Policies Toward Foreign Direct Investment

Under the Private Investment Law of 2005 (PIL), qualified domestic or foreign entities may invest in all sectors of the economy.  Article 16 of the PIL states that approved domestic and foreign companies with similar objectives are subject to the same rights under Afghan law and the same protections against discriminatory governmental actions.

The Ministry of Commerce and Industries (MOCI) has taken on the role of promoting business growth, investment, and trade.  The High Commission on Investment (HCI) is responsible for investment policy making. The HCI includes the Ministers of Agriculture, Finance, Foreign Affairs, Mines and Petroleum, and the Governor of the Central Bank (Da Afghanistan Bank). The Minister of Commerce and Industries chairs the HCI.  The High Economic Council (HEC), which is chaired by the President and includes both the HCI members and representatives from academia and the private sector, also plays a role in investment policy development.

The HEC, HCI, MOCI, and the Afghan Chamber of Commerce and Industries are tasked with maintaining a dialogue and resolving business disputes with the government.

On July 29, 2016, Afghanistan was formally admitted to the WTO, which could bring about a number of benefits for Afghanistan after full implementation, including improving prospects for foreign direct investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

Under the PIL, foreign and domestic private entities have equal standing and may establish and own business enterprises, engage in all forms of remunerative activity, and freely acquire and dispose of interests in business enterprises.

While there is no requirement for foreigners to secure Afghan partners, the Afghan Constitution and the PIL prohibit foreign ownership of land.  In practice most foreign firms find it necessary to work with an Afghan partner. Foreign land ownership is not permitted, however, foreigners may lease land for up to 50 years.

Although the HCI has authority to limit the share of foreign investment in some industries, specific economic sectors, and specific companies, that authority has never been exercised.  In practice, investments may be 100 percent foreign owned.

Article 5 of the PIL prohibits investment in nuclear energy and gambling establishments.

Investment in certain sectors, such as production and sales of weapons and explosives, non-banking financial activities, insurance, natural resources, and infrastructure (defined as power, water, sewage, waste-treatment, airports, telecommunications, and health and education facilities) is subject to special consideration by the HCI, in consultation with relevant government ministries.  The HCI may choose to apply specific requirements for investments in restricted sectors. Direct investment exceeding USD 3,000,000 requires HCI approval of the investment application.

Other Investment Policy Reviews

There have been no third-party investment policy reviews by the OECD, WTO, or UNCTAD in the past six years.

Afghanistan’s last major investment policy review was the Afghanistan National Development Strategy (ANDS), which was developed with the assistance of the United Nations Development Program (UNDP) and covered the period 2008-2013.  That strategy attempted to guide development investments in the focus areas of (1) agriculture and rural rehabilitation, (2) human capacity development, and (3) economic development and infrastructure, through high-priority programs chosen for contributions to job creation, broad geographic impact, and likelihood of attracting additional investment.

Business Facilitation

The Ministry of Commerce and Industry (MoCI) is responsible for business facilitation.  The HCI and HEC are responsible for investment and economic policy making.

Foreign or domestic companies investing in Afghanistan must obtain a corporate registration from the Afghanistan Central Business Registry (ACBR) and a Tax Identification Number issued by the Department of Revenue.

The websites for registration are:

• http://www.acbr.gov.af/registration.html  
• http://ard.mof.gov.af/en/page/information/service-standards/issue-of-taxpayer-identification-number  

Companies operating in the security, telecommunications, agriculture, and health sectors require additional licenses from relevant ministries.  Companies seeking licenses to provide consultancy, legal, or audit services must meet requirements for education or related experience for top officers.

To begin the process for initial issuance of licenses, renewals, and material changes to the license, foreign firms must submit a letter of interest to the Afghan Center of Business Registers.  From there, the Ministry of Commerce and Industry (MoCI) will process the request, and notify the foreign firm how to proceed in obtaining the license.

While registering a business can take as little as two days, it often takes longer and may require a local attorney’s help.

Ease of doing business reforms in 2016 led MOCI to begin issuing licenses for three years, as opposed to one year, to attract investment.  Obtaining a business license is relatively simple, however, applications for renewal are contingent upon certification from the Ministry of Finance (MOF) that all tax obligations have been met.  Some companies have seen MOCI license renewals delayed while the MOF audits their tax status, despite MOF assurances that an ongoing tax audit should not impede license renewal.

Outward Investment

The government does not promote or incentivize outward investment.  Due to the security situation capital flight is a concern.

Private investors have the right to transfer capital and profits out of Afghanistan, including for off-shore loan debt service.  There are no restrictions on converting, remitting, or transferring funds associated with investment, such as dividends, return on capital, interest and principal on private foreign debt, lease payments, or royalties and management fees, into a freely usable currency at a legal market-clearing rate.

The PIL states that an investor may freely transfer investment dividends or proceeds from the sale of an approved enterprise abroad.  The MOF has in some instances frozen the domestic bank accounts of companies over tax disputes, which has effectively served to prohibit transfers of capital.

In 2004, Afghanistan signed a Trade and Investment Framework Agreement (TIFA) with the United States.  Afghanistan does not have a bilateral investment treaty (BIT) with the United States. Afghanistan has BITs with Germany, Iran, and Turkey.

Afghanistan has signed multiple trade, economic, and investment agreements/memoranda of understanding with other countries.  The most significant is the Afghanistan Pakistan Transit Trade Agreement (APTTA), signed in 2010.

The United States, European Union, Canada, India, and Japan have granted Afghan exports preferential import tariffs under their Generalized Systems of Preference.  Afghanistan is a member of the Economic Cooperation Organization (ECO), the South Asia Free Trade Area (SAFTA), the South Asian Association for Regional Cooperation (SAARC), and of Central Asian Regional Economic Cooperation (CAREC).  The Afghan government has stated its intent to formally join the Transport Corridor Europe Caucasus Asia organization (TRACECA).

Afghanistan does not have a bilateral taxation treaty with the United States.

The Embassy believes many U.S. firms and U.S.-related entities are working with the Afghan government to resolve persistent differences over dividend taxes, vendor withholding tax obligations, taxation of U.S. government assistance, and other tax and contract disputes.

Investment Incentives

The Public Procurement Law, revised in 2016, retains the preference for national sources and domestic products that was codified in the Public Procurement Law of 2005.  In public statements since ratification, President Ghani has continued to emphasize the importance of giving preference to domestic products in order to create jobs. Foreign firms can receive the benefit of a domestic firm by partnering with a domestic firm.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Afghan Airfield Economic Development Commission (AAEDC), established in 2015, has taken the lead on drafting a new Special Economic Zone (SEZ) law, which was released for public comment in early 2019.  If passed, the law will provide the legal foundation for all types of export processing zones.

Performance and Data Localization Requirements

The Afghan government does not require the use of domestic content in goods or technology related to data storage.  There are no requirements for foreign IT providers to turn over source code and/or provide access for surveillance purposes.

Real Property

Property rights protection is weak due to a lack of cadasters or a comprehensive land titling system, disputed land titles, incapacity of commercial courts, and widespread corruption.  Land laws in Afghanistan are inconsistent, overlapping, incomplete, or silent with regard to details of effective land management. Judges and attorneys are often without expertise in land matters.  According to the World Bank, less than 20 percent of land in Afghanistan is formally titled. An estimated 80 percent of land is held and transferred informally, without legally recognized deeds, titles, or a simple means to prove ownership.

