Policies Towards Foreign Direct Investment

In general, Bolivia remains open to FDI.  The 2014 investment law guarantees equal treatment for national and foreign firms, however it also stipulates that public investment has priority over private investment (both national and foreign) and that the Bolivian Government will determine which sectors require private investment.

U.S. companies interested in investing in Bolivia should note that in 2012 Bolivia abrogated the BIT it signed with the United States and a number of other countries.  The Bolivian Government claimed the abrogation was necessary for Bolivia to comply with the 2009 Constitution.  Companies that invested under the U.S. –Bolivia BIT will be covered until June 10, 2022, but investments made after June 10, 2012 are not covered.

Pursuant to Article 320 of the 2009 Constitution, Bolivia no longer recognizes international arbitration forums for disputes involving the government.  The parties also cannot settle the dispute in an international court.  However, the implementation of this article is still uncertain.

Specifically, Article 320 of the Bolivian Constitution states:

1. Bolivian investment takes priority over foreign investment.
2. Every foreign investment will be subject to Bolivian jurisdiction, laws, and authorities, and no one may invoke a situation for exception, nor appeal to diplomatic claims to obtain more favorable treatment.

III. Economic relations with foreign states or enterprises shall be conducted under conditions of independence, mutual respect and equity.  More favorable conditions may not be granted to foreign states or enterprises than those established for Bolivians.

1. The state makes all decisions on internal economic policy independently and will not accept demands or conditions imposed on this policy by states, banks or Bolivian or foreign financial institutions, multilateral entities or transnational enterprises.
2. Public policies will promote internal consumption of products made in Bolivia.

Article 262 of the Constitution states:

“The fifty kilometers from the border constitute the zone of border security.  No foreign person, individual, or company may acquire property in this space, directly or indirectly, nor possess any property right in the waters, soil or subsoil, except in the case of state necessity declared by express law approved by two thirds of the Plurinational Legislative Assembly.  The property or the possession affected in case of non-compliance with this prohibition will pass to the benefit of the state, without any indemnity.”

The judicial system faces a huge backlog of cases, is short staffed, lacks resources, has problems with corruption, and is believed to be influenced by political actors.  Swift resolution of cases, either initiated by investors or against them, is unlikely.  The Marcelo Quiroga Anti-Corruption law of 2010 makes companies and their signatories criminally liable for breach of contract with the government, and the law can be applied retroactively.  Authorities can use this threat of criminal prosecution to force settlement of disputes.  Commercial disputes can often lead to criminal charges and cases are often processed slowly.  See our Human Rights Report as background on the judicial system, labor rights and other important issues.

Article 129 of the Bolivian Arbitration Law No. 708, established that all controversies and disputes that arise regarding investment in Bolivia will have to be addressed inside Bolivia under Bolivian Laws.  Consequently, international arbitration is not allowed for disputes involving the Bolivian Government or state-owned enterprises.

Bolivia does not currently have an investment promotion agency to facilitate foreign investment.  However, the government has said that it is working to create an investment promotion agency in order to attract investment in the non-traditional and industrial sectors.  The government has also recently launched an investment promotion website (www.investbolivia.gob.bo ) in order to provide information about investment opportunities in Bolivia.

The government does maintain ongoing dialogue with the private sector through several working groups, one of which addresses the investment climate.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is a right for foreign and domestic private entities to establish and own business enterprises and engage in remunerative activity.

There are some areas where investors may judge that preferential treatment is being given to their Bolivian competitors, for example in key sectors where private companies compete with state owned enterprises.  Additionally, foreign investment is not allowed in matters relating directly to national security.  And only the government can own most natural resources.

The Constitution specifies that all hydrocarbon resources are the property of the Bolivian people and that the state will assume control over their exploration, exploitation, industrialization, transport, and marketing (Articles 348 and 351).  The state-owned and operated company, Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) manages hydrocarbons transport and sales and is responsible for ensuring that the domestic market demand is satisfied at prices set by the hydrocarbons regulator before allowing any hydrocarbon exports.  YPFB benefitted from government action in 2006 that required operators to turn over their production to YPFB and to sign new contracts that gave YPFB control over the distribution of gasoline, diesel, and liquid petroleum gas (LPG) to gas stations.  The law allows YPFB to enter into joint venture contracts for limited periods with national or foreign individuals or companies wishing to exploit or trade hydrocarbons or their derivatives.  For companies working in the industry, contracts are negotiated on a service contract basis and there are no restrictions on ownership percentages of the companies providing the services.

The Constitution (Article 366) specifies that every foreign enterprise that conducts activities in the hydrocarbons production chain will submit to the sovereignty of the state, and to the laws and authority of the state.  No foreign court case or foreign jurisdiction will be recognized, and foreign investors may not invoke any exceptional situation for international arbitration, nor appeal to diplomatic claims.

According to the Constitution, no concessions or contracts may transfer the ownership of natural resources or other strategic industries to private interests.  Instead temporary authorizations to use these resources may be requested at the pertinent ministry (Mining, Water and Environment, Public Works, etc.).  The Bolivian Government is still renegotiating commercial agreements related to forestry, mining, telecommunications, electricity, and water services, in order to comply with these regulations.

The Telecommunications, Technology and Communications General Law (Law 164, Article 28) stipulates that the licenses for radio broadcasts will not be given to foreign persons or entities.  Further, in the case of broadcasting associations, the share of foreign investors cannot exceed 25 percent of the total investment, except in those cases approved by the state or by international treaties.

The Central Bank of Bolivia is responsible for registering all foreign investments.  According to the 2014 investment law, any investment will be monitored by the ministry related to the particular sector.  For example, the Mining Ministry is in charge of overseeing all public and private mining investments.  Each Ministry assesses industry compliance with the incentive objectives.  To date, only the Ministry of Hydrocarbons and Energy has enacted a Law (N 767) to incentivize the exploration and production of hydrocarbons.

Other Investment Policy Reviews

Bolivia underwent a World Trade Organization (WTO) trade policy review in 2017.  In concluding remarks by the Chairperson, the Chairperson noted that several WTO members raised challenges impacting investor confidence in Bolivia, due primarily to Bolivia’s abrogation of 22 BITs following the passage of its 2009 constitution.  However, some WTO members also commended Bolivia for enacting a new investment promotion law in 2014 and a law on conciliation and arbitration, both of which increased legal certainty for investors, according to those members.

Business Facilitation

According to the World Bank’s Doing Business 2019 rankings, Bolivia ranks 156 out of 190 countries on the ease of doing business, much lower than most countries in the region.  Bolivia ranks 178 out of 190 on the ease of starting a business.

FUNDEMPRESA is a mixed public/private organization authorized by the central government to register and certify new businesses.  Its website is www.fundempresa.org.bo  and the business registration process is laid out clearly within the tab labeled “processes, requirements and forms,” however the registration cannot be completed entirely online. A user can download the required forms from the site and can fill them out online, but then has to mail the completed forms or deliver them to the relevant offices.  A foreign applicant would be able to use the registration forms.  The forms do ask for a “cedula de identidad,” which is a national identification document; however, foreign users usually enter their passport numbers instead.  Once a company submits all documents required to FUNDEMPRESA, the process takes between 2-4 working days.

The steps to register a business are: (1) register and receive a certificate from Fundempresa; (2) register with the Bolivian Internal Revenue Service (Servicio de Impuestos Nacionales) and receive a tax identification number; (3) register and receive authorization to operate from the municipal government in which the company will be established; (4) if the company has employees, it must register with the national health insurance service and the national retirement pension agency in order to contribute on the employees’ behalf;  and (5) if the company has employees, it must register with the Ministry of Labor.  According to Fundempresa, the process should take 30 days from start to finish.  All steps are required and there is no simplified business creation regime.

Outward Investment

The Bolivian Government does not promote or incentivize outward investment.  Nor does the government restrict domestic investors from investing abroad.

As mentioned earlier, potential investors should note that Bolivia has abrogated the Bilateral Investment Treaties (BIT) it signed with the United States and 22 other countries.  The Bolivian Government claimed the abrogation was necessary for Bolivia to comply with the 2009 Constitution.  Companies that invested under the U.S. – Bolivia BIT will be covered until June 10, 2022, but investments made after June 10, 2012 are not covered.

The BIT with Bolivia was the first to be terminated by a U.S. treaty partner.  In a related action, in October 2007, Bolivia became the first country to withdraw from the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).  Bolivia has had a signed BIT with Peru since 1993.

Bolivia does not have a bilateral taxation treaty with the U.S.  However, Bolivia has several agreements with other countries aimed at avoiding double taxation.  Those countries include:  Argentina, France, Germany, Spain, Sweden, the United Kingdom, and Andean Community countries.  The Bolivian Government is currently assessing the possibility of agreements with several additional countries.

Transparency of the Regulatory System

Bolivia has no laws or policies that directly foster competition on a non-discriminatory basis.  However, Article 66 of the Commercial Code (Law 14379, 1977) states that unfair competition, such as maintaining an import, production, or distribution monopoly, should be penalized according to criminal law.  There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.

Regulatory authority regarding investment exists at the national level in Bolivia.  There are no informal regulatory procedures.

The Commercial Code requires that all companies keep adequate accounting records and legal records for transparency.  However, there is a large informal sector that does not follow these practices.  Most accounting regulations follow international principles, but the regulations do not always conform to international standards.  Large private companies and some government institutions, such as the Central Bank and the Banking Supervision Authority, have transparent and consistent accounting systems.

Formal bureaucratic procedures have been reported to be lengthy, difficult to manage and navigate, and sometimes debilitating.  Many firms complain that a lack of administrative infrastructure, corruption, and political motives impede their ability to perform. The one exception is when registering a new company in Bolivia.  Once a company submits all documents required to the FUNDEMPRESA, the process usually takes less than one week.

There is no established public comment process allowing social, political, and economic interests to provide advice and comment on new laws and decrees.  However, the government generally — but not always — discusses proposed laws with the relevant sector.  The lack of laws to implement the 2009 Constitution creates legal discrepancies between constitutional guarantees and the dated policies currently enforced, and thus an uncertain investment climate.  Draft text or summaries are usually published on the National Assembly’s website.

Online regulatory disclosures by the Bolivian Government can be found in the “Gaceta Judicial” at:  http://www.gacetaoficialdebolivia.gob.bo/ 

Supreme Decree 71 in 2009 created a Business Auditing Authority (AEMP), which is tasked with regulating the business activities of public, private, mixed, or cooperative entities across all business sectors.  AEMP’s decisions are legally reviewable through appeal.  However, should an entity wish to file a second appeal, the ultimate decision-making responsibility rests with the Bolivian Government ministry with jurisdiction over the economic sector in question.  This has led to a perception that enforcement mechanisms are neither transparent nor independent.

Environmental regulations can slow projects due to the constitutional requirement of “prior consultation” for any projects that could affect local and indigenous communities.  This has affected projects related to the exploitation of natural resources, both renewable and nonrenewable, as well as public works projects.  Issuance of environmental licenses has been slow and subject to political influence and corruption.

In 2010, the new pension fund was enacted; it increased the contributions that companies have to pay from 1.71 percent of payroll to 4.71 percent.

International Regulatory Considerations

Bolivia is a full member of the Andean Community of Nations (CAN), comprised of Bolivia, Colombia, Ecuador, and Peru.  Bolivia is also in the process of joining the Southern Common Market (MERCOSUR) as a full member.  The CAN’s norms are considered supranational in character and have automatic application in the regional economic block’s member countries.  The government does notify the WTO Committee on Technical Barriers to Trade regarding draft technical regulations.

Legal System and Judicial Independence

Property and contractual rights are enforced in Bolivian courts under a civil law system, but some have complained that the legal process is time consuming and has been subject to political influence and corruption.  Although many of its provisions have been modified and supplanted by more specific legislation, Bolivia’s Commercial Code continues to provide general guidance for commercial activities.  The constitution has precedence over international law and treaties (Article 410), and stipulates that the state will be directly involved in resolving conflicts between employers and employees (Article 50).  There have been allegations of corruption within the judiciary in high profile cases.  Regulatory and enforcement actions are appealable.

Laws and Regulations on Foreign Direct Investment

No major laws, regulations, or judicial decisions impacting foreign investment came out in the past year.  There is no primary central point-of-contact for investment that provides all the relevant information to investors.

Competition and Anti-Trust Laws

Bolivia does not have a competition law, but cases related to unfair competition can be presented to AEMP.  Article 314 of the 2009 Constitution prohibits private monopolies.  Based on this article, in 2009 the Bolivian Government created an office to supervise and control private companies (http://www.autoridadempresas.gob.bo/ ). Among its most important goals are: regulating, promoting, and protecting free competition; trade relations between traders; implementing control mechanisms and social projects, and voluntary corporate responsibility; corporate restructuring, supervising, verifying and monitoring companies with economic activities in the country in the field of commercial registration and seeking compliance with legal and financial development of its activities; and qualifying institutional management efficiency, timeliness, transparency and social commitment to contribute to the achievement of corporate goals.

Expropriation and Compensation

The Bolivian Constitution allows the central government or local governments to expropriate property for the public good or when the property does not fulfill a “social purpose” (Article 57).  In the case of land, this social purpose (FES) is understood as “sustainable land use to develop productive activities, according to its best use capacity, for the benefit of society, the collective interest and its owner.”  In all other cases where this article has been applied, the Bolivian Government has no official definition of “collective interest” and makes decisions on a case-by-case basis.  Noncompliance with the social function of land, tax evasion, or the holding of large acreage is cause for reversion, at which point the land passes to “the Bolivian people” (Article 401).  In cases where the expropriation of land is deemed a necessity of the state or for the public good, such as when building roads or laying electricity lines, payment of just indemnification is required, and the Bolivian Government has paid for the land taken in such cases.  However, in cases where there is non-compliance, or accusations of such, the Bolivian Government is not required to pay for the land and the land title reverts to the state.

The constitution also gives workers the right to reactivate and reorganize companies that are in the process of bankruptcy, insolvency, or liquidation, or those closed in an unjust manner, into employee-owned cooperatives (Article 54).  The mining code of 1997 (last updated in 2007) and hydrocarbons law of 2005 both outline procedures for expropriating land to develop underlying concessions.

Between 2006 and 2014, the Bolivian Government nationalized companies that were previously privatized in the 1990s.  The government nationalized the hydrocarbons sector, the majority of the electricity sector, some mining companies (including mines and a tin smelting plant), and a cement plant.  To take control of these companies, the government forced private entities to sell shares to the government, often at below market prices.  Some of the affected companies have cases pending with international arbitration bodies.  All outsourcing private contracts were canceled and assigned to public companies (such as airport administration and water provision).

There are still some former state companies that are under private control, including the railroad, and some electricity transport and distribution companies.  The first non-former state company was nationalized in December of 2012.  Government nationalizations have not discriminated by country; some of the countries affected were the United States, France, the United Kingdom, Spain, Argentina, and Chile.  In numerous cases the Bolivian Government has nationalized private interests in order to appease social groups protesting within Bolivia.

Dispute Settlement

ICSID Convention and New York Convention

In November 2007, Bolivia became the first country ever to withdraw from ICSID.  In August 2010, the Bolivian Minister of Legal Defense of the State said that the Bolivian Government would not accept ICSID rulings in the cases brought against them by the Chilean company Quiborax and Italian company Euro Telcom.  However, the Bolivian Government agreed to pay USD 100 million to Euro Telecom for its nationalization; this agreement was ratified by a Supreme Decree 692 on November 3, 2010.  Additionally, in 2014, a British company that owned the biggest electric generation plant in Bolivia (Guaracachi) won an arbitration case against Bolivia for USD 41 million.  In 2014, an Indian company won a USD 22.5 million international arbitration award in a dispute over the development of an iron ore project.  The Bolivian Government has appealed that award.

In another case, a Canadian mining company with significant U.S. interests failed to complete an investment required by its contract with the state-owned mining company.  The foreign company asserts it could not complete the project because the state mining company did not deliver the required property rights.  The foreign company entered into national arbitration (their contract does not allow for international arbitration) and in January 2011, the parties announced a settlement of USD 750,000, which the company says will be used to pay taxes, employee benefits, and pending debts — essentially leaving them without compensation for the USD 5 million investment they had made.  They also retained responsibility for future liabilities.

Investor-State Dispute Settlement

Conflicting Bolivian law has made international arbitration in some cases effectively impossible.  Previous investment contracts between the Bolivian Government and the international companies granted the right to pursue international arbitration in all sectors and stated that international agreements, such as the ICSID and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, must be honored.  However, the government claims these rights conflict with the 2009 Constitution, which states (Articles 320 and 366) that international arbitration is not recognized in any case and cannot proceed under any diplomatic claim, and specifically limits foreign companies’ access to international arbitration in the case of conflicts with the government.  The 2009 Constitution also states that all bilateral investment treaties must be renegotiated to incorporate relevant provisions of the new constitution.  The Investment Law of 2014 was enacted in late 2015.  Under the 2015 Arbitration Law (Law 708), international arbitration is not permitted when the dispute is against the government or a state-owned company.

A variety of companies of varying nationality were affected by the government’s nationalization policy between 2006 and 2014.  In 2014, President Morales announced there would be no more nationalizations.  The same year, one Brazilian company was nationalized, but that had been previously agreed to with the owner under the previous nationalization policy.

International Commercial Arbitration and Foreign Courts

In Bolivia, two institutions have arbitration bodies, including the National Chamber of Commerce and the Chamber of Industry and Commerce of Santa Cruz (CAINCO).  In order to utilize these domestic arbitration bodies, the private parties must include arbitration within their contracts.  Depending on the contract between the parties, UNCITRAL or Bolivia’s Arbitration Law (No. 708) may be used.  Local courts recognize and enforce foreign arbitral awards and judgments.   There are no statistics available regarding SOE involvement in investment disputes.

Bankruptcy Regulations

Bolivia ranks above regional averages for resolving insolvency according to the World Bank’s Doing Business Report.  The average time to complete bankruptcy procedures to close a business in Bolivia is 20 months.  The Bolivian Commercial Code includes (Article 1654) three different categories of bankruptcy:

1. No Fault Bankruptcy – when the owner of the company is not directly responsible for its inability to pay its obligations.
2. At- Fault Bankruptcy – when the owner is guilty or liable due to the lack of due diligence to avoid harm to the company.
3. Bankruptcy due to Fraud – when the owner intentionally tries to cause harm to the company.

In general, the application of laws related to commercial disputes and bankruptcy has been perceived as inconsistent, and charges of corruption are common.  Foreign creditors often have little redress beyond Bolivian courts, and judgments are generally more favorable to local claimants than international ones.  If a company declares bankruptcy, the company must pay employee benefits before other obligations.  Workers have broad-ranging rights to recover pay and benefits from foreign firms in bankruptcy, and criminal actions can be taken against individuals the Bolivian Government deems responsible for failure to pay in these matters.

No credit bureaus or credit monitoring authorities serve the Bolivian market.

In 2018, the Bolivian Government enacted a new law (No. 1055) called the Creation of Social Enterprises.  The law allows for employees of a company to assert ownership rights over companies under financial distress heading into bankruptcy.  Passage of the law was controversial, with numerous business chambers asserting that the law could incentivize employees and labor unions to undermine the performance of companies in order to force bankruptcy and gain control of company assets.

Investment Incentives

In an effort to attract more investment, the government enacted an investment law in 2014, which says that each Ministry will provide incentives for sector-specific investment.

Article 14 of the 2014 investment law requires technology transfer from foreign companies operating in Bolivia to Bolivian workers and institutions.  The law also specifies that Bolivians should work in operational, administrative, and executive offices of foreign companies.  Also, companies investing in Bolivia should donate equipment and machinery to universities and technical schools in the same area as the investment, and conduct research activities that will find solutions that contribute to public welfare.

Article 21 of the investment law stipulates that the government can incentivize investment in certain sectors that contribute to the economic and social development of the country.

Law 767 from 2015 aims to promote investments in the exploration and exploitation of hydrocarbons.  However, many companies considered this regulation as skewed to production and insufficient to incentivize new exploration.  In 2016, Supreme Decree 2830 was issued, providing a 12 percent reduction in the payment of the direct tax on hydrocarbons and other incentives in order to better incentive exploration.

Foreign Trade Zones/Free Ports/Trade Facilitation

In 2016, Supreme Decree 2779 was enacted, approving regulations for a new system of free trade zones in Bolivia.  The decree establishes a period of one year for existing free trade zones to transform into free industrial zones, which allow for industrial operations and assembly.  Free industrial zones exist in El Alto, Patacamaya, Oruro, Puerto Suarez, and Warnes.  Cobija is the only remaining free trade zone under this new system, with operations approved until 2038.  Concessions within free industrial zones are 15 years in duration and renewable.  The decree also eased customs procedures for goods entering the zones and established stronger government support for the promotion of productive investments in the zones.

Performance and Data Localization Requirements

Bolivian labor law requires businesses to limit foreign employees to 15 percent of their total work force and requires that such foreign hires be part of the technical staff.  These workers require a work visa that can be obtained in any Bolivian consulate, and in the case that they work for a Bolivian company, both the company and the workers should also contribute to the Bolivian Pension System (Pension Law Article 104.1)

Supreme Decree 27328 regulates national and local level government procurement, which give priority to national sourcing.  If an item required is not produced in Bolivia, buying decisions are made based on price.  Supreme Decree 28271 (Article 10), establishes the following preference margins for sourcing with Bolivian products:

Except for national tenders, 10 percent preference margin for Bolivian products regardless of the origin of materials.

For national public tenders, if the cost of Bolivian materials represents more than 50 percent of the total cost of the product, the producers receive a 10 percent preference margin over other sellers.

In national and international public tenders, if Bolivian inputs and labor represent more than the 50 percent of the total cost of the product, the seller receives a 25 percent preference margin over other sellers.  If the Bolivian inputs and labor represent between 30 percent and 50 percent of the total cost of the product, the seller receives a 15 percent preference margin over other sellers.

Under the Bolivian Criminal Code (Article 226), it is a crime to raise or lower the price of a product based on false information, interests, or actions.  For those caught doing so, punishment is six months to three years in prison.  It is also a crime to hoard or conceal products in order to raise prices.  The Bolivian Government has aggressively applied these provisions in a number of cases, applying regulations that allow them to request accounting records and audit companies’ financial actions looking for evidence of speculation.

Real Property

Property rights are legally protected and registered in the Real Estate Office, where titles or deeds are recorded and mortgages/liens are registered.  The recording system is reliable, although there have been complaints regarding the amount of time required to register a property.

The Office of Property Registry oversees the acquisition and disposition of land, real estate, and mortgages.  Mortgages are easy to obtain, taking usually no more than 60 days to obtain a standard loan.  However, challenges to land titles are common due to bureaucratic delays encountered while registering properties, especially in rural areas.  Competing claims to land titles and the absence of a reliable dispute resolution process create risk and uncertainty in real property acquisition.  Nevertheless, illegal occupation of rural private property is decreasing since the passage of Law 477 combatting land seizures.

The Bolivian Constitution grants citizens and foreigners the right to private property but stipulates that the property must serve a social or economic function.  If the government determines that a given property is not sufficiently useful (according to its own unclear criteria), the constitution allows the government to expropriate.  The agricultural sector has been most hard hit by this policy due to uncertainty from year to year about whether farmland would be productive.  In 2015, the government agreed to do away with the annual productivity inspections and reduce their frequency from every two to every five years, though the Legislative Assembly has not yet passed these modifications.  There are other laws that limit access to land, forest, water and other natural resources by foreigners in Bolivia.

The constitution also grants formal, collective land titles to indigenous communities, in order to restore their former territories (Article 394.3), stating that public land will be granted to indigenous farmers, migrant indigenous communities, Afro-Bolivians, and small farmer communities that do not possess or who have insufficient land (Article 395).  Foreigners cannot acquire land from the Bolivian Government (Article 396).  Under law 3545, passed in 2006, the government will not grant public lands to non-indigenous people or agriculture companies.  The Mother Earth Integral Development Law to Live Well (Mother Earth Law, or Law #300) passed in October 2012 specifies that the state controls access to natural resources, particularly when foreign use is involved.  In action, the law limits access to land, forest, water and other natural resources by foreigners in Bolivia.

According to Bolivia’s Agrarian Reform Institute (INRA), approximately 25 percent of all land in Bolivia lacks clear title, and as a result, squatting is a problem.  In some cases, squatters may be able to make a legal claim to the land.  While the Criminal Code criminalizes illegal occupation, the judicial system is slow and ineffective in its enforcement of the law.  Financial mechanisms are available for securitization of properties for lending purposes, although the threat of reversion for properties failing to fulfill a social function discourages the use of land as collateral.

Intellectual Property Rights

The Bolivian Intellectual Property Service (SENAPI) leads the protection and enforcement of intellectual property rights (IPR) within Bolivia.  SENAPI maintains and regularly updates a complete set of IPR regulations currently in force within Bolivia.  The list is available on SENAPI’s website:  http://www.senapi.gob.bo/MarcoLegal.asp?lang=EN 

SENAPI also maintains an updated version of the services they provide, along with associated costs, at:  http://www.senapi.gob.bo/TasasPropiedadIntelectual.asp?lang=EN 

SENAPI reviews patent registrations for form and substance and publishes notices of proposed registrations in the Official Gazette.  If there are no objections within 30 working days, the organization grants patents for a period of 20 years.  The registration of trademarks parallels that of patents.  Once obtained, a trademark is valid for a 10-year renewable period.  It can be cancelled if not used within three years of the date of grant.

The existing copyright law recognizes copyright infringement as a public offense and the 2001 Bolivian Criminal Procedures Code provides for the criminal prosecution of IPR violations.  However, it is not common for prosecutors to file criminal charges, and civil suits, if pursued, face long delays.  Criminal penalties carry a maximum of five years in jail, and civil penalties are restricted to the recovery of direct economic damages.  SENAPI has established a conciliation process to solve IPR controversies in order to prevent parties from going to trial.

Bolivia does not have an area of civil law specifically related to industrial property, but has a century-old industrial privileges law still in force.  Bolivia is a signatory of the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS).  SENAPI is aware of Bolivia’s obligations under the TRIPS Agreement and it sets out the minimum standards of IPR protection in compliance with this agreement.  SENAPI sustains its position that Bolivia complies with the substantive obligations of the main conventions of the World Intellectual Property Organization (WIPO), the Paris Convention for the Protection of Industrial Property (Paris Convention), and the Berne Convention for the Protection of Literary and Artistic Works (Berne Convention) in their most recent versions.  According to SENAPI, Bolivia complies with WTO’s dispute settlement procedures in accordance with its TRIPS obligations.  However, Bolivia falls short on the implementation of domestic procedures and providing legal remedies for the enforcement of intellectual property rights.

Bolivia is a signatory country of the 1996 WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty; however, it did not ratify any of those treaties domestically.  Bolivia is not a member of the Madrid Protocol on Trademarks, the Hague Agreement Concerning the International Registration of Industrial Designs, or the Patent Law Treaty.

Bolivia is a signatory of Andean Community (CAN) Decision 486, which deals with industrial property and trade secrets and is legally binding in Bolivia.  Decision 486 states that each member country shall accord the Andean Community countries, the World Trade Organization, and the Paris Convention for the Protection of Industrial Property, treatment no less favorable than it accords to its own nationals with regard to the protection of intellectual property.  Besides its international obligations, Bolivia has not passed any domestic laws protecting trade secrets.

On December 20, 2018, Bolivia’s National Assembly passed Law 1134, the “Bolivian Cinema and Audiovisual Arts Law.”  The law creates a fund to promote Bolivian cinema by charging foreign movie distributors and exhibitors three percent of their total monthly revenue.   Contacts contend that the law could help the Bolivian Government target piracy networks that currently operate with impunity.  Article 27 of the new law strengthens IPR protections for visual works and allows Bolivian Customs to pursue criminal prosecution, but it is unlikely that foreign works would be protected in practice.

Bolivian Customs lacks the human and financial resources needed to intercept counterfeit goods shipments at international borders effectively.  Customs authorities act only when industries trying to protect their brands file complaints.  Moreover, there is a sense of unregulated capitalism with regard to the sale of goods in the informal sector.  Many importers believe the payment of customs fees will “legalize” the sale of counterfeit products.  Sellers either do not know about or do not take into consideration intellectual property rights, particularly in the textile, electrical appliances, and entertainment markets (including markets for CDs/DVDs/Blu-rays).  Large quantities of counterfeit electrical appliances imported from China with labels denoting “Sony,” “Panasonic,” and “General Electric” are available for purchase in local markets.  There is also a flourishing market of textile products made in Bolivia marketed using counterfeit labels of major U.S. brands.  While most counterfeit items come with the illegal brand already attached, brands and logos are available for purchase on the street and can easily be affixed to goods.

