Brazil was the world’s seventh-largest destination for foreign direct investment (FDI) in 2019, with inflows of $58 billion, according to the United Nations Conference on Trade and Development (UNCTAD). The GoB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, mining, and transportation infrastructure sectors – to introduce greater innovation into Brazil’s economy and to generate economic growth. GoB investment incentives include tax exemptions and low-cost financing with no distinction made between domestic and foreign investors in most sectors. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, and insurance sectors.

The Brazilian Trade and Investment Promotion Agency (APEX-Brasil) plays a leading role in attracting FDI to Brazil by working to identify business opportunities, promoting strategic events, and lending support to foreign investors willing to allocate resources to Brazil. APEX-Brasil is not a “one-stop shop” for foreign investors, but the agency can assist in all steps of the investor’s decision-making process, to include identifying and contacting potential industry segments, sector and market analyses, and general guidelines on legal and fiscal issues. Their services are free of charge. The website for APEX-Brasil is: http://www.apexbrasil.com.br/en . 

In 2016, the Ministry of Economy created the Direct Investments Ombudsman (OID) at the Board of Foreign Trade and Investments (CAMEX), to provide assistance to foreign investors through a single body for issues related to FDI in Brazil. This structure aims to help and eventually speed up foreign investments in Brazil, providing foreign and national investors with a simpler process for establishing new businesses and implementing additional investments in their current companies. Since 2019, the OID has acted as a “single window” of the Brazilian government for FDI. It supports and guides investors in their requests, recommending solutions to their complaints (Policy Advocacy) as well as proposing improvements to the legislation or administrative procedures to public agencies whenever necessary. The OID is responsible for receiving requests and inquiries on matters related to foreign investments, to be answered together with government agencies and entities (federal, state and municipal) involved in each case (Focal Points Network). This new structure provides a centralized support system to foreign investors, and must respond in a timely manner to investors’ requests.

A 1995 constitutional amendment (EC 6/1995) eliminated distinctions between foreign and local capital, ending favorable treatment (i.e. tax incentives, preference for winning bids) for companies using only local capital. However, constitutional law restricts foreign investment in healthcare (Law 8080/1990, altered by 13097/2015), mass media (Law 10610/2002), telecommunications (Law 12485/2011), aerospace (Law 7565/1986 a, Decree 6834/2009, updated by Law 12970/2014, Law 13133/2015, and Law 13319/2016), rural property (Law 5709/1971), maritime (Law 9432/1997, Decree 2256/1997), and insurance (Law 11371/2006).

Brazil does not have a national security-based foreign investment screening process. Foreign investors in Brazil must electronically register their investment with the Central Bank of Brazil (BCB) within 30 days of the inflow of resources to Brazil. In cases of investments involving royalties and technology transfer, investors must register with Brazil’s patent office, the National Institute of Industrial Property (INPI). Since the approval of the Doing Business Law in 2021, companies are no longer required to have an administrator residing in Brazil, but they must appoint a local proxy attorney to receive legal notifications. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM). Brazil does not have an investment screening mechanism based on national security interests. A bill was proposed in the Chamber of Deputies in 2020 (PL 2491) to change the parameters under which to review foreign investments could be reviewed, but the bill has not yet been analyzed by the necessary commissions.

To enter Brazil’s insurance and reinsurance market, U.S. companies must establish a subsidiary, enter a joint venture, acquire a local firm, or enter a partnership with a local company. The BCB reviews banking license applications on a case-by-case basis. Foreign interests own or control 20 of the top 50 banks in Brazil, but Santander is the only major wholly foreign-owned retail bank.

Since June 2019, foreign investors may own 100 percent of capital in Brazilian airline companies.

While 2015 and 2017 legislative and regulatory changes relaxed some restrictions on insurance and reinsurance, rules on preferential offers to local reinsurers remain unchanged. Foreign reinsurance firms must have a representational office in Brazil to qualify as an admitted reinsurer. Insurance and reinsurance companies must maintain an active registration with Brazil’s insurance regulator, the Superintendence of Private Insurance (SUSEP), and maintain a solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch ratings of at least BBB-.

Foreign ownership of cable TV companies is allowed, and telecom companies may offer television packages with their service. Content quotas require every channel to air at least three and a half hours per week of Brazilian programming during primetime. Additionally, one-third of all channels included in any TV package must be Brazilian.

The National Land Reform and Settlement Institute administers the purchase and lease of Brazilian agricultural land by foreigners. Under the applicable rules, the area of agricultural land bought or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal district. Additionally, no more than 10 percent of agricultural land in any given municipal district may be owned or leased by foreign nationals from the same country. The law also states that prior consent is needed for purchase of land in areas considered indispensable to national security and for land along the border. The rules also make it necessary to obtain congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding. In December 2020, the Senate approved a bill (PL 2963/2019; source: https://www25.senado.leg.br/web/atividade/materias/-/materia/136853 ) to ease restrictions on foreign land ownership and the Chamber of Deputies began to deliberate on the bill; however, the bill was shelved with no plans to advance it further after President Bolsonaro expressed concerns regarding the legislation.

Brazil is not yet a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but submitted its application for accession in May 2020. In February 2021, Brazil formalized its initial offer to start negotiations.  The submission establishes a series of thresholds above which foreign sellers will be allowed to bid for procurements. Such thresholds vary for different procuring entities and types of procurements. The proposal also includes procurements by some states and municipalities (with restrictions) as well as state-owned enterprises, but it excludes certain sensitive categories, such as financial services, strategic health products, and specific information technologies. Brazil’s submission is currently under review with GPA members.

By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable. Additionally, U.S. and other foreign firms may only bid to provide technical services when there are no qualified Brazilian firms. U.S. companies need to enter into partnerships with local firms or have operations in Brazil in order to be eligible for “margins of preference” offered to domestic firms participating in Brazil’s public sector procurement to help these firms win government tenders. Nevertheless, foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts, and since October 2020 foreign companies are allowed to participate in bids without the need for an in-country corporate presence (although establishing such a presence is mandatory if the bid is successful). A revised Government Procurement Protocol of the trade bloc Mercosul (Mercosur in Spanish) signed in 2017 would entitle member nations Brazil, Argentina, Paraguay, and Uruguay to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers. However, none of the bloc’s members have ratified the protocol, so it has not entered into force. Despite the restrictions within Mercosul, in January 2022 Brazil and Chile entered into an agreement which includes government procurement.

The Organization for Economic Co-operation and Development’s (OECD) December 2021 Economic Forecast Summary of Brazil summarized that with the COVID-19 vaccination campaign accelerating throughout the year, economic activity underpinned by reduced private consumption and investment restarted as restrictions were lifted, and exports benefited from the global recovery, the robust demand for commodities, and a weak exchange rate. However, supply bottlenecks, lower purchasing power, higher interest rates, and policy uncertainty have slowed the pace of recovery. The labor market is experiencing a lag in recovering from the pandemic, and by the end of 2021 unemployment remained above pre-pandemic levels. The residual effect of the government’s significant fiscal stimulus spending in 2020 to reinvigorate the economy contributed to inflationary pressure, further compounded by constrained global supply chains pushing prices up. In response, the COPOM chose to incrementally increase its benchmark SELIC rate from 2 percent in March 2021 to 11.75 percent in March 2022. The COPOM announced that it would continue tightening its monetary policy in an effort to curb inflation and anchor expectations. Prospects for economic growth are weak for 2022 and 2023. The OECD recommended that Brazil strengthen and adhere to its fiscal rules to increase market confidence in establishing sustainable finances and exercising more efficient public spending to create fiscal space for growth-enhancing policies, along with developing a more inclusive social protection program.

The IMF’s 2021 Country Report No. 2021/217 (published in September 2021) for Brazil highlighted that its economic performance for the year had been better than expected, partly due to the government’s fiscal response to the pandemic which propelled the economy back to pre-pandemic levels for most sectors. In addition, the IMF noted a favorable economic momentum supported by booming trade and robust private sector credit growth. The IMF assessed that currency depreciation and a surge in commodity prices had led to headline inflation, and that expectations remained negative. The report noted Brazil’s lagging labor market, especially among youths, women, and Afro-Brazilians. The IMF also expressed concerns that emergency cash transfers (which expired in December 2021) were only a short-term solution, and recommended addressing poverty and inequality by strengthening a more permanent social safety net. The IMF concluded that near-term fiscal risks were low, but the high level of public debt continued to pose a medium-term risk. Restoring high and sustained growth, increasing employment, raising productivity, improving living standards, and reducing vulnerabilities would require longer-term policy efforts to eliminate bottlenecks and foster private sector-led investment.

The WTO’s 2017 Trade Policy Review of Brazil noted the country’s open stance towards foreign investment, but also pointed to the many sector-specific limitations (see above). The three reports listed below, with links to the reports, highlight the uncertainty regarding reform plans as the most significant political risk to the economy.

1. OECD Report:
2. IMF Report:
3. WTO Report:

A company must register with the National Revenue Service (Receita Federal) to obtain a business license and be placed on the National Registry of Legal Entities (CNPJ). Brazil’s Export Promotion and Investment Agency (APEX) has a mandate to facilitate foreign investment in Brazil. The agency’s services are available to all investors, foreign and domestic. Foreign companies interested in investing in Brazil have access to many benefits and tax incentives granted by the Brazilian government at the municipal, state, and federal levels. Most incentives target specific sectors, amounts invested, and job generation. Brazil’s business registration website can be found at: https://www.gov.br/pt-br/servicos/inscrever-ou-atualizar-cadastro-nacional-de-pessoas-juridicas  .

Brazil enacted its “Doing Business” law, which entered into force on August 26, 2021. The law simplified the process to open a business, sought to facilitate foreign trade by eliminating redundancy as well as further automating its trade processes, and expand the powers of minority shareholders in private companies.

Adopted in September 2019, the Economic Freedom Law 13.874 established the Economic Freedom Declaration of Rights and provides for free market guarantees. The law includes several provisions to simplify regulations and establish norms for the protection of free enterprise and free exercise of economic activity.

On August 20, 2021, the Brazilian government included the Foreign Trade Secretariat (SECEX) in the Brazilian Authorized Economic Operator Program (Programa OEA), run by Receita Federal (Internal Federal Revenue service), allowing Government of Brazil-designated OEA certified operators to maintain a low-level risk to achieve benefits in their foreign trade operations related to drawback suspension and exemption regimes.

Through the digital transformation initiative in Brazil, foreign companies can open branches via the internet. Since 2019, it has been easier for foreign businesspeople to request authorization from the Brazilian federal government. After filling out the registration, creating an account, and sending the necessary documentation, business entities can make the authorization request on the Brazilian government’s online portal through a legal representative. The electronic documents will then be analyzed by the Brazilian National Department of Business Registration and Integration (DREI) team. DREI will inform the applicant of any missing documentation via the portal and e-mail and give a 60-day period for the applicant to submit any additional information. The legal representative of the foreign company, or another third party who holds a power of attorney, may request registration through this link: https://acesso.gov.br/acesso/#/primeiro-acesso?clientDetails=eyJjbGllbnRVcmkiOiJodHRwczpcL1wvYWNlc3NvLmdvdi5iciIsImNsaWVudE5hbWUiOiJQb3J0YWwgZ292LmJyIiwiY2xpZW50VmVyaWZpZWRVc2VyIjp0cnVlfQ%3D%3D    

The regulation of foreign companies opening businesses in Brazil is governed by article 1,134 of the Brazilian Civil Code and article 1 of DREI Normative Instruction 77/2020. English-language general guidelines to open a foreign company in Brazil are not yet available, but the Portuguese version is available at the following link: https://www.gov.br/economia/pt-br/assuntos/drei/empresas-estrangeiras  .

For foreign companies that will be a partner or shareholder of a Brazilian national company, the governing regulation is DREI Normative Instruction 81/2020 (https://www.in.gov.br/en/web/dou/-/instrucao-normativa-n-81-de-10-de-junho-de-2020-261499054 ). The contact information of the DREI is drei@economia.gov.br and +55 (61) 2020-2302.

References:

1. provides investment measures, laws and treaties enacted by selected countries.
2. provides links to business registration sites worldwide.

Brazil does not restrict domestic investors from investing abroad. APEX-Brasil supports Brazilian companies’ efforts to invest abroad under its “internationalization program”: http://www.apexbrasil.com.br/como-a-apex-brasil-pode-ajudar-na-internacionalizacao-de-sua-empresa  . APEX-Brasil frequently highlights the United States as a worthwhile destination for outbound investment. APEX-Brasil and SelectUSA (U.S. Department of Commerce) signed a memorandum of cooperation in February 2014 to promote bilateral investment.

Brazil incentivizes outward investment. APEX-Brasil organizes several initiatives aimed at promoting Brazilian investments abroad. The agency´s efforts include trade missions, business round tables, promoting the participation of Brazilian companies in major international trade fairs, and arranging technical visits for foreign buyers to Brazil as well as facilitating travel for decision-makers seeking to learn about the Brazilian market and performing other commercial activities designed to strengthen the country’s branding abroad.

The main sectors of Brazilian investments abroad are financial services and assets (totaling 62.9 percent of total investments abroad); oil and gas extraction (12 percent); and mineral metal extraction (6.5 percent). Including all sectors, Brazilian investments abroad totaled $448 billion in 2020. The regions that received the largest share of Brazilian outward investments are the Caribbean (43.3 percent), concentrated in the Cayman Islands, British Virgin Islands and Bahamas, and Europe (37.9 percent), primarily the Netherlands and Luxembourg.

Regulations on investments abroad are outlined in BCB Ordinance 3,689/2013 (foreign capital in Brazil and Brazilian capital abroad): https://www.bcb.gov.br/pre/normativos/busca/downloadNormativo.asp?arquivo=/Lists/Normativos/Attachments/48812/Circ_3689_v1_O.pdf

Sales of cross-border mutual funds are only allowed to certain categories of investors, not to the general public. In 2020, international financial services companies active in Brazil submitted a proposal to Brazilian regulators to allow opening these mutual funds to the general public, and the Brazilian Securities and Exchange Commission is expected to approve their recommendation by June 2022. Discussions with regulators about increasing the share percentages that pension funds and insurers can invest abroad (currently 10 percent for pension funds, 20 percent for insurers, and 40 percent for qualified investors) are ongoing, along with discussions about tax deferral mechanisms to incentivize Brazilian investment abroad.

According to the World Bank, it takes approximately 17 days to start a business in Brazil. Brazil is seeking to streamline the process and decrease the amount of time it takes to open a small- or medium-sized enterprise (SME) to only five days through its RedeSimples Program. Similarly, the government has reduced regulatory compliance burdens for SMEs through the continued use of the SIMPLES program, which simplifies the collection of up to eight federal, state, and municipal-level taxes into one single payment. The Doing Business law (14.195/2021) included provisions to streamline the process, such as unifying federal, state and municipal registrations and eliminating requirements such as address analysis and pre-checking business names.

In 2020, the World Bank noted that Brazil’s lowest-ranked component in its Ease of Doing Business score was the annual administrative burden for a medium-sized business to comply with Brazilian tax codes with an average of 1,501 hours per year, a significant improvement from 2019’s 1,958 hour average but still much higher than the 160.7 hour average of OECD high-income countries. The total tax rate for a medium-sized business in Brazil is 65.1 percent of profits, compared to the average of 40.1 percent in OECD high-income countries. Business managers often complain of not being able to understand complex and sometimes contradictory tax regulations, despite having large local tax and accounting departments in their companies.

Tax regulations, while burdensome and numerous, do not generally differentiate between foreign and domestic firms. However, some investors complain that in certain instances the processing of rebates for exported goods of the value-added tax collected by individual states (ICMS) favors local companies. Exporters in many states report difficulty receiving their ICMS rebates when their goods are exported. Taxes on commercial and financial transactions are particularly burdensome, and businesses complain that these taxes hinder the international competitiveness of Brazilian-made products.

Of Brazil’s ten federal regulatory agencies, the most prominent include:

1. ANVISA, the Brazilian counterpart to the U.S. Food and Drug Administration, which has regulatory authority over the production and marketing of food, drugs, and medical devices
2. ANATEL, the country’s telecommunications regulatory agency, which handles telecommunications as well as the licensing and assigning of radio spectrum bandwidth (the Brazilian FCC counterpart)
3. ANP, the National Petroleum Agency, which regulates oil and gas contracts and oversees auctions for oil and natural gas exploration and production
4. ANAC, Brazil’s civil aviation agency
5. IBAMA, Brazil’s environmental licensing and enforcement agency
6. ANEEL, Brazil’s electricity regulator that regulates Brazil’s power sector and oversees auctions for electricity transmission, generation, and distribution contracts

In addition to these federal regulatory agencies, Brazil has dozens of state- and municipal-level regulatory agencies.

The United States and Brazil conduct regular discussions on customs and trade facilitation, good regulatory practices, standards and conformity assessment, digital issues, and intellectual property protection. Discussions in all these areas occurred during the 19th plenary of the Commercial Dialogue which took place virtually in October 2021, and continue through ongoing regular exchanges at the working level between the U.S. Department of Commerce, Brazil’s Ministry of Economy, and other agencies and regulators throughout the year.

Regulatory agencies complete Regulatory Impact Analyses (RIAs) on a voluntary basis. The Brazilian congress passed Law 13.848 in June 2019 on Governance and Accountability (PLS 52/2013 in the Senate, and PL 6621/2016 in the Chamber). Among other provisions, the law makes RIAs mandatory for regulations that affect “the general interest.”

The Chamber of Deputies, the Federal Senate, and the Office of the Presidency maintain websites providing public access to both approved and proposed federal legislation. Brazil is seeking to improve its public comment and stakeholder input process. In 2004, the GoB opened an online “Transparency Portal” with data on funds transferred to and from federal, state, and city governments, as well as to and from foreign countries. It also includes information on civil servant salaries.

In December 2021, Brazil’s Securities and Exchange Commision (CMV) issued Resolution 59/2021, establishing the first transparency mechanism for environmental, social, and corporate governance (ESG) practices in the country. The goal of the change was to provide more comprehensive information to potential investors, therefore allowing the market environment to drive changes in business behavior. According to the resolution, starting in January 2023, listed companies will be required to inform the CVM whether they disclose information on ESG indicators and provide details on their reports, such as existence of independent audits, which indicators were used, and if UN Sustainable Development Goals (SDGs) have been considered. The new requirement will also include questions regarding the companies’ consideration of the Task Force on Climate Change-Related Financial Disclosures or other recognized entities’ recommendations, the existence of a gas emission inventory, and the role of management bodies in assessing climate-related risks. Regarding diversity issues, companies will be required to disclose information showing the diversity of the body of administrators and employees as well as salary disparities between executives and staff.

In 2022, the Department of State concluded in its annual 2021 Fiscal Transparency Report that Brazil had met minimum fiscal transparency requirements. The International Budget Partnership’s Open Budget Index ranked Brazil slightly ahead of the United States in terms of budget transparency in its most recent (2019) index. The Brazilian government demonstrates adequate fiscal transparency in managing its federal accounts, although there is room for improvement in terms of completeness of federal budget documentation. Brazil’s budget documents are publicly available, widely accessible, and sufficiently detailed. They provide a relatively full picture of the GoB’s planned expenditures and revenue streams. The information in publicly available budget documents is considered credible and reasonably accurate.

Brazil is a member of Mercosul – a South American trade bloc whose full members include Argentina, Paraguay, and Uruguay. Brazil routinely implements Mercosul common regulations.

Brazil is a member of the WTO and the government regularly notifies draft technical regulations, such as potential agricultural trade barriers, to the WTO Committee on Technical Barriers to Trade (TBT).

Brazil has a civil legal system with state and federal courts. Investors can seek to enforce contracts through the court system or via mediation, although both processes can be lengthy. The Brazilian Superior Court of Justice (STJ) must accept foreign contract enforcement rulings for the rulings to be considered valid in Brazil. Among other considerations, the foreign judgment must not contradict any prior decisions by a Brazilian court in the same dispute. The Brazilian Civil Code regulates commercial disputes, although commercial cases involving maritime law follow an older Commercial Code which has been otherwise largely superseded. Federal judges hear most disputes in which one of the parties is the Brazilian State, and also, rule on lawsuits between a foreign state or international organization and a municipality or a person residing in Brazil.

The judicial system is generally independent. The Supreme Federal Court (STF), charged with constitutional cases, frequently rules on politically sensitive issues. State court judges and federal level judges below the STF are career officials selected through a meritocratic examination process. The judicial system is backlogged, and disputes or trials frequently take several years to arrive at a final resolution, including all available appeals. Regulations and enforcement actions can be litigated in the court system, which contains mechanisms for appeal depending upon the level at which the case is filed. The STF is the ultimate court of appeal on constitutional grounds; the STJ is the ultimate court of appeal for cases not involving constitutional issues.

In 2019, Brazil established a “one-stop shop” for international investors. The one-stop shop, the Direct Investments Ombudsman (DIO), is a ‘single window’ for investors provided by the Executive Secretariat of CAMEX. It is responsible for receiving requests and inquiries about investments, to be answered jointly with the public agency responsible for the matter (at the federal, state and municipal levels) involved in each case (the Network of Focal Points). This new structure allows for supporting the investor via a single governmental body in charge of responding to investor requests within a short time. Private investors have noted the single window is better than the previous system, but does not yet provide all the services of a true “one-stop shop” to facilitate international investment. The DIO’s website in English is: http://oid.economia.gov.br/en/menus/8  

The Administrative Council for Economic Defense (CADE), which falls under the purview of the Ministry of Justice, is responsible for enforcing competition laws, consumer protection, and carrying out regulatory reviews of proposed mergers and acquisitions. CADE was reorganized in 2011 through Law 12529, combining the antitrust functions of the Ministry of Justice and the Ministry of Finance. The law brought Brazil in line with U.S. and European merger review practices and allows CADE to perform pre-merger reviews, in contrast to the prior legal framework that directed the government to review mergers after they had already been completed. In October 2012, CADE performed Brazil’s first pre-merger review.

In 2021, CADE conducted 611 total formal investigations. It approved 165 merger and/or acquisition requests and did not reject any requests.

Article 5 of the Brazilian Constitution assures property rights of both Brazilians and foreigners that own property in Brazil. The Constitution does not address nationalization or expropriation. Decree-Law 3365 allows the government to exercise eminent domain under certain criteria that include, but are not limited to, national security, public transportation, safety, health, and urbanization projects. In cases of eminent domain, the government compensates owners at fair market value.

There are no signs that the current federal government is contemplating expropriation actions in Brazil against foreign interests. Brazilian courts have previously ruled in U.S. citizens’ favor for some claims regarding state-level land expropriations. However, as states have filed appeals of these decisions, the compensation process for foreign entities can be lengthy and have uncertain final outcomes.

ICSID Convention and New York Convention

In 2002, Brazil ratified the 1958 Convention on the Recognition and Enforcement of Foreign Arbitration Awards. Brazil is not a member of the World Bank’s International Center for the Settlement of Investment Disputes (ICSID). Brazil joined the United Nations Commission on International Trade Law (UNCITRAL) in 2010, and its membership will expire in 2022.

Investor-State Dispute Settlement

Article 34 of the 1996 Brazilian Arbitration Act (Law 9307) defines a foreign arbitration judgment as any judgment rendered outside of the national territory. The law established that the Superior Court of Justice (STJ) must ratify foreign arbitration awards. Law 9307, updated by Law 13129/2015, also stipulates that a foreign arbitration award will be recognized or executed in Brazil in conformity with the international agreements ratified by the country and, in their absence, with domestic law. A 2001 Brazilian Supreme Federal Court (STF) ruling established that the 1996 Brazilian Arbitration Act, permitting international arbitration subject to STJ ratification of arbitration decisions, does not violate the federal constitution’s provision that “the law shall not exclude any injury or threat to a right from the consideration of the Judicial Power.”

Contract disputes in Brazil can be lengthy and complex. Brazil has both a federal and a state court system, and jurisprudence is based on civil code and contract law. Federal judges hear most disputes in which one of the parties is the State and rule on lawsuits between a foreign State or international organization and a municipality or a person residing in Brazil. Five regional federal courts hear appeals of federal judges’ decisions.

International Commercial Arbitration and Foreign Courts

Brazil ratified the 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention) and the 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitration Awards (Montevideo Convention). Law 9307/1996 amplifies Brazilian law on arbitration and provides guidance on governing principles and rights of participating parties. Brazil developed a new Cooperation and Facilitation Investment Agreement (CFIA) model in 2015 (https://concordia.itamaraty.gov.br/  ), but it does not include ISDS mechanisms. (See sections on bilateral investment agreements and responsible business conduct.)

Brazil’s commercial code governs most aspects of commercial association, while the civil code governs professional services corporations. In December 2020, Brazil approved a new bankruptcy law (Law 14.112) which largely models the UNCITRAL Model Law on International Commercial Arbitration and addresses criticisms that its previous bankruptcy legislation favored holders of equity over holders of debt. The new law facilitates the judicial and extrajudicial resolution process between debtors and creditors and accelerates reorganization and liquidation processes. Both debtors and creditors are allowed to provide reorganization plans that would eliminate non-performing activities and sell-off assets, thus avoiding bankruptcy. The new law also establishes a framework for cross-border insolvencies that recognizes legal proceedings outside of Brazil.

The GoB extends tax benefits for investments in less-developed parts of the country, including the Northeast and the Amazon regions, with equal application to foreign and domestic investors. These incentives were successful in attracting major foreign plants to areas like the Manaus Free Trade Zone in Amazonas State, but most foreign investment remains concentrated in the more industrialized southeastern states in Brazil.

Individual states seek to attract private investment by offering tax benefits and infrastructure support to companies, negotiated on a case-by-case basis. Competition among states to attract employment-generating investment leads some states to challenge such tax benefits as beggar-thy-neighbor fiscal competition.

While local private sector banks are beginning to offer longer credit terms, the state-owned National Economic and Social Development Bank (BNDES) is the traditional Brazilian source of long-term credit as well as export credits. BNDES provides foreign- and domestically-owned companies operating in Brazil financing for the manufacturing and marketing of capital goods and primary infrastructure projects. BNDES provides much of its financing at subsidized interest rates. As part of implementing a fiscal tightening policy, in December 2014 the GoB announced its intention to scale back the expansionary activities of BNDES and ended direct treasury support to the bank. Law 13.483, from September 2017, created a new Long-Term Lending Rate (TLP) for BNDES. On January 1, 2018, BNDES began phasing in the TLP to replace the prior subsidized loan rates. After a five-year phase in period, the TLP will float with the market and reflect a premium over Brazil’s five-year bond yield (which incorporates inflation). Although the GoB plans to reduce BNDES’s role further as it continues to promote the development of long-term private capital markets, BNDES will continue to play a large role, particularly in concession financing, such as Rio de Janeiro’s water and sanitation privatization projects, in which BNDES can finance up to 65 percent of direct investments.

BNDES also established the Finame low carbon program, which provides financing for the acquisition and sale of solar and wind energy generation systems, solar heaters, buses and trucks that are either electric hybrids or powered exclusively by biofuel, and other machines and equipment with higher energy efficiency rates or that contribute to the reduction of greenhouse gas emissions. The program allows for the financing of up to 100 percent of the investment on energy efficient products with payment terms of up to ten years with a two-year grace period, however, the products must be new, manufactured in Brazil, and accredited by the Finame program. Financing conditions are defined with BNDES’s financial partners, which currently include seven commercial banks.

In December 2018, Brazil approved a new auto sector incentive package – Rota 2030 – providing exemptions from Industrial Product Tax (IPI) for research and development (R&D) spending. Rota 2030 replaced the Inovar-Auto program, which was found to violate WTO rules. Rota 2030 increases standards for energy efficiency, structural performance, and the availability of assistive technologies; provides exemptions for investments in R&D and manufacturing process automation; incentivizes the use of biofuels; and funds technical training and professional qualification in the mobility and logistics sectors. To qualify for the tax incentives, businesses must meet conditions including demonstrating profit, investing a minimum amount of funds in R&D, and not having any outstanding tax liabilities.

Brazil’s Special Regime for the Reinstatement of Taxes for Exporters, or Reintegra Program, provides a tax subsidy of two percent of the value of goods exported.

Brazil provides tax reductions and exemptions on many domestically-produced information and communication technology (ICT) and digital goods that qualify for status under the Basic Production Process (PPB). The PPB is product-specific and stipulates which stages of the manufacturing process must be carried out in Brazil in order for an ICT product to be considered produced in Brazil. Brazil’s Internet for All program, launched in 2018, aims to ensure broadband internet to all municipalities by offering tax incentives to operators in rural municipalities.

Law 12.598/2012 offers tax incentives to firms in the defense sector. The law’s principal aspects are to: 1) establish special rules for the acquisition, contract, and development of defense products and systems; 2) establish incentives for the development of the strategic defense industry sector by creating the Special Tax Regime for the Defense Industry (RETID); and 3) provide access to financing programs, projects, and actions related to Strategic Defense Products (PED).

In April 2020, the Brazilian Defense and Security Industry Association (ABIMDE) requested the Minister of Defense to consider implementing improvements to Law 12.598 by allowing all its members to: 1) have access to special bidding terms (TLE) for defense and security materials; and 2) automatically utilize their RETID status, rather than being required to individually apply to the Ministry of Defense for certification, per the current process. However, as of March 2022 the Ministry of Defense is still reviewing the proposed improvements to the law.

A RETID beneficiary, known as a Strategic Defense Company (EED), is accredited by the Ministry of Defense. An EED is a legal entity that produces or develops parts, tools, and components to be used in the production or development of defense assets. It can also be a legal entity that provides services used as inputs in the production or development of defense goods. RETID benefits include sale price credit and tax rate reduction for the manufacturing supply chain, including taxes on imported components. Additionally, RETID provides exemption from certain federal taxes on the purchase of materials for the manufacture of defense products and services provided by EEDs.

The federal government grants tax benefits to certain free trade zones. Most of these free trade zones aim to attract investment to the country’s relatively underdeveloped North and Northeast regions. The most prominent of these is the Manaus Free Trade Zone, in Amazonas State, which has attracted significant foreign investment, including from U.S. companies. Constitutional amendment 83/2014 extended the status of Manaus Free Trade Zone until the year 2073.

The GoB maintains a variety of localization barriers to trade in response to the weak competitiveness of its domestic tech industry. These include:

1. Tax incentives for locally-sourced information and communication technology (ICT) goods and equipment (Law 8248/1991, amended by Law 13.969/2019 and Decree 87/2013)
2. Government procurement preferences for local ICT hardware and software (2014 Decrees 8184, 8185, 8186, 8194, and 2013 Decree 7903); and the CERTICS Decree 8186, which aims to certify that software programs are the result of development and technological innovation in Brazil

In 2019, Brazil adopted the New Informatic Law which revised the tax and incentives regime for the ICT sector. The regime is aligned with the requirements of the World Trade Organization (WTO), following complaints from Japan and the European Union that numerous Brazilian tax programs favored domestic products in contravention of WTO rules.

The New Informatic Law provides tax incentives to ICT goods manufacturers that invest in research, development, and innovation (RD&I) in Brazil. To receive the incentives, the companies must meet a minimum nationalization requirement for production, but the nationalization content is reduced commensurate with increasing local RD&I investment. At least 60 percent of the production process is required to take place in Brazil to ensure eligibility.

The Institutional Security Cabinet (GSI) (an executive branch body that advises the presidency on security affairs) mandated the localization of all government data stored in the cloud during a review of cloud computing services contracted by the Brazilian government in Ordinance No. 9 (previously NC 14), issued in March 2018. While it does allow the use of cloud computing for non-classified information, it imposes a data localization requirement on all use of cloud computing by the Brazil government.

Investors in certain sectors in Brazil must adhere to the country’s regulated prices, which fall into one of two groups: prices regulated at the federal level by a federal company or agency, and prices set by sub-national governments (states or municipalities). Regulated prices managed at the federal level include telephone services, certain refined oil and gas products (such as bottled cooking gas), electricity, and healthcare plans. Regulated prices controlled by sub-national governments include water and sewage fees, and most fees for public transportation such as local bus and rail services. For firms employing three or more people, Brazilian nationals must constitute at least two-thirds of all employees and receive at least two-thirds of total payroll, according to Labor Law Articles 352 to 354. This calculation excludes foreign specialists in fields where Brazilians are unavailable. There is a draft bill in congress (PL 2456/2019) to remove the mandatory requirement for national employment; however, the bill would maintain preferential treatment for companies that continue to employ a majority of Brazilian nationals.

Decree 7174/2010, which regulates the procurement of information technology goods and services, requires federal agencies and parastatal entities to give preferential treatment to domestically produced computer products and goods or services with technology developed in Brazil based on a complicated price/technology matrix.

Brazil’s Marco Civil, the framework law governing internet user rights and company responsibilities, states that data collected or processed in Brazil must respect Brazilian law, even if the data is subsequently stored outside of the country. Penalties for non-compliance could include fines of up to 10 percent of gross Brazilian revenues and/or the suspension or prohibition of related operations. Under the law, internet connection and application providers must retain access logs for specified periods of time or face sanctions. Brazil’s General Law for Protection of Personal Data (LGPD) went into effect in August 2020. The LGPD governs the processing and transfer of the personal data of subjects in Brazil by people or entities, regardless of the type of processing, the country where the data is located, or the headquarters of the entity processing the data. It also established a National Data Protection Authority (ANPD) to administer the law’s provisions, responsible for oversight and sanctions (which will go into effect August 2021) which can total up to R$50 million (approximately $10 million) per infringement.

Brazil has a system in place for mortgage registration, but implementation is uneven and there is no standardized contract. Foreign individuals or foreign-owned companies can purchase real estate property in Brazil. Foreign buyers frequently arrange alternative financing in their own countries, where interest rates may be more attractive. Law 9514/1997 helped to boost the mortgage industry by establishing a legal framework for a secondary market in mortgages and streamlining the foreclosure process, but the mortgage market in Brazil is still underdeveloped, and foreigners may have difficulty obtaining local financing. Large U.S. real estate firms are, nonetheless, expanding their portfolios in Brazil.

Intellectual property (IP) rights holders in Brazil continue to face challenges. Brazil has remained on the “Watch List” of the U.S. Trade Representative’s (USTR) Special 301 Report since 2017. The U.S. Government has long-standing concerns about Brazil’s enforcement regime and specific problems like the excessively high rates of online piracy. Brazil has one physical market located in São Paulo that is listed on USTR’s 2021 Review of Notorious Markets for Counterfeiting and Piracy. The Rua 25 de Março area is identified in the review as a distribution center for counterfeit and pirated goods throughout São Paulo. Government officials continue to take enforcement actions in this region, and authorities have used these enforcement actions as a basis to take civil measures against some of the other stores that have been identified for selling counterfeit goods in the area. According to the National Forum Against Piracy, contraband, pirated, counterfeit, and stolen goods cost Brazil approximately $54 billion in 2020. (https://www.fncp.org.br/areas-de-atuacao.html#combate-ao-mercado-ilegal  ) (Yearly average currency exchange rate: 1 USD = 5.3 BRL)

For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization (WIPO)’s country profiles: http://www.wipo.int/directory/en .  Additional information is also available from the USPTO IP Attaché in Brazil: https://www.uspto.gov/ip-policy/ip-attache-program/regions/brazil .

The Brazil Central Bank (BCB) in October 2016 implemented a sustained monetary easing cycle, lowering the Special Settlement and Custody System (Selic) baseline reference rate from a high of 14 percent in October 2016 to a record-low 2 percent by the end of 2020. The downward trend was reversed by an increase to 2.75 percent in March 2021 and reached 10.75 percent in February 2022. Brazil’s banking sector projects that the Selic will reach 12.25 percent by the end of 2022. Inflation for 2021 ended at an annualized 10.06 percent, above the target of 4 percent plus/minus 1.5 percent. The BCB’s Monetary Policy Committee (COPOM) set the BCB’s inflation target at 3.5 percent for 2022 and .25 percent in 2023 (plus/minus 1.5 percent), but as of February 2022 the BCB estimates that inflation will reach 5.4 percent in 2022, above the target again. As of mid-March 2022, Brazil’s annual inflation rate is at 10.75 percent. Brazil’s muddled fiscal policy and heavy public debt burden factor into most analysts’ forecasts that the “neutral” policy rate will remain higher than target rates among Brazil’s emerging-market peers (around five percent) over the reporting period.

According to the BCB, in 2021 the ratio of public debt to GDP reached 81.1 percent, compared to a record 89.4 percent in 2020. Analysts project that the debt/GDP ratio may rise to around 85 percent by the end of 2023.

The role of the state in credit markets grew steadily beginning in 2008, but showed a reduction in 2020 due to the pandemic. As of January 2022, public banks accounted for about 50 percent of total loans to the private sector (compared to 48.9 percent in 2018). Directed lending (that is, to meet mandated sectoral targets) also rose, and accounts for almost half of total lending. Brazil is paring back public bank lending and trying to expand a market for long-term private capital.

While local private sector banks are beginning to offer longer credit terms, state-owned development bank BNDES is a traditional source of long-term credit in Brazil. BNDES also offers export financing. Approvals of new financing by BNDES decreased 4 percent in 2021 from 2020, with the infrastructure sector receiving the majority of new capital.

The sole stock market in Brazil is B3 (Brasil, Bolsa, Balcão), created through the 2008 merger of the São Paulo Stock Exchange (Bovespa) with the Brazilian Mercantile & Futures Exchange (BM&F), forming the fourth-largest exchange in the Western hemisphere, after the NYSE, NASDAQ, and Canadian TSX Group exchanges. In 2020, there were 463 companies traded on the B3 exchange. The B3’s broadest index, the Ibovespa, decreased 11.93 percent in valuation during 2021, due to economic uncertainties related to rising and persistent inflation, particularly in the second half of the year. Foreign investors, both institutional and individuals, can directly invest in equities, securities, and derivatives; however, they are limited to trading those investments only on established markets.

Wholly-owned subsidiaries of multinational accounting firms, including the major U.S. firms, are present in Brazil. Auditors are personally liable for the accuracy of accounting statements prepared for banks.

The Brazilian financial sector is large and sophisticated. Banks lend at market rates that remain relatively high compared to other emerging economies. Reasons cited by industry observers include high taxation, repayment risk, concern over inconsistent judicial enforcement of contracts, high mandatory reserve requirements, and administrative overhead, as well as persistently high real (net of inflation) interest rates. According to BCB data collected for 2020, the average rate offered by Brazilian banks to non-financial corporations was 11.7 percent.

