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Mergers and Acquisitions in the Dominican Republic: Insights and Considerations

Mergers and acquisitions (M&A) are powerful tools for businesses seeking to expand, consolidate, or diversify their operations. In the Dominican Republic, the growing economy and favorable investment climate have made M&A transactions increasingly common. However, navigating the legal, financial, and operational complexities of these deals requires careful planning and specialized expertise.

Working with a multi-disciplinary firm like ECOVIS VS+B can provide the comprehensive support needed to ensure a successful transaction. From due diligence and legal structuring to tax optimization and post-merger integration, a coordinated approach can mitigate risks and maximize value.

Understanding the Legal Framework

M&A transactions in the Dominican Republic are primarily governed by the General Law of Commercial Entities and Limited Liability Companies (Law 479-08), along with other sector-specific regulations. The legal framework covers aspects such as shareholder rights, corporate governance, and regulatory approvals.

Key legal considerations include:

• Due Diligence: Conducting a thorough legal review to assess the target company’s compliance, liabilities, and contractual obligations.
• Regulatory Approvals: Certain sectors, including financial services, telecommunications, and energy, may require government or regulatory authority approval.
• Contractual Negotiations: Drafting and negotiating sale and purchase agreements (SPAs), shareholder agreements, and other essential contracts to safeguard the interests of all parties.

Additionally, M&A transactions often involve particular challenges in the Dominican Republic. Issues related to employment contracts, intellectual property rights, and government permits are frequently encountered. Labor laws require careful analysis to ensure the proper treatment of employee benefits and liabilities during a transfer of ownership. Likewise, the management of intellectual property, including trademarks, patents, and copyrights, must be properly addressed to prevent post-transaction conflicts.

The experienced legal professionals at ECOVIS VS+B provide expert guidance in navigating these complexities, ensuring compliance, and reducing the risk of legal challenges.

Impact on Free Competition

Another important consideration in M&A transactions is the potential impact on market competition. The Dominican Republic’s General Law of Competition (Law 42-08) regulates actions that could restrict or distort free competition.

The National Commission for the Defense of Competition (ProCompetencia) has the authority to review and approve mergers and acquisitions that may significantly affect market dynamics. Companies may be required to notify ProCompetencia of the transaction if the deal exceeds certain financial thresholds or involves key industries.

Key factors assessed include:

• Market Concentration: Evaluating whether the transaction will create a dominant market position.
• Consumer Impact: Analyzing how the deal could influence pricing, quality, and market innovation.
• Barriers to Entry: Determining if the transaction could prevent or discourage market entry by new competitors.

ECOVIS VS+B’s legal team provides comprehensive support in navigating competition law compliance, preparing merger notifications, and representing clients before ProCompetencia when required.

Employment Law Considerations

M&A transactions often have significant labor implications. The Dominican Labor Code ensures strong protections for employees, requiring careful planning to manage labor obligations.

Key considerations include:

• Employee Rights and Severance: Employees are entitled to severance payments if terminated without justified cause. Severance liabilities can significantly impact the transaction value.
• Acquired Rights: Employers must honor any additional benefits or agreements beyond legal requirements, including bonuses, insurance, and allowances.
• Joint Liability: In mergers or business transfers, the acquiring company may be jointly liable for all previous labor obligations.

ECOVIS VS+B assists clients in navigating these labor law complexities, ensuring proper compliance and minimizing risks.

Tax Law Implications

The Dominican Tax Code, as well as Decree 408-10 on Business Reorganization, imposes specific requirements on M&A transactions. Tax authorities must be notified in advance of any planned mergers.

Key tax considerations include:

• Capital Gains Tax: Applied to the sale of shares or assets, calculated as the difference between the sale price and the acquisition cost.
• Transfer Taxes: Real estate and vehicle transfers incur taxes of 3% and 2%, respectively, based on the higher of the sale price or appraised value.
• Tax Loss Carryforwards: Losses from the companies involved in a merger cannot be transferred or deducted by the surviving entity.