Although court actions against those infringing upon IPR are infrequent, there have been some significant cases.  The Industrial Property Director at SENAPI reported that the number of indictments related to counterfeit products increased steadily over the years.  In 2010 there were only 20 such cases.  In 2011, they increased to 27.  In 2012, 48 cases were reported.  In 2013, cases dipped slightly to 43, sharply rose to 60 in 2014, to 65 in 2015, and then to 109 in 2016. SENAPI has not made this data public since then.  According to SENAPI, this does not necessarily represent an increase in the total volume of counterfeit products.  Rather, the increase in indictments is due to SENAPI’s emphasis on enforcement efforts and the public’s greater awareness of IPR rights.  In April 2018, a Bolivian Police task force launched several raids to counter an international group of counterfeit medicine smugglers who were rebranding generic marks, forging medicines using flour, sugar, and dyes, and changing expiration dates.  This group was smuggling these products from Peru through the border.  Bolivian Police estimated that they seized more than USD1 million in counterfeit medicines.  The Bolivian Pharmaceutical Association estimates that they experience losses of approximately USD80 million per year due to contraband.

Bolivia is listed on the Watch List of 2019 USTR’s Special 301 Report.  Bolivia is not named in the 2019 Notorious Market Report.

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/ 

Capital Markets and Portfolio Investment

The government’s general attitude toward foreign portfolio investment is neutral.  Established Bolivian firms may issue short or medium-term debt in local capital markets, which act primarily as secondary markets for fixed-return securities.  Bolivian capital markets have sought to expand their handling of local corporate bond issues and equity instruments.  Over the last few years, several Bolivian companies and some foreign firms have been able to raise funds through local capital markets.  However, the stock exchange is small and is highly concentrated in bonds and debt instruments (more than 95 percent of transactions).  The amount of total transactions per year generally hovers at around 45 percent of GDP.

Since 2008, the financial markets have experienced high liquidity, which has led to historically low interest rates.  However, liquidity has been returning to normal levels in recent years and there are some pressures to increase interest rates.  The Bolivian financial system is not well integrated with the international system and there is only one foreign bank among the top ten banks of Bolivia.

In October 2012, Bolivia returned to global credit markets for the first time in nearly a century, selling USD 500 million worth of 10-year bonds at the New York Stock Exchange.  The sovereign bonds were offered with an interest rate of 4.875 percent and demand for the bonds well surpassed the offer, reaching USD 1.5 billion.  U.S. financial companies Bank of America, Merrill Lynch, and Goldman Sachs were the lead managers of the deal.  In 2013, Bolivia sold another USD 500 million at 5.95 percent for ten years.  HSBC, Bank of America, and Merrill Lynch were the lead managers of the deal.  In 2017, Bolivia sold another USD 1 billion at 4.5 percent for ten years, with Bank of America and JP Morgan managing the deal.  According to the Ministry of Economy, the resources gained from the sales will be used to finance infrastructure projects.

The government and central bank respect their obligations under IMF Article VIII, as the exchange system is free of restrictions on payments and transfers for international transactions.

Foreign investors legally established in Bolivia are able to get credits on the local market.  However, due to the size of the market, large credits are rare and may require operations involving several banks.  Credit access through other financial instruments is limited to bond issuances in the capital market.  A recent financial services law directs credit towards the productive sectors and caps interest rates.

Money and Banking System

The Bolivian banking system is small, composed of 16 banks, 6 banks specialized in mortgage lending, 3 private financial funds, 30 savings and credit cooperatives, and 8 institutions specialized in microcredit.  Of the total number of personal deposits made in Bolivia through December 2018 (USD 26.3 billion), the banking sector accounted for 80 percent of the total financial system.  Similarly, of the total loans and credits made to private individuals (USD 25.1 billion) through December 2018, 80 percent were made by the banking sector, while private financial funds and the savings and credit cooperatives accounted for the other 20 percent.

Bolivian banks have developed the capacity to adjudicate credit risk and evaluate expected rates of return in line with international norms.  The banking sector is stable and healthy with delinquency rates at less than 2 percent in 2018.

In 2013, a new Financial Services Law entered into force.  This new law enacted major changes to the banking sector, including deposit rate floors and lending rate ceilings, mandatory lending allocations to certain sectors of the economy and an upgrade of banks’ solvency requirements in line with the international Basel standards.  The law also requires banks to spend more on improving consumer protection, as well as providing increased access to financing in rural parts of the country.

Credit is now allocated on government-established rates for productive activities, but foreign investors may find it difficult to qualify for loans from local banks due to the requirement that domestic loans be issued exclusively against domestic collateral.  Since commercial credit is generally extended on a short-term basis, most foreign investors prefer to obtain credit abroad.  Most Bolivian borrowers are small and medium-sized enterprises (SMEs).

In 2007, the government created a Productive Development Bank to boost the production of small, medium-sized and family-run businesses.  The bank was created to provide loans to credit institutions which meet specific development conditions and goals, for example by giving out loans to farmers, small businesses, and other development focused investors.  The loans are long term and have lower interest rates than private banks can offer in order to allow for growth of investments and poverty reduction.

In September 2010, the Bolivian Government bought the local private bank Banco Union as part of a plan to gain control of part of the financial market.  Banco Union is one of the largest banks, with a share of 10.8 percent of total national credits and 12.7 percent of the total deposits; one of its principal activities is managing public sector accounts.  Bolivian Government ownership of Banco Union was illegal until December 2012, when the government enacted the State Bank Law, allowing for state participation in the banking sector.

There is no strong evidence of “cross-shareholding” and “stable-shareholding” arrangements used by private firms to restrict foreign investment, and the 2009 Constitution forbids monopolies and supports antitrust measures.  In addition, there is no evidence of hostile takeovers (other than government nationalizations that took place from 2006-14).

The Financial sector is regulated by ASFI (Supervising Authority of Financial Institutions), a decentralized institution that is under the Ministry of Economy.  The Central Bank of Bolivia (BCB) oversees all financial institutions, provides liquidity when necessary, and acts as lender of last resort.  The BCB is the only monetary authority and is in charge of managing the payment system, international reserves, and the exchange rate.

Foreigners are able to establish bank accounts only with residency status in Bolivia.

Blockchain technologies in Bolivia are still in the early stages.  Currently, the banking sector is analyzing blockchain technologies and the sector intends to propose a regulatory framework in coordination with ASFI in the future.

Three different settlement mechanisms are available in Bolivia:  (1) the high-value payment system administered by the Central Bank for inter-bank operations; (2) a system of low value payments utilizing checks and credit and debit cards administered by the local association of private banks (ASOBAN); and (3) the deferred settlement payment system designed for small financial institutions such as credit cooperatives.  This mechanism is also administered by the Central Bank.

Foreign Exchange and Remittances

Foreign Exchange

The Banking Law (#393, 2013) establishes regulations for foreign currency hedging and authorizes banks to maintain accounts in foreign currencies.  A significant, but dropping, percentage of deposits are denominated in U.S. dollars (currently less than 14 percent of total deposits).  Bolivian law currently allows repatriation of profits, with a 12.5 percent withholding tax.  However, a provision of the 2009 Constitution (Article 351.2) requires reinvestment within Bolivia of private profits from natural resources.  Until specific implementing legislation is passed, it is unclear how this provision will be applied.  In addition, all bank transfers in U.S. dollars within the financial system and leaving the country must pay a Financial Transaction Tax (ITF) of .03 percent.  This tax applies to foreign transactions for U.S. dollars leaving Bolivia, not to money transferred internally.

Any banking transaction above USD 10,000 (in one operation or over three consecutive days) requires a form stating the source of funds.  In addition, any hard currency cash transfer from or to Bolivia equal to or greater than USD 10,000 must be registered with the customs office.  Amounts between USD 50,000 and USD 500,000 require authorization by the Central Bank and quantities above USD 500,000 require authorization by the Ministry of the Economy and Public Finance.  The fine for underreporting any cash transaction is equal to 30 percent of the difference between the declared amount and the quantity of money found.  The reporting standard is international, but many private companies in Bolivia find the application cumbersome due to the government requirement for detailed transaction breakdowns rather than allowing for blanket transaction reporting.

Administrative Resolution 398/10 approved in June 2010 forces Bolivian banks to reduce their investments and/or assets outside the country to an amount that does not exceed 50 percent of the value of their net equity.

The Central Bank charges a fee for different kinds of international transactions related to banking and trade.  The current list of fees and the details can be found at: https://www.bcb.gob.bo/webdocs/01_resoluciones/RD percent20180 percent202018.pdf 

Law 843 on tax reform directly affects the transfer of all money to foreign countries.  All companies are charged 25 percent tax, except for banks which can be charged 37.5 percent, on profits under the Tax Reform Law, but when a company sends money abroad, the presumption of the Bolivian Tax Authority is that 50 percent of all money transmitted is profit.  Under this presumption, the 25 percent tax is applied to half of all money transferred abroad, whether actual or only presumed profit.  In practical terms, it means there is a payment of 12.5 percent as a transfer tax.

Currency is freely convertible at Bolivian banks and exchange houses.  The Bolivian Government describes its official exchange system as an “incomplete crawling peg.”  Under this system, the exchange rate is fixed, but undergoes micro-readjustments that are not pre-announced to the public.  There is a spread of 10 basis points between the exchange rate for buying and selling U.S. dollars.  The Peso Boliviano (Bs) has remained fixed at 6.96 Bs/USD  1 for selling and 6.86 Bs/USD  1 for buying since October 2011.  The parallel rate closely tracks the official rate, suggesting the market finds the Central Bank’s policy acceptable.  In order to avoid distortions in the exchange rate market, the Central Bank requires all currency exchange to occur at the official rate ±1 basis point.

Remittance Policies

Each remittance transaction from Bolivia to other countries has a USD 2,500 limit per transaction, but there is no limit to the number of transactions that an individual can remit.  The volume of remittances sent to and from Bolivia has increased considerably in the past five years, and the central bank and banking regulator are currently analyzing whether to impose more regulations sometime in the future.  Foreign investors are theoretically able to remit through a legal parallel market utilizing convertible, negotiable instruments, but, in practice, the availability of these financial instruments is limited in Bolivia.  For example, the Bolivian Government mainly issues bonds in Bolivianos and the majority of corporate bonds are also issued in Bolivianos.

The official exchange rate between Bolivianos and dollars is the same as the informal rate.  The government allows account holders to maintain bank accounts in Bolivianos or dollars and make transfers freely between them.  Business travelers may bring up to USD 10,000 in cash into the country.  For amounts greater than USD 10,000, government permission is needed through sworn declaration.

Sovereign Wealth Funds

Neither the Bolivian Government nor any government-affiliated entity maintains a sovereign wealth fund.

The Bolivian Government has set up companies in sectors it considers strategic to the national interest and social well-being, and has stated that it plans to do so in every sector it considers strategic or where there is either a monopoly or oligopoly.

The Bolivian Government owns and operates more than 60 businesses including energy and mining companies, a telecommunications company, a satellite company, a bank, a sugar factory, an airline, a packaging plant, paper and cardboard factories, and milk and Brazil nut processing factories, among others.  In 2005, income from state-owned business in Bolivia other than gas exports represented only a fraction of a percent of Gross Domestic Product (GDP).  As of 2015, public sector contribution to GDP (including SOEs, investments, and consumption of goods and services) has risen to over 40 percent of GDP.

The largest SOEs are able to acquire credit from the Central Bank at very low interest rates and convenient terms.  Some private companies complain that it is impossible for them to compete with this financial subsidy.  Moreover, SOEs appear to benefit from easier access to licenses, supplies, materials and land; however, there is no law specifically providing SOEs with preferential treatment in this regard.  In many cases, government entities are directed to do business with SOEs, placing other private companies and investors at a competitive disadvantage.

The government registered budget surpluses from 2006 until 2013, but began experiencing budget deficits in 2014.  Close to 50 percent of the deficit was explained by the performance of SOEs, such as Bolivia’s state-owned oil and gas company.  According to the 2009 Constitution, all SOEs are required to publish an annual report and are subject to financial audits.  Additionally, SOEs are required to present an annual testimony in front of civil society and social movements, a practice known as social control.

Privatization Program

There are currently no privatization programs in Bolivia.

Bolivia has laws that regulate aspects related to corporate social responsibility (CSR) practices,  Both producers and consumers in Bolivia are generally aware of CSR, but consumer decisions are ultimately based on price and quality.  Because the Bolivian Constitution stipulates that economic activity cannot damage the collective good (Article 47), CSR activities are generally looked upon favorably by the Bolivian Government.  However, during pre-electoral periods, government officials occasionally accuse companies of using CSR practices as political tools against the government and suggest that the government pioneer tighter CSR regulations.

Though Bolivia is not part of the OECD, it has participated in several Latin American Corporate Governance Roundtables since 2000.  Neither the Bolivian Government nor its organizations use the OECD Guidelines for CSR.  Instead, Bolivian companies and organizations are focused on trying to accomplish the UN’s Millennium Development Goals, and they use the Global Reporting Initiative (GRI) methodology in order to show economic, social and environmental results.  While the Bolivian Government, private companies, and non-profits are focused on the UN’s Millennium Development Goals, only a few private companies and NGOs focus on following the UN standard ISO 26000 guidelines and methodologies.  Another methodology widely accepted in Bolivia is the one developed by the ETHOS Institute, which provides measurable indicators accepted by PLARSE (Programa Latinoamericano de Responsabilidad Social Corporativa, the Latin American Program for CSR).The Bolivian Government issued a 2013 supreme decree that requires financial entities to allocate 6 percent of profits to CSR-related projects.

The 1942 General Labor Law is the basis for employment rights in Bolivia, but this law has been modified more than 2,000 times via 60 supreme decrees since 1942.  As a result of these modifications, the General Labor Law has become a complex web of regulations that is difficult to enforce or understand.  An example of the lack of enforcement is the Comprehensive System for Protection of the Disabled (Law 25689) which stipulates that at least 4 percent of the total work force in public institutions, state owned enterprises, and private companies should be disabled.  Neither the public nor private sectors are close to fulfilling this requirement, and most buildings lack even basic access modifications to allow for disabled workers.

In support of consumer protection rights, the Vice Ministry of Defense of User and Consumer Rights was created in 2009 (Supreme Decree 29894) under the supervision of the Ministry of Justice (which became the Ministry of Justice and Transparency in 2017).  This same year the Consumer Protection Law (Supreme Decree 0065) was enacted, which gave the newly created Vice Ministry the authority to request information, verify and follow up on consumer complaints.

The Mother Earth Law (Law 071) approved in October 2012 promotes CSR elements as part of its principles (Article 2), such as collective good, harmony, respect and defense of rights.  The Ministry of Environment and Water is in charge of overseeing the implementation of this law, but the implementing regulations and new institutions needed to enforce this law are still incomplete.

Even though Bolivia promotes the development of CSR practices in its laws, the government gives no advantage to businesses that implement these practices.  Instead, businesses implement CSRs in order to gain the public support necessary to pass the prior consultation requirements or strengthen their support when mounting a legal defense against claims that they are not using land to fulfill a socially valuable purpose, as defined in the Community Land Reform laws (# 1775 and #3545).

In April 2009 the Bolivian Government reorganized the supervisory agencies of the government (formerly Superintendencias) to include social groups, thus creating the “Authorities of Supervision and Social Control” (Supreme Decree 0071).  This authority controls and supervises the following sectors: telecommunications and transportation, water and sanitation, forests and land, pensions, electricity, and enterprises.  Each sector has an Authority of Supervision and Social Control assigned to its oversight, and each Authority has the right to audit the activities in the aforementioned sectors and the right to request the public disclosure of information, ranging from financial disclosures to investigation of management decisions.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Diego Jimenez Guachalla
Vice Minister of Justice and the Fight Against Corruption
Ministry of Justice
Calle Capitan Ravelo 2101, La Paz
+591-2-115773
http://www.transparencia.gob.bo/ 

Bolivian law stipulates criminal penalties for corruption by officials, but the laws are not often implemented properly.  Governmental lack of transparency, and police and judicial corruption, remain significant problems.  The Ministry of Justice and Transparency and the Prosecutor’s Office are both responsible for combating corruption.  In September 2014, former Transparency Minister Nardy Suxo reported that the Ministry was investigating 388 complaints against public servants.  The Ministry has obtained 100 convictions since 2006.  Cases involving allegations of corruption against the president and vice president require congressional approval before prosecutors may initiate legal proceedings, and cases against pro-government public officials are rarely allowed to proceed.  Despite the fact that the courts found that the awarding of immunity for corruption charges is unconstitutional, their rulings were ignored by the government.

Police corruption remains a significant problem.  There are also reports of widespread corruption in the country’s judiciary.

There is an Ombudsman appointed by Congress and charged with protecting human rights and guarding against government abuse.  In his 2014 annual report, the Ombudsman cited the judicial system, the attorney general’s office, and the police as the most persistent violators of human rights due to widespread inefficiencies and corruption.  Public opinion reflected the Ombudsman’s statements.  The 2017 Transparency International corruption perception index ranked Bolivia as 112 of 180 countries and found that Bolivian citizens believe the most corrupt institutions in Bolivia are the judiciary, the police, and executive branch institutions

Bolivia has laws in place which govern public sector-related contracts (Law 1178 and Supreme Decree 181), including contracts for the acquisition of goods, services, and consulting jobs.  Bribery of public officials is also a criminal offense under Articles 145 and 158 of Bolivia’s Criminal Code.  Laws also exist that provide protection for citizens filing complaints against corruption.

Bolivia signed the UN Anticorruption Convention in December 2003 and ratified it in December 2005.  Bolivia is also party to the OAS Inter-American Convention against Corruption.  Bolivia is not a signatory of the OECD Convention on Combating Bribery of Foreign Public Officials.

Bolivia is prone to social unrest, which can include violence.  Given the country’s reliance on a few key thoroughfares, conflict often disrupts transportation and distribution networks.  The majority of civil disturbances are related to domestic issues, usually workers pressuring the government for concessions by marching or closing major transportation arteries.  Over the past year, there has been no political violence that targeted foreigners.  While protests and blockades are frequent, they only periodically affect commerce.  Several conflicts in La Paz directly affected distribution of essential services or travel in and out of the city for periods greater than 24 hours during 2018.  However, numerous others caused businesses to close for short periods or impeded business operations.  To date, the situation remains as such.  The environment is becoming increasingly politicized in the run up to general elections in October 2019.

Approximately two-thirds of Bolivia’s population is considered “economically active.”  Between 60 and 70 percent of workers participate in the informal economy, where no contractual employer-employee relationship exists.  Relatively low education and literacy levels limit labor productivity, a fact reflected in wage rates.  Unskilled labor is readily available, but skilled workers are often harder to find.

Article 3 of the Labor Code limits to 15 percent the number of foreign nationals that can be employed by any business.  Due to the limited number of labor inspectors, enforcement of the law is uneven.

The 2009 Constitution specifies that unjustified firing from jobs is forbidden and that the state will resolve conflicts between employers and employees (Articles 49.3 and 50).  Bolivian labor law guarantees workers the right of association and the right to organize and bargain collectively.  Most companies are unionized, and nearly all unions belong to the Confederation of Bolivian Workers (COB).

Labor laws, including related regulations and statutory instruments, provide for the freedom of association, the right to strike, and the right to organize and bargain collectively.  The law prohibits antiunion discrimination and requires reinstatement of workers fired for union activity.  The law does not require government approval for strikes and allows peaceful strikers to occupy business or government offices.  General and solidarity strikes are protected by the constitution, as is the right of any working individual to join a union.

Workers may form a union in any private company of 20 or more employees, but the law requires that at least 50 percent of the workforce be in favor of forming a union.  The law requires prior government authorization to establish a union and confirm its elected leadership, permits only one union per enterprise, and allows the government to dissolve unions by administrative fiat.  The law also requires that members of union executive boards be Bolivian by birth.  The labor code prohibits most public employees from forming unions, but some public-sector workers (including teachers, transportation workers, and health-care workers) were legally unionized and actively participated as members of the Bolivian Workers’ Union without penalty.

Freedom of association is limited by the government and under-resourced labor courts.  Moreover, the 20-worker threshold for forming a union proved an onerous restriction, as an estimated 72 percent of enterprises had fewer than 20 employees.  Labor inspectors may attend union meetings and monitor union activities.  Collective bargaining and voluntary direct negotiations between employers and workers without government participation was limited.  Most collective bargaining agreements were restricted to addressing wages.

Originally passed in 1942, Bolivia’s labor law has changed frequently due to new regulations.  Labor attorneys estimate that the law has been amended over two thousand times, with many amendments directly contradicting others.  Attorneys comment that it is virtually impossible to understand the rules clearly, creating significant uncertainty for both employers and employees.

Bolivia has no unemployment insurance or employment-related social safety net programs.  However, if an employee is laid off due to economic or technical reasons, employers are required to pay three months of salary as compensation.  If fired due to misconduct, the three month compensation is not applicable.  Nevertheless, employees generally have more negotiating leverage in Bolivia than employers, and many employers choose to pay the compensation in order to avoid retaliation.

The Ministry of Labor has labor-related conflict resolution mechanisms, but in reality these processes are skewed towards employees.  If parties cannot reach an agreement, employees are able to initiate legal proceedings, with appeals to Bolivia’s Supreme Court possible.

The National Labor Court handles complaints of antiunion discrimination, but rulings generally take a year or more.  In some cases, the court rules in favor of discharged workers and requires their reinstatement.  Union leaders state that problems are often resolved or are no longer relevant by the time the court rules.  For this reason, government remedies and penalties are often ineffective and insufficient to deter violations.

Violence during labor demonstrations continues to be a serious problem.  In August 2016, striking miners kidnapped and murdered Vice Minister Rodolfo Illanes during a conflict between miners and the government on the La Paz-Oruro highway.  Several miners were also shot and killed.  The case is still under investigation.

OPIC’s programs are not currently available in Bolivia.

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

* Source for Host Country Data: BEA, UNCTAD, World Bank

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

J.M. Saxton-Ruiz
Political and Economic Officer
U.S. Embassy La Paz, Av. Arce 2780
(591-2) 216-8171
Saxton-RuizJM@state.gov

Policies Towards Foreign Direct Investment

The Dominican government promotes inward FDI and has established formal programs to attract it, including the 2017 launch of the “ProDominicana” program.  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 for hazardous materials or materials linked to national security. The Dominican Republic provides tax incentives to investment in tourism, renewable energy, film production, Haiti-Dominican Republic border development, and the industrial sector.  The Dominican Republic 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.

The Export and Investment Center of the Dominican Republic (CEI-RD) offers assistance for prospective foreign investors, including assistance with business registration and identification of investment opportunities.  The National Council of Free Trade Zones for Export (CNZFE) offers assistance to foreign companies looking to invest in the free trade zones.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no general (statutory, de facto, or otherwise) limits on foreign ownership or control.  According to Law No. 98-03 and Regulation 214-04, an interested foreign investor must file an application form at the offices of CEI-RD within 180 calendar days from the date on which the foreign investment took place. CEI-RD will then evaluate the application and issue the corresponding Certificate of Registration within 15 working days.

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 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  .

The Dominican Republic does not maintain a formalized investment screening and approval mechanism for inbound foreign investment.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) has not conducted an investment policy review of the Dominican Republic.  The United Nations Conference on Trade and Development (UNCTAD) published an investment policy review in 2009. The World Trade Organization (WTO) published a trade policy review in 2015.

• UNCTAD – https://unctad.org/en/pages/PublicationArchive.aspx?publicationid=6343  
• WTO – https://www.wto.org/english/tratop_e/tpr_e/s319_e.pdf 

Business Facilitation

According to the World Bank’s 2018 Doing Business report, starting a limited liability company (Sociedad de responsibilidad limitada or SRL) in the Dominican Republic is a seven-step process, which requires 16.5 days.  SRL registration steps include (1) verifying the availability of the company name with the National Office of Industrial Property (ONAPI); (2) purchasing the company name with ONAPI; (3) paying the incorporation tax with the National Internal Revenue Agency (DGII); (4) registering the company with the Chamber of Commerce and obtaining a tax identification number (RNC); (5) filing for the national taxpayer registry and applying for fiscal receipts at DGII; (6) registering local employees with the Ministry of Labor; and (7) registering employees at the Social Security Office.

The Dominican Republic has a single-window registration website for SRL registration (https://www.formalizate.gob.do/ ) that offers a one-stop shop for registration needs.  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 advisable for company registrations.

The Ministry of Industry and Commerce (MIC) leads the Dominican Republic’s assistance and registration program for micro, small, and medium-sized enterprises (PYMES).  The PYMES program, a partnership between the MIC and the National Competitiveness Council, offers technical assistance to majority Dominican-owned micro, small, and medium companies.   According to the Law no. 187-17, micro enterprises are those with 10 employees or less, the small enterprises are defined as those with 11 to 50 employees, and medium enterprises employ 51 to 150 employees.

Outward Investment

There are no legal or government restrictions on domestic investment abroad, although outbound foreign investment is significantly lower than inbound investment.  The largest recipient of Dominican outward investment is the United States.

The Dominican Republic has Bilateral Investment Treaties (BIT) in-force with: Chile, Finland, France, Italy, Republic of Korea, Morocco, Netherlands, Panama, Spain, and Switzerland. (Note: The Dominican Republic also had a BIT with Taiwan.  Post is working to confirm whether that agreement remains in force after the Dominican Republic’s recognition of the People’s Republic of China in May 2018. End Note.). The Dominican Republic has signed BITs with Argentina, Cuba, and Haiti, however, these agreements are not in force. According to the Dominican Ministry of Industry and Commerce, free trade agreements currently in force include: CAFTA-DR; the Economic Partnership Agreement (EPA) between the European Union and CARIFORUM (an organization of Caribbean nations, including the Dominican Republic); a trade agreement between the Dominican Republic and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua; a free trade agreement with CARICOM (the Caribbean Community); and a trade agreement with Panama.

An agreement for the exchange of tax information between the United States and Dominican Republic has been in effect since 1989.  In 2016, the United States and the Dominican Republic signed an agreement to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA).  However, the agreement has yet to be implemented. The Dominican Republic has tax agreements in force with Canada and Spain to avoid double taxation and prevent tax evasion.

Transparency of the Regulatory System

On the 2018 Global Innovations Index, the Dominican Republic ranks 104 out of 127 for regulatory environment and 73 out of 127 for regulatory quality.  The World Economic Forum 2018 Global Competitiveness Report ranked the Dominican Republic 95 out of 140 countries in efficiency of the legal framework in challenging regulations, and 99 out of 140 in burden of government regulations.

The World Bank Global Indicators of Regulatory Governance states that Dominican ministries and regulatory agencies do not develop forward regulatory plans.  In other words, they do not publish a list of anticipated regulatory changes or proposals intended for adoption or implementation within a specific timeframe.  Law 200-04 requires regulatory agencies to give notice of proposed regulations in public consultations and mandates publication of the full text of draft regulations on a unified website: http://www.consultoria.gov.do/  .  Foreign investors, however, claim that these requirements are not always met in practice.  Moreover, many businesses note that the scope of the website content is not always adequate for investors or interested parties.  Some report that individual ministries sometimes upload proposed regulations to their websites or post them in national newspapers.  Ministries sometimes form working groups with key public and private sector stakeholders participating in the drafting of proposed regulations.   

Some Ministries and regulatory agencies solicit comments on proposed legislation from the public; however, public outreach is generally limited to stakeholders.  Comments are not publicly accessible. Some ministries and agencies prepare consolidated reports on the results of the consultation, which they distribute directly 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. 

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 479-08, which also declares (as amended by Law 31-11) financial statements should be prepared in accordance with generally accepted accounting standards nationally and internationally.  The ICPARD and the country’s stock market regulator (Superintendencia del Mercado de Valores) 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 produces a quarterly report on the status of the non-financial public sector debt.  The Office of Public Credit presents a wide array of information and statistics on public debt bonds and projections on its website. 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 approximately USD 11 billion in “quasi-fiscal” debt. Added to other borrowing, it puts the Debt-to-GDP ratio near 53 percent, and the Debt Service Ratio near 30 percent.

International Regulatory Considerations

Since 2003, the Dominican Republic has presented 226 regular notifications to the WTO Committee on Technical Barriers to Trade (TBT).  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 notify these requirements under the WTO TBT agreement and CAFTA-DR.

Legal System and Judicial Independence

The World Economic Forum 2018 Global Competitiveness report ranked the Dominican Republic 125 out of 140 countries in judicial independence and 95 of 140 in the efficiency of the legal framework in settling disputes.  On the 2018 Global Innovations Index, the Dominican Republic ranked 78 out of 126 countries for rule of law.

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. 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. Subsequent Dominican laws are not of French origin.

