A coherent legal framework for supply diversification
In terms of public policy for the tourism sector, Dominican Republic has been consistent with its growth objectives since the 1970s. The virtues of the country for visitors’ enjoyment have been exploited to benefit a sustained and steady growth that led to creating more rooms and better hotels and tourist infrastructures. However, in the last 15 years, since the creation of the Law 158-01 on Tourism Development, the country’s tourism has begun to diversify; adding to the concept ‘all-inclusive’, which became known to the country in the world, different tourist facilities such as golf courses, theme parks, aquariums, convention centers and real estate tourist facilities as villas and apartments, among others.
By the early 80s, the country had only five thousand hotel rooms; and in late 2014, that offer stood at nearly seventy thousand rooms. Of the three hundred eighty-three thousand tourists who arrived in 1980, today the number of arrivals exceeds five million visitors. Stressing that the last decade has also seen a growth in domestic tourism.
These extraordinary results of development of a sector of the economy have not been coincidental. A political decision to do an adequate legal framework to the diverse needs was added.
In effect, this framework faithfully reflected the government decisions towards this growth. Thus, the country went through various periods which coincide more or less with the interests of the moment. With this in mind, the developmental stage at a legal level may be characterized by the differentiation of periods which are described below:
1) Initial stage of tourism development – from 1971 to mid-1980: was characterized by the need to provide a suitable framework for the creation of hotel infrastructures. For this, the 153-71 law granting major tax exemptions for new tourism projects was passed. Promoting an original and accessible hotel offer, undoubtedly contributed to an enviable position in the international context. Dominican Republic starts, then its way on becoming one of the leading tourist destinations among Latin American countries;
2) Consolidation phase – since the mid-80s until 2001 -: tax facilities and tourist incentives were effective. This period is reflected in an incredible increase in the construction of new hotels in the country, mainly in the tourist resorts of Playa Dorada, Puerto Plata and Punta Cana. The country goes from having eight thousand rooms to then have more than fifty thousand. Tourist arrivals also multiplied from about seven hundred thousand in 1985 to three million visitors in 2000, according to sources of the Central Bank of the Dominican Republic;
3) Stage diversification of complementary tourist facilities – from 2001 onwards: it may be said that with the maturation and development of tourist destinations of international relevance, as Puerto Plata and Punta Cana because of the wide range of hotels under the concept all-inclusive, it was necessary to create in 2001 an appropriate framework to encourage not only the creation of hotels in tourist areas that have not been developed, but complementary tourist facilities throughout the country. The tourist who came to the hotels also required other tourist offers, in addition to enjoy the sun and the beach. It was necessary to provide facilities for the creation of golf courses, theme parks, restaurants, among others, to diversify tourism attraction.
The task of the legislator was to pass a critical bill that included tax exemptions for building such facilities, which – although covered by its predecessor Law 153-71 – was not developed as expected. With the enactment in 2001 of Law 158-01 on Tourism Development, the purpose was to promote the development of tourism infrastructures in those places where it had not yet begun, and ensure the creation of other tourist facilities that complement the existing hotel supply in those poles which already had advanced level of development and maturation. The tax exemptions provided were more than generous and included exemption from income tax for classified projects for a period of 10 years and exemption of real estate transfer tax and import tax for the first equipment.
One year after the entry into force of this legal framework was necessary to include a type of tourist accommodation offer not initially contemplated, to complement the creation of these new facilities. Thus, the Law 184-02 established that overall tourist accommodation, such as villas and apartments built to support complementary tourist facilities for example golf courses, will also benefit from the same tax exemptions.
This is how a sustained growth of the real estate tourism sector starts and to this day comes as a support for the creation of new tourist infrastructures. This new offering, diversified options availability for accommodation in the country, later allowing space for the creation of condo-hotels and other new forms of tourist accommodation.
The great consolidation of the country as a world class tourist destination drives the Dominican Republic to set new goals, and to reach the amount of ten million tourists for the coming years.
To do so, among other things, the Law 195-13 is approved which amends the Law 158-01 for Tourism Development and extends the period of tax exemptions under the regulations from 10 to 15 years.
Thus the evolution of the legal framework of incentives for the tourism sector concludes with a number of benefits – mostly in place since 2001, but with greater exemption period of 15 years – for investment in hotels, tourist facilities and complementary touristic real estate developments among which are:
1. Tax exemptions for a period of 15 years on new projects and already qualified projects: this period also applies to tourism projects previously approved tax exemptions which are in use;
2. 100% exemption on income tax: for a period of 15 years of operation of the project;
3. 100% exemption on added value tax -itbis- and import taxes: applied to all materials, furniture and equipment for construction and initial equipment of the project.
4. 100% exemption from real estate transfer tax.
5. Exemptions for existing hotels: existing hotels with more than 15 years of construction date can get benefit by the tax exemption law as long as they prove that their remodeling or reconstruction exceeds 50% of the original investment. If remodeling is partial and does not reach this percentage, it will benefit from 100% tax exemption for goods and equipment used in remodeling, whether domestic purchase or import;
6. Exemption for operating or management companies: management companies of approved tourism projects, which require to become equally classified, should submit all the requirements for consideration. The exemption period will be limited to the provisions of the operating contracts signed with developers, which cannot exceed what is granted by law.
In short, the existing legal framework for tourism investment incentives of the Dominican Republic is the result of a thoughtful, planned and sustained evolution over time. The wide range of tourism offer – hotels, golf courses, villas and apartments, aquariums, theme parks, themed hotels and restaurants, among others – responds precisely to the sum of forces from both the public and private sectors – national and international – for creating chords facilities for hosting a growing number of tourists in the country. However, this effort would not have been possible without the tax benefits on investment under the legislation over the past four decades.
For new investors, both in hotels and in complementary tourist offers, the rate of tax incentives on investment is one of the most attractive in the region. It will be evaluated at the end of the lustrum which begins, the scope of the established new objectives in the country: to achieve precisely the arrival of 10 million tourists to the Dominican Republic and have the infrastructure to serve them.