1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The GoA understands that private sector development and increased levels of foreign investment are critical to supporting sustainable economic development. Albania maintains a liberal foreign investment regime designed to attract FDI. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies, except in the areas of domestic and international air passenger transport and television broadcasting. Albanian legislation does not distinguish between domestic and foreign investments.
The Law on Strategic Investments approved in 2015 offers incentives and fast-track administrative procedures, depending on the size of the investment and number of jobs created, to both foreign and domestic investors who apply before December 31, 2021.
The Albanian Investment Development Agency (AIDA) is the entity responsible for promoting foreign investments in Albania. Potential U.S. investors in Albania should contact AIDA to learn more about services AIDA offers to foreign investors ( http://aida.gov.al/ ). The Law on Strategic Investments stipulates that AIDA, as the Secretariat of the Strategic Investment Council, serves as a one-stop-shop for foreign investors, from filing the application form to granting the status of strategic investment/investor. Despite supporting legislation, only a few foreign investors have benefited from the “Strategic Investor” status.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic investors have equal rights of ownership of local companies, based on the principle of “national treatment.” There are only a few exemptions regarding ownership restrictions:
Domestic and international air passenger transport: foreign interest in airline companies is limited to 49 percent ownership by investors outside the Common European Aviation Zone, for both domestic and international air transportation.
Audio and audio-visual broadcasting: An entity, foreign or domestic, that has a national audio or audio-visual broadcasting license cannot hold more than 20 percent of shares in another audio or audio-visual broadcasting company. Additional restrictions apply to the regional or local audio and audio-visual licenses.
Agriculture: No foreign individual or foreign incorporated company may purchase agricultural land, though land may be leased for up to 99 years.
Albania currently lacks an investment-review mechanism for inbound FDI. However, in 2017, the government introduced a new provision in the Petroleum Law, which allows the government to reject a petroleum-sharing agreement or the sale of shares in a petroleum-sharing agreement to any prospective investor due to national security concerns. Albanian law permits private ownership and establishment of enterprises and property. Foreign investors do not require additional permission or authorization beyond that required of domestic investors. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property. Foreigners can acquire concession rights on natural resources and resources of the common interest, as defined by the Law on Concessions and Public Private Partnerships.
Foreign and domestic investors have numerous options available for organizing business operations in Albania. The 2008 Law on Entrepreneurs and Commercial Companies and Law Establishing the National Registration Center (NRC) allow for the following legal types of business entities to be established through the NRC: sole proprietorship; unlimited partnership; limited partnership; limited liability company; joint stock company; branches and representative offices; and joint ventures.
The National Business Center (NBC) serves as a one-stop shop for business registration. All required procedures and documents are published online ( http://www.qkb.gov.al/information-on-procedure/business-registration/ ). Registration may be done in person or online via the e-Albania portal. Many companies choose to complete the registration process in person, as the online portal requires an authentication process and electronic signature and is only available in the Albanian language. When a business registers in the NBC it is also automatically registered with the Tax Office, Labor Inspectorate, Customs, and the respective municipality. According to the 2020 World Bank Doing Business Report, it takes 4.5 days and five procedures to register a business in Albania.
Outward Investment
Albania neither promotes nor incentivizes outward investment, nor does it restrict domestic investors from investing abroad.
3. Legal Regime
Transparency of the Regulatory System
Albania’s legal, regulatory, and accounting systems have improved in recent years, but there are still many serious challenges. Endemic corruption, uneven enforcement of legislation, cumbersome bureaucracy, distortion of competition, and a lack of transparency all hinder the business community.
Albanian legislation includes rules on disclosure requirements, formation, maintenance, and alteration of firms’ capitalization structures, mergers and divisions, takeover bids, shareholders’ rights, and corporate governance principles. The Competition Authority (http://caa.gov.al ) is an independent agency tasked with ensuring fair and efficient competition in the market. However, business groups have raised concerns about unfair competition and monopolies, rating the issue as one of the most concerning items damaging the business climate.
The Law on Accounting and Financial Statements includes reporting provisions related to international financial reporting standards (IFRS) for large companies, and national financial reporting standards for small and medium enterprises. Albania meets minimum standards on fiscal transparency, and debt obligations are published by the Ministry of Finance and Economy. Albania’s budgets are publicly available, substantially complete, and reliable.
The rulemaking process in Albania meets the minimum requirements of transparency.
In August 2020, Albania approved the law for the establishment of the register of the Ultimate Beneficiary Owners. The law aims to ensure transparency on the ultimate beneficiary owners, who directly and indirectly own more than 25% of shares, voting rights, or ownership interests in all entities registered to do business in Albania, and was adopted following the recommendations of MONEYVAL.
Ministries and regulatory agencies develop forward regulatory plans that include changes or proposals intended to be adopted within a set timeframe. The law on notification and public consultation requires the GoA to publish draft laws and regulations for public consultation or notification and sets clear timeframes for these processes. Such draft laws and regulations are published at the following page: http://www.konsultimipublik.gov.al/ . The business community frequently complains that final versions of laws and regulations fail to address their comments and concerns and that comment periods are frequently not respected.
All laws, by-laws, regulations, decisions by the Council of Ministers (the government), decrees, and any other regulatory acts are published at the National Publication Center at the following site: https://qbz.gov.al/.
Independent agencies and bodies, including but not limited to, the Energy Regulatory Entity (ERE), Agency for Electronic and Postal Communication (AKEP), Financial Supervising Authority (FSA), Competition Authority (CA), National Agency of Natural Resources (NARN), and Extractive Industries Transparency Initiative (EITI), oversee transparency and competition in specific sectors.
International Regulatory Considerations
Albania acceded to the WTO in 2000 and the country notifies the WTO Committee on Technical Barriers to Trade of all draft technical regulations.
Albania signed a Stabilization and Association Agreement (SAA) with the EU in 2006. The EU agreed to open accession talks on March 25, 2020 and the country is awaiting to hold the first Inter-Governmental Conference (IGC), which would mark the official opening of accession talks. Albania has long been involved in the gradual process of legislation approximation with the EU acquis. This process is expected to accelerate with the opening of accession negotiations.
Legal System and Judicial Independence
The Albanian legal system is a civil law system. The Albanian constitution provides for the separation of legislative, executive, and judicial branches, thereby supporting the independence of the judiciary. The Civil Procedure Code, enacted in 1996, governs civil procedures in Albania. The civil court system consists of district courts, appellate courts, and the High Court (the supreme court). The district courts are organized in specialized sections according to the subject of the claim, including civil, family, and commercial disputes.
The administrative courts of first instance, the Administrative Court of Appeal, and the Administrative College of the High Court adjudicate administrative disputes. The Constitutional Court, reviews cases related to the constitutionality of legislation and, in limited instances, protects and enforces the constitutional rights of citizens and legal entities.
Parties may appeal the judgment of the first-instance courts within 15 days of a decision, while appellate court judgments must be appealed to the High Court within 30 days. A lawsuit against an administrative action is submitted to the administrative court within 45 days from notification and the law stipulates short procedural timeframes, enabling faster adjudication of administrative disputes.
Investors in Albania are entitled to judicial protection of legal rights related to their investments. Foreign investors have the right to submit disputes to an Albanian court. In addition, parties to a dispute may agree to arbitration. Many foreign investors complain that endemic judicial corruption and inefficient court procedures undermine judicial protection in Albania and seek international arbitration to resolve disputes. It is beneficial to U.S. investors to include binding international arbitration clauses in any agreements with Albanian counterparts. Albania is a signatory to the New York Arbitration Convention and foreign arbitration awards are typically recognized by Albania. However, the government initially refused to recognize an injunction from a foreign arbitration court in one high-profile case in 2016. The Albanian Civil Procedure Code outlines provisions regarding domestic and international commercial arbitration.
Albania does not have a specific commercial code but has a series of relevant commercial laws, including the Entrepreneurs and Commercial Companies Law, Bankruptcy Law, Public Private Partnership and Concession Law, Competition Law, Foreign Investment Law, Environmental Law, Law on Corporate and Municipal Bonds, Transport Law, Maritime Code, Secured Transactions Law, Employment Law, Taxation Procedures Law, Banking Law, Insurance and Reinsurance Law, Concessions Law, Mining Law, Energy Law, Water Resources Law, Waste Management Law, Excise Law, Oil and Gas Law, Gambling Law, Telecommunications Law, and Value-Added Law.
Laws and Regulations on Foreign Direct Investment
There is no one-stop-shop that lists all legislation, rules, procedures, and reporting requirements for investors. However, foreign investors should visit the Albania Investment Development Agency webpage (www.aida.gov.al ), which offers broad information for foreign investors.
Major laws pertaining to foreign investments include:
Law on Foreign Investments
Law on Strategic Investments: Defines procedures and rules to be observed by government authorities when reviewing, approving, and supporting strategic domestic and foreign investments in Albania
Law on Foreigners
Law on Concessions and Public Private Partnerships: Establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects
Law on Entrepreneurs and Commercial Companies: Outlines general guidelines on the activities of companies and the legal structure under which they may operate
Law on Cross-Border Mergers: Determines rules on mergers when one of the companies involved in the process is a foreign company
Law on Protection of Competition: Stipulates provisions for the protection of competition, and the concentration of commercial companies; and
Law on Collective Investment Undertakings: Regulates conditions and criteria for the establishment, constitution, and operation of collective investment undertakings and of management companies.
The Law on Foreign Investments seeks to create a hospitable legal climate for foreign investors and stipulates the following:
No prior government authorization is needed for an initial investment.
Foreign investments may not be expropriated or nationalized directly or indirectly, except for designated special cases, in the interest of public use and as defined by law.
Foreign investors enjoy the right to expatriate all funds and contributions in kind from their investments.
Foreign investors receive most favored nation treatment according to international agreements and Albanian law.
There are limited exceptions to this liberal investment regime, most of which apply to the purchase of real estate. Agricultural land cannot be purchased by foreigners and foreign entities but may be leased for up to 99 years. Investors can buy agricultural land if registered as a commercial entity in Albania. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property.
To boost investments in strategic sectors, the government approved a new law on strategic investments in May 2015. Under the new law, a “strategic investment” may benefit from either “assisted procedure” or “special procedure” assistance from the government to help navigate the permitting and regulatory process. To date, no major foreign investors have taken advantage of the law. Several projects proposed by domestic companies have been designated as strategic investments, mostly in the tourism sector.
Authorities responsible for mergers, change of control, and transfer of shares include the Albanian Competition Authority (ACA: http://www.caa.gov.al/laws/list/category/1/page/1 ), which monitors the implementation of the competition law and approves mergers and acquisitions when required by the law; and the Albanian Financial Supervisory Authority (FSA: http://www.amf.gov.al/ligje.asp ), which regulates and supervises the securities market and approves the transfer of shares and change of control of companies operating in this sector.
Albania’s tax system does not distinguish between foreign and domestic investors. Informality in the economy, which may be as large as 40 percent of the total economy, presents challenges for tax administration.
Visa requirements to obtain residence or work permits are straightforward and do not pose an undue burden on potential investors. The government amended the Law on Foreigners in February 2020. The amendments remove restrictions on foreign employees and streamline the visa and work permit processes for foreigners and foreign workers by introducing online visa application process, simplifying and accelerating the working permit process, and providing the same access to the labor market for citizens of Western Balkan countries as the United States, EU, and Schengen-country citizens have.
The Law on Entrepreneurs and Commercial Companies sets guidelines on the activities of companies and the legal structure under which they may operate. The government adopted the law in 2008 to conform Albanian legislation to the EU’s Acquis Communitaire. The most common type of organization for foreign investors is a limited liability company.
The Law on Public Private Partnerships and Concessions establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects. According to the law, concession projects may be identified by central or local governments or through third party unsolicited proposals. To limit opportunities for corruption, the 2019 amendments prohibited unsolicited bids, beginning in July 2019, on all sectors except for works or services in ports, airports, generation and distribution of electricity, energy for heating, and production and distribution of natural gas. In addition, the 2019 amendments removed the zero to 10 percent bonus points for unsolicited proposals, which gave companies submitting unsolicited bids a competitive advantage over other contenders. Instead, if the party submitting the unsolicited proposal does not win the bid, it will be compensated by the winning company for the cost of the feasibility study, which in no case shall exceed 1 percent of the total cost of the project.
Competition and Antitrust Laws
The Albanian Competition Authority (http://www.caa.gov.al/?lng=en ) is the agency that reviews transactions for competition-related concerns. The Law on Protection of Competition governs incoming foreign investment whether through mergers, acquisitions, takeovers, or green-field investments, irrespective of industry or sector. In the case of share transfers in insurance, banking and non-banking financial industries, the Financial Supervisory Authority (http://amf.gov.al/ ) and the Bank of Albania (https://www.bankofalbania.org/ ) may require additional regulatory approvals. Transactions between parties outside Albania, including foreign-to-foreign transactions, are covered by the competition law, which states that its provisions apply to all activities, domestic or foreign, that directly or indirectly affect the Albanian market. Parties can appeal the decision of the CA to the Tirana First Instance Court within 30 days of receiving the notification. The appeal does not suspend the enforcement of the decision that authorize concentrations and the temporary measures.
Expropriation and Compensation
The constitution guarantees the right of private property. According to Article 41, expropriation or limitation on the exercise of a property right can occur only if it serves the public interest and with fair compensation. During the post-communist period, expropriation has been limited to land for public interest, mainly infrastructure projects such as roads, energy infrastructure, water works, airports, and other facilities. Compensation has generally been reported as being below market value and owners have complained that the compensation process is slow, and unfair. Civil courts are responsible for resolving such complaints.
Changes in government can also affect foreign investments. Following the 2013 elections and peaceful transition of power, the new government revoked, or renegotiated numerous concession agreements, licenses, and contracts signed by the previous government with both domestic and international investors. This practice has occurred in other years as well.