The country is divided into 12 Judicial Departments, each one headed by a Court of Appeals with jurisdiction over civil and criminal matters in 35 Judicial Districts.  Justices of the Peace handle small claims, certain traffic accidents, landlord-tenant disputes, and other matters. There are also specialized courts with jurisdiction over labor cases, disputes involving registered land, cases involving minors, and administrative matters.  The Supreme Court is the highest court, with jurisdiction to handle most appeals from the courts of appeal, and first instance jurisdiction in criminal matters involving certain high-level government officials. The Constitutional Tribunal rules on the constitutionality of laws, decrees, and treaties and decides cases involving constitutional questions.

Some investors complain of long wait times for a decision by the judiciary.  According to the World Bank’s Doing Business report, while Dominican law mandates overall time standards for the completion of key events in a civil case, these standards frequently are not met. The Civil Procedure Code dates from 1884, and there have been few modifications.  The resolution of a civil case normally takes two to four years, although some take longer. Some investors have complained that the local court system is unreliable, biased against them, and that special interests and powerful individuals are able to use the legal system in their favor.

U.S. firms indicate that corruption on all levels – business, government, and judicial – impedes their access to justice. Several large U.S. firms have been subjects of injunctions issued by lower courts on behalf of distributors with whom they are engaged in a contract dispute.  According to some reports, these disputes are often the result of the firm seeking to end the relationship in accordance with the contract, and the distributor uses the injunction as a way of obtaining a more beneficial settlement. Many companies have noted that these injunctions often disrupt distribution activities, with negative effects on sales.  In order to engage effectively in the Dominican market, many U.S. companies seek local partners that are well-connected and understand the local business environment.

Decree No. 610-07 placed the Directorate of Foreign Commerce (DICOEX) in charge of commercial dispute settlement, including disputes related to the Investment Chapter of CAFTA-DR.  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.

Laws and Regulations on Foreign Direct Investment

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

Competition and Anti-Trust Laws

The National Commission for the Defense of Competition (Pro-Competencia) has the power to review transactions for competition related concerns.  Private sector contacts note, however, that strong public pressure is required for Pro-Competencia to take action.

Expropriation and Compensation

The Dominican constitution permits the government’s exercise of eminent domain; however, it also mandates fair market compensation in advance of the use of land taken.  Nevertheless, there are many outstanding disputes between U.S. investors and the Dominican government concerning unpaid government contracts or expropriated property and businesses.  Property claims make up the majority of cases. Most, but not all, expropriations have been used for infrastructure or commercial development. Many claims remain unresolved for years.

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 they could be argued to be indirect expropriation. For example, they note that government decrees mandating atypical setbacks from roads or other public infrastructure may deprive investors of the economic benefits of their investments.

Many companies report that the procedures to resolve expropriations lack transparency and, to a foreigner, may appear antiquated.  Few examples exist where government officials are held accountable for failing to pay a recognized claim or failing to pay in a timely manner.

Dispute Settlement

ICSID Convention and New York Convention

In 2000, the Dominican Republic signed the International Center for the Settlement of Investment Disputes (Washington Convention), however, the Dominican Congress did not ratify the agreement as required by the constitution.  In 2001, the Dominican Republic became a contracting state to the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The agreement entered into force by Congressional Resolution 178-01.

Investor-State Dispute Settlement

The Dominican Republic has entered into 12 bilateral investment treaties, most of which contain dispute resolution provisions that submit the parties to arbitration.  As a signatory to CAFTA-DR, the Dominican Republic is bound by the investment chapter of CAFTA-DR. There are currently three pending U.S. investor-state dispute cases filed against the Dominican Republic under CAFTA-DR.

The Embassy is aware of at least 28 U.S. investors who are involved in ongoing legal disputes with the Dominican government and parastatal firms involving payments, expropriations, contractual obligations, or regulatory obligations.  The investors range from large firms to private individuals and the disputes are at various levels of legal review.

International Commercial Arbitration and Foreign Courts

Law 489-08 on commercial arbitration governs the enforcement of arbitration awards, arbitral agreements, and arbitration proceedings in the Dominican Republic.  Per law 489-09, arbitration may be ad-hoc or institutional, meaning the parties may either agree on the rules of procedure applicable to their claim, or they may adopt the rules of a particular institution.  Fundamental aspects of the United Nations Commission on International Trade (UNCITRAL) model law are incorporated into Law 489-08. In addition, Law 181-09 created an institutional procedure for the Alternative Dispute Resolution Center of the Chamber of Commerce Santo Domingo (http://www.camarasantodomingo.do/  ).

Foreign arbitral awards are enforceable in the Dominican Republic in accordance with Law 489-09 and applicable treaties, including the New York Convention.  U.S. investors complain that the judicial process is slow and that domestic claimants with political connections have an advantage.

Bankruptcy Regulations

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 staying 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 national juridical school is still training specialized bankruptcy judges.

The Dominican Republic scores lower than the regional average and comparator economies on resolving insolvency, according to the World Bank’s Doing Business Report.

Investment Incentives

Foreign investors receive no special investment incentives and no other types of favored treatment, except for investments in renewable energy; in manufacturing investments located in Special Zones; and investments in tourism projects in certain locations. There are no requirements for investors to export a defined percentage of their production.

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.  The government imposes no conditions on foreign investors concerning location, local ownership, local content, or export requirements.

The Renewable Energy Incentives Law No. 57-07 provides some incentives to businesses developing renewable energy technologies.  Foreign investors praise the provisions of the law, but express frustration with approval and execution of potential renewable energy projects.

Special Zones for Border Development, created by Law No. 28-01, encourage development near the economically deprived Dominican Republic – Haiti border.  A range of incentives, largely in the form of tax exemptions for a maximum period of 20 years, are available to direct investments in manufacturing projects in the Zones.  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.

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.

For existing projects, hotels and resort-related investments that are five years or older are granted 100 percent exemptions 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.

Finally, individuals and companies get 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 government does not currently have a practice of jointly financing foreign direct investment projects.  It has contemplated changes to the investment legal framework, such as a law on public-private partnerships, but this change has not yet been introduced.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Dominican Republic’s free trade zones (FTZs) are regulated by the Promotion of Free Zones Law (No. 8-90), which provides for 100 percent exemption from all taxes, duties, charges and fees affecting production and export activities in the zones. These incentives are for 20 years for zones located near the Dominican-Haitian border and 15 years for those located throughout the rest of the country.  This legislation is managed by the Free Trade Zone National Council (CNZFE), a joint private sector/government body with discretionary authority to extend the time limits on these incentives. Products produced in FTZs can be sold on the Dominican market, however, relevant taxes apply.

In general, firms operating in the FTZs experience 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.

In 2018, FTZs exports totaled USD USD 6.2 billion, comprising 3.3 percent of GDP.  According to CNZFE’s 2018 Statistical Report, there are 673 companies (up from 665 the previous year) operating in a total of 74 FTZs (up from 71 the previous year).  Of the companies operating in FTZs, 39.9 percent are from the United States. Other significant investments were made by companies registered in the Dominican Republic (22.4 percent), United Kingdom (8.2 percent), Canada (4.5 percent), and Germany (3.5 percent).  Companies registered in 38 other countries comprised the remaining 22.6 percent of investments. The main FTZ sectors receiving investment include: medical and pharmaceutical products (27.3 percent); tobacco and derivatives (20 percent); textiles (14.5 percent); services (7.7 percent); agroindustrial products (6 percent), footwear (4.2 percent); metals (3 percent); plastics (2.6 percent); and electronics (2.4 percent).

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 Address: http://www.cnzfe.gov.do  

Performance and Data Localization Requirements

The Dominican labor code establishes that 80 percent of the labor force of a foreign or national company, including free trade zone companies, be composed of Dominican nationals.  The management or administrative staff of a foreign company is exempt from this regulation. The Foreign Investment Law (No. 16-95) provides that contracts for licensing patents or trademarks, for the provision of technical expertise, and for leases of machinery and equipment must be registered with the Directorate of Foreign Investment of the Central Bank.

There are no requirements for foreign information technology providers to turn over source code and/or provide access (i.e. backdoors into hardware and software or turn-over keys for encryption) to surveillance.  There are no mechanisms used to enforce any rules on maintaining set amounts of data storage within the country/economy. The government has not enacted data localization policies.

Real Property

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.  The Constitution further provides that it is “in the public interest that land be devoted to useful purposes and that large estates be gradually eliminated.” Furthermore, the state social policy shall promote land reform and effectively integrate the rural population to the national development process by encouraging renewal of agricultural production.

Mortgages and liens exist in the Dominican Republic, and there is a National Registry of Deeds.  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.

Under Dominican law, all land must be registered, and that which is not registered is considered state land.  Registration requires seven steps, an average of 60 days, and payment of 3.7 percent of the value of the land as a registration fee.  The landowner is required to have a survey of the land, a certificate demonstrating that property taxes are current, and a certificate from the Title Registry Office that evidences any encumbrances on the land (such as mortgages or easements) and serves as a check on the extent of land rights to be transferred.  Property ownership may revert to occupants (such as squatters) after twenty years, if they properly register the property.

Many businesses have complained that land tenure insecurity persists, fueled by government land expropriations, institutional weaknesses, lack of effective law enforcement, and local community support for land invasions and squatting.  Some companies have reported that concessions granted by the government are subsequently interfered with or not respected, and alleged political expediency or influence as a reason for such actions. Despite the requirement of land registration, some land in the Dominican Republic is not registered, and even if land rights are registered, tenure is not assured, according to some reports.  Investors have claimed that ln some parts of the country, unregistered land has been expropriated for development without notice or compensation. In some cases, however, holders of title certificates have reported to receive little or no additional security. Several companies note that long-standing titling practices, such as issuing provisional titles that are never completed or providing title to land to multiple owners without requiring individualization of parcels, have created substantial ambiguity in property rights and undermined the reliability of land records.  Some report that certain of these practices have been curtailed in the last few years, but nonetheless undermine the reliability of existing land documentation. In addition, companies have complained of the country’s struggles to control fraud in the creation and registration of land titles, including illegal operations within the government agencies responsible for issuing titles.

In the last decade, the Dominican government has implemented reform programs focused on developing institutional frameworks and strengthening government agencies and public administration.  As part of its overarching program to modernize the justice sector, the Dominican Republic Supreme Court modernized its property title registration process through a USD 10 million USD Inter-American Development Bank (IDB) loan in an effort to 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.

The Dominican government has instituted a number of reforms, including the development of a cadaster with digitized property titles and the establishment and expansion of 23 land registry offices across the country.  In 2012, the government created the State Lands Titling Commission, which, working with the Dominican Agrarian Institute, is intended to achieve the titling of around 150,000 urban and rural properties.

Intellectual Property Rights

Since 2003, the U.S. Trade Representative (USTR) has designated the Dominican Republic as a Special 301 Watch List country for serious intellectual property rights (IPR) deficiencies.  Despite strong IPR laws on the books, enforcement is reported to remain weak. In the 2019 Watch List designation, USTR cited the Dominican government’s lack of progress in addressing long-standing IPR issues such as signal piracy and the widespread availability of counterfeit products.  Weak IPR enforcement can be attributed to lack of resources and properly trained personnel; weak institutions and the absence of an inter-institutional enforcement mechanism to unite the various IPR authorities; and widespread cultural acceptance of piracy and counterfeiting.

Key IPR issues that third parties have flagged include rampant television signal broadcast piracy, insufficient enforcement actions against the manufacturers of counterfeit pharmaceuticals and other products, and weak customs enforcement against counterfeit trafficking. A 2018 Euromonitor International report noted that 30.8 percent of all alcohol consumed in the Dominican Republic was either counterfeit or smuggled, the highest rate in all of Latin America.

Customs officers have ex officio authority to seize any goods suspected as counterfeit.  Prior to destroying counterfeit goods, customs officers must notify the rights holder. During this time, customs stores the goods at the expense of the rights holder.  The rights holder then has 30 days to inspect the shipment and reach an agreement with the sender and manufacturer. At the end of the 30 days, if no agreement has been reached, then the rights holder can pay to send the items back or to have them destroyed.  If the rights holder does not act, customs will release the shipment to the importer.

U.S. industry representatives observe more willingness on the part of Dominican authorities to prosecute health and safety crimes as opposed to copyright and trademark violations.  In 2018, industry representatives said the Attorney General’s office for Technology Crimes, which oversees IPR prosecutions, deprioritized the prosecution of copyright and trademark violations and focused instead on cybercrimes.  By contrast, industry representatives complimented the work of the Attorney General’s Office for Health Matters, which is responsible for prosecuting manufacturers and distributors of counterfeit pharmaceuticals, cigarettes, and food products.

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/  .

Resources for Rights Holders

Contact at Mission:

Economic Officer
U.S. Embassy Santo Domingo
(809) 567-7775
Email: InvestmentDR@State.gov

Country/Economy resources:

List of Attorneys in the Dominican Republic, compiled by the Consular Section of the U.S. Embassy in Santo Domingo: https://do.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/legal-assistance/

American Chamber of Commerce of the Dominican Republic
Avenida Sarasota No. 20
Torre Empresarial, 6to. Piso.
Santo Domingo
(809) 381-0777
Email: amcham@amcham.org.do

National Copyright Office (ONDA)
Ministry of Industry and Commerce
Edificio del Archivo General de la Nación
Calle Modesto Diaz No. 2
Zona Universitaria
Santo Domingo, D.N.
809-508-7373 / 809-508-7742
Email: admin.onda@onda.gob.do

National Office of Industrial Property (ONAPI)
Ministry of Industry and Commerce
Av. Los Próceres No.11, Santo Domingo, D.N.
(809) 567-7474
Email: serviciocliente@onapi.gob.do

Capital Markets and Portfolio Investment

The Dominican stock market, the Bolsa de Valores de Santo Domingo, is regulated by the Monetary Council 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.

Money and Banking System

The Dominican banking sector is comprised by 124 entities, as follows: 60 financial intermediation entities (including multiple banks, savings and loans associations, savings and loans banks, financial intermediation public entities, credit corporations), 47 foreign exchange and remittance agents (specifically, 42 exchange brokers and 5 remittances and foreign exchange agents), and 17 trustees.

The mission of the Dominican Central Bank is to ensure the stability of prices, guarantee the efficient regulation of the financial system and the proper functioning of payment systems, as the issuing entity and executor of monetary, exchange, and financial policies to contribute with the growth of national economy

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. 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 enacted robust banking reforms in the wake of a 2003 financial crisis.  Today, the Dominican Republic’s financial sector is relatively stable and the IMF declared the financial system indicators largely satisfactory during 2019 Article IV consultations.  The IMF team’s preliminary report noted that the country’s “robust economic performance benefitted from the strengthened policy frameworks, competitiveness, and banking system over the past decade.”

Foreign Exchange and Remittances

Foreign Exchange

The Dominican exchange system is a market with free convertibility of the peso.  Economic agents perform their transactions of foreign currencies under free market conditions.  There are generally no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

The Central Bank sets the exchange rates and practices a policy of managed float.  Some firms have had repeated difficulties obtaining dollars during periods of high demand.  Importers may obtain foreign currency directly from commercial banks and exchange agents. The Central Bank participates in this market in pursuit of monetary policy objectives, buying or selling currencies and performing any other operation in the market to minimize volatility.

Remittance Policies

The Regulation No. 214-04 on the Registration of Foreign Investment in the Dominican Republic establishes the requirements for the registration of foreign investments, the remittance of profits, the repatriation of capital, and the requirements for the sale of foreign currency, among other issues related with investments.

Sovereign Wealth Funds

The Dominican government does not maintain a sovereign wealth fund.

State-Owned Enterprises (SOEs) in general do not have a significant presence in the economy, with most functions performed by privately-held firms.  Notable exceptions are in the electricity, banking, and refining sectors. The government lists 22 public enterprises in its budget documents, primarily as public utilities, state-run banks, or quasi-public entities that manage infrastructure.  The largest of these is the Dominican Corporation of State Electrical Companies (CDEEE). In the electricity sector, generally speaking, private companies only operate in the electricity generation phase of the process, with the government handling the transmission and distribution phases.  However, Punta Cana-Macao Energy Consortium (CEPM), a private company that generates and transmits electricity in the Punta Cana area, is a notable exception. 

Law 10-04 requires the Chamber of Accounts to audit SOEs.  Audits are published in http://www.camaradecuentas.gob.do/index.php/auditorias-realizadas  .  However, the available audits are dated several years ago. In addition, all audits are available upon request according to freedom of information provisions.

Privatization Program

The government does not have any privatization programs.  A partial privatization of state-owned enterprises (SOEs) in the late 1990s resulted in foreign investors obtaining management control of former SOEs engaged in activities such as electricity generation, airport management, and sugarcane processing.  In 2017, the government ordered the dissolution of the SOE corporation that previously managed several (now private) SOEs (CORDE).

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.

The Dominican Constitution states “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, Pro Consumidor, offers consumer advocacy services.

The country joined the Extractive Industries Transparency Initiative (EITI) as candidate in 2016.  The government incorporates EITI standards into its mining transparency framework. In 2019, EITI is conducting a validation study of the Dominican Republic’s implementation of EITI standards.

The Dominican Republic has a legal framework that includes laws, regulations and criminal penalties to combat corruption.  Foreign investors, however, indicate that corruption and official impunity are endemic in the security forces, government, and private sector.  Many companies complain of the often ineffectiveness in enforcing existing laws. Some report that corruption and the need for reform are an openly and widely discussed public grievance.  The 2018 Transparency International Corruption Perception Index ranked the Dominican Republic 129th out of 180 countries assessed. The World Economic Forum’s 2018 Global Competitiveness report ranked the Dominican Republic as 113 of 140 countries for incidence of corruption.  U.S. businesses operating in the Dominican Republic often need to take extensive measures to ensure compliance with the Foreign Corrupt Practices Act.

In December 2016, high-level public officials in the Dominican Republic were among those implicated in the far-reaching corruption scandal involving Brazilian construction giant Odebrecht.  In a plea agreement with the United States Department of Justice, Odebrecht admitted to paying more than USD 92 million in kickbacks to Dominican officials to secure public works contracts. U.S. companies say the government’s slow response to this scandal contributes to a culture of perceived impunity for high-level government officials, which fuels widespread acceptance and tolerance of corruption at all levels.

Civil society is engaged in anti-corruption campaigns. Several non-governmental organizations are particularly active in transparency and anti-corruption, notably the Foundation for Institutionalization and Justice (FINJUS), Citizen Participation (Participación Ciudadana), and the Dominican Alliance Against Corruption (ADOCCO).

UN Anticorruption Convention, OECD Convention on Combatting Bribery

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

Resources to Report Corruption

Contact for government agency responsible for combating corruption:

Procuraduría Especializada contra la Corrupción Administrativa (PEPCA)
Calle Hipólito Herrera Billini esq. Calle Juan B. Pérez
Centro de los Heroes, Santo Domingo, República Dominicana
Telephone: (809) 533-3522
Fax: (809) 533-4098
Email: info@pepca.pgr.gob.do

Government service for filing complaints and denunciations:

Linea 311
Phone: 311 (from inside the country)
Website: http://www.311.gob.do/ 

Contact for “watchdog” organization that monitors corruption:

Participación Ciudadana
Phone: 809 685 6200
Fax: 809 685 6631
Email: info@pciudadana.org

There is no recent history of widespread, politically motivated violence.  In 2017, there were multiple, mostly-peaceful protests throughout the country over corruption, access to identity documents for Dominicans of Haitian descent, and labor disputes.  There are no examples of significant politically motivated damage to projects or installations in the last 10 years.

In polling, Dominicans consistently cite crime and violence as among the largest challenges affecting daily life.  The World Economic Forum 2018 Global Competitiveness report ranked the Dominican Republic 123 out of 140 countries in overall security imposing costs on business and 100 of 140 in terms of organized crime imposing costs on businesses.

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 2016 World Bank data, the Dominican labor force consists of approximately 5 million workers.  The labor force participation rate is 67 percent; 70 percent of the labor force works in services, 18 percent in industry, and 13 percent in agriculture. The labor force is divided roughly 50-50 between the formal and informal sectors of the economy.  In 2018, unemployment and underemployment was approximately 16 percent. A 2017 survey by the National Statistics Office and UN Population Fund found that of the 334,092 Haitians age 10 or older living in the country, 67 percent were working in the formal and informal sectors of the economy.

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 irregular 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) considers 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 may not strike.

The law prohibits dismissal of employees for trade union membership or union activities.  In practice, however, some report that 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. Labor inspectors can request remediation for violations, and if remediation is not undertaken, can refer offending employers to the public prosecutor for sanctions.

Embassy Santo Domingo is actively working to attract Overseas Private Investment Corporation (OPIC) investment in the Dominican Republic.  OPIC was previously active in the Dominican Republic; however, lending largely dried up over the past 20 years, with only two projects approved for OPIC’s investment or political risk insurance since 2000.   A breakdown in the process for obtaining Foreign Government Approval (FGA), required for most projects under the 1962 bilateral agreement on investment guaranties, hampered OPIC’s ability to back projects in the Dominican Republic.  In January 2019, the Dominican government clarified the FGA process in a bilateral letter, paving the way for future OPIC investment. The Dominican government is also a party to the Multilateral Investment Guarantee Agency (MIGA) Agreement.

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

Table 3: Sources and Destination of FDI

Data not available (country not reported on IMF/CDIS website)

Table 4: Sources of Portfolio Investment

Data not available (country not reported on IMF/CDIS website)

Economic Officer
Embassy of the United States of America
Avenida República de Colombia
Santo Domingo, Dominican Republic
Email: InvestmentDR@State.gov

Policies Towards Foreign Direct Investment

Ecuador is open to FDI in most sectors.  The 2008 Constitution established that the state reserves the right to manage strategic sectors through state-owned or controlled companies.  The sectors identified are energy, telecommunications, non-renewable natural resources, transportation, hydrocarbon refining, water, biodiversity, and genetic patrimony.  Although Ecuador recently took some steps intended to attract FDI, foreign investors claim that Ecuador’s overall investment climate remains challenging as economic, commercial, and investment policies are subject to frequent change.  In 2018, total FDI inflow doubled from 2017 numbers to USD 1.4 billion, or about 1 percent of GDP.  Despite the increase, FDI inflow remains very low when compared to other countries in the region.

In general, companies complain that the legal complexity resulting from the inconsistent application and interpretation of existing laws and regulations increases the risks and costs of doing business in Ecuador.  Disputes involving U.S. companies have been allegedly politicized, especially in sensitive areas such as the energy sector.  Ecuador has been involved in several high profile investment disputes with U.S. companies.  Chevron, Conoco Phillips, Occidental Petroleum Corporation, and Murphy Oil Corporation were awarded damages in international arbitration rulings against Ecuador in the last several years.  Other companies such as Merck have received interim awards in international arbitration.

Limits on Foreign Control and Right to Private Ownership and Establishment

One hundred percent foreign equity ownership is allowed without the need for authorization or prior screening in sectors open to domestic private investment.

For license and franchise transactions, no limits exist on royalties that may be remitted, although financial outflows are subject to a five percent capital exit tax.  All license and franchise agreements must be registered with the National Service for Intellectual Property Rights (SENADI).  In addition to registering with the Superintendence of Companies, Securities, and Insurance, foreign investors must register investments with Ecuador’s Central Bank for statistical purposes.

Sectors of interest to Foreign Investors:

Automotive: the Ministry of Foreign Trade eliminated quotas of automobile imports January 1, 2017, and cancelled tariff surcharges in June 2017.  This action removed an important restriction on U.S. automobile exports to Ecuador.  In December 2018, Ecuador instituted COMEX Resolution 25 that eliminated tariffs on automobiles assembled in Ecuador based on new investments, with certain limitations.

Petroleum: per the 2008 Constitution, all subsurface resources belong to the state.  The petroleum sector is controlled by two state owned enterprises (SOEs).  In 2018, the government removed subsidies on all higher-octane gasoline and some subsidies on regular and diesel fuel, changing some fuel pricing.

Mining: the Ecuadorian government has taken steps to reduce taxes in the mining sector in order to attract FDI.  Presidential Decree 475, published in October 2014, made minor reductions to the windfall tax and sovereign adjustment calculations.  The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, included provisions to improve tax stability and lower the income tax rate in the mining sector.  Former President Correa’s administration also developed mining sector incentives such as fiscal stability agreements, limited VAT reimbursements, remittance tax exceptions, and mechanisms for companies to recover their investments before certain taxes are applied.

 Electricity: the Organic Law for the Public Service of Electric Energy, which took effect in January 2015, permits some private sector participation and foreign investment in Ecuador’s electricity sector.  Per the 2008 Constitution, the electricity sector is a public service and strategic sector.

Telecommunications: in February 2015, Ecuador’s National Assembly passed a telecommunications law that requires telecommunications companies to pay a percentage of revenue to the government.  This requirement applies to providers of cellular and fixed line telephone service, internet service, and subscription television with more than 30 percent of market share.  The payments range from 0.5 to 9 percent of revenue.

Media: the 2013 Communications Law introduced a requirement that advertising disseminated in Ecuador must have 80 percent domestic content.  It also requires that television and radio frequencies are distributed 33 percent to private media, 33 percent to public media, and 34 percent to community media.

The government controls a large share of radio, television, and other press holdings.  Article 312 of the Constitution prohibits shareholders and representatives of financial institutions from media ownership.  In addition, the 2011 Organic Law for Regulation and Control of Market Power prohibits anyone possessing more than a six percent interest in a media company from investing in any other business sector.

Other Investment Policy Reviews

Ecuador conducted a trade policy review with the World Trade Organization in March 2019; information can be found at https://www.wto.org/english/tratop_e/tpr_e/tp483_e.htm 

In the past three years, Ecuador has not conducted an investment policy review with the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

In 2018 Ecuador folded its ProEcuador (https://www.proecuador.gob.ec/ ), the entity that is responsible for promoting economic development through exports, imports, and investment in Ecuador, into the Ministry of Production, Foreign Trade, Investments and Fisheries (MPCIEP).  ProEcuador is now a Vice Ministry within MPCIEP, and has 31 offices in 26 countries, including four in the United States.  Ecuador is ranked 123rd out of 190 countries on the World Bank’s Ease of Doing Business report for 2019, with particularly low rankings for Starting a Business (168), Resolving Insolvency (158) and Paying Taxes (143).

A newly created company will at a minimum be required to register with the Superintendence of Companies Securities, and Insurance (http://www.supercias.gob.ec/.), the municipal government, the Internal Revenue Service, and the Social Security Institute. The registry with the Superintendence of Companies is a completely online process as of April 2019.

Outward Investment

Ecuador does not restrict domestic investors from investing abroad.  ProEcuador  is responsible for promotion of outward investment from Ecuador.  Foreign investments are subject to a capital exit tax of five percent.

In February 2017, voters passed a government-backed referendum prohibiting elected officials and public servants from having financial interactions with official lists of tax havens and other suspect jurisdictions.  The lists include several U.S. states and territories.  The prohibition entered into effect in September 2017.

Ecuador’s National Assembly voted on May 3, 2017 to terminate 12 of its bilateral investment treaties, including its agreement with the United States.  The Government of Ecuador notified the U.S. government of its withdrawal from our Bilateral Investment Treaty (BIT) on May 18, 2017, effective May 18, 2018.  Investments made prior to withdrawal are covered for 10 years, but the BIT covers no new investments in Ecuador.

Ecuador signed on June 25, 2018 a Comprehensive Economic Partnership Agreement with the European Free Trade Association, which includes Switzerland, Norway, Liechtenstein, and Iceland.  That agreement has yet to be ratified.  The accession of Ecuador to the European Union’s Multiparty Trade Agreement with Colombia and Peru became effective January 1, 2017.  Ecuador concluded two limited trade agreements in 2017, with El Salvador on November 16, 2017 and Nicaragua on November 19, 2017.  Ecuador has been negotiating a Strategic Cooperation Agreement with South Korea.

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

Transparency of the Regulatory System

While there is a focus within the Moreno administration to improve transparency and government accountability, companies report that progress has been slow.  Several foreign investors report that economic, commercial, and investment policies are subject to frequent changes and can increase the risks and costs of doing business in Ecuador.  National and Municipal level regulations can be in conflict with each other.  Regulatory agencies are not required to publish proposed regulations before enactment and rulemaking bodies are not required to solicit public comments on proposed regulations, although there has been some movement towards prior consultation processes.  The ministries generally consult with relevant national actors when drafting regulations, but not always, according to some businesses.

The Government of Ecuador publishes regulatory actions in the Official Registry and posts them online at https://www.registroficial.gob.ec/.  Publicly listed companies adhere to International Financial Reporting Standards (IFRS).  While there are some transparency enforcement mechanisms within the government, it has been reported that they tend to be weak and rarely enforced.  There are no identified informal regulatory processes led by private sector associations or nongovernmental organizations.

