Financial Reporting in the United States and the Dominican Republic

Today, an increasing number of Americans are exploring overseas destinations. They are travelling to these places mostly as tourists and investors. However, a new trend is emerging where thousands of Americans are trooping to the countries for retirement. While these nations provide exciting opportunities for adventure and fulfillment, they also pose challenges to Americans. These challenges stem mainly from the fact that the legal environment is vastly different from the landscape in the US. Unfamiliar with the laws enforced in these countries, Americans often flout these laws inadvertently. If they are to enjoy their experience in other nations, the American retirees need to familiarize themselves with the laws. The Dominican Republic is among the nations that have welcomed thousands of American retirees. Authorities in this country have adopted laws that govern such issues as taxation and business. An in-depth understanding of these laws holds the key to engaging fully in the exciting experiences that the Dominican Republic offers.

Before exploring the different laws in place in the Dominican Republic and the implications that they present for American retirees, it is essential to begin with a look at some of the factors that are inspiring Americans to retire in this country. Evan Tarver (2017) explores some of these factors in his text. According to Tarver, most American retirees are motivated by the affordable cost of living. Compared to the US where many items are beyond the reach of many, the cost of living in the Dominican Republic is so low that American retirees can meet their needs for as little as $1,200 monthly (Tarver, 2017). Highly developed infrastructure and the ever-expanding expatriate community are other factors that Tarver (2017) identifies as being behind the appeal of the Dominican Republic for American retirees. Tarver adds that the authorities in this country have made the application process to retire in the country simple. Furthermore, the warm climate that the Dominican Republic offers has compelled thousands of Americans to select it as their retirement destination. Given the many advantages that retiring in the Dominican Republic offers, it can be expected that this nation will welcome more American retirees.

Financial Reporting Laws 

Laws in the US 

Now that the factors pushing Americans to the Dominican Republic have been identified, the discussion can now examine the financial reporting laws in this country and how these laws differ from those in the United States. In the US, the financial reporting framework is rather complex. The complexity results from the fact that the federal, state and local governments all have laws that govern financial reporting (Gnanarajah, 2017). At the federal level, there are such laws as the Sarbanes-Oxley Act of 2002. This law was enacted in response to scandals that such companies as Enron suffered. In essence, the Sarbanes-Oxley Act (2002) mandates businesses to comply with stringent financial reporting regulations and imposes heavy penalties on firms that violate its provisions (Kenton, 2019). In particular, the law requires accountants and auditors to conduct a thorough scrutiny of accounts and to uphold integrity in all their book-keeping functions. This law applies mostly to businesses. However, American retirees may wish to set up businesses and would therefore need to familiarize themselves with the law.

The Sarbanes-Oxley Act is not the only law that regulates financial reporting in the US. Another law that firms are supposed to follow in financial reporting is the Federal Credit Reform Act of 1990. Basically, this act contains provisions that govern the application for and the allocation of credit. It requires government agencies involved in the provision of credit to businesses in the country. As is the case with the Sarbanes-Oxley Act discussed above, the Federal Credit Reform Act is also most relevant to business. However, by familiarizing themselves with this law, American retirees are able to establish enterprises and ensure that they are in full compliance with financial reporting laws in the United States.

Laws in the Dominican Republic 

The government of the Dominican Republic is committed to establishing an environment that facilitates business operations. Its dedication is evidenced by the enactment of various laws that stipulate the issues that businesses and individuals should recognize when reporting financial matters. The Company Law establishes the main framework for financial reporting in the country. Essentially, this law requires firms to engage in faithful and accurate record keeping (“Dominican Republic”, n.d). Additionally, the law has provisions that mandate the publication of audited statements. The primary purpose of the Company Law is to create a legal environment where firms act ethically and demonstrate integrity. Apart from enacting laws, the Dominican Republic has also set up agencies that are charged with enforcing financial reporting regulations and standards. For instance, the Superintendent of Securities is mandated with regulating the capital markets and ensuring that the firms operating in these markets comply fully with financial reporting regulations (“Dominican Republic”, n.d). The Dominican Republic has joined other countries in adopting international standards that govern financial reporting. For example, it is among the countries that have embraced the International Financial Reporting Standards (IFRS). On the one hand, the local laws that the country has enacted enables it to align its legal framework with its business environment. On the other hand, the adoption of the international standards places the Dominican Republic at par with other nations, thereby facilitating international business and enables the nation to serve as a preferred destination for retirees.