The banking sector in Brazil is highly concentrated, with BCB data indicating that the five largest commercial banks (excluding brokerages) account for approximately 82 percent of the commercial banking credit market totaling $800 billion by the end of 2020. Three of the five largest banks by assets in the country, Banco do Brasil, Caixa Econômica Federal, and BNDES, are partially or completely federally-owned. Large private banking institutions focus their lending on Brazil’s largest firms, while small- and medium-sized banks primarily serve small- and medium-sized companies. Citibank sold its consumer business to Itaú Bank in 2016, but maintains its commercial banking interests in Brazil. It is currently the only U.S. bank operating in the country. Increasing competitiveness in the financial sector, including in the emerging fintech space, is a vital part of the Brazilian government’s strategy to improve access to and the affordability of financial services in Brazil.

On November 16, 2020, the BCB launched its instant payment system called “PIX”. PIX is a 24/7 system that offers transfers of any value for people-people (P2P), people-business (P2B), business-people (B2P), business-business (B2B), and government-government (G2G). Brazilian customers in 2021 overwhelmingly embraced PIX, particularly for P2P transfers (which are free), replacing both cash payments and legacy bank electronic transfers which charged relatively high fees and could only take place during business hours.

In February 2021, the BCB implemented the first two of four phases of its Open Banking Initiative in an effort to open Brazil’s insulated banking system dominated by relatively few players. The first phase required Brazilian financial institutions to facilitate digitized access to their customer service channels, products, and services related to demand deposit or savings accounts, payment accounts, and credit operations. The second phase of the initiative expanded sharing customer data across a widening scope of bank products including loans. The other two phases, which are scheduled to go into effect in 2022, seek to include sharing customer data on foreign exchange, investments, and pension funds. The BCB expects that increased access to customer information will allow other financial institutions, including competitor banks and fintechs, to offer better and cheaper banking services to incumbent banks’ clients, thereby breaking up the dominance of the six large, incumbent banking institutions.

In recent years, the BCB has strengthened bank audits, implemented more stringent internal control requirements, and tightened capital adequacy rules to reflect risk more accurately. It also established loan classification and provisioning requirements. These measures apply to private and publicly owned banks alike. In December 2020, Moody’s upgraded a collection of 28 Brazilian banks and their affiliates to stable from negative after the agency had lowered the outlook on the Brazilian system in April 2020 due to economic difficulties. As of March 2021, the rating remained as stable. The Brazilian Securities Commission (CVM) independently regulates the stock exchanges, brokers, distributors, pension funds, mutual funds, and leasing companies, assessing penalties in instances of insider trading.

To open an account with a Brazilian bank, foreign account holders must present a permanent or temporary resident visa, a national tax identification number (CPF) issued by the Brazilian government, either a valid passport or identity card for foreigners (CIE), proof of domicile, and proof of income. On average, this process from application to account opening can take more than three months.

Foreign Exchange

Brazil’s foreign exchange market remains small. The latest Triennial Survey by the Bank for International Settlements conducted in December 2019 showed that the net daily turnover on Brazil’s market for OTC foreign exchange transactions (spot transactions, outright forwards, foreign-exchange swaps, currency swaps, and currency options) was $18.8 billion, down from $19.7 billion in 2016. This was equivalent to around 0.22 percent of the global market in 2019, down from 0.3 percent in 2016.

On December 29, 2021, Brazil approved a new Foreign Exchange Regulatory framework, to go into effect in December 2022, which replaces more than 40 separate regulations with a single law and eases foreign investments in the Brazilian market incentivizing increased foreign investment and assisting Brazilian businesses in integrating into global value chains. The new law aims to streamline currency exchange operations and authorizes more enterprises, including fintechs and small businesses, to conduct operations in foreign currencies bypassing retail banks and increasing their competitiveness. In addition, the law expands the list of qualifying activities transacted in foreign-currency denominated accounts (previously restricted only to import/export firms and for loans in which the debtor or creditor was based outside Brazil).

Brazil’s banking system has adequate capitalization and has traditionally been highly profitable, reflecting high interest rate spreads and fees. According to an October 2021 Central Bank Financial Stability Report, the banking system remains solid, with growing capitalization indices, and continues to rebuild its capital base. All institutions are able to meet the minimum prudential requirements, and solvency does not pose a risk to financial stability. Stress testing demonstrated that the banking system has adequate loss-absorption capacity in all simulated scenarios.

There are few restrictions on converting or transferring funds associated with a foreign investment in Brazil. Foreign investors may freely convert Brazilian currency in the unified foreign exchange market, where buy-sell rates are determined by market forces. All foreign exchange transactions, including identifying data, must be reported to the BCB. Foreign exchange transactions on the current account are fully liberalized.

The BCB must approve all incoming foreign loans. In most cases, loans are automatically approved unless loan costs are determined to be “incompatible with normal market conditions and practices.” In such cases, the BCB may request additional information regarding the transaction. Loans obtained abroad do not require advance approval by the BCB, provided the Brazilian recipient is not a government entity. Loans to government entities require prior approval from the Brazilian senate as well as from the Economic Ministry’s Treasury Secretariat, and must be registered with the BCB.

Interest and amortization payments specified in a loan contract can be made without additional approval from the BCB. Early payments can also be made without additional approvals if the contract includes a provision for them. Otherwise, early payment requires notification to the BCB to ensure accurate records of Brazil’s stock of debt.

Remittance Policies

Brazilian Federal Revenue Service regulates withholding taxes (IRRF) applicable to earnings and capital gains realized by individuals and legal entities residing or domiciled outside Brazil. Upon registering investments with the BCB, foreign investors are able to remit dividends, capital (including capital gains), and, if applicable, royalties. Investors must register remittances with the BCB. Dividends cannot exceed corporate profits. Investors may carry out remittance transactions at any bank by documenting the source of the transaction (evidence of profit or sale of assets) and showing payment of applicable taxes.

Under Law 13.259/2016 passed in March 2016, capital gain remittances are subject to a 15 to 22.5 percent income withholding tax, with the exception of capital gains and interest payments on tax-exempt domestically issued Brazilian bonds. The capital gains marginal tax rates are 15 percent for up to $1,000,000 in gains; 17.5 percent for $1,000,000 to $10,000,000 in gains; 20 percent for $10,000,000 to $60,000,000 in gains; and 22.5 percent for more than $60,000,000 in gains.

Repatriation of a foreign investor’s initial investment is also exempt from income tax under Law 4131/1962. Lease payments are assessed a 15 percent withholding tax. Remittances related to technology transfers are not subject to the tax on credit, foreign exchange, and insurance, although they are subject to a 15 percent withholding tax and an extra 10 percent Contribution for Intervening in Economic Domain (CIDE) tax.

Brazil had a sovereign fund from 2008 – 2018, when it was abolished, and the money was used to repay foreign debt.

Most state-owned and private sector corporations of any significant size in Brazil pursue corporate social responsibility (CSR) activities. Brazil’s new CFIAs (see sections on bilateral investment agreements and dispute settlement) contain CSR provisions. Some corporations use CSR programs to meet local content requirements, particularly in information technology manufacturing. Many corporations support local education, health, and other programs in the communities where they have a presence. Brazilian consumers, especially the local residents where a corporation has or is planning a local presence, generally expect CSR activity. Corporate officials frequently meet with community members prior to building a new facility to review the types of local services the corporation will commit to providing. Foreign and local enterprises in Brazil often advance United Nations Development Program (UNDP) Sustainable Development Goals (SDGs) as part of their CSR activity, and will cite their local contributions to SDGs, such as universal primary education and environmental sustainability. Brazilian prosecutors and civil society can be very proactive in bringing cases against companies for failure to implement the requirements of the environmental licenses for their investments and operations. National and international nongovernmental organizations monitor corporate activities for perceived threats to Brazil’s biodiversity and tropical forests and can mount strong campaigns against alleged misdeeds. A common challenge for foreign businesses, especially as it relates to child and forced labor, is a lack of transparency in supply chains.

The U.S. diplomatic mission in Brazil supports U.S. business CSR activities through the +Unidos Group (Mais Unidos), a group of multinational companies established in Brazil, which support public and private CSR alliances in Brazil. Additional information can be found at: www.maisunidos.org  

Additional Resources

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain

Climate Issues

Brazil is the world’s 12th largest greenhouse gas emitter. At COP 26 in November 2021, Brazil committed to achieving net zero emissions by 2050, ten years ahead of its previous commitment, ending illegal deforestation by 2028, and announced a plan to implement a Brazilian carbon market in 2022. However, rates of illegal deforestation continue to rise from a 2012 low; in 2021, illegal deforestation increased by 22 percent from the previous year. Private sector operators, especially in the agricultural sector, are concerned that consumer reaction to environmental issues in Brazil, especially deforestation in the Amazon Basin, could result in the boycott of Brazilian exports and a loss of market share. Such boycotts have already occurred in some supermarket chains in Europe.

Brazil established a National Policy on Climate Change in 2009 for climate change mitigation, adaptation, and consolidation of a low carbon economy. During COP 26 in Glasgow, Brazil published guidelines to update its national climate strategy, focusing on consolidating various initiatives to develop a low carbon economy. The strategy includes goals such as eliminating illegal deforestation, restoring forests, a “National Green Growth Plan,” and financing directed at developing a green economy.

In biodiversity, the Brazilian Ministry of the Environment coordinates and supports actions aimed at identifying species of native fauna and flora, monitoring and evaluating the conservation status of an increasingly significant portion of these species. To ensure the conservation of native species, the Ministry creates development models that encourage the sustainable use of biodiversity, along the lines of what is encouraged under the Convention on Biological Diversity and the International Treaty on Plant Genetic Resources for Food and Agriculture.

In October 2021, the government launched the National Green Growth Program. The Program uses new resources from the BRICS Development Bank for forest conservation projects, the rational use of natural resources, and the generation of green jobs. The new program will have national and international resources, public and private, reimbursable and non-reimbursable impact funds and risk investments. The plan focuses on six areas: renewable energy, sustainable agriculture, low-emission industry, basic sanitation, waste treatment, and ecotourism. At the program launch, the Brazilian Ministry of Environment stated that the federal government has a total credit line of 411 billion reais ($82.2 million) allocated for green projects. However, critics argue that the program is just a repackaging of several initiatives that already existed in the government, claiming that of the 400 billion reais planned, only 12 billion ($2.4 million, 3 percent of the total) were new funds.

At COP 26, Brazil signed the Global Methane Pledge to reduce global methane emissions by 30 percent by 2030. In February 2022, the Ministry of Environment announced that it would soon present a “Methane Zero” plan that would incentivize biomethane capture/production from landfills, sugar cane waste, and dairy barns; however, as of March 2022 the plan has not been announced.

The government expects active participation from the private sector through contributions to the Ministry of Environment’s projects. For example, the “Adopt-a-Park” program was established to gather resources for the conservation of national parks and is directed at national and foreign companies or individuals that are interested in contributing to environmental protection in Brazil. Through the program, resources are invested by the adopter in services such as remote monitoring, wildland firefighting and prevention, actions against illegal deforestation, and recovery of degraded areas.

In 2019, Brazil launched the National Biofuels Policy (RenovaBio) to comply with its Paris Agreement commitments by promoting the expansion of biofuels in the energy matrix and the reduction of greenhouse gas emissions. The policy established annual national decarbonization targets for the fuel sector, divided into mandatory individual targets for fuel distributors. To comply with the targets, fuel distributors purchase Decarbonization Credits (CBIO), a financial asset tradable on the stock exchange since 2020 derived from the certification of the biofuel production process and that corresponds to one ton of carbon dioxide. According to the Brazilian government, the program reached 85 percent of its targets in 2021, preventing the emission of 24 million tons of greenhouse gases and trading $212 million-worth of CBIOs in the stock market.

Brazil has laws, regulations, and penalties to combat corruption, but enforcement activities against corruption are inconsistent. Several bills to revise the country’s regulation of the lobbying/government relations industry have been pending before Congress for years. Bribery is illegal, and a bribe by a Brazilian-based company to a foreign government official can result in criminal penalties for individuals and administrative penalties for companies, including fines and potential disqualification from government contracts. A company cannot deduct a bribe to a foreign official from its taxes. While federal government authorities generally investigate allegations of corruption, there are inconsistencies in the level of enforcement among individual states. Corruption is problematic in business dealings with some authorities, particularly at the municipal level. U.S. companies operating in Brazil are subject to the U.S. Foreign Corrupt Practices Act (FCPA).

Brazil signed the UN Convention against Corruption in 2003 and ratified it in 2005. Brazil is a signatory to the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery. It was one of the founders, along with the United States, of the intergovernmental Open Government Partnership, which seeks to help governments increase transparency.

In 1996, Brazil signed the Inter-American Convention Against Corruption (IACAC), developed within the Organization of American States (OAS). It was incorporated in Brazil by Legislative Decree 152 and went into force in 2002.

In 2020, Brazil ranked 96th out of 180 countries in Transparency International’s Corruption Perceptions Index. The full report can be found at: https://www.transparency.org/en/cpi/2021 

From 2014-2021, the complex federal criminal investigation known as Operação Lava Jato (Operation Carwash) investigated and prosecuted a complex web of public sector corruption, contract fraud, money laundering, and tax evasion stemming from systematic overcharging for government contracts, particularly at parastatal oil company Petrobras. The investigation led to the arrests and convictions of Petrobras executives, oil industry suppliers, executives from Brazil’s largest construction companies, money launderers, former politicians, and political party operators. Appeals of convictions and sentences continue to work their way through the Brazilian court system. On December 25, 2019, Brazilian President Jair Bolsonaro signed a packet of anti-crime legislation into law, which included several anti-corruption measures. The new measures include regulation of immunity agreements – information provided by a subject in exchange for reduced sentence – which were widely used during Operation Carwash. The legislation also strengthens Brazil’s whistleblower mechanisms, permitting anonymous information about crimes against the public administration and related offenses. Operation Carwash was dissolved in February 2021. In March 2021, the OECD established a working group to monitor anticorruption efforts in Brazil.

In December 2016, Brazilian construction conglomerate Odebrecht and its chemical manufacturing arm Braskem agreed to pay the largest FCPA penalty in U.S. history and plead guilty to charges filed in the United States, Brazil, and Switzerland that alleged the companies paid hundreds of millions of dollars in bribes to government officials around the world. The U.S. Department of Justice case stemmed directly from the Lava Jato investigation and focused on violations of the anti-bribery provisions of the FCPA. Details on the case can be found at: https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve  

In January 2018, Petrobras settled a class-action lawsuit with investors in U.S. federal court for $3 billion, which was one of the largest securities class action settlements in U.S. history. The investors alleged that Petrobras officials accepted bribes and made decisions that had a negative impact on Petrobras’ share value. In September 2018, the U.S. Department of Justice announced that Petrobras would pay a fine of $853.2 million to settle charges that former executives and directors violated the FCPA through fraudulent accounting used to conceal bribe payments from investors and regulators.

In October 2020, Brazilian meatpacking and animal protein company JBS reached two settlements in the United States to pay fines to settle charges of corruption. The company is part of the J&F Group, which was also a part of the settlements. The group agreed to pay over $155 million in fines for violations of U.S. laws due to misconduct by J&F and failure to maintain accounting records by JBS. Lava Jato investigations also resulted in the arrest of several JBS executives who also signed plea bargains in the 2020 settlements.

Resources to Report Corruption

Secretaria de Cooperação Internacional – Ministério Público Federal

SAF Sul Quadra 04 Conjunto C Bloco “B” Sala 509/512

pgr-internacional@mpf.mp.br 
stpc.dpc@cgu.gov.br 
https://www.gov.br/cgu/pt-br/anticorrupcao 

Transparência BrasilR. Bela Cintra, 409; Sao Paulo, Brasil+55 (11) 3259-6986http://www.transparencia.org.br/contato

Strikes and demonstrations occasionally occur in urban areas and may cause temporary disruption to public transportation. Brazil has over 41,000 murders annually, with low rates of murder investigation case completions and convictions.

Non-violent pro- and anti-government demonstrations have occurred periodically in recent years.

Although U.S. citizens usually are not targeted during such events, U.S. citizens traveling or residing in Brazil are advised to take common-sense precautions and avoid any large gatherings or any other event where crowds have congregated to demonstrate or protest. For the latest U.S. State Department guidance on travel in Brazil, please consult www.travel.state.gov.

The Brazilian labor market is composed of approximately 107.8 million workers, including employed (95.7 million) and unemployed (12 million). Among employed workers, 38.95 million (40.7 percent) work in the informal sector. Brazil had an unemployment rate of 11.1 percent in the last quarter of 2021, although that rate was more than double (22.8 percent) for workers ages 18-24. Low-skilled employment dominates Brazil’s labor market. The nearly 40 million workers in the informal sector do not receive the full benefits that formal workers enjoy under Brazil’s labor and social welfare system. The informal market represents approximately 16.8 percent of Brazil’s GDP. In 2021, employees’ average monthly income reached the lowest level in recorded history, at R$ 2,587 ($488).

Since 2012, women have on average been unemployed at a higher rate than their male counterparts, a scenario worsened by the pandemic. Between 2012 and 2019, the difference in average employment rates between men and women was 3.3 percentage points. In 2020, the average rate difference reached 4.5 percentage points and in 2021, 5.8 percentage points. In the last quarter of 2021, the Brazilian men’s unemployment rate was 9 percent, while the women’s unemployment rate was 13.9 percent. This discrepancy in employment rates is also traditionally observed for people of color in Brazil: while unemployment rates for whites is 9 percent (below the national average), blacks and mixed-race unemployment rates are significantly higher, at 13.6 percent and 12.6 percent respectively.

Foreign workers made up less than one percent of the overall labor force, but the arrival of more than 305,000 economic migrants and refugees from Venezuela since 2016 has led to large local concentrations of foreign workers in the border state of Roraima and the city of Manaus. Since April 2018, the Brazilian government, through Operation Welcome’s voluntary interiorization strategy, has relocated more than 68,000 Venezuelans from the northern border region to cities with more economic opportunities. Migrant workers within Brazil play a significant role in the agricultural sector.

Workers in the formal sector contribute to the Time of Service Guarantee Fund (FGTS) the amount of one month’s salary over the course of a year. If a company terminates an employee, the employee can access the full amount of their FGTS contributions, or if the employee leaves voluntarily they are entitled to 20 percent of their contributions. Brazil’s labor code guarantees formal sector workers 30 days of annual leave and severance pay in the case of dismissal without cause. Unemployment insurance also exists for laid-off workers, equal to the country’s minimum salary (or more depending on previous income levels) for six months. The government does not waive any labor laws to attract investment.

Collective bargaining is common, and there are 17,630 labor unions operating in Brazil in 2022. Labor unions, especially in sectors such as metalworking and banking, are well organized in advocating for wages and working conditions. In some sectors, federal regulations mandate collective bargaining negotiations across the entire industry. A new labor law in November 2017 ended mandatory union contributions, which has reduced union finances by as much as 90 percent according to the Inter-Union Department of Statistics and Socio-economic Studies (DIEESE). According to the Brazilian Institute of Geography and Statistics (IBGE), the share of unionized workers dropped to 11.2 percent of the workforce in 2019. The Ministry of Labor reported 7,854 collective bargaining agreements in 2021, an increase compared to the 6,118 agreements reported in 2020. Employer federations also play a significant role in both public policy and labor relations. Each state has its own federations of industry and commerce, which report respectively to the National Confederation of Industry (CNI), headquartered in Brasilia, and the National Confederation of Commerce (CNC), headquartered in Rio de Janeiro.

Brazil has a dedicated system of labor courts that are charged with resolving routine cases involving unfair dismissal, working conditions, salary disputes, and other grievances. Labor courts have the power to impose an agreement on employers and unions if negotiations break down and either side appeals to the court system. As a result, labor courts routinely are called upon to determine wages and working conditions in various industries across the country. The labor courts system has millions of pending legal cases on its docket, although the number of new filings has decreased since November 2017 labor law reforms.

Strikes occur periodically, particularly among public sector unions. A strike organized by truckers’ unions protesting increased fuel prices paralyzed the Brazilian economy in May 2018 and led to billions of dollars in losses to the economy. Trucker strikes in 2021, however, had more limited impact.

Brazil has ratified 98 International Labor Organization (ILO) conventions and is party to the UN Convention on the Rights of the Child and major ILO conventions concerning the prohibition of child labor, forced labor, and discrimination. For the past four years (2018-2021), the Department of Labor, in its annual publication “Findings on the Worst forms of Child Labor,” has recognized Brazil for its moderate advancement in efforts to eliminate the worst forms of child labor. On July 28, 2021, President Jair Bolsonaro re-established the Ministry of Labor and Welfare as a separate ministry, reversing its January 2019 merger into the Ministry of Economy. In 2021, the GoB inspected 443 properties, resulting in the rescue of 1,937 victims of forced labor. Additionally, in 2020 GoB officials removed 810 child workers from situations of child labor, compared to 1,040 children in 2019.

Historically and for more than four decades, promoting FDI has been an essential part of the Chilean government’s national development strategy. The country’s market-oriented economic policy creates significant opportunities for foreign investors to participate. Laws and practices are not discriminatory against foreign investors, who receive treatment similar to Chilean nationals. Chile’s business climate is generally straightforward and transparent, and its policy framework has remained consistent despite developments such as civil unrest in 2019 and the COVID-19 pandemic. However, the permitting process for infrastructure, mining, and energy projects is contentious, especially regarding politically sensitive environmental impact assessments, water rights issues, and indigenous consultations. In July 2021, Chile began a constitutional reform process that is expected to produce a new constitution by July that Chileans will vote on whether to enact in September. Key issues under discussion through the Constitutional Assembly process include the political structure of the country, water rights, mining rights, environmental regulation, and the status of indigenous communities.

InvestChile is the government agency in charge of facilitating the entry and retention of FDI into Chile. It provides services related to investment attraction (information about investment opportunities); pre-investment (sector-specific advisory services, including legal); landing (access to certificates, funds and networks); and after-care (including assistance for exporting and re-investment).

Regarding government-investor dialogue, in May 2018, the Ministry of Economy created the Sustainable Projects Management Office (GPS). This agency provides support to investment projects, both domestic and foreign, serving as a first point of contact with the government and coordinating with different agencies in charge of evaluating investment projects, which aims to help resolve issues that emerge during the permitting process.

Foreign investors have access to all productive activities, except for the domestic maritime freight sector, in which foreign ownership of companies is capped at 49 percent. Maritime transportation between Chilean ports is open since 2019 to foreign cruise vessels with more than 400 passengers. Some international reciprocity restrictions exist for fishing.

Most enterprises in Chile may be 100 percent owned by foreigners. Chile only restricts the right to private ownership or establishment in what it defines as certain “strategic” sectors, such as nuclear energy and mining. The current Constitution establishes the “absolute, exclusive, inalienable and permanent domain” of the Chilean state over all mineral, hydrocarbon, and fossil fuel deposits within Chilean territory. However, Chilean law allows the government to grant concession rights and lease agreements to individuals and companies for exploration and exploitation activities, and to assign contracts to private investors, without discrimination against foreign investors. The Constitutional Assembly is reviewing proposals that if enacted could affect mining operations of foreign investors.

Chile has not implemented an investment screening mechanism to protect key national security priorities. FDI is subject to pro forma screening by InvestChile. Businesses in general do not consider these screening mechanisms as barriers to investment because approval procedures are expeditious, and investments are usually approved. Some transactions require an anti-trust review by the office of the national economic prosecutor (Fiscalía Nacional Económica) and possibly by sector-specific regulators.

The World Trade Organization (WTO) has not conducted a Trade Policy Review for Chile since June 2015 (available here: https://www.wto.org/english/tratop_e/tpr_e/tp415_e.htm ). The Organization for Economic Co-operation and Development (OECD) has not conducted an Investment Policy Review for Chile since 1997 (available here: http://www.oecd.org/daf/inv/investment-policy/34384328.pdf ), and the country is not part of the countries covered to date by the United Nations Conference on Trade and Development’s (UNCTAD) Investment Policy Reviews.

The Chilean government took significant steps towards business facilitation during the past decade. Starting in 2018, the government introduced updated electronic and online systems for providing some tax information, complaints related to contract enforcement, and online registration of closed corporations (non-public corporations). In June 2019, the Ministry of Economy launched the Unified System for Permits (SUPER), a new online single-window platform that brings together 182 license and permit procedures, simplifying the process of obtaining permits for investment projects.

According to the World Bank, Chile has one of the shortest and smoothest processes among Latin American and Caribbean countries – 11 procedures and 29 days – to establish a foreign-owned limited liability company (LLC). Drafting statutes of a company and obtaining an authorization number can be done online at the platform HYPERLINK hError! Hyperlink reference not valid.. Electronic signature and invoicing allow foreign investors to register a company, obtain a tax payer ID number and get legal receipts, invoices, credit and debit notes, and accountant registries. A company typically needs to register with Chile’s Internal Revenue Service, obtain a business license from a municipality, and register either with the Institute of Occupational Safety (public) or with one of three private nonprofit entities that provide work-related accident insurance, which is mandatory for employers. In addition to the steps required of a domestic company, a foreign company establishing a subsidiary in Chile must authenticate the parent company’s documents abroad and register the incoming capital with the Central Bank. This procedure, established under Chapter XIV of the Foreign Exchange Regulations, requires a notice of conversion of foreign currency into Chilean pesos when the investment exceeds $10,000. The registration process at the Registry of Commerce of Santiago is available online.

The Government of Chile does not have an active policy of promotion or incentives for outward investment, nor does it impose restrictions on it.

Chile’s legal, regulatory, and accounting systems are transparent and provide clear rules for competition and a level playing field for foreigners. They are consistent with international norms; however, environmental regulations – which include mandatory indigenous consultation required by the International Labor Organization’s Indigenous and Tribal Peoples Convention (ILO 169) – and other permitting processes have become lengthy and unpredictable, especially in politically sensitive cases.

Chile does not have a regulatory oversight body. Four institutions play key roles in the rule-making process: The General-Secretariat of the Presidency (SEGPRES), the Ministry of Finance, the Ministry of Economy, and the General Comptroller of the Republic. Most regulations come from the national government; however, some, in particular those related to land use, are decided at the local level. Both national and local governments are involved in the issuance of environmental permits. Regulatory processes are managed by governmental entities. NGOs and private sector associations may participate in public hearings or comment periods.

In Chile, non-listed companies follow norms issued by the Accountants Professional Association, while publicly listed companies use the International Financial Reporting Standards (IFRS). Since January 2018, IFRS 9 entered into force for companies in all sectors except for banking, in which IFRS 15 will be applied. IFRS 16 entered into force in January 2019. On January 1, 2022, Chile’s Financial Market Commission (CMF) began implementation of the IFRS 17 accounting standards in the Chilean insurance market.

The legislation process in Chile allows for public hearings during discussion of draft bills in both chambers of Congress. Draft bills submitted by the Executive Branch to the Congress are readily available for public comment. Ministries and regulatory agencies are required by law to give notice of proposed regulations, but there is no formal requirement in Chile for consultation with the general public, conducting regulatory impact assessments of proposed regulations, requesting comments, or reporting results of consultations. For lower-level regulations or norms that do not need congressional approval, there are no formal provisions for public hearing or comment. As a result, Chilean regulators and rulemaking bodies normally consult with stakeholders, but in a less formal manner.

All decrees and laws are published in the Diario Oficial (roughly similar to the Federal Register in the United States), but other types of regulations will not necessarily be found there. There are no other centralized online locations where regulations in Chile are published.

According to the OECD, compliance rates in Chile are generally high. The approach to enforcement remains punitive rather than preventive, and regulators still prefer to inspect rather than collaborate with regulated entities on fostering compliance. Each institution with regulation enforcement responsibilities has its own sanction procedures. Law 19.880 from 2003 establishes the principles for reversal and hierarchical recourse against decisions by the administration. An administrative act can be challenged by lodging an action in the ordinary courts of justice, or by administrative means with a petition to the Comptroller General of the Republic. Affected parties may also make a formal appeal to the Constitutional Court against a specific regulation.

Chile still lacks a comprehensive, “whole of government” regulatory reform program. The OECD’s April 2016 “Regulatory Policy in Chile” report asserts that Chile took steps to improve its rule-making process, but still lags behind the OECD average in assessing the impact of regulations, consulting with outside parties on their design and evaluating them over time. The World Bank´s Global Indicators of Regulatory Governance project finds that Chile is not part of the countries that have improved their regulatory governance framework since 2017.

Chile’s level of fiscal transparency is excellent. Information on the budget and debt obligations, including explicit and contingent liabilities, is easily accessible online.

Chile does not share regulatory sovereignty with any regional economic bloc. However, several international norms or standards from multilateral organizations (UN, WIPO, ILO, among others) are referenced or incorporated into the country’s regulatory system. As a member of the WTO, the Chile notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Chile’s legal system is based on civil law. Chile’s legal and regulatory framework provides for effective means for enforcing property and contractual rights.

Laws governing issues of interest to foreign investors are found in several statutes, including the Commercial Code of 1868, the Civil Code, the Labor Code and the General Banking Act. Chile has specialized courts for dealing with tax and labor issues.

The judicial system in Chile is generally transparent and independent. The likelihood of government intervention in court cases is low. If a state-owned firm is involved in the dispute, the Government of Chile may become directly involved through the State Defense Council, which represents the government interests in litigation cases related to expropriations.

Regulations can be challenged before the court system, the National Comptroller, or the Constitutional Court, depending on the nature of the claim.

Law 20,848 of 2015, established a new framework for foreign investment in Chile and created the Agency for the Promotion of Foreign Investment (APIE), successor to the former Foreign Investment Committee and which also acts under the name of “InvestChile.” The InvestChile website provides relevant laws, rules, procedures, and reporting requirements for investors. For more on FDI regulations and services for foreign investors, see the section on Policies Towards Foreign Direct Investment.

Chile’s anti-trust law prohibits mergers or acquisitions that would prevent free competition in the industry at issue. An investor may voluntarily seek a ruling by an Anti-trust Court that a planned investment would not have competition implications. The national economic prosecutor (FNE) is an active institution in conducting investigations for competition-related cases and filing complaints before the Free Competition Tribunal (TDLC), which rules on those cases.

In January and March 2021, the TDLC approved two extra-judicial settlements between the FNE and Nestle, after the company faced two cases of anti-competitive clauses in the contracts with fresh milk producers. The settlement included a US$ 1.8 million payment from Nestle. On the other hand, in April 2021, the FNE cleared Nestle´s acquisition of Chilean premium chocolate maker La Fete, after finding that the two companies serve different market segments.

In March 2021, the FNE cleared Chinese state-owned enterprise State Grid International Development Limited’s (SGIDL) acquisition of Chilean energy company Compañia General de Electricidad (CGE).

In September 2020, the FNE imposed fines amounting to US$ 4.1 million on the Walt Disney Company and its subsidiary TWDC Enterprises 18 Corp. for failing to provide accurate information to adopt adequate mitigation measures during the approval process for its acquisition of Twenty-First Century Fox, Inc. In June 2021, the TDLC approved the payment of a US$ 220,000 fine for the second charge, while the investigation for the main charge remains ongoing.

In October 2021, the TDLC approved remedies agreed upon by Delta and LATAM airlines with the FNE to mitigate the risks to competition arising from Delta’s acquisition of a 20% minority stake in LATAM’s share capital, along with a joint venture and code share agreements for direct routes between the United States and Canada and between certain South American countries with the United States.

In October 2021, the FNE presented a collusion case against the three main securities transport companies that operate in Chile -Brink’s Chile S.A., Prosegur and Loomis-, for having entered into an agreement to fix the prices of its services between 2017 and 2018. The FNE asked the TDLC to apply fines amounting to US$ 63.4 million against the firms (US$30.5 million for Brink’s Chile S.A., US$25.8 million for Prosegur and US$6.4 million for Loomis), as well as fines between US$ 88,000 and US$ 135,000 against the general managers and the regional heads who were in charge of the Chile offices.

Chilean law grants the government authority to expropriate property, including property of foreign investors, only on public interest or national interest grounds, on a non-discriminatory basis and in accordance with due process. The government has not nationalized a private firm since 1973. Expropriations of private land take place in a transparent manner, and typically only when the purpose is to build roads or other types of infrastructure. The law requires the payment of immediate compensation at fair market value, in addition to any applicable interest.

Chile’s Insolvency Law from 1982 was updated in October 2014. The current law aims to clarify and simplify liquidation and reorganization procedures for businesses to prevent criminalizing bankruptcy. It also established the new Superintendence of Insolvency and created specialized insolvency courts. The new insolvency law requires creditors’ approval to select the insolvency representative and to sell debtors’ substantial assets. The creditor also has the right to object to decisions accepting or rejecting creditors’ claims. However, the creditor cannot request information from the insolvency representative. The creditor may file for insolvency of the debtor, but for liquidation purposes only. The creditors are divided into classes for the purposes of voting on the reorganization plan; each class votes separately, and creditors in the same class are treated equally.

The Chilean government generally does not subsidize foreign investment, nor does it issue guarantees or joint financing for FDI projects. There are, however, some incentives directed toward isolated geographical zones and to the information technology sector. These benefits relate to co-financing of feasibility studies as well as to incentives for the purchase of land in industrial zones, the hiring of local labor, and the facilitation of project financing. Other important incentives include accelerated depreciation accounting for tax purposes and legal guarantees for remitting profits and capital. Additionally, the Start-Up Chile program provides selected entrepreneurs with grants of up to US$ 80,000, along with a Chilean work visa to develop a “startup” business in Chile over a period of four to seven months. Chile has other special incentive programs aimed at promoting investment and employment in remote regions, as well as other areas that suffer development lags.

Chile has two free trade zones: one in the northern port city of Iquique (Tarapaca Region) and the other in the far south port city of Punta Arenas (Magallanes Region). Merchants and manufacturers in these zones are exempt from corporate income tax, value added taxes (VAT) – on operations and services that take place inside the free trade zone – and customs duties. The same exemptions also apply to manufacturers in the Chacalluta and Las Americas Industrial Park in Arica (Arica and Parinacota Region). Mining, fishing, and financial services are not eligible for free zone concessions. Foreign-owned firms have the same investment opportunities in these zones as Chilean firms. The process for setting up a subsidiary is the same inside as outside the zones, regardless of whether the company is domestic or foreign-owned.

Chile mandates that 85 percent of a firm’s workers must be local employees. Exceptions are described in Section 11. The costs associated with migration regulations do not significantly inhibit the mobility of foreign investors and their employees.

Chile does not follow “forced localization.” A draft bill that is pending in Chile’s Congress could result in additional requirements (owner’s consent) for international data transfers in cases involving jurisdictions with data protection regimes below Chile’s standards. The bill, modeled after the European Union’s General Data Protection Regulation (GDPR) also proposes the creation of an independent Chilean Data Protection Agency that would be responsible for enforcing data protection standards.

Neither Chile’s Foreign Investment Promotion Agency nor the Central Bank applies performance requirements in their reviews of proposed investment projects. The investment chapter in the U.S.–Chile FTA establishes rules prohibiting performance requirements that apply to all investments, whether by a third party or domestic investors. The FTA investment chapter also regulates the use of mandatory performance requirements as a condition for receiving incentives and spells out certain exceptions. These include government procurement, qualifications for export and foreign aid programs, and non-discriminatory health, safety, and environmental requirements.

Property rights and interests are recognized and generally enforced in Chile. Chile ranked 63 out of 190 economies in the “Registering Property” category of the World Bank’s 2020 Doing Business report. There is a recognized and generally reliable system for recording mortgages and other forms of liens.

There are no restrictions on foreign ownership of buildings and land, and no time limit on the property rights acquired by them. The only exception, based on national security grounds, is for land located in border territories, which may not be owned by nationals or firms from border countries, without prior authorization of the President of Chile. There are no restrictions to foreign and/or non-resident investors regarding land leases or acquisitions. In the Doing Business specific index for “quality of land administration” (which includes reliability of infrastructure, transparency of information, geographic coverage and land dispute resolution), Chile obtains a score of 14 out of 30.

Unoccupied properties can always be claimed by their legal owners and, as usurpation is a criminal offense, several kinds of eviction procedures are allowed by the law, though they can sometimes be onerous and lengthy.

According to the U.S. Chamber of Commerce’s International IP Index, Chile’s legal framework provides for fair and transparent use of compulsory licensing; extends necessary exclusive rights to copyright holders and maintains a voluntary notification system; and provides for civil and procedural remedies. However, IP protection challenges remain. Chile’s framework for trade secret protection has been deemed insufficient by private stakeholders. Pharmaceutical products suffer from relatively weak patenting procedures, the absence of an effective patent enforcement and resolution mechanism, and some gaps in regulation governing data protection.

Two important IP-related laws are pending in the Chilean Congress. A draft bill submitted to Congress in October 2018 would reform Chile’s Industrial Property Law. The new IP bill aims to reduce timeframes, modernize procedures, and increase legal certainty for patents and trademarks registration. On April 9, 2019, the bill was passed by the Lower Chamber and sent to the Senate. Meanwhile, a reform bill on Chile’s pharmaceutical drugs law called “Ley de Fármacos II”, originated in the Senate but was extensively amended by the opposition-controlled Lower Chamber, and has been under review by a mixed committee of both houses of the Chilean Congress since May 2020. While the pharmaceutical industry reports that the reconciliation process addressed some of their concerns regarding the new regulations, it identified the lack of coverage being offered in price regulations as an outstanding issue of concern.

A new legislation that modernizes certain aspects of Chile’s patent and IP regime – Ley Corta 21335 – entered into force on January 5, 2022. The new law modernizes procedures for industrial designs and trademarks registration; criminalizes trademark falsification with stronger fines and introducing prison terms of up to three years; introduces provisional patents, so that innovators can initiate a patent registration procedure while being afforded 12 months to gather necessary information; strengthens patent enforcement measures, allowing affected patent owners to request the transfer of an infringing registered patent and not only its annulment; and broadens the definition of trade secrets.