The acquisition of a clear land title to purchase real estate or a registered leasehold interest is complicated and cumbersome.  The World Bank estimated in its 2018 “Doing Business Report” that it takes an average of 155 days to register property, and entails extensive legal fees.  Investment disputes are common in the areas of land titling and contracts. Many documents evidencing land ownership are not archived in any official registry.

Frequently, multiple “owners” claim the same piece of land, each asserting rights from a different source.  These disputes hinder the development of commercial and agricultural enterprises. Real estate agents are not reliable.  Instances of parties falsely claiming title to land that they do not own undermines investor confidence. Mortgages and liens are at an early stage of development.  Foreign investors seeking to work with Afghan citizens to purchase property should conduct thorough due diligence to identify reliable partners.

Intellectual Property Rights

Prior to 2012, Afghanistan did not have fully operational intellectual property rights (IPR) offices at the Ministry of Information and Culture (MOIC), which focuses on copyrights, or at the Ministry of Industry and Commerce (MOCI), which focuses on all other intellectual property areas.  Since 2012, laws on copyrights, patents, trademarks, and geographical indications have been adopted.

To fully comply with the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), laws related to other IPR substantive areas (e.g., industrial designs, trade secrets, and layout designs) are in the process of adoption.  Afghanistan’s IPR regime provides investors with access to the judicial system and, in certain areas such as copyrights, to administrative appeals.

Afghanistan has limited experience regarding IPR and needs significant capacity building to effectively enforce and administer IPR laws.  Afghanistan is not included in the United States Trade Representative’s (USTR) Special 301 Report or the Notorious Markets List. Afghanistan has been a member of the World Intellectual Property Organization (WIPO) since 2005.

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

Resources for Rights Holders

Contact at U.S. Embassy Kabul:

Economic Section, Embassy of the United States of America
Kabul, Afghanistan
+93 (0) 700-108-001
Email KabulEcon@State.gov

American Chamber of Commerce in Afghanistan: www.amcham.af  
Email: info@amcham.af

A list of local lawyers is at https://af.usembassy.gov/u-s-citizen-services/attorneys/

The U.S. Department of State continues to warn Americans against travel to Afghanistan.  U.S. citizens should review the Consular Information Sheet and Travel Warning for Afghanistan for the most up-to-date information on the security situation and possible threats.

Anti-government and political violence are common and public concerns regarding security constrain economic activity.  Security is a primary concern for investors. Foreign firms operating in country report spending a significant percentage of revenues on security infrastructure and operating expenses.

Table 1: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available.

Policies Toward Foreign Direct Investment

The DRC remains a challenging environment in which to conduct business.  At the same time, the GDRC sporadically takes steps to improve economic governance and its business climate, while the DRC’s rich endowment of natural resources, large population and generally open trading system provide significant potential opportunities for U.S. investors.  The GDRC’s investment agency, the National Agency for Investment Promotion (ANAPI), provides investment facilitation services for initial investments over USD 200,000 and is mandated to simplify the investment process, make procedures more transparent, assist new foreign investors and improve the image of the DRC as an investment destination.  Current investment regulations prohibit foreign investors from engaging in informal small retail commerce, referred to locally as petit commerce, and ban foreign majority-ownership of agricultural concerns. Visas for foreign workers are limited to six consecutive months and cost between USD 300 (single entry) and USD 400 (multiple-entry).

Following approval of an initial “temporary” work visa, which, normally, is not difficult to procure, a foreign worker may qualify for a more expensive “establishment visa” with at least a one year validity.  Salaries paid to expatriates are taxed at a higher rate than those of locals to encourage local employment.

Limits on Foreign Control and Right to Private Ownership and Establishment

The DRC Constitution stipulates entitlement to own and establish a business enterprise, and to engage in all forms of remunerative activity, noting minimal restrictions related to small commerce and a prohibition of foreign shareholder ownership of more than 49 percent of an agribusiness.  The government has drafted foreign ownership legislation, but parliamentary debate is still pending. Although it may not be based in law, many investors note that in practice the GDRC requires foreign investors to both hire local agents and participate in a joint venture with the government or local partners.

A new law on subcontracting in the private sector, which was enacted in January 2017, restricts foreign investors’ participation in subcontracting in almost all sectors and is considered discriminatory to the interests of some U.S. companies operating in DRC.  The law restricts subcontracting activity to majority Congolese-owned and capitalized-companies whose head offices are located in the national territory.  The only exception is in the case of unavailability of expertise in a specific subcontracting area. In that case, proof of lack of expertise must be provided to the competent authority to enable a non-Congolese company to be used as a subcontractor, but the activity may not exceed six months.

The law also forbids the subcontracting of more than 40 percent of the overall value of a contract; voids clauses, stipulations and contractual arrangements that violate the provisions of this law; and carries penalties of up to USD 150,000 and the risk of closure of operations for six months if certain provisions are violated.  As of April 2017, the Federations of Enterprises of the Congo (FEC), the American Chamber of Commerce DRC, and other business organizations were lobbying to review and revise the law.  Foreign businesses had a 12-month grace period, which ended in January 2018, to comply with the new law, but as noted below, the law is not yet being enforced.

On April 16^th, 2018, the Congolese government adopted the draft decree on the “creation, organization and functioning of the Authority to Regulate Subcontracting in the Private Sector” (ARSP).  On December 27th, 2018 former President Kabila and Prime Minister Tshibala signed an order to appoint the Authority’s general management and the board of directors, which would implement the law.  The Director General of the ARSP announced in May 2019 that the Authority would begin operations shortly.

On March 9, 2018, the government promulgated a new mining code which increased royalty rates by two to ten percent, raised tax rates on “strategic” metals, and imposed a surcharge on “super profits” of mining companies.  Of particular concern to mining companies, the government unilaterally removed a stability clause contained in the mining code of 2002.  The stability clause protects investors from any new fees or taxes for ten years.  With no coherent and transparent legal and fiscal framework to alleviate investors’ concerns, the stability clause offered a significant inducement to major mining companies.  Removal of the stability clause may deter future investment in the mining sector.  Since August 27^th, 2018, the day of the last meeting between the government and investors, the situation has not progressed.  Also in August, the DRC’s major industrial mining companies, responsible for 80 percent of copper and cobalt production and 90 percent of gold production, formed a new industry body, the Initiative for the Promotion of the Mining Industry (IPM), to engage the GDRC more effectively on the new mining code.  IPM is awaiting appointment of the new government to resume discussions.  The Tshisekedi government has indicated that it is willing to reopen discussions on the new mining code, but given its minority status in the National Assembly, it may not be able to implement changes that require legislative approval.

Other Investment Policy Reviews

The DRC has not undergone an Organization for Economic Cooperation and Development (OECD) or United Nations Conference on Trade and Development (UNCTAD) Investment Policy Review in the last 10 years, but the GDRC has made significant progress to improve its customs clearance procedures. Cities with high custom clearance traffic use Sydonia, which is an advanced software system for custom administrations in compliance with ASYCUDA.  (ASYCUDA is a large technical assistance software program recommended by UNCTAD for custom clearance management.)