There are many ongoing disputes regarding property confiscated during the communist regime. Identifying ownership is a longstanding problem in Albania that makes restitution for expropriated properties difficult. The restitution and compensation process started in 1993 but has been slow and marred by corruption. Many U.S. citizens of Albanian origin have been in engaged in long-running restitution disputes. Court cases go on for years without a final decision, causing many to refer their case to the European Court of Human Rights (ECHR) in Strasbourg, France. A significant number of applications are pending for consideration before the ECHR. Even after settlement in Strasbourg, enforcement remains slow.
To address the situation, the GoA approved new property compensation legislation in 2018 that aims to resolve pending claims for restitution and compensation. The 2018 law reduces the burden on the state budget by changing the cash compensation formula. The legislation presents three methods of compensation for confiscation claims: restitution; compensation of property with similarly valued land in a different location; or financial compensation. It also set a ten-year timeframe for completion of the process. In February 2020, the Albanian parliament approved a law “On the Finalization of the Transitory Process of Property Deeds in the Republic of Albania,” which aims to finalize land allocation and privatization processes contained in 14 various laws issued between 1991 and 2018.
The GoA has generally not engaged in expropriation actions against U.S. investments, companies, or representatives. There have been limited cases in which the government has revoked licenses, specifically in the mining and energy sectors, based on contract violation claims.
The Law on Strategic Investments, approved in 2015, empowers the government to expropriate private property for the development of private projects deemed special strategic projects. Despite the provision that the government would act when parties fail to reach an agreement, the clause is a source of controversy because it entitles the government to expropriate private property in the interest of another private party. The expropriation procedures are consistent with the law on the expropriation, and the cost for expropriation would be incurred by the strategic investor. The provision has yet to be exercised.
Dispute Settlement
ICSID Convention and New York Convention
Albania is a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention) and is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). In addition, Albania ratified the 1961 European Convention on International Commercial Arbitration (Geneva Convention).
Under the Albanian Constitution, ratified international agreements prevail over domestic legislation. The country has no specific domestic legislation providing for enforcement of foreign arbitral awards. Recognition and enforcement of foreign arbitral awards are regulated by provisions stipulated in the Code of Civil Procedure.
For an international arbitration award to be recognized locally, the claimant must bring the award before the Court of Appeals. The Appeals Court will not adjudicate the merits of the case and can strike down the award only for the reasons listed in Article V of the New York Convention.
The possibility of bringing an action before the local court to avoid arbitration proceedings is remote. According to provisions in the Albanian Code of Civil Procedure, if a party brings actions before local courts despite the parties’ agreement to arbitrate, the court would, upon motion of the other party, dismiss the case without entertaining its merits. The decision of the court to dismiss the case can be appealed to the Supreme Court, which has 30 days to consider the appeal. There is no legal precedent to date, of local courts refusing to recognize or enforce binding international arbitral awards.
The Albanian Code of Civil Procedure requires the courts to reach a judgment in a reasonable amount of time but does not provide a specific timeline for adjudicating commercial disputes. Reaching a final judgment in commercial litigation can take several years.
Investor-State Dispute Settlement
Albania signed a Bilateral Investment Treaty with United States in 1995, and it entered into force in 1998. Foreign investors opt to include international arbitration clauses in their contracts with Albanian parties because the court system is not responsive, and the judiciary is marked by endemic corruption.
Over the past ten years, there have been three investment disputes between the GoA and U.S. companies, two of which resulted in international arbitration. Despite the GoA’s stated desire to attract and support foreign investors, U.S. investors in disputes with the GoA reported a lack of productive dialogue with government officials, who frequently displayed a reluctance to settle the disputes before they were escalated to the level of international arbitration, or before the international community exerted pressure on the government to resolve the issue. U.S. investors in Albania should strongly consider including binding arbitration clauses in any agreements with Albanian counterparts.
International Commercial Arbitration and Foreign Courts
An alternative to dispute settlement via the courts is private arbitration or mediation. Parties can engage in arbitration when they have agreed to such a provision in the original agreement, when there is a separate arbitration agreement, or by agreement at any time when a dispute arises.
Albania does not have a separate law on domestic arbitration. In 2017, Albania repealed all domestic arbitration provisions of the Civil Procedure Code, leaving the country without provisions to govern domestic arbitration. In 2020, the GoA drafted a new law on arbitration that aims to regulate domestic and international arbitration. The draft is going through consultation process.
Parties may currently engage in domestic arbitration because the Code of Civil Procedure guarantees the enforcement of domestic arbitral awards. Mediation is also available for resolving all civil, commercial, and family disputes and is regulated by the law On Dispute Resolution through Mediation. Arbitral awards are final and enforceable and can be appealed only in cases foreseen in the Code of Civil Procedure. Mediation is final and enforceable in the same way.
The provisions for international arbitration procedures and the recognition and enforcement of foreign awards are stipulated in the Albanian Code of Civil Procedure. Albania does not have a separate law on international arbitration. The country is signatory to the 1958 New York Convention and therefore recognizes the validity of written arbitration agreements and arbitral awards in a contracting state.
Bankruptcy Regulations
Albania maintains adequate bankruptcy legislation, though corrupt and inefficient bankruptcy court proceedings make it difficult for companies to reorganize or discharge debts through bankruptcy.
A 2017 law on bankruptcy aimed to close loopholes in the insolvency regime, decrease unnecessary market exit procedures, reduce fraud, and ease collateral recovery procedures. The Bankruptcy Law governs the reorganization or liquidation of insolvent businesses. It sets out non-discriminatory and mandatory rules for the repayment of the obligations by a debtor in a bankruptcy procedure. The law establishes statutory time limits for insolvency procedures, professional qualifications for insolvency administrators, and an Agency of Insolvency Supervision to regulate the profession of insolvency administrators.
Debtors and creditors can initiate a bankruptcy procedure and can file for either liquidation or reorganization. Bankruptcy proceedings may be invoked when the debtor is unable to pay the obligations at the maturity date or the value of its liabilities exceeds the value of the assets.
According to the provisions of the Bankruptcy Law, the initiation of bankruptcy proceedings suspends the enforcement of claims by all creditors against the debtor subject to bankruptcy. Creditors of all categories must submit their claims to the bankruptcy administrator. The Bankruptcy Law provides specific treatment for different categories, including secured creditors, preferred creditors, unsecured creditors, and final creditors whose claims would be paid after all other creditors were satisfied. The claims of the secured creditors are to be satisfied by the assets of the debtor, which secure such claims under security agreements. The claims of the unsecured creditors are to be paid out of the bankruptcy estate, excluding the assets used for payment of the secured creditors, following the priority ranking as outlined in the Albanian Civil Code.
Pursuant to the provisions of the Bankruptcy Law, creditors have the right to establish a creditors committee. The creditors committee is appointed by the Commercial Section Courts before the first meeting of the creditor assembly. The creditors committee represents the secured creditors, preferred creditors, and the unsecured creditors. The committee has the right (a) to support and supervise the activities of the insolvency administrator; (b) to request and receive information about the insolvency proceedings; c) to inspect the books and records; and d) to order an examination of the revenues and cash balances.
If the creditors and administrator agree that reorganization is the company’s best option, the bankruptcy administrator prepares a reorganization plan and submits it to the court for authorizing implementation.
According to the insolvency procedures, only creditors whose rights are affected by the proposed reorganization plan enjoy the right to vote, and the dissenting creditors in reorganization receive at least as much as what they would have obtained in a liquidation. Creditors are divided into classes for the purposes of voting on the reorganization plan and each class votes separately. Creditors of the same class are treated equally. The insolvency framework allows for the continuation of contracts supplying essential goods and services to the debtor, the rejection by the debtor of overly burdensome contracts, the avoidance of preferential or undervalued transactions, and the possibility of the debtor obtaining credit after commencement of insolvency proceedings. No priority is assigned to post-commencement over secured creditors. Post-commencement credit is assigned over ordinary unsecured creditors.
The creditor has the right to object to decisions accepting or rejecting creditors’ claims and to request information from the insolvency representative. The selection and appointment of insolvency representative does not require the approval of the creditor. In addition, the sale of substantial assets of the debtor does not required the approval of the creditor. According to the law on bankruptcy, foreign creditors have the same rights as domestic creditors with respect to the commencement of, and participation in, a bankruptcy proceeding. The claim is valued as of the date the insolvency proceeding is opened. Claims expressed in foreign currency are converted into Albanian currency according to the official exchange rate applicable to the place of payment at the time of the opening of the proceeding.
The Albanian Criminal Code contains several criminal offenses in bankruptcy, including (i) whether the bankruptcy was provoked intentionally; (ii) concealment of bankruptcy status; (iii) concealment of assets after bankruptcy; and (iv) failure to comply with the obligations arising under bankruptcy proceeding.
The government has adopted policies to promote the free flow of financial resources and foreign investment in Albania. The Law on “Strategic Investments” is based on the principles of equal treatment, non-discrimination, and protection of foreign investments. Foreign investors have the right to expatriate all funds and contributions of their investment. In accordance with IMF Article VIII, the government and Central Bank do not impose any restrictions on payments and transfers for international transactions. Despite Albania’s shallow foreign exchange market, banks enjoy enough liquidity to support sizeable positions. Portfolio investments continue to be a challenge because they remain limited mostly to company shares, government bonds, and real estate.
In recent years, the high percentage of non-performing loans and the economic slowdown forced commercial banks to tighten lending standards. However, following a continuing decrease in non-performing loans (NPL) which at the end of 2020 reached 8.1 percent, lending increased by 6.5 percent year-over-year in 2020. The credit market is competitive, but interest rates in domestic currency can be high, ranging from 5 percent to 6.5 percent. Most mortgage and commercial loans are denominated in euros because rate differentials between local and foreign currency average 1.5 percent. Commercial banks operating in Albania have improved the quality and quantity of services they provide, including a large variety of credit instruments, traditional lines of credit, and bank drafts, etc.
Money and Banking System
In the absence of an effective stock market, the country’s banking sector is the main channel for business financing. The sector is sound, profitable, and well capitalized. The Bank of Albania, the country’s Central Bank, is responsible for the licensing and supervision of the banking sector in Albania. The banking sector is 100 percent privately owned and its total assets have steadily increased over the years reaching $15 billion mostly based on customers deposits. The banking sector has consolidated recently as the number of banks decreased from 16 in 2018 to 12 in 2020. As of December 2020, the Turkish owned National Commercial Bank (BKT) was the largest bank in the market with 26.4 percent market share, followed by Albanian Credins Bank with 15.5 percent, and Austrian Raiffeisen Bank third with 14.9 percent. The American Investment Bank is the only bank with U.S. shareholders and ranks sixth with 5.5% percent of the banking sector’s total assets.
The number of bank outlets has also decreased over the recent years also due to the consolidation. In December 2020, Albania had 416 bank outlets, down from 446 from 2019 and the peak of 552 in 2016. Capital adequacy, at 18.23 percent, remains above Basel requirements and indicates sufficient assets. At the end of 2020, the return on assets was just 1.2 percent. The share of NPLs continued to fall, reaching 8.1 percent at the end of the 2020, down from 11.1 percent in 2018, and significantly below the 2014 level when NPLs peaked at 25 percent. As part of its strategy to stimulate business activity, the Bank of Albania has adopted a plan to ease monetary policy by continuing to persistently keep low interest rates. The most recent reduction was in March 2020, when the interest rate was reduced to the historic low of 0.5 percent, down from a rate of 1 percent in place since June 2018.
Many of the banks operating in Albania are subsidiaries of foreign banks. Only three banks have an ownership structure whose majority shareholders are Albanian. However, the share of total assets of the banks with majority Albanian shareholders has increased because of the sector’s ongoing consolidation. There are no restrictions for foreigners who wish to establish a bank account. They are not required to prove residency status. However, U.S. citizens must complete a form allowing for the disclosure of their banking data to the IRS as required under the U.S. Foreign Account Tax Compliance Act.
Foreign Exchange and Remittances
Foreign Exchange
Bank of Albania (BoA) formulates, adopts, and implements foreign exchange policies and maintains a supervisory role in foreign exchange activities in accordance with the Law on the Bank of Albania No. 8269 and the Banking Law No. 9662. Foreign exchange is regulated by the 2009 Regulation on Foreign Exchange Activities no. 70 (FX Regulation).
BoA maintains a free float exchange rate regime for the domestic currency, the Lek. Albanian authorities do not engage in currency arbitrage, nor do they view it as an efficient instrument to achieve competitive advantage. BoA does not intervene to manipulate the exchange rate unless required to control domestic inflation, in accordance with the Bank’s official mandate of inflation targeting.
Foreign exchange is readily available at banks and exchange bureaus. Preliminary notification is necessary if the currency exchange is several million dollars or more – the law does not specify an amount but provides factors for determining the threshold for large exchanges – as the exchange market in Albania is shallow. A 2018 campaign launched by the BoA to reduce the domestic use of the euro to improve the effectiveness of domestic economic policies has produced tangible results. The share of foreign currency loans in total loans fell from 60 percent in 2015 to 47 percent in 2020. Foreign currency deposits, which to some extent reflect relatively high remittances, reached to 53.4 percent of total deposits.
Remittance Policies
The Banking Law does not impose restrictions on the purchase, sale, holding, or transfer of monetary foreign exchange. However, local law authorizes the BoA to temporarily restrict the purchase, sale, holding, or transfer of foreign exchange to preserve the foreign exchange rate or official reserves. In practice, BoA rarely employs such measures. Faced with the unprecedented economic disruption following the COVID-19 pandemic, on July 1, 2020 Bank of Albania ordered banks to halt distribution of dividends and use dividends to cover potential losses and increase loans to the economy. The decision, initially in force till the end of 2020, was extended till the end of 2021.
The Law on Foreign Investment guarantees the right to transfer and repatriate funds associated with an investment in Albania into a freely usable currency at a market-clearing rate. Only licensed entities (banks) may conduct foreign exchange transfers and waiting periods depend on office procedures adopted by the banks. Both Albanian and foreign citizens entering or leaving the country must declare assets in excess of 1,000,000 lek (USD 9,000) in hard currency and/or precious items. Failure to declare such assets is considered a criminal act, punishable by confiscation of the assets and possible imprisonment.