On February 7, 2022, a new law against trade in illicit and counterfeit goods, with a focus on disrupting organized criminal activity, entered into force. The scope of the law covers counterfeiting, the reproduction or unauthorized sale of literary, artistic, and scientific works protected by IPR, as well as phonograms, videos, phonographic records, cassettes, videocassettes, films or motion pictures, and computer programs.

The Intellectual Property Brigade (BRIDEPI) of the Chilean Investigative Police (PDI) reported that it seized 41,349 counterfeit products in 2021, worth a total of US$ 491,844, and arrested nine individuals on charges related to IPR infringement. Additionally, the National Customs Service reported that, between January and September 2021 (latest data available) it seized more than 4.9 million counterfeit products worth a total of US$ 54 million.

Chile’s IPR enforcement remains relatively lax, particularly in relation to piracy, copyright, and patent protection, while prosecution of IP infringement is hindered by gaps in the legal framework and a lack of expertise in IP law among judges. Rights holders indicate a need for greater resources devoted to customs operations and a better-defined procedure for dealing with small packages containing infringing goods. The legal basis for detaining and seizing suspected transshipments is also insufficiently clear.

Since 2007, Chile has been on the Special 301 Priority Watch List (PWL). In October 2018, Chile’s Congress successfully passed a law that criminalizes satellite piracy. In December 2021, the Ministry of Culture, Arts, and Heritage took positive action by introducing legislation in the Chilean Congress to implement a legal framework to penalize the circumvention of technology protection measures (TPM) by amending Chile’s existing IPR law. This legislation remains pending in Congress. However, other challenges remain, related to longstanding IPR issues under the U.S.-Chile FTA: the pending implementation of UPOV 91; the implementation of an effective patent linkage in connection with applications to market pharmaceutical products; adequate protection for undisclosed data generated to obtain marketing approval for pharmaceutical products; and amendments to Chile’s Internet Service Provider liability regime to permit effective action against Internet piracy.

Chile is not listed in the USTR’s Notorious Markets List. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at HYPERLINK hError! Hyperlink reference not valid..

Chile’s authorities are committed to developing capital markets and keeping them open to foreign portfolio investors. Foreign firms offer services in Chile in areas such as financial information, data processing, financial advisory services, portfolio management, voluntary saving plans and pension funds. Under the U.S.-Chile FTA, Chile opened up significantly its insurance sector, with very limited exceptions. The Santiago Stock Exchange is Chile’s dominant stock exchange, and the third largest in Latin America. However, when compared to other OECD countries, it has lower market liquidity.

Existing policies facilitate the free flow of financial resources into Chile’s product and factor markets and adjustment to external shocks in a commodity export-dependent economy. Chile accepted the obligations of Article VIII (sections 2, 3 and 4) and maintains a free-floating exchange rate system, free of restrictions on payments and transfers for current international transactions. Credit is allocated on market terms and its various instruments are available to foreigners. The Central Bank reserves the right to restrict foreign investors’ access to internal credit if a credit shortage exists. To date, this authority has not been exercised.

Nearly one fourth of Chileans have a credit card from a bank and nearly one third have a non-bank credit card, but less than 20 percent have a checking account. However, financial inclusion is higher than banking penetration: a large number of lower-income Chilean residents have a CuentaRut, which is a commission-free card with an electronic account available for all, launched by the state-owned Banco Estado, also the largest provider of microcredit in Chile.

The Chilean banking system is healthy and competitive, and many Chilean banks already meet Basel III standards. The new General Banking Act (LGB), published in January 2019, defined general guidelines for establishing a capital adequacy system in line with Basel standards, and gave the CMF the authority to establish the capital framework. All Basel III regulations were published in December 2020, and the CMF started the implementation process of Basel III requirements to last to December 1, 2025. The system’s liquidity position (Liquidity Coverage Ratio) remains above regulatory limits (70%). Capital adequacy ratio of the system equaled 14.9 percent as of December 2021 and remains robust even when including discounts due to market and/or operational risks. Non-performing loans decreased after August 2020 due to government relief measures for households, including legislation authorizing two rounds of withdrawals from pension accounts. As of January 2022, non-performing loans equaled 1.26 percent compared to 1.54 percent as of January 2021) when measured by the standard 90 days past due criterion.

As of November 2021, the total assets of the Chilean banking system amounted to US$ 428.6 billion, according to the Superintendence of Banks and Financial Institutions. The largest six banks (Banco de Crédito e Inversiones, Banco Santander-Chile, Banco Estado, Banco de Chile, Scotiabank Chile and Itaú-Corpbanca) accounted for 88 percent of the system’s assets. Chile’s Central Bank conducts the country’s monetary policy, is constitutionally autonomous from the government, and is not subject to regulation by the Superintendence of Banks.

Foreign banks have an important presence in Chile, comprising three out of the six largest banks of the system. Out of 17 banks currently in Chile, five are foreign-owned but legally established banks in Chile and four are branches of foreign banks. Both categories are subject to the requirements set out under the Chilean banking law. There are also 21 representative offices of foreign banks in Chile. There are no reports of correspondent banking relationships withdrawal in Chile.

In order to open a bank account in Chile, a foreigner must present his/her Chilean ID Card or passport, Chilean tax ID number, proof of address, proof of income/solvency, photo, and fingerprints.

The Government of Chile maintains two sovereign wealth funds (SWFs) built with savings from years with fiscal surpluses. The Economic and Social Stabilization Fund (FEES) was established in 2007 and was valued at US$ 6.4 billion as of January 2022. The purpose of the FEES is to fund public debt payments and temporary deficit spending, in order to keep a countercyclical fiscal policy. The Pensions Reserve Fund (FRP) was built up in 2006 and amounted to US$ 7.2 billion as of January 2022. The purpose of the FRP is to anticipate future needs of payments to those eligible to receive pensions, but whose contributions to the private pension system fall below a minimum threshold.

Chile is a member of the International Working Group of Sovereign Wealth Funds (IWG) and adheres to the Santiago Principles.

Chile’s government policy is to invest SWFs entirely abroad into instruments denominated in foreign currencies, including sovereign bonds and related instruments, corporate and high-yield bonds, mortgage-backed securities from U.S. agencies, and stocks.

Chile had 28 state-owned enterprises (SOEs) in operation as of 2020. Twenty-seven SOEs are commercial companies and the newest one (FOINSA) is an infrastructure fund that was created to facilitate public-private partnership projects. 25 SOEs are not listed and are fully owned by the government, while the remaining three are majority government owned. Ten Chilean SOEs operate in the port management sector, six in the services sector, three in the defense sector, three in the mining sector (including CODELCO, the world’s largest copper producer, and ENAP, an oil and gas company), two in transportation, one in the water sector, one is a TV station, and one is a state-owned bank (Banco Estado). The state holds a minority stake in four water companies as a result of a privatization process. In 2020, total assets of Chilean SOEs amounted to US$ 89.3 billion, while their total net income was US$ 833.7 million. SOEs employed 47,225 people in 2020.

Twenty SOEs in Chile fall under the supervision of the Public Enterprises System (SEP), a state holding in charge of overseeing SOE governance. The rest – including the largest SOEs such as CODELCO, ENAP and Banco Estado – have their own governance and report to government ministries. Allocation of seats on the boards of Chilean SOEs is determined by the SEP, as described above, or outlined by the laws that regulate them. In CODELCO’s corporate governance, there is a mix between seats appointed by recommendation from an independent high-level civil service committee, and seats allocated by political authorities in the government.

A list of SOEs made by the Budget Directorate, including their financial management information, is available in the following link: http://www.dipres.gob.cl/599/w3-propertyvalue-20890.html.

In general, Chilean SOEs work under hard budget constraints and compete under the same regulatory and tax frameworks as private firms. The exception is ENAP, which is the only company allowed to refine oil in Chile. As an OECD member, Chile adheres to the OECD Guidelines on Corporate Governance for SOEs.

Chile does not have a privatization program.

Awareness of the need to ensure corporate social responsibility has grown over the last two decades in Chile. However, NGOs and academics who monitor this issue believe that risk mapping and management practices still do not sufficiently reflect its importance.

The government of Chile encourages foreign and local enterprises to follow generally accepted Responsible Business Conduct (RBC) principles and uses the United Nations’ Rio+20 Conference statements as its principal reference. Chile adhered in 1997 to the OECD Guidelines for Multinational Enterprises. It also recognizes the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy; the UN Guiding Principles on Business and Human Rights; the UN Global Compact’s Ten Principles and the ISO 26000 Guidance on Social Responsibility. The government established a National Contact Point (NCP) for OECD MNE guidelines located at the Undersecretariat for International Economic Relations, and has a Responsible Business Conduct Division, whose chief is also the NCP. In August 2017, Chile released its National Action Plan on Business and Human Rights based on the UN Guiding Principles. Separately, the Council on Social Responsibility for Sustainable Development, coordinated by Chile’s Ministry of Economy, is currently developing a National Policy on Social Responsibility. On January 31, 2020, the CMF closed the public comments period on proposed new annual reporting requirements on social responsibility and sustainable development by publicly traded companies.

Regarding procurement decisions, ChileCompra, the agency in charge of centralizing Chile’s public procurement, incorporates the existence of a Clean Production Certificate and an ISO 14001-2004 certificate on environmental management as part of its criteria to assign public purchases.

No high profile or controversial instances of corporate impact on human rights have occurred in Chile in recent years.

The Chilean government effectively and fairly enforces domestic labor, employment, consumer, and environmental protection laws. There are no dispute settlement cases against Chile related to the Labor and Environment Chapters of the Free Trade Agreements signed by Chile.

Regarding the protection of shareholders, the Superintendence of Securities and Insurance (SVS) has the responsibility of regulating and supervising all listed companies in Chile. Companies are generally required to have an audit committee, a directors committee, an anti-money laundering committee and an anti-terrorism finance committee. Laws do not require companies to have a nominating/corporate governance committee or a compensation committee. Compensation programs are typically established by the board of directors and/or the directors committee.

Independent NGOs in Chile promote and freely monitor RBC. Examples include NGO Accion RSE: http://www.accionrse.cl/, the Catholic University of Valparaiso’s Center for Social Responsibility and Sustainable Development VINCULAR: http://www.vincular.cl/, ProHumana Foundation and the Andres Bello University’s Center Vitrina Ambiental.

Chile is an OECD member, but is not participating actively in the implementation of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.

Chile is not part of the Extractive Industries Transparency Initiative (EITI). Chile joined The Montreux Document on Private Military and Security Companies in 2009. However, there are no private security companies based in Chile participating in the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions 

Department of Labor

• Findings on the Worst Forms of Child Labor Report ;
• List of Goods Produced by Child Labor or Forced Labor ;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World  and;
• Comply Chain .

Chile is a signatory to the Paris Agreement. The Environment Ministry published the country’s 2050 Long-Term Climate Strategy (ECLP) roadmap to fulfill Chile’s climate change commitments over a 30-year timeframe. The ECLP was incorporated into Law 21.455, the Framework Law of Climate Change, that was enacted on June 13, 2022. The law includes Chile’s Nationally Determined Contribution (NDC) to the Paris Agreement, including mitigation and adaptation measures related to climate change.

Chile committed to reach net zero emissions by 2050. To reach this goal, the government outlined its main policy measures along six categories: sustainable industry and mining; green hydrogen production; sustainable construction of housing and public/commercial buildings; electromobility in the public transport system; phasing out coal-fired power generation plants; and other energy efficiency measures.

Under the Framework Law of Climate Change, the Environment Ministry is responsible for drawing up an emissions mitigation plan with limits for each productive sector. The plan is expected to include specific strategies and goals for the main sectors contributing to greenhouse gas emissions. These are expected to include: in the energy sector, phasing out coal-fired power plants, with an aim to close 18 plants by 2025 and the remaining plants by 2040; in the mining sector, reduction of greenhouse gas emissions to a minimum level by 2050 under the ECLP (both for emissions generated from the extraction and production processes, and indirectly, such as from electric power consumption); in the agricultural sector, Chile adhered to the COP26 goal to reduce methane (CH4) emissions by 30% by 2030.

Chile introduced an emissions compensation mechanism in 2020 for companies that pay green taxes, which are currently applied to emissions of particulate matter, sulfur dioxide, nitrogen oxide and carbon dioxide. This mechanism created a form of regulated carbon market, which allows industries to reduce their tax burden by financing emission reduction or emission absorption projects carried out by NGOs, foundations, or other institutions. Some examples of projects that can use this mechanism include energy efficiency initiatives, heater replacement, clean transportation, and reforestation.

Chile has previously sought to incorporate environmental considerations into public procurements. In 2012, the government published the Socially Responsible Purchasing Policy, which contained strategic sustainability guidelines, which are non-binding recommendations. In 2016, the Ministry of the Environment launched a public procurement policy with environmental criteria, both for the bidder’s operations and the characteristics of the products purchased.

Chile applies, in a non-discriminatory manner, various laws to combat corruption of public officials, including the 2009 Transparency Law that mandated disclosure of public information related to all areas of government and created an autonomous Transparency Council in charge of overseeing its application. Subsequent amendments expanded the number of public trust positions required to release financial disclosure, mandated disclosure in greater detail, and allowed for stronger penalties for noncompliance.

In March 2020, the administration of former President Piñera proposed new legislation aimed at combatting corruption, as well as economic and electoral crimes. The four new pieces of legislation, part of the Piñera administration’s “anti-abuse agenda” launched in December 2019 in response to societal demands to increase penalties for white-collar crimes, seeks to strengthen enforcement and increase penalties for collusion among firms; increase penalties for insider trading; provide protections for whistleblowers seeking to expose state corruption; and expand the statute of limitations for electoral crimes.

Anti-corruption laws, in particular mandatory asset disclosure, do extend to family members of officials. Political parties are subject to laws that limit campaign financing and require transparency in party governance and contributions to parties and campaigns.

Regarding government procurement, the website of ChileCompra (central public procurement agency) allows users to anonymously report irregularities in procurement. There is a decree that defines sanctions for public officials who do not adequately justify direct contracts. The Corporate Criminal Liability Law provides that corporate entities can have their compliance programs certified. Chile’s Securities and Insurance Superintendence (SVS) authorizes a group of local firms to review companies’ compliance programs and certify them as sufficient. Certifying firms are listed on the SVS website.

Private companies have increasingly incorporated internal control measures, as well as ethics committees as part of their corporate governance, and compliance management sections. Additionally, Chile Transparente (Chilean branch of Transparency International) developed a Corruption Prevention System to provide assistance to private firms to facilitate their compliance with the Corporate Criminal Liability Law.

Chile signed and ratified the Organization of American States (OAS) Convention against Corruption. The country also ratified the UN Anticorruption Convention on September 13, 2006. Chile is also an active member of the Open Government Partnership (OGP) and, as an OECD member, adopted the OECD Anti-Bribery Convention.

NGOs that investigate corruption operate in a free and adequately protected manner.

U.S. firms have not identified corruption as an obstacle to FDI.

David Ibaceta Medina
Director General
Consejo para la Transparencia
Morande 360 piso 7
(+56)-(2)-2495-2000
contacto@consejotransparencia.cl

Maria JaraquemadaExecutive Director
Chile Transparente (Chile branch of Transparency International)
Perez Valenzuela 1687, piso 1, Providencia, Santiago, Chile
(+56)-(2)-2236 4507
chiletransparente@chiletransparente.cl

Octavio Del Favero
Executive Director
Ciudadania Inteligente
Holanda 895, Providencia, Santiago, Chile
(+56)-(2)-2419-2770
https://ciudadaniai.org/contact  

Pía Mundaca
Executive Director
Espacio Publico
Santa Lucía 188, piso 7, Santiago, Chile
T: (+56) (9) 6258 3871
contacto@espaciopublico.cl
Observatorio Anticorrupción (Run by Espacio Publico and Ciudadania Inteligente)
https://observatorioanticorrupcion.cl/ 

Orlando Rojas
Executive Director
Observatorio Fiscal (focused on public spending)
Don Carlos 2983, Oficina 3, Las Condes, Santiago, Chile
(+562) (2) 4572 975
contacto@observatoriofiscal.cl

Pursuant to a political accord in response to the 2019 civil unrest, Chile held a plebiscite in October 2020 in which citizens voted to draft a new constitution. The process to create and ratify the new constitution launched on July 4, 2021 and will continue to mid-2022. Uncertainty over what changes could be made to Chile’s political and regulatory environment could negatively impact investor confidence. Importantly, the legislation enabling the constitutional reform process requires that the new constitution must respect Chile’s character as a democratic republic, its judicial sentences, and its international treaties (including the U.S.-Chile Free Trade Agreement).

Prior to 2019, there were generally few incidents of politically motivated attacks on investment projects or installations with the exception of the southern Araucania region and its neighboring Arauco province in the southwest of Bio-Bio region. This area, home to nearly half a million indigenous inhabitants, has seen an ongoing trend of politically motivated violence and organized criminal activity. Land claims and conflicts with forestry companies are the main grievances underneath the radicalization of a relatively small number of indigenous Mapuche communities, which has led to the rise of organized groups that pursue their demands by violent means. Incidents include arson attacks on churches, farms, forestry plantations, forestry contractors’ machinery and vehicles, and private vehicles, as well as occupation of private lands, resulting in over a half-dozen deaths (including some by police forces), injuries, and damage to property. The indigenous issue has been further politicized due to anger among landowners, forestry transport contractors, and farmers affected by violence, as well as the illegal killing of a young Mapuche activist by special police forces in 2018 and the controversy over accusations of fraud by the police during the investigation of indigenous organized groups. In March 2020, a truck driver died in an arson attack on his vehicle.

Since 2007, Chile has experienced a number of small-scale attacks with explosive and incendiary devices, targeting mostly banks, police stations, and public spaces throughout Santiago, including metro stations, universities, and churches. ATMs have been blown up in the late evenings or early mornings. Anarchist groups often claim responsibility for these acts, as well as violent incidents during student and labor protests. In January 2017, an eco-terrorist group claimed responsibility for a parcel bomb that detonated at the home of the chairman of the board of Chilean state-owned mining giant CODELCO. The same group detonated a bomb of similar characteristics in 2019 at a bus stop in downtown Santiago, causing five injuries, and sent a letter bomb to the office of the president of the Metro system, which was defused by police. One suspect was arrested in 2019 and the investigation of the crimes is ongoing. Another group sent package bombs to a police station in the Santiago metro area, wounding 8 police officers, and to a former Interior Minister, which was defused by police. Two suspects were arrested in 2020, and the investigation remains ongoing at the time of this report. Then-President Piñera announced a 15-day State of Emergency in October 2021 in four southern provinces in the Araucania and Biobio regions.  Piñera emphasized the State of Emergency was intended to combat drug trafficking, terrorism, and organized crime.  The enactment of the State of Emergency placed the respective zones under a military authority designated by the president and empowered the armed forces to support law enforcement functions, prohibit public gatherings, and control the entry and exit of people in the four provinces, which have large populations of indigenous Mapuche among its 1.6 million residents.  Congress authorized multiple extensions to the State of Emergency until March 26. On March 15, the Minister of Interior traveled to the Araucania region to initiate dialogue on the conflict between indigenous Mapuche communities and the Chilean government, however, armed gunmen prevented the minister from entering the community of Temucuicui. The State of Emergency lapsed on March 26 after the Boric government decided not to seek an extension from Congress.

While the security environment is generally safe, street crime, carjackings, telephone scams, and residential break-ins are common, especially in larger cities. Vehicle thefts are a serious problem in Valparaiso and northern Chile (from Iquique to Arica). On occasion, illegal activity by striking workers resulted in damage to corporate property or a disruption of operations. Some firms have publicly expressed concern that during a contentious strike, law enforcement has appeared to be reluctant to protect private property.

After a truck driver died in Antofagasta February 10 following an altercation with irregular immigrants from Venezuela, federations of northern truck drivers created road blockages and supply-chain disruptions to demand the Piñera administration implement increased safety measures.  On February 14, the government initiated a State of Emergency in provinces along Chile’s northern border with Bolivia and Peru, sending soldiers to support law enforcement efforts.  The State of Emergency is set to expire on April 15.

Chilean civil society is active and demonstrations occur frequently. Although the vast majority of demonstrations are peaceful, criminal elements have taken advantage of civil society protests to loot stores along the protest route and clash with the police. Annual demonstrations to mark March 29, the Day of the Young Combatant; September 11, the anniversary of the 1973 coup against the government of President Salvador Allende; and October 18, the anniversary of the outbreak of the 2019 civil unrest, have resulted in damage to property, looting, and scuffles between police and protesters.

Unemployment in Chile averaged 9.1 percent of the labor force during 2021, while the labor participation rate was 58.5 percent of the working age population. Data on the labor participation of migrants is still pending. Chilean workers are adequately skilled and some sectors such as mining, agriculture, and fishing employ highly skilled workers. In general, there is an adequate availability of technicians and professionals. Estimates made by the National Institute of Statistics (INE) suggest informal employment in Chile constitutes 28.3 percent of the workforce.

Article 19 of the Labor Code stipulates that employers must hire Chileans for at least 85 percent of their staff, except in the case of firms with less than 25 employees. However, Article 20 of the Labor Code includes several provisions under which foreign employees can exceed 25 percent, independent of the size of the company.

In general, employees who have been working for at least one year are entitled to a statutory severance pay, upon dismissal without cause, equivalent to 30 days of the last monthly remuneration earned, for each year of service. The upper limit is 330 days (11 years of service) for workers with a contract in force for one year or more. The same amount is payable to a worker whose contract is terminated for economic reasons. Upon termination, regardless of the reason, domestic workers are entitled to an unemployment insurance benefit funded by the employee and employer contributions to an individual unemployment fund equivalent to three percent of the monthly remuneration. The employer’s contributions shall be paid for a maximum of 11 years by the same employer. Another fund made up of employer and government contributions is used for complementary unemployment payments when needed.

Labor and environmental laws are not waived in order to attract or retain investments.

During 2020, Labor Directorate data showed that 12,355 unions and 2,524 workers federations were active. In the same period, 273,706 workers were covered by collective bargaining agreements. Collective bargaining coverage rates are higher in the manufacturing (47,083), wholesale and retail; motor vehicles and motorcycles repair (43,676), and transportation and storage (20,468). Unions can form nationwide labor associations and can affiliate with international labor federations. Contracts are normally negotiated at the company level. Workers in public institutions do not have collective bargaining rights, but national public workers’ associations undertake annual negotiations with the government.

The Labor Directorate under the Ministry of Labor is responsible for enforcing labor laws and regulations. Both employers and workers may request labor mediation from the Labor Directorate, which is an alternate dispute resolution model aimed at facilitating communication and agreement between both parties.

Labor Directorate data shows that 494 legal strikes occurred in 2020, involving 86,152 workers. As legal strikes in Chile have a restricted scope and duration, in general they do not present a risk for foreign investment.

Chile has and generally enforces laws and regulations in accordance with internationally recognized labor rights of: freedom of association and collective bargaining, the elimination of forced labor, child labor, including the minimum age for work, discrimination with respect to employment and occupation, and acceptable conditions of work related to minimum wage, occupational safety and health, and hours of work. The maximum number of labor hours allowed per week in Chile is 45. On January 1, 2022, Chile raised its monthly minimum wage to CLP 350,000 – US$ 437 – for all occupations, including household domestic staff, more than twice the official poverty line. Workers older than 64 or younger than 19 years old are eligible for a special minimum wage of CLP 261,092 (US$ 326) a month. Information on potential gaps in law or practice with international labor standards by the International Labor Organization is pending.

Collective bargaining is not allowed in companies or organizations dependent upon the Defense Ministry or whose employees are prohibited from striking, such as in health care, law enforcement, and public utilities. Labor courts can require workers to resume work upon a determination that a strike causes serious risk to health, national security, the supply of goods or services to the population, or to the national economy.

The United States-Chile Free Trade Agreement (FTA) entered into force on January 1, 2004. The FTA requires the United States and Chile to maintain effective labor and environmental enforcement.

On November 16, 2021, the government enacted a law enabling teleworking for workers who are the legal guardians of children in preschool or below the age of 12 and for those workers who are the caregivers of individuals with specials needs or with limited physical mobility whenever the government declares a State of Constitutional Exception as a result of a public calamity (such as events produced by the nature) or public health events (including a pandemic). A bill lowering the maximum number of labor hours allowed per week in Chile from 45 to 40 hours is still pending approval by the Senate.

* Source for Host Country Data: Central Bank of Chile.

According to the IMF’s Coordinated Direct Investment Survey (CDIS), total stock of FDI in Chile in 2020 amounted to US$ 188.9 billion, compared to US$ 254.3 billion in 2019. Canada, the United States and Spain are the main sources of FDI to Chile with US$ 30.6 billion, US$ 29.0 billion and US$ 21.5 billion, respectively, concentrating 42.9 percent of the total.

Chile’s outward direct investment stock in 2020 amounted to US$ 188.9 billion, compared to US$ 71.7 billion in 2020, a significant decrease compared to US$ 130.2 billion in 2019. It remains concentrated in South America, where Brazil, Peru, Colombia and Argentina together represented 49 percent of total Chilean outward FDI. The United States accounted for 14.1 percent of the total, an increase compared to 2019 when it represented 9.2 percent of the total.

The data below is consistent with host country statistics. Although not included in the table below, tax havens are relevant destinations of outward FDI to Chile, with the British Virgin Islands, Panama, Luxembourg, and Cayman Islands ranking sixth, seventh, ninth and tenth in inbound sources of FDI, respectively, according to the Central Bank of Chile. The Cayman Islands and Bermuda rank sixth and seventh and tenth, respectively, among Chile´s main inward FDI source.

Table 4: Sources of Portfolio Investment

According to the IMF’s Coordinated Portfolio Investment Survey (CPIS), total stock of portfolio investment in Chile as of June 2021 amounted to US$ 200.4 billion, of which US$ 164.6 billion were equity and investment funds shares, and the rest were debt securities. The United States and Luxembourg (a tax haven) were the main sources of portfolio investment to Chile with US $71.3 billion and $54.9 billion, representing 35.6 percent and 27.4 percent of the total, respectively. Both countries also represent 65 percent of the total of equity investment. Ireland, the United Kingdom and Germany are the following top sources of equity portfolio investment to Chile, while the United States, Mexico and Japan are the top sources of debt securities investment.

Alexis Gutiérrez
Economic Specialist
Avenida Andrés Bello 2800, Las Condes, Santiago, Chile
(56-9) 4268 9005
gutierrezaj@state.gov

Costa Rica actively courts FDI, placing a high priority on attracting and retaining high-quality foreign investment.

PROCOMER and CINDE lead Costa Rica’s investment promotion efforts. CINDE has had great success over the last several decades in attracting and retaining investment in specific areas, currently services, advanced manufacturing, life sciences, light manufacturing, and the food industry. In addition, the Tourism Institute (ICT) attends to potential investors in the tourism sector. CINDE, PROCOMER, and ICT are strong and effective guides and advocates for their client companies, prioritizing investment retention and maintaining an ongoing dialogue with investors.

Costa Rica recognizes and encourages the right of foreign and domestic private entities to establish and own business enterprises and engage in most forms of remunerative activity. The exceptions are in sectors that are reserved for the state (legal monopolies – see #7 below “State Owned Enterprises, first paragraph) or that require participation of at least a certain percentage of Costa Rican citizens or residents (electrical power generation, transport services, professional services, and aspects of broadcasting). Properties in the Maritime Zone (from 50 to 200 meters above the mean high-tide mark) may only be leased from the state and with residency requirements. In the areas of medical services, telecommunications, finance and insurance, state-owned entities dominate, but that does not preclude private sector competition. Costa Rica does not have an investment screening mechanism for inbound foreign investment, beyond those applied under anti-money laundering procedures. U.S. investors are not disadvantaged or singled out by any control mechanism or sector restrictions; to the contrary, U.S. investors figure prominently among the various major categories of FDI.

On May 25, 2021, Costa Rica officially became the 38th OECD member. A comprehensive review of the Costa Rican economy was published by the OECD at the conclusion of the accession process, which offered valuable insights into challenges faced by the economy, “OECD Economic Surveys Costa Rica 2020: https://www.oecd.org/countries/costarica/oecd-economic-surveys-costa-rica-2020-2e0fea6c-en.htm . In the same context, the OECD offered a March 2020 review of international investment in Costa Rica: https://www.oecd.org/investment/OECD-Review-of-international-investment-in-Costa-Rica.pdf . For the index of OECD reports on Costa Rica, go to https://www.oecd.org/costarica/ 

The World Trade Organization (WTO) conducted its 2019 “Trade Policy Review” of Costa Rica in September of that year. Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries’ trade and related policies are examined and evaluated at regular intervals: https://www.wto.org/english/tratop_e/tpr_e/tp492_e.htm  .

The United Nations Conference on Trade and Development (UNCTAD) produced in 2019 the report Overview of Economic and Trade Aspects of Fisheries and Seafood Sectors in Costa Rica:

https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2583  .

The Environmental Justice Atlas – https://ejatlas.org/country/costa-rica  – highlights a number of environmental disputes involving foreign investors, some moribund and some ongoing.

A new company in Costa Rica must typically register with the National Registry (company and capital registry), Internal Revenue Directorate of the Finance Ministry (taxpayer registration), National Insurance Institute (INS) (basic workers’ comp), Ministry of Health (sanitary permit), Social Security Administration (CCSS) (registry as employer), and the local Municipality (business permit). Legal fees are the biggest single business start-up cost, as all firms registered to individuals must hire a lawyer for a portion of the necessary paperwork. Costa Rica’s business registration website Crearempresa functions but in 2021 is rated last of 76 national business registration sites evaluated by “Global Enterprise Registration” ( www.GER.co ).

Traditionally, the Costa Rican government’s small business promotion efforts have tended to focus on participation by women and underserved communities.  The National Institute for Women (INAMU), National Training Institute (INA), the Ministry of Economy (MEIC), and PROCOMER through its supply chain initiative have all collaborated extensively to promote small and medium enterprise with an emphasis on women’s entrepreneurship. In 2020, INA launched a network of centers to support small and medium-sized enterprises based upon the U.S. Small Business Development Center (SBDC) model.

The Costa Rican government does not promote or incentivize outward investment. Neither does the government discourage or restrict domestic investors from investing abroad.

Costa Rican laws, regulations, and practices are generally transparent and meant to foster competition in a manner consistent with international norms, except in the sectors controlled by a state monopoly, where competition is explicitly excluded. Rule-making and regulatory authority is housed in any number of agencies specialized by function (telecom, financial, personal data, health, environmental) or location (municipalities, port authorities). Tax, labor, health, and safety laws, though highly bureaucratic, are not seen as unfairly interfering with foreign investment. It is common to have Professional Associations that play a role in policing or guiding their members.

Costa Rica is a member of UNCTAD’s international network of transparent investment procedures ( http://www.businessfacilitation.org ). Within that context, the Ministry of Economy compiled the various procedures needed to do business in Costa Rica: https://tramitescr.meic.go.cr/ . Accounting, legal, and regulatory procedures are transparent and consistent with international norms. The stock and bond market regulator SUGEVAL requires International Accounting Standards Board for public companies, while the Costa Rican College of Public Accountants (Colegio de Contadores Publicos de Costa Rica -CCPA) has adopted full International Financial Reporting Standards for non-regulated companies in Costa Rica; for more, see the international federation of accountants IFAC: https://www.ifac.org/about-ifac/membership/country/costa-rica .

While the government does not require companies’ environmental, social, and governance (ESG) disclosure, to facilitate transparency and better inform investors, government entities do regularly encourage commitments to environmental and social standards (e.g., within the coffee and tourism industries) beyond or complementary to purely legal requirements.  Certifications with Responsible Business Conduct (RBC) components used by the Costa Rican private sector include an array of agricultural certifications, the B Corporation Certificate, the Environmental Design Certification from the Green Building Council, and the ISO 26000 Social Responsibility standard.  In the banking sector, entities under the supervision of the Superintendencia General de Entidades Financieras (Financial Regulator) must comply with corporate governance regulations such as transparency and accountability to shareholders.

Regulations must go through a public hearing process when being drafted. Draft bills and regulations are made available for public comment through public consultation processes that will vary in their details according to the public entity and procedure in question, generally giving interested parties sufficient time to respond. The standard period for public comment on technical regulations is 10 days. As appropriate, this process is underpinned by scientific or data-driven assessments. A similarly transparent process applies to proposed laws. The Legislative Assembly generally provides sufficient opportunity for supporters and opponents of a law to understand and comment on proposals. To become law, a proposal must be approved by the Assembly by two plenary votes. The signature of 10 legislators (out of 57) is sufficient after the first vote to send the bill to the Supreme Court for constitutional review within one month, although the court may take longer.

Regulations and laws, both proposed and final, for all branches of government are published digitally in the government registry “La Gaceta”: https://www.imprentanacional.go.cr/gaceta/ . The Costa Rican American Chamber of Commerce (AmCham – http://amcham.co.cr  ) and other business chambers closely monitor these processes and often coordinate responses as needed.

The government has mechanisms to ensure laws and regulations are followed. The Comptroller General’s Office conducts operational as well as financial audits and as such provides the primary oversight and enforcement mechanism within the Costa Rican government to ensure that government bodies follow administrative processes. Each government body’s internal audit office and, in many cases, the customer-service comptroller (Contraloria de Servicios) provide additional support.

There are several independent avenues for appealing regulatory decisions, and these are frequently pursued by persons or organizations opposed to a public sector contract or regulatory decision. The avenues include the Comptroller General (Contraloria General de la Republica), the Ombudsman (Defensor de los Habitantes), the public services regulatory agency (ARESEP), and the constitutional review chamber of the Supreme Court. The State Litigator’s office (Procuraduria General) is frequently a participant in its role as the government’s attorney.

Costa Rica is transparent in reporting its public finances and debt obligations, including explicit and contingent liabilities. Debt obligations are transparent; the Ministry of Finance provides updates on public debt through the year, with the debt categorized as Central Government, Central Government and Non-Financial Sector, and Central Bank of Costa Rica.

https://www.hacienda.go.cr/contenido/12519-informacion-de-la-deuda-publica .

The following chart covers contingent debt as of January 31, 2022:

https://www.hacienda.go.cr/docs/6213fa8ea594c_01-2022%20DEUDA%20CONTINGENTE%20PUBLICAR.pdf

The review and enforcement mechanisms described above have kept Costa Rica’s regulatory system relatively transparent and free of abuse, but have also rendered the system for public sector contract approval exceptionally slow and litigious. There have been several cases in which these review bodies have overturned already-executed contracts, thereby interjecting uncertainty into the process. Bureaucratic procedures are frequently long, involved and can be discouraging to new investors.

Furthermore, Costa Rica’s product market regulations are more stringent than in any other OECD country, according to the OECD’s 2020 Product Market Regulations Indicator, leading to market inefficiencies. Find this explanation as well as a detailed review of the regulatory challenges Costa Rica faces in the September 2020 OECD report on regulatory reform:

https://www.oecd.org/countries/costarica/enhancing-business-dynamism-and-consumer-welfare-in-costa-rica-with-regulatory-reform-53250d35-en.htm 

While Costa Rica does consult with its neighbors on some regulations through participation in the Central American Integration System (SICA) ( http://www.sica.int/sica/sica_breve.aspx ), Costa Rica’s lawmakers and regulatory bodies habitually refer to sample regulations or legislation from OECD members and others. Costa Rica’s commitment to OECD standards as an OECD member has accentuated this traditional use of best-practices and model legislation. Costa Rica regularly notifies all draft technical regulations to the WTO Committee on Technical Barriers in Trade (TBT).

Costa Rica uses the civil law system. The fundamental law is the country’s political constitution of 1949, which grants the unicameral legislature a particularly strong role. Jurisprudence or case law does not constitute legal precedent but can be persuasive if used in legal proceedings. For example, the Chambers of the Supreme Court regularly cite their own precedents. The civil and commercial codes govern commercial transactions. The courts are independent, and their authority is respected. The roles of public prosecutor and government attorney are distinct: the Chief Prosecuting Attorney or Attorney General (Fiscal General) operates a semi-autonomous department within the judicial branch while the government attorney or State Litigator (Procuraduria General) works within the Ministry of Justice and Peace in the Executive branch. The primary criminal investigative body “Organismo de Investigacion Judicial” OIJ, is a semi-autonomous department within the Judicial Branch. Judgments and awards of foreign courts and arbitration panels may be accepted and enforced in Costa Rica through the exequatur process. The Constitution specifically prohibits discriminatory treatment of foreign nationals. The Costa Rican Judicial System addresses the full range of civil, administrative, and criminal cases with a number of specialized courts.  The judicial system generally upholds contracts, but caution should be exercised when making investments in sectors reserved or protected by the Constitution or by laws for public operation. Regulations and enforcement actions may be, and often are, appealed to the courts.

Costa Rica’s commercial code details all business requirements necessary to operate in Costa Rica. The laws of public administration and public finance contain most requirements for contracting with the state.

The legal process to resolve cases involving squatting on land can be especially cumbersome. Land registries are at times incomplete or even contradictory. Buyers should retain experienced legal counsel to help them determine the necessary due diligence regarding the purchase of property.

Costa Rican websites are useful to help navigate laws, rules and procedures including that of the investment promotion agency CINDE, http://www.cinde.org/en , the export promotion authority PROCOMER, http://www.procomer.com/ (“inversionista”), and the Health Ministry, https://www.ministeriodesalud.go.cr/  (product registration and import/export). In addition, the State Litigator’s office ( www.pgr.go.cr,  the “SCIJ” tab) compiles relevant laws.

Two public institutions are responsible for consumer protection as it relates to monopolistic and anti-competitive practices. The “Commission for the Promotion of Competition” (COPROCOM), an autonomous agency housed in the Ministry of Economy, Industry and Commerce, is charged with investigating and correcting anti-competitive behavior across the economy. The Telecommunications Superintendence (SUTEL) shares that responsibility with COPROCOM in the Telecommunications sector. Both agencies are charged with defense of competition, deregulation of economic activity, and consumer protection. Their decisions may be appealed judicially. For the OECD assessment of competition law and policy in Costa Rica, see this July 2020 report: https://www.oecd.org/countries/costarica/costarica-competition.htm. 

The three principal expropriating government agencies in recent years have been the Ministry of Public Works – MOPT (highway rights-of-way), the state-owned Costa Rican Electrical Institute – ICE (energy infrastructure), and the Ministry of Environment and Energy – MINAE (National Parks and protected areas). Expropriations generally conform to Costa Rica’s laws and treaty obligations.

