of security or guarantees to foreign lenders is not restricted or impeded in any way.

    Notwithstanding, loan agreement are subject to registration at the Central Bank for statistical purposes only.

  5. 3.

    Are there any foreign exchange provisions restricting, or governmental or central bank registrations or approvals required for, a borrower in your jurisdiction to contract debt obligations in a foreign currency or to remit funds abroad?

  6. There are no foreign exchange restrictions in force either to remit funds to Dominican Republic or to remit those funds abroad. The Monetary and Financial law has fully liberalised the foreign exchange market by establishing the principle of free convertibility of the Dominican pesos.

    Nevertheless, money-laundering regulations subjects to certain formalities the conversion of local currency into US$15,000 or in excess thereof.

    Conversion transactions must be carried out through a banking or money exchange licensed institution.

  7. 4.

    Are there any governmental or central bank registrations or approvals required for the prepayment of loans abroad?

  8. No regulation applies with respect to prepayment of cross-border loans. Prepayments of the loan is freely agreed among the parties.

  9. 5.

    Are any mandatory governmental or central bank deposits required to be made from loan proceeds?

  10. Our banking regulation provides for mandatory risk allocation provisions to be made by local banks before the Superintendency of Banks to cover contingencies. In addition, local banks must create a regulatory reserve account at the Central Bank known as encaje legal. This reserve equals to a percentage of the total of funds deposited or raised under any type of instrument in national and foreign currency. Current percentages of encaje legal are: 12.1 for multiple banks for instruments in RD$ and 20 per cent for instruments in US$ and 7.9 for savings and loans associations as of November 2017.

  11. 6.

    Describe any governmental measures that may be taken to declare a moratorium on the loan obligations of private companies.

  12. There are no moratorium laws in effect in Dominican Republic. Thus, the declaration of the moratorium on loan obligations of private companies shall require the approval by the National Congress.  

  13. 7.

    Describe any environmental liabilities and any other areas of lender liability that may arise as a result of the activities of a borrower or the realisation of a security interest.

  14. Any environmental liability remains with the borrower as beneficiary of the environmental licence. The Ministry of Environment has authority to cease or close the project operations of the borrower/beneficiary and to revoke the environmental licence. The same principle applies to any other areas of liability as a result of the activities of the borrower.

  15. 8.

    Are interest payments or loan fees subject to a withholding tax?

  16. As a general rule, all payments considered to be income of Dominican source are subject to local taxes. Payment of principal made to lenders is not considered income; therefore, it is not subject to taxes. However, interest paid or credited abroad is subject to a 10 per cent withholding tax.

  17. 9.

    What other taxes or mandatory fees, for example, transaction, registration or documentary, apply to loan transactions?

  18. As mentioned above foreign loans are subject to 10 per cent withholding tax upon interests.

    As it regards to domestic loans if the lender is a corporation it is not subject to any withholding upon interest but must present and pay tax upon income. Notwithstanding if the local lender is an individual it must make the 10 per cent withholding tax upon interest.

    Payment made through electronic wire transfer from local bank to local and international bank and the issuance of checks are subject to a 0.0015 per cent charged levied on the value of the transferred amount or check. 

  19. 10.

    Are there different taxes applicable to loans repayable to lenders in your jurisdiction and loans repayable to lenders in a foreign jurisdiction?

  20. N/A

  21. 11.

    Is your country party to any double taxation treaties that reduce taxes payable by borrowers in respect of loan payments abroad?

  22. Currently the Dominican Republic has a tax treaty with Canada and Spain. The Canada treaty avoids double taxation by agreeing on the mutual elimination of taxes on specified items of income. These items include special provisions for industrial and commercial profits, investment income, dividends, interests, royalty income, real property income, personal service income, etc.

    Under the Spain Treaty the tax rate cannot exceed 10 per cent of the gross amount of royalties when these are taxable in one of the contracting countries and the beneficiary thereof is a resident of the other country. The same criteria applies to tax for the provision of services – such as technical assistance, consulting, counselling and presentations, among others. This 10 per cent rate also burdens interest received by a resident of a contracting country for deposits and financial gains obtained in the other country.

    Likewise, although the applicable rate to dividend payments remains at 10 per cent, if the recipient of these dividends is the holder of at least 75 per cent of the capital of the company paying the dividends, then retention will be compensated in the source country.

    This treaty with Spain also contains provisions regarding exchange of information between contracting countries.

  23. 12.

    Do any financing structures receive favourable tax treatment, such as prepayments of exports?