Although the Foreign Exchange (FX) Regulation provides that residents and non-residents may transfer capital within and into Albania without restriction, capital transfers out of Albania are subject to certain documentation requirements. Persons must submit a request indicating the reasons for the capital transfer, a certificate of registration from the National Registration Center, and the address to which the capital will be transferred. Such persons must also submit a declaration on the source of the funds to be transferred. In January 2015, the FX Regulation was amended and the requirement to present the documentation showing the preliminary payment of taxes related to the transaction was removed.
Albania is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force-style regional body. In February 2020, Albania was included in the category of jurisdictions under increased monitoring, also referred to as the Grey List. Albania had previously been on this list and was taken off in 2015. The 2021 International Narcotics Control Strategy Report (INCSR) keeps Albania in the “Major Money Laundering Jurisdictions” category following its inclusion for the first time in 2017. The category implies that financial institutions of the country engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking. Albania and the United States do not have a bilateral MLAT, but cooperation is possible through multilateral conventions.
Sovereign Wealth Funds
Parliament approved a law in October 2019 to establish the Albanian Investment Corporation (AIC). The law entered in force in January 2020. The AIC would develop, manage, and administer state-owned property and assets, invest across all sectors by mobilizing state owned and private domestic and foreign capital, and promote economic and social development by investing in line with government-approved development policies.
The GoA plans to transfer state-owned assets, including state-owned land, to the AIC and provide initial capital to launch the corporation. The IMF Staff Concluding Statement of November 26, 2019, warned that the law would allow the government to direct individual investment decisions, which could make the AIC an off-budget spending tool that risks eroding fiscal discipline and circumventing public investment management processes. There were no activities by the AIC in 2020.
7. State-Owned Enterprises
State-owned enterprises (SOEs) are defined as legal entities that are entirely state-owned or state-controlled and operate as commercial companies in compliance with the Law on Entrepreneurs and Commercial Companies. SOEs operate mostly in the generation, distribution, and transmission of electricity, oil and gas, railways, postal services, ports, and water supply. There is no published list of SOEs.
The law does not discriminate between public and private companies operating in the same sector. The government requires SOEs to submit annual reports and undergo independent audits. SOEs are subject to the same tax levels and procedures and the same domestic accounting and international financial reporting standards as other commercial companies. The High State Audit audits SOE activities. SOEs are also subject to public procurement law.
Albania is yet to become party to the Government Procurement Agreement (GPA) of the WTO but has obtained observer status and is negotiating full accession (see https://www.wto.org/english/tratop_e/gproc_e/memobs_e.htm). Private companies can compete openly and under the same terms and conditions with respect to market share, products and services, and incentives.
SOE operation in Albania is regulated by the Law on Entrepreneurs and Commercial Companies, the Law on State Owned Enterprises, and the Law on the Transformation of State-Owned Enterprises into Commercial Companies. The Ministry of Economy and Finance and other relevant ministries, depending on the sector, represent the state as the owner of the SOEs. SOEs are not obligated by law to adhere to Organization for Economic Cooperation and Development (OECD) guidelines explicitly. However, basic principles of corporate governance are stipulated in the relevant laws and generally accord with OECD guidelines. The corporate governance structure of SOEs includes the supervisory board and the general director (administrator) in the case of joint stock companies. The supervisory board comprises three to nine members, who are not employed by the SOE. Two-thirds of board members are appointed by the representative of the Ministry of Economy and Finance, and one-third by the line ministry, local government unit, or institution to which the company reports. The Supervisory Board is the highest decision-making authority and appoints and dismisses the administrator of the SOE through a two-thirds vote.
Privatization Program
The privatization process in Albania is nearing conclusion, with just a few major privatizations remaining. Entities to be privatized include OSHEE, the state-run electricity distributor; 16 percent of ALBtelecom, the fixed-line telephone company; and state-owned oil company Albpetrol. O ther sectors might provide opportunities for privatization in the future.
The bidding process for privatizations is public, and relevant information is published by the Public Procurement Agency at www.app.gov.al. Foreign investors may participate in the privatization program. The Agency has not published timelines for future privatizations.
Algeria
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Algerian economy is both challenging and potentially highly rewarding. While the Algerian government publicly welcomes FDI, a difficult business climate, an inconsistent regulatory environment, and sometimes contradictory government policies complicate foreign investment. There are business opportunities in nearly every sector, including agribusiness, consumer goods, energy, healthcare, mining, pharmaceuticals, power, recycling, telecommunications, and transportation.
The urgency for Algeria to diversify its economy away from reliance on hydrocarbons has increased amid low and fluctuating oil prices since mid-2014, a youth population bulge, and increased domestic consumption of energy resources. The government reiterated its intention to diversify in its August 2020 plan to recover from the COVID-19 crisis. The government has sought to reduce the country’s persistent trade deficit through import substitution policies, currency depreciation, and import tariffs as it attempts to preserve rapidly diminishing foreign exchange reserves. On January 29, 2019, the government implemented tariffs between 30-200 percent on over one-thousand goods it assessed were destined for direct sale to consumers. Companies that set up local manufacturing operations can receive permission to import materials the government would not otherwise approve for import if the importer can show materials will be used in local production. Certain regulations explicitly favor local firms at the expense of foreign competitors, most prominently in the pharmaceutical sector, where an import ban the government implemented in 2009 remains in place on more than 360 medicines and medical devices. Frequent, unpredictable changes to business regulations have added to the uncertainty in the market.
Algeria eliminated state enterprises’ “right of first refusal” on most transfers of foreign holdings to foreign shareholders, with the exception of identified “strategic” sectors. Though the 2020 Complementary Finance Law eliminated the 51/49 domestic ownership requirement with the exception of “strategic sectors,” the 2021 Finance Law restored the requirement for importers of products for domestic resale, and regulations governing the auto industry released in September 2020 required automobile importers to be wholly domestically owned.
There are two main agencies responsible for attracting foreign investment, the National Agency of Investment Development (ANDI) and the National Agency for the Valorization of Hydrocarbons (ALNAFT).
ANDI is the primary Algerian government agency tasked with recruiting and retaining foreign investment. ANDI runs branches in Algeria’s 58 states (wilayas) which are tasked with facilitating business registration, tax payments, and other administrative procedures for both domestic and foreign investors. U.S. companies report that the agency is understaffed and ineffective. Its “one-stop shops” only operate out of physical offices and do not maintain dialogue with investors after they have initiated an investment. The agency’s effectiveness is undercut by its lack of decision-making authority, particularly for industrial projects, which is exercised by the Ministry of Industry, the Minister of Industry themself, and in many cases the Prime Minister.
ALNAFT is charged with attracting foreign investment to Algeria’s upstream oil and gas sector. In addition to organizing events marketing upstream opportunities to potential investors, the agency maintains a paid-access digital database with extensive technical information about Algeria’s hydrocarbons resources.
Limits on Foreign Control and Right to Private Ownership and Establishment
Establishing a presence in Algeria can take any of three basic forms: 1) a liaison office with no local partner requirement and no authority to perform commercial operations, 2) a branch office to execute a specific contract, with no obligation to have a local partner, allowing the parent company to conduct commercial activity (considered a resident Algerian entity without full legal authority), or 3) a local company with 51 percent of capital held by a local company or shareholders. A business can be incorporated as a joint stock company (JSC), a limited liability company (LLC), a limited partnership (LP), a limited partnership with shares (LPS), or an undeclared partnership. Groups and consortia are also used by foreign companies when partnering with other foreign companies or with local firms.
Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity. However, the 51/49 rule requires majority Algerian ownership in all projects involving foreign investments in the “strategic sectors” of energy, mining, defense, transportation infrastructure, and pharmaceuticals (with the exception of innovative products), as well as for importers of goods for resale in Algeria.
The 51/49 investment rule poses challenges for various types of investors. For example, the requirement hampers market access for foreign small and medium-sized enterprises (SMEs), as they often do not have the human resources or financial capital to navigate complex legal and regulatory requirements. Large companies can find creative ways to work within the law, sometimes with the cooperation of local authorities who are more flexible with large investments that promise significant job creation and technology and equipment transfers. SMEs usually do not receive this same consideration. There are also allegations that Algerian partners sometimes refuse to invest the required funds in the company’s business, require non-contract funds to win contracts, and send unqualified workers to job sites. Manufacturers are also concerned about intellectual property rights (IPR), as foreign companies do not want to surrender control of their designs and patents. Several U.S. companies have reported they have policies that preclude them from investing overseas without maintaining a majority share, out of concerns for both IPR and financial control of the local venture, which thus prevent them from establishing businesses in Algeria.
Algerian government officials defended the 51/49 requirement as necessary to prevent capital flight, protect Algerian businesses, and provide foreign businesses with local expertise. For sectors where the requirement remains, officials contend a range of tailored measures can mitigate the effect of the 51/49 rule and allow the minority foreign shareholder to exercise other means of control. Some foreign investors use multiple local partners in the same venture, effectively reducing ownership of each individual local partner to enable the foreign partner to own the largest share.
The Algerian government does not officially screen FDI, though Algerian state enterprises have a “right of first refusal” on transfers of foreign holdings to foreign shareholders in identified strategic industries. Companies must notify the Council for State Participation (CPE) of these transfers. In addition, initial foreign investments remain subject to approvals from a host of ministries that cover the proposed project, most often the Ministries of Commerce, Health, Pharmaceutical Industry, Energy, Telecommunications and Post, Industry, and Mines. U.S. companies have reported that certain high-profile industrial proposals, such as for automotive assembly, are subject to informal approval by the Prime Minister. In 2017, the government instituted an Investments Review Council chaired by the Prime Minister for the purpose of “following up” on investments; in practice, the establishment of the council means FDI proposals are subject to additional government scrutiny. According to the 2016 Investment Law, projects registered through the ANDI deemed to have special interest for the national economy or high employment generating potential may be eligible for extensive investment advantages. For any project over 5 billion dinars (approximately USD 38 million) to benefit from these advantages, it must be approved by the Prime Minister-chaired National Investments Council (CNI). The CNI previously met regularly, though it is not clear how the agenda of projects considered at each meeting is determined. Critics allege the CNI is a non-transparent mechanism which could be subject to capture by vested interests. In 2020 the operations of the CNI and the CPE were temporarily suspended pending review by the former Ministry of Industry, but a final decision as to their status has not been made.
Other Investment Policy Reviews
Algeria has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD) or the World Trade Organization (WTO). The last investment policy review by a third party was conducted by the United Nations Conference on Trade and Development (UNCTAD) in 2003 and published in 2004.
Business Facilitation
Algeria’s online information portal dedicated to business creation www.jecreemonentreprise.dz and the business registration website www.cnrc.org.dz are under maintenance and have been so for more than a year. The Ministry of Commerce is currently developing a new electronic portal at https://cnrcinfo.cnrc.dz/qui-somme-nous/. The websites provide information about several business registration steps applicable for registering certain kinds of businesses. Entrepreneurs report that additional information about requirements or regulation updates for business registration are available only in person at the various offices involved in the creation and registration process. The Ministry of Foreign Affairs also recently established an Information Bureau for the Promotion of Investments and Exports (BIPIE) to support Algerian diplomats working on economic issues abroad, as well as provide local points of contact for Algerian companies operating overseas.
This year’s improvements were modest and concerned only three of the ten indicator categories. The World Bank report lists 12 procedures that cumulatively take an average of 18 days to complete to register a new business. New business owners seeking to establish their enterprises have sometimes reported the process takes longer, noting that the most updated version of regulations and required forms are only available in person at multiple offices, therefore requiring multiple visits.
Outward Investment
Algeria does not restrict domestic investors from investing overseas, provided they can access foreign currency for such investments. The exchange of Algerian dinars outside of Algerian territory is illegal, as is the carrying abroad of more than 10,000 dinars in cash at a time (approximately USD 76; see section 7 for more details on currency exchange restrictions).
Algeria’s National Agency to Promote External Trade (ALGEX), housed in the Ministry of Commerce, is the agency responsible for supporting Algerian businesses outside the hydrocarbons sector that want to export abroad. ALGEX controls a special promotion fund to promote exports, but the funds can only be accessed for limited purposes. For example, funds might be provided to pay for construction of a booth at a trade fair, but travel costs associated with getting to the fair – which can be expensive for overseas shows – would not be covered. The Algerian Company of Insurance and Guarantees to Exporters (CAGEX), also housed under the Ministry of Commerce, provides insurance to exporters. In 2003, Algeria established a National Consultative Council for Promotion of Exports (CCNCPE) that is supposed to meet annually. Algerian exporters claim difficulties working with ALGEX including long delays in obtaining support funds, and the lack of ALGEX offices overseas despite a 2003 law for their creation. The Bank of Algeria’s 2002 Money and Credit law allows Algerians to request the conversion of dinars to foreign currency in order to finance their export activities, but exporters must repatriate an equivalent amount to any funds spent abroad, for example money spent on marketing or other business costs incurred.
3. Legal Regime
Transparency of the Regulatory System
The national government manages all regulatory processes. Legal and regulatory procedures, as written, are considered consistent with international norms, although the decision-making process is at times opaque.
Algeria implemented the Financial Accounting System (FAS) in 2010. Though legislation does not make explicit references, FAS appears to be based on International Accounting Standards Board and International Financial Reporting Standards (IFRS). Operators generally find accounting standards follow international norms, though they note that some particularly complex processes in IFRS have detailed explanations and instructions but are explained relatively briefly in FAS.
There is no mechanism for public comment on draft laws, regulations, or regulatory procedures. Copies of draft laws are generally not made publicly accessible before enactment, although the Ministry of Finance published a draft of the 2021 Finance Law in October before its consideration by Parliament. Government officials often give testimony to Parliament on draft legislation, and that testimony typically receives press coverage. Occasionally, copies of bills are leaked to the media. All laws and some regulations are published in the Official Gazette (www.joradp.dz ) in Arabic and French, but the database has only limited online search features and no summaries are published. Secondary legislation and/or administrative acts (known as “circulaires” or “directives”) often provide important details on how to implement laws and procedures. Administrative acts are generally written at the ministry level and not made public, though may be available if requested in person at a particular agency or ministry. Public tenders are often accompanied by a book of specifications only provided upon payment.