Article 45 of Costa Rica’s Constitution stipulates that private property can be expropriated without proof that it is done for public interest. The 1995 Law 7495 on expropriations further stipulates that expropriations require full and prior payment, and upon full deposit of the calculated amount the government may take possession of land despite the former owner’s dispute of the price. The law makes no distinction between foreigners and nationals. The expropriations law was amended in 1998, 2006, and 2015 to clarify and expedite some procedures, including those necessary to expropriate land for the construction of new roads. (For full detail go to https://PGRweb.go.cr/SCIJ  . When reviewing the articles of the law go to the most recent version of each article.)

There is no discernible bias against U.S. investments, companies, or representatives during the expropriations process. Costa Rican public institutions follow the law as outlined above and generally act in a way acceptable to the affected landowners. However, when landowners and government differ significantly in their appraisal of the expropriated lands’ value, the resultant judicial processes generally take years to resolve. In addition, landowners have, on occasion, been prevented from developing land which has not yet been formally expropriated for parks or protected areas; the courts will eventually order the government to proceed with the expropriations but the process can be long.

The Costa Rican bankruptcy law, addressed in both the commercial code and the civil procedures code, has long been similar to corresponding U.S. law. In February 2021, Costa Rica’s National Assembly approved a comprehensive bankruptcy law #9957 “Ley Concursal”, in effect since December 1, 2021. The new law eases bankruptcy processes and help companies in financial distress to move through the “administrative intervention” intended to save the companies. The previous law too often ended with otherwise viable companies ceasing operations, rather than allowing them to recover, due to a bias towards dissolution of companies in distress. As in the United States, penal law will also apply to criminal malfeasance in some bankruptcy cases.

Four investment incentive programs operate in Costa Rica: the free trade zone system, an inward-processing regime, a duty drawback procedure, and the tourism development incentives regime. These incentives are available equally to foreign and domestic investors, and include tax holidays, training of specialized labor force, and facilitation of bureaucratic procedures. PROCOMER is in charge of the first three programs and companies may choose only one of the three. As of early 2022, 568 companies are in the free trade zone regime, 90 in the inward processing regime, and 10 in duty drawback.

ICT administers the tourism incentives; through early 2022, 1,133 tourism firms are declared as such with access to incentives of various types depending on the firm’s operations (hotels, rent-a-car, travel agencies, airlines and aquatic transport). The free trade zone regime is based on the 1990 law #7210, updated in 2010 by law #8794 and attendant regulations, while inward processing and duty drawback derive from the General Customs Law #7557. Tourism incentives are based on the 1985 law #6990, most recently amended in 2001.

The inward-processing regime suspends duties on imported raw materials of qualifying companies and then exempts the inputs from those taxes when the finished goods are exported. The goods must be re-exported within a non-renewable period of one year. Companies within this regime may sell to the domestic market if they have registered to do so and pay applicable local taxes. The drawback procedure provides for rebates of duties or other taxes that were paid by an importer for goods subsequently incorporated into an exported good. Finally, the tourism development incentives regime provides a set of advantages, including duty exemption – local and customs taxes – for construction and equipment to tourism companies, especially hotels and marinas, which sign a tourism agreement with ICT.

Costa Rica has not established distinct incentives for under-represented investors, for example women. Incentives for environmentally “green” investment tend towards structural or institutional facilitation rather than subsidy. Electricity tariffs, including net-metering and access tariffs for rooftop solar installation, are designed to encourage renewable energy generation and use without creating a clear subsidy of those activities. Green hydrogen production is encouraged through several executive decrees that provide import tariff exemptions for equipment and seek to establish a flexible and enabling regulatory framework for the use of national grid surpluses in the development of a green hydrogen economy in Costa Rica.

Individual companies are able to create industrial parks that qualify for free trade zone (FTZ) status by meeting specific criteria and applying for such status with PROCOMER. Companies in FTZs receive exemption from virtually all taxes for eight years and at a reduced rate for some years to follow. Established companies may be able to renew this exemption through additional investment. In addition to the tax benefits, companies operating in FTZs enjoy simplified investment, trade, and customs procedures, which provide a convenient way to avoid Costa Rica’s burdensome business licensing process. Call centers, logistics providers, and software developers are among the companies that may benefit from FTZ status but do not physically export goods. Such service providers have become increasingly important participants in the free trade zone regime. PROCOMER and CINDE are traditionally proactive in working with FTZ companies to streamline and improve law, regulation and procedures touching upon the FTZ regime. A study of the benefits of FTZ regime for the broader economy is available on PROCOMER’s website.

Costa Rica does not impose requirements that foreign investors transfer technology or proprietary business information or purchase a certain percentage of inputs from local sources. However, the Costa Rican agencies involved in investment and export promotion do explicitly focus on categories of foreign investor who are likely to encourage technology transfer, local supply chain development, employment of local residents, and cooperation with local universities. The export promotion agency PROCOMER operates an export linkages department focused on increasing the percentage of local content inputs used by large multinational enterprises.

Costa Rica does not have excessively onerous visa, residence, work permit, or similar requirements designed to inhibit the mobility of foreign investors and their employees, although the procedures necessary to obtain residency in Costa Rica are often perceived to be long and bureaucratic. Existing immigration measures do not appear to have inhibited foreign investors’ and their employees’ mobility to the extent that they affect foreign direct investment in the country. The government is responsible for monitoring so that foreign nationals do not displace local employees in employment, and the Immigration Law and Labor Ministry regulations establish a mechanism to determine in which cases the national labor force would need protection. However, investors in the country do not generally perceive Costa Rica as unfairly mandating local employment. The Labor Ministry prepares a list of recommended and not recommended jobs to be filled by foreign nationals. Costa Rica does not have government/authority-imposed conditions on any permission to invest.

Costa Rica does not require Costa Rican data to be stored on Costa Rican soil. Under law #8968 ‒ Personal Data Protection Law – and its corresponding regulation, companies must notify the Data Protection Agency (PRODHAB) of all existing databases from which personal information is sold or traded. Costa Rica does not impose measures that unduly impede companies from securing and freely transmitting customer or other business-related data. While Costa Rica in the next several years is looking to modernize its law pertaining to data privacy and cross border data transfer, Costa Rica’s vibrant digital services industry will likely ensure that the new regulations do not interfere unduly with legitimate digital services business.

The laws governing investments in land, buildings, and mortgages are generally transparent. Secured interests in both chattel and real property are recognized and enforced. Mortgage and title recording are mandatory and the vast majority of land in Costa Rica has clear title. However, the National Registry, the government entity that records property titles, has been successfully targeted on occasion with fraudulent filing, which has led in some cases to overlapping title to real property. Costa Rican law allows long-time occupants of a property belonging to someone else (i.e. squatters) to eventually take legal possession of that property if unopposed by the property owner. Potential investors in Costa Rican real estate should also be aware that the right to use traditional paths is enshrined in law and can be used to obtain court-ordered easements on land bearing private title; disputes over easements are particularly common when access to a beach is an issue.

Foreigners are subject to the same land lease and acquisition laws and regulations as Costa Ricans with the exception of concessions within the Maritime Zone (Zona Maritima Terrestre – ZMT). Almost all beachfront is public property for a distance of 200 meters from the mean high tide line, with an exception for long-established port cities and a few beaches such as Jaco. The first 50 meters from the mean high tide line is severely restricted. The next 150 meters, also owned by the state, is the Maritime Zone and can only be leased from the local municipalities or the Costa Rican Tourism Institute (ICT) for specified periods and particular uses, such as tourism installation or vacation homes. Concessions in this zone cannot be given to foreigners or foreign-owned companies.

Costa Rica’s legal structure for protecting intellectual property rights (IPR) is quite strong, but enforcement is sporadic and does not always get the attention and resources required to be effective. In the 2019 United States Trade Representative (USTR) Special 301 Report, USTR noted the substantial progress made by Costa Rica in protecting IPR. As a result, USTR did not include Costa Rica in the 2020 or 2021 Special 301 reports. Costa Rica was not listed in USTR’s 2021 Review of Notorious Markets for Counterfeiting and Piracy.

Costa Rica is a signatory of many major international agreements and conventions regarding intellectual property.  Building on the existent regulatory and legal framework, the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) required Costa Rica to strengthen and clarify its IPR regime further, with several new IPR laws added to the books in 2008.  Prior to that, the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) took effect in Costa Rica on January 1, 2000.  In 2002, Costa Rica ratified the World Intellectual Property Organization (WIPO) Performances and Phonograms Treaty and the WIPO Copyright Treaty.

On June 22, 2020, the General Directorate of the National Registry merged the Registry of Industrial Property and the Registry of Copyright and Related Rights into a single Registry of Intellectual Property, improving the National Registry’s efficiency.

While online piracy remains a concern for the country, in February 2019 Costa Rica modified the existing regulation on internet service providers (ISPs) to shorten significantly the 45 days previously allowed for notice and takedown of pirated online content, creating an expeditious safe harbor system for ISPs in Costa Rica.

In August 2020, Costa Rica’s Intellectual Property Registry launched a WIPO online platform that will allow interested parties to submit online applications to register trademarks.  The online service has improved efficiency and encouraged registrations from small-to-medium-sized companies across the country. In 2021, the Intellectual Property Registry launched the development of the second stage of WIPO File that will allow for online filing of applications for patents, models, and industrial designs. In 2019, the National Registry of Industrial Property announced the implementation of TMview and DesignView, search tools that allow users to consult trademarks and industrial design data.

The Costa Rican government does not release official statistics on the seizure of counterfeit goods, but the Chamber of Commerce compiles statistics from Costa Rican government sources: http://observatorio.co.cr/  In the first six months of 2021, Costa Rica’s Economic Crimes Prosecutor investigated 26 IPR cases, up from the total of 14 cases in 2020. As in years past, prosecutors ultimately dismissed several cases due to lack of interest, collaboration, and follow-up by the representatives of trademark rights holders.  Government authorities complained that the lack of response by trademark representatives is a recurring behavior dating back to at least 2016 and may explain the drop in IPR cases.  In 2020, the Prosecutor’s Office established a specialized cybercrime unit with the purpose of improving the country’s response toward computer-oriented crimes, including copyrights infringements.

On September 4, 2019, Costa Rican Customs issued an executive decree titled “Contact of the Representatives of Intellectual Property Rights for Enforcement Issues” establishing a formal customs recordation system for trademarks that allows customs officers to make full use of their ex officio authority to inspect and detain goods. Under the decree, customs offices have the power to include new trademark rights holders in a formal database for use by customs officials in the field. As of 2021, 173 trademarks are included in this database.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

The Costa Rican government’s general attitude towards foreign portfolio investment is prudently welcoming, seeking to facilitate the free flow of financial resources into the economy while minimizing the instability that might be caused by the sudden entry or exit of funds. The securities exchange (Bolsa Nacional de Valores) is small and is dominated by trading in bonds. Stock trading is of limited significance and involves less than 10 of the country’s larger companies, resulting in an illiquid secondary market. There is a small secondary market in commercial paper and repurchase agreements. The Costa Rican government has in recent years explicitly welcomed foreign institutional investors purchasing significant volumes of Costa Rican dollar-denominated government debt in the local market. The securities exchange regulator (SUGEVAL) is generally perceived to be effective.

Costa Rica accepted the obligations of IMF Article VIII, agreeing not to impose restrictions on payments and transfers for current international transactions or engage in discriminatory currency arrangements, except with IMF approval. There are no controls on capital flows in or out of Costa Rica or on portfolio investment in publicly traded companies. Some capital flows are subject to a withholding tax (see section on Foreign Exchange and Remittances). Within Costa Rica, credit is largely allocated on market terms, although long-term capital is scarce. Favorable lending terms for USD-denominated loans compared to colon-denominated loans have made USD-denominated mortgage financing popular and common. Foreign investors are able to borrow in the local market; they are also free to borrow from abroad, although a 15% withholding tax on interest paid will apply when the creditor is a non-tax resident in the country, under the reasoning that the interest payment constitutes income from a Costa Rican source. Potential overseas borrowers must also consider Costa Rica’s limitation on the deductibility of financial expenses by the debtor when the creditor is not an entity regulated in its country of origin by a body like the Costa Rican financial supervisory authority (SUGEF). In such cases, deductible interest for the current fiscal year is around 30% of EBITDA -Earnings Before Interest Taxes Depreciation and Amortization.

Costa Rica’s financial system boasts a relatively high financial inclusion rate, estimated by the Central Bank through August 2020 at 81.5 percent (the percentage of adults over the age of 15 holding a bank account). Non-resident foreigners may open what are termed “simplified accounts” in Costa Rican financial institutions, while resident foreigners have full access to all banking services.

The banking sector is healthy and well-regulated, although the 2020 non-performing loan ratio of 2.4 percent of active loans as of December 2021 (2.8 percent in state-owned banks) would be significantly higher if not for Covid-19 temporary regulatory measures allowing banks to readjust loans. The country hosts a large number of smaller private banks, credit unions, and factoring houses, although the four state-owned banks (two commercial, one mortgage and one workers’) are still dominant, accounting for 46 percent of the country’s financial system assets. Consolidated total assets of those state-owned banks were USD 29.6 billion, while combined assets of the regulated financial sector (public banks, private banks, savings-and-loans and others) were almost USD 64 billion as of December 2021.

Costa Rica’s Central Bank performs the functions of a central bank while also providing support to the four autonomous financial superintendencies (Banking, Securities, Pensions and Insurance) under the supervision of the national council for the supervision of the financial system (CONASSIF). The Central Bank developed and operates the financial system’s transaction settlement and direct transfer mechanism “SINPE” through which clients transfer money to and from accounts with any other account in the financial system. The Central Bank’s governance structure is strong, with a significant degree of autonomy from the Executive Branch.

Foreign banks may establish both full operations and branch operations in the country under the supervision of the banking regulator SUGEF. The Central Bank has a good reputation and has had no problem maintaining sufficient correspondent relationships. Costa Rica is steadily improving its ability to ensure the efficacy of anti-money laundering and anti-terrorism finance. The Costa Rican financial sector in broad terms appears to be satisfied to date with the available correspondent banking services.

The OECD 2020 report “review of the financial system” for Costa Rica is an excellent resource for those seeking more detail on the current state of Costa Rica’s financial system: https://www.oecd.org/countries/costarica/Costa-Rica-Review-of-Financial-System-2020.pdf .

Costa Rica does not have a Sovereign Wealth Fund.

Costa Rica’s total of 28 state-owned enterprises (SOEs) are commonly known by their abbreviated names. They include monopolies in petroleum-derived fuels (RECOPE), lottery (JPS), railroads (INCOFER), local production of ethanol (CNP/FANAL), water distribution (AyA), and electrical distribution (ICE, CNFL, JASEC, ESPH). SOEs have market dominance in insurance (INS), telecommunications (ICE, RACSA, JASEC, ESPH) and finance (BNCR, BCR, Banco Popular, BANHVI, INVU, INFOCOOP). They have significant market participation in parcel and mail delivery (Correos) and ports operation (INCOP and JAPDEVA). Six of those SOEs hold significant economic power with revenues exceeding 1 percent of GDP: ICE, RECOPE, INS, BNCR, BCR and Banco Popular. The 2020 OECD report “Corporate Governance in Costa Rica” reports that Costa Rican SOE employment is 1.9% of total employment, somewhat below the OECD average of 2.5%. Audited returns for each SOE may be found on each company’s website, while basic revenue and costs for each SOE are available on the General Controller’s Office (CGR) “Sistema de Planes y Presupuestos” https://www.cgr.go.cr/02-consultas/consulta-pp.html . The Costa Rican government does not currently hold minority stakes in commercial enterprises.

Costa Rican state-owned enterprises have not in recent decades required continuous and substantial state subsidy to survive. Several (notably ICE, AyA and RECOPE) registered major losses in pandemic year 2020, while others (INS, BCR, BNCR) registered substantial profits, which are allocated as dictated by law and boards of directors. Financial allocations to and earnings from SOEs may be found in the CGR “Sistema de Informacion de Planes y Presupuestos (SIPP)”.

U.S. investors and their advocates cite some of the following ways in which Costa Rican SOEs competing in the domestic market receive non-market-based advantages because of their status as state-owned entities.

• According to Law 7200, electricity generated privately must be purchased by public entities and the installed capacity of the private sector is limited to 30 percent of total electrical installed capacity in the country: 15 percent to small privately-owned renewable energy plants and 15 percent to larger “buildoperatetransfer” (BOT) operations.
• Telecoms and technology sector companies have called attention to the fact that government agencies often choose SOEs as their telecom services providers despite a full assortment of private-sector telecom companies. The Information and Telecommunications Business Chamber (CAMTIC) has long protested against what its members feel to be unfair use by government entities of a provision (Article 2) in the public contracting law that allows noncompetitive award of contracts to public entities (also termed “direct purchase”) when functionaries of the awarding entity certify the award to be an efficient use of public funds. CAMTIC has compiled detailed statistics showing that while the yearly total dollar value of Costa Rican government direct purchases in the IT sector under Article 2 has dropped considerably from USD 226 million in 2017, to USD 72.5 million in 2018, USD 27.5 million in 2019, USD 54 million in 2020, and USD 5 million in 2021, the number of purchases has actually increased from 56 purchases in both 2017 and 2018 to 86 in 2019, 104 in 2020, and 115 in 2021.
• The state-owned insurance provider National Insurance Institute (INS) has been adjusting to private sector competition since 2009 but in 2021 still registered 66 percent of total insurance premiums paid; 13 insurers are now registered with insurance regulator SUGESE: ( https://www.sugese.fi.cr/SitePages/index.aspx ). Competitors point to unfair advantages enjoyed by the stateowned insurer INS, including a strong tendency among SOE’s to contract their insurance with INS.

Costa Rica is not a party to the WTO Government Procurement Agreement (GPA) although it is registered as an observer. Costa Rica is working to adhere to the OECD Guidelines on Corporate Governance for SOEs ( www.oecd.org/daf/ca/oecdguidelinesoncorporategovernanceofstate-ownedenterprises.htm ). For more information on Costa Rica’s SOE’s, see the OECD Accession report “Corporate Governance in Costa Rica”, dated October 2020: https://www.oecd.org/countries/costarica/corporate-governance-in-costa-rica-b313ec37-en.htm  .

Costa Rica does not have a privatization program and the markets that have been opened to competition in recent decades – banking, telecommunications, insurance and Atlantic Coast container port operations – were opened without privatizing the corresponding state-owned enterprises (SOs). Two relatively minor SOEs, the state liquor company (Fanal) and the International Bank of Costa Rica (Bicsa), are the most likely targets for privatization if such political sentiment grows.

Corporations in Costa Rica, particularly those in the export and tourism sectors, generally enjoy a positive reputation within the country as engines of growth and practitioners of Responsible Business Conduct (RBC).  The Costa Rica government actively highlights its role in attracting high-tech companies to Costa Rica; the strong RBC culture that many of those companies cultivate has become part of that winning package.  Large multinational companies commonly pursue RBC goals in line with their corporate goals and have found it beneficial to publicize RBC orientation and activities in Costa Rica.  Many smaller companies, particularly in the tourism sector, have integrated community outreach activities into their way of doing business. There is a general awareness of RBC among both producers and consumers in Costa Rica.

Multinational enterprises in Costa Rica have not been associated in recent decades in any systematic or high-profile way with alleged human or labor rights violations.  The Costa Rican government maintains and enforces laws with respect to labor and employment rights, consumer protection and environmental protection.  Costa Rica has no legal mineral extraction industry with its accompanying issues, but illegal small scale gold mining, particularly in the north of the country, is a focal point of serious environmental damage, organized crime, and social disruption.  Large scale industrial agriculture is also occasionally the focus of health or environmental complaints, including in recent years the pineapple industry for allegedly affecting water supplies and a banana producer with many workers with rashes allegedly induced by pesticide use. The government appears to respond appropriately. Indigenous communities in specific areas of the country have longstanding grievances against non-indigenous encroachment on their reserves, which has led to recent incidents of violence.

Costa Rica encourages foreign and local enterprises to follow generally accepted RBC principles such as the OECD Guidelines for Multinational Enterprises (MNE) and maintains a national contact point for OECD MNE guidelines within the Ministry of Foreign Trade (see https://www.comex.go.cr/punto-nacional-de-contacto/  or  http://www.oecd.org/investment/mne/ncps.htm ). Costa Rica has been a participant since 2011 in the Montreux Document reaffirming the obligations of states regarding private military and security companies during armed conflict.

Costa Rica has a national climate strategy and a sophisticated system for monitoring natural capital, biodiversity, and ecosystem services. While the Central Bank compiles environmental accounts ( https://www.bccr.fi.cr/en/Economic-Indicators/environmental-accounts ), the Ministry of Environment and Energy oversees policies on environmental impact assessments and emissions. As part of Costa Rica’s nationally determined contribution to the United National Framework on Climate Change, Costa Rica targets maximum national net emissions in 2030 of 9.11 million tons of CO2. This number is consistent with the targeted trajectory of their National Decarbonization Plan which seeks to achieve net-zero emissions by 2050. Within the transportation sector Costa Rica aims to adopt standards to migrate towards a zero-emission motorcycle fleet by 2025, have 8% of their fleet of small vehicles be electric, and by 2030 have 8% of the public transportation fleet fully electric. There are currently no regulatory incentives or rebates for private sector contributions to achieve these goals. Costa Rican government efforts to reach net-zero emissions are largely limited to encouraging purchase and use of electric vehicles through tax reduction. In the absence of any significant budget for climate change response, the Costa Rican government necessarily relies on the private sector and international donors to implement its ambitions to be net zero by 2050. Costa Rica supports labels or designations meant to encourage good behavior with some considerable success: blue flag program at beaches and the Costa Rican country brand “Essential Costa Rica”. Official procurement policies do not include environmental or green growth considerations beyond those otherwise mandated by law.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Costa Rica has laws, regulations, and penalties to combat corruption. Though the resources available to enforce those laws are limited, Costa Rica’s institutional framework is strong, such that those cases that are prosecuted are generally perceived as legitimate. Anti-corruption laws extend to family members of officials, contemplate conflict-of-interest in both procurement and contract award, and penalize bribery by local businessmen of both local and foreign government officials. Public officials convicted of receiving bribes are subject to prison sentences up to ten years, according to the Costa Rican Criminal Code (Articles 347-360). Entrepreneurs may not deduct the costs of bribes or any other criminal activity as business expenses. In recent decades, Costa Rica saw several publicized cases of firms prosecuted under the terms of the U.S. Foreign Corrupt Practices Act.

Costa Rica ratified the Inter-American Convention Against Corruption in 1997. This initiative of the OECD and the Organization of American States (OAS) obligates subscribing nations to implement criminal sanctions for corruption and implies a series of follow up actions: http://www.oas.org/juridico/english/cri.htm . Costa Rica also ratified the UN Anti-Corruption Convention in March 2007, has been a member of the Open Government Partnership (OGP) since 2012, and as of July 2017 is a party to the OECD Convention on Combatting Bribery of Foreign Public Officials.

The Costa Rican government has encouraged civil society interest in good governance, open government and fiscal transparency, with a number of NGO’s operating unimpeded in this space. While U.S. firms do not identify corruption as a major obstacle to doing business in Costa Rica, some have made allegations of corruption in the administration of public tenders and in approvals or timely processing of permits. Developers of tourism facilities periodically cite municipal-level corruption as a problem when attempting to gain a concession to build and operate in the restricted maritime zone.

For further material on anti-bribery and corruption in Costa Rica, see the 2020 OECD study: https://www.oecd.org/countries/costarica/costa-rica-has-improved-its-foreign-bribery-legislation-but-must-strengthen-enforcement-and-close-legal-loopholes.htm 

Also on the OECD website, information relating to Costa Rica’s membership in the OECD anti-bribery convention: https://www.oecd.org/countries/costarica/costarica-oecdanti-briberyconvention.htm 

Name:  José Armando López Baltodano
Title:  Procurador Director, Procuraduría de la Ética Pública.
Organization:  Procuraduría General de la República (PGR)
Address: Avenida 2 y 6, Calle 13.  San José, Costa Rica.
Telephone Number:  2243-8330, 2243-8321
Email Address: armandolb@pgr.go.cr     
evelynhk@pgr.go.cr 

Contact at “watchdog” organization:

Evelyn Villarreal F.
Asociación Costa Rica Íntegra
Tel:. (506) 8355 3762
Email: evelyn.villarreal@cr.transparency.org 

Since 1948, Costa Rica has not experienced significant domestic political violence. There are no indigenous or external movements likely to produce political or social instability. However, Costa Ricans occasionally follow a long tradition of blocking public roads for a few hours as a way of pressuring the government to address grievances; the traditional government response has been to react slowly, thus giving the grievances time to air. This practice on the part of peaceful protesters can cause logistical problems.

Crime increased in Costa Rica in recent decades and U.S. citizen visitors and residents are frequent victims.  While petty theft is the main problem, criminals show an increased tendency to use violence. Some crime in Costa Rica is associated with the illegal drug trade.  Please see the State Department’s Travel Advisory page for Costa Rica for the latest information- https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/costa-rica-travel-advisory.html

Although the unemployment rate fell in 2021, unemployment remains a major issue for Costa Rica’s economy. According to the National Statistics Institute (INEC) as of January 2022, the unemployment rate was 13.1 percent, or 319,000 unemployed workers. The unemployment rate among the male population was estimated at 10.6 percent and the female population at 16.8 percent. When comparing these figures with the same quarter in 2020-21, there was a 4.6 percent decrease among males and a 7.8 percent reduction among females. 45.7 percent of work was in the informal sector (45.7 percent among males and 45.6 percent among females) with no significant variation compared to the same period in 2020-21. From the percentage of individuals with informal employment, 91.5 percent were self-employed, and 29.4 percent received a salary.

INEC reported that from November 2021 to January 2022, 532,000 persons in the labor force (employed and unemployed) were negatively affected by COVID-19. Of the country’s employed population, 213,000 had a reduction in salary or income associated with suspension or reduction in working hours or had to suspend their own activity or business during the pandemic, which represented 10.1 percent of the employed population, of which 63.5 percent were male, and 36.5 percent were female. Of the total number of unemployed persons, 318,000 were negatively affected by the pandemic. Of those, 48.7 percent were men and 51.3 percent were women. Of the total number of unemployed persons affected, 97.5 percent indicated that they could not find a job due to COVID-19; and 2.5 percent stated that they were fired, suspended, or closed their business or activity.

INEC reported that during the pandemic more formal jobs were preserved and more informal jobs were lost. It is possible that some of the informal businesses that survived the pandemic chose to seek formal work, given increased demand for health insurance. Some of the activities most affected by health restrictions and the consequences of the pandemic (such as tourism, commerce, construction, and entertainment activities) had high demand for workers, including informal workers, before the pandemic.

According to the Central Bank of Costa Rica, formal employment returned to levels registered before the beginning of the pandemic, while as of November 2021, the number of informally employed persons was 11.4 percent lower than in February 2020. The recovery of employment for workers operating in the informal sector and those with medium qualifications has been much slower than that of the most qualified and those who work in the formal sector. Workers in the informal sector were not covered by wage, hour, and occupational health and safety laws and inspections, nor were they enrolled in the public health system.

The Costa Rican labor force has high educational standards. The country boasts an extensive network of publicly funded schools and universities while Costa Rica’s national vocational training institute (INA) and private sector groups provide technical and vocational training.

The growth of Costa Rica’s service, tourism, and technology sectors has stimulated demand for English-language speakers. The pool of job candidates with English and technical skills in the Central Valley is sufficient to meet current demand. However, the current finite number of job candidates with these skills limits the ability of foreign and local businesses to expand operations.

The government implemented a controlled entry of foreign migrant workers (Migration Traceability System, SITLAM) through the northern and southern borders. In a joint effort, the Costa Rican Social Security System (CCSS), Ministry of Labor and Social Security (MTSS) and the Costa Rican Coffee Institute implemented a program to enroll coffee workers in the health insurance system while taking into account turnover, migratory conditions, and harvest seasons while protecting the families of the workers.

The government does not keep track of shortages or surpluses of specialized labor skills. Foreign nationals have the same rights, duties, and benefits as local employees. The government is responsible for ensuring that foreign nationals do not displace local employees in employment. Labor law provisions apply equally across the nation, both within and outside free trade zones. The Immigration Law and the Labor Ministry’s regulations establish a mechanism to determine in which cases the national labor force would need protection. The Labor Ministry prepares a list of recommended and not-recommended jobs to be filled by foreign nationals.

There are no restrictions on employers adjusting employment to respond to fluctuating market conditions. The law does not differentiate between layoffs and dismissal without cause. There are concepts established in the law related to unemployment and dismissals such as the mandatory savings plan (Labor Capitalization Fund or Fondo de Capitalizacion Laboral, FCL), as well as the notice of termination of employment (preaviso) and severance pay (cesantia). The FCL, which is funded through employer contributions, functions as an unemployment insurance; the employee can withdraw the savings every five years if the employee has worked without interruption for the same employer. Costa Rican labor law requires that employees released without cause receive full severance pay, which can amount to close to a full year’s pay in some cases. Although there is no insurance for workers laid off for economic reasons, employers may voluntarily establish an unemployment fund.

In response to government-ordered temporary business closures due to the Covid-19 pandemic, in 2020, the Labor Ministry implemented the temporary suspension of employment contracts, a procedure established in the Labor Code, which grants employers the option of stopping the payment of wages temporarily during an emergency. Executive orders (Nos. 42522-MTSS and 42248-MTSS) established the procedures for employers to request the temporary suspension of labor contracts with their employees. Employers requested the suspension of contracts through the Labor Inspectorate of the Labor Ministry. In 2021, the Labor Ministry continued implementing the temporary suspension of employment contracts but only in sectors most adversely affected by the COVID-19 pandemic due to the restrictions and closures imposed by authorities.

The National Assembly approved a law (Law 9832) in 2020 to reduce working hours during the pandemic. Under the law, if income in a company decreases by 20 percent, compared to the income during the same month in 2019 or compared to the income of the previous three months, the employer can reduce the employees’ hours and salary up to 50 percent. If the decrease in income is greater than 60 percent, the reduction in salary can reach 75 percent. Legislators initially authorized this reduction for three months and employers could request extensions for two equal terms (9 months) and then to five terms (15 months) as the emergency continued. In May 2021, the National Assembly approved an extension (Legislative Order No. 9982) in the tourism sector which authorizes a reduction for four equal terms with previous approval from the Labor Ministry.

In 2020, the National Assembly authorized employees, whose labor contracts were terminated or suspended or whose salaries were reduced during the state of emergency declaration, to withdraw their contributions to the FCL plan (Law 9839).

Costa Rican labor law and practice allows some flexibility in alternate schedules; nevertheless, it is based on a 48-hour week made up of eight-hour days. Workers are entitled to one day of rest after six consecutive days of work. The labor code stipulates that the workday may not exceed 12 hours. Use of temporary or contract workers for jobs that are not temporary in nature to lower labor costs and avoid payroll taxes does occur, particularly in construction and in agricultural activities dedicated to domestic (rather than export) markets. No labor laws are waived to attract or retain investment‒all labor laws apply in all Costa Rican territory, including free trade zones. The government has been actively exploring ways to introduce more flexibility into the labor code to facilitate teleworking and flexible work schedules.

Costa Rican law guarantees the right of workers to join labor unions of their choosing without prior authorization. Unions operate independently of government control and may form federations and confederations and affiliate internationally. Most unions are in the public sector, including in state-run enterprises. Collective bargaining agreements are common in the public sector. “Permanent committees of employees” informally represent employees in some enterprises of the private sector and directly negotiate with employers; these negotiations are expressed in “direct agreements,” which have a legal status. Based on 2021 statistics, 15 percent of employees were union members. The Labor Ministry reported that from 2019 to 2021, they approved 27 collective agreements and accompanied 43 negotiation processes and handled 7 conciliation processes of a social economic nature. In 2021, the Ministry reported that collective bargaining agreements covered 10.6 percent of the working population, 50.7 percent within public sector entities and 1.1 percent within the private sector. The Ministry reported that 13,897 workers were covered by “direct agreements” in different sectors (agriculture and manufacturing industry) during 2021.

In the private sector, many Costa Rican workers join “solidarity associations,” through which employers provide easy access to saving plans, low-interest loans, health clinics, recreation centers, and other benefits. A 2011 law solidified that status by giving solidarity associations constitutional recognition comparable to that afforded labor unions. Solidarity associations and labor unions coexist at some workplaces, primarily in the public sector. Business groups claim that worker participation in permanent committees and/or solidarity associations provides for better labor relations compared to firms with workers represented only by unions. However, some labor unions allege private businesses use permanent committees and solidarity associations to hinder union organization while permanent workers’ committees displace labor unions on collective bargaining issues in contravention of internationally recognized labor rights.

The Ministry of Labor has a formal dispute-resolution body and will engage in dispute-resolution when necessary; labor disputes may also be resolved through the judicial process. The Ministry of Labor’s regulations establish that conciliation is the mechanism to solve individual labor disputes, as defined in the Alternative Dispute Resolution (ADR) Law (No. 7727, dated 9 December 1997). The Labor Code and ADR Law establish the following mechanisms: dialogue, negotiation, mediation, conciliation, and arbitration. The Labor Law promotes alternative dispute resolution in judicial, administrative, and private proceedings. The law establishes three specific mechanisms: arbitration to resolve individual or collective labor disputes (including a Labor Ministry’s arbitrator roster list); conciliation in socio-economic collective disputes (introducing private conciliation processes); and arbitration in socio-economic collective disputes (with a neutral arbitrator or a panel of arbitrators issuing a decision). The Labor Ministry also participates as mediator in collective conflicts, facilitating and promoting dialogue among interested parties. The law provides for protection from dismissal for union organizers and members and requires employers found guilty of anti-union discrimination to reinstate workers fired for union activities.

The law provides for the right of workers to conduct legal strikes, but it prohibits strikes in public services considered essential (police, hospitals, and ports). Strikes affecting the private sector are rare and do not pose a risk for investment.

Child and adolescent labor is uncommon in Costa Rica, and it occurs mainly in agriculture in the informal sector.  In 2020, the government published the results of a child labor risk identification model and a strategy to design preventive measures at local level. In 2021, the government continued a pilot project for the prevention of child labor in two at-risk cantons in the province of Limón. The government also activated the Houses of Joy (“Casas de la Alegría”) during the coffee harvest season 2021-2022. These are daycare centers for children of workers in different coffee regions of the country, mainly in the Brunca, Los Santos, and Western Valley regions.

Chapter 16 of the U.S.-Central American Free Trade Agreement obliges Costa Rica to enforce laws that defend core international labor standards. The government, organized labor, employer organizations, and the International Labor Organization signed a memorandum of understanding to launch a Decent Work Program for the period 2019-2023, which aims to improve labor conditions and facilitate employability for vulnerable groups through government-labor-business tripartite dialogue.

The National Assembly recently approved a public employment reform bill that aims to establish the same salary for equal responsibilities in the public sector, eliminating different wage systems and salary bonus structures, which is projected to reduce the fiscal deficit.The legislation will take effect in March 2023.

* Source for Host Country Data: Costa Rican Central Bank. The “FDI Stock” positions detailed here are an accounting expression of the accumulation of FDI through 2020, while the “FDI inflow” statistic given in the first paragraph of the executive summary is the sum of foreign direct investment made in Costa Rica during calendar year 2020, as reported by the Costa Rican Central Bank.    

Attention: Investment Climate Statement
Economic Section
Embassy San Jose, Costa Rica
2519-2000
SanJoseEcon@state.gov 

The Dominican Republic presents both opportunities and challenges for foreign investment. The government strongly promotes inward FDI and has prioritized creating a sound enabling environment for foreign investors. While the government has established formal programs to attract FDI, a lack of clear rules and uneven enforcement of existing rules can lead to difficulties. The approval in 2021 of a National Competitiveness Strategy, including the formation of a National Competitiveness Council, seeks to respond to the indicators of the Global Competitiveness Index of the World Economic Forum, and should help address some of these concerns.

The Dominican Republic provides tax incentives for investment in tourism, renewable energy, film production, Haiti-Dominican Republic border development, and the industrial sector. The country is also a signatory of CAFTA-DR, which mandates non-discriminatory treatment, free transferability of funds, protection against expropriation, and procedures for the resolution of investment disputes. However, some foreign investors indicate that the uneven enforcement of regulations and laws, or political interference in legal processes, creates difficulties for investment.

There are two main government agencies responsible for attracting foreign investment, the Export and Investment Center of the Dominican Republic (CEI-RD) and the National Council of Free Trade Zones for Export (CNZFE). CEI-RD promotes foreign investment and aids prospective foreign investors with business registration, matching services, and identification of investment opportunities. It publishes an annual “Investment Guide of the Dominican Republic,” highlighting many of the tools, incentives, and opportunities available for prospective investors. The CEI-RD also oversees “ProDominicana,” a branding and marketing program for the country launched in 2017 that promotes the DR as an investment destination and exporter. CNZFE aids foreign companies looking to establish operations in the country’s 79 free trade zones for export outside Dominican territory.

There are a variety of business associations that promote dialogue between the government and private sector, including the Association of Foreign Investor Businesses (ASIEX).

Foreign Investment Law No. 16-95 states that unlimited foreign investment is permitted in all sectors, with a few exceptions for hazardous materials or materials linked to national security. Private entities, both foreign and domestic, have the right to establish and own business enterprises and engage in all legal remunerative activity. Foreign companies are not restricted in their access to foreign exchange, there are no requirements that foreign equity be reduced over time or that technology be transferred according to defined terms, and the government imposes no conditions on foreign investors concerning location, local ownership, local content, or export requirements. See Section 3 Legal Regime for more information.

The Dominican Republic does not maintain a formalized investment screening and approval mechanism for inbound foreign investment. Details on the established mechanisms for registering a business or investment are elaborated in the Business Facilitations section below.

The Dominican Republic has not been reviewed recently by multilateral organizations regarding investment policy. The most recent reviews occurred in 2015. This included a trade policy review by the World Trade Organization (WTO) and a follow-up review by the United Nations Conference on Trade and Development (UNCTAD) regarding its 2009 investment policy recommendations.