Other Laws 

The financial reporting laws discussed above play a vital role in the regulation of businesses in the US and the Dominican Republic. In addition to these laws, the two countries have also enacted laws that address such other issues as property and individual taxes. In the following section, a look at some of these laws and the relevance to American retirees in the Dominican Republic is offered.

Individual Taxes 

In their text, Simko, Ferris and Wallace (2018) shed light on the importance of financial accounting. They challenge business leaders to familiarize themselves with such laws as those that govern taxation. While this text is targeted at business executives, it also provides insights that would benefit individuals. In particular, the book enables individuals to recognize the importance of complying with the tax laws enforced where they reside. The US and the Dominican Republic have adopted laws which govern individual taxes. In the Dominican Republic, the territorial approach of income taxation has been adopted (“Taxation in the Dominican Republic”, n.d). Essentially, this means that the country imposes taxes on income earned within its borders. For American retirees living in the country, this means that any income that they earn in other regions will not be subjected to any taxation. However, these retirees should understand that that while income tax earned in foreign territories is tax-exempt, the Dominican Republic imposes taxes on financial gains and revenue from foreign investments (“Dominican Republic”, 2019). It should be noted further that taxes are only imposed on earnings above 416,220 Dominican Pesos (“Dominican Republic”, 2019). The income tax regulations are contained in Law 11-92 which also empowers the Dominican International Revenue Agency to collect taxes (“Taxation in the Dominican Republic”, n.d). By understanding the income tax laws in the Dominican Republic, American retirees are better positioned to comply with the country’s regulations and requirements.

The US has also adopted laws that stipulate the income tax that Americans should pay on their earnings. As opposed to the Dominican Republic which implements the territorial approach, the US imposes income tax on all earnings earned by its residents and citizens regardless of where and how the income was generated (“United States”, 2019). For example, Americans who earn income from businesses abroad are expected to pay taxes on these incomes. The exact amount that an individual pays is dependent on their level of income. While the Dominican Republic has established a minimum taxable income, there is no such provision in the US. Individuals pay income tax regardless of the size of their income. The lowest tax rate is 10% with this rate increasing to a maximum of 37% which is imposed on the incomes of the country’s highest earners (“United States”, 2019). It is worth noting that the income tax paid also depends on such factors as whether one is married and living with their spouse. Another important issue that should be noted is that local, state and federal authorities impose income tax in the US.

Apart from income tax, residents and citizens of the US are also required to pay corporate tax. Essentially, this tax refers to the amounts that businesses remit to the government and they depend on the size of the revenues that the businesses generate. Recently, the Trump administration announced an overhaul of the country’s corporate tax structure. The new law essentially means that businesses will pay less in taxes. Through the Tax Cuts and Jobs Act, the US imposes a 21% tax on the income earned by enterprises (Pomerleau, 2018). This rate is a significant drop from the 35% that businesses were required to pay in the past. The situation in the Dominican Republic is largely the same as that in the US. In this country, businesses pay corporate tax of 25%. The tax authorities in the Dominican Republic make no distinction between partnerships, private and public enterprises. All businesses pay the same rate of corporate tax regardless of their structure.

Property Taxes 

Property taxes account for a significant portion of the income that the American government and the authorities in the Dominican Republic generate. In the Dominican Republic, individuals are expected to pay a 1% property tax on all real property that they own (“An Overview of Dominican”, n.d). The specific amount of property tax paid is determined by the value of the property in question. It is required that property owners should pay property tax every year but the country allows for installment payments where half of the tax is paid before March 11 with the balance settled before September 11. The flexible approach that the Dominican Republic has adopted as regards property taxes should enhance the experience of American retirees who settle in the country. In the United States, property taxes are levied by local governments. The particular rate varies from one jurisdiction to another. However, most rates fall between 0 and 4% of the value of the property.