In some cases, authority over a matter may rest among multiple ministries, which may impose additional bureaucratic steps and the likelihood of either inaction or the issuance of conflicting regulations. The development of regulations occurs largely away from public view; internal discussions at or between ministries are not usually made public. In some instances, the only public interaction on regulations development is a press release from the official state press service at the conclusion of the process; in other cases, a press release is issued earlier. Regulatory enforcement mechanisms and agencies exist at some ministries, but they are usually understaffed, and enforcement remains weak.
The National Economic, Social, and Environmental Council (CNESE) studies the effects of Algerian government policies and regulations in economic, social, and environmental spheres. CNESE provides feedback on proposed legislation, but neither the feedback nor legislation are necessarily made public.
Information on external debt obligations up to fiscal year 2019 is publicly available online via the Central Bank’s quarterly statistical bulletin. The statistical bulletin describes external debt and not public debt, but the Ministry of Finance’s budget execution summaries reflect amalgamated debt totals. The Ministry of Finance is planning to create an electronic, consolidated database of internal and external debt information, and in 2019 published additional public debt information on its website. A 2017 amendment to the 2003 law on currency and credit covering non-conventional financing authorizes the Central Bank to purchase bonds directly from the Treasury for a period of up to five years. The Ministry of Finance indicated this would include purchasing debt from state enterprises, allowing the Central Bank to transfer money to the treasury, which would then provide the cash to, for example, state owned enterprises in exchange for their debt. In September 2019, the Prime Minister announced Algeria would no longer use non-conventional financing, although the Ministry of Finance stressed the program remains available until 2022.
International Regulatory Considerations
Algeria is not a member of any regional economic bloc or of the WTO. The structure of Algerian regulations largely follows European – specifically French – standards.
Legal System and Judicial Independence
Algeria’s legal system is based on the French civil law tradition. The commercial law was established in 1975 and most recently updated in 2007 (www.joradp.dz/TRV/FCom.pdf). The judiciary is nominally independent from the executive branch, but U.S. companies have reported allegations of political pressure exerted on the courts by the executive. Organizations representing lawyers and judges have protested during the past year against alleged executive branch interference in judicial independence. Regulation enforcement actions are adjudicated in the national courts system and are appealable. Algeria has a system of administrative tribunals for adjudicating disputes with the government, distinct from the courts that handle civil disputes and criminal cases. Decisions made under treaties or conventions to which Algeria is a signatory are binding and enforceable under Algerian law.
Laws and Regulations on Foreign Direct Investment
The 51/49 investment rule requires a majority Algerian ownership in “strategic sectors” as prescribed in the 2020 Complementary Finance Law (see section 2). There are few other laws restricting foreign investment. In practice, the many regulatory and bureaucratic requirements for business operations provide officials avenues to informally advance political or protectionist policies. The investment law enacted in 2016 charged ANDI with creating four new branches to assist with business establishment and the management of investment incentives. ANDI’s website (www.andi.dz/index.php/en/investir-en-algerie ) lists the relevant laws, rules, procedures, and reporting requirements for investors. Much of the information lacks detail – particularly for the new incentives elaborated in the 2016 investments law – and refers prospective investors to ANDI’s physical “one-stop shops” located throughout the country. The website has been nonfunctional for several months.
There is an ongoing effort by the customs service, under the Ministry of Finance, to establish a new digital platform featuring one-stop shops for importers and exports to streamline bureaucratic processes. The Ministry expects the service to begin in 2021.
The National Competition Council (www.conseil-concurrence.dz/) is responsible for reviewing both domestic and foreign competition-related concerns. Established in late 2013, it is housed under the Ministry of Commerce. Once the economic concentration of an enterprise exceeds 40 percent of a market’s sales or purchases, the Competition Council is authorized to investigate, though a 2008 directive from the Ministry of Commerce exempted economic operators working for “national economic progress” from this review.
Expropriation and Compensation
The Algerian state can expropriate property under limited circumstances, with the state required to pay “just and equitable” compensation to the property owners. Expropriation of property is extremely rare, with no reported cases within the last 10 years. In late 2018, however, a government measure required farmers to comply with a new regulation altering the concession contracts of their land in a way that would cede more control to the government. Those who refused to switch contract type by December 31, 2018, lost the right to their land.
Dispute Settlement
ICSID Convention and New York Convention
Algeria is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) and the Convention on the International Center for the Settlement of Investment Disputes (ICSID Convention). The Algerian code of civil procedure allows both private and public sector companies full recourse to international arbitration. Algeria permits the inclusion of international arbitration clauses in contracts.
Investor-State Dispute Settlement
Investment disputes sometimes occur, especially on major projects. Investment disputes can be settled informally through negotiations between the parties or via the domestic court system. For disputes with foreign investors, cases can be decided through international arbitration. The most common disputes in the last several years have involved state-owned oil and gas company Sonatrach and its foreign partners concerning the retroactive application since 2006 of a windfall profits tax on hydrocarbons production. Sonatrach won a case in October 2016 against a Spanish oil company and two Korean firms. An international firm won one of their cases against Sonatrach in 2016. In 2018, Sonatrach announced it had settled all outstanding international disputes.
The most recent investment dispute involving a U.S. company dates to 2012. The company, which had encountered bureaucratic barriers to the expatriation of dividends from a 2005 investment, did not resort to arbitration. The dispute was resolved in 2017, with the government permitting the company to expatriate the dividends.
There is no U.S.-Algeria Bilateral Investment Treaty or Free Trade Agreement.
International Commercial Arbitration and Foreign Courts
The Algerian Chamber of Commerce and Industry (CACI), the nationwide, state-supported chamber of commerce, has the authority to arbitrate investment disputes as an agent of the court. The bureaucratic nature of Algeria’s economic and legal system, as well as its opaque decision-making process, means that disputes can drag on for years before a resolution is reached. Businesses have reported cases in the court system are subject to political influence and generally tend to favor the government’s position.
Local courts recognize and have the authority to enforce foreign arbitral awards. Nearly all contracts between foreign and Algerian partners include clauses for international arbitration.
The Ministry of Justice oversees enforcement of arbitral awards against SOEs. Alternative dispute resolution mechanisms are not widely used.
Bankruptcy Regulations
Algeria’s bankruptcy system is underdeveloped. While bankruptcy per se is not criminalized, management decisions (such as company spending, investment decisions, and even procedural mistakes) can be subject to criminal penalties including fines and incarceration, so decisions that lead to bankruptcy could be punishable under Algerian criminal law. However, bankruptcy cases rarely proceed to a full dissolution of assets. The Algerian government generally props up public companies on the verge of bankruptcy via cash infusions from the public banking system. According to the World Bank’s Doing Business report, debtors and creditors may file for both liquidation and reorganization.
Since the resignation of former President Abdelaziz Bouteflika in early 2019, the courts have given the government authority to put several companies in receivership and have appointed temporary heads to direct them following the arrests of their CEOs as part of a broad anti-corruption drive. The status and viability of several of those companies is unclear.
6. Financial Sector
Capital Markets and Portfolio Investment
The Algiers Stock Exchange has five stocks listed – each at no more than 35 percent equity. There is a small and medium enterprise exchange with one listed company. The exchange has a total market capitalization representing less than 0.1 percent of Algeria’s GDP. Daily trading volume on the exchange averages around USD 2,000. Despite its small size, the market is regulated by an independent oversight commission that enforces compliance requirements on listed companies and traders.
Government officials have expressed their desire to reach a capitalization of USD 7.8 billion and enlist up to 50 new companies. Attempts to list additional companies have been stymied by a lack both of public awareness and appetite for portfolio investment, as well as by private and public companies’ unpreparedness to satisfy due diligence requirements that would attract investors. Proposed privatizations of state-owned companies have also been opposed by the public. Algerian society generally prefers material investment vehicles for savings, namely cash. Public banks, which dominate the banking sector (see below), are required to purchase government securities when offered, meaning they have little leftover liquidity to make other investments. Foreign portfolio investment is prohibited – the purchase of any investment product in Algeria, whether a government or corporate bond or equity stock, is limited to Algerian residents only.
Money and Banking System
The banking sector is roughly 85 percent public and 15 percent private as measured by value of assets held and is regulated by an independent central bank. Publicly available data from private institutions and U.S. Federal Reserve Economic Data show estimated total assets in the commercial banking sector in 2017 were roughly 13.9 trillion dinars (USD 116.7 billion) against 9.2 trillion dinars (USD 77.2 billion) in liabilities. The central bank had mandated a 12 percent reserve requirement until mid-2016, when in response to a drop in liquidity the bank lowered the threshold to eight percent. In August 2017, the ratio was further reduced to 4 percent in an effort to inject further liquidity into the banking system. The decrease in liquidity was a result of all public banks buying government bonds in the first public bond issuance in more than 10 years; buying at least five percent of the offered bonds is required for banks to participate as primary dealers in the government securities market. The bond issuance essentially returned funds to the state that it had deposited at local banks during years of high hydrocarbons profits. In January 2018, the bank increased the retention ratio from 4 percent to 8 percent, followed by a further increase in February 2019 to a 12 percent ratio in anticipation of a rise in bank liquidity due to the government’s non-conventional financing policy, which allows the Treasury to borrow directly from the central bank to pay state debts. In response to liquidity concerns caused by the oil price decline and COVID-19 crisis, the bank progressively decreased the reserve requirement from 12 percent to 3 percent between March and September 2020.
The IMF and Bank of Algeria have noted moderate growth in non-performing assets since 2015, currently estimated between 12 and 13 percent of total assets. The quality of service in public banks is generally considered low as generations of public banking executives and workers trained to operate in a statist economy lack familiarity with modern banking practices. Most transactions are materialized (non-electronic). Many areas of the country suffer from a dearth of branches, leaving large amounts of the population without access to banking services. ATMs are not widespread, especially outside the major cities, and few accept foreign bankcards. Outside of major hotels with international clientele, hardly any retail establishments accept credit cards. Algerian banks do issue debit cards, but the system is distinct from any international payment system. The Minister of Commerce announced a plan to require businesses to use electronic payments for all commercial and service transactions, though a government deadline for all stores to deploy electronic payment terminals was delayed for the third time to the end of 2021. In addition, approximately 6.1 trillion dinars (USD 46 billion), or one-third, of the money supply is estimated to circulate in the informal economy.
Foreigners can open foreign currency accounts without restriction, but proof of a work permit or residency is required to open an account in Algerian dinars. Foreign banks are permitted to establish operations in the country, but they must be legally distinct entities from their overseas home offices.
In 2015, the Financial Action Task Force (FATF) removed Algeria from its Public Statement, and in 2016 it removed Algeria from the “gray list.” The FATF recognized Algeria’s significant progress and the improvement in its anti-money laundering/counter terrorist financing (AML/CFT) regime. The FATF also indicated Algeria has substantially addressed its action plan since strategic deficiencies were identified in 2011.
Foreign Exchange and Remittances
Foreign Exchange
There are few statutory restrictions on foreign investors converting, transferring, or repatriating funds, according to banking executives. Monies cannot be expatriated to pay royalties or to pay for services provided by resident foreign companies. The difficultly with conversions and transfers results mostly from the procedures of the transfers rather than the statutory limitations: the process is bureaucratic and requires almost 30 different steps from start to finish. Missteps at any stage can slow down or completely halt the process. Transfers should take roughly one month to complete, but often take three to six months. Also, the Algerian government has been known to delay the process as leverage in commercial and financial disputes with foreign companies.
Expatriated funds can be converted to any world currency. The IMF classifies the exchange rate regime as an “other managed arrangement,” with the central bank pegging the value of the Algerian dinar (DZD) to a “basket” composed of 64 percent of the value of the U.S. dollar and 36 percent of the value of the euro. The currency’s value is not controlled by any market mechanism and is set solely by the central bank. As the Central Bank controls the official exchange rate of the dinar, any change in its value could be considered currency manipulation. When dollar-denominated hydrocarbons profits fell starting in mid-2014, the central bank allowed a slow depreciation of the dinar against the dollar over 24 months, culminating in about a 30 percent fall in its value before stabilizing around 110 dinars to the U.S. dollar in late 2016. The 2020 Finance Law forecast a 10 percent depreciation of the dinar against the dollar over three years. However, the government allowed the dinar to depreciate eleven percent against the dollar in 2020 and has forecasted an 18 percent depreciation through 2023 in the 2021 Finance Law. Despite devaluation in the official rate, imbalances in foreign exchange supply and demand caused by the COVID-19 outbreak and travel restrictions beginning in March 2020 led to a steep decline in the value of the euro and dollar on the foreign exchange black market.
The 2021 Finance Law includes provisions to curb import activity, requiring importers of most products to make payment 30 days after the date of shipment of goods, with exceptions for strategic products, food items, or other items of “emergency character.” As importers are required to request import approvals well in advance of the shipment of the goods, the new measure exposes importers to significant exchange rate uncertainty.
Remittance Policies
There have been no recent changes to remittance policies. Algerian exchange control law remains strict and complex. There are no specific time limitations, although the bureaucracy involved in remittances can often slow the process to as long as six months. Personal transfers of foreign currency into the country must be justified and declared as not for business purpose. There is no legal parallel market through which investors can remit; however, there is a substantial black market for foreign currency, where the dollar and euro trade at a significant premium above official rates, although economic disruptions related to the outbreak of COVID-19 in March 2020 led to interruptions in the functioning of the black market. With the more favorable informal rates, local sources report that most remittances occur via foreign currency hand-carried into the country. Under central bank regulations revised in September 2016, travelers to Algeria are permitted to enter the country with up to 1,000 euros or equivalent without declaring the funds to customs. However, any non-resident can only exchange dinars back to a foreign currency with proof of initial conversion from the foreign currency. The same regulations prohibit the transfer of more than 10,000 dinars (USD 75) outside Algeria.
Private citizens may convert up to 15,000 dinars (USD 118) per year for travel abroad, and must demonstrate proof of their intention to travel abroad through plane tickets or other official documents.