International Regulatory Considerations

Ecuador is a member of the Andean Community of Nations (CAN) along with Bolivia, Colombia, and Peru.  Ecuador is an associate member of the Southern Cone Common Market (MERCOSUR).  Ecuador is a member of the WTO and notifies draft regulations to the WTO TBT Committee.  Ecuador has ratified the WTO Trade Facilitation Agreement on October 16, 2018.

Legal System and Judicial Independence

Ecuador has a civil codified legal system.  Concerns have been voiced by some businesses over systemic weakness in the judicial system and its susceptibility to political and economic pressures, which may constitute challenges faced by U.S. companies investing in Ecuador.  Enforcement of contract rights, equal treatment under the law, intellectual property protections, and unstable regulatory regimes continue to be concerns for foreign investors.

Laws and Regulations on Foreign Direct Investment

Ecuador does not have laws specifically on FDI, but two have effects on investment.  The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, includes provisions to improve tax stability and lower the income tax rate in the mining sector.  The Organic Law of Incentives for Public-Private Associations and Foreign Investment from 2015 includes provisions to improve legal stability, reduce red tape, and exempt public private partnerships from paying income and capital exit taxes under certain conditions.  ProEcuador’s website https://www.proecuador.gob.ec/  provides a guide for investors in English and Spanish and highlights the procedures to register a company, types of incentives for investors, and relevant taxes related to investing in Ecuador.

Competition and Anti-Trust Laws

The Superintendence of Control of Market Power reviews transactions for competition-related concerns.  Ecuador’s 2011 Organic Law for Regulation and Control of Market Power includes mechanisms to prevent, control, and sanction market power abuses, restrictive market practices, economic concentration, and unfair competition.  The Superintendence of Control of Market Power, can fine companies found to be in violation of the law up to 12 percent of gross revenue.

Expropriation and Compensation

The Constitution establishes that the state is in charge of managing the use and access to land, while recognizing and guaranteeing the right to private property.  It also provides for the redistribution of land if it has not in active use for more than two years.  The 2015 Telecommunications Law allows expropriation of private land in accordance with the rules and procedures of the law when necessary for the installation of network infrastructure.  The Government of Ecuador’s past use of a 99 percent excess profits tax on some investments was determined by international arbitration panels to be an indirect expropriation.

Under the U.S.-Ecuador BIT, which expired May 18, 2018, expropriation can only be carried out for a public purpose, in a nondiscriminatory manner, and upon payment of prompt, adequate, and effective compensation.

Dispute Settlement

 ICSID Convention and New York Convention

Ecuador withdrew from the International Centre for the Settlement of Investment Disputes (ICSID Convention) in 2010.  Ecuador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Ecuador’s National Assembly voted on May 3, 2017 to terminate 12 of its bilateral investment treaties, including its agreement with the United States.  The Government of Ecuador notified the U.S. government of its withdrawal from the BIT on May 18, 2017, with the effective date May 18, 2018.  The treaty further specifies that all U.S. investments in place at the date of termination enjoy the protections of the treaty for the subsequent ten years.  There have been numerous claims against Ecuador under the BIT that have gone to international arbitration.  There are two active cases awaiting a final decision, Chevron and Merck.

International Commercial Arbitration and Foreign Courts

A number of U.S. companies operating in Ecuador, most notably in the petroleum sector, have filed for international arbitration due to investment claims.  The GOE has reportedly treated these disputes as a political issue in some cases, speaking negatively about investors involved.  Payment of arbitration awards has taken more than a year.  The Ecuadorian Constitution from 2008 states that arbitration must take place either in Ecuador or in Latin America, and was the primary driver of the 2017 termination of BITs.

Bankruptcy Regulations

Ecuador is ranked 158 out of 190 in the category of Ease of Resolving Insolvency in the World Bank’s 2019 Ease of Doing Business Report.   With the goal of protecting consumers and preventing a real estate bubble, the National Assembly approved in June 2012 a law that allows homeowners to default on their first home and car loan without penalty if they forfeit the asset.  The provisions do not apply to homes with a market value of more than 500 times the basic salary (currently USD 197,000) or vehicles worth more than 100 times the basic salary (currently USD 39,400).

In cases of foreclosure, the average time for banks to collect on debts is 5.3 years, usually taking 4.5 years for courts to approve the initiation of foreclosures. After the appointment and acceptance of an auctioneer, it would take about six months for the auction to take place.  World Bank’s Doing Business Report estimates that the foreclosure proceedings would result in costs equal to about 18 percent of the value of the estate in question.

Investment Incentives

In August 2018, the National Assembly approved the Productive Development Law that provides income tax exemptions and VAT exemptions to attract investments, good for 12 years in all areas except the cities of Quito and Guayaquil, where it is 8 years, and 20 years in border regions.

In December 2015, Ecuador’s National Assembly approved a Public-Private Partnership law intended to attract investment.  The law offers incentives including the reduction of the income tax, value added tax, and capital exit tax, for investors in certain projects.  It designates Latin American arbitration bodies as the dispute resolution mechanism.  The law came into effect upon publication in the official registry on December 18, 2015.  The Organic Law of Production Incentives and Tax Fraud Prevention, which took effect on December 30, 2014, provides tax incentives related to depreciation calculations and income tax rates, which could benefit some foreign investors.

Foreign Trade Zones/Free Ports/Trade Facilitation

The 2010 Production Code authorized the creation of Special Economic Development Zones (ZEDEs) that are subject to reduced taxes and tariffs.  The government considers the extent to which projects promote technology transfer, innovation, and industrial diversification when granting ZEDE status; foreign owned firms have the same investment opportunities as national firms.

Performance and Data Localization Requirements

 Nationally the government does not mandate local employment, however, the Organic Law of the Amazon approved by the National Assembly on May 21, 2018, mandates that any company, national or foreign, operating within the area covered by the law (the Amazon Basin) must hire at least 70 percent of their staff locally, unless they cannot find qualified labor locally.

There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption.  Companies can transmit data freely into and out of Ecuador, and there are no requirements to store data within the country.

On October 11, 2016, Ecuador’s National Assembly passed the Code of the Social Economy of Knowledge, Creativity, and Innovation, covering a wide range of intellectual property matters.   Article 148 of the Code establishes that agencies must give preference to open source software with content developed in Ecuador when procuring software for government use.

Visa and residency requirements are relatively relaxed and do not inhibit foreign investment.

Real Property

Ecuador ranks 75 out of 190 in the 2018 World Bank’s Doing Business Report’s category for Ease of Registering Property.  Foreign citizens are allowed to own land.

Intellectual Property Rights

According to some sources, enforcement against intellectual property infringement remains a problem in Ecuador.  In April 2016, the United States Trade Representative moved Ecuador from the Priority Watch List to the Watch List in its annual Special 301 Report on intellectual property where Ecuador has remained in 2017 and 2018.  This decision was in recognition of Ecuador’s passage of an amendment reinstating criminal procedures and penalties for intellectual property violations.  The government has drafted implementing regulations for the 2016 Code of the Social Economy of Knowledge, Creativity, and Innovation, which is the legislation that covers Intellectual Property Rights, and allowed for public input into the regulations; however, those regulations have not yet been approved.

Piracy of computer software and counterfeit activity in brand name apparel is widespread, and enforcement is weak.  Pirated CDs and DVDs are readily available on many streets and in shopping malls and copyright enforcement reportedly remains a significant problem.  The National Service for Intellectual Rights (SENADI – formerly Ecuadorian Intellectual Property Institute (IEPI)) was established in January 1999 to handle patent, trademark, and copyright registrations.  SENADI reports information on its activities on its website at http://www.propiedadintelectual.gob.ec/ .

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/ 

Capital Markets and Portfolio Investment

The 2014 Law to Strengthen and Optimize Business Partnerships and Stock Markets created the Securities Market Regulation Board to oversee the stock markets.  Investment options on the Quito and Guayaquil stock exchanges are very limited.  Sufficient liquidity to enter and exit sizeable positions does not exist in the local markets.  The five percent capital exit tax also inhibits free flow of financial resources into the product and factor markets.

Money and Banking System

Ecuador’s banking sector is healthy, and according to the Banking Association (ASOBANCA) approximately 51 percent of the population having access to a bank account.  The country’s largest banks are Banco Pichincha with about USD 10.5 billion in assets, Banco Pacifico with about USD 5.8 billion, Banco Produbanco with about USD 4.7 billion, and Banco Guayaquil with about USD 4.2 billion.

Ecuador’s Superintendence of Banks regulates the financial sector.  Between 2012 and 2013, the financial sector was the target of numerous new restrictions.  By 2012, most banks had sold off their brokerage firms, mutual funds, and insurance companies to comply with constitutional changes following a May 2010 referendum.  The amendment to Article 312 of the Constitution required banks and their senior managers and shareholders with more than six percent equity in financial entities to divest entirely from any interest in all non-financial companies by July 2012.  These provisions were incorporated into the Anti-Monopoly Law passed in September 2011.

The Organic Monetary and Financial Code, published in the official registry September 12, 2014, created a five-person Monetary and Financial Policy and Regulation Board of presidential appointees to regulate the banking sector.  The law gives the Monetary and Financial Policy and Regulation Board the ability to prioritize certain sectors for lending from private banks. The Code also established that finance companies had to become banks, merge or close their operations by 2017. Of the 10 finance companies in Ecuador, two became banks; six closed their operations or are in the process of closing, and two were absorbed by other financial institutions.

Electronic currency appeared in 2014 with the approval of the Organic Monetary and Financial Code, which established the exclusive management of the system by Ecuador’s Central Bank. In 2017, with the approval of the Law for the Reactivation of the Economy, Strengthening of Dollarization and Modernization of Financial Management, the electronic currency management was transferred to private banks.  The Central Bank issued Regulation 29 in July 2012 requiring all financial transfers (inflows and outflows) to be channeled through the Central Bank’s accounts.  In principle, the regulation increases monetary authorities’ oversight and prevents banks from netting their inflows and outflows to avoid paying the five percent capital exit tax.

Foreign Exchange and Remittances

Foreign Exchange

Ecuador adopted the U.S. dollar as the official currency in 2000.  Foreign investors may remit 100 percent of net profits and capital, subject to a five percent capital exit tax.  There are no restrictions placed on foreign investors in transferring or repatriating funds associated with an investment.

Remittance Policies

 Resolution 107-2015-F from Ecuador’s Monetary and Finance Board issued in July 2015 exempted some payments to foreign lenders from the capital exit tax.  Among other requirements, the duration of the loan must be more than 360 days, the loan must be registered with the Central Bank, and the resources must be destined for specific purposes such as to fund small businesses or social housing.

The Financial Action Task Force (FATF) announced October 23, 2015 that it had removed Ecuador from the list of countries with strategic deficiencies in anti-money laundering and countering the financing of terrorism (AML/CFT) regimes.

Sovereign Wealth Funds

The Government of Ecuador does not maintain a Sovereign Wealth Fund (SWF).

The 18 SOEs in Ecuador are concentrated primarily in the petroleum, electricity, and telecommunications sectors.  The government also owns an airline, a railroad company, a cement company, and a university.  Two SOEs, Petroamazonas and Petroecuador, control the petroleum sector.  The government has a rationalization and reorganization plan for some of these entities, reducing the total from an original of 22 to 15 by merging some and dissolving others.

The 2009 Organic Law of Public Enterprises regulates state-owned enterprises (SOEs).  SOEs are most active in areas designated by the 2008 Constitution as strategic sectors.  Ecuador’s Coordinator of Public Companies maintains a list of SOEs at http://www.emco.gob.ec/empresas-publicas/ .  SOEs follow a special procurement regime with greater flexibility and limited oversight.  The Law of Public Enterprises requires SOEs to follow generally accepted accounting principles; however, SOEs are not required to follow the same accounting practices as the central government, nor do they have to participate in the electronic financial management system used in most of the public sector for budget and accounting management.  SOEs are eligible for government guarantees, and face lower tax burdens than private companies.

Ecuador is not party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization.

Privatization Program

Ecuador is not implementing a privatization program, although the Ministry of Trade and Investment is touting a number of projects as potential public private partnerships.

Article 66 of the 2008 Constitution guarantees the right to pursue economic activities in a manner that is socially and environmentally responsible.  NGOs such as the Institute of Corporate Social Responsibility and the Ecuadorian Consortium for Social Responsibility promote responsible business conduct.  Many Ecuadorian companies have programs to further responsible business conduct within their organizations.  The GOE committed in March 2018 to implement the Extractive Industries Transparency Initiative, but has not yet joined the initiative.

Corruption is a serious problem in Ecuador, and one that the government has begun to confront.  Numerous cases of corruption have recently been tried, resulting in convictions of high-level officials, including former Vice President Jorge Glas.  U.S. companies have cited corruption as an obstacle to investment, with concerns related specifically to dispute resolution and payment of arbitration awards.

Ecuadorian law provides criminal penalties for corruption by public officials, but the government has not implemented the law effectively, and officials engaged in corrupt practices.  Ecuador ranked 114 out of 180 countries surveyed for Transparency International’s 2018 Corruption Perceptions Index and received a score of 34 out of 100.  High-profile cases of alleged official corruption involving state-owned petroleum company PetroEcuador and Brazilian construction firm Odebrecht illustrate the significant challenges that confront Ecuador concerning corruption.

Illicit payments for official favors and theft of public funds reportedly have taken place frequently.  Dispute settlement procedures are complicated by the lack of transparency and inefficiency in the judicial system.  Offering or accepting a bribe is illegal and punishable by imprisonment for up to five years.  The Controller General is responsible for the oversight of public funds and there are frequent investigations and occasional prosecutions for irregularities.

Ecuador ratified the UN Anticorruption Convention in September 2005.  Ecuador is not a signatory to the OECD Convention on Combating Bribery.  The 2008 Constitution created the Transparency and Social Control branch of government, tasked with preventing and combating corruption, among other things.  In December 2008, President Correa issued a decree that created the National Secretariat for Transparency to investigate and denounce acts of corruption in the public sector.  Both entities can conduct investigations into alleged acts of corruption.  Responsibility for prosecution remains with the Office of the Prosecutor General.

Resources to Report Corruption

Through the Function of Transparency and Social Control, alleged acts of corruption can be reported by dialing 159 within Ecuador.  The Council for Citizen Participation and Social Control also maintains a web portal for reporting alleged acts of corruption: http://www.cpccs.gob.ec .

Ecuador does not have a tradition of frequent violence as a result of demonstrations or political instability, but security along the border with Colombia deteriorated significantly in late 2017 and early 2018.  Drug trafficking groups attacked police and military units, and engaged in kidnappings, resulting in several deaths, a first for Ecuador.  Student, labor union, and indigenous protests against government policies have been a regular feature of political life in Ecuador.  While disruptive, especially to transportation, violence is usually limited and localized.  Popular protests in 1997, 2000, and 2005 contributed to the removal of three elected presidents before the end of their terms.  Large-scale but peaceful demonstrations against the Correa government occurred in June 2015.  Some indigenous communities opposed to development have blocked access by petroleum and mining companies.

Semi-skilled and unskilled workers are relatively abundant at low wages.  The supply of available workers is high due to layoffs in sectors affected by the downturn in Ecuador’s economy since 2014.  In addition, first Colombian and now Venezuelan migrants have added to the supply of labor.  The National Wages Council and Ministry of Labor Relations set minimum compensation levels for private sector employees annually.  The minimum basic salary for 2019 is USD 394 per month.

Ecuador’s Production Code requires that workers be paid a dignified wage, defined as an amount that would enable a family of four with 1.6 wage earners to be able to afford necessities.  The cost and the products that are considered necessities are determined by Ecuador’s Statistics Institute (INEC).  In March 2019, the cost of basic necessities was USD 713.05, while the official family wage level is at USD 735.47.  As of December 2017, INEC estimated 37.9 percent of workers had adequate employment.  INEC defines adequate employment as earning at least the minimum basic salary working 40 hours per week.

Ecuador’s National Assembly passed a labor reform law in March 2016 intended to promote youth employment, support unemployed workers, and introduce greater labor flexibility for companies suffering from reduced revenue.  The law established a new unemployment insurance program, a subsidized youth employment scheme, temporary reductions in workers’ hours for financially strapped companies, and nine months of unpaid maternity or paternity leave.

The Law for Labor Justice and Recognition of Work in the Home, which included several changes related to labor and social security, took effect in April 2015.  The law limits the yearly bonus paid to employees, which is equal to 15 percent of companies’ profits and is required by law, to 24 times the minimum wage.  Any surplus profits are to be collected by IESS.  The law also mandates that employees’ thirteenth and fourteenth month bonuses, which are required by law, be paid in installments throughout the year instead of in lump sums.  Employees have the option to opt out of this change and continue to receive the payments in lump sums.  The law eliminates fixed-term employee contracts in favor of indefinite contracts, which shorten the allowable trial period for employees to 90 days.  The law also allows participation in social security pensions for non-paid work at home.

The Labor Code provides for a 40-hour workweek, 15 calendar days of annual paid vacation, restrictions and sanctions for those who employ child labor, general protection of worker health and safety, minimum wages and bonuses, maternity leave, and employer-provided benefits.  The 2008 Constitution bans child labor, requires hiring workers with disabilities, and prohibits strikes in most of the public sector.  Unpaid internships are not permitted in Ecuador.

Most workers in the private sector and at SOEs have the constitutional right to form trade unions and local law allows for unionization of any company with more than 30 employees.  Private employers are required to engage in collective bargaining with recognized unions.  The Labor Code provides for resolution of conflicts through a tripartite arbitration and conciliation board process.  The Code also prohibits discrimination against union members and requires that employers provide space for union activities.

Workers fired for organizing a labor union are entitled to limited financial indemnification, but the law does not mandate reinstatement.  The Public Service Law enacted in October 2010 prohibits the vast majority of public sector workers from joining unions, exercising collective bargaining rights, or paralyzing public services in general.  The Constitution lists health; environmental sanitation; education; justice; fire brigade; social security; electrical energy; drinking water and sewerage; hydrocarbon production; processing, transport, and distribution of fuel; public transport; and post and telecommunications as strategic sectors.  Public workers who are not under the Public Service Law may join a union and bargain collectively since they are governed by the provisions under the Labor Code.

Ecuador has an Investment Guarantee Agreement with the Overseas Private Investment Corporation.  Ecuador is also a signatory to the Multilateral Investment Guarantee Agreement.

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

* Source for Host Country Data: Central Bank of Ecuador.  The Central Bank publishes FDI calculated as net flows only.  Outward Direct Investment statistics are not published by the Central Bank.

Table 3: Sources and Destination of FDI

Source: Ecuador Central Bank, no Information available on the IMF’s CDIS website, and there no information available on Outward Direct Investment

Post contact for this report at Embassy Quito is Geoffrey Schadrack at ecuadorcommericial@state

Policies Toward Foreign Direct Investment

The GOES recognizes that attracting FDI is crucial to improving the economy.  El Salvador does not have laws or practices that discriminate against foreign investors.  The GOES does not screen or prohibit FDI. However, FDI levels are still paltry and lag far behind regional neighbors. The Central Bank reported net FDI inflows of USD 839.6 million in 2018.

The Exports and Investment Promotion Agency of El Salvador (PROESA) supports investment in nine main sectors: textiles and apparel; business services; tourism; aeronautics; agro-industry; medical devices; footwear manufacturing; logistic and infrastructure networks; and healthcare services.  PROESA provides information for potential investors about applicable laws, regulations, procedures, and available incentives for doing business in El Salvador. Website: http://www.proesa.gob.sv/investment/sector-opportunities 

The National Association of Private Enterprise (ANEP), El Salvador’s umbrella business/private sector organization, has established an ongoing dialogue with relevant GOES ministries.  http://www.anep.org.sv/ 

As part of a 2018 reorganization, the GOES created the post of Presidential Commissioner for Investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign citizens and private companies can freely establish businesses in El Salvador.

No single natural or legal person – whether national or foreign – can own more than 245 hectares (605 acres) of land.  The Salvadoran Constitution stipulates there is no restriction on foreign ownership of rural land in El Salvador, unless Salvadoran nationals face restrictions in the corresponding country.  Rural land to be used for industrial purposes is not subject to the reciprocity requirement.

The 1999 Investments Law grants equal treatment to foreign and domestic investors.  With the exception of limitations imposed on micro businesses, which are defined as having 10 or fewer employees and yearly sales of USD 121,319.40 or less, foreign investors may freely establish any type of domestic businesses.  Investors who begin operations with 10 or fewer employees must present plans to increase employment to the Ministry of Economy’s National Investment Office.

The Investment Law provides that any extractive resource is the exclusive property of the state.  The GOES may grant private concessions for resource extraction, though there have been no new permits issued in recent years.

Other Investment Policy Reviews

El Salvador has been a World Trade Organization (WTO) member since 1995.  The latest trade policy review performed by the WTO was published in 2016 (document: WT/TPR/S/226/Rev.1).

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(@Symbol=%20wt/tpr/s/*)%20and%20((%20@Title=%20el%20salvador
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The latest investment policy review performed by the United Nations Conference on Trade and Development (UNCTAD) was in 2010. http://unctad.org/en/Docs/diaepcb200920_en.pdf 

Business Facilitation

El Salvador has various laws that promote and protect investments, as well as providing benefits to local and foreign investors.  These include: the Investments Law, the International Services Law; the Free Trade Zones Law; the Tourism Law, the Renewable Energy Incentives Law; the Law on Public Private Partnerships; the Special Law for Streamlining Procedures for the Promotion of Construction Projects; and the Legal Stability Law for Investments.

Business Registration

Per the World Bank, registering a new business in El Salvador requires nine steps taking an average of 16.5 days.  According to the World Bank’s 2019 Doing Business Report, El Salvador ranks 147 in the “Starting a Business” indicator.  El Salvador launched an online business registration portal in 2017 designed to give entrepreneurs a one-stop shop for registering new companies.  Specifically, the online business registration website allows new businesses the ability to formalize registration within three days and conduct administrative operations through the online platform.  The portal (https://miempresa.gob.sv/  ) is available to all, though services are available only in Spanish.

The GOES’ Business Services Office (Oficina de Atencion Empresarial) caters to entrepreneurs and investors.  The office has two divisions: “Growing Your Business” (Crecemos Tu Empresa) and the National Investment Office (Direccion Nacional de Inversiones, DNI).  “Growing Your Businesses” provides business advice, especially for micro-, small- and medium-sized enterprises.  The DNI administers investment incentives and facilitates business registration.

Contact information:

Business Services Office
Telephone: (503) 2590-9000
Address: 1 calle Poniente, final 41 avenida Norte, N.°8, San Salvador.  Schedule: Monday-Friday, 7:30 a.m. – 3:30 p.m.

Crecemos Tu Empresa
E-mail: crecemostuempresa@minec.gob.sv
Website: www.minec.gob.sv/crecemostuempresa  

The National Investment Office:

• Ana Luisa Valiente, National Director of Investments, Email: lvaliente@minec.gob.sv
• Roberto Salguero, Deputy Director of Administration, Email: rsalguero@minec.gob.sv
• Special Investments; Christel Schulz, Business Climate Deputy, Email: cdearce@minec.gob.sv
• Laura Rosales de Valiente, Deputy Director of Investment Facilitation, Email: lrosales@minec.gob.sv

Telephone: (503) 2590-5116.

The Directorate for Coordination of Productive Policies at the Ministry of Economy focuses on five areas: Productive Development, Capacity Building, Trade Facilitation, Taxation, and Export Promotion.  Website: http://www.minec.gob.sv  

The Productive Development Fund (FONDEPRO) provides grants to small enterprises to strengthen competitiveness.  Website: http://www.fondepro.gob.sv/  

The National Commission for Micro and Small Businesses (CONAMYPE) supports micro and small businesses by providing training, technical assistance, financing, venture capital, and loan guarantee programs.  CONAMYPE also provides assistance on market access and export promotion, marketing, business registration, and the promotion of business ventures led by women and youth. Website: https://www.conamype.gob.sv/  

The Micro and Small Businesses Promotion Law defines a microenterprise as a natural or legal person with annual gross sales up to 482 minimum monthly wages, equivalent to USD 121,319.40 and up to ten workers.  A small business is defined as a natural or legal person with annual gross sales between 482 minimum monthly wages (USD 121,319.40) and 4,817 minimum monthly wages (USD 1,212,438.90) and up to 50 employees. To facilitate credit to small businesses, Salvadoran law allows for inventories, receivables, intellectual property rights, consumables, or any good with economic value to be used as collateral for loans.

El Salvador provides equitable treatment for women and under-represented minorities.  The GOES does not provide targeted assistance to under-represented minorities. CONAMYPE provides specialized counseling to female entrepreneurs and women-owned small businesses.

Outward Investment

While the government encourages Salvadoran investors to invest in El Salvador, it neither promotes nor restricts investment abroad.

El Salvador has bilateral investment treaties in force with Argentina, Belize, BLEU (Belgium-Luxembourg Economic Union), Chile, Czech Republic, Finland, France, Germany, Israel, Republic of Korea, Morocco, the Netherlands, Paraguay, Peru, Spain, Switzerland, United Kingdom, and Uruguay.  El Salvador is one of the five Central American Common Market countries, which have an investment treaty among themselves.

The CAFTA-DR entered into force in 2006, between the United States and El Salvador.  CAFTA-DR’s investment chapter provides protection to most categories of investment, including enterprises, debt, concessions, contract, and intellectual property.  Under this agreement, U.S. investors enjoy the right to establish, acquire, and operate investments in El Salvador on an equal footing with local investors. Among the rights afforded to U.S. investors are due process protections and the right to receive a fair market value for property in the event of expropriation.  Investor rights are protected under CAFTA-DR by an effective, impartial procedure for dispute settlement that is transparent and open to the public.

El Salvador also has free trade agreements (FTAs) with Mexico, Chile, Panama, Colombia, and Taiwan.  Although the GOES announced the cancellation of the Taiwan FTA in February 2019, the Supreme Court halted the cancellation in March 2019 and the FTA will remain in force until the Supreme Court rules on the case.

In 2018, El Salvador ratified an FTA with South Korea, which also includes investment provisions.  This FTA is pending ratification from South Korea’s National Assembly to enter into effect. El Salvador’s FTAs with Mexico, Chile, and Panama also include investment provisions.  El Salvador reinitiated trade agreement negotiations with Canada, which will likely include investment provisions. The Salvadoran government signed a Partial Scope Agreement (PSA) with Cuba in 2011 and an additional Protocol to the PSA in October 2019.  El Salvador and Bolivia signed a PSA in November 2018 that is pending ratification in the Legislative Assembly. The PSA agreement with Ecuador entered into force in 2017.

El Salvador, along with Costa Rica, Guatemala, Honduras, Nicaragua, and Panama, signed an Association Agreement with the European Union that establishes a Free Trade Area.  The agreement, which entered into force with El Salvador in 2013, includes a provision for access to a wider range of EU development aid. El Salvador and Central American countries are negotiating with United Kingdom to ensure continuity post-Brexit.

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

On October 2018, El Salvador’s Legislative Assembly ratified the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters  .  The jurisdictions participating in the Convention can be found at: www.oecd.org/ctp/exchange-of-tax-information/Status_of_convention.pdf 

El Salvador became a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes in 2011.  The OECD published El Salvador’s Phase 1 peer review report, which demonstrates its commitment to international standards for tax transparency and exchange of information, in 2015.  The Phase 2 peer review on implementation of the standards, published in 2016, concluded that El Salvador is “largely compliant.”

In December 2018, the Directorate General of Internal Revenues (DGII) re-interpreted tax rules and modified the criteria to classify companies as large taxpayers.  The re-classification subjects free zone companies to several tax obligations, including the payment of the Special Contribution for Citizen Security (CESC).  Enacted in 2015, the CESC applies a five-percent tax on the profits of companies whose net income exceeds USD 500,000.  CESC proceeds finance security measures, including the GOES’ Plan El Salvador Seguro (Secure El Salvador Plan).

Transparency of the Regulatory System

The laws and regulations of El Salvador are relatively transparent and generally foster competition.  Legal, regulatory, and accounting systems are transparent and consistent with international norms. However, the discretionary application of rules can complicate routine transactions, such as customs clearances and permitting applications.  Regulatory agencies are often understaffed and inexperienced in dealing with complex issues. New foreign investors should review the regulatory environment carefully. In addition to applicable national laws and regulations, localities may impose permitting requirements on investors.

Companies have noted that the GOES has enacted laws and regulations without following required notice and comment procedures.  The Regulatory Improvement Law, enacted in December 2018, requires government agencies to publish online the list of laws and regulations they plan to approve, reform or repeal each year.  Institutions cannot adopt or modify regulations and laws not included in that list. Prior to adopting or amending laws or regulations, the Simplified Administrative Procedures Law requires the GOES to perform a Regulatory Impact Analysis (RIA) based on a standardized methodology.  Proposed legislation and regulations, as well as RIAs, must be made available for public comment. In practice, the Legislative Assembly does not publish draft legislation on its website and does not solicit comments on pending legislation. The GOES does not yet require the use of a centralized online portal to publish regulatory actions.  The implications of the recent reforms are not yet apparent, though private sector stakeholders have expressed support for the measures.