Reporting of Businesses 

If American retirees are to have a fulfilling experience in their time in the Dominican Republic, they need a clear understanding of the laws that govern reporting of businesses. More importantly, they should know how these laws compared to the business reporting requirements and standards enforced across the United States. The Chamber of Commerce and Production is the main agency to which businesses are required to report. Furthermore, this agency issues operating licenses and reviews the operations of businesses registered in the country. As they report, enterprises are required to provide such information as changes in their capital base, changes in addresses, and any revisions in their laws and shareholder resolutions (Pellerano & Bono, 2018). These reporting requirements are part of the efforts by the Dominican Republic to monitor firms in the country. According to the World Bank, the Dominican Republic occupies rank 102 (The World Bank, 2019). This rank is a representation of the ease of doing business in the country. It can be determined from the country’s poor ranking that its business reporting requirements are needlessly restrictive and discourage foreigners from setting up enterprises in the country.

Business reporting laws in the US are far more complex and taxing than in the Dominican Republic. In the US, firms are advised to develop their own reporting mechanisms. For example, businesses could hold shareholder meetings that they use to report to shareholders. Local, state and federal authorities have also established regulations that govern how businesses should report. The reporting requirements vary from one jurisdiction to another and depend on the structure of a business. However, in general, businesses are expected to file annual reports and articles of amendments as part of the reporting process (SBA, n.d). The articles of amendment are intended to notify the authorities of changes to such issues as address, shares or ownership. While the reporting regulations may seem stringent, they are simply intended to facilitate commerce. It is evident that the Dominican Republic has more relaxed reporting requirements. This means that American retirees who wish to establish businesses in the Dominican Republic will face fewer challenges. To streamline the reporting process, these Americans should ensure that they fully understand all the reporting laws, policies and standards that the government of the Dominican Republic has introduced.

Providing Earning Statements 

To ensure that individuals earn their income from legitimate sources, governments across the globe have adopted laws that regulate the submission of earning statements. The US and the Dominican Republic are among the nations that have enacted such laws. In the US, the Securities and Exchange Commission (SEC) is charged with receiving earning statements from firms that operate in the country. As part of their reporting, firms are expected to provide statements that show the amounts that they earned and the expenses that they incurred. Some of the statements that the companies are required to submit to the SEC include income statements, cash flow statements, and balance sheets (SEC, 2007). While they contain different details, these statements shed light on the earnings and expenditures of companies. American retirees living in the Dominican Republic will find the country’s reporting system to be familiar. As is the case in the US, firms in the country are also required to submit financial statements for review by the country’s authorities.

This far, the discussion has indicated that there are vast differences in the legal and regulatory environments in the US and the Dominican Republic. These differences could cause confusion and frustrate American retirees who wish to pursue business ventures in the Dominican Republic. Fortunately, the governments of the two countries recognize the importance of developing a shared framework that streamlines the regulatory processes in the two countries. They announced a collaborative initiative that was designed to facilitate the exchange of information (U.S. Treasury, n.d). The purpose of this initiative was to enable the two countries to promote tax compliance. It can be expected that as this initiative takes root, it will ease the process of tax submission for American retirees who have made the Dominican Republic their new home.

Managerial Abilities Developed 

Through this Self-Directed Managerial Applications Component (SMAC), I expect to gain a number of critical managerial skills and competencies. I believe that these competencies will enhance my capacity to provide leadership. In the following section, I outline two of the skills that I expect to acquire and the role that they will play in my managerial and leadership journey.

Cultural Awareness 

The importance of cultural awareness cannot be overstated. I understand cultural awareness to mean familiarity with cultures beyond one’s own. I have observed that most of us take little interest in the cultures of others. As a result, we develop narrow perspectives that fail to reflect the complexity and diversity of our society. Through an exploration of the business and regulatory environment in the US and the Dominican Republic, I am confident that I will obtain an in-depth understanding of how the cultures of the two nations are different. In particular, I expect that I will learn about how the culture in the Dominican Republic encourages investment. More importantly, this SMAC will expose me to the traditions, beliefs and values of the people in this country and how these issues affect the experiences of American retirees and expatriates. I know that as I explore the culture of the Dominican Republic, I will make progress in my journey toward becoming a global citizen. I think that for the world to unite people, individuals must be willing to experience new cultures and gain new perspectives.