In April 2019, the Finance Ministry announced the creation of a vigilance committee to monitor and control financial transactions to foreign countries. It divided operations into three categories relating to 1) imports, 2) investments abroad, and 3) transfer abroad of profits.
Sovereign Wealth Funds
Algeria’s sovereign wealth fund (SWF) is the “Fonds de Regulation des Recettes (FRR).” The Finance Ministry’s website shows the fund decreased from 4408.2 billion dinars (USD 37.36 billion) in 2014 to 784.5 billion dinars (USD 6.65 billion) in 2016. The data has not been updated since 2016. Algerian media reported the FRR was spent down to zero as of February 2017. Algeria is not known to have participated in the IMF-hosted International Working Group on SWFs.
7. State-Owned Enterprises
State-owned enterprises (SOEs) comprise more than half of the formal Algerian economy. SOEs are amalgamated into a single line of the state budget and are listed in the official business registry. To be defined as an SOE, a company must be at least 51 percent owned by the state.
Algerian SOEs are bureaucratic and may be subject to political influence. There are competing lines of authority at the mid-levels, and contacts report mid- and upper-level managers are reluctant to make decisions because internal accusations of favoritism or corruption are often used to settle political and personal scores. Senior management teams at SOEs report to their relevant ministry; CEOs of the larger companies such as national hydrocarbons company Sonatrach, national electric utility Sonelgaz, and airline Air Algerie report directly to ministers. Boards of directors are appointed by the state, and the allocation of these seats is considered political. SOEs are not known to adhere to the OECD Guidelines on Corporate Governance.
Legally, public and private companies compete under the same terms with respect to market share, products and services, and incentives. In reality, private enterprises assert that public companies sometimes receive more favorable treatment. Private enterprises have the same access to financing as SOEs, but they work with private banks and they are less bureaucratic than their public counterparts. Public companies generally refrain from doing business with private banks and a 2008 government directive ordered public companies to work only with public banks. The directive was later officially rescinded, but public companies continued the practice. However, the heads of Algeria’s two largest state enterprises, Sonatrach and Sonelgaz, both indicated in 2020 that given current budget pressures they are investigating recourse to foreign financing, including from private banks. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors, but business contacts report that the government favors SOEs over private sector companies in terms of access to land.
SOEs are subject to budget constraints. Audits of public companies can be conducted by the Court of Auditors, a financially autonomous institution. The constitution explicitly charges it with “ex post inspection of the finances of the state, collectivities, public services, and commercial capital of the state,” as well as preparing and submitting an annual report to the President, heads of both chambers of Parliament, and Prime Minister. The Court makes its audits public on its website, for free, but with a time delay, which does not conform to international norms.
The Court conducts audits simultaneously but independently from the Ministry of Finance’s year-end reports. The Court makes its reports available online once finalized and delivered to the Parliament, whereas the Ministry withholds publishing year-end reports until after the Parliament and President have approved them. The Court’s audit reports cover the entire implemented national budget by fiscal year and examine each annual planning budget that is passed by Parliament.
The General Inspectorate of Finance (IGF), the public auditing body under the supervision of the Ministry of Finance, can conduct “no-notice” audits of public companies. The results of these audits are sent directly to the Minister of Finance, and the offices of the President and Prime Minister. They are not made available publicly. The Court of Auditors and IGF previously had joint responsibility for auditing certain accounts, but they are in the process of eliminating this redundancy. Further legislation clarifying whether the delineation of responsibility for particular accounts which could rest with the Court of Auditors or the Ministry of Finance’s General Inspection of Finance (IGF) unit has yet to be issued.
Privatization Program
There has been limited privatization of certain projects previously managed by SOEs, and so far restricted to the water sector and possibly a few other sectors. However, the privatization of SOEs remains publicly sensitive and has been largely halted.
Andorra
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Andorra has established an open framework for foreign investments, allowing non-residents to create companies in the country, open businesses, and invest in all kinds of assets.
The Foreign Investment Law came into force in July 2012, completely opening the economy to foreign investors. Since then, foreigners, whether resident or not, may own up to 100 percent of any Andorra-based company. The law also liberalizes restrictions on foreign professionals seeking to work in Andorra. Previously, a foreigner could only begin to practice in Andorra after twenty years of residency. Under the current regulations, any Andorran legal resident from a country that has a reciprocal standard can work in Andorra, although special working permits are required for specific professions.
The Government of Andorra created the ACTUA-Invest program (www.actua.ad) as Andorra’s economic development and promotion office in order to provide counseling services to both Andorran companies looking to grow and foreign investors wanting to start new businesses in Andorra. ACTUA’s mission is to increase competitiveness, innovation, and the sustainability of the economy.
ACTUA’s three key priorities are:
Economic diversification through the development of priority industries such as blockchain, fintech, health, wellness, biotechnology, education, and sports, among others.
Attracting direct foreign investment and supporting national companies throughout their internationalization process.
Supporting entrepreneurs: promoting collaboration between the public and private sectors and giving support to the development of new business initiatives.
The Andorran Chamber of Commerce, Industry, and Services of Andorra (www.ccis.ad) is a public body that aims to promote and strengthen Andorra’s financial and business activity as well as provide services to foreign companies. The Chamber’s activities include organizing a census of commercial, industrial, and service activities; the protection of the general interests of commerce, industry, and services; promoting fair competition; and issuing certificates of origin and other commercial documents.
The Andorran Business Confederation (CEA) provides support to national companies to navigate within Andorra’s new legal, labor, and fiscal framework and facilitates companies’ international expansion projects. CEA also works to foster international investment into the country through its Iwand project, which provides information about Andorra’s economic and fiscal environment (www.cea.ad).
Limits on Foreign Control and Right to Private Ownership and Establishment
The Andorran legal framework has also adapted to international standards. The most relevant laws passed by Parliament to accompany the economic openness include the law of Companies (October 2007), the Law of Business Accounting (December 2007), and the Law of Foreign Investment (April 2008 and June 2012).
The OECD removed Andorra from its “tax haven list” in 2009 after the country signed the Paris Declaration, formally committing to sharing fiscal information outlined by the agreement. With the approval of the Law 19/2016, of November the 30th, on automatic exchange of information on tax matters, Andorra will exchange financial information with signatories of the “Common Reporting Standard” (CRS), developed by the G20 and approved by the OECD Council on July 2014.
From 2011 to 2019, the Parliament approved direct corporate, non-resident, capital gains, and personal income taxes. These regulations aim at establishing a transparent, modern, and internationally comparable regulatory framework. At 10 percent, well below the European average, Andorra’s corporate tax is more competitive than rates in neighboring Spain or France.
Other Investment Policy Reviews
In the past three years neither the Government nor any international organization has conducted an investment policy review, be it the Organization for Economic Cooperation and Development (OECD); World Trade Organization (WTO); or the United Nations Conference on Trade and Development (UNCTAD).
Business Facilitation
Andorra established the ACTUA program as a public/private agency, made up of several ministries, government agencies, associations, and organizations from the private sector. It aims to increase competitiveness, innovation, and sustainability. It provides counseling services, to Andorran companies and potential foreign investors to facilitate investment and economic diversification.
Andorran regulations allow for two types of commercial companies: Limited Liability Company (Societat de Responsabilitat Limitada – SL), which has a minimum capital requirement of 3,000 euros; and Joint Stock Company (Societat Anonima – SA) which is normally required for multiple shareholders and has a minimum capital requirement of 60,000 euros.
The business establishment procedures and for share acquisitions or transfers are quite similar to those of other countries, requiring the filling of a simple application form, with the additional unique condition of the presentation of any prior investment authorization received in the country. This same procedure is applicable for incorporation, establishment, extension, branching, or other form of business expansion. Once the company is registered, the foreign investment is established, and the investor is required to deposit the share capital with an Andorran banking entity and proceed to public deed of incorporation before a notary.
Outward Investment
The Government’s ACTUA programs provide grants, counseling, and online resourced to small and medium size companies to foster competitiveness and facilitate internationalization.
The Andorran Chamber of Commerce (www.ccis.ad) helps companies search for business opportunities abroad.
3. Legal Regime
Transparency of the Regulatory System
The Government set out transparent policies and laws, which have significantly liberalized all economic sectors in Andorra. New, foreign-owned businesses have to be approved by the government, and the process can take up to a month. The Government is committed to a transparent process. Andorra has begun to relax labor and immigration standards; previously, foreign professionals had to establish 20 years of residency before being eligible to own 100 percent of their business in Andorra. This restriction has been lifted for nationals coming from countries that have reciprocal standards for Andorran citizens.
Following approval of the new Accounting Law in 2007, individuals carrying out business or professional activities, trading companies, and legal persons or entities with a profit purpose must file financial statements with the administration.
International Regulatory Considerations
Although not a member of the European Union (EU), Andorra, as a member of the European Customs Union, is subject to all EU free trade regulations and arrangements with regard to industrial products. Concerning agriculture, the EU allows duty free importation of products originating in Andorra.
Andorra is negotiating a new association agreement with the European Union that will allow Andorrans to establish themselves in Europe and Andorran companies will be able to trade in the EU market.
Although the Government took some steps in the past to become a member of the World Trade Organization (WTO); Andorra currently holds observer status in the WTO. Andorra became the 190th member of the International Monetary Fund (IMF) in October 2020.
Legal System and Judicial Independence
Andorra has a mixed legal system of civil and customary law with the influence of canon law. The judiciary is independent from the executive branch. The Supreme Court consists of a court president and eight judges, organized into civil, criminal, and administrative chambers; four magistrates make up the Constitutional Court. The Tribunal of Judges and the Tribunal of the Courts are lower courts. Regulations and enforcement actions can be appealed in the national court system.
Laws and Regulations on Foreign Direct Investment
The Law on Foreign Investment (10/2012) entered into force in 2012, opening the country’s economy by removing the sectorial restrictions stipulated in the prior legislation. In this way, Andorra has positioned itself on equal terms with neighboring economies, enabling it to become more competitive for new sectors and enterprises.
ACTUA is responsible for economic promotion and provides information on relevant laws, rules, procedures to set up a business in Andorra, as well as reporting requirements to investors. The organization also provides other services to facilitate foreign and local investments in strategic sectors.
Competition and Anti-Trust Laws
The Law on Effective Competence and Consumer Protection (13/2013) protects investors against unfair practices. The Ministry of Economy is responsible for administering anti-trust laws and reviews transactions for competition-related concerns (whether domestic or international in nature).
Expropriation and Compensation
The Law of Expropriation (1993) allows the Government to expropriate private property for public purposes in accordance with international norms, including appropriate compensation. We know of no incidents of expropriation involving the U.S. entities in Andorra.
Dispute Settlement
ICSID Convention and New York Convention
Andorra became a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards in September 2015, requiring Andorran courts to enforce financial awards. Andorra is not a member of the International Center for the Settlement of Investment Disputes (ICSID).
Investor-State Dispute Settlement
Andorran legislation establishes mechanisms to resolve disputes if they arise and its judicial system is transparent. The Constitution guarantees an independent judiciary branch, overseen by a High Council of Justice. The prosecution system allows for successive appeals to higher courts. The European Court of Justice is the ultimate arbiter of unsettled appeals.
Contractual disputes between U.S. individuals or companies and Andorran entities are rare, but when they arise are handled appropriately. There have been no reported cases of U.S. investment disputes.
International Commercial Arbitration and Foreign Courts
Parties to a dispute can also resolve disputes contractually through arbitration. The Arbitration Court of the Principality of Andorra (TAPA) was established in July 2020 by the Chamber of Commerce, Industry and Services and the Andorran Bar Association in accordance with Law 16/2018. The main goal of this new organization is to mediate business disputes, both national and international, in order to reach a fair settlement for both parties without having to go to court.
Bankruptcy Regulations
Andorra’s Bankruptcy decree dates to 1969. Other laws from 2008 and 2014 complement the initial text and further protect workers’ rights to fair salaries as well set up mechanisms to monitor the implementation of judicial resolutions. Additionally, Law 8/2015 outlines urgent measures allowing Government intervention of the banking sector in a crisis.
6. Financial Sector
Capital Markets and Portfolio Investment
The Andorran financial sector is efficient and is one of the main pillars of the Andorran economy, representing 20 percent of the country’s GDP and over 5 percent of the workforce.
Created in 1989, and redefined with more responsibilities in 2003, the Andorran Financial Authority (AFA; www.afa.ad ) is the supervisory and regulatory body of the Andorran financial system and the insurance sector. The AFA is a public entity with its own legal status, functionally independent from the Government. AFA has the power to carry out all necessary actions to ensure the correct development of its supervision and control functions, disciplinary and punitive powers, treasury and public debt management services, financial agency, international relations, advice, and studies.
financial system and the insurance sector. The AFA is a public entity with its own legal status, functionally independent from the Government. AFA has the power to carry out all necessary actions to ensure the correct development of its supervision and control functions, disciplinary and punitive powers, treasury and public debt management services, financial agency, international relations, advice, and studies.
The Andorran Financial Intelligence Unit (UIFAND) was created in 2000 as an independent organ to deal with the tasks of promoting and coordinating measures to combat money laundering and terror financing ( www.uifand.ad ).
The State Agency for the Resolution of Banking Institutions (AREB); is a public-legal institution created by Law 8/2015 to take urgent measures to introduce mechanisms for the recovery and resolution of banking institutions ( www.areb.ad ).
Money and Banking System
Andorra adopted the use of the Euro in 2002 and in 2011 signed a Monetary Agreement with the European Union (EU) making the Euro the official currency. Since July 1, 2013, Andorra has had the right to coin Euros.
The Andorra banking system is sound and considered the most important part of the financial sector. The Andorran banks offer a variety of services at market rates. The country also has a sizeable and growing market for portfolio investments. The country does not have a central bank.
The U.S. Internal Revenue Service has certified all the Andorran banks as qualified intermediaries.
Founded in 1960, the Association of Andorran Banks (ABA; https://www.andorranbanking.ad/ ) represents all Andorran banks. Among its tasks are representing and defending interests of its members, watching over the development and competitiveness of Andorran banking at national and international levels, improving sector technical standards, co-operation with public administrations, and promoting professional training, particularly dealing with money laundering prevention. At present, all five Andorran banking groups are ABA members, totaling an estimated 49 billion Euros in combined assets for 2019.