Business Facilitation

Since 2013, the GDRC has operated a “one-stop shop” (https://www.guichetunique.cd/) that brings together all the government entities involved in the registration of a company in the DRC.  The registration process now officially takes three days, but in practice it can take much longer.  Yet, some businesses have reported that the Guichet Unique has considerably shortened and simplified the overall process of business registration.

Outward Investment

The GDRC does not prohibit outward investment, nor does it particularly promote it.  There are no current government restrictions preventing domestic investors from investing abroad, and there are no current blacklisted countries with which domestic investors are precluded from doing business.

The U.S.-DRC Bilateral Investment Treaty (BIT) was signed in 1984 and entered into force in 1989.  The BIT guarantees reciprocal rights and privileges to each country’s investors and provides that, should a claim arise under the treaty, it can be submitted to a dispute resolution mechanism through international arbitration.

Germany, France, Belgium, Italy, South Korea, and China have also signed bilateral investment treaties with the DRC, while South Africa and Kenya are currently negotiating BITs with the DRC.  Lebanon, Cote d’Ivoire, and Burkina Faso have negotiated, but not signed, bilateral investment treaties with the DRC.  In October 2016, the DRC and Rwanda signed an agreement on a simplified trade regime covering only small-scale commerce between the countries.

There is no bilateral taxation treaty between the United States and the DRC.  In August 2015, Zambia and the DRC signed a bilateral taxation treaty that abolished customs taxes across their common border.

Investment Incentives

Investment incentives for companies entering the DRC are generally negotiated during a streamlined period of approximately 30 days.  Negotiated incentives can range from tax breaks to duty exemptions, and are dependent upon the location and type of enterprise, the number of jobs created, the degree of training and promotion of local staff, and the export-producing potential of the operation.  Investors who wish to take advantage of customs and tax incentives in the extant 2002 Investment Code must apply to the National Agency for Investment Promotion (ANAPI), which, in turn, submits applications to the Ministries of Finance and Planning for final approval.

Foreign Trade Zones/Free Ports/Trade Facilitation

The DRC does not have designated free trade areas or free port zones; however legislation is pending to create such zones.  DRC is still progressively implementing legislation to integrate into the COMESA and SADC Free Trade Areas.  In 2015, the GDRC confirmed its commitment to work to enter the tripartite COMESA-SADC-EAC (Eastern African Community) Free Trade Area and the Continental Free Trade Area.  The implementation process has been on hold since that time, however, newly elected President Tshisekedi has signaled that he will revive stalled efforts to join the EAC.  Notwithstanding, the GDRC signed the agreement for the Continental Free Trade Area (Zone de libre-échange continentale or ZLEC) on March 21, 2018 in Kigali, under the aegis of the African Union.  The GDRC has yet to take any steps to implement the agreement.

Performance and Data Localization Requirements

Although there are no specific performance requirements for foreign investors, they invariably must negotiate many of the conditions of their investments with ANAPI.  Performance requirements agreed upon with ANAPI typically include a timeframe for the investment, use of OHADA accounting procedures and periodic authorized GDRC audits, protection of the environment, periodic progress reports to ANAPI, and the maintenance of international and local norms for the provision of goods and services.  The investor must also agree that all imported equipment and capital will remain in country for at least five years.

The Ministry of Labor controls expatriate residence and work permits.  For U.S. companies, the BIT assures the right to hire staff of their choice to fill some management positions, but companies agree to pay a special tax on expatriate salaries.  Visa, residence or work permit requirements are not discriminatory or excessively onerous, and are not designed to prevent or discourage foreigners from investing in the DRC, though corruption and bureaucratic hurdles can create serious delays in obtaining the necessary permits and visas.

The GDRC enacted a new law on subcontracting in January 2017, which requires foreign companies to use local subcontractors for subsidiary services.  The DRC does not have specific legislation on data storage, however, it recognizes the need for appropriate regulation.  As there is no obligatory legislation, in practice, few companies report having issues regarding data storage.

Real Property

The DRC’s Constitution (Chapter 2, Articles 34-40) protects private property ownership without discriminating between foreign and domestic investors.  Despite this provision, the GDRC has acknowledged the lack of enforcement in the protection of property rights.  Relevant draft bills have been pending before Parliament since 2015. Congolese law related to real property rights enumerates provisions for mortgages and liens, and real property (buildings and land) is protected and registered through the Ministry of Land’s Office of the Mortgage Registrar.  Nevertheless, land registration may not fully protect property owners, as records can be incomplete and legal disputes over land deals are common.  In addition, there is no specific regulation of real property lease or acquisition.

Ownership interest in personal property (e.g. equipment, vehicles, etc.) is protected and registered through the Ministry of the Interior’s Office of the Notary.

Intellectual Property Rights

In principle, intellectual property rights (IPR) are legally protected in the DRC, but enforcement of IPR regulations is limited.  Prior to independence in 1960, IPR was regulated by multiple Belgian instruments.  In 1963, the DRC became a party to the Berne Convention of 1886 for the Protection of Literary and Artistic Works, and in 1975 it joined the 1883 Paris Convention for the Protection of Industrial Property.  The DRC introduced Law No. 82-001 on Industrial Property in 1982, and Law No. 86-022 on the Protection of Copyright and Neighboring Rights in 1986.  Both instruments remain in force, but legislative action in the area of IPR and enforcement of the existing laws has been virtually non-existent since their passage.

The country is also a signatory to a number of relevant agreements with international organizations such as the World Intellectual Property Organization (WIPO) and the World Trade Organization (WTO), and is thus ostensibly subject to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), an international legal agreement between all the member nations of the WTO which sets down minimum standards for the regulation by national governments of many forms of IPR.  Specifically, TRIPS requires WTO members to provide copyright rights covering content producers, including performers; producers of sound recordings and broadcasting organizations; geographical indications, including appellations of origin; industrial designs; integrated circuit layout-designs; patents; new plant varieties; trademarks; trade dress; and undisclosed or confidential information.  TRIPS also specifies enforcement procedures, remedies, and dispute resolution procedures.  As a least-developed country member, DRC was given a longer transition period, through 2006, to comply with TRIPS, but it continues to be out of compliance with its international IPR obligations.

The pertinent conventions provide maximum protection of 20 years for patents, and 20 years, renewable, for trademarks, starting from the date of registration.  If not used within three years, a trademark can be cancelled. By contrast, the current Congolese laws provide only 15 years of protection on a number of patents, and do not include all the means mentioned in TRIPS for enforcement of IPR rights.  In July 2011, the Ministry of Culture and Art established the Société des Droits d’Auteur et des Droits Voisins (SOCODA) to address IPR issues faced by authors, and presented a bill to the government that seeks to rectify shortcomings of the existing 1982 IPR law.  Still, the reform bill is pending Parliamentary approval and it is unclear when that will be forthcoming.

After decades of political instability and conflict, in December 2018 President Felix Tshisekedi was elected in DRC’s first peaceful transition of power.  The successful elections were the result of international, including U.S, pressure, as well as a long period of mediation involving the Catholic Church, the government, and the opposition. Maintaining public support for the Tshisekedi government will ultimately require the administration to deliver on the campaign slogan of “the People First.”  Nevertheless, large parliamentary majorities held by former President Kabila’s coalition have prevented the quick creation of a government, though a Prime Minister was named in May 2019.