  24. There are special laws under which favourable tax treatment, fiscal credits and other incentives are granted for certain markets and industries attracting financing structures. Among these laws, the Tourism Promotion Law 158-01, the Law on Promotion of Exports No. 84-99, the Law on Promotion of Free Trade Zone No. 8-90, Special Development Frontier Zone No. 28-01, Textile Market Law 56-07, Renewal Energy Law 57-7, Cinematography law No. 108-10, Retirement, Law 189-11 on Trust and Law 171-07 of Special Incentives to Retired individuals and Rent beneficiaries of foreign source.

  25. 13.

    Describe any limitations on interest rates or the ability of lenders to charge default interest under loan agreements.

  26. There is no current regulation limiting the interest to be charged by lenders when providing financing: thus, there is no usury rate or maximum allowable rate of interest in our jurisdiction. Our banking law and regulations provide that financial operations shall de done under free market conditions. The interest rate of transactions completed in local or foreign currency will be freely determined among market agents. The interest rate does not include closing fees, prepayment premiums, etc.

    However, pursuant to the Regulation for the Protection of the User of Financial Services, once a fixed rate is agreed, the interest may not be unilaterally increased by the bank without written notice to the borrower. Such increase will not apply immediately and in case of certain financial products, such as credit cards and deposit accounts, the interest rate is to be clearly explained.    

  27. 14.

    Describe any restrictions that may apply to the choice of law, for example, whether a choice of New York or English law will be recognised and enforced in your jurisdiction.

  28. Dominican individuals and Dominican entities may freely agree to submit their agreements to a foreign law and a foreign forum. Said submission has been duly recognised and enforced in Dominican Republic.

    Courts in the Dominican Republic will recognise a foreign governing law and enforce a contract subject to a foreign governing law, in general: however, the security interest over assets or interests deemed to be located in the Dominican Republic can only be created and enforced under the country's law. 

  29. 15.

    Describe generally the requirements for the enforceability of a foreign judgment in your jurisdiction in respect of an outstanding loan.

  30. In any action or proceeding arising out of or relating to an outstanding loan, the courts in the Dominican Republic would recognise as valid judgment, a final and conclusive judgment rendered by the foreign court for the payment of fixed or readily calculable sum money against the borrower and would give a judgment based thereon without re-examining or re-litigating the merits of the original action, provided that such judgment rendered by the foreign court is declared enforceable through the issuance of a writ of execution exequatur by the corresponding Dominican court. Dominican courts will issue without need on a retrial if the following conditions are met:

    • there exists a treaty with the country where the judgment was rendered. Dominican Republic is party to the New York Convention; or
    • the judgment complies with: all formalities require for the enforceability thereof under the laws of the country of issuance; has been translated to Spanish together with related documents and satisfies the authentication requirements of Dominican Republic law; was issued by a competent court after valid service of process upon the parties to the action; was issued after an opportunity was given to the defendant to present its defence; is not subject to further appeal and is not against any public policy in the Dominican Republic.
    • In any event, the judgment shall not be contrary to the public policy of Dominican Republic.

    Assuming such a final judgment rendered by the competent court complied with the standards set forth above and in the absence of any condition referred to above, which would render such foreign judgment unenforceable, such judgment would be enforceable in Dominican Republic by means proceeding for the enforcement of a foreign final judgment under the laws of Dominican Republic.

    With respect to the principles of Dominican public policy referred to above, assuming that payments of commission, compensations or indemnity and reimbursement of costs and expenses represent usual conditions prevailing in the relevant financial markets, a Dominican court would not find any provision of lending agreement, with respect to such payments and reimbursements to be a violation of principles of Dominican public policy unless the applications in any particular case of a provision of the lending agreement, to make a unilateral determination as to amounts owed on account of indemnities or reimbursements would, in the judgment of the court, result in a recovery by the plaintiff so arbitrary and unreasonable as to be considered contrary to basic and fundamental principles of the Dominican legal system.

    Upon compliance with the above, the courts in the Dominican Republic will enforce a final conclusive judgment for the payment of fixed or readily calculable sum of money rendered by the court having jurisdiction, under its laws, over the borrower, in an action arising from the lending agreement, including any other transaction entered into pursuant thereto in accordance with the procedure contemplated by the Code of Civil Procedure for the enforcement of foreign judgments.  

  31. 16.

    Upon the closing of a loan, what procedural requirements (execution formalities, notarisation, registration, recordation or filing) should be observed to ensure that a loan agreement or related judgment is enforceable in your jurisdiction?