Foreign Exchange and Remittances
Foreign Exchange
Andorra adopted the Euro in 2002 and in 2011 signed a Monetary Agreement with the EU making the Euro the official currency. Since 2013, Andorra has the right to coin Euros.
Remittance Policies
There are no limits or restrictions on remittances provided that they correspond to a company’s official earning records.
Sovereign Wealth Funds
Andorra has no Sovereign Wealth Fund (SWF).
7. State-Owned Enterprises
Andorra has thirty-five state-owned enterprises (SOEs) associated with health, social services, and energy and telecommunication, which are generally allowed to compete with private, enterprises without restriction. The only exception is the government-owned Andorra Telecom, which has enjoyed a monopoly on the telecommunications industry since 2015.
The Andorran public sector is made up of the central Administration and seven local administrations, one for each of the country’s seven parishes. The public sector employs 11.6 percent of Andorra’s workforce, or approximately 4,451 employees.
Privatization Program
Andorra has no current plans to privatize any of its SOEs.
Angola
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Although the GRA demonstrated political will to significantly increase foreign direct investment (FDI), Angola remains a difficult operating environment for investment to thrive. FDI remains low, volatile, and largely concentrated in the extractives sector. The GRA continues to pursue an ambitious plan to reform the business and investment environment. The Private Investment Law (“PIL”) introduced in 2018 has proven to be slow to promote FDI and retain investment. At the end of May 2020, the Economic Committee of the Council of Ministers gathered to discuss some changes to the PIL, with a particular focus on attracting foreign investment through a mechanism to negotiate benefits and special conditions depending on the specific project. There have been, however, no legislative changes related to foreign direct investment since the enactment of the 2018 PIL and the Competition Law of 2018.
President João Lourenço implemented economic reform policies that provide a level playing field for domestic and foreign investors and leveraged efforts to combat and deter corruption and money laundering. Foreign investors were also encouraged to participate in the ongoing Privatization Program designed to privatize over 195 State-Owned Enterprises (SOES) by 2022. AIPEX, the country’s Private Investment and Export Promotion Agency is billed as the investors ‘one stop shop’ for business establishment. AIPEX is tasked with facilitating investment and is also supposed to manage the state’s investment portfolio to ensure the equitable implementation of the PIL and distribution of private investment, especially foreign investment. Theoretically the country prioritizes investment retention, but it does not appear to have institutional capacity to pursue and advocate for investment retention.
Limits on Foreign Control and Right to Private Ownership and Establishment
The 2018 PIL establishes the general principles and basis of private investment in Angola, determining the benefits and concessions that the GRA grants private investors and the criteria for accessing them, as well as establishing rights, duties and guarantees of private investors. The PIL is applied to private investments of any value, whether it is carried out by domestic or foreign investors, although waivers may exist under a bilateral agreement framework. Companies incorporated in conformity with the Angolan law, even with capital from abroad are, for all legal purposes, subject to the existing Angolan legislation. After the completion of a private investment project, foreign investors have the right, after approval by the GRA and settlement of taxes, to transfer abroad:
Values corresponding to dividends;
Values corresponding to the proceeds of the liquidation of their enterprises;
Values corresponding to due compensations;
Values corresponding to royalties or other earnings of remuneration from indirect investments, associated with the transfer of technology.
These processes are very bureaucratic and tedious. Foreign investors and companies with majority foreign ownership are only eligible for domestic credit after having fully implemented their respective investment projects.
On October 20, 2020 Presidential Decree No. 271/20, revoking Order No. 127/03, of 25 November 2003, was published, approving the new Legal Framework on Local Content in the Oil Sector. The statute aims to promote economic diversification, the participation of local businesses in the oil sector, the increase of domestic production and reduction of imports of goods for the sector, as well as the creation of employment and increased training of Angolans in the oil industry workforce. The statute establishes new rules on ‘Angolanization’ and procurement of goods and services for the sector, which will have a significant impact on company activities. For example, priority will be given to procurement of nationally produced goods and services, especially the obligation to contract Angolan companies included in the database approved by the National Oil, Gas and Biofuels Agency (ANPG). In addition, all companies operating in any segment of the petroleum-sector value chain will be required to present an annual local content plan to the ANPG. Failure to comply with the rules established in the new statute will result in fines in local currency to the equivalent of between USD 50,000 and USD 300,000. Additional penalties may also be applied, such as barring companies from entering new contracts or operating altogether.
Although the GRA eliminated the 35 percent local content requirement in foreign investment and encourages foreign companies to invest in the domestic economy, some FDI screening processes continue. Foreign ownership remains limited to 49 percent in the oil and gas sector, 50 percent in insurance, and 10 percent in the banking and telecommunications sectors, though there have been some exceptions recently in which the foreign investment goes beyond the limit. There are several objectives that the GRA seeks to accomplish through its FDI screening processes: 1) create jobs for Angolans or transfer expertise to Angolan companies as part of an “Angolanization” plan; 2) protect sensitive industries such as defense and finance; 3) prevent capital flight or other behavior that could threaten the stability of the Angolan economy; and 4) diversify the economy and increase competitiveness of local industries.
Other Investment Policy Reviews
Angola has been a member of the World Trade Organization (WTO) since 1996. The WTO performed a policy review of Angola in September 2015. At the government’s request, the last Investment Policy Review (IPR) of Angola’s business and economic environments was completed on September 30, 2019 by the United Nations Conference on Trade and Development (UNCTAD of Angola’s The IPR was part of a broader EU funded technical assistance project aimed to assist Angola in attracting and benefitting from FDI beyond the extractives industry and to support the GRA’s objective of increasing economic diversification and sustainable development. The full report and policy recommendations are accessible at: https://unctad.org/en/PublicationsLibrary/diaepcb2019d4_en.pdf
The review identified remaining policy gaps and bottlenecks, including the complex system for FDI entry and establishment, burdensome operational regulations, the persistence of restrictive business practices and a lack of institutional capacity and coordination. These affect the country’s ability to fully take advantage of its strategic location, abundant natural resources, and preferential access to external markets.
The Review also devoted special attention to investment in agribusiness and its contribution to sustainable development. It calls for measures to foster responsible investment and promote inclusive modes of production in agriculture. The recommendations emphasize the need to strike a policy balance between food security and export development objectives, improve access to land and infrastructure, and promote entrepreneurship and skills development.
Business Facilitation
The World Bank Doing Business 2020 report ranked Angola 177 out of 190 countries and recorded an improvement in Angola’s monitoring and regulation of power outages, and in facilitating trade through the implementation of an automated customs data management system, ASYCUDA (Automated System for Customs Data) World, and by upgrading its port community system to allow for electronic information exchange between different parties involved in the import/export process. To commence a business, investors typically register with the General Tax Administration (AGT) Social Security Institute (INSS), National Press, and a local bank Launching a business typically requires 36 days, compared with a regional average of 27 days, with Angola ranked 146 out of the 190 economies evaluated.
The Covid-19 pandemic highlighted the urgency of trade facilitation reform to improve competitiveness in non-oil business sectors. With this, export procedures in the country cost USD 240 and take 98 hours, compared to an average of USD 173 and 72 hours for sub-Saharan Africa. Many of the reforms necessary to improve conditions for Angolan businesses, such as automating customs procedures or creating a single window, are addressed by the World Trade Organization’s Trade Facilitation Agreement, which Angola ratified in April 2019. To facilitate opening, changing, or closing a company, the Guiche Único de Empresas one stop shop for investors (GUE) was folded into the Private Investment and Export Promotion Agency (AIPEX) in 2019. It combines the main public services for constitution of companies, GUE and AIPEX, allowing the investor to open and register companies and be able to access the tax benefits and other incentives resulting from the Private Investment Law.
On October 19, 2020, to facilitate the establishment of businesses and as a COVID-19 imposed biosafety measure, the GRA simplified procedures by creating an online registration portal for companies (www.gue.gov.ao). The online portal will allow for faster registry of companies (taking only 30-60 minutes) and replace the publication of the company registry in the Gazette (Diário da República), a procedure that took more than five days. There is still the option to set up a company in person, which is estimated to also take as little as 30 minutes to an hour. The cost to establish a sole proprietorship is USD 16 dollars and USD 54 for partnerships, corporations, and other entities. Payments are also made electronically.
In April 2020, to simplify bureaucracy and in anticipation of the economic slowdown eventually caused by COVID-19, the GRA proposed revoking the procedure for issuing business licenses for all economic activities and requiring companies to carry out statistical registration in the act of incorporation. With the abolition of the Company License Document (a commercial permit) and Statistical Registration, to begin business activities, companies need to register their activity with the local administration office. The office will issue an electronic operating license. Some exclusions from this regime are foreseen, such as those related to the trade in foodstuffs, live plant species, animals, birds and fisheries, medicines, car sales, lubricants and chemicals. For these sectors, a physical license is still required as they are considered high risk economic activities which may affect human, animal, environmental and state safety.
The state-run private investment and export promotion agency’s website is http://www.aipex.gov.ao/PortalAIPEX/#!/ . Contact Information: Departamento de Promoção e Captação do Investimento; Agencia de Investimento Privado e Promoção de Investimentos e Exportações de Angola (AIPEX). Rua Kwamme Nkrumah No.8, Maianga, Luanda, Angola Tel: (+244) 995 28 95 92| 222 33 12 52 Fax: (+244) 222 39 33 81.
Outward Investment
The Angolan Government does not promote or incentivize outward investment, nor does it restrict Angolans from investing abroad. Investors are free to invest in any foreign jurisdiction. According to data from the BNA, in 2018, the government did not invest abroad but received returns on previous investments abroad.
Domestic investors prefer to invest in Portuguese-speaking countries, with few investing in neighboring countries in Sub-Saharan Africa. The bulk of investment is in real estate, fashion, fashion accessories, and domestic goods. Due to foreign exchange constraints, there has been very little or no investment abroad by domestic investors. Although investing in real estate is cheaper abroad, a few invest in real estate domestically. The average Angolan invests in affordable investments with quick returns.
3. Legal Regime
Transparency of the Regulatory System
Angola’s regulatory system is complex, vague, and inconsistently enforced. In many sectors, no effective regulatory system exists due to a lack of institutional and human capacity. The banking system is slowly beginning to adhere to International Financial Reporting Standards (IFRS). SOEs are still far from practicing IFRS. The public does not participate in draft bills or regulations formulation, nor does a public online location exist where the public can access this information for comment or hold government representatives accountable for their actions. The Angolan Communications Institute (INACOM) sets prices for telecommunications services and is the regulatory authority for the telecommunications sector. Revised energy-sector licensing regulations have permitted some purchase power agreements (PPA) participation.
Overall, Angola’s national regulatory system does not conform to other international regulatory systems. However, Angola is part of the Common Market for Eastern and Southern Africa (COMESA), the Community of Portuguese Speaking Countries (CPLP), and the SADC, among other organizations. Angola has yet to join the SADC Free Trade Zone of Africa as a full member. On March 21, 2018 together with 44 African countries, Angola joined the African Continental Free Trade Area (AfCFTA), an agreement aimed at paving the way for a liberalized market for goods and services across Africa. Angola is also a member of the Port Management Association of Eastern and Southern Africa (PMAESA), which seeks to maintain relations with other national port authorities or associations, regional and international organizations and governments of the region to hold discussions on matters of common interest.
Angola became a member of the WTO on November 23, 1996. However, it is not party to the Plurilateral Agreements on Government Procurement, the Trade in Civil Aircraft Agreement and has not yet notified the WTO of its state-trading enterprises within the meaning of Article XVII of the GATT. A government procurement management framework introduced in late 2010 stipulates a preference for goods produced in Angola and/or services provided by Angolan or Angola-based suppliers. Technical Barriers to Trade regimes are not coordinated. There have been no investment policy reviews for Angola from either the OECD or UNCTAD in the last four years. Angola conducts several bilateral negotiations with Portuguese Speaking countries (PALOPS), Cuba and Russia and extends trade preferences to China due to credit facilitation terms, while attempting to encourage and protect local content.
Regulatory reviews are based on scientific, or data driven assessments or baseline surveys. Evaluations are based on data, but not made available for public comment.
The National Assembly is Angola’s main legislative body with the power to approve laws on all matters (except those reserved by the constitution to the government) by simple majority (except if otherwise provided in the constitution). Each legislature comprises four legislative sessions of twelve months starting annually on October 15. National Assembly members, parliamentary groups, and the government hold the power to put forward all draft-legislation. However, no single entity can present draft laws that involve an increase in the expenditure or decrease in the State revenue established in the annual budget.
The president promulgates laws approved by the assembly and signs government decrees for enforcement. The state reserves the right to have the final say in all regulatory matters and relies on sectorial regulatory bodies for supervision of institutional regulatory matters concerning investment. The Economic Commission of the Council of Ministers oversees investment regulations that affect the country’s economy including the ministries in charge. Other major regulatory bodies responsible for getting deals through include:
The National Gas and Biofuels Agency (ANPG) is the government regulatory and oversight body responsible for regulating oil exploration and production activities. On February 6, 2019, the parastatal oil company Sonangol launched the National Gas and Biofuels Agency (ANPG) through the Presidential decree 49/19. The ANPG is the national concessionaire of hydrocarbons in Angola, authorized to conduct, execute and ensure oil, gas and biofuel operations run smoothly, a role previously held by Sonangol. The ANPG must also ensure adherence to international standards and establish relationships with other international agencies and sector relevant organizations.
The Regulatory Institute of Electricity and Water Services (IRSEA) is the regulatory authority for renewable energies and enforcing powers of the electricity regulatory authority.
The Angolan Communications Institute (INACOM): The institute sets prices for telecommunications services and is the regulatory authority for the telecommunications sector. Revised energy-sector licensing regulations have improved legal protection for investors to attract more private investment in electrical infrastructure, such as dams and hydro distribution stations.