Thousands of members of armed groups have been disarming and turning themselves in to the United Nations’ DRC peacekeeping operation (MONUSCO) and the GDRC since President Tshisekedi’s election, according to international observers.  Most of the defections have taken place in eastern and central (the Kasai provinces) DRC.  Nevertheless, international statistics indicate that over 140 armed groups continue to operate in 17 of the DRC’s 26 provinces, primarily in the east of the country.  The Allied Democratic Forces (ADF) rebel group in eastern DRC is one of the country’s most notorious and intractable armed groups, and its members do not appear to have demobilized to any significant degree.  Unlike his predecessor, President Tshisekedi appears cognizant of the important role security plays in attracting foreign investment, and is ready to work with MONUSCO to eliminate armed groups.

US citizens and interests are not being specifically targeted by armed groups, but can easily fall victim to violence or kidnapping by being in the wrong place at the wrong time.  The Armed Conflict Location and Event Dataset tracks political violence in developing countries, including the DRC, http://www.acleddata.com/ .  Kivu Security Tracker (www.kivusecurity.org ) is another database for information on attacks in eastern DRC.   In addition, the Department of State continues to advise travelers to review the Embassy’s travel advisory: https://travel.state.gov/content/travel/en/search.html?search_input=travel+advisory+drc&data-sia=true&data-con=true&starton=0

Table 2: Key Macroeconomic Data

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

The GOI has publicly stated its commitment to attract foreign investment in the Prime Minister’s National Program to strengthen local industries and promote the “Made in Iraq” brand.  In February 2018, the GOI partnered with the World Bank and the Kuwaiti government to host the Kuwait International Conference for the Reconstruction of Iraq. The GOI has not yet followed through on commitments made at the conference to reform processes and regulations that hinder investment.

In December 2015, the GOI passed an amended National Investment Law (NIL) that improves investment terms for foreign investors, allows them to purchase land in Iraq for certain projects, and speeds up the investment license process.  However, purchasing land for commercial or residential development is extremely difficult. In 2015, Iraq also joined the International Convention on the Settlement of Investment Disputes between States and Nations of Other States (ICSID).

Nevertheless, foreign investors continue to encounter bureaucratic challenges, corruption, and a weak banking sector, which make it difficult to successfully conclude investment deals.  State-owned banks in Iraq serve predominantly to settle the payroll of Iraq’s public sector and privately-owned banks, and until recently served almost entirely as currency exchange businesses.  Some of the privately-owned banks have begun commercial lending programs, but Iraq’s lack of a credit monitoring system, insufficient legal guarantees for lenders, and limited connections to international banks hinder commercial lending.  The financial sector in the IKR is still recovering from years of financial instability there, and the Central Bank of Iraq (CBI) levied sanctions against the IKR financial system immediately following the Kurdistan independence referendum in September 2017.

Recently, the GOI has been exploring financing options to pay for large-scale development projects rather than relying on its previous practice of funding investments entirely from current annual budget outlays.  According to the NIL, the GOI reserves the right to screen foreign direct investment. The U.S. Department of State is not aware of specific instances where this screening process has explicitly blocked foreign investments in Iraq, but the bureaucratic barriers to investment – including, for example, a requirement to place a significant portion of the capital investment in an Iraqi bank prior to receiving a license – remain significant.

The IKR has its own investment law (passed in 2006) and supporting regulations.  The KRG is working to put the business registration process and procedures online, and initial steps have been completed.  The KRG is generally open to public-private partnerships and is interested in modern, long-term financing, as demonstrated by the KRG’s oil and gas sector contracts that increase production.  Legislation to amend the investment law to broaden its reach to potential investors remains pending in the Iraqi Kurdistan Parliament (IKP).

According to Iraqi law, a foreign investor is entitled to make investments in Iraq on terms no less favorable than those applicable to an Iraqi investor, and the amount of foreign participation is not limited.  However, Iraq’s NIL limits foreign direct and indirect ownership of most natural resources, particularly the extraction and processing of any natural resources. It does allow foreign ownership of land to be used for residential projects and co-ownership of land to be used for industrial projects when an Iraqi partner is participating.

Iraq’s 2006 Investment Law Number 13 called for the establishment of a National Investment Commission (NIC) and a Provisional Investment Commission in each province.  The NIC, launched in 2007, is a cabinet-level organization which provides policy recommendations as well as support to current and potential investors in Iraq. The NIC’s “One Stop Shop” is intended to guide investors through the investment process, though investors have reported challenges using the NIC’s services.  The NIC can also grant investment licenses and facilitate visa and residency permit issuances for business travelers.

Limits on Foreign Control and Right to Private Ownership and Establishment

According to the National Investment Regulation No. 2 of 2009, if an investment license is granted to a project, at least 50 percent of the project’s workers must be Iraqi nationals.  The amended NIL also states that investors should give priority to Iraqi citizens before hiring non-Iraqi workers. As a result of popular protests in the summer of 2015, the GOI has applied pressure on foreign companies to hire more local employees.  In order to generate non-oil revenues, the GOI has also encouraged foreign companies to partner with local industries and purchase Iraqi-made products. The GOI generally favors SOEs and state-controlled banks in competitions for government tenders and investment.  This preference discriminates against both local and foreign investors.

Other Investment Policy Reviews

In the past three years, the GOI has not conducted any investment policy reviews through the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

Foreign investors interested in establishing an office in Iraq or bidding on a public tender are required to register as a foreign business with the Ministry of Trade’s Companies Registration Department.  The procedure costs and time to obtain a business license can be found at https://baghdad.eregulations.org/procedure/21?l=en  .  The process for doing so is too complicated to do from overseas, so companies must register using a local agent or consultant.  Investors who will do business only in the IKR can register with the KRG directly. Companies that will do business in both the IKR and greater Iraq must register with the Ministry of Trade.  The KRG has been negotiating with the GOI to gain Ministry of Trade recognition outside the IKR for KRG-issued business registrations.

Under the NIL, the NIC and the Provincial Investment Commissions (PICs) are intended to be one-stop shops that can provide information, sign contracts, and facilitate registration for new foreign and domestic investors.  The NIC offers investor facilitation services on transactions including work permit applications, visa approval letters, customs procedures, and business registration. Investors can request these services through the NIC website:  http://investpromo.gov.iq/  .  However, the National and Provincial Investment Commissions struggle to operate amid unclear lines of authority, budget constraints, and an absence of regulations and standard operating procedures.  The Investment Commissions still generally lack the authority to intercede when investors encounter bureaucratic obstacles with other Iraqi ministries.

In order to incorporate a company in Iraq, an investor must obtain a statement from an Iraqi bank showing a minimum capital deposit.  All investors must also apply for an investment license from the appropriate national, regional, or provincial investment commission. Companies are required to register with the General Commission for Taxation and register employees for social security (if applicable).  Companies automatically should receive their tax identification number as part of registering their business with the Ministry of Trade. Companies that provide security are also required to register with the Ministry of the Interior. It takes an average of 10 working days to start a business in Iraq, according to the 2018 World Bank Ease of Doing Business report; online procedures accounted for only 0.5 days of that time.

The National Investment Commission does not exclude businesses from taking advantage of its services based on the number of employees or the size of the investment project.  The commission can also connect investments by micro-, small-, and medium-sized enterprises (MSMEs) with the appropriate provincial investment council.