The GOES controls the price of some goods and services, including electricity, liquid propane gas, gasoline, fares on public transport, and medicines.  The government also directly subsidizes water services and residential electricity rates.

The Superintendent of Electricity and Telecommunications (SIGET) oversees electricity rates, telecommunications, and distribution of electromagnetic frequencies.  The Salvadoran government subsidizes residential consumers for electricity use of up to 100 kWh monthly. The electricity subsidy costs the government between USD 50 million to USD 60 million annually.  Energy sector companies have warned that the government’s inability to pay the subsidies in a timely manner has discouraged investment in new generation capacity.

El Salvador’s public finances are relatively transparent.  Budget documents, including the executive budget proposal, enacted budget, and end-of-year reports, as well as information on debt obligations are accessible to the public at: http://www.transparenciafiscal.gob.sv/ptf/es/  .  An independent institution, the Court of Accounts, audits the financial statements, economic performance, cash flow statements, and budget execution of all GOES ministries and agencies.  The results of these audits are publicly available online. However, the Office of the President manages reserved expenses and other special funds that are not subject to disclosure or audit.

International Regulatory Considerations

El Salvador belongs to the Central American Common Market and the Central American Integration System (SICA), organizations which are working on regional integration, (e.g., harmonization of tariffs and customs procedures).  El Salvador commonly incorporates international standards, such as the Pan-American Standards Commission (Spanish acronym COPANT), into its regulatory system.

El Salvador is a member of the WTO, adheres to the Agreement on Technical Barriers to Trade (TBT Agreement), and has adopted the Code of Good Practice annexed to the TBT Agreement.  El Salvador is also a signatory to the Trade Facilitation Agreement (TFA) and has notified its Categories A, B, and C commitments. El Salvador has established a National Trade Facilitation Committee as required by the TFA, though it has met only twice since its formation.

El Salvador is a member of the U.N. Conference on Trade and Development’s international network of transparent investment procedures: http://tramites.gob.sv  .  Investors can find information on administrative procedures applicable to investment and income-generating operations including the name and contact details for those in charge of procedures, required documents and conditions, costs, processing time, and legal bases for the procedures.

Legal System and Judicial Independence

El Salvador’s legal system is codified law.  Commercial law is based on the Commercial Code and the corresponding Commercial and Civil Code of Procedures.  There are specialized commercial courts that resolve disputes.

Although foreign investors may seek redress for commercial disputes through Salvadoran courts, many investors report the legal system to be slow, costly, and unproductive.  Local investment and commercial dispute resolution proceedings routinely last many years. The judicial system is independent of the executive branch, but may be subject to manipulation by diverse interests.  Final judgments are at times difficult to enforce. The Embassy recommends that potential investors carry out proper due diligence by hiring competent local legal counsel.

Laws and Regulations on Foreign Direct Investment

Miempresa is the Ministry of Economy’s website for new businesses in El Salvador.  At Miempresa, investors can register new companies with the Ministry of Labor, Social Security Institute, pension fund administrators, and certain municipalities; request a tax identification number/card; and perform certain administrative functions. Website: https://www.miempresa.gob.sv/  

The country’s eRegulations site provides information on procedures, costs, entities, and regulations involved in setting up a new business in El Salvador.  Website: http://tramites.gob.sv/  

The Exports and Investment Promoting Agency of El Salvador (PROESA) is responsible for attracting domestic and foreign private investment, promoting exports of goods and services, evaluating and monitoring the business climate, and driving investment and export policies. PROESA provides direct technical assistance to investors interested in starting up operations in El Salvador, regardless of the size of the investment or number of employees.  Website: http://www.proesa.gob.sv/  

Competition and Anti-Trust Laws

The Office of the Superintendent of Competition reviews transactions for competition concerns.  The OECD and the Inter-American Development Bank have indicated that the Superintendent employs enforcement standards that are consistent with global best practices and has appropriate authority to enforce the Competition Law effectively.  Superintendent decisions may be appealed directly to the Supreme Court, the country´s highest court. Website: http://www.sc.gob.sv/home/  

Expropriation and Compensation

The Constitution allows the government to expropriate private property for reasons of public utility or social interest.  Indemnification can take place either before or after the fact. There are no recent cases of expropriation. In 1980, a rural/agricultural land reform established that no single natural or legal person could own more than 245 hectares (605 acres) of land, and the government expropriated the land of some large landholders.  In 1980, private banks were nationalized, but were subsequently returned to private ownership in 1989-90. A 2003 amendment to the Electricity Law requires energy generating companies to obtain government approval before removing fixed capital from the country.

Dispute Settlement

ICSID Convention and New York Convention

El Salvador is a member state to the ICSID Convention.  ICSID is included in a number of El Salvador’s investment treaties as the forum available to foreign investors.

Investor-State Dispute Settlement

In 2016, ICSID ruled in favor of El Salvador on a case brought by an international mining company that sought to force government acceptance of a gold-mining project.  Following the ruling, El Salvador banned the exploration and extraction of metal mining in the country.

The rights of investors from CAFTA-DR countries are protected under the trade agreement’s dispute settlement procedures.  There have been no successful claims by U.S. investors under CAFTA-DR. There are currently no pending claims by U.S. investors.

For foreign investors from a country without a trade agreement with El Salvador, amended Article 15 of the 1999 Investment Law limits access to international dispute resolution and may obligate them to use national courts.  Submissions to national dispute panels and panel hearings are open to the public. Interested third parties have the opportunity to be heard.

International Commercial Arbitration and Foreign Courts

A 2002 law allows private sector organizations to establish arbitration centers for the resolution of commercial disputes, including those involving foreign investors.  In 2009, El Salvador modified its arbitration law to allow parties to appeal a ruling to the Salvadoran courts. Investors have complained that the modification dilutes the efficacy of arbitration as an alternative method of resolving disputes.  Arbitrations takes place at the Arbitration and Mediation Center, a branch of the Chamber of Commerce and Industry of El Salvador. Website: http://www.mediacionyarbitraje.com.sv/  

El Salvador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) and the Inter-American Convention on International Commercial Arbitration (The Panama Convention).  Local courts recognize and enforce foreign arbitral awards and court judgments, but the process can be lengthy and difficult.

Bankruptcy Regulations

The Commercial Code, the Commercial Code of Procedures, and the Banking Law all contain sections that deal with the process for declaring bankruptcy.  However, there is no separate bankruptcy law or court. According to data collected by the 2019 World Bank’s Doing Business report, resolving insolvency in El Salvador takes 3.5 years on average and costs 12 percent of the debtor’s estate, with the most likely outcome being that the company will be sold piecemeal.  The average recovery rate is 32.5 percent. Globally, El Salvador ranks 89 out of 190 on Ease of Resolving Insolvency. Website: http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Profiles/Country/SLV.pdf 

Investment Incentives

The International Services Law, approved in 2007, established service parks and centers with incentives similar to those received by El Salvador’s free trade zones.  Service park developers are exempted from income tax for 15 years, municipal taxes for ten years, and real estate transfer taxes. Service park administrators are exempted from income tax for 15 years and municipal taxes for ten years.

Firms located in the service parks/service centers may receive the following permanent incentives:

Tariff exemption for the import of capital goods, machinery, equipment, tools, supplies, accessories, furniture, and other goods needed for the development of the service activities, and full exemption from income tax and municipal taxes on company assets.

Service firms operating under the existing Free Trade Zone Law are also eligible for the incentives.  Firms providing services to the Salvadoran market cannot receive the incentives. Eligible services include: international distribution, logistical international operations, call centers, information technology, research and development, marine vessels repair and maintenance, aircraft repair and maintenance, entrepreneurial processes (e.g., business process outsourcing), hospital-medical services, international financial services, container repair and maintenance, technology equipment repair, elderly and convalescent care, telemedicine, and cinematography postproduction services.

The Tourism Law establishes tax incentives for those who invest a minimum of USD 25,000 in tourism-related projects in El Salvador, including: value-added tax exemption for the acquisition of real estate; import tariffs waiver for construction materials, goods, equipment (subject to limitation); and, a ten-year income tax waiver.  The investor also benefits from a five-year exemption from land acquisition taxes and a 50 percent reduction of municipal taxes. To take advantage of these incentives, the enterprise must contribute five percent of its profits during the exemption period to a government-administered Tourism Promotion Fund. More information about tax incentives for tourism, please visit: http://www.mitur.gob.sv/ii-aspectos-legales-en-beneficio-de-la-inversion-contemplados-en-la-ley-de-turismo/  

The Renewable Energy Incentives Law promotes investment projects that use renewable energy sources.  In 2015, the Legislative Assembly approved amendments to the Law to encourage the use of renewable energy sources and reduce dependence on fossil fuels.  These reforms extended the incentives to power generation using renewable energy sources, such as hydro, geothermal, wind, solar, marine, biogas and biomass.  The incentives include a 10-year exemption in full from customs duties on the importation of machinery, equipment, materials, and supplies used for the construction and expansion of substations, transmission or sub-transmission lines.  Revenues directly derived from power generation based on renewable sources enjoy full exemption from income tax for a period of five years in case of projects above 10 megawatts and 10 years for smaller projects. The Law also provides a tax exemption on income derived directly from the sale of certified emission reductions (CERs) under the Mechanism for Clean Development of the Kyoto Protocol, or carbon markets (CDM).

El Salvador does not issue guarantees or directly co-finance foreign direct investment projects.  However, El Salvador has a Public-Private Partnerships Law that allows private investment in the development of infrastructure projects, including in areas of health, education and security.

Foreign Trade Zones/Free Ports/Trade Facilitation

The 1998 Free Trade Zone Law is designed to attract investment in a wide range of activities, although the vast majority of the businesses in free trade zones are textile plants.  A Salvadoran partner is not needed to operate in a free trade zone, and some textile operations are completely foreign-owned.

There are 17 free trade zones in El Salvador.  They host 242 companies in sectors including textiles, distribution, call centers, business process outsourcing, agribusiness, agriculture, electronics, and metallurgy.  Owned primarily by Salvadoran, U.S., Taiwanese, and Korean investors, free trade zone firms employ more than 84,000 people. The point of contact is the Chamber of Textile, Apparel and Free Trade Zones of El Salvador (CAMTEX) at: https://www.camtex.com.sv/site/  .

The 1998 law established rules for free trade zones and bonded areas.  The free trade zones are outside the nation’s customs jurisdiction while the bonded areas are within its jurisdiction, but subject to special treatment.  Local and foreign companies can establish themselves in a free trade zone to produce goods or services for export or to provide services linked to international trade.  The regulations for the bonded areas are similar.

Qualifying firms located in the free trade zones and bonded areas may enjoy the following benefits:

• Exemption from all duties and taxes on imports of raw materials and the machinery and equipment needed to produce for export.
• Exemption from taxes for fuels and lubricants used for producing exports if they not domestically produced.
• Exemption from income tax, municipal taxes on company assets and property for either 15 years (if the company is located in the metropolitan area of San Salvador) or 20 years (if the company is located outside of the metropolitan area of San Salvador).
• Exemption from taxes on certain real estate transfers, e.g., the acquisition of goods to be employed in the authorized activity.

Companies in the free trade zones are also allowed to sell goods or services in the Salvadoran market if they pay applicable taxes on the proportion sold locally.  Additional rules apply to textile and apparel products.

Regulations allow a WTO-complaint “drawback” to refund custom duties paid on imported inputs and intermediate goods exclusively used in the production of goods exported outside of the Central American region.  Regulations also included the creation of a Business Production Promotion Committee with the participation of the private and public sector to work on policies to strengthen the export sector, and the creation of an Export and Import Center.

All import and export procedures are handled by the Import and Export Center (Centro de Trámites de Importaciones y Exportaciones – CIEX El Salvador).  More information about the procedures can be found at: http://www.ciexelsalvador.gob.sv/registroSIMP/  

Performance and Data Localization Requirements

El Salvador’s Investment Law does not require investors to meet export targets, transfer technology, incorporate a specific percentage of local content, or fulfill other performance criteria.  Labor laws require that 90 percent of the workforce in plants and in clerical positions be Salvadoran citizens. Nationality restrictions are more lax for professional and technical jobs.

Foreign investors and domestic firms are eligible for the same incentives. Exports of goods and services are exempt from value-added tax.

Investors who plan to live and work in El Salvador for an extended period need to obtain temporary residency, which may be renewed periodically.  Under Article 11 of the Investment Law, foreigners with investments totaling more than USD 1 million may obtain Investor’s Residency status, which allows them to work and remain in the country.  This residency may be requested within 30 days of registering the investment. It allows residency for the investor and family members for a period of one year, and may be extended annually.

It is customary for companies to hire local attorneys to manage the process of obtaining residency.  The American Chamber of Commerce in El Salvador can also provide information regarding the process. Website:  http://www.amchamsal.com/?lang=en  

The International Services Law establishes tax benefits for businesses that invest at least USD 150,000 during the first year of operations, including working capital and fixed assets, hire no fewer than 10 permanent employees, and have at least a one-year contract.  For hospital/medical services to qualify, the minimum capital investment must be USD 10 million, if surgical services are provided, or a minimum of USD 3 million, if surgical services are not provided. Hospitals or clinics must be located outside of major metropolitan areas, and medical services must be provided only to patients with insurance.

El Salvador does not require investors to incorporate a specific percentage of local content, to turn over source code or provide access to surveillance, or to fulfill other performance criteria.  Business-related data may be freely transferred outside of El Salvador.

Real Property

Private property, both non-real estate and real estate, is recognized and protected in El Salvador.  Mortgages and real property liens exist. Companies that plan to buy land or other real estate are advised to hire competent local legal counsel to guide them on the property’s title prior to purchase.

Per the Constitution, no single natural or legal person–whether national or foreign–can own more than 245 hectares (605 acres) of land. Reciprocity applies to the ownership of rural land, i.e., El Salvador does not restrict the ownership of rural land by foreigners, unless Salvadoran citizens are restricted in the corresponding states.  The restriction on rural land does not apply if used for industrial purposes.

Real property can be transferred without government authorization.  For title transfer to be valid regarding third parties, however, it needs to be properly registered.  Laws regarding rental property tend to favor the interests of tenants. For instance, tenants may remain on property after their lease expires, provided they continue to pay rent.  Likewise, the law limits the permissible rent and makes eviction processes extremely difficult.

Squatters occupying private property in “good faith” can eventually acquire title.  If the owner of the property is unknown, squatters can acquire title after 20 years of good faith possession through a judicial procedure; if the owner is known, squatters can acquire title after 30 years.

Squatters may never acquire title to public land, although municipalities often grant the right of use to the squatter.

Zoning is regulated by municipal rules.  Municipalities have broad power regarding the use of property within their jurisdiction.  Zoning maps, if they exist, are generally not available to the public.

The perceived ineffectiveness of the judicial system discourages investments in real estate and makes execution of real estate guarantees difficult.  Securitization of real estate guarantees or titles is legally permissible but does not occur frequently in practice.

El Salvador ranks 73rd of 190 economies on the World Bank’s Doing Business 2019 report in the Ease of Registering Property category.  According to the collected data, registering a property takes an average of six steps over a period of 31 days, and costs 3.8 percent of the reported value of the property.

Intellectual Property Rights

El Salvador’s intellectual property rights (IPR) legal framework is strong.  El Salvador revised several laws to comply with CAFTA-DR’s provisions on IPR, such as extending the copyright term to 70 years.  The Intellectual Property Promotion and Protection Law (1993, revised in 2005), Law of Trademarks and Other Distinctive Signs (2002, revised in 2005), and Penal Code establish the legal framework to protect IPR.  Investors can register trademarks, patents, copyrights, and other forms of intellectual property with the National Registry Center’s Intellectual Property Office. In 2008, the government enacted test data exclusivity regulations for pharmaceuticals (for five years) and agrochemicals (for 10 years) and ratified an international agreement extending protection to satellite signals.

El Salvador’s enforcement of IPR protections falls short of its written policies.  Salvadoran authorities have limited resources to dedicate to enforcement of IPR laws.  The National Civil Police (PNC) has an Intellectual Property Section with seven investigators, while the Attorney General’s Office (FGR) has 13 prosecutors in its Private Property division that also has responsibility for other property crimes including cases of extortion.  According to ASPI, the PNC section coordinates well with other government and private entities. Nevertheless, the PNC admits that a lack of resources and expertise (e.g., regarding information technology) hinders its effectiveness in combatting IPR crimes.

The National Directorate of Medicines (NDM) has registered 82 products for data protection since 2008, including three in 2017 and eight in 2018.  The NDM protects the confidentiality of relevant test data and the list of such protected medications is available at the NDM’s website: https://www.medicamentos.gob.sv/index.php/es/servicios-m/informes/unidad-de-registro-y-visado/listado-de-productos-farmaceuticos-con-proteccion-de-datos-de-prueba 

The Salvadoran Intellectual Property Association (ASPI – Asociacion Salvadoreña de Propiedad Intelectual) notes that piracy is common in El Salvador because the police focus on investigating criminal networks rather than points of sale.  Trade in counterfeit medicines and pirated software is common.

In 2018, the PNC arrested 38 individuals for reproducing copyrighted material.  In 2018, the PNC also conducted 39 inspections and 20 raids, where it seized 30,300 pirated optical media discs (CDs and DVDs), along with five burner towers used to make pirated discs, and tens of thousands of fake products, including clothing (2,275 articles), footwear (2,526 pairs), toys (114,960 items), parts for sewing machines, and mobile phones.  Additionally, in a 2018 operation at El Salvador’s international airport, the Drug Division of the PNC and DNM confiscated 4,950 packages of counterfeit pharmaceuticals in violation of IP laws.

Contraband and counterfeit products, especially cigarettes, liquor, toothpaste and cooking oil, remain widespread.  According to the GOES and private sector contacts, most unlicensed or counterfeit products in El Salvador were imported.  The Distributors Association of El Salvador (ADES) estimated in 2017 that around 50 percent of the liquor consumed in El Salvador is smuggled.  Most contraband cigarettes come in from China, Panama, and Paraguay and undercut legitimately-imported cigarettes, which are subject to a 39 percent tariff.  According to ADES, most contraband cigarettes are smuggled in by gangs, with the complicity of Salvadoran authorities. A 2017 study by CID Gallup Latin America, noting the link between contraband cigarettes and gang finances, estimated that 32 percent of the 940 million cigarettes consumed annually in El Salvador are contraband.  Gallup estimated that the GOES lost USD 15 million in tax revenue due to cigarette smuggling in 2014.

Customs officials have identified some counterfeit products arriving directly from China through the Salvadoran seaport of Acajutla.  In 2018, Customs officials seized 39 shipments based on the presumption of containing fake products. These shipments primarily involved toys (e.g., Disney, Marvel, Hello Kitty, Barbie, and DC Comics), footwear (e.g., Adidas, Nike, Puma, and Converse), and handbags (e.g., Michael Kors).

The national Intellectual Property Registry has 22 registered geographical indications for El Salvador.  In 2018, the GOES registered four new geographic indications involving Denominations of Origin for “Jocote Baron Rojo San Lorenzo” (a sour fruit), “Pupusa de Olocuilta” (a variant of El Salvador’s traditional food), “Camarones de la Bahia de Jiquilisco” (shrimp from the Jiquilisco Bay), and “Loroco San Lorenzo” (flower used in Salvadoran cuisine).  Existing geographic indications include “Balsamo de El Salvador” (balm for medical, cosmetic, and gastronomic uses – since 1935), “Cafe Ilamatepec” (coffee – since 2010), and “Chaparro” (Salvadoran hard liquor- since 2016).

El Salvador is not listed in the notorious market report nor Special 301 list.  There are no IP-related laws pending.

El Salvador is a signatory of the Berne Convention for the Protection of Literary and Artistic Works; the Paris Convention for the Protection of Industrial Property; the Geneva Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication; the World Intellectual Property Organization (WIPO) Copyright Treaty; the WIPO Performance and Phonograms Treaty; the Rome Convention for the Protection of Performers, Phonogram Producers, and Broadcasting Organizations; and the Beijing Treaty on Audiovisual Performances (2012), which grants performing artists certain economic rights (such as rights over broadcast, reproduction, and distribution) of live and recorded works.

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/details.jsp?country_code=SV  

Capital Markets and Portfolio Investment

The Superintendent of the Financial System supervises individual and consolidated activities of banks and non-bank financial intermediaries, financial conglomerates, stock market participants, insurance companies, and pension fund administrators.  Foreign investors may obtain credit in the local financial market under the same conditions as local investors. Interest rates are determined by market forces, with the interest rate for credit cards and loans capped at 1.6 times the weighted average effective rate established by the Central Bank.  The maximum interest rate varies according to the loan amount and type of loan (consumption, credit cards, mortgages, home repair/remodeling, business, and microcredits).

In January 2019, El Salvador eliminated the Financial Transactions Tax (FTT), which was enacted in 2014.

The 1994 Securities Market Law established the present framework for the Salvadoran securities exchange.  Stocks, government and private bonds, and other financial instruments are traded on the exchange, which is regulated by the Superintendent of the Financial System.

Foreigners may buy stocks, bonds, and other instruments sold on the exchange and may have their own securities listed, once approved by the Superintendent.  Companies interested in listing must first register with the National Registry Center’s Registry of Commerce. In 2018, the exchange averaged daily trading volumes between USD 10 million and USD 16 million.  Government-regulated private pension funds, Salvadoran insurance companies, and local banks are the largest buyers on the Salvadoran securities exchange. For more information, visit: https://www.bolsadevalores.com.sv/  

Money and Banking System

All but one of the major banks operating in El Salvador are regional banks owned by foreign financial institutions.  Given the high level of informality, measuring the penetration of financial services is difficult; however, it remains relatively low between 30 percent- according to the Salvadoran Banking Association (ABANSA) – and 40 percent- reported by the Superintendence of the Financial System (SSF).  The banking system is sound and generally well-managed and supervised. El Salvador’s Central Bank is responsible for regulating the banking system, monitoring compliance of liquidity reserve requirements, and managing the payment systems. No bank has lost its correspondent banking relationship in recent years.  There are no correspondent banking relationships known to be in jeopardy.

The banking system’s total assets as of January 2019 totaled USD 18 billion.  Under Salvadoran banking law, there is no difference in regulations between foreign and domestic banks and foreign banks can offer all the same services as domestic banks.

The Non-Bank Financial Intermediaries Law regulates the organization, operation, and activities of financial institutions such as cooperative savings associations, non-governmental organizations, and other microfinance institutions.  The Money Laundering Law requires financial institutions to report suspicious transactions to the Attorney General. However, there is no regulatory scheme in place to supervise the filing of reports by Non-Bank Financial Intermediaries.  As such, these entities, although designated filers under the law, rarely file suspicious activity reports.

The Insurance Companies Law regulates the operation of both local and foreign insurance firms. Foreign firms, including U.S., Colombian, Canadian, Honduran, Panamanian, and Spanish companies, have invested in Salvadoran insurers.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions on transferring investment-related funds out of the country.  Foreign businesses can freely remit or reinvest profits, repatriate capital, and bring in capital for additional investment.  The 1999 Investment Law allows unrestricted remittance of royalties and fees from the use of foreign patents, trademarks, technical assistance, and other services.  Tax reforms introduced in 2011, however, levy a five percent tax on national or foreign shareholders’ profits. Moreover, shareholders domiciled in a state, country or territory that is considered a tax haven or has low or no taxes, are subject to a tax of twenty-five percent.

The Monetary Integration Law dollarized El Salvador in 2001.  The U.S. dollar accounts for nearly all currency in circulation and can be used in all transactions.  Salvadoran banks, in accordance with the law, must keep all accounts in U.S. dollars. Dollarization is supported by remittances – almost all from workers in the United States – that totaled USD 5.47 billion in 2018.

Remittance Policies

There are no restrictions placed on investment remittances.  The Caribbean Financial Action Task Force’s Ninth Follow-Up report on El Salvador  (https://www.cfatf-gafic.org/index.php/member-countries/el-salvador  ) noted that El Salvador has strengthened its remittances regimen, prohibiting anonymous accounts and limiting suspicious transactions.  In 2015, the Legislature approved reforms to the Law of Supervision and Regulation of the Financial System so that any entity sending or receiving systematic or substantial amounts of money by any means, at the national and international level, falls under the jurisdiction of the Superintendence of the Financial System.

Sovereign Wealth Funds

El Salvador does not have a sovereign wealth fund.

El Salvador has successfully liberalized many sectors, though it maintains state-owned enterprises (SOEs) in energy production, water supply and sanitation, ports and airports, and the national lottery (see chart below).

Although the GOES privatized energy distribution in 1999, it maintains significant energy production facilities through state-owned Rio Lempa Executive Hydroelectric Commission (CEL), a significant producer of hydroelectric and geothermal energy.  The primary water service provider is the National Water and Sewer Administration (ANDA), which provides services to 96 percent of urban areas and 77 percent of rural areas in El Salvador. As an umbrella institution, ANDA defines policies, regulates and provides services.  The Autonomous Executive Port Commission (CEPA) operates both the seaports and the airports. CEL, ANDA, and CEPA Board Chairs hold Minister-level rank and report directly to the President.

The Law on Public Administration Procurement and Contracting (LACAP) covers all procurement of goods and services by all Salvadoran public institutions, including the municipalities.  Exceptions to LACAP include: procurement and contracting financed with funds coming from other countries (bilateral agreements) or international bodies; agreements between state institutions; and the contracting of personal services by public institutions under the provisions of the Law on Salaries, Contracts and Day Work.  The government publishes tenders by government institutions at: https://www.comprasal.gob.sv/comprasal_web/  .

Alba Petroleos is a joint venture between a consortium of mayors from the FMLN party and a subsidiary of Venezuela’s state-owned oil company PDVSA.  Alba Petroleos operates 55 gasoline service stations across the country and businesses in a number of other industries, including energy production, food production, medicines, micro-lending, supermarkets, and bus transportation.  Critics have charged that the conglomerate receives preferential treatment and have also alleged that Alba Petroleos’ commercial practices, including financial reporting, are non-transparent. Although audited financial statements are not available to the public, Alba Petroleos is at risk of insolvency.  A February 2019 report from the Court of Accounts notes that Alba Petroleos had losses equivalent to 113 percent of its capital (Alba Petroleos refuse to publish financial statements).

Privatization Program

El Salvador is not engaged in a privatization program and has not announced plans to privatize.

The private sector in El Salvador, including several prominent U.S. companies, has embraced the concept of responsible business conduct (RBC).  Several local foundations promote RBC practices, entrepreneurial values, and philanthropic initiatives. El Salvador is also a member of international institutions such as Forum Empresa (an alliance of RBC institutions in the Western Hemisphere), AccountAbility (UK), and the InterAmerican Corporate Social Responsibility Network.  Businesses have created RBC programs to provide education and training, transportation, lunch programs, and childcare. In addition, RBC programs have included inclusive hiring practices and assistance to communities in areas such as health, education, senior housing, and HIV/AIDS awareness. Organizations monitoring RBC are able to work freely.

The Secretariat of Transparency and Corruption was launched in 2009 to develop guidelines, strategies, and actions to promote transparency and combat corruption in government (see: http://www.presidencia.gob.sv/temas/secretaria-de-participacion-ciudadana-transparencia-y-anticorrupcion-de-la-presidencia/  ).  The watchdog organization Transparency International is represented in-country by the Salvadoran Foundation for Development (FUNDE).

El Salvador does not waive or weaken labor laws, consumer protection, or environmental regulations to attract foreign investment.  El Salvador’s ability to effectively and fairly enforce domestic laws is limited by a lack of resources. El Salvador does not allow metal mining activity.

U.S. companies operating in El Salvador are subject to the U.S. Foreign Corrupt Practices Act.

Corruption can be a challenge to investment in El Salvador.  El Salvador ranks 105 out of 180 countries in Transparency International’s 2018 Corruption Perceptions Index.  While El Salvador has laws, regulations, and penalties to combat corruption, their effectiveness is at times questionable.  Soliciting, offering, or accepting a bribe is a criminal act in El Salvador. The Attorney General’s Anticorruption and Anti-Impunity Unit handles allegations of corruption against public officials.  The Constitution establishes a Court of Accounts that is charged with investigating public officials and entities and, when necessary, passing such cases to the Attorney General for prosecution. Executive-branch employees are subject to a code of ethics, including administrative enforcement mechanisms, and the government established an Ethics Tribunal in 2006.