  32. Stamp duties, registration taxes or other similar taxes would not be required with respect to the loan agreement and any note documents. However, costs vary depending on the type of security. Chattel mortgage is subject to minimum payment at the Court of Peace. Registration of liens upon real estate implies a tax of 2 per cent tax upon amount secured. Finally, in case of pledges over intangible assets, registration before the Civil Registry could be very steep as the amount of the transaction.  

  33. 17.

    Does a loan agreement in English need to be translated or locally registered to be enforceable in your jurisdiction?

  34. No registration is required locally. However, if a Dominican court is empowered for the execution of any of the parties’ obligations under the loan agreement it is mandatory to provide the court with Spanish translation by Dominican judicial translator of the credit documents.

  35. 18.

    Must a foreign bank be registered in your jurisdiction to enforce any rights under the applicable loan documentation?

  36. No registration is required.

  37. 19.

    Are foreign lenders treated any differently from local lenders in enforcing loan documentation in the courts of your jurisdiction?

  38. No. There is no distinction on treatment among foreign and national lenders; they both are treated the same way.  

  39. 20.

    Is consideration required for the enforceability of a contractual obligation or guarantee?

  40. No bond, consideration or guarantee is required to be able to enforce contractual obligations.

  41. 21.

    To enforce a loan in your jurisdiction, need the loan be evidenced by a promissory note or other form of título executivo?

  42. The enforcement of the lender’s rights does not depend upon the availability of a promissory note nor any form of execution document. However, the availability of a promissory or other form of execution document contributes to the speediness to obtain such enforcement.

    Therefore, the lender may seek the enforcement of its rights under an executive proceeding if loan is evidenced in a note or any other execution document, such as:  final and conclusive judgment, a notarised copy of a public deed; a notarial promissory note; or any title to which the law grants force of execution. On the other hand, if a lender does not have an execution document, the lender shall seek the enforcement of its rights in an ordinary proceeding and once a final judgment is obtained, it shall seek its enforcement.

  43. 22.

    To enforce a guarantee (aval) in your jurisdiction, is it necessary that the guarantee be evidenced by a guarantee agreement or other form of título executivo?

  44. Yes. It would be necessary that the guarantee be evidenced by a guarantee agreement. Although our Civil Code provides that the parties may contract obligations verbally, it would be impossible to enforce and oppose the guarantee against third parties. 

  45. 23.

    Are there any restrictions on loans to multiple borrowers or on a guarantee in respect of a loan to an affiliated entity?

  46. No, there are no restrictions on loans to multiple borrowers nor on a guarantee in respect of a loan to an affiliated entity.

  47. 24.

    Can a party grant a secured or unsecured guarantee in respect of a loan to an unaffiliated third party?

  48. Yes. A party may grant a secured or unsecured guarantee in respect of a loan to an unaffiliated third party provided that the pertinent authorisation is obtained from the pertinent corporate authority or body of the corporation pursuant to the quorum and majority provided by the corporation by-laws.

  49. 25.

    Is there a distinction between the granting of a security interest and the perfection of a security interest?

  50. Security can be granted over all kinds of assets depending on the creditor's request to cover the outstanding debt. Among others, security is granted as follows: mortgages over real property, liens and charges over movable assets (tangible and/or intangible), charge over shares and securities, and its dividends and interests, liens over financial interests (bank accounts, investments, certificates of deposit), pledge over merchandise and goods stored in bonded warehouses; pledge over imported goods (in transit), corporate guarantees, endorsement of promissory notes, insurance policies, letters of credit and account receivables.

    The Dominican system provides a registration procedure to perfect a security interest. Under Dominican laws mortgages on mining concessions and real estate must be registered before the corresponding real estate registrar to be perfected, giving the secured lender the corresponding priority. Likewise, mortgage over chattel is perfected with the registration of the chattel mortgage contract at the Court of the Peace of the pertinent jurisdiction. On the other hand, commercial pledged on securities granted in favour of banks are perfected by the physical delivery of the pledged asset to the perfected lender given the corresponding priority.

  51. 26.

    What is the most common form of granting and perfecting a security interest in movable assets?

  52. The most common form is the pledge without conveyance or chattel mortgage without loss of possession. 

  53. 27.

    What is the most common form of granting and perfecting a security interest in real estate?

  54. The most common form is the real estate mortgage.

  55. 28.

    What is the most common form of granting and perfecting a security interest in receivables and accounts?

  56. The most common form is the assignment of receivables and accounts. Assigment requires execution of an assignment agreement and notification of the assignment to the assigned debtor by bailiff act.

  57. 29.

    Does your jurisdiction recognise the transfer of assets to a trust for the benefit of a lender as a means of granting a security interest in such assets?