The Kurdistan Board of Investment (BOI) manages a streamlined investment licensing process in the IKR whose policy is to acknowledge receipt of the license request within 30 days of the initial license application; however, the licensing process can take from three to six months and may involve more than one KRG ministry or entity, depending on the sector of investment.  Despite bureaucratic hurdles, on the whole, the BOI investment framework seems to work well. Because of oversaturated commercial and residential real estate markets, the BOI has moved away from approving licenses in these sectors but still approves them on a case-by-case basis. Businesses reported some difficulties establishing local connections, obtaining qualified staff, and meeting import regulations.  Businesses also report that the KRG has not provided all promised support infrastructure such as water, electricity, or wastewater services under the investment law framework. However, the BOI receives generally high marks for being helpful in resolving problems. Additional information is available at the BOI’s website: http://www.kurdistaninvestment.org/  .

Outward Investment

Iraq does not restrict domestic investors from investing abroad.

Iraq does not have a bilateral investment treaty (BIT) or a bilateral taxation treaty with the United States.  The United States and Iraq signed an Agreement for Economic and Technical Cooperation on July 11, 2005, and it entered into force December 18, 2013.  The U.S.-Iraq Strategic Framework Agreement (SFA) (available at the following website: http://photos.state.gov/libraries/iraq/216651/US-IRAQ/us-iraq-sfa-en.pdf ) provides intergovernmental forums to address impediments to investment and trade.  There was a bilateral Higher Coordinating Committee (HCC) meeting on January 28, 2018, under the auspices of the SFA.  At the HCC both sides committed to reinvigorate the TIFA process and to the formation of two bilateral working groups: 1) to simplify Iraq’s visa and residency permit process and 2) to resolve commercial disputes between American companies and the GOI.  The existing TIFA between the governments of Iraq and the United States entered into force in 2013 and the inaugural TIFA Council meeting took place in March 2014 in Washington, D.C. The second TIFA Council is scheduled to take place on June 14, 2019. The TIFA provides a framework for dialogue to increase trade and investment cooperation between the two countries.

Iraq is a signatory to investor protection agreements or memorandums of understanding with 35 bilateral partners and nine multilateral groups.  The agreements include arrangements within the Arab League, as well as arrangements with Afghanistan, Armenia, Bangladesh, France, Germany, India, Iran, Japan, Jordan, Kuwait, Mauritania, the Republic of Korea, Sri Lanka, Syria, Tunisia, Turkey, the United Kingdom, Vietnam, and Yemen.

Iraq currently has bilateral investment treaties with Armenia, France, Germany, Japan, Jordan, and Kuwait.  Only the BITs with Japan and Kuwait are in force. Iraq’s investment agreements include general provisions on promoting and protecting investments, including clauses on profit repatriation, access to arbitration and dispute settlements, fair expropriation rules, and compensation for losses.  However, the Iraqi government’s ability and willingness to enforce such provisions remains untested.

Iraq joined the Greater Arab Free Trade Area (GAFTA) in 1998 to better integrate economically with other Middle Eastern countries.  However, Iraq withdrew from GAFTA on November 17, 2016, choosing instead to implement tariffs on all the goods coming into the country.

U.S. companies have raised concerns about the Ministry of Finance (MOF)Tax Commission’s use of the “deemed tax” method to calculate corporate taxes, which can be disadvantageous for firms generating less than 20 percent profit, the standard percentage applied to every company, regardless of the firm’s actual profit.  U.S. investors also complain about the application of the social tax, equivalent to 5 percent of employees’ pay and a 12 percent employer contribution, to third country national employees who do not participate in or benefit from the Iraqi health or pension system, which the taxes are used to fund.

Investment Incentives

The amended NIL offers foreign investors several exemptions for qualified investments, including a ten-year exemption from taxes, exemptions from import duties for the necessary equipment and materials throughout the period of project implementation, and exemption from taxes and fees for primary materials imported for commercial operations.  The exemption increases to 15 years if Iraqi investors own more than 50 percent of the project. The NIL also allows investors to repatriate capital brought into Iraq, along with proceeds, in accordance with the law. The Embassy is unaware of any foreign companies that have successfully received these benefits. Foreign investors are able to trade in shares and securities listed on the Iraqi Stock Exchange.  Hotels, tourist institutions, hospitals, health institutions, schools, and colleges also are granted additional exemptions from duties and taxes on their imports of furniture, tools, equipment, machinery, and means of transportation, but foreign companies who sell goods or services to any entity in Iraqi may be subject to Iraqi taxes.

Foreign and domestic companies may also be exempted from taxes on profits if they have contracts with the GOI to execute projects within the National Investment Plan, which is prepared annually by the Ministry of Planning.  The GOI ministries overseeing investment projects are responsible for providing updates for the list of investment contracts to the Tax Commission in the MOF. Companies (foreign and domestic) that have registered businesses in order to execute contracts outside the National Investment Plan do not receive tax exemptions.  However, in some cases, GOI entities have negotiated partial or short-term tax exemptions for companies as part of a project contract.

Income tax language is included in GOI petroleum contracts with the Ministry of Oil (MOO) and applies to each consortium and its partners.  This contract language was ratified by the Council of Representatives and supersedes the Tax Code. Secondary contracts issued by consortiums holding primary petroleum contracts are treated differently.  The consortium is required to withhold 7 percent from secondary contracts for remittance to the GOI. Companies pay a profit tax in the amount of 15 percent unless they operate in the oil sector where a 35 percent tax profit rate applies.  Defining the activities which constitute “petroleum activities” (and are thus subject to the 35 percent vs. the 15 percent tax rate) is a gray area subject to interpretation. Any business or individual considering doing business in Iraq should obtain competent advice from an accountant or attorney.

Under the IKR’s investment law, foreign and national investors are treated equally and are eligible for the same benefits.  Foreign investors may choose to invest in the IKR with or without local partners, and full repatriation of profits is allowed.  While investors have the right to employ foreign employees in their projects, priority is given to awarding projects that employ a high share of local staff and ensure a high degree of knowledge transfer.  Additionally, the law allows an investor to transfer his investment totally or partially to another foreign investor with the approval of the BOI.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Free Zone Authority Law No. 3/1998 permitted investment in Free Zones (FZ; similar to a U.S. Foreign Trade Zone) through industrial, commercial, and service projects.  This law is implemented through the Instructions for Free Zone Management and the Regulation of Investors’ Business No. 4/1999 and is administered by the Free Zones Commission in the MOF.  Under the law, capital, profits, and investment income from projects in a FZ are exempt from all taxes and fees throughout the life of the project. Goods entering into Iraq’s market from FZs are subject to normal import tariffs; no duty is levied on exports from FZs.

Activities permitted in FZs include:  industrial activities such as assembly, installation, sorting, and refilling processes; storage, re-export, and trading operations; service and storage projects and transport of all kinds; banking, insurance, and reinsurance activities; and supplementary and auxiliary professional and service activities.  Prohibited activities include actions disallowed by other laws in force, such as weapons manufacture and environmentally-polluting industries.