Corruption scandals at the federal, legislative, and municipal levels are commonplace and there have been credible allegations of judicial corruption.  Three of the past four presidents have been indicted for corruption, and a former Attorney General is in prison on corruption-related charges. The law provides criminal penalties for corruption, but implementation is generally perceived as ineffective.  In 2017, a civil court found former president Mauricio Funes guilty of illicit enrichment and ordered him to repay over USD 200,000. In 2018, the Attorney General brought additional embezzlement and money laundering charges against Funes, who fled to Nicaragua in 2017, where he currently enjoys asylum.  In March 2019, the Supreme Court unanimously approved the Attorney General’s December 2018 petition to request Funes’ extradition. In 2018, former president Elias Antonio (Tony) Saca pleaded guilty to embezzling more than USD 300 million in public funds. The court sentenced him to 10 years in prison and ordered him to repay USD 26 million.

The NGO Social Initiative for Democracy stated that officials, particularly in the judicial system, often engaged in corrupt practices with impunity.  Long-standing government practices in El Salvador, including cash payments to officials, shielded budgetary accounts, and diversion of government funds, facilitate corruption and impede accountability.  For example, the accepted practice of ensuring party loyalty through off-the-books cash payments to public officials (i.e., sobresueldos) has persisted across five presidential administrations.  El Salvador has an active, free press that reports on corruption.  In 2015, the Probity Section of the Supreme Court began investigating allegations of illicit enrichment of public officials.  In 2017, Supreme Court Justices ordered its Probity Section to audit legislators and their alternates. The illicit enrichment law requires appointed and elected officials to declare their assets to the Probity Section.  The declarations are not available to the public, and the law does not establish sanctions for noncompliance.

The law provides for the right of access to government information, but authorities have not always effectively implemented the law.  The law gives a narrow list of exceptions that outline the grounds for nondisclosure and provide for a reasonably short timeline for the relevant authority to respond, no processing fees, and administrative sanctions for non-compliance.

In 2011, El Salvador approved the Law on Access to Public Information and joined the Open Government Partnership.  The Open Government Partnership promotes government commitments made jointly with civil society on transparency, accountability, citizen participation and use of new technologies (http://www.opengovpartnership.org/country/el-salvador  ).

UN Anticorruption Convention, OECD Convention on Combating Bribery

El Salvador is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.  El Salvador is a signatory to the UN Anticorruption Convention and the Organization of American States’ Inter-American Convention against Corruption.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Doctor Jose Nestor Castaneda Soto, President of the Court of Government Ethics
Court of Government Ethics (Tribunal de Etica Gubernamental)
87 Avenida Sur, No.7, Colonia Escalon, San Salvador
(503) 2565-9403
Email: n.castaneda@teg.gob.sv
http://www.teg.gob.sv/  

Licenciado Raúl Ernesto Melara Morán
Fiscalia General de La Republica (Attorney General’s Office)
Edificio Farmavida, Calle Cortez Blanco
Boulevard y Colonia Santa Elena
(503) 2593-7400
(503) 2593-7172
Email: xvpocasangre@fgr.gob.sv
http://www.fiscalia.gob.sv/  

Chief Justice Oscar Armando Pineda Navas
Avenida Juan Pablo II y 17 Avenida Norte
Centro de Gobierno
(503) 2271-8743
Email: conchita.presidenciacsj@gmail.com
http://www.csj.gob.sv  

Contact at “watchdog” organization (international, regional, local or nongovernmental organization operating in the country/economy that monitors corruption, such as Transparency International):

Roberto Rubio-Fabián
Executive Director, National Development Foundation (Fundacion Nacional para el Desarrollo – FUNDE)
Fundacion Nacional para el Desarrollo, Calle Arturo Ambrogi #411, entre 103 y 105 Avenida Norte, Colonia Escalon, San Salvador
(503) 2209-5300
Email: direccion@funde.org

Resources to request government information

Access to Public Information Institute (IAIP for its initials in Spanish)

Rene Eduardo Carcamo
Commissioner President of the IAIP
Prolongacion Ave. Alberto Masferrer y Calle al Volcán, Edif. Oca Chang # 88
(503) 2205-3800
Email: rcarcamo@iaip.gob.sv
https://www.iaip.gob.sv/  

El Salvador’s 12-year civil war ended in 1992.  Since then, there has been no political violence aimed at foreign investors.

The crime threat level in El Salvador is critical and the Travel Advisory warns U.S. citizens of the high rates of crime and violence.  A majority of serious crimes in El Salvador are never solved. El Salvador lacks sufficient resources to properly investigate and prosecute cases and to deter crime.  For more information, visit: https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/ElSalvador.html

El Salvador has thousands of known gang members from several gangs including Mara Salvatrucha (MS-13) and 18th Street (M18). Gang members engage in violence or use deadly force if resisted.  These “maras” concentrate on extortion, violent street crime, car-jacking, narcotics and arms trafficking, and murder for hire. Extortion is a common crime in El Salvador. U.S. citizens who visit El Salvador for extended periods are at higher risk for extortion demands. Bus companies and distributors often must pay extortion fees to operate within gang territories, and these costs are passed on to paying customers.  The World Economic Forum’s 2018 Global Competitiveness Index reported that costs due to organized crime for Salvadoran businesses are the highest among 140 countries. In 2017, the World Bank estimated that companies in El Salvador allocated 3.4 percent of their revenues to security and crime prevention, the highest in Central America.

In 2018, El Salvador had a labor force of approximately three million, according to the Ministry of Economy.  Informal employment accounts for approximately 72 percent of the economy. While Salvadoran labor is regarded as hard-working, general education and professional skill levels are low.  According to many large employers, there is a lack of middle management-level talent, which sometimes results in the need to bring in managers from abroad. Employers do not report labor-related difficulties in incorporating technology into their workplaces.

The Salvadoran Constitution guarantees the right of employees in the private sector to organize into associations and unions.  In practice, unions are independent of the government and employers. Unions may strike only to obtain or modify a collective bargaining agreement or to protect professional rights.  They must also engage in negotiation, mediation, and arbitration processes before striking, although many groups skip or go through these steps quickly.  Employers are free to hire union or non-union labor. Closed shops are illegal. Labor laws are generally in accordance with internationally–recognized standards, but are not enforced consistently by government authorities.  Although El Salvador has improved labor rights since the CAFTA-DR entered into force and the passage of the 2014 Special Trafficking in Persons Law, there remains room for better implementation.

The Ministry of Labor (MOL) is responsible for enforcing the law.  The government proved more effective in enforcing the minimum wage law in the formal sector than in the informal sector. Unions reported the ministry failed to enforce the law for subcontracted workers hired for public reconstruction contracts.  The government provided its inspectors updated training in both occupational safety and labor standards. As of June 2018, MOL conducted 13,315 inspections, in addition to 3,857 follow-up inspections, and levied USD 777,000 in fines against businesses.

The law sets a maximum normal workweek of 44 hours, limited to no more than six days and to no more than eight hours per day, but allows overtime (to be paid at a rate of double the usual hourly wage).  The law mandates that full-time employees receive pay for an eight-hour day of rest in addition to the 44-hour normal workweek. The law provides that employers must pay double-time for work on designated annual holidays, a Christmas bonus based on the time of service of the employee, and 15 days of paid annual leave.  The law prohibits compulsory overtime. The law states that domestic employees are obligated to work on holidays if their employer makes this request, but they are entitled to double pay. The government does not adequately enforce these laws.

While workers have the right to strike, the law contains cumbersome and complex registration procedures for conducting a legal strike.  The law does not recognize the right to strike for public and municipal employees or for workers in essential services, which include those services where disruption would jeopardize or endanger life, security, health, or normal conditions of existence for some or all of the population.  The law does not specify which services meet this definition, and courts apply this provision on a case-by-case basis. The law places several other restrictions on the right to strike, including the requirement that 30 percent of all workers in an enterprise must support a strike for it to be legal and that 51 percent must support the strike before all workers are bound by the decision to strike.  In addition, unions may strike only to obtain or modify a collective bargaining agreement or to protect the common professional interests of the workers. They must also engage in negotiation, mediation, and arbitration processes before striking, although many groups often skip or go through these steps quickly. The law prohibits workers from appealing a government decision declaring a strike illegal.

The government does not effectively enforce the laws on freedom of association and the right to collective bargaining in all cases.  Resources to conduct inspections were inadequate, and remedies remained ineffective. Penalties for employers who disrupt the right of a union to exist were generally not sufficient to deter violations.  The Ministry of Labor lacks sufficient resources to enforce the law fully. Judicial procedures were subject to lengthy delays and appeals. According to union representatives, the government did not consistently enforce labor rights for public workers, maquila/textile workers, subcontractors in the construction industry, security guards, informal sector workers, or migrant workers.  In 2018, the Ministry of Labor received 1,778 complaints of violations of the labor code, including 565 instances of failure to pay the minimum wage, and 15 claims of violations for labor discrimination.

El Salvador’s Labor Law mandates that the minimum wage must be proposed by the National Minimum Wage Council.  In January 2017, El Salvador raised the minimum wage in four sectors: commercial/industrial, textiles, seasonal harvesting, and agriculture.  The minimum wage increase applied to Salvadorans working in the formal economy, approximately 28 percent of the labor force or 770,000 people.

The Overseas Private Investment Corporation (OPIC) has an agreement with El Salvador that requires governmental approval on each project application.  In December 2017, OPIC announced its Northern Triangle initiative to leverage USD 1 billion in private investment in El Salvador, Guatemala, and Honduras over the next two years.  Currently, OPIC is supporting eight projects in El Salvador, as well as several regional projects that include El Salvador. More information on the Northern Triangle initiative is available at https://www.opic.gov/opic-action/regional-priorities/northern-triangle  

El Salvador uses the U.S. dollar, so full inconvertibility insurance is unnecessary.  El Salvador is a member of the Multilateral Investment Guarantee Agency (MIGA).

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

* Central Bank, El Salvador.  In 2018, the Central Bank released GDP estimates using the new national accounts system from 2008 and using 2005 as the base year.

Table 3: Sources and Destination of FDI

*Coordinated Direct Investment Survey, International Monetary Fund

Table 4: Sources of Portfolio Investment

There is no IMF data for portfolio investment assets available for El Salvador.

Michael L. Benton
Deputy Economic Counselor
U.S. Embassy San Salvador
Final Blvd. Santa Elena, Antiguo Cuscatlán, La Libertad, El Salvador
Phone: + (503) 2501-2999
Email: bentonML2@state.gov
Website: http://sansalvador.usembassy.gov/index.html

To reach the U.S. Foreign Commercial Service (FCS) Office, please email: san.salvador@trade.gov

Policies Toward Foreign Direct Investment

The Honduran government is generally open to foreign investment.  Low labor costs, proximity to the U.S. market, and the large Caribbean port of Puerto Cortes make Honduras attractive to investors.  At the same time, however, inconsistent and expensive energy, corruption, weak institutions, high levels of crime, low educational levels, and poor infrastructure hamper Honduras’ investment climate.

Entities that make up the legal framework for investment include the Honduran constitution; the investment chapter of CAFTA-DR; a self-executing international agreement that takes precedence over most domestic law; and the 2011 Law for the Promotion and Protection of Investments.  The Honduran constitution requires all foreign investment complement, but not substitute for, national investment. Honduras’ legal obligations guarantee national treatment and most favored nation treatment for U.S. investments in most sectors of the Honduran economy and include enhanced benefits in the areas of insurance and arbitration for domestic and foreign investors.  CAFTA-DR has equal status in Honduras with the constitution in most sectors of the Honduran economy.

Critics complain that lack of clarity and overlapping responsibilities among the multiple entities charged with attracting increased foreign direct investment hinder results.  As of April 2019, the Government of Honduras put forward draft legislation currently being debated by the Honduran Congress that would merge the National Investment Council, ProHonduras, and President Hernandez’s signature initiative Honduras 20/20, an ambitious plan to create 600,000 jobs in six targeted sectors by the year 2020.  It remains uncertain whether the proposed changes will galvanize the political will required to push forward significant reforms.

Limits on Foreign Control and Right to Private Ownership and Establishment

Honduras’ Investment Law does not limit foreign ownership of businesses, except for those specifically reserved for Honduran investors, including small firms with capital less than USD 6,300 and the domestic air transportation industry.  For all investments, at least 90 percent of companies’ labor forces must be Honduran and companies must pay at least 85 percent of their payrolls to Hondurans.  Majority ownership by Honduran citizens is required for companies benefiting from the Agrarian Reform Law, including in sectors of commercial fishing, forestry, local transportation, radio, and television.  There is no screening or approval process specific to foreign direct investments in Honduras. Foreign investors are subject to the same requirements for environmental and other regulatory approvals as domestic investors.

Investors can establish, acquire, and dispose of enterprises at market prices under freely negotiated conditions without government intervention.  Private enterprises fairly compete with public enterprises on market access, credit, and other business operations. Foreign investors have the right to own property, subject to certain restrictions established by the Honduran constitution and several laws relating to property rights.  Investors may acquire, profit, use, and dispose of property ownership with the exception of land within 40 kilometers of international borders and shorelines. Honduran law does permit, however, foreign individuals to purchase properties close to shorelines in designated “tourism zones.”

Other Investment Policy Reviews

In 2016, the World Trade Organization conducted a Trade Policy review of Honduras: https://www.wto.org/english/tratop_e/tpr_e/s336_e.pdf .

Business Facilitation

The Honduran government simplified administrative procedures for establishing a company in recent years.  According to the 2019 World Bank Doing Business Report, the average time required for starting a business in Honduras is 13 days and requires 11 procedures.  Honduras’ business registration information portal (http://www.honduras.eregulations.org/  ) provides information on registering a business, including information fees, agencies, and required documents.  The World Bank’s Honduras Investment Regulation Portal provides quantitative indicators on Honduras’ laws, regulations, and practices affecting foreign companies (http://iab.worldbank.org/data/exploreeconomies/honduras  ).

Outward Investment

Honduras does not promote or incentivize outward investment.

A Bilateral Investment Treaty (BIT) between the United States and Honduras entered into force in 2001.  The U.S.-Honduras Treaty of Friendship, Commerce and Consular Rights (1928) provides for Most Favored Nation treatment for investors of either country.  The United States and Honduras also signed an agreement for the guarantee of private investments in 1955 and an agreement on investment guarantees in 1966.  CAFTA-DR supersedes most provisions of these agreements. Honduras and the United States signed a Tax Information Exchange Agreement in 1990. In 2014, Honduras and the United States signed the Foreign Account Tax Compliance Act.

Provisions for investment are included in free trade agreements between Honduras and the United States, Canada, Chile, Costa Rica, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Peru, the Dominican Republic, Colombia, Taiwan, South Korea, and the European Union.  These agreements supersede many of the provisions of Honduras’ separate Bilateral Investment Treaties with these countries. Honduras also has separate Bilateral Investment Treaties with the Republic of Korea and with Switzerland.

Transparency of the Regulatory System

Though CAFTA-DR requires host governments publish proposed regulations that could affect businesses or investments, the Honduran government does not routinely post proposed regulations.  The lack of a formal notification process prevents nongovernmental groups, foreign companies, and other entities from commenting on proposed regulations. The government of Honduras publishes approved regulations in the official government Gazette.  Honduras lacks an indexed legal code so lawyers and judges must maintain the publication of laws on their own. Procedural red tape to obtain government approval for investment activities is common.

Some U.S. investors experience long waiting periods for environmental permits and other regulatory and legislative approvals.  Sectors in which U.S. companies frequently encounter problems include infrastructure, telecoms, mining, and energy. Generally, regulatory requirements are complex and lengthy, and may be influenced by political factors.  Regulatory approvals require congressional intervention if the time exceeds a presidential term of four years. Current regulations are available at the Honduran government’s eRegulations website (http://honduras.eregulations.org/  ).  While the majority of regulations are at the national level, municipal level regulations also exist.  No significant regulatory changes of relevance to foreign investors were announced since the last report.  Public comments received by regulators are not published. Honduras has made strides, in part with technical assistance from the U.S. Department of Treasury, to make public finances and debt obligations more transparent.

International Regulatory Considerations

As a member of the WTO, Honduras notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Honduras has a civil law system.  The Honduran Commercial Code, enacted in 1950, regulates business operations and falls under the jurisdiction of the Honduran civil court system.  The Civil Procedures Code, which entered into force in 2010, introduced the use of open, oral arguments for adversarial procedures. The Civil Procedures Code provides improved protection of commercial transactions, property rights, and land tenure.  It also offered a more efficient process for the enforcement of rulings issued by foreign courts. Despite these codes, U.S. claimants have complain about the lack of transparency and the slow administration of justice in the courts. U.S. firms report favoritism, external pressure, and bribes within the judicial system.  They also complain about the poor quality of legal representation from Honduran attorneys.

Resolving an investment or commercial dispute in the local Honduran courts is often a lengthy process.  Foreign investors report dispute resolution typically involves multiple appeals and decisions at different levels of the Honduran judicial system.  Each decision can take months or years, and it is usually not possible for the parties to predict the time required to obtain a decision. Final decisions from Honduran courts or from arbitration panels often require subsequent enforcement from lower courts to take effect, requiring additional time.  Foreign investors sometimes prefer to resolve disputes with suppliers, customers, or partners out of court when possible.

Laws and Regulations on Foreign Direct Investment

Honduras’ Investment Law requires all local and foreign direct investment be registered with the Investment Office in the Secretariat of Industry and Commerce.  Upon registration, the Investment Office issues certificates to guarantee international arbitration rights under CAFTA-DR. An investor who believes the government has not honored a substantive obligation under CAFTA-DR may pursue CAFTA-DR’s dispute settlement mechanism, as detailed in the Investment Chapter.  The claim’s proceedings and documents are generally open to the public.

The Government of Honduras requires authorization for both foreign and domestic investments in the following areas:

• Basic health services
• Telecommunications
• Generation, transmission, and distribution of electricity
• Air transport
• Fishing, hunting, and aquaculture
• Exploitation of forestry resources
• Agricultural and agro-industrial activities exceeding land tenancy limits established by the Agricultural Modernization Law of 1992 and the Land Reform Law of 1974
• Insurance and financial services
• Private education services
• Investigation, exploration, and exploitation of mines, quarries, petroleum and related substances.

In 2015, the Honduran government implemented the online National Investment Register as a starting point for creating a one-stop foreign and domestic investment facility (www.prohonduras.hn  ).  Formalizing a business, however, still requires visiting a municipal chamber of commerce window for registration and permits.

Competition and Anti-Trust Laws

The Commission for the Defense and Promotion of Competition (CDPC) is the Honduran government agency that reviews proposed transactions for competition-related concerns.  Honduras’ Competition Law established the CDPC in 2005 as part of the effort to implement CAFTA-DR. The Honduran Congress appoints the members of the CDPC, which functions an independent regulatory commission.

Expropriation and Compensation

The Honduran government has the authority to expropriate property for purposes of land reform or public use.  The National Agrarian Reform Law provides that idle land fit for farming can be expropriated and awarded to indigent and landless persons via the Honduran National Agrarian Institute.  In 2013, the Honduran government passed legislation regarding recovery and reassignment of concessions on underutilized assets. Both local and foreign firms have expressed concerns that the law does not specify what the government considers “underutilized.”  The government has not published implementing regulations for the law nor indicated plans to use the law against any private sector firm.

Government expropriation of land owned by U.S. companies is rare.  Seizure actions by squatters on both Honduran and non-U.S. foreign landowners are most common in agricultural areas.  Some occupations turn violent, especially in the Bajo Aguan region in the department of Colon. Owners of disputed land have found pursuing legal avenues costly, time consuming, and legally inconclusive.  CAFTA-DR’s Investment Chapter Section 10.7 states no party may expropriate or nationalize a covered investment either directly or indirectly, with limited public purpose exceptions that require prompt and adequate compensation.

Under the Agrarian Reform Law, the Honduran government must compensate expropriated land partly in cash and partly in 15-, 20-, or 25-year government bonds.  The portion to be paid in cash cannot exceed USD 1,000 if the expropriated land has at least one building and it cannot exceed USD 500 if the land is in use but has no buildings.  If the land is not in use, the government will compensate entirely in 25-year government bonds.

Dispute Settlement

ICSID Convention and New York Convention

Honduras is a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention).  Honduras has ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention)

Investor-State Dispute Settlement

CAFTA-DR provides dispute settlement procedures between the United States and Honduras.  CAFTA-DR’s Investment Chapter dispute settlement mechanism allows an investor who believes the government has not honored a substantive obligation under CAFTA-DR to request a binding international arbitration.  Proceedings and documents submitted to substantiate the claim are generally open to the public. The agreement provides basic protections, such as nondiscriminatory treatment, limits on performance requirements, the free transfer of funds related to an investment, protection from expropriation other than in conformity with customary international law, a minimum standard of treatment, and the ability to hire key managerial personnel regardless of nationality.

International Commercial Arbitration and Foreign Courts

Honduras’ Conciliation and Arbitration Law, established in 2000, outlines procedures for arbitration and defines the procedures under which they take place.  The Investment Law permits investors to request arbitration directly, a swifter and more cost-effective means of resolving disputes between commercial entities.  Arbitrators and mediators may have specialized expertise in technical areas involved in specific disputes. Local courts recognize and enforce foreign arbitral awards issues against the government.  Judgements from foreign courts are recognized and enforceable under local courts.

The following links provide more localized information:

Tegucigalpa Chamber of Industry and Commerce – Center for Conciliation and Arbitration: https://www.ccit.hn/cca/  

San Pedro Sula Chamber of Industry and Commerce – Center for Conciliation and Arbitration: http://www.ccichonduras.org/es/?p=1571  

Numerous U.S. investors who have been involved with the local judicial system complain it can be inefficient, lacks transparency, and is subject to domestic influence and/or corruption.

Bankruptcy Regulations

Companies that default in payment of their obligations in Honduras can declare bankruptcy.  A Honduran court must ratify a bankruptcy in order for it to take effect. These cases are regulated by the Commerce Code.

The judicial ruling that declares the bankruptcy of the company establishes the value of the assets, the recognition and classification of the credits, the  procedure for the sale of assets and the schedule for the payment of the obligations, in the case that it is not possible for the company to continue its operations.  The ruling must be published in The Gazette. The liquidation of companies is always a judicial matter, except in the case of banking institutions which are liquidated by the National Banking and Insurance Commission.

Any creditor or a company itself may initiate the liquidation procedure, which is generally a civil matter.  The Judge appoints a liquidator to execute the procedure. A mechanism that a company has to prevent bankruptcy is to request a suspension of payments from the judge.  If approved by the judge and the creditors, the company is able to reach an agreement with its creditors that allows the same administrative board to maintain control of the company.

A company may be prosecuted for fraudulently declaring bankruptcy in the case that the administrative board or shareholders withdraw their assets before the declaration, alter accounting books making it impossible to determine the real situation of the company, or favor certain creditors granting them benefits that they would not be entitled to otherwise.

Investment Incentives

The 2017 Tourism Incentives Law offers tax exemptions for national and international investment in tourism development projects.  The law provides income tax exemptions for the first 10 years of a project and permits the duty-free import of goods needed for a project, including publicity materials.  To receive benefits, a business must be located in a designated tourism zone. Restaurants, casinos, nightclubs and movie theaters, and certain other businesses are not eligible for incentives under this law.  Foreigners or foreign companies seeking to purchase property exceeding 3,000 square meters for tourism or other development projects in designated tourism zones must present an application to the Honduran Tourism Institute at the Ministry of Tourism.  The buyer must prove a contract to purchase the property exists and present feasibility studies and plans about the proposed tourism project.

In October 2018 President Hernandez introduced legislation creating a number of new tax incentives to promote job growth for small and medium enterprises.  The new laws entered into effect in November 2018 following publication in the official Gazette. The legislation provides access to credit and tax relief to encourage existing businesses to go through the formal registration process as well as encourage the creation of new companies.  The legislation includes provisions granting tax exemptions on national and municipal taxes and reduced permitting and licensing fees for new businesses.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Honduran government does not provide direct export subsidies, but does offer tax exemptions to firms in a free trade zone.  The Temporary Import Law allows exporters to introduce raw materials, parts, and capital equipment (except vehicles) into Honduras exempt from surcharges and customs duties if a manufacturer incorporates the input into a product for export (up to five percent can be sold locally).  The government allows the establishment of export processing zones anywhere in the country. Companies operating in export processing zones are exempt from paying import duties and other charges on goods and capital equipment. In addition, the production and sale of goods within export processing zones are exempt from state and municipal income taxes for the first 10 years of operation.  The government permits companies operating in an export processing zone unrestricted repatriation of profits and capital. Companies are required, however, to purchase the Lempiras needed for their local operations from Honduran commercial banks or from foreign exchange trading houses registered with the Central Bank.

Most industrial parks and export processing zones are located in the northern Department of Cortes, with close access to Puerto Cortes, Honduras’ major Caribbean port, and San Pedro Sula, Honduras’ major commercial city.  The government treats industrial parks and export processing zones as offshore operations and therefore companies must pay customs duties on products manufactured in the parks and sold in Honduras. In addition, the government treats Honduran inputs as exports, which companies must pay for in U.S. dollars.  Most companies operating in these parks are involved in apparel assembly, though the government and park operators have begun to diversify into other types of light industry, including automotive parts and electronics assembly. Additional information on Honduran free trade zones and export processing zones is available from the Honduran Manufacturers Association (http://www.ahm-honduras.com/  ).

In 2013, the Government of Honduras signed a law to allow establishment of Economic Development and Employment Zones (ZEDEs) to boost job growth and attract foreign investment.  Following a backlash from local and international NGOs concerned about labor rights, land issues, and environmental protection, the push for ZEDEs remained dormant until August 2017, when President Hernández revived the concept as a key job creation tool in conjunction with Honduras Plan 20/20 and his reelection campaign.  Per the Tourism Law, privately owned tourism zones permit free importation of equipment, supplies, and vehicles. As of May 2019 there are no ZEDEs operating in Honduras, though officials insist the first ZEDE will soon be operational.

Performance and Data Localization Requirements

The Honduran government encourages foreign investors to hire locally and to make use of domestic content, especially in manufacturing and agriculture.  The government looks favorably on investment projects that contribute to employment growth, either directly or indirectly. U.S. investors in Honduras have not reported instances in which the government has imposed performance or localization requirements on investments.

The Honduran government and courts can require foreign and domestic investors that operate in Honduras to turn over data for use in criminal investigations or civil proceedings.  Honduran law enforcement, prosecutors, and civil courts have the authority to make such requests.

Real Property

Honduran law recognizes secured interests in movable and real property.  The Chamber of Commerce and Industry of Tegucigalpa (CCIT) and the Chamber of Commerce and Industry of San Pedro Sula (CCIC) both manage their own merchant records.  The national property registry is managed by the Property Institute. Honduras’ secured transactions law gives a concession to the CCIT and CCIC to administer their own merchant registries.

Land title procedures have been an issue leading to investment disputes involving U.S. nationals who are landowners.  Title insurance is not widely available in Honduras and approximately 80 percent of the privately held land in the country is either untitled or improperly titled.  Resolution of disputes in court often takes years. There are claims of widespread corruption in land sales, deed filing, and dispute resolution, including claims against attorneys, real estate companies, judges, and local officials.  Although Honduras has made some progress, the property registration system is perceived as unreliable and represents a constraint on investment, particularly in the Bay Islands. In addition, a lack of implementing regulations leads to long delays in the awarding of titles in some regions

Intellectual Property Rights

The legislative framework for protection of intellectual property rights (IPR), which includes the Honduran copyright law and its industrial property law, is generally adequate but often poorly implemented.  Honduras implements its obligations under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organization (WTO). Honduran law protects data exclusivity for a period of five years and protects process patents, but does not recognize second-use patents.  The Property Institute (IP) and Public Ministry handle protection and enforcement of intellectual property rights.

CAFTA-DR Chapter 15 on Intellectual Property Rights further provides for the protection and enforcement of a range of intellectual property rights, which are consistent with U.S. and international standards as well as with emerging international standards of IPR protection and enforcement.  There are also provisions on deterrence of piracy and counterfeiting. Additionally, CAFTA-DR provides authorities the ability to confiscate pirated goods and investigate intellectual property cases on their own initiative.

The Honduran legal framework provides deterrence against piracy and counterfeiting by requiring the seizure, forfeiture, and destruction of counterfeit and pirated goods and the equipment used to produce them.  The law also provides for statutory damages for copyright and trademark infringement, to ensure monetary damages are awarded even when losses associated with an infringement are difficult to assign.

Honduras is not listed in USTR’s Special 301 report or the Notorious Markets List.

Resources for Rights Holders

A list of local attorneys is available at https://hn.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/.

The Honduran-American Chamber of Commerce works with U.S. and Honduran companies that encounter commercial challenges, including intellectual property rights issues (http://www.amchamhonduras.org/  ).  For additional information about national laws and points of contact at local IP offices, please see World Intellectual Property Organization’s country profiles: http://www.wipo.int/directory/en/  .

