Attitude toward Foreign Direct Investment
The PA continues to rank poorly in the World Bank’s Ease of Doing Business report, receiving a ranking of 129 out of 189 in 2016 (compared to 127 in 2015) due to a challenging business environment affecting domestic and foreign investors alike. The 2016 Doing Business Report scored the Palestinian economy particularly low in the categories of Resolving Insolvency (189 of 189), Staring a Business (170 of 189), and Dealing with Construction Permits (162 of 189), while the PA performed relatively better with respect to Paying Taxes (56 of 189) and Getting Electricity (75 of 189). However, there are no significant PA laws or practices discriminating against foreign investors. In 2007, the PA began implementing reforms aimed at stimulating growth through private sector investment as well as consolidating public finances. The current 2014-2016 National Development Plan (NDP), like its predecessor, focuses on four sectors: economic development and employment, governance and institution building, social protection, and infrastructure. Within the economic sector, the NDP actively seeks to encourage private sector and foreign investment, improve Palestinian infrastructure, increase the competitiveness of Palestinian companies, and encourage entrepreneurship in the West Bank and Gaza, among other goals. The NDP caveats that any economic progress is inextricably linked to resolution of the political conflict with Israel, as well as overcoming internal divisions between the West Bank and Gaza. The PA is currently preparing a National Policy Agenda (NPA) to replace the NDP and outline priorities beyond 2016.
Since June of 2010, the PA has not hosted any major investment conference, although it did so in previous years. The 2010 conference attracted over 1,000 potential investors and business representatives. Over 100 projects were presented at the conference. Further information on these and other projects is available at www.pic-palestine.ps.
Beginning in 1995, the PA took steps to facilitate and increase foreign trade by signing free trade agreements with the European Union, the European Free Trade Association (EFTA), Canada, and Turkey. The PA also is eligible for the benefits of the Free Trade Agreement signed between the United States and Israel. The PA has finalized other trade agreements with Russia, Jordan, Egypt, the Gulf States, Morocco, Tunisia, Mercosur, Vietnam, and Germany. On July 31, 2012 Israel and the Palestinian Authority reached an understanding on trade and taxation designed to facilitate the flow of goods between Israel and the PA, reduce smuggling, and increase tax revenues to be shared by both parties. Additionally, the PA is preparing to seek permanent observer status in the World Trade Organization (WTO); it participated in the 2005, 2009, 2011, 2013, and 2015 WTO Ministerial meetings as an ad hoc observer.
Other Investment Policy Reviews
Beginning in 2013, the Office of the Quartet (OQ), an international organization working to support the Palestinian people on economic development, rule of law and improved movement and access for goods and people, began work on the Initiative for the Palestinian Economy (IPE), a multi-year plan to engage the private sector to drive economic growth and job creation across the Palestinian territories. Based on rigorous analysis of the Palestinian investment climate, the IPE focuses on catalyzing private sector-led growth by leveraging new financing and investment into the Palestinian economy, continued and expanded Israeli easing measures, and increased institutional capacity within the PA. The IPE centers on eight sectors: (1) agriculture; (2) construction; (3) tourism; (4) information and communication technology (ICT); (5) light manufacturing; (6) building materials; (7) energy; and (8) water.
During the current impasse in political negotiations, OQ has continued to work on advancing economic development and application of the rule of law, giving priority to areas where accomplishments are most viable under current conditions. Looking ahead, OQ’s forward priorities focus on five strategic pillars that represent the fundamental impact areas that contribute to economic growth and capacity building: (i) movement and trade; (ii) investment promotion; (iii) reliable infrastructure; (iv) unlocking value of land and human capital; and (v) strengthening government. A summary overview of the Initiative for the Palestinian Economy is available at http://blair.3cdn.net/a0302ab9e588825b29_1bm6yhjay.pdf.
The Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), and the United Nations Conference on Trade and Development (UNCTAD) do not provide investment policy reviews for the West Bank and Gaza.
Laws/Regulations on Foreign Direct Investment
Since 2006, there have been no general elections, and the Palestinian Legislative Council (PLC) has not met since April 2007. This means that any new laws or amendments must be issued by presidential decree. In the absence of a renewed political mandate or the endorsement of a legislative body, the PA has been reluctant to issue new laws that it does not view as immediately necessary. For amendments and changes to business regulations, the PA normally engages in a series of consultations involving ministry officials, the private sector, donors, and other stakeholders, resulting in lengthy delays for many key pieces of legislation. The United States Government (USG), through the U.S. Agency for International Development (USAID) and other agencies, is providing technical assistance to the PA to improve the investment climate and strengthen the trade regime through legislative reforms, improved regulations, and capacity building.