Iraq currently has four FZs with tax exemptions and other incentives for the transportation, industrial, and logistics sectors.  Iraq’s largest FZ is the Basrah/Khor al-Zubair FZ, located 40 miles southwest of Basrah on the Arab Gulf at the Khor al-Zubair seaport.  This 18 square km zone has been operational since June 2004, and hosts a number of local and foreign companies. The Ninewa/Falafel Free Zone is located in the north, near roads and railways that reach Turkey, Syria, Jordan, and the Basrah ports.  An undeveloped zone in Fallujah is in the planning stages. However, none of these areas are operating as a significant focal point for investment or trade. The Falafel and Fallujah zones are located in formerly ISIS-held areas, and the possibility of continued political instability makes further development in the near future unlikely.  There is also a FZ in Baghdad. The Free Zone Commission lacks capacity and is further inhibited by being under the MOF, which lacks a specific mandate to develop the FZs.

In the IKR, there are currently no FZs.  The KRG has approved plans for zones in each of the IKR’s four provinces, however, due to the economic crisis, implementation has ceased.

Performance and Data Localization Requirements

In February 2016, the GOI implemented Labor Law No. 37 which allows for collective bargaining, further limits child labor, and provides improved protections against discrimination and sexual harassment at work.  The law also enshrines the right to strike, banned since 1987. Under the law, the GOI will no longer restrict workers to affiliate with only one union or federation, and coverage is expanded to include all workers not covered by Iraq’s civil service law.  The law describes two categories of workers: local Iraqis and foreign workers employed by Iraqi entities or working in the GOI. The law does not explain how or whether it applies to foreign workers employed by foreign companies in Iraq.

According to the 2015 amended NIL, foreign workers may be hired for investment projects, when needed, after priority has been given to Iraqi workers.  However, according to National Investment Regulation No. 2 of 2009, at least 50 percent of an investment project’s workers must be Iraqi nationals. International companies have noted that Iraq lacks a skilled labor force and it can be a challenge to meet this requirement.  Foreign investors are expected to help train Iraqi employees to increase their efficiency, skills, and capabilities.

In the IKR, hiring locally is encouraged, but not mandated by either the KRIL or the 2011 Employment Policy of the KRG Ministry of Labor and Social Affairs.  In the IKR, foreign employees must obtain a security clearance issued by the KRG Ministry of Interior, a medical clearance which includes an HIV test, and a work permit issued by the KRG Ministry of Labor and Social Affairs (MOLSA) before applying for the residency permit required for legal employment.  Some foreign companies have reported prolonged delays in obtaining necessary residency permits for foreign workers. Additional clearances are required in order to appoint foreign nationals as managers of foreign-owned limited liability companies.

Foreign investors can apply for a visa at Iraqi embassies, or in some cases, through the National Investment Commission.  In other cases, investors can apply for and receive visa approval letters from the Ministry of Interior. Visa approval letters authorize investors to receive a visa upon arrival from Ministry of Interior officials at Iraq’s airports.  Investors must be sponsored by an Iraqi government entity and receive an official invitation letter, approved by the Ministry of Interior, from that entity. Obtaining visas for foreign contractors regularly takes several months and allegations of corruption are commonplace.  In April, the Council of Ministers (COM) considered an official “decision” authorizing Ambassadors, or authorized officials, to grant six month, multiple entry visas. The COM decision would stipulate that the applicant must have at least USD 5,000 in his bank account and present a health certificate indicating that he is free from the Human Immunodeficiency Virus (HIV) as well as a letter from an accredited commercial or industrial chamber attesting to his bona fides as a businessperson.  According to the COM decision, the applicant is permitted to stay in Iraq for a period not exceeding 60 days from the date of entry.

All visitors and new residents to Iraq, with the exception of those traveling on a tourist visa, must have a blood test for HIV and complete the process to obtain a residency permit within 15 days of arrival or face fines.  Once in Iraq, foreign investors and employees must obtain work permits, the process for which is often lengthy and unpredictable. There are frequent instances when work or business travel is delayed because foreign employees are unable to receive a visa.

U.S. citizens traveling to the IKR can obtain an airport-issued IKR visa upon arrival that is valid for 30 days; however, this visa is not valid for travel in Iraq outside the IKR because the GOI does not honor the KRG-issued visa.  U.S. citizens who plan to stay for longer than 30 days require an extension to their IKR visa or must obtain residency permits. The KRG does not require HIV tests if the travel is shorter than 15 days.

Additional information can be found on the U.S. Department of State’s website:  www.travel.state.gov.

The GOI does not follow any forced localization policy in which foreign investors must use domestic content in their goods and technology.  There are no requirements for IT providers to turn over source code and/or provide access to surveillance.

The GOI strongly resists offering ownership or profit sharing with any potential foreign investor.  The government prefers to structure investments by foreign parties as contracts for which the government agrees to pay for services or equipment at a price not tied to profits or returns but which is guaranteed by a clause in the annual budget law.  The KRG, in contrast, has employed “build-own-operate” project structures and production sharing contracts in its management of the energy, oil, and gas sectors.

Real Property

Since 2009, Iraqi law allows foreigners to own land.  The amended NIL allows foreign interests to own land for the express purpose of developing residential real estate projects.  It also allows foreign investors to own land for industrial projects if they have an Iraqi partner. Additionally, foreign investors are permitted to rent or lease land for up to 50 years, with an option to renew.  In December 2010, the GOI approved implementing regulations to the NIL, in the form of a Prime Ministerial decree (regulation seven). The regulations allow investors to obtain land for residential housing projects free of charge on the condition that land value is excluded from the sales price.  The decree requires the Department of Real Estate to revoke the land registration from domestic or foreign investors who do not carry out the obligations of their agreement.

For non-residential, commercial investment projects – including agriculture, services, tourism, commercial, and industrial projects – the decree allows for leasing and allocation of government land, but not sole ownership.  The terms and duration of these leases will vary, depending on the type of project and negotiations between the parties. Land for non-residential projects will be leased free of initial down payment, and compensation will be either a percentage of pre-tax revenue or a specified percentage of the “rent allowance” for the land.  These smaller percentages of the “rent allowance” rate, ranging from one to 25 percent, amount to significant rent reductions for leased land, as specified by type of investment project in the decree.

In the IKR, foreign land ownership is allowed under Law Number 4 of 2006.  The BOI initially awarded more than half of all investment licenses to housing projects, though the lack of a clear sector strategy and speculation in housing properties prompted the board to freeze all new investment licenses issued in the sector in mid-2012, however, licenses are still issued on a case-by-case basis.  Investment licenses that include land ownership are more likely to be issued in the BOI’s priority sector development areas of agriculture, industry, and tourism. However, issues regarding timely transfer of land title have sometimes slowed projects.

Mortgages and liens exist in Iraq, and there is a national record system.  However, mortgages are not common. Iraq ranks 113 out of 190 countries on the 2018 World Bank’s “registering property” index.

Intellectual Property Rights

Legal structures that protect intellectual property  rights (IPR) in Iraq are inadequate, and infringements are common.  There is a significant presence of counterfeit products in the Iraqi marketplace, including pharmaceutical drugs.  According to a 2016 study by the Business Software Alliance on self-reported piracy, 85 percent of Iraq’s software was unlicensed in 2015, consistent with the levels found in each survey since 2009.  During the past year, no new IP-related laws or regulations have been enacted. The GOI attempts to track seizures of counterfeit medicines. Reporting is inconsistent.