2009 UNCTAD – https://unctad.org/en/pages/PublicationArchive.aspx?publicationid=6343 

2015 WTO – https://www.wto.org/english/tratop_e/tpr_e/s319_e.pdf

2015 UNCTAD – https://unctad.org/en/PublicationsLibrary/diaepcb2016d2_en.pdf

Foreign investment does not require any prior approval in the Dominican Republic, but once made it must be registered with the CEI-RD. Investments in free zones must be registered with the CNZFE, which will notify the CEI-RD. Foreign investment registration is compulsory, but failure to do so is not subject to any sanction.

Law No. 16-95 Foreign Investment, Law No. 98-03 on the Creation of the CEI-RD, and Regulation 214-04 govern foreign investment in the Dominican Republic and require an interested foreign investor to file an application form at the offices of CEI-RD within 180 calendar days from the date on which the foreign investment took place. The required documents include the application for registration, containing information on the invested capital and the area of the investment; proof of entry into the country of the foreign capital or physical or tangible goods; and documents of commercial incorporation or the authorization of operation of a branch office through the setting up of legal domicile in the country.  The reinvestment of profits (in the same or a different firm) must be registered within 90 days. Once the documents have been approved, the CEI-RD issues a certificate of registration within 15 business days subject to the payment of a fee which varies depending on the amount of the investment.

Lack of registration does not affect the validity of the foreign investment; but the fact that it is needed to fulfill various types of procedures, makes registration necessary in practice. For example, the registration certificate has to be presented to repatriate profits or investment in the event of sale or liquidation and to purchase foreign exchange from the authorized agencies for transfers abroad, as well as to process the residency of the investor.  In April 2021, CEI-RD launched an online Registry of Foreign Direct Investment, which aims to streamline and make the registration processes more transparent to investors. For more information on becoming an investor or exporter, visit the CEI-RD ProDominicana website at https://prodominicana.gob.do .

The Dominican Republic has a single-window registration website for registering a limited liability company (SRL by its Spanish acronym) that offers a one-stop shop for registration needs ( https://www.formalizate.gob.do/ ). Foreign companies may use the registration website. However, this electronic method of registration is not widely used in practice and consultation with a local lawyer is recommended for company registrations. According to the “Doing Business” report, starting a SRL in the Dominican Republic is a seven-step process that requires 16.5 days. However, some businesses advise the full incorporation process can take two to three times longer than the advertised process.

In order to set up a business in a free trade zone, a formal request must be made to the CNZFE, the entity responsible for issuing the operating licenses needed to be a free zone company or operator. CNZFE assesses the application and determines its feasibility. For more information on the procedure to apply for an operating license, visit the website of the CNZFE at http://www.cnzfe.gov.do.

There are no legal or government restrictions on Dominican investment abroad, although the government does little to promote it. Outbound foreign investment is significantly lower than inbound investment. The largest recipient of Dominican outward investment is the United States.

The national government manages all regulatory processes. Information about regulations is often scattered among various ministry and agency websites and is sometimes only available through direct communication with officials. It is advisable for U.S. investors to consult with local attorneys or advisors to assist with locating comprehensive regulatory information.

On the 2021 Global Innovations Index, the Dominican Republic’s overall rank was 93 out of 131 nations analyzed, which is a setback from its rank in 2020 by three positions. In sub-sections of the report, the Dominican Republic ranks 101 out of 131 for regulatory environment and 74 out of 131 for regulatory quality.

The World Bank Global Indicators of Regulatory Governance report states that Dominican ministries and regulatory agencies do not publish lists of anticipated regulatory changes or proposals intended for adoption within a specific timeframe. Law No. 107-13 requires regulatory agencies to give notice of proposed regulations in public consultations and mandates publication of the full text of draft regulations on the relevant agency’s website. Additionally, Law No. 200-04 allows citizens in general to request information to the government on a unified website: https://saip.gob.do/ . Foreign investors, however, note that these requirements are not always met in practice since not all relevant Dominican agencies provide content, and those that do often do not keep the content up to date, and many businesses point out that the scope of SAIP’s website content is not always adequate for investors or interested parties. U.S. businesses also reported years’ long delays in the enactment of regulations supporting new legislation, even when the common legal waiting period is normally six months.

The process of public consultation is not uniform across the government. Some ministries and regulatory agencies solicit comments on proposed legislation from the public; however, public outreach is generally limited and depends on the responsible ministry or agency. For example, businesses report that some ministries upload proposed regulations to their websites or post them in national newspapers, while others may form working groups with key public and private sector stakeholders participating in the drafting of proposed regulations. Often the criteria used by the government to select participants in these informal exchanges are unclear, which at a minimum creates the appearance of favoritism and that undue influence is being offered to a handpicked (and often politically connected) group of firms and investors. Public comments received by the government are generally not publicly accessible. Some ministries and agencies prepare consolidated reports on the results of a consultation for direct distribution to interested stakeholders. Ministries and agencies do not conduct impact assessments of regulations or ex post reviews. Affected parties cannot request reconsideration or appeal of adopted regulations, although they could challenge any of its content if deemed unconstitutional at the Constitutional Court and contest its application before the Superior Administrative Tribunal.

In February 2022, the Dominican Republic’s General Directorate of Internal Taxes (DGII) proposed to extend the existing 18% value added tax known as the ITBIS to digital services and published the draft regulation on its website (https://dgii.gov.do/Paginas/default.aspx) for public comment.

The Dominican Institute of Certified Public Accountants (ICPARD) is the country’s legally recognized professional accounting organization and has authority to establish accounting standards in accordance with Law No. 479-08, which also declares that (as amended by Law No. 311-14) financial statements should be prepared in accordance with generally accepted accounting standards nationally and internationally. The ICPARD and the country’s Securities Superintendency require the use of International Financial Reporting Standards (IFRS) and IFRS for small and medium-sized entities (SMEs).

By law, the Office of Public Credit publishes on its website a quarterly report on the status of the non-financial public sector debt, which includes a wide array of information and statistics on public borrowing ( www.creditopublico.gov.do/publicaciones/informes_trimestrales.htm ).

In addition to the public debt addressed by the Office of Public Credit, the Central Bank maintains on its balance sheet nearly $10 billion in “quasi-fiscal” debt. When consolidated with central government debt, the debt-to-GDP ratio is over 60 percent, and the debt service ratio is over 30 percent.

As of the end of 2020, the Dominican Republic was involved in 18 dispute settlement cases with the WTO: one as complainant, eight as respondent, and nine as a third party. In recent years, the Dominican Republic has frequently changed technical requirements (e.g., for steel rebar imports and sanitary registrations, among others) and has failed to provide proper notification under the WTO TBT agreement and CAFTA-DR.

The judicial branch is an independent branch of the Dominican government. According to Article 69 of the Constitution, all persons, including foreigners, have the right to appear in court. The basic concepts of the Dominican legal system and the forms of legal reasoning derive from French law—civil law system in general. The five basic French Codes (Civil, Civil Procedure, Commerce, Penal, and Criminal Procedure) were translated into Spanish and passed as legislation in 1884. Some of these codes have since been amended and parts have been replaced, including the total derogation of the Code of Criminal Procedure in 2002, resulting in a hybrid legal framework.

There is a Commercial Code and a wide variety of laws governing business formation and activity. The main laws governing commercial disputes are the Commercial Code; Law No. 479-08, the Commercial Societies Law; Law No. 3-02, concerning Business Registration; Commercial Arbitration Law No. 489-08; Law No. 141-15 concerning Restructuring and Liquidation of Business Entities; and Law No. 126-02, concerning e-Commerce and Digital Documents and Signatures.

Some investors complain of significant delays in obtaining a decision by the Judiciary. While Dominican law mandates overall time standards for the completion of key events in a civil case, these standards frequently are not met. The Judiciary has requested additional funds to hire more judges, clerks, and judicial personnel to address these concerns. In 2020 the World Bank noted that resolving complaints raised during the award and execution of a contract can take more than four years in the Dominican Republic, although some take longer. Dominican nationals and foreigners alike have the constitutional right to submit their cases to an appeal court or to request the Supreme Court review (recurso de casación in Spanish) the ruling of a lower court. If a violation of fundamental rights is alleged, the Constitutional Court might also review the case with the authority to nullify the lower court judgment. Notwithstanding, foreign investors have complained that the local court system is unreliable, is biased against them, and that special interests and powerful individuals are able to use the legal system in their favor. Others who have successfully won in courts, have struggled to get their ruling enforced.

While the law provides for an independent judiciary, businesses and other external groups have noted that traditionally the government did not respect judicial independence or impartiality, and improper influence on judicial decisions was widespread. The Abinader administration has made a concerted effort to respect the autonomy of the Public Ministry and the Office of the Attorney General, and investors have noted improvements. The administration has proposed a constitutional amendment to strengthen the independence of the Office of the Attorney General, but it faces uncertain prospects in the Dominican Congress.

Several large U.S. firms cite the improper and disruptive use of lower court injunctions as a way for local distributors to obtain more beneficial settlements at the end of contract periods. To engage effectively in the Dominican market, many U.S. companies seek local partners that are well-connected and understand the local business environment, but even this is a not a guarantee.

The legal framework supports foreign investment. Article 221 of the Constitution declares that foreign investment shall receive the same treatment as domestic investment. Foreign Investment Law No. 16-95 states that unlimited foreign investment is permitted in all sectors, with a few exceptions. According to the law, foreign investment is not allowed in the following categories: a) disposal and remains of toxic, dangerous, or radioactive garbage not produced in the country; b) activities affecting the public health and the environmental equilibrium of the country, pursuant to the norms that apply in this regard; and c) production of materials and equipment directly linked to national defense and security, except for an express authorization from the Executive.

The Export and Investment Center of the Dominican Republic (ProDominicana, formally known as CEI-RD) aims to be the one-stop shop for investment information, registration, and investor after-care services. ProDominicana maintains a user-friendly website for guidance on the government’s priority sectors for inward investment and on the range of investment incentives ( https://prodominicana.gob.do ).

In February 2020, the Dominican government enacted the Public-Private Partnerships (PPP) Law No. 47-20 to establish a regulatory framework for the initiation, selection, award, contracting, execution, monitoring and termination of PPPs in line with the 2030 National Development Strategy of the Dominican Republic. The law also created the General Directorate of Public-Private Partnerships (DGAPP) as the agency responsible for the promotion and regulation of public-private alliances and the National Council of Public-Private Partnerships as the highest body responsible for evaluating and determining the relevance of the PPPs. The PPP law recognizes public-private and public-private non-profit partnerships from public or private initiatives and provides for forty-year concession contracts, five-year exemptions of the tax on the transfer of goods and services (ITBIS), and accelerated depreciation and amortization regimes. The DGAPP website has the most up to date information on PPPs ( https://dgapp.gob.do/en/home/  ).

The National Commission for the Defense of Competition (ProCompetencia) has the power to review transactions for competition-related concerns. Private sector contacts note, however, that strong public pressure is required for ProCompetencia to act. Its decisions can be challenged before the Superior Administrative Tribunal (TSA). The TSA’s ruling can be revised in its legality through a recurso de casación by the Supreme Court of Justice (SCJ), and if there was a constitutional violation, the case could be heard by the Constitutional Court.

On June 14, 2021, ProCompetencia approved sanctions against four pharmaceuticals firms found guilty of price fixing (Profarma Internacional, S.R.L, Sued & Fargesa, S.R.L., Mercantil Farmacéutica, S.A. y J. Gassó Gassó, S.A.S) for certain drugs such as analgesics and anti-flu medicines. Total fines reached $250,000 ($14 million pesos).

The Dominican constitution permits the government’s exercise of eminent domain after the President has declared a plot of land for public use by official decree; however, it also mandates fair market compensation in advance of the use of seized land. Nevertheless, there are many outstanding disputes between U.S. investors and the Dominican government concerning unpaid government contracts or expropriated property and businesses, as well indirect expropriation. Property claims make up the majority of cases. Most, but not all, expropriations have been used for infrastructure or commercial development and many claims remain unresolved for years. The Abinader administration has committed to resolve disputes over land title before government use, but in some cases the matters are protracted and there are multiple claims to the same piece of land.

Traditionally, investors and lenders have reported that they typically do not receive prompt payment of fair market value for their losses. They have complained of difficulties in the subsequent enforcement even in cases in which the Dominican courts, including the Supreme Court, have ordered compensation or when the government has recognized a claim. In other cases, some indicate that lengthy delays in compensation payments are blamed on errors committed by government-contracted property assessors, slow processes to correct land title errors, a lack of budgeted funds, and other technical problems. There are also cases of regulatory action that investors say could be viewed as indirect expropriation. For example, they note that government decrees mandating atypical setbacks from roads, or establishing new protected areas can deprive investors of their ability to use purchased land in the manner initially planned, substantially affecting the economic benefit sought from the investment.

Many companies report that the procedures to resolve expropriations lack transparency. Government officials are rarely, if ever, held accountable for failing to pay a recognized claim or failing to pay in a timely manner.

Law 141-15 provides the legal framework for bankruptcy. It allows a debtor company to continue to operate for up to five years during reorganization proceedings by halting further legal proceedings. It also authorizes specialized bankruptcy courts; contemplates the appointment of conciliators, verifiers, experts, and employee representatives; allows the debtor to contract for new debt which will have priority status in relation to other secured and unsecured claims; stipulates civil and criminal sanctions for non-compliance; and permits the possibility of coordinating cross-border proceedings based on recommendations of the UNCITRAL Model Law of 1997. In March 2019, a specialized bankruptcy court was established in Santo Domingo.

The Dominican Republic scores lower than the regional average and comparator economies on resolving insolvency on most international indices.

Investment incentives exist in various sectors of the economy, which are available to all investors, foreign and domestic. Incentives typically take the form of preferential tax rates or exemptions, preferential interest rates or access to finance, or preferential customs treatment. Sectors where incentives exist include agriculture, construction, energy, film production, manufacturing, and tourism.

Incentives for manufacturing apply principally to production in free trade zones (discussed in the subsequent section) or for the manufacturing of textiles, pharmaceutical products, tobacco and derivatives, clothing, and footwear specifically under Laws 84-99 on Re-activation and Promotion of Exports and 56-07 on Special Tax Incentives for the Textile Sector. Additionally, Law 392-07 on Competitiveness and Industrial Innovation provides a series of incentives that include exemptions on taxes and tariffs related to the acquisition of materials and machinery and special tax treatment for approved companies.

Special Zones for Border Development, created by Law No. 28-01, encourage development near the Dominican Republic-Haiti border. Law No. 12-21, passed in February 2021, modified and extended incentives for direct investments in manufacturing projects in the Zones for a period of 30 years. Incentives still largely take the form of tax exemptions but can be applied for a maximum period of 30 years, versus the 20 years in the original law. These incentives include the exemption of income tax on the net taxable income of the projects, the exemption of sales tax, the exemption of import duties and tariffs and other related charges on imported equipment and machinery used exclusively in the industrial processes, as well as on imports of lubricants and fuels (except gasoline) used in the processes.

Tourism is a particularly attractive area for investment and one the government encourages strongly. Law 158-01 on Tourism Incentives, as amended by Law 195-13, and its regulations, grants wide-ranging tax exemptions, for fifteen years, to qualifying new projects by local or international investors. The projects and businesses that qualify for these incentives are: (a) hotels and resorts; (b) facilities for conventions, fairs, festivals, shows and concerts; (c) amusement parks, ecological parks, and theme parks; (d) aquariums, restaurants, golf courses, and sports facilities; (e) port infrastructure for tourism, such as recreational ports and seaports; (f) utility infrastructure for the tourist industry such as aqueducts, treatment plants, environmental cleaning, and garbage and solid waste removal; (g) businesses engaged in the promotion of cruises with local ports of call; and (h) small and medium-sized tourism-related businesses such as shops or facilities for handicrafts, ornamental plants, tropical fish, and endemic reptiles. In January 2020, the government announced a special incentive plan to promote high-quality investment in tourism and infrastructure in the southwest region of Pedernales for more information contact the Ministry of Tourism at https://www.mitur.gob.do/ .

For existing projects, hotels and resort-related investments that are five years or older are granted complete exemption from taxes and duties related to the acquisition of the equipment, materials and furnishings needed to renovate their premises. In addition, hotels and resort-related investments that are fifteen years or older will receive the same benefits granted to new projects if the renovation or reconstruction involves 50 percent or more of the premises.

In addition, individuals and companies receive an income tax deduction for investing up to 20 percent of their annual profits in an approved tourist project. The Tourism Promotion Council (CONFOTOUR) is the government agency in charge of reviewing and approving applications by investors for these exemptions, as well as supervising and enforcing all applicable regulations. Once CONFOTOUR approves an application, the investor must start and continue work in the authorized project within a three-year period to avoid losing incentives.

The Dominican Republic encourages investment in the renewable energy sector. Under Law 57-07 on the Development of Renewable Sources of Energy, investors in this area are granted, among other benefits, the following incentives: (a) no custom duties on the importation of the equipment required for the production, transmission and interconnection of renewable energy; (b) no tax on income derived from the generation and sale of electricity, hot water, steam power, biofuels or synthetic fuels generated from renewable energy sources; and (c) exemption from the goods and services tax in the acquisition or importation of certain types of equipment. Foreign investors praise the provisions of the law but have historically expressed frustration with approval and execution of potential renewable energy projects. Ongoing reforms to the energy sector discussed in Section 7 on State-Owned Enterprises should alleviate some of these concerns and have already enabled the completion of several solar power concessions over the past year. The Minister of Energy and Mines, Antonio Almonte, affirmed March 9 that the only way that the Dominican Republic has to counteract the fuel crisis in the international market is by stimulating and promoting the production of renewable energies.

The Dominican government does not currently have a practice of jointly financing foreign direct investment projects. However, in some circumstances, the government has authority to offer land or infrastructure as a method of attracting and supporting investment that meets government development goals. Anticipated reforms to government-owned asset management (See Section 7) may change the institutional actors and framework for engaging with government-owned resources.

In February 2020, the government passed a law on public-private partnerships (PPPs) that may encourage high-quality infrastructure projects and help catalyze private sector-led economic growth. In 2020, the Abinader administration officially launched the DGAPP as the government office responsible for planning, executing, and overseeing investment projects financed via PPPs. Their website has the most up to date information on their initiatives and mandates ( https://dgapp.gob.do/en/home/ ).

Law 8-90 on the Promotion of Free Zones from 1990 governs operations of the Dominican Republic’s free trade zones (FTZs), while the National Council of Free Trade Zones for Export (CNZFE) exercises regulatory oversight. The law provides for complete exemption from all taxes, duties, charges, and fees affecting production and export activities in the zones.

According to the Ministry of Industry and Commerce, the Dominican Republic has established 79 free trade zones – 38 in the Northern Zone, 17 in the Santo Domingo and the National District, 13 in the Southern Zone, and seven in the Eastern Zone. Additionally, there are 734 companies operating in the zones that employ over 182,700 people.

CNZFE delineates policies for the promotion and development of Free Trade Zones, as well as approving applications for operating licenses, with discretionary authority to extend the time limits on these incentives. CNZFE is comprised of representatives from the public and private sectors and is chaired by the Minister of Industry and Commerce.

Border FTZs located in one of the seven provinces along the Dominican-Haitian border benefit from incentives for a 20-year period, while those located throughout the rest of the country benefit for a 15-year period. Companies operating in the FTZs do pay tax on the purchase of locally sourced inputs and relevant taxes do apply when products produced in FTZs are sold in the Dominican market.

In general, firms operating in the FTZs report fewer bureaucratic and legal problems than do firms operating outside the zones. Foreign currency flows from the FTZs are handled via the free foreign exchange market. Foreign and Dominican firms are afforded the same investment opportunities both by law and in practice and Dominican companies operating in or adjacent to the FTZs benefit from exposure to international business standards and best practices.

According to CNZFE’s 2020 Statistical Report, exports from FTZs totaled $5.9 billion, comprising 3.5 percent of GDP. Investments made in FTZs by U.S. companies in 2020 represented approximately 32.7 percent of total investments. Other major investors include companies registered in the Dominican Republic (39.5 percent), Canada (2.7 percent), Germany (2.6 percent), and Puerto Rico (2.3 percent). Companies registered in 38 other countries comprised the remaining investments. The top exports from FTZs are medical and pharmaceutical products, tobacco and derivatives, apparel and textiles, jewelry, electronics, and footwear. Estimates for 2021 predict over $7 billion in exports from FTZs, representing over 60% of total exports from the country.

Exporters/investors seeking further information from the CNZFE may contact:

Consejo Nacional de Zonas Francas de Exportación
Leopoldo Navarro No. 61
Edif. San Rafael, piso no. 5
Santo Domingo, Dominican Republic
Phone: (809) 686-8077
Fax: (809) 686-8079
Website: http://www.cnzfe.gov.do

Law 16-92 on the Labor Code stipulates that 80 percent of the labor force of a foreign or national company, including free trade zone companies, must be comprised of Dominican nationals. Senior management and boards of directors of foreign companies are exempt from this regulation.

The Dominican Republic does not have excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees. The host government does not have a forced localization policy to compel foreign investors to use domestic content in goods or technology.

There are no performance requirements as there is no distinction between Dominican and foreign investment. Investment incentives are applied uniformly to both domestic and foreign investors in accordance with World Trade Organization (WTO) requirements. In addition, there are no requirements for foreign IT providers to turn over source code or provide access to encryption.

Law No. 172-13 on Comprehensive Protection of Personal Data restricts companies from freely transmitting customer or other business-related data inside the Dominican Republic or beyond the country’s borders. Under this law, companies must obtain express written consent from individuals to transmit personal data unless an exception applies. The Superintendency of Banks currently supervises and enforces these rules, but its jurisdiction generally covers banks, credit bureaus, and other financial institutions. Industry representatives recommend updating this law to designate a national data protection authority that oversees other sectors.

The Dominican Constitution guarantees the right to own private property and provides that the state shall promote the acquisition of property, especially titled real property, however, a patchwork history of land titling systems and sometimes violent political change has complicated land titling in the Dominican Republic. By law, all land must be registered, and that which is not registered is considered state land. There are no restrictions or specific regulations on foreigners or non-resident owners of land. Registering property in the Dominican Republic requires 6 steps, an average of 33 days, and payment of 3.4 percent of the land value as a registration fee.

Land tenure insecurity has been fueled by government land expropriations, institutional weaknesses, lack of effective law enforcement, and local community support for land invasions and squatting. Political expediency, corruption, and fraud have all been cited as practices that have complicated the issuance of titles or respect for the rights of existing title holders. Moreover, while on the decline, long-standing titling practices, such as issuing provisional titles that are never completed or providing titles to land to multiple owners without requiring individualization of parcels, have created ambiguity in property rights and undermined the reliability of existing records.

In the last decade, the Dominican government received a $10-million, Inter-American Development Bank (IDB) loan to modernize its property title registration process, address deficiencies and gaps in the land administration system, and strengthen land tenure security. The project involved digitization of land records, decentralization of registries, establishment of a fund to compensate people for title errors, separation of the legal and administrative functions within the agency, and redefinition of the roles and responsibilities of judges and courts.

In 2008, the country transitioned to a new system based on GPS coordinates and has been working towards establishing clear titles, but, in March 2021, an industry source estimated that only 25 percent of all land titles were clear. The government advises that investors are ultimately responsible for due diligence and recommends partnering with experienced attorneys to ensure that all documentation, ranging from title searches to surveys, have been properly verified and processed.

Mortgages and liens do exist in the Dominican Republic. The Title Registry Office maintains the system for recording titles, as well as a complementary registry of third-party rights, such as mortgages, liens, easements, and encumbrances. Property owners maintain ownership of legally purchased property whether unoccupied or occupied by squatters, however, it can be difficult and costly to enforce private rights against squatters. This may in part be due to a provision in the law known as “adverse possession,” which allows squatters to acquire legal ownership of land without a title (thereby state-owned).

For investors in the tourism sector, it is important to note that the Dominican constitution guarantees public access to all beaches in the Dominican Republic. Disputes have arisen over whether this passage ensures access to sand or to the coast and may create legal risks for investors as coastlines change over time. In addition, investors or owners that might have property demarcated for sale when environmental sciences were not as developed are now subject to laws prohibiting private development any closer than 60 meters from the tideline.

The Dominican Republic has strong intellectual property rights (IPR) laws and is meeting its IP obligations under international agreements such as the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Nevertheless, weak institutions and limited enforcement can present challenges for investors. Under the Abinader administration, the country’s posture toward the protection and enforcement of IPR has improved. However, many agencies continue to be under resourced, a reality that is unlikely to change in a contracting fiscal environment. Illicit and counterfeit goods, as well as online and signal piracy, are common and continue to present challenges for authorities. In the Dominican Republic, illicit or counterfeit goods include the full gamut of fashion apparel and accessories, electronics, pharmaceuticals, cosmetics, cigarettes, and alcohol.

Several IP authorities in the Dominican Republic grant intellectual property rights. The National Office of Industrial Property (ONAPI) issues trademarks and patents, the National Copyright Office (ONDA) issues copyrights, the Ministry of Public Health and Social Assistance (MISPAS) issues sanitary registrations required for marketing foods, pharmaceuticals, and health products, and the Directorate of International Trade (DICOEX) has jurisdiction over the implementation of geographical indications. IPR registration processes have improved in recent years, but delays and questionable adjudication decisions are still common. ONAPI started e-filing services for patents, which has helped make the registration process more efficient. However, ONDA continues to be hampered by lack of expertise and resources. The agency has the authority to investigate copyright violations but continued to shirk its responsibility of submitting formal requests to the telecommunications regulator (Indotel) to cancel licenses of those using pirated signals. As a result, copyright enforcement and prosecutions have been nonexistent.

IPR Enforcement is carried out by the Customs Authority (DGA), the National Police, the National Copyright Office (ONDA), the Dominican Institute of Telecommunications (Indotel), the Special Office of the Attorney General for Matters of Health, and the Special Office of the Attorney General for High Tech Crimes.

In October 2021 the Deputy Attorney General formed the National Advisory Board for Intellectual Property that should be approved by the President’s Legal Counsel in 2022. If approved as currently envisioned, the Board should be vested with the legal authority to delegate roles to the different agencies. This Board is in addition to the already functional interagency working group that has led to more coordination between the various IP agencies and the private sector. As a result, prosecution case counts have risen from 73 cases in 2018 to 217 cases in 2021. Additionally, the prospector’s office is investigating more cases. From 2018-2020 the prosecutor’s office investigated 268 cases. In 2021 alone the office investigated 468 cases. This can be attributed to better training of prosecutors at the regional level. In February 2021, the IP unit partnered with ONAPI and ONDA to launch an IP training academy for prosecutors and judges to improve the country’s judicial capacity.

Since 2003, the U.S. Trade Representative (USTR) has designated the Dominican Republic as a Special 301 Watch List country for serious IPR deficiencies. The country, however, is not listed in USTR’s Review of Notorious Markets for Counterfeiting and Piracy. The Abinader administration has committed to getting the Dominican Republic removed from the Special 301 Watch List.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en .

The Dominican Stock Market (BVRD by its Spanish acronym) is the only stock exchange in the Dominican Republic. It began operations in 1991 and is viewed as a cornerstone of the country’s integration into the global economy and domestic development. It is regulated by the Securities Market Law No. 249-17 and supervised by the Superintendency of Securities, which approves all public securities offerings.

The private sector has access to a variety of credit instruments. Foreign investors are able to obtain credit on the local market but tend to prefer less expensive offshore sources. The Central Bank regularly issues certificates of deposit using an auction process to determine interest rates and maturities.

In recent years, the local stock market has continued to expand, in terms of the securities traded on the BVRD. There are very few publicly traded companies on the exchange, as credit from financial institutions is widely available and many of the large Dominican companies are family-owned enterprises. Most of the securities traded in the BVRD are fixed-income securities issued by the Dominican State.

On August 6, 2021, the Law 163-21 for the Promotion of the Placement and Marketing of Publicly Offered Securities in the Stock Market of the Dominican Republic was enacted as a complement to Law 249-17, to promote the issuance of shares by private and public companies. This law declares of national interest the promotion and development of the public offering of securities as a financing mechanism for the revitalization of the national economy, with special emphasis on the issuance of shares of private and public companies in the stock market of the Dominican Republic. Among the incentives proposed by Law 163-21, is the exemption of listed companies from the 1% tax for capital increase when they issue new shares during their first three years of validity. Likewise, during that same 3-year period, the Law reduces to 15% the rate of Income Tax applicable to Capital gains generated by the seller of a share listed on the stock exchange.

Dominican Republic’s financial sector is relatively stable, and the IMF declared the financial system satisfactory during 2021 Article IV consultations, however, directors agreed that while financial system remains resilient and well monitored, it would benefit from moving closer to international standards for supervision and regulation and enhancing the macroprudential and crisis management toolkit.

According to the first National Financial Inclusion Survey from the Central Bank, published on March 22, 2020, only 46.3 percent of Dominicans have a bank account. Financial depth is relatively constrained. Private lending to GDP (around 30.5 percent, according to the IMF) is low by international and regional standards, representing around half the average for Latin America. Real interest rates, driven in part by large interest rate spreads, are also relatively high. The country’s relatively shallow financial markets can be attributed to a number of factors, including high fiscal deficits crowding out private investment; complicated and lengthy regulatory procedures for issuing securities in primary markets; and high levels of consolidation in the banking sector.

Dominican banking consists of 112 entities, as follows: 47 financial intermediation entities (including large commercial banks, savings and loans associations, financial intermediation public entities, credit corporations), 41 foreign exchange and remittance agents (specifically, 35 exchange brokers and 6 remittances and foreign exchange agents), and 24 trustees. According to the latest available information (January 2022), total bank assets were $47.7 billion. The three largest banks hold 69.7 percent of the total assets – Banreservas 32.6 percent, Banco Popular 21.9 percent, and BHD Leon 16.4 percent. While full-service bank branches tend to be in urban areas, several banks employ sub-agents to extend services in more rural areas. Technology has also helped extend banking services throughout the country.

The Monetary and Banking system is regulated by the Monetary and Financial Law No. 183-02, and is overseen by the Monetary Board, the Central Bank, and the Superintendency of Banks. The mission of the Central Bank is to maintain the stability of prices, promote the strength and stability of the financial system, and ensure the proper functioning of payment systems. The Superintendency of Banks carries out the supervision of financial intermediation entities, in order to verify compliance by said entities with the provisions of the law.

Foreign banks may establish operations in the Dominican Republic, although it may require a special decree for the foreign financial institution to establish domicile in the country. Foreign banks not domiciled in the Dominican Republic may establish representative offices in accordance with current regulations. To operate, both local and foreign banks must obtain the prior authorization of the Monetary Board and the Superintendency of Banks. Major U.S. banks have a commercial presence in the country, but most focus on corporate banking services as opposed to retail banking. Some other foreign banks offer retail banking. There are no restrictions on foreigners opening bank accounts, although identification requirements do apply.

The Dominican government does not maintain a sovereign wealth fund.

The legacy of autocratic rule in the mid-twentieth century and the practice of distributing social services as political patronage have resulted in a relatively larger role for state-actors in the Dominican economy when compared with the United States. Since 1997, by means of the approval of the General Law of Reform of Public Companies No. 141-97, State-Owned Enterprises (SOEs) have been on the decline and do not have as significant a presence in the economy as they once did, with most functions now performed by privately held firms. Notable exceptions are in the electricity, banking, mining, and refining sectors.

The Dominican Corporation of State Enterprises (CORDE) was established by Law No. 289 of June 30, 1966, with the purpose of managing, directing, and developing all the productive and commercial companies, goods, and rights ceded by the Dominican State as a result of the death of the dictator Rafael Leónidas Trujillo. Among the state-owned companies that came to be managed by CORDE are the salt, gypsum, marble, and pozzolana mines. In 2017, the dissolution of CORDE was entrusted to a Commission chaired by the Legal Consultancy of the Executive Power, which assumed the operational, administrative, and financial management of this entity until the dissolution process was definitively completed. Within the framework of the dissolution process of CORDE, the ownership of the mining concessions of the Dominican State was transferred to the Patrimonial Fund of Reformed Companies (FONPER) through the Mining Concessions Transfer Agreement between CORDE and FONPER dated July 2, 2020.

Shortly after being sworn into office, in August 2020, President Abinader issued Decree 422-20 forming the Commission for the Liquidation of State Organs (CLOE) under the charge of the Ministry of the Presidency. Since then, the CLOE has been in the process of dissolution and liquidation of CORDE, and on December 8, 2020, CLOE requested the FONPER Board of Directors revoke the Concessions Transfer Agreement. FONPER’s Board of Directors approved the revocation through Minutes No. 02-2021 of March 11, 2021, authorizing the president of FONPER to sign an agreement with CLOE that revokes and nullifies the Transfer Agreement. It is not clear whether this revocation has been completed.

In 2021, the Office of the President proposed a bill to regulate government business assets, government participation in public trusts, and to create the National Center for Companies and Public Trusts (CENEFIP). The bill’s intent is to reform the management of state assets and replace the disgraced Patrimonial Fund of Reformed State Enterprises (FONPER), which is being investigated for alleged irregularities that may have personally benefited politically affiliated persons. The CENEFIP bill is under review in the legislature.

Also in 2021, the executive branch transferred the functions and properties of the State Sugar Council [Consejo Estatal del Azúcar] to the Directorate General of National Assests [Dirección General de Bienes Nacionales]. The State Sugar Council maintains one remaining sugar mill, Porvenir.

In the partially privatized electricity sector, private companies mainly provide electricity generation, while the government handles the transmission and distribution phases via the Dominican Electric Transmission Company (ETED) and the Dominican Corporation of State Electrical Companies (CDEEE). This sector is undergoing additional reforms, including the dissolution of the CDEEE and privatization of the management and operation of the distribution companies. The CDEEE and the distribution companies have traditionally been the largest SOEs in terms of government expenditures. The government also participates in the generation phase, too (most notably in hydroelectric power), and one of the distribution companies is partially privatized.

The Dominican financial sector consists of 112 entities, as follows: 47 financial intermediation entities (including large commercial banks, savings and loans associations, financial intermediation public entities, credit corporations), 41 foreign exchange and remittance agents (specifically, 35 exchange brokers and 6 remittances and foreign exchange agents), and 24 trustees. According to the latest available information (January 2022), total bank assets were $47.7 billion. The three largest banks hold 69.7 percent of the total assets – Banreservas 32.6 percent, Banco Popular 21.9 percent, and BHD Leon 16.4 percent. The state-owned, but autonomously operated BanReservas is the largest bank in the country and is a market leader in lending and deposits. Part of this success is due to a requirement for government employees to open accounts with BanReservas in order to receive salary payments. BanReservas was also utilized to distribute government social support payments during the pandemic. Roughly a third of the bank’s lending portfolio is to government institutions.

In the refining sector, the government is now the exclusive shareholder of the country’s only oil refinery; Refinery Dominicana (Refidomsa), after having extricated Petroleos de Venezuela, S.A. (PDVSA) in August 2021. Refidomsa operates and manages the refinery, is the only importer of crude oil in the country, and is also the largest importer of refined fuels, with a 60 percent market share. The price for fuel products is set by the Ministry of Industry, Commerce, and SMEs. Fuel prices are heavily subsidized.

Law No. 10-04 requires the Chamber of Accounts to audit SOEs. Audits should be published at https://www.camaradecuentas.gob.do/index.php/auditorias-publicadas . While audits have not always been publicly available, the new President of the Chamber is making a concerted effort to conduct and publish all audits required by law.

Partial privatization of state-owned enterprises (SOEs) in the late 1990s and early 2000s resulted in foreign investors obtaining management control of former SOEs engaged in activities such as electricity generation, airport management, and sugarcane processing. In the electricity sector, these reforms were reversed between 2003 and 2009, but have largely remained in place for other sectors.

Major reforms for the electricity sector, as outlined in the National Pact for Energy Reform signed February 2021, are ongoing. Plans for dissolving the CDEEE are in process, with the organization functional in name only, and the Ministry of Energy and Mines having assumed many of the authorities conferred to the CDEEE upon its founding in 2001 and across its 20-year life span. Complete dissolution and final distribution of authorities remains a legal question, which is currently being reviewed by the President’s legal advisor and the Ministry of Energy and Mines.

The DGAPP has taken the first step to improve the governance and performance of electricity distribution companies through the introduction of private sector participation. On November 29, 2021, the DGAPP publicly accepted for detailed evaluation an application submitted by the Board of the Electricity Distribution Companies (Consejo Unificado de las Empresas Distribuidoras de Electricidad) for a Public Private Partnership (PPP) covering the three state-owned distribution companies. The DGAPP Resolution No. 89/2021 follows the process in the PPP Law (Law No. 47-20), whereby any public or private entity wishing to propose a PPP must submit a formal proposal and justification to the DGAPP. Government officials expect the process to privatize the management and operation of the electricity distribution companies to begin in earnest in the summer of 2022 with the release of tender documents. All indications are that foreign firms will be invited to participate in these tenders. Questions should be directed toward the Ministry of Energy and Mines ( https://mem.gob.do/ ) or DGAPP ( https://dgapp.gob.do/en/home/ ).

The government does not have an official position or policy on responsible business conduct, including corporate social responsibility (CSR). Although there is not a local culture of CSR, large foreign companies normally have active CSR programs, as do some of the larger local business groups. While most local firms do not follow OECD principles regarding CSR, the firms that do are viewed favorably, especially when their CSR programs are effectively publicized. There is a growing trend for businesses to align with the United Nations Sustainable Development Goals and small and medium enterprises are beginning to follow examples of the CSR work of the larger local business groups of being more responsible to societal and environmental issues. These entities are viewing CSR as a competitive advantage. The CSR Risk Checker  is a tool designed to help companies understand some of the CSR risks associated with countries from which they may import or in which they may have production facilities. The report lists a total of 19 possible risks for the Dominican Republic, of which 11 are related to labor rights, three to human rights and ethics, three to environment, and two to fair business practices.

The Dominican Constitution does guarantee consumer rights stating, “Everyone has the right to have quality goods and services, to objective, truthful and timely information about the content and characteristics of the products and services that they use and consume.” To that end, the national consumer protection agency, ProConsumidor, offers consumer advocacy services.