ECOVIS VS+B’s tax advisors ensure compliance with tax regulations, manage filing obligations, and identify opportunities for tax efficiency.

Sector-Specific Regulations

Certain sectors in the Dominican Republic require government approval for M&A transactions. Agencies such as Indotel for telecommunications, the Monetary Board for financial institutions, and the Insurance Superintendence for insurance companies, regulate sector-specific approvals.

Key regulated sectors include:

• Telecommunications: Mergers in this sector are subject to approval by Indotel to ensure market competition.
• Banking and Finance: Transactions involving financial institutions require prior authorization from the Monetary Board.
• Energy and Electricity: The Electricity Superintendence assesses mergers to prevent market monopolization.

ECOVIS VS+B’s regulatory specialists guide clients through the approval processes, ensuring compliance with sector-specific regulations.

Financing M&A Transactions

Financing is a critical aspect of M&A. Transactions in the Dominican Republic are commonly financed through:

• Bank Loans: Both local and foreign banks provide acquisition financing, often secured by the target company’s assets.
• Private Equity: Private equity funds are increasingly involved in M&A transactions, providing capital in exchange for equity.
• Debt Financing: Bonds and other securities may be issued to fund acquisitions.

ECOVIS VS+B’s financial advisors provide strategic advice on selecting the optimal financing structure and negotiating favorable terms.

About ECOVIS VS+B in the Dominican Republic

At ECOVIS VS+B, we offer a comprehensive range of legal, tax, and financial advisory services tailored to the complexities of M&A transactions. Our team of experienced professionals is equipped to guide clients through every stage of the process, providing strategic insights and practical solutions.

With a deep understanding of the Dominican market and access to the global ECOVIS International network, we offer the local knowledge and international expertise needed to navigate cross-border and domestic transactions alike.

Whether you are considering an acquisition, merger, joint venture, or divestiture, ECOVIS VS+B is your trusted partner for achieving successful outcomes.

Contact us today to learn how we can support your M&A strategy in the Dominican Republic.

VAT China: New law for a clearer tax system

On 1 January 2026, China will implement its new value-added tax (VAT) law, replacing the interim VAT regulations. The new regulations include the definition of taxable and non-taxable sales, expanded input tax deduction, and the refund of VAT credits. The Ecovis tax advisors explain the details.

With the new VAT law, the Chinese government is aiming to ensure more consistency, legal authority, and predictability in the country’s tax system.

Key changes in the new Chinese VAT law

1. Clearer criteria for domestic taxable transactions
   The previous definition of domestic taxable transactions was unclear and confusing. The new law clarifies that taxable transactions include the sale of goods, services, intangible assets, and real estate. Processing, repair, and assembly services are now categorised as general services, reducing compliance risks, particularly for international businesses.
2. VAT rates: basic tax rates remain unchanged, but benefits for SMEs
   The basic VAT rates (13%, 9%, and 6%) and the zero tax rate remain unchanged. However, the simplified tax declaration system for small and medium-sized enterprises (SMEs) has been improved. Under the new VAT law, the collection rate for small-scale taxpayers has been uniformly adjusted to 3%, replacing the previous 5% rate. This adjustment reduces the tax burden on SMEs, simplifies the tax declaration process, and enhances their market competitiveness and growth potential.
3. Simplified definitions of taxable and non-taxable transactions
   The new law replaces “deemed sales” with “deemed taxable transactions.” It clearly defines three categories:
   1. Self-produced or processed goods for welfare or personal consumption.
   2. Transfers of goods without compensation.
   3. Transfers of intangible assets, real estate or financial products without compensation.

   The law removes consignment, inter-branch transfers, and deemed sales of services from the scope of tax, improving clarity.