The GOI’s ability to enforce IP protections remains weak, and IP responsibilities are currently spread across several ministries.  The Ministry of Culture handles copyrights, and the Ministry of Industry and Minerals (MIM) houses the office that registers trademarks.  The Central Organization for Standardization and Quality Control (COSQC), an agency under the Ministry of Planning, handles the patent registry and the industrial design registry.  The Ministry of Planning’s patent registry office has occasionally included Arab League Israel Boycott questionnaires in the patent registry application. U.S. companies are not allowed under U.S. law to complete Arab League Boycott questionnaires.  IP infringement cases are primarily heard in commercial courts, although on a relatively infrequent basis, cases may be transferred to the criminal courts.

A draft IP law, which would comply with the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and consolidate all IP responsibilities into a single body, was redrafted during the past year and sent for parliamentary legislative review in October 2017.  The original draft was completed in mid-2007, but has not moved forward.

In 2018, the Council of Ministers Secretariat (COMSEC) reviewed IP forms and processes for simplification and preparation of implementing eForms.  The patent application, updated in January 2018, is now based on World Intellectual Property Organization (WIPO) standards. However, the application processes for all classes of IP protection favor domestic applicants through requirements for local Iraqi-national agents and optional, but advantageous, in-person review committee meetings.

The U.S. government is continuing efforts to bolster understanding of IPR and build GOI capacity to protect them.  In June 2012, the Federal Court of Cassation, the highest civil court in Iraq, upheld a finding by the Baghdad Commercial Court that ruled in favor of a U.S. firm in a trademark dispute, setting a positive precedent for IP protection in Iraq.  The Commercial Court has jurisdiction over commercial disputes that involve at least one foreign party and disputes over various commerce-related issues including trade, real estate, banking, trademarks and intellectual property, transportation, and other areas.  It was established in November 2010 under the Higher Judicial Council with the assistance of the U.S. Department of Commerce’s Commercial Law Development Program (CLDP), which provided technical assistance and training to Iraqi judges who serve on the court. The head of the patent section and his deputies received training with the U.S. Patent and Trademark Office (USPTO) sponsored by the CLDP.

Iraq is a signatory to several international intellectual property conventions and to regional and bilateral arrangements, which include:  1) the Paris Convention for the Protection of Industrial Property (1967 Act), ratified by Law No. 212 of 1975; 2) the World Intellectual Property Organization (WIPO) Convention, ratified by Law No. 212 of 1975 (Iraq became a member of the WIPO in January 1976); 3) the Arab Agreement for the Protection of Copyrights, ratified by Law No. 41 of 1985; and 4) the Arab Intellectual Property Rights Treaty (Law No. 41 of 1985).

Iraq is not listed in USTR’s Special 301 report or notorious market report.

Iraq has more than one point of contact for IPR:

Ministry of Culture (Copyrights)
Director of the National Center for the Protection of Copyrights and Related Rights
Ms. Hind Al-Hadithi
Email:  henda84.com@gmail.com
Tel.:  (964) 770 335 0655
Official email:  copyrights.iq@gmail.com

Ministry of Planning (Patents)
Chief of Central Organization for Standardization and Quality Control (COSQC)
Registrar of Patents and Industrial Designs
Mr. Saad Abdul Wahab
Email:  cosqc@cosqc.gov.iq
Tel: (964)07901786768

Director of Industrial Property Division
Mr. Wisam Saeed A’asi
Tel.: (964) 770 974 7231
Email:  wisamsaeedipo@yahoo.com

Ministry of Industry and Minerals (Trademarks)
Industrial Organization and Development Directorate
Director General and Trademark Registrar
Mr. Alaa Mousa Ali

Director of Legal Section
Ms. Thanaa Mohan
Email:  thanaam2008@yahoo.com

A copy of a public list of local lawyers can be obtained by emailing BaghdadACS@state.gov.  The American Chamber of Commerce in Iraq can be reached at:  inquiries@amcham-iraq.org.

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  

On December 9, 2017, former PM Abadi announced all of Iraqi territory had been liberated from ISIS.  Much work remains to prevent the reemergence of ISIS, and Iraqi forces continue to carry out counter-terrorism operations against ISIS cells throughout the country.  Terrorist attacks within the IKR occur less frequently than in other parts of Iraq, although the KRG, U.S. government facilities, and western interests remain possible targets, as evidenced by the April 17, 2015, bombing in the public area outside U.S. Consulate General Erbil.  In addition, anti-U.S. sectarian militias may threaten U.S. citizens and western companies throughout Iraq.

The U.S. government considers the potential threat to USG personnel in Iraq to be serious enough to require them to live and work under strict security guidelines.  State Department guidance to U.S. businesses in Iraq advises the use of protective security details. Detailed security information is available on the U.S. Embassy website: http://iraq.usembassy.gov/.  Some U.S. and third-country business people travel throughout much of Iraq; however, in general their movement is restricted and most travel with security advisors and protective security teams.

The GOI collects and publishes limited statistics with which to compare international and U.S. investment data.  The NIC and Provincial Investment Commissions (PIC) granted 1067 licenses between 2008 and 2015, the latest statistics available, with a total potential value of USD 53.9 billion.  However, an investment license from the NIC or a PIC does not mean that the proposed investment will be implemented.

In the IKR, the Kurdistan BOI granted 51 licenses in 2018, with a total potential value of USD 3.13 billion.  Compared to 2017, the BOI granted licenses to 18 more projects, representing a capital increase of USD 2.4 billion (340 percent).  The granting of an investment license by the BOI does not mean that the proposed investment will be implemented. All of the licenses granted in 2018 were to national (i.e. Iraqi-owned) projects.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

*Host Country Statistical Source:  Ministry of Planning; Central Bank of Iraq

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available.

Policies Towards Foreign Direct Investment

Mexico is open to foreign direct investment (FDI) in the vast majority of economic sectors and has consistently been one of the largest emerging market recipients of FDI.  Mexico’s macroeconomic stability, large domestic market, growing consumer base, rising skilled labor pool, welcoming business climate, and proximity to the United States all help attract foreign investors.

Historically, the United States has been one of the largest sources of FDI in Mexico.  According to Mexico’s Secretariat of Economy, FDI flows to Mexico from the United States totaled USD 12.3 billion in 2018, nearly 39 percent of all inflows to Mexico (USD 31.6 billion).  The automotive, aerospace, telecommunications, financial services, and electronics sectors typically receive large amounts of FDI. Most foreign investment flows to 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 that may change if the new administration’s focus on attracting investment to the region gain traction.

The 1993 Foreign Investment Law, last updated in March 2017, governs foreign investment in Mexico.  The law is consistent with the foreign investment chapter of NAFTA. It provides national treatment, eliminates performance requirements for most foreign investment projects, and liberalizes criteria for automatic approval of foreign investment.  The Foreign Investment Law provides details on which business sectors are open to foreign investors and to what extent. 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 new administration stopped funding ProMexico, the government’s investment promotion agency, and is integrating its components into other ministries and offices.  PROMTEL, the government agency charged with encouraging investment in the telecom sector, is expected to continue operations with a more limited mandate. Its first director and four other senior staff recently left the agency.  In April 2019, the government sent robust participation to the 11th CEO Dialogue and Business Summit for Investment in Mexico sponsored by the U.S. Chamber of Commerce and its Mexican equivalent, CCE. Cabinet-level officials conveyed the Mexican government’s economic development and investment priorities to dozens of CEOs and business leaders.