Capital Markets and Portfolio Investment

There are no government restrictions on foreign investors’ access to local credit markets, though the local banking system generally extends only limited amounts of credit.  Investors should not consider local banks a significant capital resource for new foreign ventures unless they use specific business development credit lines made available by bilateral or multilateral financial institutions such as the Central American Bank for Economic Integration.

A limited number of credit instruments are available in the local market.  The only security exchange operating in the country is the Central American Securities Exchange (BCV) in Tegucigalpa, but investors should exercise caution before buying securities listed on it.  Supervised by the National Banking and Insurance Commission (CNBS), the BCV theoretically offers instruments to trade bankers’ acceptances, repurchase agreements, short-term promissory notes, Honduran government private debt conversion bonds, and land reform repayment bonds.  In practice, however, the BCV is almost entirely composed of short- and medium-term government securities and no formal secondary market for these bonds exists.

A few banks have placed fixed rate and floating rate notes extended to three years in maturity, but outside of the banks’ issuances, the private sector does not sell debt or corporate stock on the exchange.  Any private business is eligible to trade its financial instruments on the BCV, and firms that participate are subject to a rigorous screening process, including public disclosure and ratings by a recognized rating agency.  Historically, traded firms generally have had economic ties to the different business and financial groups represented as shareholders of the exchange. As a result, risk management practices are lax and public confidence in the institution is limited.

Money and Banking System

The Honduran financial system is comprised of commercial banks, state-owned banks, savings and loans institutions, and financial companies.  There are currently 15 commercial banks operating in Honduras. There is no offshore banking or homegrown blockchain technologies in Honduras.

Foreign Exchange and Remittances

Foreign Exchange Policies

Article 10.8 of CAFTA-DR ensures the free transfer of funds related to a covered investment.  Local financial institutions freely exchange U.S. dollars and other foreign currencies. Foreigners may open bank accounts with a valid passport.  For deposits exceeding the maximum deposits specified for different account types (corporate or small-medium enterprises), banks require documentation verifying the fund’s origin.

The Investment Law guarantees foreign investors access to foreign currency needed to transfer funds associated with their investments in Honduras, including:

• Imports of goods and services necessary to operate
• Payment of royalty fees, rents, annuities, and technical assistance
• Remittance of dividends and capital repatriation

The Central Bank of Honduras   instituted a crawling peg in 2011 that allows the lempira to fluctuate against the U.S. dollar by seven percent per year.  The Central Bank mandates any daily price of the crawling peg be no greater than 100.075 percent of the average for the prior seven daily auctions.  These restrictions limit devaluation to a maximum of 4.8 percent annually. As of mid-May, the exchange rate is 24.43lempira to the U.S. dollar.

The Central Bank uses an auction system to allocate of foreign exchange based on the following regulations:

• The Central Bank sets base prices every five auctions according to the differential between the domestic inflation rate and the inflation rate of Honduras’ main commercial partners.
• The Central Bank’s Board of Directors determines the procedure to set the base.
• The Board of Directors establishes the exchange commission and the exchange agencies in their foreign exchange transactions.
• Individuals and corporate bodies can participate in the auction system for dollar purchases, either by themselves or through an exchange agency.  The offers can be no less than USD 10,000, no more than USD 300,000 for individuals, and no more than USD 1.2 million for corporations.
• To date, the U.S. Embassy in Honduras has not received complaints from individuals with regard to converting or transferring funds associated with investments.

Remittance Policies

The Investment Law guarantees investors the right to remit their investment returns and, if they liquidate their investments, to remit the principal capital invested.  Foreign investors that choose to remit their investment proceeds from Honduras do so through foreign exchange transactions at Honduran banks or foreign banks operating in Honduras.  These exchange transactions are subject to the same foreign exchange process and regulation as other transactions.

Sovereign Wealth Funds

Honduras does not have a sovereign wealth fund.

Most state-owned enterprises are in telecommunications, electricity, water utilities, and commercial ports.  The main state-owned Honduran telephone company, Hondutel, has private contracts with eight foreign and domestic carriers.  The Government of Honduras has yet to establish a legal framework for foreign companies to obtain licenses and concessions to provide long distance and international calling.  As a result, investors remain unsure if they can become fully independent telecommunication service providers.

The state-owned National Electric Energy Company (ENEE) is the single greatest contributor to the country’s fiscal deficit.  Energy reform legislation, passed in 2014, called for the separation of ENEE into three independent units for distribution, transmission, and generation. International energy observers, including the World Bank, cite a lack of…political will and vested interests from Honduran political and economic elite who profit from inflated generation contracts, stalling efforts to unbundle ENEE.  While the Honduran government is leading efforts to reform the energy sector and reform ENEE, they face serious structural problems including high electricity system losses, a transmission system in need of upgrades, vulnerability of generation costs to volatile international oil prices, an electricity tariff that does not reflect actual costs, and the high costs of long-term power purchase agreements (PPAs).  ENEE experienced an operational deficit of USD 191.4 million in 2017, up USD 28.4 million from the previous full year. In 2017, the Honduran government issued USD 700 million in sovereign bonds to cover payment arrears and refinance the most expensive existing debtThe IMF recommended thatENEE lower the cost of power generation, increase tariffs, invest in transmission upgrades, and reduce losses in order to reduce its deficit.

ENEE controls most hydroelectric generation, which accounts for about one-third of total capacity.  Approximately 50 percent of all power generation comes from diesel and bunker fuel oil plants and the remaining 20 percent comes from wind, solar, and biomass.  Following a push for renewable energy in 2014, the government approved more than 80 contracts between ENEE and private producers for almost 2000 megawatts of new clean energy, although many of these projects are unlikely to materialize.  In 2018, the government cancelled an incentive programs offering a USD 0.03 per kilowatt-hour for renewable power due to high costs. Many businesses have installed on-site power generation systems to supplement or substitute for power from ENEE due to high costs and uncertainty about the semi-privatization process.

Honduran law grants municipalities the right to manage water distribution and to grant concessions to private enterprises.  Major cities with public-private concessions include San Pedro Sula, Puerto Cortes, and Choloma. The state water authority National Autonomous Aqueduct and Sewer Service (SANAA) manages Tegucigalpa’s water distribution.  The Honduran National Port Company (ENP) is the state-owned organization that oversees management the country’s government-operated maritime ports, including Puerto Cortes, La Ceiba, Puerto Castilla, and San Lorenzo. Private companies Central American Port Operators and Maritime Ports of Honduras have 30-year concessions to operate container and bulk shipping facilities at Honduras’ principal port Puerto Cortes.

Privatization Program

The Honduran government is not actively seeking to privatize state-owned enterprises though it is seeking to increase private sector participation in the electric system.  As part of the International Monetary Fund (IMF) December 2014 standby arrangement, concluded in December 2017, the Honduran government initiated reform of the state-owned energy company ENEE and created an independent Electric Energy Regulatory Commission.  In preparation for another IMF standby arrangement, the Honduran government is preparing a plan to separate ENEE. While the structure of the new entity is unclear, under the previous standby arrangement, Honduras was supposed to reform ENEE by creating a holding company with four components: a distribution company with an operations subcontractor supported by a trust agreement; a concession for the transmission network; a not-for-profit organization with public-private ownership to control the overall electrical system; and a privatized generation company that owns all ENEE generating facilities.  The majority of the reforms were not realized, with the exception of a 2016 sub-contract by a Colombian-Honduran consortium to manage energy distribution.

Awareness of the importance of Responsible Business Conduct (RBC) is growing among both producers and consumers in Honduras.  An increasing number of local and foreign companies operating in Honduras include conduct-related responsibility practices in their business strategies.  The Honduran Corporate Social Responsibility Foundation (FUNDAHRSE) leads efforts to promote transparency in the business climate and provides the Honduran private sector, particularly small- and medium-sized businesses, with the skills to engage in responsible business practices.  FUNDAHRSE’s members can apply for the foundation’s “Corporate Social Responsibility Enterprise” seal for exemplary responsible business conduct involving activities in health, education, environmental, codes of ethics, employment relations, and responsible marketing.

RBC related to the environment and outreach to local communities are especially important to the success of investment projects in Honduras.  Several major foreign investment projects in Honduras have stalled due to concerns about environmental impact, land rights issues, lack of transparency, and problematic consultative processes with local communities, particularly indigenous communities.  Efforts to pass legislation in support of International Labor Organization Convention 169 on Indigenous and Tribal Peoples has stalled in congress, although nascent efforts within the business community to revive the legislative process are underway. Successful foreign investors in Honduras implement a proactive strategy to build trust and effective dialogue with local communities.  Investors should both meet Honduran legal obligations and employ international best practices and standards to engage with communities to reduce the risk of conflict and promote sustainable and equitable development.

Examples of international best practices include the following:

• Voluntary Principles on Security and Human Rights Initiative
• The UN Guiding Principles on Business and Human Rights
• The Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises.

Following anticorruption protests in 2015, President Hernandez signed an agreement with the Organization of American States to form the Mission Against Corruption and Impunity in Honduras (MACCIH).  MACCIH has four principle objectives:

• Prevent and combat corruption and impunity
• Criminal justice system reform
• Political and electoral reform
• Public security

Since its inception in April 2016, MACCIH has worked with the Public Ministry to achieve success on several significant cases, including against current and former public officials.  MACCIH advanced justice reform by lobbying the Honduran Congress to pass a Law on Financing, Transparency, and Oversight of Political Parties in Honduras.  They also presented draft legislation for a Law of Effective Collaboration (similar to plea-bargaining) to the Honduran authorities.  MACCIH worked with the Public Ministry to create a special anti-corruption unit (UFECIC) to pursue large-scale corruption cases.  MACCIH established a Civil Society Observatory to monitor the criminal justice system in the country and work with civil society to implement a cohesive strategy to address systemic corruption.  MACCIH faces the end of its mandate in January 2020 without agreement for an extension between the OAS and the Honduran government.

U.S. businesses and citizens report corruption in the public sector and the judiciary is a significant constraint to investment in Honduras.  Historically, corruption has been pervasive in government procurement, issuance of government permits, customs, real estate transactions (particularly land title transfers), performance requirements, and the regulatory system.  Since 2012, the Honduran government signed agreements with Transparency International, the Construction Sector Transparency Initiative, and the Extractive Industry Transparency Initiative. Honduras is also receiving support from the Millennium Challenge Corporation in the development of an e-procurement platform and public procurement auditing.

Honduras’s Rankings on Key Corruption Indicators

The United States Foreign Corrupt Practices Act (FCPA) deems it unlawful for a U.S. person, and certain foreign issuers of securities to make corrupt payments to foreign public officials for the purpose of obtaining or retaining business for directing business to any person.  The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more information, see the FCPA Lay-Person’s Guide: http://www.justice.gov/criminal/fraud/  .

Honduras is a member of the UN Anticorruption Convention, which entered into force on December 14, 2005.  The UN Convention is the first global comprehensive international anticorruption agreement and requires countries to establish criminal penalties for a wide range of acts of corruption.  The UN Convention covers a broad range of issues from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption.  The UN Convention contains transnational business bribery provisions that are functionally similar to those in the Organization for Economic Cooperation and Development Anti-Bribery Convention.

Honduras is a member of the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997.  The OAS Convention establishes a set of preventive measures against corruption; provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment; and contains a series of provisions to strengthen the cooperation between its states parties in areas such as mutual legal assistance and technical cooperation.

Resources to Report Corruption

Companies that face corruption-related challenges in Honduras may contact the following organizations to request assistance.

Public Ministry
Eva Naza
Coordinator for External Cooperation
Email: cooperacionexterna.mp@gmail.com

The Public Ministry is the Honduran government agency responsible for criminal prosecutions, including corruption cases.

Association for a More Just Society (ASJ)
Yahayra Yohana Velasquez Duce
Director of Transparency
Residencial El Trapiche, 2da etapa Bloque B, Casa #25
Telephone: +504-2235-2291
Email: info@asjhonduras.com

ASJ is a nongovernmental Honduran organization that works to reduce corruption and increase transparency.  It is an affiliate of Transparency International.

National Anti-Corruption Council (CNA)
Alejandra Ferrera
Executive Board Assistant
Colonia San Carlos, calle Republica de Mexico
Telephone: 504-2221-1181
Email: aferrera@cna.hn

CAN is a Honduran civil society organization comprised of Honduran business groups, labor groups, religious organizations, and human rights groups.

U.S. Embassy Tegucigalpa, Honduras
Attention: Economic Section
Avenida La Paz
Tegucigalpa M.D.C., Honduras
Telephone Numbers: (504) 2236-9320, 2238-5114
Fax Number: (504) 2236-9037

Companies can also report corruption through the Department of Commerce Trade Compliance Center Report a Trade Barrier website: http://tcc.export.gov/Report_a_Barrier/index.asp  .

Despite recent progress on improving security in Honduras, crime and violence rates remain high and add cost and constraint to investments.  While the political climate has stabilized since the weeks of protests that followed the November 2017 presidential election, continued low-level protests and uncertainty pose a challenge to ongoing stability.

U.S. citizens should be aware that large public gatherings might become unruly or violent quickly.  For more information, consult the Department of State’s latest travel warning: https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/honduras-travel-advisory.html.

Honduras has a large supply of low-skilled labor.  Due to low average education levels, there is a limited supply of skilled workers in all technological fields, including medical and high technology industries.  The unemployment rate in Honduras is 6.7 percent and 48.6 percent is underemployed. Approximately 62.8 percent of workers are in the informal economy. Honduran law lays out a multi-tier system for calculating minimum wage, based on the employment sector and size of the company.  The Ministry of Labor, private sector, and labor confederations renegotiate specific starting levels on a multi-annual basis. Effective January 1, 2019 the minimum salary will go up 4.7 percent to 7 percent, and in 2020 it will go up from 5 percent to 7 percent.

The Honduran Labor Law prescribes a maximum eight-hour workday, 44-hour workweek, and at least one 24-hour rest period per week.  The Labor Code requires paid vacation of 10 workdays after one year, and 20 workdays after four years. Most employment sectors also receive two months bonuses as part of the base salary, known as the 13th and 14th month salary, issued in mid-December and mid-June, respectively.  New hires receive a prorated amount based on time-in-service during their first year of employment. The Labor Code requires companies to pay one month’s salary to employees terminated without cause. Companies do not owe severance to employees who resign or are terminated for cause.  Employees terminated for cause can contest the basis for the termination in court to claim severance. There are no government-provided unemployment benefits in Honduras, although unemployed individuals may have access to their accumulated pension funds.

Many employers hire employees on a temporary basis under the Temporary Employment Law.  In some cases, employers will renew employees under short-term contracts, sometimes over a period of years.  Labor groups allege that some employers use temporary contracts to avoid responsibility for severance, provide employee benefits, and prevent union formation.  The Honduran Secretariat of Labor and Social Security (STSS) is responsible for registering collective bargaining agreements. The Labor Code prohibits the employment of persons under the age of 14, but grants special permission for minors between ages 16 and 18 to work evenings as long as it does not affect schooling.  The majority of the violations of the labor-related provisions of the children’s code occur in the agricultural sector and informal economy.

While Honduran labor law closely mirrors International Labor Organization standards, the U.S. Department of Labor has raised serious concerns regarding the effective enforcement of Honduran labor laws.  Labor organizations allege the Honduran Ministry of Labor fails to enforce labor laws, including the right to form unions, reinstating employees unjustly fired for union activities, child labor, minimum wages, hours of work, and occupational safety and health.  A U.S. Department of Labor report provided recommendations to address labor concerns in Honduras and called for a monitoring and action plan (MAP) to improve labor law enforcement in Honduras. In October 2018, the U.S. Department of Labor released a MAP assessment update noting significant progress toward addressing areas of concern and extending the MAP’s mandate for an additional year.

The U.S. Department of State Country Report on Human Rights Practices describes a number of labor and human rights compliance issues that affect the Honduran labor market https://www.state.gov/reports/2018-country-reports-on-human-rights-practices/honduras/).  These include employers’ anti-union discrimination, refusal to engage in collective bargaining, threats against union leaders, employer control of unions, blacklisting of employees who support unions, and refusal of Honduran labor inspectors.

The U.S. Overseas Private Investment Corporation (OPIC) provides loan guarantees (typically used for large projects) and direct loans reserved for projects sponsored by or substantially involving U.S. small businesses and cooperatives.  OPIC can normally guarantee or lend from USD 100,000 to USD 250 million per project.  OPIC also offers insurance against risks of currency inconvertibility, expropriation, and political violence. The Export-Import Bank of the U.S. also provides project financing in Honduras. Honduras is a party to the World Bank’s Multilateral Investment Guarantee Agency.

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

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Economic Counselor Lisa Miller
U.S. Embassy
Avenida La Paz
Tegucigalpa, M.D.C.
Telephone: (504) 2236-9320, Ext. 4531
E-mail: MillerLD@state.gov

Policies Towards Foreign Direct Investment

The Government of Jamaica (GOJ) is open to foreign investment in all sectors of its economy, and is currently in the process of developing a National Investment Policy to guide future foreign direct investment (FDI) reform.  The GOJ has also made significant structural changes to its economy, under International Monetary Fund (IMF) guidance over the past six years, resulting in an improved investment environment. Since 2013, Jamaica’s Parliament passed numerous pieces of legislation to improve the business environment and support economic growth through a simplified tax system and broadened tax base.  The establishment of credit bureaus and a Collateral Registry under the Secured Interest in Personal Property (SIPP) legislation are improving access to credit. Jamaica made starting a business easier by consolidating forms and made electricity less expensive by reducing the cost of external connection works. The GOJ implemented an electronic platform for tax payments and established a 90-day window for development approvals.

The GOJ’s public procurement regime was amended, with effect from April 2019, to include provisions for domestic margins of preference, affording preferential treatment to Jamaican suppliers in public contracts in some circumstances, and setting aside a portion of the government’s procurement budget for local micro, small, and medium enterprises.  Notwithstanding, U.S. businesses are encouraged to participate in GOJ open procurements, many of which are published in media and via the government’s electronic procurement website: https://www.gojep.gov.jm/  .

With Jamaica’s debt to GDP ratio having decreased to approximately 96 percent, the government used the attendant fiscal space to reduce and/or abolish a number of distortionary taxes effective April 2019.

Jamaica’s commitment to regulatory reform is an intentional effort to become a more attractive destination for foreign investment.  According to the World Bank’s “Doing Business 2019” report, Jamaica ranked 75 out of 190 economies, above average compared to Latin American and Caribbean countries.  The country made significant improvement in resolving insolvency, following the passage of new bankruptcy legislation and now ranks 6th in starting a business and a much improved 12th in getting credit.  Jamaica ranked 79 out of 140 countries in the World Economic Forum’s 2018 Global Competitiveness Index.  Some report that bureaucracy remains a major impediment, with the country continuing to underperform in the areas of trading across borders, registering property, paying taxes, and enforcing contracts.

Jamaica’s trade and investment promotion agency (JAMPRO) is the GOJ agency responsible for promoting business opportunities to local and foreign investors.  While JAMPRO does not institute general criteria for FDI, the institution targets specific sectors for investment and promotes Jamaican exports (see http://www.jamaicatradeandinvest.org/  ).

JAMPRO and the Jamaica Business Development Corporation assist micro, small, and medium-sized enterprises (MSME) primarily through business facilitation and capacity building.  MSMEs tend to consist of less than 10 employees. Such fee-based services are made available to foreign-owned MSMEs (see https://www.jbdc.net/  ).

Limits on Foreign Control and Right to Private Ownership and Establishment

All private entities, foreign and domestic, are entitled to establish and own business enterprises, as well as to engage in all forms of remunerative activity subject to inter alia, labor, registration, and environmental requirements.  Jamaica does not impose limits on foreign ownership or control and local laws do not distinguish between local and foreign investors. There are no sector-specific restrictions that impede market access. An amendment to the Companies Act, passed in 2017, requires companies to disclose beneficial owners to the Companies Office of Jamaica (ORC).  The law mandates that the company retain records of legal and beneficial owners for seven years.  The GOJ has proposed new legislation on the incorporation and operation of International Business Companies (IBC), which is designed to attract and facilitate a wide variety of international business activities to include: (1) holding companies providing asset protection for intellectual property rights, real property, and the shares of other companies; (2) serving as vehicles for licensing and franchising; (3) conducting international trade, and investment activities; (4) acting as special purpose vehicles in international financial transactions; and, (5) serving as the international headquarters for global companies.

The U.S. government is not aware of any discrimination against foreign investors at the time of initial investment or after the investment is made.  However, under the Companies Act, investors are required to either establish a local company or register a branch office of a foreign-owned enterprise.  Branches of companies incorporated abroad must register with the Registrar of Companies if they intend to operate in Jamaica. There are no laws or regulations requiring firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control.  Incentives are available to local and foreign investors alike, including various levels of tax relief.

Other Investment Policy Reviews

Jamaica concluded a third party trade policy review through the WTO in September 2017.  The WTO Secretariat’s recommendations are listed here: https://www.wto.org/english/tratop_e/tpr_e/tp459_e.htm  

Jamaica has not undertaken any investment policy reviews within the last three years in conjunction with the Organization for Economic Cooperation and Development (OECD) or United Nations Conference on Trade and Development (UNCTAD).  The GOJ’s previous WTO review took place in 2011 and an OECD review took place in 2004.

Business Facilitation

Businesses can register using the “Super Form,” a single Business Registration Form for New Companies and Business Names.  The ORC acts as a “one-stop-shop,” effectively reducing the registration time to between one and three days.  Foreign companies can register using these forms, with or without the assistance of an attorney or notary. The “Super Form” is available under Forms at the ORC’s website (https://www.orcjamaica.com  ).

Outward Investment

While the GOJ does not actively promote an outward investment program, it does not restrict domestic investors from investing abroad.

Jamaica has bilateral investment treaties (BIT) in force with Argentina, China, France, Germany, Italy, Republic of Korea, Netherlands, Spain, Switzerland, United Kingdom, and the United States.  Jamaica has signed, but not yet put into force, BITs with Cuba, Egypt, Indonesia, Kuwait, Nigeria, and Zimbabwe.

Jamaica is a member of the Caribbean Community (CARICOM) and benefits from preferential trading arrangements under the CARICOM Single Market and Economy (CSME).  CARICOM countries also have preferential trading arrangements with the European Union, Canada, the United States, Colombia, the Dominican Republic, and Venezuela.  Jamaica has not signed a free trade agreement with the United States but in 2013 the United States and CARICOM signed a Trade and Investment Framework Agreement (TIFA).

Jamaica signed a bilateral Income Tax Treaty with the United States in 1980, which seeks to avoid double taxation while preventing income tax evasion.  Jamaica also has double taxation agreements with Canada, CARICOM, China, Denmark, France, Germany, Norway, Sweden, Switzerland, and the United Kingdom. In 2014, Jamaica and the United States signed an inter-government agreement for reciprocal information sharing as part of the implementation of the U.S. Foreign Account Tax Compliance Act (FATCA).

Transparency of the Regulatory System

Jamaica’s regulatory systems are transparent and consistent with international norms.  Proposed legislation is available for public review at http://japarliament.gov.jm , and members of the public are invited to provide submissions through public meetings or targeted outreach to stakeholders for when there is a distinct policy shift or for sensitive changes.  There is no law that requires the rulemaking body to solicit comments on proposed regulation and no timeframe for the length of a consultation period when it happens. Furthermore, the law does not require reporting on public consultations but the government presents the consultations directly to interested stakeholders in one unified report.  Laws in effect are available at japarliament.gov.jm  or moj.gov.jm .  Companies interested in doing business in a particular sector should seek guidance from the relevant regulator(s).

Jamaica is compliant with established benchmarks for public disclosure of its budget, the establishment and functioning of an independent and supreme audit body, and the award of contracts for natural resource extraction.  Additionally, Jamaica’s Public Debt Management Act (PDMA) of 2012 has codified a gradual reduction in its contingent liability or Government Guaranteed Loans (GGL), which were 7.4 percent of GDP in 2017. The PDMA targets a three percent GGL-to-GDP ratio by 2027.

International Regulatory Considerations

The GOJ tends to adopt Commonwealth standards for its regulatory system, especially from Canada and the United Kingdom.  In 2001, CARICOM member states established the Regional Organization for Standards and Quality (CROSQ) under Article 67 of the Revised Treaty of Chaguaramas.  CROSQ is intended to harmonize regional standards to facilitate the smooth movement of goods in the common market. Jamaica is also a full member of the WTO and is required to notify all draft technical regulations to the WTO Committee of Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Jamaica has a common law legal system and court decisions are generally based on past judicial declarations.  The Jamaican Constitution provides for an independent judiciary with a three-tier court structure. A party seeking to enforce ownership or contractual rights can file a claim in the Resident Magistrate or Supreme Court.  Appeals on decisions made in these courts can be taken before the Court of Appeal and then to the Judicial Committee of the Privy Council in the United Kingdom. The Caribbean Court of Justice (CCJ), in its original jurisdiction, is the court of the 15-member Caribbean Community (CARICOM), but Jamaica has not signed on to its appellate jurisdiction.

Jamaica does not have a single written commercial or contractual law and case law is therefore supplemented by the following pieces of legislation: (1) Arbitration (Recognition and Enforcement of Foreign Awards) Act; (2) Companies Act; (3) Consumer Protection Act; (4) Fair Competition Act; (5) Investment Disputes Awards (Enforcement) Act; (6) Judgment (Foreign) (Reciprocal Enforcement) Act; (7) Law Reform (Frustrated Contracts) Act; (8) Loans (Equity Investment Bonds) Act; (9) Partnership (Limited) Act; (10) Registration of Business Names Act; (11) Sale of Goods Act; (12) Standards Act; and, (13) Trade Act.  The commercial and civil divisions of the Supreme Court have jurisdiction to hear intellectual property claims.

Jamaica enforces the judgments of foreign courts through: (1) The Judgment and Awards (Reciprocal Enforcement) Act; (2) The Judgment (Foreign) (Reciprocal Enforcement) Act; and, (3) The Maintenance Orders (Facilities for Enforcement) Act.  Under these acts, judgments of foreign courts are accepted where there is a reciprocal enforcement of judgment treaty with the relevant foreign state. International arbitration is also accepted as a means for settling investment disputes between private parties.

The Jamaican judicial system has a long tradition of being fair but court cases can take years or even decades to resolve.  The new Chief Justice, appointed in 2018, has articulated plans to streamline the delivery of judgments, by bringing greater levels of efficiency to court administration and targeting throughput rates in line with international best practice.  Efforts are currently underway to clear the backlog of court cases by the end of 2019 and provide hearing date certainty and disposition of cases within 24 months, barring exceptional circumstances. The deployment of new courtrooms and the appointment of additional High Court Judges are indicators of Jamaica’s commitment to justice reform.

Challenges with dispute resolution usually reflect broader problems within the court system including long delays and resource constraints, according to many companies.  Subsequent enforcement of court decisions or arbitration awards is usually adequate, and the local court will recognize the enforcement of an international arbitration award.

A specialized Commercial Court was established in 2001 to expedite the resolution of commercial cases.  The rules do not make it mandatory for commercial cases to be filed in the Commercial Court and the Court is largely underutilized by litigants.

Jamaica ranked 127 in the 2019 Doing Business Report for the length of time taken for the enforcement of contracts in the courts.

Laws and Regulations on Foreign Direct Investment

There are no specific laws or regulations directly targeted to foreign investment.  Since foreign companies are treated similar to Jamaican companies when investing, the relevant sections of the applicable laws are applied equally.

Competition and Anti-Trust Laws

The Fair Trading Commission (FTC), an agency of the Ministry of Industry, Commerce, Agriculture and Fisheries (MICAF), administers Jamaica’s Fair Competition Act (FCA).  The major objective of the FCA is to foster competitive behavior and provide consumer protection. The Act proscribes the following anti-competitive practices: resale price maintenance; tied selling; price fixing; collusion and cartels; and bid rigging.  The Act does not specifically prohibit mergers or acquisitions that could lead to the creation of a monopoly. The FTC is empowered to investigate breaches of the Act and businesses or individuals in breach can be taken to court if they fail to implement the corrective measures outlined by the FTC. 

Expropriation and Compensation

Expropriation is generally not an issue in Jamaica, although land may be expropriated for national development under the Land Acquisition Act, which provides for compensation on the basis of market value.  The U.S. government is not aware of any current expropriation-related litigation between the Jamaican government and any private individual or company. However, the U.S. government assisted investors who had property expropriated during the 1970’s socialist regime, with a payment in one such case received as recently as 2010.

Dispute Settlement

ICSID Convention and New York Convention

Jamaica became a signatory to the International Center for Settlement of Disputes (ICSID) in 1965.  The country is a signatory to the New York Convention (the Convention on the Recognition and Enforcement of Foreign Arbitral Awards), which governs the recognition and enforcement of foreign arbitration awards.  The Jamaican Arbitration (Recognition and Enforcement of Foreign Awards) Act enables foreign arbitral awards under the New York Convention to be enforced in Jamaica.