While I believe that cultural awareness is vital for personal growth, I also find that it facilitates business and harmonious interactions among people from different cultural backgrounds. I fear that some of those who move to the Dominican Republic encounter difficulty in complying with the country’s business laws and regulations. For example, I think that there are some American retirees who fail to comply with the financial reporting regulations enforced in the country. I believe that cultural awareness holds the key to preventing the confusion and misunderstanding that arises from lack of knowledge on regulations. By familiarizing themselves with the business culture in the Dominican Republic, American retirees set the stage to fully experience the many exciting adventures that the country offers.

Initiative 

While cultural awareness is vital, I feel that it is not sufficient for effective management. In addition to being culturally aware, I think that managers and leaders should also be initiative. Essentially, initiative is concerned with having the courage to pursue business opportunities. I understand that establishing a business in a foreign market is frightening and many individuals would be reluctant to create a business in a market with which they are unfamiliar. However, I think that through initiative, it is indeed possible to develop the confidence to pursue ventures. The Dominican Republic is among the fastest growing economies. For this reason, I feel that it provides a wide range of opportunities that bold individuals can leverage for business success. While I agree that it is important for entrepreneurs to be bold, I feel that it is far more vital for them to be wise and base their decisions on knowledge. Instead of diving into an unfamiliar market, individuals should exercise caution by first familiarizing themselves with the laws and policies in the country. In addition to helping the individuals to gain the knowledge that they need, familiarizing oneself with the laws and regulations also prevents friction and breaches.

It is true that this SMAC is primarily designed for personal growth. However, I think that I can extend the lessons and insights that I expect to gain from this exercise to other individuals. I would strongly advise those wishing to move to the Dominican Republic to begin by carefully studying the country’s laws and regulations. I direct this advice particularly at American retirees in the Dominican Republic. Their experiences will largely depend on their familiarity with the laws enforced across the country.

Project Design/Plan 

For this paper to achieve its primary goal of shedding light on the laws and policies in the Dominican Republic and what distinguishes them from those in the US, an appropriate design must be adopted. The design will mostly take the form of a literature review. Basically, published material will be consulted for insights on the legal environment in the Dominican Republic. Among the literature that will form part of the project include publications by professional organizations, media outlets and government agencies. The choice of the literature review design is based on its simplicity. There is a wealth of published literature that enlightens readers on the situation in the US and the Dominican Republic. Furthermore, the literature review will allow for digital technology to be integrated into the project. For example, the internet will be relied on to search for materials that cover the issues that the project seeks to address. In addition to the review of literature, the project will also involve personal insight. I believe that my personal opinions and perspectives will help to broaden the discussion.

Among the numerous issues that the paper set out to address is the process that the Dominican Republic has put in place to enable individuals to become residents. For those wishing to work in the country, it is stipulated that they must acquire a resident status (“Obtaining Residency Status”, n.d). This status is obtained by submitting an application to the ministry in charge of foreign affairs. However, before filing for a residency permit, an individual should firs apply for a residence visa which is issued by the Ministry of Foreign Affairs. Two months following the issuance of the residence visa, Dominican Republic law stipulates that individuals should then appeal to the Immigration Department for a provisional residency permit (“Obtaining Residency Status”, n.d). This permit is valid for one year and upon its expiry, one is required to apply for a permanent permit.

Ethical and Social Responsibility 

When they move to a foreign country, individuals are expected to conduct themselves ethically and to demonstrate social responsibility. In addition to helping to preserve the image of their home countries, ethical conduct and social responsibility also plays a vital role in building the communities in which foreigners reside. As they move to the Dominican Republic, American retirees should understand that they will be expected to uphold ethical behavior and social responsibility. One of the responsibilities that the Americans should execute concerns timely and faithful payment of taxes. As noted in a previous section, the Dominican Republic exempts incomes earned beyond its borders from taxation. However, American retirees in the country should faithfully remit all taxes on incomes earned in the Dominican Republic. In addition to paying taxes, Americans should also participate in the development of their communities. This is how they become assets. For example, they could volunteer to lead initiatives meant to improve the conditions of the poor.