As of October 1, 2019, a 14 percent VAT regime came into force, replacing the existing 10 percent Consumption Tax. The General Tax Administration (AGT) is the office that oversees tax operations and ensures taxpayer compliance. The new VAT tax regime aims to boost domestic production and consumption and reduce the incidence of compound tax created for businesses unable to recover consumption tax incurred. VAT may be reclaimed on purchases and imports made by taxpayers, making it neutral for business.
Angola acceded to the New York Convention on August 24, 2016, paving the way for effective recognition and enforcement in Angola of awards rendered outside of Angola and subject to reciprocity. Angola participates in the New Partnership for Africa’s Development (NEPAD), which includes a peer review mechanism on good governance and transparency. Enforcement and protection of investors is under development in terms of regulatory, supervisory, and sanctioning powers. Investor protection mechanisms are weak or almost non-existent.
There are no informal regulatory processes managed by nongovernmental organizations or private sector associations, and the government does not allow the public to engage in the formulation of legislation or to comment on draft bills. Procurement laws and regulations are unclear, little publicized, and not consistently enforced. Oversight mechanisms are weak, and no audits are required or performed to ensure internal controls are in place or administrative procedures are followed. Inefficient bureaucracy and possible corruption frequently lead to payment delays for goods delivered, resulting in an increase in the price the government must pay.
No regulatory reform enforcement mechanisms have been implemented since the last ICS report, in particular those relevant to foreign investors. The Diário da República (the Federal Register equivalent), is a legal document where key regulatory actions are officially published.
International Regulatory Considerations
On September 14, 2020 the GRA officially announced its intention to join the 54 countries that already apply the Standard Initiative for Extractive Industries Transparency (EITI).
In a letter to the Chairman of the EITI Board, dated September 14, 2020, the Minister of Mineral, Oil and Gas Resources, Diamantino Pedro Azevedo, described the steps already taken for the implementation of the EITI. These include the signing of Presidential Decree 117/20, appointing the Minister as chair of the National EITI Coordinating Committee, and a public statement announcing the government’s commitment to join the EITI initiative.
Angola’s overall national regulatory system does not conform to other international regulatory systems and is overseen by its constitution. Angola is not a full member of the International Standards Organization (ISO), but has been a corresponding member since 2002. The Angolan Institute for Standardization and Quality (IANORQ) within the Ministry of Industry & Commerce coordinates the country’s establishment and implementation of standards. Angola is an affiliate country of the International Electro-technical Commission that publishes consensus-based International Standards and manages conformity assessment systems for electric and electronic products, systems and services.
A government procurement management framework introduced in late 2010 stipulates a preference for goods produced in Angola and/or services provided by Angolan or Angola-based suppliers. Technical Barriers to Trade (TBT) regimes are not coordinated. Angola acceded to the Kyoto Convention on February 23, 2017.
Legal System and Judicial Independence
Angola’s legal system is primarily based on the Portuguese legal system and can be considered civil law based, with legislation as the primary source of law. Courts base their judgments on legislation and there is no binding precedent as understood in common law systems. The constitution is considered the supreme law of Angola (article 6(1)) and all laws and conduct are valid only if they conform to the constitution (article 6(3.))
The Angolan justice system is slow, arduous, and often partial. Legal fees are high, and most businesses avoid taking commercial disputes to court in the country. The World Bank’s Doing Business 2020survey ranks Angola 186 out of 190 countries on contract enforcement, and estimates that commercial contract enforcement, measured by time elapsed between filing a complaint and receiving restitution, takes an average of 1,296 days, at an average cost of 44.4 percent of the claim.
Angola has commercial legislation that governs all contracts and commercial activities but no specialized court. On August 5, 2020, the Economic Council of Ministers approved the opening of the Court for Litigation on Commercial, Intellectual, and Industrial Property Matters, at the Luanda First Instance Court. With the introduction of this commercial court, the GRA hopes the business environment and trust in public institutions will improve. Prior to this arrangement, trade disputes were resolved by judges in the Courts of Common Pleas. The commercial legislation provides that before going to court, investors can challenge the decision under the terms of the administrative procedural rules, either through a complaint (to the entity responsible for the decision) or through an appeal (to the next level above the entity responsible for the decision). In the new system, investors will be able, in general, to appeal to civil and administrative courts. Both administrative procedures and lawsuits are extremely bureaucratic and time-consuming. Investors exercising their right to appeal should expect decisions to take months, or even years, in the case of court decisions. In 2008, the Angolan attorney general ruled that Angola’s specialized tax courts were unconstitutional. The ruling effectively left businesses with no legal recourse to dispute taxes levied by the Ministry of Finance, as the general courts consistently rule that they have no authority to hear tax dispute cases and refer all cases back to the Ministry of Finance for resolution. Angola’s Law 22/14, of December 5, 2014, which approved the Tax Procedure Code (TPC), sets forth in its Article 5 that the courts with tax and customs jurisdiction are the Tax and Customs Sections of the Provincial Courts and the Civil, Administrative, Tax and Customs Chamber of the Supreme Court. Article 5.3 of the law specifically states that tax cases pending with other courts must be sent to the Tax and Customs Section of the relevant court, except if the discovery phase (i.e., the production of proof) has already begun.
In 2008, the Angolan attorney general ruled that Angola’s specialized tax courts were unconstitutional. The ruling effectively left businesses with no legal recourse to dispute taxes levied by the Ministry of Finance, as the general courts consistently rule that they have no authority to hear tax dispute cases and refer all cases back to the Ministry of Finance for resolution. Angola’s Law 22/14, of December 5, 2014, which approved the Tax Procedure Code (TPC), sets forth in its Article 5 that the courts with tax and customs jurisdiction are the Tax and Customs Sections of the Provincial Courts and the Civil, Administrative, Tax and Customs Chamber of the Supreme Court. Article 5.3 of the law specifically states that tax cases pending with other courts must be sent to the Tax and Customs Section of the relevant court, except if the discovery phase (i.e., the production of proof) has already begun.
The judicial system is administered by the Ministry of Justice at trial level for provincial and municipal courts and the supreme court nominates provincial court judges. In 1991, the constitution was amended to guarantee judicial independence. However, per the 2010 constitution, the president appoints supreme court judges for life upon recommendation of an association of magistrates and appoints the attorney general. Confirmation by the General Assembly is not required. Angola enacted a new Criminal Code and a new Criminal Procedure Code in November 2020 which entered into force on February 9, 2021 to better align the legal framework with internationally accepted principles and standards, with an emphasis on white-collar crimes and corruption. The system lacks resources and independence to play an effective role though the legal reforms extend criminal liability for corruption offenses and other crimes to legal entities; provide for private sector corruption offenses to face similar fines and imprisonment to the punishments applicable to the public sector and modernize and broaden the list of criminal offenses against the financial system.
There is a general right of appeal to the court of first instance against decisions from the primary courts. To enforce judgments/orders, a party must commence further proceedings called executive proceedings with the civil court. The main methods of enforcing judgments are:
Execution orders (to pay a sum of money by selling the debtor’s assets).
Delivery of assets; and
Provision of information on the whereabouts of assets.
The Civil Procedure Code also provides ordinary and extraordinary appeals. Ordinary appeals consist of first appeals, review appeals, interlocutory appeals, and full court appeals, while extraordinary appeals consist of further appeals and third-party interventions. Generally, an appeal does not operate as a stay of the decision of the lower court unless expressly provided for as much in the Civil Procedure Code.
Laws and Regulations on Foreign Direct Investment
The GRA is favorable to FDI and offers freedom of establishment in all sectors with exception a few that have been traditionally been closed to FDI: military aircraft and security equipment, the activities of the Central Bank, ports, and airports. However, in 2020, the GRA encouraged foreign investors to take over management of ports and airports under the Privatization Program (PROPRIV). The acquisition of holdings is also possible. A special investment regime applies to the oil, gas, diamond, and financial sectors. Investment values exceeding USD 10m, require an investment contract with the Angolan Government and must be authorized by the Council of Ministers and finally approved by the President.
Investment values exceeding USD 10m, require an investment contract with the Angolan Government and must be authorized by the Council of Ministers and finally approved by the President.
Investors, foreigners or not, theoretically have the same right of access to incentives, even if the policy of “Angolanization” aims to promote the employment of nationals. Regarding capital repatriations, the law guarantees foreign investors the right to transfer dividends or other income from direct investment out of the country. Starting in 2020, importing capital from foreign investors willing to invest in Angolan companies is immune from licensing by the Angolan central bank.
AIPEX is the investment and export promotion regulation center tasked with promoting Angola’s export potential, legal framework, environment, and investment opportunities in the country and abroad. Housed within the Ministry of Industry & Commerce, AIPEX is also responsible for ensuring the application of the 2018 NPIL on foreign direct investments, entered into force on June 26, 2018.
Competition and Antitrust Laws
On May 17, 2018 Angola’s National Assembly approved the nation’s first anti-trust law. The law set up the creation of the Competition Regulatory Authority, which prevents and cracks down on actions of economic agents that fail to comply with the rules and principles of competition. The Competition Regulatory Authority of Angola (Autoridade Reguladora da Concorrência – ARC) was created by Presidential Decree no. 313/18, of December 21, 2018, and it succeeds the now defunct Instituto da Concorrência e Preços. It has administrative, financial, patrimonial and regulatory autonomy, and is endowed with broad supervisory and sanctioning powers, including the power to summon and question persons, request documents, carry out searches and seizures, and seal business premises.
The ARC is responsible, in particular, for the enforcement of the new Competition Act of Angola, approved by Law no. 5/18, of May 10, 2018 and subsequently implemented by Presidential Decree no. 240/18, of October 12. The Act has a wide scope of application, pertaining to both private and state-owned undertakings, and covers all economic activities with a nexus to Angola. The Competition Act prohibits agreements and anti-competitive practices, both between competitors (“horizontal” practices, the most serious example of which are cartels), as well as between companies and its suppliers or customers, within the context of “vertical” relations.
Equally prohibited is abusive conduct practiced by companies in a dominant position, such as the refusal to provide access to essential infrastructures, the unjustified rupture of commercial relations and the practice of predatory pricing, as well as the abusive exploitation, by one or more companies, of economically dependent suppliers or clients. Prohibited practices are punishable by heavy fines that range from one to ten percent of the annual turnover of the companies involved. Offending companies that collaborate with the ARC, by disclosing conduct until then unknown or producing evidence on a voluntary basis, may benefit from significant fine reductions, under a leniency program yet to be developed and implemented by the ARC. Considering the ample powers and potentially heavy sanctions at the disposal of the ARC, companies present in (or planning to enter) Angola are well advised to consider carefully the impact of the new law on their activities, in order to mitigate any risk that its market conduct may be found contrary to the Competition Act.
With the surge of the privatization agenda in 2019 and ongoing anti-corruption and asset recovery strategy and privatization of SOEs program, the Institute of Assets and State Equity (IGAPE) also emerged in providing oversight for acquisitions and mergers
Expropriation and Compensation
Under the Land Tenure Act of November 9, 2004 and the General Regulation on the Concession of Land (Decree no 58/07 of July 13, 2007), all land belongs to the state and the state reserves the right to expropriate land from any settlers. The state is only allowed to transfer ownership of urban real estate to Angolan nationals and may not grant ownership over rural land to any private entity (regardless of nationality), corporate entities or foreign entities. The state may allow for land usage through a 60-year lease to either Angolan or foreign persons (individuals or corporate), after which the state reserves legal right to take over ownership.
On January 24, 2020 Parliament approved the revised Law of Expropriations by Public Utility putting into practice the general principles contained in articles 15, no. 3 and 37, of the Angolan Constitution, which recognize the right to private property and establish that expropriations are only allowed when based on reasons of public interest and upon payment of fair and prompt compensation. The National Assembly also approved Law No. 1/21 on January 7, 2020, which approves the Expropriation Law and revokes legislation that governed this matter since before Angola’s independence. Despite the reforms, expropriation without compensation remains a common practice with idle or underdeveloped areas frequently reverting to the state with little or no compensation to the claimants who paid for the land, who in most cases allege unfair treatment.
In order to implement these fundamental principles, the Expropriation Law establishes the specific procedure that governs expropriation. The new law justifies expropriation for public utility and for other purposes such as defense and national security, the creation of new housing clusters, development of Special Economic Zones and Free Trade Zones, industrial use of mines and mineral deposits, water resources, operation of public services, operation of public transport systems, construction and assembly of power plants, substations and transmission lines integrated in the linked electrical system, as well as any other cases of public utility that may be established in special legislation.
Dispute Settlement
ICSID Convention and New York Convention
Angola is not a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention) but has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. On March 6, 2017, the Government of Angola deposited its instrument of accession to the Convention with the UN Secretary General. The Convention entered into force on June 4, 2017. Its ratification was endorsed domestically via resolution No. 38/2016, published in the Official Gazette of Angola on August 12, 2016.
Investor-State Dispute Settlement
The Angolan Arbitration Law (Law 16/2003 of July 25) (Voluntary Arbitration Law — VAL) provides for domestic and international arbitration. Substantially inspired by Portuguese 1986 arbitration law, it cannot be said to strictly follow the UN Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. The VAL contains no provisions on definitions, rules on interpretation, adopts the disposable rights criterion in regard to arbitration, does not address preliminary decisions or distinguish between different types of awards, and permits appeal on the merits in domestic arbitrations, unless the parties have otherwise agreed.
Angola is also a member of the Multilateral Investment Guarantee Agency (MIGA), which can provide dispute settlement assistance as part of its political risk insurance products and eligibility for preferential trade benefits under the African Growth Opportunity Act. The United States and Angola have signed a TIFA, which seeks to promote greater trade and investment between the two nations.
There have not been any judicial proceedings or claims under the TIFA. Angola has no FTA agreement with the United States.
U.S. Embassy Luanda is aware of one ongoing formal investment dispute involving an American company since 2017. To date, the U.S. investor’s complaints against the GRA remain unsettled. The GRA denies being party to the investor dispute and advised the plaintiff to file a case in Angolan courts against its business partner. The GRA recognizes this case as being an investor-to-investor and not investor-to-state dispute.