  58. Security interest in collateral registered under the name of a collateral agent for the benefit or one or more lenders are valid and recognised in Dominican Republic. The recently enacted Law for the Development of the Mortgage Market and the Creation of Trusts No. 189-11 provides for the security trust.

  59. 30.

    Does your jurisdiction recognise the fiduciary transfer of assets (such as an alienação fiduciária) to a lender as a means of granting a security interest in such assets?

  60. Yes. As stated above, in accordance with the recently enacted Law for the Development of the Mortgage Market and the Creation of Trusts, a collateral agent may act as the sole secured party for the benefit of a group of lenders and may grant a security interest over the assets held in trust for the purposes of undertaking obligations assumed by the trustee for the benefit of the trust. Upon an event of default the fiduciary may transfer the assets held in trust to the creditor. 

  61. 31.

    Are there any types of asset that cannot be pledged as collateral under the laws of your jurisdiction?

  62. No.  All types of assets may be pledge under Dominican laws, as long as they are not related to illegal actions.  

  63. 32.

    Describe any restrictions on enforcement of security. For example, any statutory regime that may stay the enforcement of the security or provide that enforcement is limited to public sale through the courts.

  64. According to Dominican law, the sale of any collateral must always be made through public auction. The auction is normally made by the corresponding court.

    However, please note that enforcement of collateral is made through court proceeding that are normally regulated by the laws governing the creation and perfection of the relevant security.

    The step to foreclose on a collateral vary depending on the type of asset but all of them entail sending a notice to the debtor with respect to the occurrence of an event of default, filing a lawsuit for the attachment of the security/asset and going through a public sale process.

  65. 33.

    Describe any other relevant legal considerations in connection with loans to a borrower in your jurisdiction.

  66. On 7 August 2015, a new legal statute on Restructuring and Liquidation of Companies and Business Persons (Law No. 141-15) was signed into law in the Dominican Republic. The law establishes mechanisms and proceedings to protect creditors in cases of financial difficulty of their debtors by allowing the latter to remain in operation and overcome the economic difficulties that prevent them from complying with previously undertaken obligations, thus achieving business continuity of companies and business individuals. This law entered into effect on 7 February 2017.

    Law No. 141-15 applies to national or foreign debtors with domicile or continuous presence in the country. However, the following debtors are excluded from this law: commercial entities controlled by the state; financial intermediation entities regulated by the Monetary and Financial Law No. 183-02, dated November 2002, and its modifications; securities intermediaries, investment fund management companies, centralised security deposits, stock exchanges, securitisation companies and any other entity considered to be a stock market participant, with the exception of publicly traded companies and companies governed by Law No. 19-00 on Securities Market, dated May 2000.

    The Law sets forth the legal framework applicable to insolvency proceedings with international or cross-border effects, and has been drafted following the United Nations Commission on International Trade Law (UNCITRAL).

    For the first time in our legislation a restructuring process has been contemplated. Under this law in the event of temporal lack of liquidity or cessation of payments of the debtor, the debtor is granted the opportunity to restructure its operations and continue operating, allowing the company’s employment to continue, as well as protecting and facilitating the preservation of assets in favour of the creditors recognised by the debtor.

    The process involves a request by the debtor for restructuring through a petition before the court. Following the restructuring request, the court has the obligation to appoint a person as the verifier, who will have the duty to verify the debtor’s financial situation and inform the court thereof. During the restructuring process, the creditors have the right to appoint a physical or legal person (as the creditor adviser) to assume their collective representation during the procedures and actions. Likewise, the employees of the debtor may also appoint a person who will act in the capacity of adviser for the employees. These advisers represent the collective interests of the respective interested groups with priority over other interested parties during the restructuring process.

    If the restructuring request is accepted the court’s decision must be duly notified to the debtor and the creditors. The court will then appoint a conciliator, whose principal role is to mediate between the debtor and its creditors in order to reach a restructuring agreement or restructuring plan.

    Upon appointment of the conciliator, the conciliation and negotiation process is initiated. During this process, the management of the debtor’s assets continues to be handled by the debtor, but remains subject to the supervision of the conciliator. Likewise, all judicial, administrative or arbitral decisions that affect the assets of the debtor, any enforcement or eviction procedures regarding the debtor’s movable and immovable property, calculation of interest under loans and other credit documents, among others, are suspended.

    During the conciliation process, the creditors must declare and supply to the conciliator the documents evidencing their assets (liabilities vis-à-vis the debtor). After the conciliator verifies and confirms such liabilities, this portion of the conciliation process concludes with the publication of a final list of liabilities.