4. Adjustments to sales prices
   The new VAT law empowers tax authorities to adjust sales prices deemed excessively high or low. However, the term “without legitimate reasons” is not fully defined, which could create compliance complexities due to varying local interpretations.
5. Expanded input VAT deductions
   The law broadens the scope of input VAT deductions. The VAT policy explicitly stated that the input VAT on loan services was not deductible. However, the VAT law has removed this explicit provision, replacing it with “other input VAT as stipulated by the State Council.” This means that whether the input VAT on loan services can be deducted is still subject to further clarification from the State Council. If no further clarification is provided, allowing the input VAT on loan services to be deductible would benefit capital-intensive industries.
6. VAT credit refunds
   The new law formalises the VAT credit refund process, allowing businesses to claim refunds if VAT paid on purchases exceeds VAT due on sales. Businesses can carry forward excess VAT or apply for a direct refund, improving cash flow.
7. Simplified tax filing with electronic invoices
   The new law encourages the use of electronic invoices, streamlining tax filings and reducing paperwork. This shift supports global trends in data-driven tax management and simplifies tax reporting for multinational businesses.

We will discuss with you the advantages the new Chinese VAT system.

Pingwen Hu, Senior Partner and Certified Public Accountant, ECOVIS Ruide Certified Public Accountants Co., Ltd, Shanghai, China

China’s new VAT law represents a significant move towards a more transparent, predictable, and efficient tax system. When the law comes into effect in 2026, it will benefit both domestic businesses and foreign companies operating in China by providing a more stable tax environment.

For further information please contact:

Pingwen Hu, Senior Partner and Certified Public Accountant, ECOVIS Ruide Certified Public Accountants Co., Ltd, Shanghai, China
Email: pingwen.hu@ecovis.cn

Personal income tax Vietnam: Automatic refund from 2025

The General Department of Taxation’s decree of 24 January 2025 on the automatic personal income tax (PIT) refund procedure makes it easier for taxpayers to fulfil their tax obligations. The new procedure came into effect upon signature. The Ecovis experts explain how the process works.

The introduction of the automatic PIT tax refund (Decision No. 108/QD-TCT) is one of the new applications and methods the tax authority is using to accelerate processes on the IT platform and improve conditions for taxpayers to proactively fulfil their tax obligations. The procedure applies to tax authorities at all levels nationwide.

The automatic PIT refund process sets out the sequence and procedures for tax authorities to deal with PIT refund applications for individuals who directly finalise their taxes and request refunds on their PIT declarations.

There are three main steps:

Step 1: Create the suggested PIT finalisation form

The tax IT application system automatically collates data and creates a suggested PIT finalisation return for taxpayers who are individuals directly declaring PIT. The data is collected from multiple sources including income-paying organisations and individuals, tax registration and dependent registration data, as well as data on tax obligations or taxpayer debts nationwide. Individual taxpayers must check the information on the eTax mobile application, where they can confirm or edit it before submitting the PIT finalisation file.

We would be happy to explain the individual steps of the new income tax procedure to you in detail.

Nghia Tran, Partner, ECOVIS AFA VIETNAM, Da Nang City, Vietnam

Step 2: Automatically resolve the PIT refund

1. The PIT refund subsystem automatically checks and determines whether the files are eligible for automatic processing.
2. If the taxpayer’s PIT refund file meets all the required conditions, the PIT refund subsystem will automatically create a tax refund proposal, prepare a tax refund decision (or a decision to refund and offset PIT) and an order to refund (or an order to refund and offset PIT) to send to the head of the tax authority for electronic signature.
3. If the taxpayer’s PIT refund file does not meet all of the conditions, the tax IT application system will automatically assign and send an email to the department leader and tax officer assigned to handle the PIT refund file instructing them to continue to process the file.

Step 3: Post-refund control

On a quarterly basis, the tax IT application system will automatically analyse data to warn and provide a list to the tax authority about organisations and individuals paying income and deducting PIT, along with additional declarations that may change the tax liability information of individuals who have received PIT refunds. This provides the file processing department with a basis to deal with post-refund control and recover tax refunds (if any).

The automated PIT refund process replaces the previous regulations on processing the PIT refund applications of individuals who directly finalise their tax declarations.

For further information please contact:

Nghia Tran, Partner, ECOVIS AFA VIETNAM, Da Nang City, Vietnam
Email: Nghia.Tran@ecovis.com.vn