| Criteria | Score
(4-0) | Rationale |
| Laws on VC/PE fund formation and operation | 0 | There are no laws to permit the local establishment of funds; all funds operate from offshore (January 2007 interview). |
| Tax treatment of VC/PE funds & investments | 2 | Pass through of taxes is not automatic, but must be structured carefully through shareholder agreements and arbitration clauses (January 2007 interview). |
| Protection of minority shareholder rights | 2 | Dominican companies are marked by weak board information disclosure requirements, weak director liability for decisions, and only moderate ability of shareholders to sue and demand inspections (World Bank, Doing Business 2006; January 2007 interview). |
| Restrictions on institutional investors (pension funds, insurance firms) investing in VC/PE | 1 | Pensions funds can only invest in BBB-rated (investment grade) and better securities. Under the Dominican Insurance Law companies are restricted from most equity investing, but under the terms of the DR-Central American Free Trade Agreement up to 100% foreign-owned insurance firms are permitted, and they will not be governed by such restrictions (United States Trade Representative 2006). |
| Protection of intellectual property rights | 1 | EIU Risk Briefing score. Protection of intellectual property rights has improved in the last few years. The Law on Industrial Property introduced in 2000 conforms to the Trade Related Aspects of Intellectual Property (TRIPS), and it has strengthened regulation on patents and copyrights. A decree of 2003 introduced further regulations in this area, although they were not as strong as expected. The Dominican Republic has also signed the WIP Copyright Treaty and will soon ratify the WIPO Performance and Phonograms Treaty as well. Further advances should be expected in the next few years as a result of DR-CAFTA’s entry into force. DR-CAFTA extends the years of protection for patents and trademarks and will force the Dominican Republic to spend more on enforcement. Nevertheless, advances will be limited by budgetary and institutional constraints, as the country lacks the technical expertise to further enforce some of the new laws. Moreover, commitment to protection of copyrights in the television system is likely to remain weak, despite pressures for change from the US. |
| Bankruptcy procedures/creditors' rights/partner liability in cases of an invested company's bankruptcy | 1 | Compared to the regional average for Latin America and the Caribbean, resolving bankruptcies is a slow and costly process, and the recovery rate is low for claimants. Information on partner liability was not available. (World Bank, Doing Business 2006). |
| Capital markets development and feasibility of exits (ie, local IPOs) | 1 | Average of three EIU Risk Briefing scores. The availability of finance from the domestic banking system is limited and foreign companies (as well as large domestic companies) tend to rely more on external financing through correspondent banks. The market for investment financing is shallow and expensive, and companies needing to borrow for an extended period tend to seek dollar financing. Despite improvements in regulation and supervision since 2005, concerns prevail over corporate governance and asset quality at private banks. The country's very small stockmarket is unlikely to grow significantly until the very long-term, hence domestic equity financing will remain out of the question for most firms. |
| Registration/reserve requirements on inward investments | 2 | There are no reserve requirements or exchange controls, but registration can be complex. The former exchange commission of 13% charged by the Central Bank was eliminated in early 2006, and the import tariff equivalent to the same amount that replaced it was also phased out with the implementation of the DR-Central America Free Trade Agreement (EIU, Viewswire; January 2007 interview) |
| Corporate governance requirements | 2 | The Dominican Republic requires the use of international financial reporting standards (IASPLUS, 2006). But policing and sanctions remain weak (January 2007 interview). |
| Strength of the judicial system | 1 | EIU Risk Briefing score. The slow and ineffectual judicial process and weaknesses in the regulatory framework are the main contributors to operating risk in the Dominican Republic. The risk that a contract will not be enforced is moderate. The judiciary is weak and prone to corruption, though the Supreme Court is regarded as being reasonably independent. |
| Perceived corruption | 0 | EIU Risk Briefing score. The political and judicial systems have been relatively ineffective in the fight against corruption. Both the Mejía (2000-04) and Fernández administrations (2004-) accused previous administration officials of corruption and investigated some cases, but there have been very few prosecutions. In 2005 the Fernández administration created the National Commission for Ethics and against Corruption, which has produced a plan to reduce corruption. The Commission’s deliberations could result in additional anti-corruption measures. In particular, new legislation to regulate government procurement and require public bids for all sizeable government contracts has been approved, increasing transparency and reducing corrupt practices. But the process of implementation of new laws is likely to be slow and anti-corruption efforts will suffer numerous delays. |
| Quality of local accounting industry/use of international standards | 4 | The Institute of Certified Public Accountants adopted international accounting standards in 1999. International firms are present and competent (January 2007 interview). |