Supporting environmental sustainability initiatives is another way through which American citizens in the Dominican Republic can help to boost this country. For example, they could discard waste products in a sustainable and environmentally friendly fashion. Furthermore, the Americans could adopt green energy solutions and embrace water conservation approaches. All these measures play a vital role in promoting sustainability in the Dominican Republic. Apart from protecting the environment, the Americans will also be expressing their gratitude to the people in their Dominican Republic for their hospitality and warmth. The most important measure that the Americans should adopt is ensuring that they are in full compliance with the nation’s laws. For example, one of the provisions that the Dominican Republic is enforcing is the requirement that to live in the country, foreigners must produce proof that they earn at least $1,500 every month. Furthermore, they should have $250 for each of their dependents.

In closing, the Dominican Republic continues to receive thousands of foreigners every year. A large proportion of the foreigner population in the country is composed of American retirees. These individuals seek the favorable conditions in the country. In addition to having a pleasant climate, the Dominican Republic also has favorable laws. The laws regulate such issues as income tax and business reporting. These laws are vastly different from those of the US. Therefore, Americans should seek to understand these laws. Additionally, they should strive to become productive and law-abiding members of communities when they move to the Dominican Republic.

References

An overview of Dominican tax law. (n.d). HG.org. Retrieved May 3, 2019 from https://www.hg.org/legal-articles/an-overview-of-dominican-tax-law-4953

Dominican Republic. (2019). PwC. Retrieved May 3, 2019 from http://taxsummaries.pwc.com/ID/Dominican-Republic-Individual-Taxes-on-personal-income

Dominican Republic. (n.d). International Federation of Accountants. Retrieved May 3, 2019 from https://www.ifac.org/about-ifac/membership/country/dominican-republic

Gnanarajah, R. (2017). Accounting and auditing regulatory structure: U.S. and international. Congressional Research Service. Retrieved May 3, 2019 from https://fas.org/sgp/crs/misc/R44894.pdf

Kenton, W. (2019). Sarbanes-Oxley (SOX) Act of 2002. Investopedia. Retrieved May 3, 2019 from https://www.investopedia.com/terms/s/sarbanesoxleyact.asp

Obtaining residency status in the Dominican Republic: an overview. (n.d). HG.org. Retrieved May 3, 2019 from https://www.hg.org/legal-articles/obtaining-residency-status-in-the-dominican-republic-an-overview-4859

Pellerano, M., & Bono, C. (2018). Doing business in Dominican Republic: an overview. UK Practical Law. Retrieved May 3, 2019 from https://uk.practicallaw.thomsonreuters.com/7-500-6791?transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1

Pomerleau, K. (2018). The United States corporate income tax rate is now more in line with those levied by other major nations. Tax Foundation. Retrieved May 3, 2019 from https://taxfoundation.org/us-corporate-income-tax-more-competitive/

Simko, P. J., Ferris, K. R., & Wallace, J. S. (2018). Financial Accounting for Executives & MBA's. Cambridge Business Publishers, LLC

Tarver, E. (2017). 4 reasons why Americans retire in the Dominican Republic. Investopedia. Retrieved May 3, 2019 from https://www.investopedia.com/articles/personal-finance/100115/4-reasons-why-americans-retire-dominican-republic.asp

Taxation in the Dominican Republic. (n.d). Guzman Ariza. Retrieved May 3, 2019 from https://www.drlawyer.com/taxation-dominican-republic/

United States. (2019). PwC. Retrieved May 3, 2019 from http://taxsummaries.pwc.com/ID/United-States-Individual-Taxes-on-personal-income

U.S. Securities and Exchange Commission (SEC). (2007). Beginner’s guide to financial statement. SEC. Retrieved May 3, 2019 from https://www.sec.gov/reportspubs/investor-publications/investorpubsbegfinstmtguidehtm.html

U.S. Small Business Administration (SBA). Stay legally compliant. SBA. Retrieved May 3, 2019 from https://www.sba.gov/business-guide/manage-your-business/stay-legally-compliant

U.S. Treasury. (n.d). Agreement between the Government of the United States of America and the Government of the Dominican Republic to Improve International Tax Compliance and to Implement FATCA. Retrieved from https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-DominicanRepublic-9-15-2016.pdf

The World Bank. (2019). Ease of doing business in Dominican Republic. World Bank. Retrieved May 3, 2019 from http://www.doingbusiness.org/en/data/exploreeconomies/dominican-republic#