Investor-State Dispute Settlement

International arbitration is also accepted as a means for settling investment disputes between private parties.  Jamaica enforces the judgments of foreign courts through: (1) The Judgment and Awards (Reciprocal Enforcement) Act; (2) The Judgment (Foreign) (Reciprocal Enforcement) Act; and, (3) The Maintenance Orders (Facilities for Enforcement) Act.  Under these acts, judgments of foreign courts are accepted where there is a reciprocal enforcement of judgment treaty with the relevant foreign state. Jamaica does not have a history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Jamaica accepts international arbitration of investment disputes between foreign investors, the Jamaican government, and private parties.  Local courts recognize and enforce foreign arbitral awards. The Caribbean Court of Justice (CCJ) serves as the region’s international tribunal for disputes within the Caribbean Community (CARICOM) Single Market and Economy.  The Dispute Resolution Foundation and the Caribbean Branch of the Chartered Institute of Arbitrators both facilitate arbitration and rules of the Bilateral Investment Treaty (BIT) with Jamaica apply to qualifying investors. Other foreign investors are given national treatment and civil procedures apply.  Disputes between enterprises are handled in the local courts but foreign investors can refer cases to ICSID. There were cases of trademark infringements in which U.S. firms took action and were granted restitution in the local courts. While restitution is slow, it tends to be fair and transparent. The U.S. government is not aware of any cases in which State-Owned Enterprises (SOEs) have been involved in investment disputes.

Bankruptcy Regulations

Jamaica enacted new insolvency legislation in 2014 that replaced the Bankruptcy Act of 1880 and seeks to make the insolvency process more efficient.  The Act prescribes the circumstances under which bankruptcy is committed; the procedure for filing a bankruptcy petition; and the procedures to be followed in the administration of the estates of bankrupts.  The reform addresses bankruptcy; insolvency, receiverships; provisional supervision; and winding up proceedings. The law addresses corporate and individual insolvency and facilitates the rehabilitation of insolvent debtors, while removing the stigma formerly associated with either form of insolvency.  Both insolvents and “looming insolvents” (persons who will become insolvent within twelve months of the filing of the proposal if corrective or preventative action is not taken) are addressed in the reforms.

The Act contains a provision for debtors to make a proposal to their creditors for the restructuring of debts, subject to acceptance by the creditor.  Creditors can also invoke bankruptcy proceedings against the debtor if the amount owed is not less than the prescribed threshold or if the debtor has committed an act of bankruptcy.  The filing of a proposal or notice of intention to file a proposal creates a temporary stay of proceedings. During this period, the creditor is precluded from enforcing claims against the debtor.  The stay does not apply to secured creditors who take possession of secured assets before the proposal is filed; gives notice of intention to enforce against a security at least 10 days before the notice of intention or actual proposal is filed; or, rejects the proposal.  The 2014 legislation makes it a criminal offence if a bankrupt entity defaults on certain obligations set out in the legislation.

Jamaica ranked 33 on Resolving Insolvency in the 2019 World Bank’s Doing Business Report.  Bankruptcy proceedings take about a year to resolve, costing 18 percent of the estate value with an average recovery rate of 65 percent.

The text of the Bankruptcy and Insolvency Act can be found at: http://www.japarliament.gov.jm/attachments/341_Thepercent 20Insolvencypercent 20Actpercent 202014percent 20No.14percent 20rotated.pdf 

Investment Incentives

The Fiscal Incentives (Miscellaneous Provisions) Act 2013 repeals most of the legacy incentive legislation and provides flexibility for new tax incentives only to be granted in relation to the bauxite sector, special economic zone activities, the relocation of corporate headquarters, and Junior Stock Exchange listings.  The Act also outlines the arrangement for transitioning to the new regime. Continuing beneficiaries may elect to keep old incentives such as relief from income tax and customs duty as well as zero-rated General Consumption Tax (GCT) status for imports.

Below are short descriptions of notable, recently enacted investment incentives.

Omnibus legislation – Provides tax relief on customs duties, additional stamp duties, and corporate income tax.  These benefits are granted under the following four areas:

(1) The Fiscal Incentives Act: Targets small and medium size businesses and reduces the effective corporate income tax rate by applying: (a) an Employment Tax Credit (ETC) at a maximum value of 30 percent; and (b) a capital allowance applicable to a broadened definition of industrial buildings.

(2) The Income Tax Relief (Large-Scale Projects and Pioneer Industries) Act: Targets large-scale projects and/or pioneering projects and provides for an improved and more attractive rate for the ETC.  Projects will be designated either as large-scale or pioneer based on a decision by Parliament and subject to an Economic Impact Assessment.

(3) Revised Customs Tariff: Provides for the duty free importation of capital equipment and raw material for the productive sectors.

(4) Revised Stamp Duty Act: Provides exemption from additional stamp duty on raw materials and non-consumer goods for the manufacturing sector.

Urban Renewal Act: Companies that undertake development within Special Development Areas can benefit from Urban Renewal Bonds, a 33.3 percent investment tax credit, tax-free rental income, and the exemption from transfer tax and stamp duties on the ‘improved’ value of the property.

Bauxite and Alumina Act: Under this Act, bauxite/alumina producers are allowed to import all productive inputs free of duties, Value Added Tax (VAT), and other port related taxes and charges.

The Foreign Sales Corporation Act: This Act exempts income tax for five years for qualified income arising from foreign trade.  U.S. law through the Tax Information Exchange Agreement (TIEA) reinforces this incentive.

Jamaica’s EX-IM Bank provides concessionary interest rate loans for trade financing, while the Development Bank of Jamaica offers reduced lending rates to the productive sectors.  Special tax incentives exist for companies that register on the Junior Stock Exchange.

Income Tax Act (Junior Stock Exchange): As of January 1, 2014, companies listed on the Junior Stock Exchange are not required to pay income tax during the first five years.

Special Economic Zone Act: In 2015, Jamaica passed legislation establishing Special Economic Zones (SEZs).  The SEZ Act repeals the Jamaica Free Zone Act, making way for: (1) the designation; promotion; development; operation; and, management of Special Economic Zones; (2) the establishment of a SEZ Authority; and, (3) the granting of benefits and other measures in order to attract domestic and foreign investments.

Research and Development

Foreign firms are allowed to participate in GOJ-financed or subsidized research and development programs, however, few opportunities exist for such programs.

Government Guarantee and Private-Public Partnership

The GOJ, through the PDMA of 2012, reduced the tendency of government to provide sovereign guarantees on loans, which often had to be converted into public debt.  The debt reduction imperatives built into successive IMF programs further stymied this propensity.

The GOJ, however, continues to actively encourage FDI utilizing the Public-Private Partnership (PPP or P3) model, to attract private financing.  Jamaica has successfully implemented a number of PPP projects to include the divestiture of the Kingston Freeport Terminal, the Sangster International Airport in Montego Bay, and Norman Manley International Airport in Kingston.  Jamaica seeks to expedite the divestment of government assets through PPPs and public listings in order to drive private capital to otherwise stagnant government assets.

Foreign Trade Zones/Free Ports/Trade Facilitation

Jamaica had approximately 200 companies in 190 free zone locations involved in business process outsourcing (BPO); warehousing and distribution; manufacturing; logistics; and merchandising.  However, following the passage of a new Special Economic Zone Act in 2015, existing free zone entities had until December 31, 2019 to transition to the new regime. The GOJ transitioned from free zone operations to special economic zones (SEZs) to comply with World Trade Organization (WTO) rules for middle-income countries under the WTO Agreement on Export Subsidies and Countervailing Measures.  The Jamaica Special Economic Zone Authority (www.jseza.com  ) regulates, supervises, and promotes the Special Economic Zone (SEZ).

SEZ operators benefit from a 12.5 percent corporate income tax rate (effective rate may be as low as 7.5 percent with the approval of additional tax credits); customs duty relief, General Consumption Tax (GCT) relief; employment tax credit; promotional tax credit on research and development; capital allowance; and a stamp duty payable of 50 percent.  Developers receive these benefits plus relief from income tax on rental income and relief from transfer tax. There is a non-refundable one-time registration fee and renewable annual fee to enter the regime.

Duty-free zones are primarily found in airports, hotels, and tourist centers and, as with special economic zone activities, do not discriminate on the basis of nationality.  Amendments have also been made to the Export Free Zones Act to allow for the establishment of Single Entity Free Zones, with individual companies now designated as free zones.

Performance and Data Localization Requirements

No performance requirements are generally imposed as a condition for investing in Jamaica, and government of Jamaica (GOJ) imposed conditions are not overly burdensome according to foreign investors.  The GOJ does not mandate local employment, although the use of foreign workers to fill semi-skilled and unskilled jobs is generally frowned upon, especially by trade unions. When requesting work permits for foreign workers, both local and foreign employers must describe efforts to recruit locally.  The GOJ requires a description of efforts to recruit locally. Some report of delays in obtaining work permits for foreign workers as the GOJ does not readily have data available to determine if the requisite skills exist in Jamaica.

The GOJ does not follow “forced localization,” requiring domestic content in goods or technology.  There are no requirements to provide the GOJ access to surveillance of data and there are no restrictions on maintaining certain amounts of data storage within the country.

Private entities, whether foreign or domestic, generally have the right to freely establish, own, acquire, and dispose of business enterprises and may engage in all forms of remunerative activity.

Real Property

Property rights are guaranteed by the Constitution.  Jamaica’s Registration of Titles Act recognizes and provides for the enforcement of secured interests in property by way of mortgage.  It also facilitates and protects the acquisition and disposition of all property rights, though working through Jamaica’s bureaucracy can result in significant delays.  In particular, it sometimes takes a long time for landowners to secure titles.

Approximately 55 percent of the land in Jamaica is registered, although a large percentage of those properties do not have current titles, as many families who pass land ownership from parent to child often do not go through the proper legal channels due to the cost and time involved.

Many businesses have reported that squatting is also a major challenge in Jamaica, with nearly 20 percent of the population living as squatters.  Three-quarters of squatters reside on government lands. Under the Registration of Titles Act, a squatter can claim a property by adverse possession (without compensating the owner for the land) if a person can demonstrate that he or she has lived on government land for more than 60 years, or on private property for more than 12 years undisturbed (including without any payment to the land owner).  There are no specific regulations regarding land lease or acquisition by foreign and/or non-resident investors.

The country’s World Bank Doing Business Report ranking for ease of “registering property” was 131 in 2019 due largely to the number of procedures and high costs involved.  Jamaica continues to outperform other Latin America and Caribbean countries in the time required to close a property transaction.

Registration of Titles Act: http://moj.gov.jm/sites/default/files/laws/Registrationpercent 20ofpercent 20Titles.pdf 

Intellectual Property Rights

Jamaica has one of the stronger intellectual property (IP) protection regimes in Latin America and the Caribbean, according to the International Property Rights Index, although legislative and enforcement gaps still exist.  Jamaica is a member of the World Intellectual Property Organization (WIPO) and is a signatory of the Berne Convention. Jamaica and the United States have an Intellectual Property Rights Agreement and a Bilateral Investment Treaty, which provide assurances to protect intellectual property.  It is relatively easy to register IP, and the Jamaica Intellectual Property Office (JIPO) assists parties interested in registering IP and supports investors’ efforts to enforce their rights. Overall, protections across all types of IP are improving.

Law enforcement efforts to combat counterfeit and pirated goods are improving on the ground but border enforcement remains a challenge.  IP violations tend to be more in relation to physical goods, while electronic IP theft is less common.

The country’s trademark and copyright regimes satisfy the World Trade Organization’s (WTO) Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), although the patent and design law is not TRIPS compliant.  A new Patent & Designs Bill, including new rules and fee structures, has been in drafting for a number of years but has not passed in Parliament. However, JIPO instituted administrative procedures to register U.S. patents for a nominal fee in order to protect U.S. rights holders.  The Geographical Indications Act (GI) of 2004 is now fully in force and TRIPS compliant, protecting products whose particular quality or reputation is attributable to its geographical origin. General law provides protection for trade secrets and protection against unfair competition is guaranteed under the Fair Competition Act.

In the area of copyright protection, amendments to the Copyright Act passed in June 2015 fulfilled Jamaica’s obligations under the WIPO Internet Treaties and extended copyright protection term from 50 to 95 years.  The Copyright Act complies with the TRIPS Agreement and adheres to the principles of the Berne Convention, and covers works ranging from books and music to computer programs. Amendments in June 1999 explicitly provide copyright protection on compilations of works such as databases and make it an offense for a person to manufacture or trade in decoders of encrypted transmissions.  It also gives persons in encrypted transmissions or in broadcasting or cable program services a right of action against persons who infringe upon their rights.

Jamaica, along with some other Caribbean countries, have been cited in the last several years’ Special 301 Report for the absence of compensation to performance rights organizations as well as due to concerns regarding unlicensed broadcasting of copyrighted television programming.

Enforcement

The Jamaica Constabulary Force (JCF) reported seizures of over USD 11 million of counterfeit goods in 2018.  The most commonly counterfeited goods include shoes, alcohol, cigarettes, clothing, handbags, and pharmaceuticals.  Jamaica’s border enforcement efforts are hampered by customs officers not having ex officio authority to seize and destroy counterfeit goods. Rights holders must first be provided with visual samples of suspect merchandise to verify the item as counterfeit, submit a declaration indicating the differences between the fake and actual brands, and provide an authorization to seize the merchandise.  The JCF established a specialized intellectual property unit within its counter terrorism and organized crime branch (C-TOC) in 2015 to boost IP enforcement.

Rights holders are responsible for paying the costs associated with storage and destruction of counterfeit goods.  Presently the Commissioner of Customs may grant up to 10 days for a rights holder to produce the required evidence and commitments before releasing suspected counterfeit goods that are in transit.

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/  .

Capital Markets and Portfolio Investment

Credit is available on market terms, and foreigners are allowed to borrow freely on the local market at market-determined rates of interest.  A relatively effective regulatory system was established to encourage and facilitate portfolio investment. Jamaica has had its own stock exchange, the Jamaica Stock Exchange (JSE), since 1969.  The JSE was rated the best performing stock exchange in the world, by Bloomberg, in 2015 and again in 2018. The Financial Services Commission and the Bank of Jamaica (BOJ), the central bank, regulate these activities.  Jamaica respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Money and Banking System

At the end of 2018 there were 11 supervised deposit-taking institutions consisting of eight commercial banks, one merchant bank (Licensed under the Financial Institutions Act) and two building societies.  The number of credit unions shrank from 47 at the end of 2009 to 26 at the end of 2018. In the BOJ’s January 2019 report, commercial banks held assets of almost USD 11 billion at the end of September 2018.  Non-performing loans (NPL) of USD 155 million at end December 2018, were 2.5 percent of total loans. Three of the country’s eight commercial banks are foreign-owned. After a financial sector crisis in the mid-1990s led to consolidations, the sector has remained largely stable.

In October 2018, the GOJ took legislative steps to modernize and make the central bank operationally independent through the tabling of amendments to the Bank of Jamaica (BOJ) Act. The modernization program includes, inter alia, the institutionalization of the central bank independence, improved governance, and the transitioning of monetary policy towards inflation targeting.  These developments follow previous strengthening of the BOJ, in 2015, when it undertook independent responsibility for banking supervision. Jamaica’s financial governance framework is in line with international standards and legislative amendments continue to enhance the BOJ’s regulatory powers.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on holding funds or on converting, transferring, or repatriating funds associated with an investment.  In 2017, the BOJ implemented a new system called the BOJ Foreign Exchange Intervention & Trading Tool (B-FXITT) for the sale and purchase of foreign exchange (FX) to market players.  The new system is a more efficient and transparent way of intervening in the FX market to smooth out demand and supply conditions.

Investment-related funds are freely convertible to regularly traded currencies, particularly into United States and Canadian dollars and British pounds.  However, foreign exchange transactions must be conducted through authorized foreign exchange dealers, “cambios,” and bureau de change. Foreign exchange is generally available and investors are free to remit their investment returns.

Remittance Policies

The country’s financial system is fully liberalized and subject to market conditions.  There is no required waiting period for the remittance of investment returns. Any person or company can purchase instruments denominated in foreign currency.  There are no restrictions or limitations on the inflow or outflow of funds for the remittance of profits or revenue. The country does not possess the financial muscle to engage in currency manipulation.     

Jamaica was listed among the Major Money Laundering Jurisdictions in the U.S. Department of State’s 2018 International Narcotics Control Strategy Report (INCSR).

The Caribbean Financial Action Task Force made public Jamaica’s fourth round Mutual Evaluation Report (MER) in January 2017 (https://www.cfatf-gafic.org/index.php/documents/4th-round-meval-reports  ).  Jamaica entered into an Observation Period until October 2019 to address deficiencies addressed in the MER.  Should Jamaica not address deficiencies listed in the MER, it will enter a formal monitoring period by the Financial Action Task Force.

Sovereign Wealth Funds

Jamaica does not have a sovereign wealth fund or an asset management bureau.

As a condition of Jamaica’s Stand-By Agreement with the IMF, the GOJ is reforming the public sector to include State-Owned Enterprises (SOEs).  Jamaican SOEs are most active in the agriculture, mining, energy, and transport sectors of the economy. Of 162 public bodies, 56 are self-financing and are therefore considered SOEs as either limited liability entities established under the Companies Act of Jamaica or statutory bodies created by individual enabling legislation.  SOEs generally do not receive preferential access to government contracts. SOEs must adhere to the provisions of the GOJ (Revised) Handbook of Public Sector Procurement Procedures and are expected to participate in a bidding process to provide goods and services to the government. SOEs also provide services to private sector firms.  SOEs must report quarterly on all contracts above a prescribed limit to the Integrity Commission. Since 2002, SOEs have been subject to the same tax requirements as private enterprises and are required to purchase government-owned land and raw material and execute these transactions on similar terms as private entities.

Jamaica’s Public Bodies Management and Accountability Act (PBMA) requires SOEs to prepare annual corporate plans and budgets, which must be debated and approved by Parliament.  As part of the GOJ’s economic reform agenda, SOE performance is monitored against agreed targets and goals, with oversight provided by stakeholders including representatives of civil society.  The GOJ prioritized divestment of SOEs, particularly the most inefficient, as part of its IMF reform commitments. Private firms compete with SOEs on fair terms and SOEs generally lack the same profitability motives as private enterprises, leading to the GOJ’s absorbing the debt of loss-making public sector enterprises.

In 2012, the GOJ approved a Corporate Governance Framework (CGF) to promote improved performance by SOEs.  While Jamaican SOEs are not required to adhere to Organization of Economic Co-operation and Development (OECD) Guidelines on Corporate Governance, the CGF is based on international best practices and principles of corporate governance.

Jamaica’s public bodies report to their respective Board of Directors appointed by the responsible portfolio minister and while no general rules guide the allocation of SOE board positions, some entities allocate seats to specific stakeholders.  Under the CGF, persons appointed to boards should possess the skills and competencies required for the effective functioning of the entity. However, some board members are selected on the basis of their political affiliation. The Jamaican court system, while allegedly slow, is respected for being fair and balanced and in many cases has ruled against the GOJ and its agents.

Privatization Program

As a condition of Jamaica’s Stand-By Agreement with the IMF, the GOJ identified a number of public assets to be privatized from various sectors.  Jamaica actively courts foreign investors as part of its divestment strategy. In certain instances, the government encourages local participation.  Restrictions may be placed on certain assets due to national security considerations. Privatization can occur through sale, lease, or concession. Transactions are generally executed through public tenders but the GOJ reserves the right to accept unsolicited proposals for projects deemed to be strategic.  The Development Bank of Jamaica, which oversees the privatization program, is mandated to ensure that the process is fair and transparent. When some entities are being privatized, advertisements are placed locally and through international publications, such as the Financial Times, New York Times, and Wall Street Journal, to attract foreign investors.  Foreign investors won most of the privatization bids in the last decade.

While the time taken to divest assets depends on state of readiness and complexity, on average transactions take between 18 and 24 months.  The process involves pre-feasibility and due diligence assessments; feasibility studies; pre-qualification of bidders; and a public tender. In 2018, the GOJ signed a 25-year concession for the management and development of the Norman Manley International Airport in Kingston.  Other large privatizations include the 2003 privatization of Sangster International Airport in Montego Bay and the 2015 privatization of the Kingston Container Terminal port facility. The GOJ is in process of privatizing the Wigton Wind Farm, a 62-megawatt wind farm, through a public offering, and is developing a pipeline of additional privatization projects.  The GOJ also seeks to divest stagnant assets owned by large government entities such as the Urban Development Corporation and Factories Corporation of Jamaica.

List of current privatization transactions can be found at http://dbankjm.com/current-transactions/  

Responsible Business Conduct (RBC) among many Jamaican companies remains a nascent concept.  In 2013, the government provided additional financial incentives for corporations to support charity work through the Charities Act, under which corporations and individuals can claim a tax deduction on contributions made to registered charitable organizations.  Some large publicly listed companies and multinational corporations in Jamaica maintain their own foundations that carry out social and community projects to support education, youth employment, and entrepreneurship.

In 2018, the GOJ became party to the OECD’s Base Erosion and Profit Shifting Multilateral Convention, which updates the network of bilateral tax treaties and reduces opportunities for tax avoidance by multinational enterprises.  GOJ also became signatory to the Convention on Mutual Administrative Assistance in Tax Matters, effective March 1, 2019, having deposited instruments of ratification in November 2018.

The law provides criminal penalties for corruption by officials but the government generally does not implement the law effectively.  Officials appeared to engage in corrupt practices at times with impunity. There have been numerous reports of government corruption in recent years and it remains a significant problem of public concern.  Media and civil society organizations continued to criticize the government for being slow and at times reluctant to prosecute corruption cases.

Under the Corruption Prevention Act, public servants can be imprisoned for up to 10 years and fined as much as USD 100,000 if found guilty of engaging in acts of bribery, including bribes to foreign public officials.

In 2017, Jamaica passed an Integrity Commission Act that consolidated three agencies with anti-corruption mandates into a single entity, the Integrity Commission, which now has limited prosecutorial powers.  The three agencies are the precursor Integrity Commission, which received and monitored statutory declarations from parliamentarians; the Office of the Contractor General (OCG), which monitored government contracts; and the Commission for the Prevention of Corruption, which received the financial filings of specified public servants.  A key area of concern for corruption is in government procurement. However, some investors have reported that successful prosecutions – particularly for high-level corruption – are rare.

Two Ministers of government demitted office between 2018 and March 2019, in the wake of corruption allegations.

Corruption, and its apparent linkages with organized crime, appear to be one of the root causes of Jamaica’s high crime rate and economic stagnation.  In 2018, Transparency International gave Jamaica a score of 44 out of a possible 100 on the Corruption Perception Index (CPI), demoting the island two spots from its ranking of 68th in 2017 to 70th globally.  U.S. firms operating in Jamaica express concern about corruption generally.  The apparent willingness of GOJ officials to engage in corrupt practices with foreign companies, according to some U.S. firms, places U.S. firms at a competitive disadvantage.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Jamaica ratified major international corruption instruments, including the Inter-American Convention Against Corruption and the United Nations Convention Against Corruption.  Jamaica is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Major Organised Crime and Anti-Corruption Agency (MOCA)

24hr Hotline: 1-800-CORRUPT (1-800-267-7878)
Email: info@moca.gov.jm

National Integrity Action

2 Holborn Road
Kingston 10, Jamaica
Telephone: 1 876 906 4371
Fax: 876-754-7951
Email: info@niajamaica.org

U.S. businesses have identified crime as greater threat to foreign investment in Jamaica than political violence, as the country has not experienced political violence since the early 1980s.  Violent crime, rooted in poverty, unemployment, and transnational criminal organizations, is reportedly a serious problem in Jamaica. Sporadic gang violence and shootings are concentrated in specific inner city neighborhoods but can occur elsewhere.  Jamaica’s murder rate decreased by 21.9 percent in 2018 to 47 per 100,000, the third highest in Latin America and the Caribbean, according to InSight Crime.

This significant reduction is attributed largely to States of Emergency enacted over three violent-ridden areas of the island for the better part of 2018, all of which expired in January 2019.  Declaration of States of Emergency give police and military personnel the authority to search, seize, and arrest without being in possession of a warrant.

Some report that Jamaica also faces a significant problem with extortion in certain urban commercial areas and on large construction project sites.  Investors claim that the security challenges increase the cost of doing business as companies spend on additional security measures.

The U.S. Department of State assessed Kingston as a critical threat location for crime directed at or affecting official U.S. government interests.  U.S. companies with personnel assigned to Jamaica are strongly advised to conduct security and cultural awareness training.

Please refer to the Jamaica 2018 Crime and Safety Report from the Department of State’s Overseas Security Advisory Council (OSAC) for additional information (https://www.osac.gov/Pages/ContentReportDetails.aspx?cid=23208  ).

Jamaica had an estimated labor force of 1.3 million as of October 2018 with 8.6 percent unemployment.  Women make up 46 percent of the labor force and have an unemployment rate of 11.2 percent. Unemployment is highest within the 20-24 age cohort.  Most Jamaicans are employed in services including the retail and tourism sectors, followed by construction, transportation, and communications. Since 1999, more Jamaicans have become trained in information technology and the business process outsourcing (BPO) industry currently employs more than 30,000 people.  No law requires hiring locals but foreign investors are expected to hire locals, especially for unskilled and lower skilled jobs. The security guard industry adopted the practice of employing workers on extended contracts to avoid some of the cost, including severance, associated with direct employment. Jamaica does not have a history of waiving labor laws to retain or attract investment and these laws tend to be uniform across the economy.

There are no restrictions on employers adjusting employment to respond to market conditions, but there are severance payment requirements if a position is made redundant.  Under the law, there is a distinction between a layoff and a redundancy. A layoff allows a temporary period without employment for up to four months. The Employment (Termination and Redundancy Payments) Act provides redundancy pay to employees who are let go with at least two years of continuous employment.  Workers with up to 10 years of employment are entitled to two weeks payment for every year worked, while workers with over 10 years employment are entitled to three weeks payment except in cases such as firing for cause. There are no unemployment benefits in Jamaica but low income Jamaicans have the option of applying for social benefits under a conditional cash transfer program referred to as the Program for Advancement though Health and Education (PATH).

The law provides for the rights of workers to form or join unions, to bargain collectively, and the freedom to strike.  Trade union membership accounts for about 20 percent of the labor force, although the movement weakened in recent years.  The law prohibits anti-union discrimination, although it is not uncommon for private sector employers to lay off union workers and rehire them as contractors.  Labor law entitles protections to all persons categorized as workers, although it denies contract workers coverage under certain statutory provisions, such as redundancy benefits.

Jamaica has an Industrial Disputes Tribunal (IDT) to which the Minister of Labor and Social Security may refer disputes that cannot otherwise be settled.  Arbitrators’ decisions are final. The law denies collective bargaining if no single union represents at least 40 percent of the workers in the unit.

Jamaica ratified most International Labor Organization (ILO) Conventions and international labor rights are recognized within domestic law.  Jamaica has ratified all key international conventions concerning child labor and established laws and regulations related to child labor, including in its worst forms.  However, gaps still exist in Jamaica’s legal framework to adequately protect children from child labor. The GOJ is under-resourced for investigations on worker abuse as well as on occupational safety and health checks.

Jamaica’s workplace policy incorporates all of the recommended practices of the ILO code of practice on HIV/AIDS but the legislation to regulate enforcement is not yet ratified.  In conjunction with the ILO and local stakeholders, the GOJ passed legislation guiding flexible working arrangements. Under the Work Permit Act, a foreign national who wishes to work in Jamaica must first apply for a permit issued by the Ministry of Labor and Social Security.  The law, which seeks to give first preference to Jamaicans, requires organizations planning to employ foreign nationals to prove that attempts were made to employ a Jamaican national.

The U.S. government’s Overseas Private Investment Corporation (OPIC) targeted infrastructure, telecommunications, construction, tourism, and energy as priority sectors in Jamaica.  OPIC has financed many projects in Jamaica and recently provided financing and political risk insurance for two large renewable energy projects, as well as a grid upgrade project for the monopoly power utility.  Jamaica is a member of the Multilateral Investment Guarantee Agency (MIGA).

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

Source for Host Country Data: *Statistical Institute of Jamaica
http://statinja.gov.jm/NationalAccounting/Annual/NewAnnualGDP.aspx  

**Jamaica Promotions Corporation (JAMPRO)

Table 3: Sources and Destination of FDI

Source: Jamaica Promotions Corporation (JAMPRO)

Table 4: Sources of Portfolio Investment

Data not available.

Economic and Commercial Section
142 Old Hope Road
Kingston 6, Jamaica
Telephone: +1 876-702-6000
Email: kingstoncommercial@state.gov