editorial

Examples of simplified paperwork procedures for MSMEs in the Dominican Republic

Ignacio Méndez Fernández, Deputy Minister for Micro, Small and Medium-sized Enterprises

Ignacio Méndez Fernández, Deputy Minister for Micro, Small & Medium-sized Enterprises

Like the rest of the region, most micro, small and medium-sized enterprises in the Dominican Republic operate in the informal sector

Like the rest of the region, most micro, small and medium-sized enterprises (MSMEs) in the Dominican Republic operate in the informal sector. The failure of nine out of every ten Dominican micro-entrepreneurs to register their enterprise is closely linked to poverty and inequality. Operating as a company in the informal sector is synonymous with limited growth, low productivity and limited access to a few local markets and no access to international ones. It also means having to use intermediaries, who end up keeping most of the profits. Informal business can only access expensive loans; have difficulties with legal defense if problems arise, and are unlikely to find sufficiently qualified manpower and thus to develop technical capacities.

In recognition of this state of affairs, a strategy was devised in 2012 to promote the creation of formal enterprises and to bring a high proportion of existing MSMEs into the formal sector. The portal "Formalízate" [Get legal] was created, making the process of setting up a company much simpler, in response to the wish expressed by many entrepreneurs. With the support of the Santo Domingo Chamber of Commerce, FEDOCAMARAS and help from the UNPHU university’s MSME Center,  we launched the pilot project "RD FORMALIZATE-SANTO DOMINGO" in Santo Domingo with the slogan: "We help you get started, because it's good business to be legal". Out idea was to get micro, small and medium-sized enterprises currently operating informally in the Dominican Republic to legalize their business, providing them with specialist help throughout the process.

It is true that we have made progress, but we are aware that there is a long way to go. Two major obstacles have yet to be overcome: the tax situation and enrollment in Social Security. We are currently putting out information and creating awareness about the new "UNICO" tax regime for micro-companies, in the hope of having everything ready to launch in the next few months. Being able to give MSME entrepreneurs clear information about where they stand in tax terms and how much their one-off obligations will cost them, will be a great help in our campaign to get enterprises into the formal sector. It will also lift a burden of worry from entrepreneur’s shoulders.

We will take a similar approach to the problems surrounding Social Security. At the moment the cost of Social Security is thought to be one of the reasons stopping MSEMEs from moving into the formal sector. The Entrepreneurs Act gives recently-registered enterprises a grace period of 3 years, during which time they only pay into their medical and workplace-accident insurance. Their payments into the pension system are also postponed until the fourth year, when it can be assumed that their company is on a more solid financial footing. In money terms, this means cutting their Social Security payments by nearly half.

This formalization strategy enables an entrepreneur to create a single-person company in 24 hours at a cost of just RD 500.00 (around USD 10.00). Enrollment is valid for 2 years. At present, registering a company and endowing it with legal personality takes 7 days (currently being brought down to just 3 days) and the cost is about RD 7,800.00 (USD 155.00) for two years, including the articles of incorporation, registering the company name, filing on the companies' register, being assigned a tax number (RNC) and inclusion in the Social Security system and the Labor Ministry.

Bearing in mind that this process used to take between 22 and 45 days, and cost around RD 50,000.00 (around USD 1,000.00), this represents major progress. We are still working on including more entities in the platform and on improving it further. In a few months digital signature will become operational, so that people will no longer have to travel, and will be able to send and receive all their information and documents online. This lets entrepreneurs save both time and money.

The challenge we face is to make it easier to do business throughout the country. Our Ministry is setting an example of how to remove problems, as we put the MSME Certification service online. These certificates are currently required to tender for State contracts (public-sector procurement) and subsequently to sign up for the UNICO tax regime, as well as for labor matters.  The application process is now quick and efficient: companies can fill out the application online from their home or office. With the data we already have, using an internal link to the Tax Directorate (DGII) and the Social Security department, we can generate the certificate online, which they can obtain without going through the traditional paperwork process or even moving from their establishment.

Instead of presenting arid figures, the best way of explaining the effect of this improvement is to tell the story of Noemí Vólquez, owner of a small canteen that provides school breakfasts in Bahoruco, a province in the southwest of the country. Noemí had to spend an average of RD 5,000 every time she was obliged to go to Santo Domingo for her MSME certificate, the document that enables her to tender in the bidding process so that her canteen can continue to provide these meals for schools in her community.

Now, with her online MSME certificate, Noemí has been able to save around RD 20,000, which she can use to buy the freezer she so badly needs to conserve the food products she uses in her small business. She is just one example of the many MSMEs now accessing online services thanks to programs have that have simplified the procedures we handle. What is the final outcome? Everyone saves money, there is less bureaucracy and greater transparency for the general public.

Many hurdles still remain. But these offer opportunities for improvement. It is vital to keep our goal in our sights, continuing to work unflaggingly towards achieving a business-friendly environment... and to be able to rely on the assistance and participation of the stakeholders we serve.

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