Limits on Foreign Control and Right to Private Ownership and Establishment

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 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.

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 has held four separate bid sessions allowing private companies to bid on exploration and development of oil and gas resources in blocks around the country. In 2017, Mexico successfully auctioned 70 land, shallow, and deep water blocks with significant interest from international oil companies.  The Lopez Obrador administration decided to suspend all future auctions until 2022.

Telecommunications:  Mexican law states telecommunications and broadcasting activities are public services and the government will at all times maintain ownership of the radio spectrum.

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.

Under existing NAFTA provisions, U.S. and Canadian investors receive national and most-favored-nation treatment in setting up operations or acquiring firms in Mexico.  Exceptions exist for investments restricted under NAFTA. Currently, the United States, Canada, and Mexico have the right to settle any dispute or claim under NAFTA through international arbitration.  Local Mexican governments must also accord national treatment to investors from NAFTA 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 make a decision. 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.

Other Investment Policy Reviews

The World Trade Organization (WTO) completed a trade policy review of Mexico in February 2017 covering the period to year-end 2016.  The review noted the positive contributions of reforms implemented 2013-2016 and cited Mexico’s development of “Digital Windows” for clearing customs procedures as a significant new development since the last review.

The full review can be accessed via:  https://www.wto.org/english/tratop_e/tpr_e/tp452_e.htm  .

Business Facilitation

According to the World Bank, on average registering a foreign-owned company in Mexico requires 11 procedures and 31 days.  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 will be able to register a new company online in 24 hours.  The Government of Mexico maintains a business registration website:  www.tuempresa.gob.mx  .  Companies operating in Mexico must register with the tax authority (Servicio de Administration y 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.

Outward Investment

In the past, ProMexico was responsible for promoting Mexican outward investment and provided assistance to Mexican firms acquiring or establishing joint ventures with foreign firms, participating in international tenders, and establishing franchise operations, among other services.  Various offices at the Secretariat of Economy and the Secretariat of Foreign Affairs now handle these issues. Mexico does not restrict domestic investors from investing abroad.

Bilateral Investment Treaties

On November 30, 2018, leaders of the United States, Mexico, and Canada signed a trade agreement to replace and modernize NAFTA – the United States-Mexico-Canada Agreement.  The agreement is now pending ratification by all three countries’ legislatures. The agreement contains an investment chapter.

Mexico has signed 13 FTAs covering 50 countries and 32 Reciprocal Investment Promotion and Protection Agreements covering 33 countries.  Mexico is a member of Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force December 30, 2018.  Mexico currently has 29 Bilateral Investment Treaties in force. Mexico and the European Union signed an agreement in principle to revise its FTA.

Bilateral Taxation Treaties

The United States-Mexico Income Tax Convention, which came into effect January 1, 1994, governs bilateral taxation between the two nations.  Mexico has negotiated double taxation agreements with 55 countries. Recent reductions in U.S. corporate tax rates may drive a future change to the Mexican fiscal code, but there is no formal legislation under consideration.

Investment Incentives

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; (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.

Foreign Trade Zones/Free Ports/Trade Facilitation

The new administration launched a two-year program 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 is to boost investment, promote productivity, and create more jobs in the region.  Interested businesses or individuals must apply to the government’s “Beneficiary Registry” by March 31 demonstrating income from border business activities comprise at least 90 percent of total income.  The company headquarters or branch must be located in the border region for at least 18 months prior to the application.  Sectors excluded from the preferential ISR rate include financial institutions, the agricultural sector, and export manufacturing companies (maquilas).

Separately, the administration announced plans to review and possibly end the Special Economic Zones (SEZs) program throughout the country.

Performance and Data Localization Requirements

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 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 NAFTA if they wish to benefit from NAFTA treatment.

Mexico does not have any policy of forced localization for data storage, nor must foreign information technology (IT) providers turn over source code or provide backdoors into hardware or software.  Within the constraints of the Federal Law on the Protection of Personal Data, Mexico does not impede companies from freely transmitting customer or other business-related data outside the country.

Real Property

Mexico ranked 103 out of 190 countries for ease of registering property in the World Bank’s 2019 Doing Business report, falling four places from its 2018 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 Fideocomisos de Infraestructura y Bienes Raíces (FIBRAs) and Certificates of Capital Development (CKDs) listed on Mexico’s BMV stock exchange.

Intellectual Property Rights

Intellectual Property Rights in Mexico are covered by the Industrial Property Law (Ley de 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 Office of the Attorney General (PGR) oversees a specialized unit that prosecutes IPR 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 Mexican Customs Service’s mandate includes 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 the Official Gazette.  IMPI first 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 publishes the registration in the Official Gazette. A trademark registration in Mexico is valid for 10 years from the filing date, and is renewable for 10-year periods. Any party can challenge a trademark registration through the new opposition system, or post-grant through a cancellation proceeding.  IMPI employs the following administrative procedures: nullity, expiration, opposition, cancellation, trademark, patent and copyright (trade-based) 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 of Justice.

The USPTO 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. The PPH permits USPTO and IMPI to benefit from work previously done by the other office, which reduces the examination workload and improves patent quality.

Mexico is plagued by 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; and widespread cultural acceptance of piracy and counterfeiting.  In addition, the involvement of transnational criminal organizations (TCOs), which control the piracy and counterfeiting markets in parts of Mexico, 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 2019 Special 301 report.  Obstacles to U.S. trade include the wide availability of pirated and counterfeit goods in both physical and virtual notorious markets.  The 2018 USTR Out-Of-Cycle Review of Notorious Markets listed two Mexican markets: Tepito in Mexico City and 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 Bern Convention for the Protection of Literary and Artistic Works, and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights.

Resources for Rights Holders

• 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/  .

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.

The USD 2.7 billion Merida Initiative, launched by Presidents Calderon and Bush in 2008 and supported by bipartisan leaders in Congress, remains our primary mechanism to support Mexico in addressing significant security challenges at an institutional level.  Merida Initiative programs aim to strengthen Mexico’s security and judicial institutions by applying international standards of certification and accreditation to personnel and institutions across the criminal justice system, from the accreditation of police academies and corrections facilities to advanced training for judges, prosecutors, criminal analysts, and forensic lab technicians.  In addition, Merida Initiative programs have expanded over the past year in the areas of border security and counternarcotics, in line with new priorities set out by the Trump administration.

Companies have reported general security concerns remain an issue for companies looking to invest in the country.  The American Chamber of Commerce in Mexico estimates in a biannual report that security costs business as much as 5 percent of 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/  ).

The Department of State maintains a Travel Advisory for U.S. citizens traveling and living in Mexico, available at https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/mexico-travel-advisory.html

Table 2:  Key Macroeconomic Data, U.S. FDI in Host Country/Economy

*Mexico does not report total FDI stock, only flows of FDI.  https://datos.gob.mx/busca/organization/se  

Table 3:  Sources and Destination of FDI

The data included in the IMF’s Coordinated Direct Investment Survey is consistent with Mexican government data.

Table 4:  Sources of Portfolio Investment

The data included in the IMF’s Coordinated Portfolio Investment Survey (CPIS) is consistent with Mexican government data.