The legal framework for foreign investment in the West Bank and Gaza is based on the 1998 Law on the Encouragement of Investment in Palestine (Investment Law) No. 1, which was amended by Presidential Decree in 2011 and subsequently in 2014. All business entities must be registered with PIPA’s registry of investments either in the West Bank or in Gaza. There is minimal executive or other interference in the court system. According to existing PA company laws, three different types of companies may be incorporated:
General Partnership: The liability of each partner in a general partnership is unlimited. All partners are personally responsible for the liabilities of the partnership. The name of at least one of the partners must be included in the title of the General Partnership.
Limited Partnership: This includes two different types of partners: general and limited. A limited partnership must have at least one general partner who is personally responsible for the liabilities of the company. There is also at least one limited partner whose liability is limited to the amount of the capital.
Local Companies (Limited Liability Company (LLC) and Public Liability): Most investors prefer to use LLCs for the purposes of conducting commercial affairs.
Foreign companies may register businesses in the West Bank and Gaza according to the Jordanian Companies Law Number 12 of 1964. The Ministry of National Economy (MONE) and the PIPA provide information online about the business registration process at http://www.mne.gov.ps/compreg.aspx?lng=1&tabindex=100 and http://www.pipa.ps/page.aspx?id=BMfDyia1843545561aBMfDyi, but the PA does not offer a business registration website. The PA is working to simplify the process of starting a business, which currently requires an average of nine steps and 44 days to complete, according to the World Bank’s 2016 Doing Business Report. This includes two days to register the company, one day to pay registration fees, two days to register for taxes, one day to register with the Chamber of Commerce, and 36 days to obtain the business license from the Municipality. Foreign investors must obtain approval from the MONE and submit the application for registration through a local attorney. The procedures required to register this form of company are as follows:
Search for company name and reserve proposed name.
Submit company incorporation papers to MONE and sign document pledging to deposit initial capital within three months, if applicable (Jordanian Dinars (JD) 250,000 for a public shareholding company, JD 10,000 for a private shareholding company, or JD 10,000 for a nonprofit; other companies are exempt from this requirement). Obtain certificate of registration from the MONE.
Register with the Companies Registry and pay registration fee.
Register for income tax and value added tax.
Register with the Chamber of Commerce.
Obtain business license from the municipality.
Obtain approval from fire department.
In addition to applicable fees, public and private companies must submit the following documents to the Companies Registry:
Articles of Association (3 copies)
Company Bylaws (3 copies)
Shareholders Identification (copies)
Verified company name
Registration application (3 copies)
Powers of attorney
Foreign companies may work with PIPA to obtain the investment registration certificate and investment confirmation certificate. In addition, foreign companies seeking to open branches in the West Bank or Gaza must submit registration documents certified by the Palestinian Liberation Organization (PLO) representative in their home country. According to PIPA, the majority of Palestinian companies are small- and medium-sized enterprises (SMEs), and the PA has sought to support SME development and financing. SMEs are categorized according to staff size: small enterprises employ up to nine people, while medium enterprises employ 10-19 people.
The PA’s 2014 amendments to Promotion of Investment in Palestine Law No. 1 of 1998 shifted promotional incentives from a focus on those that benefit from industrial projects providing large capital investments to a focus on employment growth, development of human capital, increased exports, and local sourcing of machinery and raw materials. (See “Investment Incentives” below.)
Limits on Foreign Control and Right to Private Ownership and Establishment
Under the Jordanian Company Law of 1966, the foreign investor should own no more than 49 percent of a company, with a local partner holding at least 51 percent. However, foreign investors can readily obtain exceptions to this policy by working with PIPA and the MONE, which issues exceptions promptly. Foreign and domestic private entities may establish and own business enterprises in areas under PA civil control.
There is no PA privatization program for industries within the Palestinian Territories.
Screening of FDI
Certain investment categories require pre-approval by the Council of Ministers (PA Cabinet). These include investments involving (1) weapons and ammunition, (2) aviation products and airport construction, (3) electrical power generation/distribution, (4) reprocessing of petroleum and its derivatives, (5) waste and solid waste reprocessing, (6) wired and wireless telecommunication, and (7) radio and television. Purchase of land by foreigners also requires approval by the Council of Ministers.
There is no competition law for the Palestinian territories at this time. The PA drafted a law in 2003 that was not enacted, and in 2012 the PA prepared a new draft law that has not yet been issued. Because of the geographic division between businesses in East Jerusalem, the West Bank and Gaza, many firms in disparate geographic locations within the Palestinian territories have little to no competition, causing variations in both pricing and firm productivity between regions and sometimes cities within a region.