The Dominican Republic also joined the Extractive Industries Transparency Initiative (EITI) in 2016 ( https://eiti.org/dominican-republic)  and is rated as achieving meaningful progress in its efforts to incorporate EITI standards into its regulatory framework. Its fourth country report, covering 2019 and 2020, was recently approved and can be found at https://eiti.org/document/dominican-republic-20192020-eiti-report.  The Ministry of Energy and Mines, as the government entity in charge of sectoral policy, is carrying out reform processes in the area of mining and hydrocarbons, including modernizing, organizing, and streamlining its own role. Other reforms include 1) modification and modernizing of the Mining Law of 1971, which was submitted to the Presidency for review in February 2021; 2) public consultation and revision of the regulation that will govern creation and management of the 5% of the net benefits generated by the exploitation of non-renewable natural resources that accrue to the state, established in article 117 of Law No. 64-00 of Environment and Natural Resources, and 3) drafting the regulation governing Artisanal Mining.

In May 2018, the Ministry of Energy and Mines presented the Shared Production Model Contract that regulates hydrocarbon exploration and exploitation activities in the Dominican Republic, there are separate version of the contract for on and offshore explorations. These contract models are used in the awarding of oil and gas blocks in the country, which began in November 2019. The government is exploring another licensing round, but dates have not been released. After being signed, contracts must be approved by the National Congress and promulgated by the President.

On December 15, 2003, through Decree No. 1128-03, the government established the Superintendency of Surveillance and Private Security (SVSP) to exercises control, inspection, and surveillance, over all persons and institutions that carry out surveillance and private security activities and their users, in the Dominican Republic. Despite the sizeable sector, there do not appear to be any government, civil society, or private firms in the Dominican Republic affiliated with the International Code of Conduct Association (ICoCA) and the government is not a signatory of the Montreaux Document.

According to the 2020 List of Goods Produced with Child and Forced Labor, there are indicators of child labor in the production of baked goods, coffee, rice, and tomatoes in the Dominican Republic and indicators of child and forced labor in the production of sugarcane. Stakeholders have raised serious inquiries regarding inhumane labor conditions in the Dominican Republic’s sugar sector for many years. In December 2011, Father Christopher Hartley filed a submission under the labor chapter of DR-CAFTA alleging numerous labor violations across the Dominican Republic’s sugar production industry. The U.S. Department of Labor (DOL) conducted an investigation and found “evidence of apparent and potential labor violations in the sector,” including concerns regarding acceptable conditions of work, child labor, and forced labor. Since issuing its report in 2013, DOL has engaged directly with the Government of the Dominican Republic (GODR), the International Labor Organization (ILO), and Dominican Republic industry stakeholders; provided technical assistance and related program funding; and conducted six public periodic reviews. The most recent review in 2018 found that “while concerns remain, the GODR continues to take positive steps towards addressing some of the labor issues identified in the report.” Another DOL periodic review is expected to be released in 2022.

At the same time, recent findings by investigative journalists assert that, despite ten years of effort, labor conditions in the Dominican Republic’s sugar sector remain abhorrent. Reports from the Washington Post, Mother Jones, and the Center for Investigative Reporting focusing on conditions at the Central Romana Corporation (owner of the world-famous Casa de Campo resort), include written and video testimonies by laborers about the conditions they experience in the bateys, colonos, sugar cane fields, and throughout the country’s sugar production. These testimonies describe poverty-level wages and crippling debt, excessive work hours, inadequate safety or protective equipment, abhorrent housing conditions with limited access to water and electricity, denial of public benefits such as pensions, social security, and medical care, and harassment, intimidation, and retaliation by supervisors, company representatives, company armed guards, and police.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

According to the 2022 Climate Change Performance Index, the Dominican Republic is one of the most vulnerable countries in the world to the effects of climate change, though it represents only 0.06% of global greenhouse gas emissions. As a small island developing state, the Dominican Republic is particularly vulnerable to the effects of extreme climate events, such as storms, floods, droughts, and rising sea levels. Combined with rapid economic growth (over 5 percent until 2020) and urbanization (more than 50 percent of population in cities, 30 percent in Santo Domingo), climate change could strain key socio-economic sectors such as water, agriculture and food security, human health, biodiversity, forests, marine coastal resources, infrastructure, and energy.

The National Constitution calls for the efficient and sustainable use of the nation’s natural resources in accordance with the need to adapt to climate change. The National Council for Climate Change and the Clean Development Mechanism under the Office of the Presidency is responsible for creating the National Policy on Climate Change (PNCC), the Climate Compatible Development Plan (CCDP), and the Strategic Plan for Climate Change 2011-2030 (PECC). Through these documents, the Dominican government is acting, both domestically and in coordination with the international community, to mitigate the effects of climate change. In its January 2021, report MIT Technology Review’s Green Future Index ranked the Dominican Republic as 55th out of 76 countries and territories on their progress and commitment toward building a low carbon future, stating “a new national government is updating the country’s Paris Agreement commitments and developing a plan for carbon neutrality by 2050.” The full report can be found at The Green Future Index | MIT Technology Review .

The Dominican Republic is also signatory to multiple international environmental conventions, corresponding protocols and agreements, and free trade agreements with environmental protection provisions. The Dominican Republic is party to the UN Framework Convention on Climate Change (UNFCCC), the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), and the International Convention for the Prevention of Pollution from Ships (MARPOL).

In its latest Nationally Determined Contribution (NDC) from 2020, the Dominican Republic committed to a 27 percent greenhouse gas reduction by 2030 (compared to 2010 levels), with 20 percent conditional and seven percent unconditional. The country has also established the goal of net-zero emissions by 2050. The NDC identifies mitigation options in the energy (generation, efficiency) and Industrial Processes and Product Use (IPPU) sectors. Proposed actions are meant to improve electricity generation; energy efficiency; road transportation; agriculture, forestry, and other land use (AFOLU); and waste management.

The Dominican Republic is also part of several regional adaptation initiatives, such as CARIFORUM, the Increasing Climate Resilience Project, the Caribbean Biological Corridor, and the Haiti-Dominican Republic Binational Cooperation Program, among others.

The Ministry of Environment and Natural Resources, which provides guidance in matters of air quality, waste disposal, forestry management, and water quality, has designated 127 protected areas across the country, and is working towards designating and protecting a total of 30 percent of the country through public and public-private management. The Dominican government also encourages support for climate change prevention and mitigation from the private sector through tax and investment incentives, such as Renewable Energy Law 50-07, which grants numerous incentives and tax exemptions to investors in renewable energy. BloombergNEF’s Climatescope  report ranks the Dominican Republic as the 15th most attractive market for energy transition investment out of 107 emerging markets. The report looks at opportunities in the power, transportation, and building sectors, specifically.

The Dominican Republic has a legal framework that includes laws and regulations to combat corruption and provides criminal penalties for corruption by officials. While challenges remain, overall enforcement of these laws has improved thanks to a heightened focus on transparency by the Abinader administration and concerted efforts by the Office of the Attorney General. In a change from prior years, investigations targeted well-connected individuals and high-level politicians, both from prior administrations and the current one. The Dominican Republic’s rank on the Transparency International Corruption Perception Index rose to 128 in 2021 from 137 in 2020 (out of 180 countries assessed).

Nonetheless, U.S. companies continued to identify corruption as a barrier to FDI. Firms often complained about a lack of technical proficiency in government ministries that resulted in public tender opportunities that were not competently drafted or executed in accordance with international best practices. Some firms went so far as to suggest that more problematic tenders had been set up intentionally to favor politically connected firms. The business community has also complained about corruption at the municipal level and its relevance to such things as permitting procedures. U.S. businesses operating in the Dominican Republic often need to take extensive measures to ensure compliance with the Foreign Corrupt Practices Act.

President Abinader has generally made good on his commitment to make fighting corruption a top priority of his administration. He appointed officials with reputations for professionalism and independence and went to great efforts to respect the independence of his appointed head of the Public Procurement General Directorate, the Chamber of Accounts (the country’s Supreme Audit Institution), and the Attorney General’s Office. In addition, the Abinader administration has publicly committed to prioritizing passage of institutional reforms that will advance the fight against corruption, such as new public procurement legislation, and a bill that would allow for civil asset forfeiture. Passage of this legislation, however, remains in question as the measures are in various levels of administrative and legislative review.

In a notable change from prior administrations, investigations into corruption and arrests have targeted senior officials not just from the opposing parties, but also from the ruling coalition. These moves have sent a powerful signal that the Abinader administration no longer tolerates the sort of pervasive corruption that was seen under prior administrations.

Civil society has been a critical voice in anti-corruption campaigns to date. Several non-governmental organizations are particularly active in transparency and anti-corruption, notably the Foundation for Institutionalization and Justice (FINJUS), Citizen Participation (Participacion Ciudadana), and the Dominican Alliance Against Corruption (ADOCCO).

The Dominican Republic signed and ratified the UN Anticorruption Convention. The Dominican Republic is not a party to the OECD Convention on Combating Bribery.

Procuraduría Especializada contra la Corrupción Administrativa (PEPCA)
[Attorney General for Investigating Administrative Corruption]
Calle Hipólito Herrera Billini esq. Calle Juan B. Pérez,
Centro de los Heroes, Santo Domingo, República Dominicana
Telephone: (809) 533-3522
Email: pepca@pgr.gob.do 

La Dirección General de Ética e Integridad Gubernamental (DIGEIG)
[Directorate General for Governmental Ethics and Integrity]
Av. México No. 419 Esq. Leopoldo Navarro, Edificio Oficinas Gubernamentales Juan Pablo Duarte, Piso 12, Gascue, Santo Domingo, D. N. República Dominicana
Telephone: (809) 685-7135
Email: info@digeig.gob.do 

Linea 311
[Line 311] (government service for filing complaints and denunciations]
Phone: 311 (from inside the country)
Email: info@311.gob.do 
Website: http://www.311.gob.do/ 

Participación Ciudadana [Citizen Participation]
Wenceslao Alvarez #8, Zona Universitaria
Phone: (809) 685-6200
Website: https://pciudadana.org/
Email: info@pciudadana.org 

Despite political stability and strong pre-pandemic economic growth, citizen and public security concerns in the Dominican Republic impose significant costs on businesses and limit foreign and domestic investment. There are no known national security threats affecting foreign investment within the Dominican Republic.

The U.S. Department of State has assessed Santo Domingo as a critical-threat location for crime. According to the Latin American Public Opinion Project, there is a steady increase in crime-related victimization and a growing perception of insecurity in the Dominican Republic since 2010. In 2021, Fund for Peace ranked the Dominican Republic 107 out of 179 countries in its Fragile States index. Other than domestic violence, criminal activity is mostly associated with street-level incidents consisting of robberies and petty larcenies. Of these, street robbery is particularly concerning as criminals often use weapons to coerce compliance from victims. In addition, the Dominican Republic faces challenges with organized crime. Transnational criminal organizations in the Dominican Republic use land, airspace, and territorial waters for the transshipment of drugs from South America destined for the United States and Europe, transshipment of ecstasy from the Netherlands and Belgium destined for United States and Canada, substantial money laundering activity particularly by Colombian narcotics traffickers, and significant amphetamine consumption.

The U.S. Department of State has assessed the Dominican Republic as being a low-threat location for terrorism and a medium-threat location for political violence. There are no known organized domestic terrorist groups in the Dominican Republic. Nonetheless, the Dominican Republic is a likely transit point for extremists from within the Caribbean, Africa, and Europe.

A porous border between Haiti and the Dominican Republic remains an ongoing concern as the security situation in Haiti has worsened after the assassination of the Haitian President Moise in August 2021 and the growing gang problem in Haiti. Dominican officials have expressed concerns about widespread civil unrest or instability in Haiti contributing to illegal flows of people and illicit goods across the border.

In 2021, few protests took place. COVID-19 protocols might have had a dampening effect on the size and scale of protests.

The Dominican Republic armed forces view irregular migration along the border, citizen security, illicit trafficking of arms, weapons, and drugs, as well as natural disasters as threats to their national security. As a result, they have postured their forces to support land, air, and maritime whole of government efforts to protect their sovereign territory.

The Dominican labor market continues to regularize as pandemic-related economic impacts subside. An ample labor supply is available, although there is a scarcity of skilled workers and technical supervisors. Some labor shortages exist in professions requiring lengthy education or technical certification. According to 2021 Dominican Central Bank data for July-September (the latest available), the Dominican labor force consists of approximately 4.6 million workers. The labor force participation rate is 63.1 percent; 57.7 percent of the labor force works in services, 10.0 percent in industry, 9.8 percent in education and health, 7.9 percent in agriculture and livestock, 9.2 percent in construction, and 5.4 percent in public administration and defense. Approximately 41.1 percent of the labor force works in formal sectors of the economy and 58.9 percent in informal sectors.

From January to September 2021, unemployment decreased from 8.0 percent to 6.8 percent as the economy continued its rebound from the COVID-19 pandemic. When factoring in discouraged workers and others who were not actively seeking employment, however, the unemployment rate increased from 6.8 percent to 13.6 percent in the period July-September 2021. Youth unemployment remained steady at 13.5 percent, indicating the pandemic had a greater impact on employment for older, more vulnerable segments of the population. Central Bank data from 2021 indicates that the labor market has nearly recovered to pre-pandemic levels, with the percentage of employment reaching 97.5 percent of the levels before the pandemic.

With respect to migrant workers, the most recent reliable statistical data is from 2017 and shows a population of 334,092 Haitians aged ten or older living in the country, with 67 percent working in the formal and informal sectors of the economy. Migration experts believe that this number has increased to approximately 500,000 or more since 2017. The Dominican government and the United Nations are expected to provide an updated migrant survey in 2022.

The Dominican Labor Code establishes policies and procedures for many aspects of employer-employee relationships, ranging from hours of work and overtime and vacation pay to severance pay, causes for termination, and union registration. The code applies equally to migrant workers; however, many undocumented Haitian laborers and Dominicans of Haitian descent working in the construction and agricultural industries do not exercise their rights due to fear of being fired or deported. The law requires that at least 80 percent of non-management workers of a company be Dominican nationals. Exemptions and waivers are available and regularly granted. The law provides for severance payments, which are due upon layoffs or firing without just cause. The amount due is prorated based on length of employment.

Although the Labor Code provides for freedom to form unions and bargain collectively, it places several restrictions on these rights, which the International Labor Organization (ILO) has characterized as excessive. For example, it restricts trade union rights by requiring unions to represent 51 percent of the workers in an enterprise to bargain collectively. In addition, the law prohibits strikes until mandatory mediation requirements have been met. Formal requirements for a strike to be legal also include the support of an absolute majority of all company workers for the strike, written notification to the Ministry of Labor, and a 10-day waiting period following notification before proceeding with the strike. Government workers and essential public service personnel, in theory, may not strike; however, in practice such employees, including healthcare workers, have protested and gone on strike.

The law prohibits dismissal of employees for trade union membership or union activities. In practice, however, the law is inconsistently enforced. The majority of companies resist collective negotiating practices and union activities. Companies reportedly fire workers for union activity and blacklist trade unionists, among other anti-union practices. Workers frequently have to sign documents pledging to abstain from participating in union activities. Companies also create and support company-backed unions. Formal strikes occur but are not common.

The law establishes a system of labor courts for dealing with disputes. The process is often long, with cases pending for several years. One exception is workplace injury cases, which typically conclude quickly – and often in the worker’s favor. Both workers and companies report that mediation facilitated by the Ministry of Labor was the most rapid and effective method for resolving worker-company disputes.

Many of the major manufacturers in free trade zones have voluntary codes of conduct that include worker rights protection clauses generally aligned with the ILO Declaration on Fundamental Principles and Rights at Work; however, workers are not always aware of such codes or the principles they contain. The Ministry of Labor monitors labor abuses, health, and safety standards in all worksites where an employer-employee relationship exists, however, resources for adequate monitoring and inspection are insufficient. Labor inspectors can request remediation for violations, and if remediation is not undertaken, can refer offending employers to the public prosecutor for sanctions.

Economic Office
Embassy of the United States of America
Avenida República de Colombia #57
Santo Domingo, Dominican Republic +1 (809) 567-7775
InvestmentDR@State.gov

Mexico is open to foreign direct investment (FDI) in most economic sectors and has consistently been one of the largest emerging market recipients of FDI.  Mexico’s proximity to the United States and preferential access to the U.S. market, macroeconomic stability, large domestic market, growing consumer base, increasingly skilled workers, and lower labor costs combine to attract foreign investors.  The COVID-19 economic crisis showed how linked North American supply chains are and highlighted new opportunities for partnership and investment.  Still, recent policy and regulatory changes have created doubts about the investment climate, particularly in the energy, agriculture, and the formal employment pensions management sectors.

The United States has been the largest source of FDI in Mexico, with 34 percent of the stock as of 2020 (IMF).  According to Mexico’s Secretariat of Economy, total FDI flows for 2021 were USD 31.6 billion, a 13.2 percent increase compared to 2020 (USD 27.9 billion).  The automotive, aerospace, telecommunications, financial services, and electronics sectors typically receive large amounts of FDI.

Most foreign investment is concentrated in northern states near the U.S. border, where most maquiladoras (export-oriented manufacturing and assembly plants) are located, or to Mexico City and the nearby “El Bajio” (e.g. Guanajuato, Queretaro, etc.) region.  In the past, foreign investors have overlooked Mexico’s southern states, although the administration is focused on attracting investment to the region, including through large infrastructure projects such as the Maya Train, the Dos Bocas refinery, and the trans-isthmus logistics and industrial corridor.  In 2021, the GOM ramped up public spending and widely promoted private investment in these projects.  In December 2021, President Lopez Obrador issued a controversial decree naming these projects “national security” priorities, allowing them to proceed before the completion of environmental and other impact studies.  Though courts enjoined the executive decree, it still generated concerns about the Lopez Obrador administration’s commitment to transparency.

The 1993 Foreign Investment Law, last updated in March 2017, governs foreign investment in Mexico, including which business sectors are open to foreign investors and to what extent.  It provides national treatment, eliminates performance requirements for most foreign investment projects, and liberalizes criteria for automatic approval of foreign investment.  Mexico is also a party to several Organization for Economic Cooperation and Development (OECD) agreements covering foreign investment, notably the Codes of Liberalization of Capital Movements and the National Treatment Instrument.

The GOM dissolved the former trade and investment promotion agency ProMexico in 2019, and Mexico’s Secretariat of Foreign Affairs (SRE) assumed most of its responsibilities with the establishment of the General Directorate for Global Investment (GDGI) in June 2021.  The GDGI launched three specific projects:  the California Economic Council; an interactive data base to attract FDI called the “Atlas Prospectivo;” and the U.S.-Mexico Task Force for Transport Electrification.  The GDGI works closely with Mexico’s state secretaries of economy to promote trade and attract FDI through partnerships with SRE’s diplomatic missions overseas.

Mexico reserves certain sectors, in whole or in part, for the State, including:  petroleum and other hydrocarbons; control of the national electric system, radioactive materials, telegraphic and postal services; nuclear energy generation; coinage and printing of money; and control, supervision, and surveillance of ports of entry.  Certain professional and technical services, development banks, and the land transportation of passengers, tourists, and cargo (not including courier and parcel services) are reserved entirely for Mexican nationals.  See section six for restrictions on foreign ownership of certain real estate.

Reforms over the past decade in the energy, power generation, telecommunications, and retail fuel sales sectors have liberalized access for foreign investors.  While reforms have not led to the privatization of state-owned enterprises such as Pemex or the Federal Electricity Commission (CFE), they have allowed private firms to participate.  Still, the Lopez Obrador administration has made significant regulatory and policy changes that favor Pemex and CFE over private participants.  The changes have led private companies to file lawsuits in Mexican courts and seek compensation through international arbitration.

Hydrocarbons:  Private companies participate in hydrocarbon exploration and extraction activities through contracts with the government under four categories:  competitive contracts, joint ventures, profit sharing agreements, and license contracts.  All contracts must include a clause stating subsoil hydrocarbons are owned by the State.  The government held nine auctions allowing private companies to bid on exploration and development rights to oil and gas resources in blocks around the country.  Between 2015 and 2018, Mexico auctioned more than 100 land, shallow, and deep-water blocks with significant interest from international oil companies.  The administration has since postponed further auctions but committed to respecting the existing contracts awarded under the previous administration.  Still, foreign players were discouraged when the GOM awarded operatorship of a major shallow water oil discovery made by a U.S. company-led consortium to Pemex.  The private consortium had invested more than USD 200 million in making the discovery and is seeking compensation through international arbitration.

Telecommunications:  Mexican law states telecommunications and broadcasting activities are public services and the government will at all times maintain ownership of the radio spectrum.  In January 2021, President Lopez Obrador proposed incorporating the independent Federal Telecommunication Institute (IFT) into the Secretariat of Communications and Transportation (SCT), to save government funds and avoid duplication.  Non-governmental organizations and private sector companies said such a move would potentially violate the USMCA, which mandates signatories to maintain independent telecommunications regulators.  As of March 2022, the proposal remains pending.  Mexico’s Secretary of Economy Tatiana Clouthier underscored in public statements that President López Obrador is committed to respecting Mexico’s obligations under the USMCA, including maintaining an autonomous telecommunications regulator.

Aviation:  The Foreign Investment Law limited foreign ownership of national air transportation to 25 percent until March 2017, when the limit was increased to 49 percent.

The USMCA, which entered into force July 1, 2020, maintained several NAFTA provisions, granting U.S. and Canadian investors national and most-favored-nation treatment in setting up operations or acquiring firms in Mexico.  Exceptions exist for investments restricted under the USMCA.  Currently, the United States, Canada, and Mexico have the right to settle any legacy disputes or claims under NAFTA through international arbitration for a sunset period of three years following the end of NAFTA.  Only the United States and Mexico are party to an international arbitration agreement under the USMCA, though access is restricted as the USMCA distinguishes between investors with covered government contracts and those without.  Most U.S. companies investing in Mexico will have access to fewer remedies under the USMCA than under NAFTA, as they will have to meet certain criteria to qualify for arbitration.  Sub-national Mexican governments must also accord national treatment to investors from USMCA countries.

Approximately 95 percent of all foreign investment transactions do not require government approval.  Foreign investments that require government authorization and do not exceed USD 165 million are automatically approved unless the proposed investment is in a legally reserved sector.

The National Foreign Investment Commission under the Secretariat of the Economy is the government authority that determines whether an investment in restricted sectors may move forward.  The Commission has 45 business days after submission of an investment request to decide.  Criteria for approval include employment and training considerations, and contributions to technology, productivity, and competitiveness.  The Commission may reject applications to acquire Mexican companies for national security reasons.  The Secretariat of Foreign Relations (SRE) must issue a permit for foreigners to establish or change the nature of Mexican companies.

There has not been an update to the World Trade Organization’s (WTO) trade policy review of Mexico since June 2017 covering the period to year-end 2016.

The October 2021 “Human Rights for a Just Energy Transition” report analyzes some of the energy policy decisions taken by the Mexican government in the last two years and provides investment-related recommendations: https://www.business-humanrights.org/en/latest-news/m%C3%A9xico-nuevo-informe-derechos-humanos-para-una-transici%C3%B3n-justa-destaca-regresi%C3%B3n-de-acci%C3%B3n-clim%C3%A1tica-y-derechos-humanos/

According to the World Bank, on average registering a foreign-owned company in Mexico requires 11 procedures and 31 days.  Mexico ranked 60 out of 190 countries in the World Bank’s most recent 2020 Doing Business report.  In 2016, then-President Pena Nieto signed a law creating a new category of simplified businesses called Sociedad for Acciones Simplificadas (SAS).  Owners of SASs are supposed to be able to register a new company online in 24 hours.  Still, it can take between 66 and 90 days to start a new business in Mexico, according to the World Bank.  The GOM maintains a business registration website, www.tuempresa.gob.mx, and one for general information on opening a business, https://www.gob.mx/tuempresa?tab=Abre. The Secretariat of Economy offers a one-stop shop website “Invest in Mexico” aimed at facilitating the administrative procedures for foreign investors: www.economia.gob.mx/invest-in-mx/.  Companies operating in Mexico must register with the tax authority (Servicio de Administracion Tributaria or SAT), the Secretariat of the Economy, and the Public Registry.  Additionally, companies engaging in international trade must register with the Registry of Importers, while foreign-owned companies must register with the National Registry of Foreign Investments.

Since October 2019, SAT has launched dozens of tax audits against major international and domestic corporations, resulting in hundreds of millions of dollars in new tax assessments, penalties, and late fees.  Multinational and Mexican firms have reported audits based on diverse aspects of the tax code, including adjustments on tax payments made, waivers received, and deductions reported during the Enrique Peña Nieto administration.  Private sector stakeholders reported a continuation of SAT’s aggressive tax auditing practices in 2021.

Various offices at the Secretariat of Economy and the Secretariat of Foreign Affairs handle promoting Mexican outward investment and assistance to Mexican firms acquiring or establishing joint ventures with foreign firms.  Mexico does not restrict domestic investors from investing abroad.

The National Commission on Regulatory Improvement (CONAMER), within the Secretariat of Economy, is the agency responsible for streamlining federal and sub-national regulation and reducing the regulatory burden on business.  Mexican law requires secretariats and regulatory agencies to conduct impact assessments of proposed regulations and engage in notice and comment rule making, which CONAMER carries out.  Impact assessments are made available for public comment via CONAMER’s website:  https://www.gob.mx/conamer.  The official gazette of state and federal laws currently in force in Mexico is publicly available via:  http://www.ordenjuridico.gob.mx/.  Mexican law provides for a 20-day public consultation period for most proposed regulations.  Any interested stakeholder can comment on draft regulations and the supporting justification, including regulatory impact assessments.  Certain measures are not subject to a mandatory public consultation period.  These include measures concerning taxation, responsibilities of public servants, the public prosecutor’s office executing its constitutional functions, and the Secretariats of National Defense (SEDENA) and the Navy (SEMAR).  In 2021, there was a rise in rule making with waiver of full notice and public comment processes as President Lopez Obrador rushed regulations through “in the national interest.”

Given SAT’s mandate to collect taxes and revenue from international trade, many of its regulations circumvent the notice and public comment process.  In 2021, SAT proposed a new requirement for a “digital waybill complement” or “complemento de carta porte” for nearly all goods shipments within Mexican territory effective January 1, 2022.  Mexican and U.S. private sector representatives called the digital document “onerous” as it requires 180 data points for shipments across all modalities—rail, truck, air, and maritime shipping—many of which are unknown at the onset of a shipment.  Despite the domestic nature of the new requirement, U.S. companies raised concerns about the “carta porte” as a technical barrier to trade given the potential delays it could cause for shipments to and from ports of entry.  The U.S. government has pushed for better SAT coordination with the private sector to address compliance challenges with the new requirement.  This advocacy led to the postponement of “carta porte’s” entry into force to October 1, 2022 and public-private working groups to discuss implementation in the interim.

The National Quality Infrastructure Program (PNIC) is the official document used to plan, inform, and coordinate standardization activities, both public and private.  The PNIC is published annually by the Secretariat of Economy in Mexico’s Official Gazette.  The PNIC describes Mexico’s plans for new voluntary standards (Normas Mexicanas; NMXs) and mandatory technical regulations (Normas Oficiales Mexicanas; NOMs) as well as proposed changes to existing standards and technical regulations.  Interested stakeholders can request the creation, modification, or cancelation of NMXs and NOMs as well as participate in the working groups that develop and modify these standards and technical regulations.  Mexico’s antitrust agency, the Federal Commission for Economic Competition (COFECE), plays a key role in protecting, promoting, and ensuring a competitive free market in Mexico as well as protecting consumers.  COFECE is responsible for eliminating barriers both to competition and free market entry across the economy (except for the telecommunications sector, which is governed by its own competition authority) and for identifying and regulating access to essential production inputs.  In September 2021, COFECE Commissioner President Alejandra Palacios stepped down following several months of public disagreements with President Lopez Obrador’s statist energy policy.  Lopez Obrador has not named substitutions for COFECE’s Commissioners since November 2020, leaving the institution without a quorum for resolutions related to barriers to competition or the issuance of regulatory provisions.

In addition to COFECE, the Energy Regulatory Commission (CRE) and National Hydrocarbon Commission (CNH) are both technical-oriented independent agencies that play important roles in regulating the energy and hydrocarbons sectors.  CRE regulates national electricity generation, coverage, distribution, and commercialization, as well as the transportation, distribution, and storage of oil, gas, and biofuels.  CNH supervises and regulates oil and gas exploration and production and issues oil and gas upstream (exploration/production) concessions.  In addition, the National Center for Energy Control (CENACE) is the independent electricity grid operator.  Energy experts assert that these agencies, particularly CRE, are no longer fully independent as they have favored Pemex and CFE with regulations and permits over private participants.

Mexico has seen a shift in the public procurement process since the onset of the COVID-19 pandemic.  Government entities are increasingly awarding contracts either as direct awards or by invitation-only procurements.  In addition, there have been recent tenders that favor European standards over North American standards.

Generally speaking, the Mexican government has established legal, regulatory, and accounting systems that are transparent and consistent with international norms.  Still, Mexico’s current executive administration has eroded the autonomy and publicly questioned the value of specific antitrust and energy regulators and has proposed dissolving some of them to cut costs.  Furthermore, corruption continues to affect equal enforcement of some regulations.  The administration rolled out an ambitious plan to centralize government procurement in an effort to root out corruption and generate efficiencies.  The administration estimated it could save up to USD 25 billion annually by consolidating government purchases in the Secretariat of Finance.  Still, the expedited rollout and lack of planning for supply chain contingencies led to several sole-source purchases.  The Mexican government’s budget is published online and readily available.  The Bank of Mexico also publishes and maintains data about the country’s finances and debt obligations.

Investors are increasingly concerned the administration is undermining confidence in the “rules of the game,” particularly in the energy sector, by weakening the political autonomy of COFECE, CNH, CENACE, and CRE.  Still, COFECE has successfully challenged regulatory changes in the electricity sector that favor state-owned enterprises over private companies.  The administration has appointed five of seven CRE commissioners over the Senate’s objections, which voted twice to reject the nominees in part due to concerns their appointments would erode the CRE’s autonomy.  The administration’s budget cuts resulted in significant government layoffs, which has reportedly hampered agencies’ ability to carry out their work, a key factor in investment decisions.  The independence of the CRE and CNH was further undermined by a memo from the government to both bodies instructing them to use their regulatory powers to favor state-owned Pemex and CFE.  Investors expressed concern over the current executive administration setting a fee ceiling for AFORES, or private pensions management firms, starting in 2022 using a fast-tracked regulatory process with little industry consultation.

Beginning with the Spanish conquest in the 1500s, Mexico had an inquisitorial criminal justice system adopted from Europe in which proceedings were largely carried out in writing and sealed from public view.  Mexico amended its Constitution in 2008 to facilitate change to an oral accusatorial criminal justice system to better combat corruption, encourage transparency and efficiency, and ensure respect for the fundamental rights of both the victim and the accused.  An ensuing National Code of Criminal Procedure passed in 2014 and is applicable to all 32 states.  The national procedural code is coupled with each state’s criminal code to provide the legal framework for the new accusatorial system, which allows for oral, public trials with the right of the defendant to face his/her accuser and challenge evidence presented against him/her, right to counsel, due process, and other guarantees.  Mexico fully adopted the new accusatorial criminal justice system at the state and federal levels in June 2016.

Mexico’s Commercial Code, which dates to 1889, was most recently updated in 2014.  All commercial activities must abide by this code and other applicable mercantile laws, including commercial contracts and commercial dispute settlement measures.  Mexico has multiple specialized courts regarding fiscal, labor, economic competition, broadcasting, telecommunications, and agrarian law.

The judicial branch and Prosecutor General’s office (FGR) are constitutionally independent from each other and the executive.  The Prosecutor General is nominated by the president and approved by a two-thirds majority in the Senate for a nine-year term, effectively de-coupling the Prosecutor General from the political cycle of elections every six years.  With the historic 2019 labor reform, Mexico also created an independent labor court system run by the judicial branch (formerly this was an executive branch function).  The labor courts are being brought online in a phased process by state with the final phase completed on May 1, 2022.

Mexico’s Foreign Investment Law sets the rules governing foreign investment into the country.  The National Commission for Foreign Investments, formed by several cabinet-level ministries including Interior (SEGOB), Foreign Relations (SRE), Finance (Hacienda), and Economy (SE) establishes the criteria for administering investment rules.

Mexico has two constitutionally autonomous regulators to govern matters of competition – the Federal Telecommunications Institute (IFT) and the Federal Commission for Economic Competition (COFECE).  IFT governs broadcasting and telecommunications, while COFECE regulates all other sectors.  For more information on competition issues in Mexico, please visit COFECE’s bilingual website at: www.cofece.mx.  As mentioned above, Lopez Obrador has publicly questioned the value of COFECE and his party unsuccessfully introduced a proposal last year which would have dramatically reduced its resources and merged COFECE and other regulators into a less-independent structure.  COFECE currently has the minimum quorum required of at least four commissioners in order to operate, out of a seven-members full board.  However, COFECE lacks the required quorum of five commissioners in order to issue final resolutions determining competition barriers as well as anti-competitive practices.  President Lopez Obrador has not appointed the remaining commissioners as required by law.

USMCA (and NAFTA) contain clauses stating Mexico may neither directly nor indirectly expropriate property, except for public purpose and on a non-discriminatory basis.  Expropriations are governed by international law and require rapid fair market value compensation, including accrued interest.  Investors have the right to international arbitration. The USMCA contains an annex regarding U.S.-Mexico investment disputes and those related to covered government contracts.

Mexico’s Reorganization and Bankruptcy Law (Ley de Concursos Mercantiles) governs bankruptcy and insolvency.  Congress approved modifications in 2014 to shorten procedural filing times and convey greater juridical certainty to all parties, including creditors.  Declaring bankruptcy is legal in Mexico and it may be granted to a private citizen, a business, or an individual business partner.  Debtors, creditors, or the Attorney General can file a bankruptcy claim.  Mexico ranked 33 out of 190 countries for resolving insolvency in the World Bank’s 2020 Doing Business report (that last it produced).  The average bankruptcy filing takes 1.8 years to be resolved and recovers 63.9 cents per USD, which compares favorably to average recovery in Latin America and the Caribbean of just 31.2 cents per USD.  The “Buró de Crédito” is Mexico’s main credit bureau.  More information on credit reports and ratings can be found at:  http://www.burodecredito.com.mx/.

Land grants or discounts, tax deductions, and technology, innovation, and workforce development funding are commonly used incentives.  Additional federal foreign trade incentives include: (1) IMMEX:  a promotion which allows manufacturing sector companies to temporarily import inputs without paying general import tax and value added tax (VAT); (2) Import tax rebates on goods incorporated into products destined for export; and (3) Sectoral promotion programs allowing for preferential ad-valorem tariffs on imports of selected inputs.  Industries typically receiving sectoral promotion benefits are footwear, mining, chemicals, steel, textiles, apparel, and electronics.  Manufacturing and other companies report it is becoming increasingly difficult to request and receive reimbursements from SAT of the VAT paid on inputs for the export sector, with significant reimbursement delays and arrears reaching tens of millions USD for some companies.

The administration renewed until December 31, 2024 a program launched in January 2019 that established a border economic zone (BEZ) in 43 municipalities in six northern border states within 15.5 miles from the U.S. border.  The BEZ program entails: 1) a fiscal stimulus decree reducing the Value Added Tax (VAT) from 16 percent to 8 percent and the Income Tax (ISR) from 30 percent to 20 percent; 2) a minimum wage increase to MXN 176.72 (USD 8.75) per day; and 3) the gradual harmonization of gasoline, diesel, natural gas, and electricity rates with neighboring U.S. states.  The purpose of the BEZ program was to boost investment, promote productivity, and create more jobs in the region.  Sectors excluded from the preferential ISR rate include financial institutions, the agricultural sector, and export manufacturing companies (maquilas).

On December 30, 2020, President Lopez Obrador launched a similar program for 22 municipalities in Mexico’s southern states of Campeche, Tabasco, and Chiapas, reducing VAT from 16 to 8 percent and ISR from 30 to 20 percent and harmonizing excise taxes on fuel with neighboring states in Central America.  Chetumal in Quintana Roo will also enjoy duty-free status.  The benefits extend from January 1, 2021 to December 31, 2024.

Mexico does not follow a “forced localization” policy—foreign investors are not required by law to use domestic content in goods or technology.  However, investors intending to produce goods in Mexico for export to the United States should take note of the rules of origin prescriptions contained within USMCA if they wish to benefit from USMCA treatment.  Chapter four of the USMCA introduced new rules of origin and labor content rules, which entered into force on July 1, 2020.

In 2020, the Central Bank of Mexico (or Banxico) and the National Banking and Securities Commissions (CNBV – Mexico’s principal bank regulator) drafted regulations mandating the largest financial technology companies operating in Mexico to either host data on a back-up server outside of the United States—if their primary is in the United States—or on physical servers in Mexico.  As of March 2022, the draft regulations remain pending public comment.  The financial services industry is concerned they could violate provisions of the USMCA financial services chapter prohibiting data localization.

Mexico’s government is increasingly choosing its military for the construction and management of economic infrastructure.  In the past two years, the government entrusted the Army (SEDENA) with building the new airport in Mexico City, and sections 6, 7, and part of section 5 of the Maya Train railway project in Yucatan state.  SEDENA created a state-owned company to operate and manage the newly completed Mexico City airport.  SEDENA is also issuing contracts for the construction of over 300 social development bank branches throughout Mexico.  The government announced plans to give to the Navy (SEMAR) the rights for construction, management, and operations of the Trans-Isthmic Train project to connect the ports of Coatzacoalcos in Veracruz state with the Salina Cruz port in Oaxaca state.  The government is in the process of transferring administration of land and sea ports from the Secretariat of Communications and Transportation (SCT) to SEDENA and SEMAR respectively and has appointed retired military personnel to port administrator positions at most ports.

Mexico ranked 105 out of 190 countries for ease of registering property in the World Bank’s 2020 Doing Business report, falling two places from its 2019 report.  Article 27 of the Mexican Constitution guarantees the inviolable right to private property.  Expropriation can only occur for public use and with due compensation.  Mexico has four categories of land tenure:  private ownership, communal tenure (ejido), publicly owned, and ineligible for sale or transfer.