    Once the liabilities have been verified, the debtor and conciliator must present the restructuring plan in case an agreement with the majority of the participants of the process is reached. However, in the event that such agreement is not reached, liquidation will be recommended to the court.

    Currently, the legal community in working in a law draft for the perfection of guarantee over moveable property. Under the provisions of this draft it is contemplated the creation of a central registry to facilitate the perfection of security interest to secure the payment of credit obligations.    

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Questions

  1. 1.

    What are the most common forms of bank financing in your jurisdiction?


  2. 2.

    Are any governmental or central bank registrations or approvals required for a foreign lender (being a lender not incorporated in your jurisdiction or operating through a branch or office outside of your jurisdiction) to lend to a borrower in your jurisdiction?


  3. 3.

    Are there any foreign exchange provisions restricting, or governmental or central bank registrations or approvals required for, a borrower in your jurisdiction to contract debt obligations in a foreign currency or to remit funds abroad?


  4. 4.

    Are there any governmental or central bank registrations or approvals required for the prepayment of loans abroad?


  5. 5.

    Are any mandatory governmental or central bank deposits required to be made from loan proceeds?


  6. 6.

    Describe any governmental measures that may be taken to declare a moratorium on the loan obligations of private companies.


  7. 7.

    Describe any environmental liabilities and any other areas of lender liability that may arise as a result of the activities of a borrower or the realisation of a security interest.


  8. 8.

    Are interest payments or loan fees subject to a withholding tax?


  9. 9.

    What other taxes or mandatory fees, for example, transaction, registration or documentary, apply to loan transactions?


  10. 10.

    Are there different taxes applicable to loans repayable to lenders in your jurisdiction and loans repayable to lenders in a foreign jurisdiction?


  11. 11.

    Is your country party to any double taxation treaties that reduce taxes payable by borrowers in respect of loan payments abroad?


  12. 12.

    Do any financing structures receive favourable tax treatment, such as prepayments of exports?


  13. 13.

    Describe any limitations on interest rates or the ability of lenders to charge default interest under loan agreements.


  14. 14.

    Describe any restrictions that may apply to the choice of law, for example, whether a choice of New York or English law will be recognised and enforced in your jurisdiction.


  15. 15.

    Describe generally the requirements for the enforceability of a foreign judgment in your jurisdiction in respect of an outstanding loan.


  16. 16.

    Upon the closing of a loan, what procedural requirements (execution formalities, notarisation, registration, recordation or filing) should be observed to ensure that a loan agreement or related judgment is enforceable in your jurisdiction?


  17. 17.

    Does a loan agreement in English need to be translated or locally registered to be enforceable in your jurisdiction?


  18. 18.

    Must a foreign bank be registered in your jurisdiction to enforce any rights under the applicable loan documentation?


  19. 19.

    Are foreign lenders treated any differently from local lenders in enforcing loan documentation in the courts of your jurisdiction?


  20. 20.

    Is consideration required for the enforceability of a contractual obligation or guarantee?


  21. 21.

    To enforce a loan in your jurisdiction, need the loan be evidenced by a promissory note or other form of título executivo?


  22. 22.

    To enforce a guarantee (aval) in your jurisdiction, is it necessary that the guarantee be evidenced by a guarantee agreement or other form of título executivo?


  23. 23.

    Are there any restrictions on loans to multiple borrowers or on a guarantee in respect of a loan to an affiliated entity?


  24. 24.

    Can a party grant a secured or unsecured guarantee in respect of a loan to an unaffiliated third party?


  25. 25.

    Is there a distinction between the granting of a security interest and the perfection of a security interest?


  26. 26.

    What is the most common form of granting and perfecting a security interest in movable assets?


  27. 27.

    What is the most common form of granting and perfecting a security interest in real estate?


  28. 28.

    What is the most common form of granting and perfecting a security interest in receivables and accounts?


  29. 29.

    Does your jurisdiction recognise the transfer of assets to a trust for the benefit of a lender as a means of granting a security interest in such assets?


  30. 30.

    Does your jurisdiction recognise the fiduciary transfer of assets (such as an alienação fiduciária) to a lender as a means of granting a security interest in such assets?


  31. 31.

    Are there any types of asset that cannot be pledged as collateral under the laws of your jurisdiction?


  32. 32.

    Describe any restrictions on enforcement of security. For example, any statutory regime that may stay the enforcement of the security or provide that enforcement is limited to public sale through the courts.


  33. 33.

    Describe any other relevant legal considerations in connection with loans to a borrower in your jurisdiction.


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