Mexico prohibits foreigners from acquiring title to residential real estate in so-called “restricted zones” within 50 kilometers (approximately 30 miles) of the nation’s coast and 100 kilometers (approximately 60 miles) of the borders.  “Restricted zones” cover roughly 40 percent of Mexico’s territory.  Foreigners may acquire the effective use of residential property in “restricted zones” through the establishment of an extendable trust (fideicomiso) arranged through a Mexican financial institution.  Under this trust, the foreign investor obtains all property use rights, including the right to develop, sell, and transfer the property.  Real estate investors should be careful in performing due diligence to ensure that there are no other claimants to the property being purchased.  In some cases, fideicomiso arrangements have led to legal challenges.  U.S.-issued title insurance is available in Mexico and U.S. title insurers operate here.

Additionally, U.S. lending institutions have begun issuing mortgages to U.S. citizens purchasing real estate in Mexico.  The Public Register for Business and Property (Registro Publico de la Propiedad y de Comercio) maintains publicly available information online regarding land ownership, liens, mortgages, restrictions, etc.

Tenants and squatters are protected under Mexican law.  Property owners who encounter problems with tenants or squatters are advised to seek professional legal advice, as the legal process of eviction is complex.

Mexico has a nascent but growing financial securitization market for real estate and infrastructure investments, which investors can access via the purchase/sale of Fideicomisos de Infraestructura y Bienes Raíces (FIBRAs) and Certificates of Capital Development (CKDs) listed on Mexico’s BMV stock exchange.

Intellectual Property Rights (IPR) in Mexico are covered by the Mexican Federal Law for Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial) and the Federal Copyright Law (Ley Federal del Derecho de Autor).  Responsibility for the protection of IPR is spread across several government authorities.  The Prosecutor General’s Office (Fiscalia General de la Republica or FGR) oversees a specialized unit that prosecutes intellectual property (IP) crimes.  The Mexican Institute of Industrial Property (IMPI), the equivalent to the U.S. Patent and Trademark Office, administers patent and trademark registrations, and handles administrative enforcement cases of IPR infringement.  The National Institute of Copyright (INDAUTOR) handles copyright registrations and mediates certain types of copyright disputes, while the Federal Commission for the Prevention from Sanitary Risks (COFEPRIS) regulates pharmaceuticals, medical devices, and processed foods.  The National Customs Agency of Mexico (ANAM) is responsible for ensuring illegal goods do not cross Mexico’s borders.

The process for trademark registration in Mexico normally takes six to eight months.  The registration process begins by filing an application with IMPI, which is published in IMPI’s Gazette for opposition by a third party.  If no opposition is filed, IMPI undertakes a formalities examination, followed by a substantive examination to determine if the application and supporting documentation fulfills the requirements established by law and regulation to grant the trademark registration.  Once the determination is made, IMPI then issues the registration.  A trademark registration in Mexico is valid for 10 years from the date of registration and is renewable for 10-year periods.  Any party with standing can challenge a trademark registration through a cancellation proceeding.  IMPI employs the following administrative procedures:  nullity, expiration or lapsing, opposition, cancellation, trademark, patent, and copyright infringement.  Once IMPI issues a decision, the affected party may challenge it through an internal reconsideration process or go directly to the Specialized IP Court for a nullity trial.  An aggrieved party can then file an appeal with a Federal Appeal Court based on the Specialized IP Court’s decision.  In cases with an identifiable constitutional challenge, the plaintiff may file an appeal before the Supreme Court.

To improve efficiency, in 2020 IMPI partnered with the United States Patent and Trademark Office (USPTO) to launch the Parallel Patent Grant (PPG) initiative.  Under this new work-sharing arrangement, IMPI will expedite the grant of a Mexican patent for businesses and individuals already granted a corresponding U.S. patent.  This arrangement allows for the efficient reutilization of USPTO work by IMPI.  The USPTO also has a Patent Prosecution Highway (PPH) agreement with IMPI.  Under the PPH, an applicant receiving a ruling from either IMPI or the USPTO that at least one claim in an application is patentable may request that the other office expedite examination of the corresponding application.  The PPH leverages fast-track patent examination procedures already available in both offices to allow applicants in both countries to obtain corresponding patents faster and more efficiently.

Mexico undertook significant legislative reform to comply with the USMCA.  The Mexican Federal Law for Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial) went into effect November 5, 2020.  The decree issuing this law was published in the Official Gazette on July 1, 2020, in response to the USMCA and the CPTPP.  This new law replaced the Mexican Industrial Property Law (Ley de la Propiedad Industrial), substantially strengthening IPR across a variety of disciplines.  Mexico amended its Federal Copyright Law and its Federal Criminal Code to comply with the USMCA.  The amendments went into effect July 2, 2020.  These amendments should significantly strengthen copyright law in Mexico.  Still, there are concerns that constitutional challenges filed against notice and takedown provisions as well as TPMs in the amendments may weaken these. provisions.

Still, Mexico has widespread commercial-scale infringement that results in significant losses to Mexican, U.S., and other IPR owners.  There are many issues that have made it difficult to improve IPR enforcement in Mexico, including legislative loopholes; lack of coordination between federal, state, and municipal authorities; a cumbersome and lengthy judicial process; relatively widespread acceptance of piracy and counterfeiting, and lack of resources dedicated to enforcement.  In addition, the involvement of transnational criminal organizations (TCOs), which control the piracy and counterfeiting markets in parts of Mexico and engage in trade-based money laundering by importing counterfeit goods, continue to impede federal government efforts to improve IPR enforcement.  TCO involvement has further illustrated the link between IPR crimes and illicit trafficking of other contraband, including arms and drugs.

Mexico remained on the Watch List in the 2021 Special 301 report published by the U.S. Trade Representative (USTR).  Obstacles to U.S. trade include the wide availability of pirated and counterfeit goods in both physical and virtual notorious markets.  The 2021 USTR Out-of-Cycle Review of Notorious Markets for Counterfeiting and Piracy listed these Mexican markets:  Tepito in Mexico City, La Pulga Rio in Monterrey, and Mercado San Juan de Dios in Guadalajara.  Mexico is a signatory to numerous international IP treaties, including the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights.

Intellectual Property Rights Attaché for Mexico, Central America and the Caribbean
U.S. Trade Center Liverpool No. 31 Col. Juárez
C.P. 06600 Mexico City
Tel: (52) 55 5080 2189

National Institute of Copyright (INDAUTOR)
Puebla No. 143
Col. Roma, Del. Cuauhtémoc
06700 México, D.F.
Tel: (52) 55 3601 8270
Fax: (52) 55 3601 8214
Web: http://www.indautor.gob.mx/

Mexican Institute of Industrial Property (IMPI)
Periférico Sur No. 3106
Piso 9, Col. Jardines del Pedregal
Mexico, D.F., C.P. 01900
Tel: (52 55) 56 24 04 01 / 04
(52 55) 53 34 07 00
Fax: (52 55) 56 24 04 06
Web: http://www.impi.gob.mx/

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

The Mexican government is generally open to foreign portfolio investments, and foreign investors trade actively in various public and private asset classes.  Foreign entities may freely invest in federal government securities.  The Foreign Investment Law establishes foreign investors may hold 100 percent of the capital stock of any Mexican corporation or partnership, except in those few areas expressly subject to limitations under that law.  Foreign investors may also purchase non-voting shares through mutual funds, trusts, offshore funds, and American Depositary Receipts.

They also have the right to buy directly limited or nonvoting shares as well as free subscription shares, or “B” shares, which carry voting rights.  Foreigners may purchase an interest in “A” shares, which are normally reserved for Mexican citizens, through a neutral fund operated by one of Mexico’s six development banks.  Finally, Mexico offers federal, state, and local governments bonds that are rated by international credit rating agencies.  The market for these securities has expanded rapidly in past years and foreign investors hold a significant stake of total federal issuances.  However, foreigners are limited in their ability to purchase sub-sovereign state and municipal debt.  Liquidity across asset classes is relatively deep.

Mexico established a fiscally transparent trust structure known as a FICAP in 2006 to allow venture and private equity funds to incorporate locally.  The Securities Market Law (Ley de Mercado de Valores) established the creation of three special investment vehicles which can provide more corporate and economic rights to shareholders than a normal corporation.  These categories are: (1) Investment Promotion Corporation (Sociedad Anonima de Promotora de Inversion or SAPI); (2) Stock Exchange Investment Promotion Corporation (Sociedad Anonima Promotora de Inversion Bursatil or SAPIB); and (3) Stock Exchange Corporation (Sociedad Anonima Bursatil or SAB).  Mexico also has a growing real estate investment trust market, locally referred to as Fideicomisos de Infraestructura y Bienes Raíces (FIBRAS) as well as FIBRAS-E, which allow for investment in non-real estate investment projects.  FIBRAS are regulated under Articles 187 and 188 of Mexican Federal Income Tax Law.

Financial sector reforms signed into law in 2014 have improved regulation and supervision of financial intermediaries and have fostered greater competition between financial services providers.  While access to financial services – particularly personal credit for formal sector workers – has expanded in the past four years, bank and credit penetration in Mexico remains low compared to OECD and emerging market peers.  Coupled with sound macroeconomic fundamentals, reforms have created a positive environment for the financial sector and capital markets.  According to the National Banking and Stock Commission (CNBV), the banking system remains healthy and well capitalized.

Mexico’s banking sector is heavily concentrated and majority foreign-owned:  the seven largest banks control 85 percent of system assets and foreign-owned institutions control 70 percent of total assets.  The USMCA maintains national treatment guarantees.  U.S. securities firms and investment funds, acting through local subsidiaries, have the right to engage in the full range of activities permitted in Mexico.

Banxico maintains independence in operations and management by constitutional mandate.  Its main function is to provide domestic currency to the Mexican economy and to safeguard the Mexican Peso’s purchasing power by gearing monetary policy toward meeting a 3 percent inflation target over the medium term.

Mexico’s Financial Technology (FinTech) law came into effect in March 2018 and administration released secondary regulations in 2019, creating a broad rubric for the development and regulation of innovative financial technologies.  The law covers both cryptocurrencies and a regulatory “sandbox” for start-ups to test the viability of products, placing Mexico among the FinTech policy vanguard.  The reforms have already attracted significant investment to lending fintech companies and mobile payment companies.  However, industry stakeholders suggest insufficient clarity in the authorities’ implementation of the secondary regulations may be eroding the legal certainty the FinTech Law brought to the sector.  The CNBV has authorized fourteen fintechs under the FinTech Law to operate in the Mexican market and it is reviewing other applications.

The Mexican Petroleum Fund for Stability and Development (FMP) was created as part of 2013 budgetary reforms.  Housed in Banxico, the fund distributes oil revenues to the national budget and a long-term savings account.  The FMP incorporates the Santiago Principles for transparency, placing it among the most transparent Sovereign Wealth Funds in the world.  Both Banxico and Mexico’s Supreme Federal Auditor regularly audit the fund.  Mexico is also a member of the International Working Group of Sovereign Wealth Funds.  The Fund resources totaled MXN 23.4 billion (approximately USD 1.2 billion) in 2021.  The FMP is required to publish quarterly and annual reports, which can be found at www.fmped.org.mx.

There are two main SOEs in Mexico, both in the energy sector.  Pemex operates the hydrocarbons (oil and gas) sector, which includes upstream, mid-stream, and downstream operations.  Pemex historically contributed one-third of the Mexican government’s budget but falling output and global oil prices alongside improved revenue collection from other sources have diminished this amount over the past decade to about 8 percent.  The Federal Electricity Commission (CFE) operates the electricity sector.  While the GOM maintains state ownership, the 2013 constitutional reforms granted Pemex and CFE management and budget autonomy and greater flexibility to engage in private contracting.

As a result of Mexico’s 2013 energy reform, the private sector is now able to compete with Pemex or enter into competitive contracts, joint ventures, profit sharing agreements, and license contracts with Pemex for hydrocarbon exploration and extraction.  Liberalization of the retail fuel sales market, which Mexico completed in 2017, created significant opportunities for foreign businesses.  Given Pemex frequently raises debt in international markets, its financial statements are regularly audited.  The Natural Resource Governance Institute considers Pemex to be the second most transparent state-owned oil company after Norway’s Equinor.  Pemex’s ten-person Board of Directors contains five government ministers and five independent councilors.  The administration has identified increasing Pemex’s oil, natural gas, and refined fuels production as its chief priority for Mexico’s hydrocarbon sector.  Since taking office in 2018, the administration has taken numerous legal and regulatory steps to limit private competition for Pemex.

Changes to the Mexican constitution in 2013 and 2014 opened power generation and commercial supply to the private sector, allowing companies to compete with CFE.  Mexico held three long-term power auctions since the reforms, in which over 40 contracts were awarded for 7,451 megawatts of energy supply and clean energy certificates.  CFE remains the sole provider of transmission and distribution services and owns all distribution assets.  The 2013 energy reform separated CFE from the National Energy Control Center (CENACE), which controls the national wholesale electricity market and ensures non-discriminatory access to the grid for competitors, though recent actions call into question CENACE’s independence.  Legal and regulatory changes adopted by the Mexican government attempt to modify the rules governing the electricity dispatch order to favor CFE.  Dozens of private companies and non-governmental organizations have successfully sought injunctions against the measures, which they argue discriminate against private participants in the electricity sector.

Independent power generators were authorized to operate in 1992 but were required to sell their output to CFE or use it to self-supply.  Those legacy self-supply contracts have come under criticism with an electricity reform law and proposed constitutional amendment giving the government the ability to cancel contracts it deems fraudulent.  Under the 2013 reform, private power generators may now install and manage interconnections with CFE’s existing state-owned distribution infrastructure.  The 2013 reform also required the government to implement a National Program for the Sustainable Use of Energy as a transition strategy to encourage clean technology and fuel development and reduce pollutant emissions.  The executive administration has identified increasing CFE-owned power generation as its top priority for the utility, breaking from the firm’s recent practice of contracting private firms to build, own, and operate generation facilities.  CFE forced several foreign and domestic companies to renegotiate previously executed gas supply contracts, which raised significant concerns among investors about contract sanctity.

One of the main non-market-based advantages CFE and Pemex receive vis-a-vis private businesses in Mexico is related to access to capital.  In addition to receiving direct budget support from the Secretariat of Finance, both entities also receive implicit credit guarantees from the federal government.  As such, both are able to borrow funds on public markets at below the market rate their corporate risk profiles would normally suggest.  In addition to budgetary support, the CRE and SENER have delayed or halted necessary permits for new private sector gas stations, fuel terminals, fuel imports, and power plants, providing an additional non-market advantage to CFE and Pemex.

Mexico’s 2014 energy reforms liberalized access to these sectors but did not privatize state-owned enterprises.

Mexico’s private and public sectors have worked to promote and develop corporate social responsibility (CSR) during the past decade.  CSR in Mexico began as a philanthropic effort.  It has evolved gradually to a more holistic approach, trying to match international standards such as the OECD Guidelines for Multinational Enterprises and the United Nations Global Compact.

Responsible business conduct reporting has made progress in the last few years with more companies developing a corporate responsibility strategy.  The government has also made an effort to implement CSR in state-owned companies such as Pemex, which has published corporate responsibility reports since 1999.  Recognizing the importance of CSR issues, the Mexican Stock Exchange (Bolsa Mexicana de Valores) launched a sustainable companies index, which allows investors to specifically invest in those companies deemed to meet internationally accepted criteria for good corporate governance.

In October 2017, Mexico became the 53rd member of the Extractive Industries Transparency Initiative (EITI), which represents an important milestone in its Pemex effort to establish transparency and public trust in its energy sector.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Mexico published the National Strategy of Climate Change in 2013 with no further update since then and published the Special Program for Climate Change (PECC) in November 2021.  Mexico presented its sixth climate change communications report to the UNFCCC in 2018 and submitted its National Determination Contribution (NDC) to the UNFCCC in December 2020.

Mexico published its National Biodiversity Strategy in 2016.  Mexico published the second extensive country study of Natural Capital in 2006.  Mexico presented its Sixth National Report to the UN Convention on Biological Biodiversity in 2019.

Mexico has not released an official net-zero carbon emissions policy or strategy.

The PECC 2021 highlights include private sector climate change actions and fostering the inclusion of the private sector in the National Infrastructure Fund (Fonadin) to invest in sustainable infrastructure.

In October 2019, the Secretariat of Environment and Natural Resources (SEMARNAT) released an agreement to set the bases for a pilot program for a cap-and-trade emissions system for the energy and industry sectors.  SEMARNAT hasn’t reported updates on this pilot program.

The 2022 GOM budget allocated USD 3.84 billion for the Adaptation and Mitigation of the Effects of Climate Change and for the Promotion of the Use of Clean Technologies and Fuels.

Corruption exists in many forms in the GOM and society, including corruption in the public sector (e.g., demand for bribes or kickbacks by government officials) and private sector (e.g., fraud, falsifying claims, etc.), as well as conflict of interest issues, which are not well defined in the Mexican legal framework.

Government and law enforcement officials are sometimes complicit with criminal elements, posing serious challenges for the rule of law.  Some of the most common reports of official corruption involve government officials stealing from public coffers, creating fake companies to divert public funds, or demanding bribes in exchange for not prosecuting criminal activity or awarding public contracts.  The current administration supported anti-corruption reforms (detailed below) and judicial proceedings in several high-profile corruption cases, including former governors.  However, Mexican civil society asserts that the government must take more systematic, effective, and frequent action to address corruption at the institutional level.

Mexico adopted a constitutional reform in 2014 to transform the current Office of the Attorney General into an Independent Prosecutor General’s office to increase its independence.  President Lopez Obrador’s choice for Prosecutor General was confirmed by the Mexican Senate January 18, 2019.  In 2015, Mexico passed a constitutional reform creating the National Anti-Corruption System (SNA) with an anti-corruption prosecutor and a citizens’ participation committee to oversee efforts.  The system is designed to provide a comprehensive framework for the prevention, investigation, and prosecution of corruption cases, including delineating acts of corruption considered criminal acts under the law.  The legal framework establishes a basis for holding private actors and private firms legally liable for acts of corruption involving public officials and encourages private firms to develop internal codes of conduct.  After seven years of operation, commentators attribute few successes to the SNA.  The implementation status of the mandatory state-level anti-corruption legislation varies.

The reform mandated a redesign of the Secretariat of Public Administration to give it additional auditing and investigative functions and capacities in combatting public sector corruption.  Congress approved legislation to change economic institutions, assigning new responsibilities and in some instances creating new entities.  Reforms to the federal government’s structure included the creation of a General Coordination of Development Programs to manage the federal-state coordinators (“superdelegates”) in charge of federal programs in each state.  The law also created the Secretariat of Public Security and Citizen Protection, and significantly expanded the power of the president’s Legal Advisory Office (Consejería Jurídica) to name and remove each federal agency’s legal advisor and clear all executive branch legal reforms before their submission to Congress.  The law eliminated financial units from ministries, with the exception of the Secretariat of Finance, SEDENA, and SEMAR, and transferred control of contracting offices in other ministries to the Hacienda.  Separately, the law replaced the previous Secretariat of Social Development (SEDESOL) with a Welfare Secretariat in charge of coordinating social policies, including those developed by other agencies such as health, education, and culture.  The Labor Secretariat gained additional tools to foster collective bargaining, union democracy, and to meet International Labor Organization (ILO) obligations.

Mexico ratified the OECD Convention on Combating Bribery and passed its implementing legislation in May 1999.  The legislation includes provisions making it a criminal offense to bribe foreign officials.  Mexico is also a party to the Organization of American States (OAS) Convention against Corruption and has signed and ratified the United Nations Convention against Corruption.  The government has enacted or proposed laws attacking corruption and bribery, with average penalties of five to 10 years in prison.

Mexico is a member of the Open Government Partnership and enacted a Transparency and Access to Public Information Act in 2015, which revised the existing legal framework to expand national access to information.  Transparency in public administration at the federal level improved noticeably but expanding access to information at the state and local level has been slow.  According to Transparency International’s 2021 Corruption Perception Index, Mexico ranked 124 of 180 nations.  Civil society organizations focused on fighting corruption are high-profile at the federal level but are few in number and less powerful at the state and local levels.

Business representatives, including from U.S. firms, believe public funds are often diverted to private companies and individuals due to corruption and perceive favoritism to be widespread among government procurement officials.  The GAN Business Anti-Corruption Portal states compliance with procurement regulations by state bodies in Mexico is unreliable and that corruption is extensive, despite laws covering conflicts of interest, competitive bidding, and company blacklisting procedures.

The U.S. Embassy has engaged in a broad-based effort to work with Mexican agencies and civil society organizations in developing mechanisms to fight corruption and increase transparency and fair play in government procurement.  Efforts with specific business impact include government procurement best practices training and technical assistance under the U.S. Trade and Development Agency’s Global Procurement Initiative.  Mexico ratified the UN Convention Against Corruption in 2004.  It ratified the OECD Anti-Bribery Convention in 1999.

Contact at government agency:
Secretariat of Public Administration
Miguel Laurent 235, Mexico City
52-55-2000-1060

Contact at “watchdog” organization:
Transparencia Mexicana
Dulce Olivia 73, Mexico City
52-55-5659-4714
Email: info@tm.org.mx

Mass demonstrations are common in the larger metropolitan areas and in the southern Mexican states of Guerrero and Oaxaca. While political violence is rare, drug and organized crime-related violence has increased significantly in recent years. Political violence is also likely to accelerate in the run-up to the June 2022 elections as criminal actors seek to promote election of their preferred candidates. The national homicide rate dropped to 27 homicides per 100,000 residents in 2021 from 29 homicides per 100,000 residents in 2020, although aggregate homicides remain near all-time highs. For complete security information, please see the Safety and Security section in the Consular Country Information page at https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Mexico.html. Conditions vary widely by state. For a state-by-state assessment please see the Consular Travel Advisory at https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/mexico-travel-advisory.html.

Companies have reported general security concerns remain an issue for those looking to invest in the country. The American Chamber of Commerce in Mexico estimates in a biannual report that security expenses cost business as much as 5 percent of their operating budgets. Many companies choose to take extra precautions for the protection of their executives. They also report increasing security costs for shipments of goods. The Overseas Security Advisory Council (OSAC) monitors and reports on regional security for U.S. businesses operating overseas. OSAC constituency is available to any U.S.-owned, not-for-profit organization, or any enterprise incorporated in the United States (parent company, not subsidiaries or divisions) doing business overseas ( https://www.osac.gov/Country/Mexico/Detail ).

Mexican labor law requires at least 90 percent of a company’s employees be Mexican nationals. Employers can hire foreign workers in specialized positions as long as foreigners do not exceed 10 percent of all workers in that specialized category. Mexico’s 56 percent rate of informality remains higher than countries with similar GDP per capita levels. High informality, defined as those working in unregistered firms or without social security protection, distorts labor market dynamics, contributes to persistent wage depression, drags overall productivity, and slows economic growth. In the formal economy, there exist large labor shortages due to a system that incentivizes informality. Manufacturing companies, particularly along the U.S.-Mexico border and in the states of Aguascalientes, Guanajuato, Jalisco, and Querétaro, report labor shortages and an inability to retain staff due to wages sometimes being less that what can be earned in the informal economy, although the recent increases in the minimum wage are leading to increases in entry level wages which are attracting more workers. Shortages of skilled workers and engineers continue due to a mismatch between industry needs and what schools teach. Mexico has one of the lowest female labor participation rates in the OECD, 45 percent to a 76 percent male participation rate among people legally allowed to work (15 years or older). Barriers for female workers include the culturally assigned role for them as caretakers of children and the elderly. Most Mexican workers work for a micro business (41 percent) and 59 percent earn between USD 8.6 and USD 17 per day. The unemployment rate in Mexico has maintained a stable path ranging from 3.5 percent to 4.9 percent (its highest peak during the pandemic). This rate, however, masks the high level of underemployment (14.8 percent) in Mexico (those working part time or in the informal sector when they want full time, formal sector jobs). For 2020 the informal economy accounted for 22 percent of total Mexican GDP according to the National Institute of Statistics and Geography. Informal businesses span across all economic activities from agriculture to manufacturing. In Mexico labor informality also spans across all economic activities with formal businesses employing both formal and informal workers to reduce their labor costs.

On May 1, 2019, Lopez Obrador signed into law a sweeping reform of Mexico’s labor law, implementing a constitutional change and focusing on the labor justice system. The reform replaces tripartite dispute resolution entities (Conciliation and Arbitration Boards) with independent judicial bodies and conciliation centers. In terms of labor dispute resolution mechanisms, the Conciliation and Arbitration Boards (CABs) previously adjudicated all individual and collective labor conflicts. Under the reform, collective bargaining agreements will now be adjudicated by federal labor conciliation centers and federal labor courts.

Labor experts predict the labor reform will result in a greater level of labor action stemming from more inter-union and intra-union competition. The Secretariat of Labor, working closely with Mexico’s federal judiciary, as well as state governments and courts, created an ambitious state-by-state implementation agenda for the reforms, which started November 18, 2020, and will end during the second semester of 2022. On November 18, 2020 the first phase of the labor reform implementation began in eight states: Durango, State of Mexico, San Luis Potosi, Zacatecas, Campeche, Chiapas, Tabasco, and Hidalgo. On November 3, 2021 the second phase started in 13 additional states, and the third phase will start during 2022 in 11 states. Further details on labor reform implementation can be found at: www.reformalaboral.stps.gob.mx .

Mexico’s labor relations system has been widely criticized as skewed to represent the interests of employers and the government at the expense of workers. Mexico’s legal framework governing collective bargaining created the possibility of negotiation and registration of initial collective bargaining agreements without the support or knowledge of the covered workers. These agreements are commonly known as protection contracts and constitute a gap in practice with international labor standards regarding freedom of association. The percentage of the economy covered by collective bargaining agreements is between five and 10 percent, of which more than half are believed to be protection contracts. As of March 7, 2022, 3,267 collective bargaining contracts have been legitimized (reviewed and voted on by the workers covered by them), according to the Secretariat of Labor. The reform requires all collective bargaining agreements to be submitted to a free, fair, and secret vote every two years with the objective of getting existing protectionist contracts voted out. The increasingly permissive political and legal environment for independent unions is already changing the way established unions manage disputes with employers, prompting more authentic collective bargaining. As independent unions compete with corporatist unions to represent worker interests, workers are likely to be further emboldened in demanding higher wages.

The USMCA’s labor chapter (Chapter 23) contains specific commitments on union democracy and labor justice which relate directly to Mexico’s 2019 labor reform and its implementation. In addition, the USMCA’s dispute settlement chapter (Chapter 31) includes a facility-specific labor rapid response mechanism to address labor rights issues and creates the ability to impose facility specific remedies to ensure remediation of such situations.

According to the International Labor Organization (ILO), government enforcement was reasonably effective in enforcing labor laws in large and medium-sized companies, especially in factories run by U.S. companies and in other industries under federal jurisdiction. Enforcement was inadequate in many small companies and in the agriculture and construction sectors, and it was nearly absent in the informal sector. Workers organizations have made numerous complaints of poor working conditions in maquiladoras and in the agricultural production industry. Low wages, poor labor conditions, long work hours, unjustified dismissals, lack of social security benefits and safety in the workplace, and lack of freedom of association were among the most common complaints.

* data from the IMF’s Coordinated Direct Investment Survey (CCIS)
( https://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482331048410 )

William Ayala
AyalaWM@state.gov
Economic Section
U.S. Embassy in Mexico
Paseo de la Reforma 305
Colonia Cuauhtemoc
06500 Mexico, CDMX

Panama welcomes FDI and relies heavily on investment to fuel its economy. With few exceptions, the Government of Panama makes no distinction between domestic and foreign companies for investment purposes. Panama benefits from stable and consistent economic policies, a dollarized economy, and a government that consistently supports trade and open markets and encourages foreign direct investment.

Panama has had one of the highest levels of FDI in Central America, a trend that continued even during the pandemic. Through the Multinational Headquarters Law (SEM), the Multinational Manufacturing Services Law (EMMA), and a Private Public Partnership framework, Panama offers tax breaks and other incentives to attract investment. Executive Decree No. 722 of October 2020 created a new immigration category: Permanent Residence as a Qualified Investor, after an initial investment of $300,000. The Ministry of Commerce and Industry (MICI) is responsible for overseeing foreign investment, prepares an annual foreign investment promotion strategy, and provides services required by investors to expedite investments and project development (for more details, please visit: https://www.mici.gob.pa/noticias/gobierno-nacional-crea-programa-de-residencia-para-inversionistas-calificados).

The Cortizo administration created a new Minister Counselor for Investment position that reports directly to the President, with the aim of attracting new investors and dislodging barriers that confront current ones. MICI, in cooperation with the Minister Counselor for Investment, facilitates the initial investment process and provides integration assistance once a company is established in Panama.

The Export and Investment Promotion Authority “PROPANAMA” was created by Law 207 on April 5, 2021. It provides investors with information, expedites specific projects, leads investment-seeking missions abroad, and supports foreign investment missions to Panama. In some cases, other government offices work with investors to ensure that regulations and requirements for land use, employment, special investment incentives, business licensing, and other conditions are met. Entities that carry out a minimum investment of two million dollars in Panama enjoy the benefits of legal stability, with national, municipal, and customs tax incentives and stability in the labor regime for a period of ten years.

In 2021, the United States ran a $7.5 billion trade surplus in goods with Panama. The U.S.-Panama Trade Promotion Agreement (TPA) entered into force in October 2012. The TPA has significantly liberalized trade in goods and services, including financial services. The TPA also includes sections on customs administration and trade facilitation, sanitary and phytosanitary measures, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, and labor and environmental protections.  In March 2022, however, the Panamanian government (GoP) formally asked the U.S. government to review certain agricultural tariff provisions of the TPA. Over the last year, Panamanian producers have become increasingly vocal in demanding that their government renegotiate new protections in the face of declining Panamanian tariffs on U.S. agricultural exports. As of March 2022, the U.S. government was reviewing the GoP’s request.

Panama is one of the few economies in Latin American that is predominantly services-based. Services represent nearly 80 percent of Panama’s GDP. The TPA has improved U.S. firms’ access to Panama’s services sector and gives U.S. investors better access than other WTO members under the General Agreement on Trade in Services. All services sectors are covered under the TPA, except where Panama has made specific exceptions, such as for postal services, air transportation, and water distribution. Under the agreement, Panama has provided improved access to sectors like express delivery and granted new access in certain areas that had previously been reserved for Panamanian nationals. However, some American companies face problems in this sector, including allegations of tax evasion by some local companies. In addition, Panama is a full participant in the WTO Information Technology Agreement.

Panama passed a Private Public Partnership (PPP) law in 2019 (Ley 93) and published regulations for the program in 2020 (Decree 840) as an incentive for private investment, social development, and job creation. The law is a first-level legal framework that orders and formalizes how the private sector can invest in public projects, thereby expanding the State’s options to meet social needs. Panama’s 2022 budget includes funding to implement PPP projects.

Panama has been selected to host Bloomberg’s “New Economy Gateway” forum in May 2022, which will cover sustainable investment and the future of trade. It will be the first time that this forum has been held outside of Asia.

The Panamanian government imposes some limitations on foreign ownership in the retail, maritime, and media sectors, in which, in most cases, owners must be Panamanian. However, foreign investors can continue to use franchise arrangements to own retail within the confines of Panamanian law (under the TPA, direct U.S. ownership of consumer retail is allowed in limited circumstances). There are also limits on the number of foreign workers in some foreign investment structures.

In addition to limitations on ownership, around 200 professions in both the public and private sectors, including within the Panama Canal Authority, are reserved for Panamanian nationals. Medical practitioners, lawyers, engineers, accountants, and customs brokers must be Panamanian citizens. Furthermore, the Panamanian government instituted a regulation that rideshare platforms must use drivers who possess commercial licenses, which are available only to Panamanians, and is considering the implementation of additional regulations that would further restrict American ride-sharing companies.

With the exceptions of retail trade, the media, and many professions, foreign and domestic entities have the right to establish, own, and dispose of business interests in virtually all forms of remunerative activity, and the Panamanian government does not screen inbound investment. Foreigners do not need to be legally resident or physically present in Panama to establish corporations or obtain local operating licenses for a foreign corporation. Business visas (and even citizenship) are readily obtainable for significant investors.

Panama generally allows private entities to establish and own businesses and engage in remunerative activities. It does not have a formal investment screening mechanism, but the government monitors large foreign investments, especially in the energy sector.

Panama does not currently impose any sector-specific restrictions or limitations on foreign ownership or control. There are no licensing restrictions, although Executive Decree 81 of May 25, 2017, established controls over dual-use goods for reasons of national security. Panama does not currently have any requirements for controls over technology transfers.

Panama has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization in the past three years.

The World Trade Organization (WTO) conducted a “Trade Policy Review” of Panama as of December 2021. Trade Policy Reviews are an exercise mandated in WTO agreements in which member countries’ trade and related policies are examined and evaluated at regular intervals: WTO | Trade policy review -Panama2022 

Post has no knowledge of any civil society organization that has provided comprehensive reviews of concerns about investment policy.

Procedures regarding how to register foreign and domestic businesses, as well as how to obtain a notice of operation, can be found on the Ministry of Commerce and Industry’s website ( https://www.panamaemprende.gob.pa/ ), where one may register a foreign company, create a branch of a registered business, or register as an individual trader from any part of the world. Corporate applicants must submit notarized documents to the Mercantile Division of the Public Registry, the Ministry of Commerce and Industry, and the Social Security Institute. Panamanian government statistics show that applications from foreign businesses typically take between one to six days to process.

Historically, government procurement procedures have presented barriers to trade with Panama. The Cortizo administration has publicly committed to ensuring greater transparency in the award of government tenders. Law 153, officially passed in May 2020, provides greater transparency in public procurement by mandating that all public entities use an electronic procurement system https://www.panamacompra.gob.pa/Inicio/#!/ .

Other agencies where companies typically register are:

• Business Registration: https://ampyme.gob.pa/?page_id=144
• Tax administration: https://dgi.mef.gob.pa/ 
• Corporations, property, mortgage: https://www.rp.gob.pa 
• Social security: http://www.css.gob.pa 
• Municipalities: https://mupa.gob.pa 

Panama does not incentivize outward investment, nor does it restrict domestic investors from investing abroad.

The Panamanian legal, accounting, and regulatory systems are generally transparent and consistent with international norms.

Panama has five regulatory agencies, four that supervise the activities of financial entities (banking, securities, insurance, and “designated non-financial businesses and professions (DNFBPs)” and a fifth that oversees credit unions. Each of the regulators regularly publishes on their websites detailed policies, laws, and sector reports, as well as information regarding fines and sanctions. Panama’s banking regulator began publishing fines and sanctions in late 2016, which tend to be significantly lower than neighboring countries. The securities and insurance regulators have published fines and sanctions since 2010. Law 23 of 2015 created the regulator for DNFBPs, which began publishing fines and sanctions in 2018. In January 2020, the regulator for DNFBPs was granted independence and superintendency status like that of the banking regulator. The Superintendency of the Securities Market is generally considered a transparent, competent, and effective regulator. Panama is a full signatory to the International Organization of Securities Commissions (IOSCO).

Post is not aware of any informal regulatory processes managed by non-governmental organizations or private sector associations.

Relevant ministries or regulators oversee and enforce administrative and regulatory processes. Any administrative errors or omissions committed by public servants can be challenged and taken to the Supreme Court for a final ruling, a process that often involves a long and arduous dispute resolution. Regulatory bodies can impose sanctions and fines which are made public and can be appealed.

Panama does not promote or require companies to disclose environmental, social, and governance (ESG) data to facilitate transparency and/or help investors and consumers distinguish between high- and low-quality investments.

Laws are developed in the National Assembly. A proposed bill is discussed in three rounds, edited as needed, and approved or rejected. The President then has 30 days to approve or veto a bill the Assembly has passed. If the President vetoes the bill, it can be returned to the National Assembly for changes or sent to the Supreme Court to rule on its constitutionality. If the bill was vetoed for reasons of unconstitutionality, and the Supreme Court finds it constitutional, the President must sign the bill. Regulations are created by agencies and other governmental bodies but they can be modified or overridden by higher authorities.

In general, draft bills, including those for laws and regulations on investment, are made available on the National Assembly’s website and can be introduced for discussion at the bill’s first hearing. All bills and approved legislation are published in the Official Gazette in full and summary form and can also be found on the National Assembly’s website: https://www.asamblea.gob.pa/buscador-de-gacetas .

Accounting, legal, and regulatory procedures in Panama are based on standards set by the International Financial Reporting Standards (IFRS) Foundation, including financial reporting standards for small and medium-sized enterprises (SMEs). Panama is a member of UNCTAD’s international network of transparent investment procedures. Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations, including the number of steps, the names and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing times, and legal bases justifying the procedures.

Information on public finances and debt obligations (includes explicit and contingent liabilities) is transparent. It is published on the Ministry of Economy and Finance’s website under the directorate of public finance, but not consistently updated: https://fpublico.mef.gob.pa/en .

Mining regulations are changing. In 2018, the Supreme Court declared unconstitutional the law on which the country largest mining investment contract was based. According to some industry experts, the ruling was a deliberate move to force contract renegotiations and achieve more favorable terms for the government. In 2022, the same company’s concession was renegotiated for renewal, with its royalties to the government increasing significantly as a result. Panama’s enormous potential for generating mining income is undercut by long delays in the government’s concession and permit approval process, according to foreign investor contacts.

Panama is part of the Central American Customs Union (CACU), the regional economic block for Central American countries. Panama has adopted many of the Central American Technical Regulations (RTCA) for intra-regional trade in goods. Panama applies the RTCA to goods imported from any CACU member and updates Panama’s regulations to be consistent with RTCA. However, Panama has not yet adopted some important RTCA regulations, such as for processed food labeling, and dietary supplements/vitamins.

The United States and Panama signed an agreement regarding “Sanitary and Phytosanitary Measures and Technical Standards Affecting Trade in Agricultural Products,” which entered into force on December 20, 2006. The application of this agreement supersedes the RTCA for U.S. food and feed products imported into Panama.

A 2006 law established the Panamanian Food Safety Authority (AUPSA) to issue science-based sanitary and phytosanitary (SPS) import policies for food and feed products entering Panama. Since 2019, AUPSA and other government entities have implemented or proposed measures that restrict market access. These measures have also increased AUPSA’s ability to limit the import of certain agricultural goods. The Panamanian government, for example, has issued regulations on onions and withheld approval of genetically-modified foods, limiting market access and resulting in the loss of millions in potential investment. In March 2021, Panama passed a bill to eliminate the AUPSA. In its place, the bill created the Panamanian Food Agency (APA).  APA began operations on October 1, 2021, and has responsibility for both imports and exports.  The APA intends to improve efficiency for agro-exports and industrial food processes, as well as increase market access.

Historically, Panama has referenced or incorporated international norms and standards into its regulatory system, including the Agreements of the World Trade Organization (WTO), Codex Alimentarius, the World Organization for Animal Health (OIE), the International Plant Protection Convention, the World Intellectual Property Organization, the World Customs Organization, and others. Also, Panama has incorporated into its national regulations many U.S. Food and Drug Administration regulations, such as the Pasteurized Milk Ordinance.

Panama, as a member of the WTO, notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). However, in the last five years it has ignored comments on its regulations offered by other WTO members, including but not limited to the United States.

When ruling on cases, judges rely on the Constitution and direct sources of law such as codes, regulations, and statutes. In 2016, Panama transitioned from an inquisitorial to an accusatory justice system, with the goal of simplifying and expediting criminal cases. Fundamental procedural rights in civil cases are broadly similar to those available in U.S. civil courts, although some notice and discovery rights, particularly in administrative matters, may be less extensive than in the United States. Judicial pleadings are not always a matter of public record, nor are processes always transparent.

Panama has a legal framework governing commercial and contractual issues and has specialized commercial courts. Contractual disputes are normally handled in civil court or through arbitration, unless criminal activity is involved. Some U.S. firms have reported inconsistent, unfair, and/or biased treatment from Panamanian courts. The judicial system’s capacity to resolve contractual and property disputes is often weak, hampered by a lack of technological tools and susceptibility to corruption. The World Economic Forum’s 2019 Global Competitiveness Report rated Panama’s judicial independence at 129 of 141 countries.

The Panamanian judicial system suffers from significant budget shortfalls that continue to affect all areas of the system. The transition to the accusatory system faces challenges in funding for personnel, infrastructure, and operational requirements, while addressing a significant backlog of cases initiated under the previous inquisitorial system. The judiciary still struggles with lack of independence, a legacy of an often-politicized system for appointing judges, prosecutors, and other officials. On January 11, 2022, President Cortizo committed $15 million to the Judicial Branch to implement Law 53 of August 27, 2015, which mandates that judges be selected by a merit-based process instead of by appointment, but implementation still faces serious challenges. Under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges, and only the Supreme Court may initiate investigations against members of the National Assembly, which has led to charges of a de facto “non-aggression pact” between the two branches.

Regulations and enforcement actions can be appealed through the legal system from Municipal Judges, to Circuit Judges, to Superior Judges, and ultimately to the Supreme Court.

Panama has different laws governing investment incentives, depending on the activity, including its newest law intended to draw manufacturing investment, the 2020 Multinational Manufacturing Services Law (EMMA). In addition, it has a Multinational Headquarters Law (SEM), a Tourism Law, an Investment Stability Law, and miscellaneous laws associated with particular sectors, including the film industry, call centers, certain industrial activities, and agricultural exports. In addition, laws may differ in special economic zones, including the Colon Free Zone, the Panama Pacifico Special Economic Area, and the City of Knowledge.

Government policy and law treat Panamanian and foreign investors equally with respect to access to credit. Panamanian interest rates closely follow international rates (i.e., the U.S. federal funds rate, the London Interbank Offered Rate, etc.), plus a country-risk premium.

The Ministries of Tourism, Public Works, and Commerce and Industry, as well as the Minister Counselor for Investment, promote foreign investment. However, some U.S. companies have reported difficulty navigating the Panamanian business environment, especially in the tourism, branding, imports, and infrastructure development sectors. Although individual ministers have been responsive to U.S. companies, fundamental problems such as judicial uncertainty are more difficult to address. U.S. companies have complained about several ministries’ failure to make timely payments for services rendered, without official explanation for the delays. U.S. Embassy Panama is aware of tens of millions of dollars in overdue payments that the Panamanian government owes to U.S. companies.

Some private companies, including multinational corporations, have issued bonds in the local securities market. Companies rarely issue stock on the local market and, when they do, often issue shares without voting rights. Investor demand is generally limited because of the small pool of qualified investors. While some Panamanians may hold overlapping interests in various businesses, there is no established practice of cross-shareholding or stable shareholder arrangements designed to restrict foreign investment through mergers and acquisitions.

The Ministry of Commerce and Industry’s website lists information about laws, transparency, legal frameworks, and regulatory bodies.

https://www.mici.gob.pa/direccion-general-de-servicios-al-inversionista/informacion-para-el-inversionista-direccion-general-de-servicios-al-inversionista 

Panama’s Consumer Protection and Anti-Trust Agency, established by Law 45 on October 31, 2007, and modified by Law 29 of June 2008, reviews transactions for competition-related concerns and serves as a consumer protection agency.

Panamanian law recognizes the concept of eminent domain, but it is exercised only occasionally, for example, to build infrastructure projects such as highways and the metro commuter train. In general, compensation for affected parties is fair. However, in at least one instance a U.S. company has expressed concern about not being compensated at fair market value after the government revoked a concession. There have been no cases of claimants citing a lack of due process regarding eminent domain.

The World Bank 2020 Doing Business Indicator, the most recent report available, ranked Panama 113 out of 190 jurisdictions for resolving insolvency because of a slow court system and the complexity of the bankruptcy process. Panama adopted a new insolvency law (similar to a bankruptcy law) in 2016, but the Doing Business Indicator ranking has not identified material improvement for this metric.

Panama provides Industrial Promotion Certificates (IPCs) to incentivize industrial development in high-value-added sectors. Targeted sectors include research and development, management and quality assurance systems, environmental management, utilities, and human resources. Approved IPCs provide up to 35 percent in tax reimbursements and preferential import tariffs of 3 percent. Panama does not have a practice of issuing guarantees or jointly financing FDI projects.

Law 1 (2017) modified Law 28 (1995) by exempting exports from income tax and exempting from import duty machinery for companies that export 100 percent of their products. Producers that sell any portion of their products in the domestic market pay only a three percent import tariff on machinery and supplies.

Law 41, the Special Regime for the Establishment and Operation of Multinational Company Headquarters (SEM), was enacted in 2007 to encourage multinational investment in Panama. The law focuses on administrative back-office operations, such as payroll, accounting, and other functions. Any company that is licensed under SEM will automatically qualify for MSM.

The GoP enacted Law 159 on Manufacturing Services for Multinational Companies (EMMA) in 2020 as a special incentive law to attract Foreign Direct Investment in manufacturing, remanufacturing, maintenance and product repair, assembly, logistics services, and refurbishing. The EMMA law is a complement to the SEM law and offers tax and employee incentives, reducing import duties and fees for equipment and supplies used in the manufacturing process, to companies that qualify.

In 2012, Panama introduced a tourism incentive law to promote foreign investment in tourism and the hospitality industry. The incentives are available outside the district of Panama to companies registered through the National Tourism Registry of the Panama Tourism Authority (ATP) and provide tax incentives and exemptions on real estate, imported good, construction materials, appliances, furniture, and equipment. Panama further modified the law in 2019 to provide additional tax credits for new projects and extensions on existing projects. These tax credits must be used within ten years from the start of a project.

Law 186 of December 2, 2020, facilitates entrepreneurship through a simplified registration system and tax incentives for entrepreneurs.

Panama has enacted a list of laws that provide attractive incentives for domestic and foreign investment in the energy sector. These laws encourage all-source energy projects such as hydroelectric plants, LNG plants, biofuel and biomass plants, wind, and solar. Some of the incentives include a 5 percent discount on income tax. For biofuel and biomass projects, incentives include a 10-year exemption from income taxes, a total exemption from entry fee costs, and a 10-year exemption from distribution or transmission rights for spot market operations.

Law No. 37 of June 10, 2013, establishes incentives for the construction, operation, and maintenance of solar power plants and/or installations.

Executive Decree No. 45 of June 10, 2009, provides incentives for hydroelectric generation systems and other new renewable and clean sources listed in Law No.45 of August 4, 2004, which establishes incentives for hydroelectric plants and other renewable and clean energy sources, as well as other favorable provisions.

Law No. 44 of April 25, 2011, establishes incentives for the construction and operation of wind power plants for the public electricity sector/service.

Panama is home to the Colon Free Trade Zone, the Panama Pacifico Special Economic Zone, and 18 other “free zones,” (12 active and six in development). The Colon Free Trade Zone has more than 2,500 businesses, the Panama Pacifico Special Economic Zone has more than 345 businesses, and the remaining free zones host 126 companies in total. These zones provide special tax and other incentives for manufacturers, back-office operations, and call centers. Additionally, the Colon Free Zone offers companies preferential tax and duty rates that are levied in exchange for basic user fees and a five percent dividend tax (or two percent of net profits if there are no dividends). Banks and individuals in Panama pay no tax on interest or other income earned outside Panama. No taxes are withheld on savings or fixed time deposits in Panama. Individual depositors do not pay taxes on time deposits. Free zones offer tax-free status, special immigration privileges, and license and customs exemptions to manufacturers who locate within them. Investment incentives offered by the Panamanian government apply equally to Panamanian and foreign investors.

There are no legal performance requirements such as minimum export percentages, significant requirements of local equity interest, or mandatory technology transfers. There are no requirements that host country nationals be chosen to serve in roles of senior management or on boards of directors. There are no established general requirements that foreign investors invest in local companies, purchase goods or services from local vendors, or invest in research and development (R&D) or other facilities. Depending on the sector, companies may be required to have 85-90 percent Panamanian employees. There are exceptions to this policy, but the government must approve these on a case-by-case basis. Fields dominated by strong unions, such as construction, have opposed issuing work permits to foreign laborers and some investors have struggled to fully staff large projects. Visas are available and the procedures to obtain work permits are generally not considered onerous.

As part of its effort to become a hub for finance, logistics, and communications, Panama has endeavored to become a data storage center for companies (see data protection law below). According to the Panamanian Authority for Government Innovation (AIG, http://www.innovacion.gob.pa/noticia/2834 ), most of these firms offer services to banking and telephone companies in Central America and the Caribbean. Panama boasts strong international connectivity, with seven undersea fiber optic cables and an eighth currently under construction.

Panama’s data protection law (Law 81 of 2019) established the principles, rights, obligations, and procedures that regulate the protection of personal data. The National Authority for Transparency and Access to Information (ANTAI) oversees the law’s enforcement, which began in March 2021. For extra-territorial transfer of data, the implementing regulation allows for contractual clauses or adequacy findings. An adequacy finding for the United States is still pending.

In September 2021, AIG issued a resolution requiring government entities with mission-critical or sensitive data in the cloud to transition such data to in-country storage facilities by December 2022. This would have an impact on foreign companies offering cloud services to the public sector in Panama. AIG is developing a data classification scheme to accompany this requirement and clarify which data can be held in data centers outside Panama.

The personal privacy of communications and documents is provided for in the Panamanian Constitution as a fundamental right (Political Constitution, article 29). The Constitution also provides for a right to keep personal data confidential (article 44). The Criminal Code imposes an obligation on businesses to maintain the confidentiality of information stored in databases or elsewhere and establishes several crimes for the misuse of such information (Criminal Code, articles 164, 283, 284, 285, 286). Panama’s electronic commerce legislation also states that providers of electronic document storage must guarantee the protection, reliability, and proper use of information and data stored on behalf of their customers (Law 51, July 22, 2008, article 55).

Mortgages and liens are widely used in both rural and urban areas and the recording system is reliable. There are no specific regulations regarding land leasing or acquisition by foreign and/or non-resident investors.

A large portion of land in Panama, especially outside of Panama City, is not titled. A system of rights of possession exists, but there are multiple instances where such rights have been successfully challenged. The World Bank’s Doing Business 2020 report ( http://www.doingbusiness.org/data/exploreeconomies/panama ) notes that Panama is ranked 87 out of 190 countries on the Registering Property indicator and ranks 141st in enforcing contracts. Panama enacted Law 80 (2009) to address the lack of titled land in certain parts of the country; however, the law does not address deficiencies in government administration or the judicial system. In 2010, the National Assembly approved the creation of the National Land Management Authority (ANATI) to administer land titling; however, investors have complained about ANATI’s capabilities and lengthy adjudication timelines. ANATI has attempted to clean up some titling issues and sought international assistance to modernize.

The judicial system’s capacity to resolve contractual and property disputes is generally considered weak and susceptible to corruption, as illustrated by the most recent World Economic Forum’s Global Competitiveness Report 2019 ( http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf ), which ranks Panama’s judicial independence as 129 out of 141 countries. Americans should exercise greater due diligence in purchasing Panamanian real estate than they would in purchasing real estate in the United States. Engaging a reputable attorney and a licensed real estate broker is strongly recommended.

If legally purchased property is unoccupied, property ownership can revert to other owners (squatters) after 15 years of living on or working the land, although the parties must go to court to resolve ownership.

Panama has an adequate and effective domestic legal framework to protect and enforce intellectual property rights (IPR). The legal structure is strong and enforcement is generally good. Although theft and infringement on rights occur, they are not so common as to include Panama on the Special 301 Watch List or Priority Watch List. There were no new IPR laws or regulations proposed or enacted in the past year, although Customs is in the process of modifying its contraband legislation. The U.S.-Panama TPA improved standards for the protection and enforcement of a broad range of IPR, including patents; trademarks; undisclosed tests and data required to obtain marketing approval for pharmaceutical and agricultural chemical products; and digital copyright products such as software, music, books, and videos. To implement the requirements of the TPA, Panama passed Law 62 of 2012 on industrial property and Law 64 of 2012 on copyrights. Law 64 also extended copyright protection to the life of the author plus 70 years, mandates the use of legal software in government agencies, and protects against the theft of encrypted satellite signals and the manufacturing or sale of tools to steal signals.

Panama is a member of the Paris Convention for the Protection of Industrial Property. Panama’s Industrial Property Law (Law 35 of 1996) provides 20 years of patent protection from the date of filing, or 15 years from the filing of pharmaceutical patents. Panama has expressed interest in participating in the Patent Protection Highway with the U.S. Patent and Trademark Office (USPTO). Law 35, amended by Law 61 of 2012, also provides trademark protection, simplified the registration of trademarks, and allows for renewals for 10-year periods. The law grants ex-officio authority to government agencies to conduct investigations and seize suspected counterfeit materials. Decree 123 of 1996 and Decree 79 of 1997 specify the procedures that National Customs Authority (ANA) and Colon Free Zone officials must follow to investigate and confiscate merchandise. In 1997, ANA created a special office for IPR enforcement; in 1998, the Colon Free Zone followed suit.

The Government of Panama is making efforts to strengthen the enforcement of IPR. A Committee for Intellectual Property (CIPI), comprising representatives from five government agencies (the Colon Free Zone, the Offices of Industrial Property and Copyright under the

Ministry of Commerce and Industry (MICI), the Customs Administration (ANA), and the Attorney General), under the leadership of the MICI, is responsible for the development of intellectual property policy. Since 1997, two district courts and one superior tribunal have exclusive jurisdiction of antitrust, patent, trademark, and copyright cases. Since January 2003, a specific prosecutor with national authority over IPR cases has consolidated and simplified the prosecution of such cases. Law 1 of 2004 added crimes against IPR as a predicate offense for money laundering, and Law 14 establishes a 5 to 12-year prison term.

Various Panamanian entities track and report on seizures of counterfeit goods, but there is no single repository or website that consolidates this information. Panama’s Public Ministry has a Specialized Prosecutors Office dedicated to IPR violations, but there have so far been relatively few criminal prosecutions for IPR violations. Panama executes search warrants on businesses that trade in counterfeit goods, but such items are usually seized administratively without criminal prosecutions.

Panama is not included in the United States Trade Representative (USTR) Special 301 Report. One online market on the Notorious Markets List is reportedly operated from Panama.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Embassy point of contact:

Colombia Primola
Economic Specialist
PrimolaCE@state.gov 

Local lawyers list: https://pa.usembassy.gov/u-s-citizen-services/attorneys/

Panama has a stock market with an effective regulatory system developed to support foreign investment. Article 44 of the constitution guarantees the protection of private ownership of real property and private investments. Some private companies, including multinational corporations, have issued bonds in the local securities market. Companies rarely issue stock on the local market and, when they do, often issue shares without voting rights. Investor demand is generally limited because of the small pool of qualified investors. While some Panamanians may hold overlapping interests in various businesses, there is no established practice of cross-shareholding or stable shareholder arrangements designed to restrict foreign investment through mergers and acquisitions. Panama has agreed to IMF Article VIII and pledged not to impose restrictions on payments and transfers for current international transactions.

In 2012, Panama modified its securities law to regulate brokers, fund managers, and matters related to the securities industry. The Commission structure was modified to follow the successful Banking Law model and now consists of a superintendent and a board of directors. The Superintendency of the Securities Market is generally considered a competent and effective regulator. Panama is a full signatory to the International Organization of Securities Commissions (IOSCO).

Government policy and law with respect to access to credit treat Panamanian and foreign investors equally. Panamanian interest rates closely follow international rates (i.e., the U.S. federal funds rate, the London Interbank Offered Rate, etc.), plus a country-risk premium.

Panama’s banking sector is developed and highly regulated and there are no restrictions on a foreigner’s ability to establish a bank account. Foreigners are required to present a passport and taxpayer identification number and an affidavit indicating that the inflow and outflow of money meets the tax obligations of the beneficiary’s tax residence. The adoption of financial technology in Panama is nascent, but there are several initiatives underway to modernize processes.

Some U.S. citizens and entities have had difficulty meeting the high documentary threshold for establishing the legitimacy of their activities both inside and outside Panama. Banking officials counter such complaints by citing the need to comply with international financial transparency standards. Several of Panama’s largest banks have gone so far as to refuse to establish banking relationships with whole sectors of the economy, such as casinos and e-commerce, in order to avoid all possible associated risks. Regulatory issues have made it difficult for some private U.S. citizens to open bank accounts in Panama, leaving some legitimate businesses without access to banking services in Panama. Panama has no central bank.

The banking sector is highly dependent on the operating environment in Panama, but it is generally well-positioned to withstand shocks. The banking sector could be impacted if Panama’s sovereign debt rating continues to fall. As of March 18, 2022, the sovereign debt rating remains investment grade, with ratings of Baa2 (Moody’s), BBB- (Fitch), and BBB (Standard & Poor’s). Approximately 4.7 percent of total banking sector assets are estimated to be non-performing.

Panama’s 2008 Banking Law regulates the country’s financial sector. The law concentrates regulatory authority in the hands of a well-financed Banking Superintendent ( https://www.superbancos.gob.pa/ ).

Traditional bank lending from the well-developed banking sector is relatively efficient and is the most common source of financing for both domestic and foreign investors, offering the private sector a variety of credit instruments. The free flow of capital is actively supported by the government and is viewed as essential to Panama’s 68 banks (2 official banks, 39 domestic banks, 17 international banks, and 10 bank representational offices).

Foreign banks can operate in Panama and are subject to the same regulatory regime as domestic banks. Panama has not lost any correspondent banking relationships in the last three years despite its inclusion on the FATF grey list since June 2019.

There are no restrictions on, nor practical measures to prevent, hostile foreign investor takeovers, nor are there regulatory provisions authorizing limitations on foreign participation or control, or other practices that restrict foreign participation. There are no government or private sector rules that prevent foreign participation in industry standards-setting consortia. Financing for consumers is relatively open for mortgages, credit cards, and personal loans, even to those earning modest incomes.

Panama’s strategic geographic location, dollarized economy, status as a regional financial, trade, and logistics hub, and favorable corporate and tax laws make it an attractive destination for money launderers. Money laundered in Panama is believed to come in large part from the proceeds of drug trafficking. Tax evasion, bank fraud, and corruption are also believed to be major sources of illicit funds in Panama. Criminals have been accused of laundering money through shell companies and via bulk cash smuggling and trade at airports and seaports, and in active free trade zones.

In 2015, Panama strengthened its legal framework, amended its criminal code, harmonized legislation with international standards, and passed a law on anti-money laundering/combating the financing of terrorism (AML/CFT). Panama also approved Law 18 (2015), which severely restricts the use of bearer shares; companies still using them must appoint a custodian and maintain strict controls over their use. In addition, Panama passed Law 70 (2019), which criminalizes tax evasion and defines it as a money laundering predicate offense. In 2021, Panama passed Law 254, which modifies six distinct laws in order to give the non-financial regulator more authority and strengthen know-your-customer (KYC) requirements. For example, it modifies Law 23 of 2015 to align Panama with accounting records standards and increase sanctions for money laundering violations from $1 million to $5 million; it also modifies Law 52 of 2016 to require resident agents for offshore corporations to hold or have access to a copy of the company’s accounting records.

In June 2019, the Financial Action Task Force (FATF) added Panama to its grey list of jurisdictions subject to ongoing monitoring due to strategic AML/CFT deficiencies. FATF cited Panama’s lack of “positive, tangible progress” in measures of effectiveness. Panama agreed to an Action Plan in four major areas: 1) risk, policy, and coordination; 2) supervision; 3) legal persons and arrangements; and 4) money laundering investigation and prosecution. The Action Plan outlined concrete measures that were to be completed in stages by May and September 2020. Due to the COVID-19 pandemic, FATF granted Panama two extensions, pushing the deadline to January 2021. In its March 2022 plenary, FATF recognized that Panama had largely completed eight of fifteen items on its Action Plan and highlighted the items Panama must still address, while noting the country’s progress since the last plenary meeting.

In February 2022, the European Union (EU) kept Panama on its tax haven blacklist along with American Samoa, Fiji, Guam, Palau, Samoa, Trinidad and Tobago, the U.S. Virgin Islands, and Vanuatu. The EU does not consider Panama to have met international criteria on transparency and exchange of tax information. Panama, however, remains committed to complying with the recommendations of the OECD’s domestic tax base erosion and profit shifting action plan.

Panama has made strides in increasing criminal prosecutions and convictions related to money laundering and tax evasion. However, law enforcement needs more tools and training to conduct long-term, complex financial investigations, including undercover operations. The criminal justice system remains at risk for corruption. Panama has made progress in assessing high-risk sectors, improving inter-ministerial cooperation, and approving – though not yet implementing – a law on beneficial ownership. Additionally, the GoP and the United States signed an MOU in August 2020 that created an anti-money laundering and anti-corruption task force that has advanced investigations of financial crimes. The United States provides training to the task force to combat money laundering and corruption, as well as training for judicial investigations and prosecutions.

Panama started a sovereign wealth fund, called the Panama Savings Fund (FAP), in 2012 with an initial capitalization of $1.3 billion. The fund follows the Santiago Principles and is a member of the International Forum of Sovereign Wealth Funds. The law mandates that from 2015 onward contributions to the National Treasury from the Panama Canal Authority in excess of 3.5 percent of GDP must be deposited into the Fund. In October 2018, the rule for accumulation of the savings was modified to require that when contributions from the Canal exceed 2.5 percent of GDP, half the surplus must go to national savings. At the end of 2021, the value of the FAP’s assets totaled $1.4 billion. Since the beginning of its operations, FAP has generated returns of $455.6 million and contributions to the National Treasury of $235.6 million.

Panama has 16 non-financial State-Owned Enterprises (SOE) and 8 financial SOEs that are included in the budget and broken down by enterprise. Each SOE has a Board of Directors with Ministerial participation. SOEs are required to send a report to the Ministry of Economy and Finance, the Comptroller General’s Office, and the Budget Committee of the National Assembly within the first ten days of each month showing their budget implementation. The reports detail income, expenses, investments, public debt, cash flow, administrative management, management indicators, programmatic achievements, and workload. SOEs are also required to submit quarterly financial statements. SOEs are audited by the Comptroller General’s Office.

The National Electricity Transmission Company (ETESA) is an example of an SOE in the energy sector, and Tocumen Airport and the National Highway Company (ENA) are SOEs in the transportation sector. Financial allocations and earnings from SOEs are publicly available at the Official Digital Gazette ( http://www.gacetaoficial.gob.pa/ ). There is a website under construction that will consolidate information on SOEs: https://panamagov.org/organo-ejecutivo/empresas-publicas/ #.

Panama’s privatization framework law does not distinguish between foreign and domestic investor participation in prospective privatizations. The law calls for pre-screening of potential investors or bidders in certain cases to establish technical capability, but nationality and Panamanian participation are not criteria. The Government of Panama undertook a series of privatizations in the mid-1990s, including most of the country’s electricity generation and distribution, its ports, and its telecommunications sector. There are presently no privatization plans for any major state-owned enterprise.

Panama maintains strict domestic laws relating to labor and employment rights and environmental protection. While enforcement of these laws is not always stringent, major construction projects are required to complete environmental assessments, guarantee worker protections, and comply with government standards for environmental stewardship.

The ILO program “Responsible Business Conduct in Latin America and the Caribbean” is active in Panama and has partnered with the National Council of Private Enterprise (CoNEP) to host events on gender equality. Panama does not yet have a State National Action Plan on Business and Human Rights.

In February 2012, Panama adopted ISO 26000 to guide businesses in the development of corporate social responsibility (CSR) platforms. In addition, business groups, including the Association of Panamanian Business Executives (APEDE) and the American Chamber of Commerce (AmCham), are active in encouraging and rewarding good CSR practices. Since 2009, the AmCham has given an annual award to recognize member companies for their positive impact on their local communities and environment.

Panama has two goods on the U.S. Department of Labor’s (DOL) “List of Goods Produced by Child Labor or Forced Labor”: melons and coffee. DOL removed sugarcane from the list in 2019. Child labor is also prevalent among street vendors and in other informal occupations.

There have been several disputes over the resettlement of indigenous populations to make room for hydroelectric projects, such as at Barro Blanco and Bocas del Toro. The government mediates in such cases to ensure that private companies are complying with the terms of resettlement agreements.

Despite human resource constraints, Panama effectively enforces its labor and environmental laws relative to the region and conducts inspections in a methodical and equitable manner. Panama encourages adherence to the OECD’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and supports the Kimberley Process. Panama is not a government sponsor of either the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights.

The National Council of Organized Workers (CONATO) and the National Confederation of Trade Union Unity (CONUSI) are the most active labor organizations advocating for worker rights in the private sector. They enjoy access to and dialogue with key decisionmakers. CONATO is currently participating in a nationwide dialogue to defend the sustainability of the workers retirement fund. CONUSI is focused on labor rights in the construction sector.

Panama is a signatory of the Montreux Document on Private Military and Security Companies. Panama follows the standards set by the International Standards Organization (ISO) and certifies security companies in quality management and security principles consistent with ISO standards.

Panama ratified the United Nations Framework Convention on Climate Change (UNFCCC) through Law 10 of April 12, 1995. Law 8 of March 25, 2015, includes a title on climate change and chapters on mitigation and adaptation. Executive Decree 36 of May 28, 2018, established the Ministry of Environment, which includes the Climate Change Directorate, in accordance with Law 41 of July 1, 1998, the General Law on the Environment.

The government relies on the Green Climate Fund, established within the framework of the UNFCCC, to finance programs and projects for mitigation and adaptation, promulgated by the public and private sectors.

The National Climate Change Policy (PNCC), approved through Executive Decree No. 35 of February 26, 2007, establishes the framework for all entities seeking to contribute to the stabilization of GHGs, promote adaptation measures, and ensure sustainable development.

Since the approval of the PNCC, the Ministry of Environment has proposed a project to update the PNCC and the development of a Climate Change Framework Law. The PNCC project is intended to influence the national climate agenda by reformulating current public policy to update it consistent with international commitments that have emerged since 2007 and current national actions with a 2050 compliance horizon. The project aims to strengthen climate governance through the:

1. Update of the National Climate Change Policy of Panama to 2050 (PNCC2050), its Action Plan and the formulation of a set of indicators for monitoring and evaluation.
2. Formulation of a draft Framework Law on Climate Change (LMCC) through a process of citizen participation and agreement.

Panama presented three National Communications, in 2000, 2011, and 2019; a biennial update report in2019; its first Nationally Determined Contribution (NDC) in 2016; and an update to the First Nationally Determined Contribution (CDN1) in 2020. Panama’s enhanced Nationally Determined Contribution (NDC) is in line with the 2030 Paris Agreement to limit warming to 1.5 degrees Celsius and to maintain negative or net zero GHG emissions through 2050.

Panamanian President Laurentino Cortizo claimed at the United Nations Climate Change conference (COP26) in November 2021that Panama is one of only three countries in the world whose emissions are “carbon negative,” along with Bhutan and Suriname. In 2021, Panama began the “Reduce Your Corporate Footprint” (Corporate RTH) program, which is the first voluntary state program for the management of the carbon and water footprint at the organizational level in the country. This program establishes a standardized process to identify, calculate, report and verify the carbon and water footprint within the operational limits of public, private, and civil society organizations that are legally constituted in the national territory.

Panama’s national strategy for climate change aims to boost and increase the use of renewables, protect coastal regions, create green jobs, integrate transportation networks, design a carbon market, manage GHG emissions, boost adaptation capabilities, and contribute to the socioecological wellbeing of all Panamanians. The Ministry of Environment is developing a roadmap for implementation of its climate change commitments presented in 2021.

Corruption is among Panama’s most significant challenges. Panama ranked 105 out of 180 countries in the 2021 Transparency International Corruption Perceptions Index (CPI). High-profile alleged procurement irregularities in 2020, including several related to pandemic response, contributed to public skepticism of government transparency. U.S. investors allege that corruption is present in the private sector and at all levels of the Panamanian government. Purchase managers and import/export businesses have been known to overbill or skim percentages off purchase orders, while judges, mayors, members of the National Assembly, and local representatives have reportedly accepted payments for facilitating land titling and favorable court rulings. The Foreign Corrupt Practice Act (FCPA) precludes U.S. companies from engaging in bribery or other similar activities, and U.S. companies look carefully at levels of corruption before investing or bidding on government contracts.

The process to apply for permits and titles can be opaque, and civil servants have been known to ask for payments at each step of the approval process. The land titling process has been troublesome for many U.S. companies, some of which have waited decades for cases to be resolved. U.S. investors in Panama also complain about a lack of transparency in government procurement. The parameters of government tenders often change during the bidding process, creating confusion and the perception that the government tailors tenders to specific companies. Panama passed Law 153 on May 8, 2020, to modernize its public procurement system and address some of these concerns.

Panama’s government lacks strong systemic checks and balances that incentivize accountability. All citizens are bound by anti-corruption laws; however, under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges, and only the Supreme Court may initiate investigations against members of the National Assembly, which has led to charges of a de facto “non-aggression pact” between the branches. Another key component of the judicial sector, the Public Ministry (Department of Justice) and the Organo Judicial (Judicial Branch), have struggled with a historical susceptibility to political influence.

In late 2016, Brazilian construction firm Odebrecht admitted to paying $59 million in bribes to win Panamanian contracts worth at least $175 million between 2010 and 2014. Odebrecht’s admission was confined to bribes paid during the Martinelli administration; however, former President Juan Carlos Varela (2014-2019) is also under investigation on charges of corruption related to Odebrecht. Odebrecht agreed to pay a large fine as part of a judicial settlement, but Panama has imposed sanctions because Odebrecht failed to make all the required payments. While Odebrecht continues to operate in Panama, two Odebrecht projects have been cancelled: the Hydraulic Project Chan II and the new Tocumen Airport. The Government of Panama is now seeking to ban Odebrecht from any other public procurement tenders.

Panama has anti-corruption mechanisms in place, including whistleblower and witness protection programs and conflict-of-interest rules. However, the public perceives that anti-corruption laws are weak and not applied rigorously and that government enforcement bodies and the courts are not effective in pursuing and prosecuting those accused of corruption. The lack of a strong professionalized career civil service in Panama’s public sector has also hindered systemic change. The fight against corruption is hampered by the government’s refusal to dismantle Panama’s dictatorship-era libel and contempt laws, which can be used to punish whistleblowers. Acts of corruption are seldom prosecuted, and perpetrators are almost never jailed.

Under President Cortizo, Panama has taken some measures to improve the business climate and encourage transparency. These include a public-private partnership (APP) law passed in September 2019 that covers construction, maintenance, and operations projects valued at more than $10 million. The law is designed to implement checks and balances and eliminate discretion in contracting, a positive step that will increase transparency and create a level playing field for investors. In addition, the public procurement law that was approved in May 2020 is aimed at improving bidding processes so that no tenders can be “made to order”.

Panama ratified the UN’s Anti-Corruption Convention in 2005 and the Organization of American States’ Inter-American Convention Against Corruption in 1998. However, there is a perception that Panama should more effectively implement both conventions.

ELSA FERNÁNDEZ AGUILAR
National Director
Autoridad Nacional de Transparencia y Acceso a la Informacion (ANTAI)
Ave. del Prado, Edificio 713, Balboa, Ancon, Panama, República de Panama
(507) 527-9270
efernandez@antai.gob.pa
www.antai.gob.pa

Olga de Obaldia
Executive Director
Fundacion Para el Desarrollo y Libertad Ciudadana (Panama’s TI Chapter)
Urbanización Nuevo Paitilla. Calle 59E. Dúplex Nº 25. Ciudad de Panamá. PANAMÁ
(507) 2234120
odeobaldia@libertadciudadana.org
https://www.libertadciudadana.org/ 

Panama is a peaceful and stable democracy. On rare occasions, large-scale protests can turn violent and disrupt commercial activity in affected areas. Mining and energy projects have been sensitive issues, especially those that involve development in designated indigenous areas called comarcas. One U.S. company has reported not only protests and obstruction of access to one of its facilities, but costly acts of vandalism against its property. The unrest is related to disagreements over compensation for affected community members. The GoP has attempted to settle the dispute, but without complete success.

In May 2019, Panama held national elections that international observers agreed were free and fair. The transition to the new government was smooth. Panama’s Constitution provides for the right of peaceful assembly, and the government respects this right. No authorization is needed for outdoor assembly, although prior notification for administrative purposes is required. Unions, student groups, employee associations, elected officials, and unaffiliated groups frequently attempt to impede traffic and disrupt commerce in order to force the government or private businesses to agree to their demands.

Homicides in Panama increased by 11 percent in 2021, to 554, 57 more than were recorded in 2020. Strife among rival gangs and turf battles in the narcotrafficking trade contributed significantly to the increase in the homicide rate in 2021. Panamanian authorities assess that 70 percent of homicides in the country are linked to organized crime, especially transnational drug trafficking and gangs. The 2021 homicide rate of 12.95 per 100,000 people is still among the lowest in Central America, but is consistent with an upward trend since 2019, year-on-year.

According to official surveys carried out in October 2021, the unemployment rate in Panama improved significantly, but the level of informality and the size of the economically active population (EAP) worsened. That is, fewer people were looking for work. As of October 2021, the unemployment rate stood at 11.3 percent and the informality rate at 47.6 percent, while the economically active population had decreased by 66.5 percent, according to the labor market survey (EML) carried out by the National Institute of Statistics and Census (INEC).

There is a shortage of skilled workers in accounting, information technology, and specialized construction, and a minimal number of English-speaking workers. Panama spends approximately 13 percent of its budget, or 3 percent of GDP, on education. While Panama has one of the highest minimum wages in the hemisphere, the 2018-2019 World Economic Forum Global Competitiveness Report ranked Panama 89 out of 141 countries for the skillsets of university graduates.

The government’s labor code remains highly restrictive. The Panamanian Labor Code, Chapter 1, Article 17, establishes that foreign workers can constitute only 10 percent of a company’s workforce, or up to 15 percent if those employees have a specialized skill. By law, businesses can only exceed these caps for a defined period and with prior approval from the Ministry of Labor.

Several sectors, including the Panama Canal Authority, the Colon Free Zone, and export processing zones/call centers, are covered by their own labor regimes. Employers outside these zones, such as those in the tourism sector, have called for greater flexibility, easier termination of workers, and the elimination of many constraints on productivity-based pay. The Panamanian government has issued waivers to regulations on an ad hoc basis to address employers’ demands, but there is no consistent standard for obtaining such waivers.

The law allows private sector workers to form and join independent unions, bargain collectively, and conduct strikes. Public sector employees may organize to create a professional association to bargain collectively on behalf of its members, even though public institutions are not legally obligated to bargain with the association. Members of the national police are the only workers prohibited from creating professional associations. The law prohibits anti-union discrimination and requires reinstatement of workers terminated for union activity, but does not provide adequate mechanisms to enforce this right.

The Ministry of Labor’s Board of Appeals and Conciliation has authority to resolve certain labor disagreements, such as internal union disputes, enforcement of the minimum wage, and some dismissal issues. The law allows arbitration by mutual consent, at the request of the employee or the ministry, and in the case of a collective dispute in a privately held public utility. It allows either party to appeal if arbitration is mandated during a collective dispute in a public-service company. The Board of Appeals and Conciliation has exclusive competency for disputes related to domestic employees, some dismissal issues, and claims of less than $1,500.

The Ministry of the Presidency’s Conciliation Board hears and resolves complaints by public-sector workers. The Board refers complaints that it fails to resolve to an arbitration panel, which consists of representatives from the employer, the professional association, and a third member chosen by the first two. If the dispute cannot be resolved, it is referred to a tribunal under the Board. Observers, however, have noted that the Ministry of the Presidency has not yet designated the tribunal judges. The alternative to the Board is the civil court system.

Panama does not have a system of unemployment insurance. Instead, workers receive large severance payments from their employer upon termination. During the COVID-19 pandemic, employers were permitted to furlough workers for longer than normally permitted, without paying severance. Law 201 of February 25, 2021 allowed employers to establish temporary measures to preserve employment and normalize labor relations by extending furloughs to the end of 2021, This law ended on December 31, 2021. Yet even after its expiration, some companies have kept workers furloughed because of a lack of resources to rehire them or pay their severances. Press reports suggest these companies have yet to recover from the pandemic-related economic crisis.

Colombia Primola
Economic Specialist – Economic Section
E-mail: PrimolaCE@state.gov
Office: +507-317-5491
Cell: +(507) 6613-4687