International Commercial Arbitration and Foreign Courts
Other means of alternative dispute resolution are not mandatory by law and, therefore not commonly used in commercial disputes. Under the Public Procurement Law, in the case of a dispute related to the termination of a public works contract, before the judicial proceeding takes place it is mandatory that an extrajudicial conciliation attempt be made. The extrajudicial conciliation attempt takes place before a committee composed of one representative of each of the parties and chaired by the President of the Superior Council of Public Works or a member designated by him for this purpose, within 30 days after the written application and answer of the parties. If the attempt to conciliate is successful, the written terms and conditions must be submitted to the approval of the Minister of Public Works and are then valid as enforceable title.
Angola recognizes and enforces foreign arbitration rulings against its government. However, extra-judicial cases against foreign investors are rare. Although not widely implemented, the Government of Angola and public sector companies recognize the use of arbitration to settle disputes with foreign arbitration awards issued in foreign courts.
Commercial contracts usually include arbitration clauses if foreign companies are involved. Arbitration proceedings are more flexible than litigation through the courts and less time is required to obtain a resolution. Additionally, appointed arbitrators are often experts in the matters in dispute and, as such, the decisions are of higher quality. However, arbitration proceedings are sometimes more expensive than judicial proceedings.
Bankruptcy Regulations
Angola ranks 168 out of 190 on the World Bank’s Doing Business 2020 report on resolving insolvency. Banks are bound to comply with prudential rules aimed at ensuring that they always maintain a minimum amount of funds not less than the minimal stock capital to ensure adequate levels of liquidity and solvability. The Bankruptcy Regime is summarized in the antiquated Code of Civil Procedure. The Ministry of Justice has begun to conduct studies to identify the most appropriate mechanisms for insolvency resolution, as well as to deepen its general legal and regulatory framework, taking as references the best international practices.
Banking insolvency is regulated by the Law on Financial Institutions No. 12/2015 of June 17, 2015. Based on this law, the BNA increases the social capital requirement for banks operating in the country to guard against possible damages to clients and the financial system. All monetary deposits up to 12.5 million Kwanzas (USD 27,000 equivalent) are also to be deposited into the BNA’s Deposit Guarantee Funds account (Presidential Decree 195/18 of 2018) so that clients (both local and foreign) are guaranteed a refund in case of bankruptcy by their respective bank. Article 69 of the law expressly states that it is the responsibility of the President of the Republic to create the fund, but it is silent on the rules governing its operation or the amounts guaranteed by the fund.
While Angola’s arbitration law (Arbitration Law No. 16/03) for insolvency adopted in 2013 introduced the concept of domestic and international arbitration, the practice of arbitration law is still not widely implemented. The law criminalizes bankruptcy under the following classification: condemnation in Angola or abroad for crimes of fraudulent bankruptcy, i.e., involvement of shareholders or managers in fraudulent activities that result in the bankruptcy, negligence bankruptcy, forgery, robbery, or involvement in other crimes of an economic nature. The Ministry of Finance, the BNA and the Capital Markets Commission (CMC) oversee credit monitoring and regulation.
6. Financial Sector
Capital Markets and Portfolio Investment
There is a visible effort by the government to create more attractive conditions for foreign investment as reflected in the attempt to create a more favorable social and political climate, the new legislation on private investment and in a greater liberalization of capital movements. The dangers of absorption by the local partner or the impossibility of transferring profits are thus mitigated. The BNA abolished the licensing previously required on importing capital from foreign investors allocated to the private sector and exporting income associated with such investments. This measure compliments the need to improve the capture of FDI and portfolio investment and it is in line with the privatization program for public companies (PROPRIV) announced through Presidential Decree No. 250/19 of August 5, 2019 which encourages foreign companies to participate. In addition to the operations, BNA is also exempt from licensing, the export of capital resulting from the sale of investments in securities traded on a regulated market and the sale of any investment, in which the buyer is also not – foreign exchange resident, pursuant to Notice No. 15/2019.
BODIVA is Angola’s Debt and Securities Stock Exchange. The Stock Exchange (BODIVA) allows through a platform the trading of different types of financial instruments available to investors with rules (self-regulation), systems (platforms) and procedures that assure market fairness and integrity to facilitate portfolio investment. However, there is no effective regulatory system to encourage and facilitate portfolio investment which is poorly explored. At the moment, only local commercial banks have the ability to potentially list on the nascent stock exchange.
The central bank (BNA) partially observes IMF Article VIII on refraining from restrictions on payments and transfers for current international transactions. Foreign exchange crises and the loss of correspondent banking relationships since 2015 have prompted the BNA to adopt restrictive monetary policies that negatively affect Angola’s payment system, seen in the delay in foreign exchange denominated international transfers.
Credit is not allocated on market terms. Foreign investors do not normally access credit locally. For Angolan investors, credit access is very limited, and if available, comes with a collateral requirement of 125 percent, so most either self-finance, or seek financing from non-Angolan banks and investment funds such as the “Angola Invest” government-subsidized funding program for micro, small and medium private enterprises (SMEs). The fund, sourced from the Annual State Budget, ended on September 25, 2018, further reducing funding opportunities for many SMEs. Banks credit issue appetite also lies more on government than the private sector as credit to government is more profitable for these commercial banks.
Money and Banking System
Angola is over-banked. Although four banks have been closed since 2018, 26 banks still operate in Angola. The top seven banks control nearly 80% of sector deposits, but the rest of the sector includes a large number of banks with minimal scale and weak franchises. 47% of income-earners utilize banking services, with 80% being from the urban areas. Angolan banks focus on profit generating activities including transactional banking, short-term trade financing, foreign exchange, and investments in high-interest government bonds.
The banking sector largely depends on monetary policies established by Angola’s central bank, the Banco Nacional de Angola (BNA). Thanks to the ongoing IMF economic and financial reform agenda, the BNA is adopting international best practices and slowly becoming autonomous. On February 13, 2021 President Joao Lourenco issued an edict granting autonomy to the BNA, a decision taken after IMF recommendations. The reforms taken under the Lourenco administration have lessened the political influence over the BNA and allowed it to more freely adopt strategies to build resilience from external shocks on the economy. As Angola’s economy depends heavily on oil to fuel its economy, so does the banking sector. The BNA periodically monitors minimum capital requirements for all banks and orders the closure of non-compliant banks.
Although the RECREDIT Agency purchased non-performing loans (NPLs) of the state’s parastatal BPC bank, NPLs remain high at 32%, a decrease of 5% since 2016. Credit availability is minimal and often supports government-supported programs. The GRA obliged banks to grant credit more liberally in the economy, notably by implementing a Credit Support Program (PAC). For instance, the BNA has issued a notice obliging Angolan commercial banks to grant credit to national production in the minimum amount equivalent to 2.5% of their net assets until the end of 2020.
The country has not lost any additional correspondent banking relationships since 2015. The BNA is currently working on reforms to convince international banks to reestablish correspondent banking relationships. The majority of transactions go via third party correspondent banking services in Portugal banks, a costly option for all commercial banks. At the time of issuing this report no correspondent banking relationships were at jeopardy.
Foreign banking institutions are allowed to operate in Angola and are subject to BNA oversight.
The Monetary Policy Committee (MPC) of the BNA met in March 2020, to consider recent changes to the main economic indicators, and taking into account the COVID-19 pandemic and its impact on the domestic economy. The MPC paid particular attention to the external accounts, and their implications for the conduct of monetary and exchange rate policies. The MPC has accordingly decided to:
Maintain the base interest rate, BNA rate, at 15.5%;
Maintain the interest rate on the liquidity absorption facility with an overnight maturity, at 0%;
Reduce the interest rate on the liquidity absorption facility with a seven-day maturity, from 10% to 7%;
Maintain reserve requirement coefficients for national and foreign currencies at 22% and 15%, respectively;
Establish a liquidity facility with a maximum value of Kz 100 billion for the acquisition of government securities held by non-financial corporations:
Extend to the 54 products defined in PRODESI the credit granted with recourse to the reserve requirements, and establish a minimum number of loans to be granted per bank;
Exempt from the limits established per type of payment instrument, the import of products included in the basic food basket, and of and these continue to cripple lending appetite of commercial banks to the private sector medicines;
Set April 1 as the start date for the use of the Bloomberg platform by the oil companies and by the National Agency of Petroleum, Gas and Biofuels, for the sale of foreign currency to commercial banks.
Foreign Exchange and Remittances
Foreign Exchange
The Angolan National Bank (Banco Nacional de Angola –BNA) published Notice no. 15/2019, of December 30, 2019, which establishes the rules and procedures applicable to foreign exchange operations conducted by non-resident entities related to: (a) foreign direct investment; (b) investment in securities (portfolio investment); (c) divestment operations; and (d) income earned by non-residents from direct investment or portfolio investment (the “Notice”). The notice also applies to all foreign exchange transactions relating to “foreign investment projects that were registered with BNA prior to its publication.” Investments made by non-resident foreign exchange entities in the oil sector are excluded from the scope of the Notice.
The notice distinguishes foreign direct investment and portfolio investment. Direct investment is investment made in the “creation of new companies or other legal entities” or through the acquisition of shareholdings in non-listed Angolan companies or, if listed in a regulated market when the investment gives the external investor a right of control equal to 10% or more. In turn, portfolio investment represents the investment in securities. In the case of the purchase of securities representing the capital of a listed company, portfolio investment will be considered only when the voting rights associated with the investment are less than 10% of the listed company’s capital stock.
Since dropping the peg on the dollar in 2018, the local currency fluctuates freely. In October 2019, the BNA fully liberalized the foreign exchange regime, abandoning the trading band that had been in place since January 2018. Its previous policy of controlled exchange rate adjustment prevented the kwanza from depreciating by more than 2.0% at currency auctions. The BNA also has allowed oil companies to directly sell foreign currency to commercial banks. The BNA said the move is expected to normalize the foreign exchange market through the reduction of its direct intervention with oil firms, increase the number of foreign currency suppliers, and revive the country’s foreign exchange market. The exchange rate is determined by the rate on the day of sale of forex to commercial banks. On June 22, 2020, the BNA adopted Bloomberg’s foreign exchange electronic trading system (FXGO) and its electronic auction system to bring greater efficiency and transparency to Angola’s forex market.
Remittance Policies
Based on the notice issued on December 23, 2019 as per above, as long as adequate supporting documentation is submitted to the commercial bank, foreign investors can freely transfer within 5 days abroad:
dividends, interest and other income resulting from their investments;
shareholder loan repayments;
proceeds of the sale of securities listed on the stock exchange;
when the participated entity is not listed on the stock exchange, the proceeds of the sale, when the purchaser is also a foreign investor and the amount to be transferred abroad by the seller is equal to the amount to be transferred from abroad by the purchaser, in foreign currency;
The transfer abroad of capital, requiring the purchase of foreign currency, when the participated entity is not listed on the stock exchange, requires prior exchange control approval when it relates to the following:
The sale of the whole or a part of an investment;
The dissolution of the participated entity;
Any other corporate action that would reduce the capital of the participated entity.
There may be delays greater than 60 days if the documentation submitted to the BNA is not complete such as a tax due statement from the General Tax Agency and companies’ balance sheet statements.
The BNA has facilitated remittances of international supplies by introducing payment by letters of credit. Also, the 2018 NPIL grants foreign investors “the right and guarantee to transfer abroad” dividends or distributed profits, the proceeds of the liquidation of their investments, capital gains, the proceeds of indemnities and royalties, or other income from remuneration of indirect investments related to technology transfer after proof of implementation of the project and payment of all taxes due. The government continues to prioritize foreign exchange for essential goods and services including the food, health, defense, and petroleum industries.
Sovereign Wealth Funds
In October 2012, former President Eduardo dos Santos established a petroleum funded USD 5 billion sovereign wealth fund called the Fundo Soberano de Angola (FSDEA). The FSDEA was established in accordance with international governance standards and best practices as outlined in the Santiago Principles.
In February 2015, the FSDEA was recognized as transparent by the Sovereign Wealth Fund Institute (SWFI), receiving a score of 8 out of 10. The FSDEA has the express purpose of profit maximization with a special emphasis on investing in domestic projects that have a social component (http://www.fundosoberano.ao/investments/ ). Jose Filomeno dos Santos (Zenu), son of former President Jose Eduardo dos Santos, was appointed chairman of FSDEA in June 2013, but was removed by President Lourenco in 2017, and is appealing a five-year jail term pronounced in August 2020, following his trial for money laundering, embezzlement and fraud. Former Minister Carlos Alberto Lopes was named new head of the FSDEA that same year.
Half of the initial endowment of FSDEA was invested in agriculture, mining, infrastructure, and real estate in Angola and other African markets, and the other half was supposedly allocated to cash and fixed-income instruments, global and emerging-market equities, and other alternative investments. The FSDEA is in possession of approximately USD 3.35 billion of its private equity assets previously under the control of QG and given to economic and financial hardship, the fund’s equity was reduced by USD 2 billion to finance the Program for Intervention in the Municipalities in 2019 and USD 1.5 billion for the fight against the Covid-19 pandemic in 2020. The FSDEA also announced that the government will use the remainder, USD 1.5 billion of the fund’s assets to support social programs on condition of future repayment through increased tax on the BNA’s rolling debts.
7. State-Owned Enterprises
In Angola, certain SOEs exercise delegated governmental powers, especially in the mining sector where the government is the sole concessionaire. Foreign investors may sometimes find demands made by SOEs excessive, and under such conditions, SOEs have easier access to credit and government contracts. There is no law mandating preferential treatment to SOEs, but in practice they have access to inside information and credit. Currently, SOEs are not subject to budgetary constraints and quite often exceed their capital limits.
SOEs, often benefitting from a government mandate, operate mostly in the extractive; transportation; commerce; banking; and construction, building, and heavy equipment sectors. All SOEs in Angola are required to have boards of directors, and most board members are affiliated with the government. SOEs are not explicitly required to consult with government officials before making decisions. By law, SOEs must publish annual financial reports for the previous year in the national daily newspaper Jornal de Angola by April 1. Such reports are not always subject to publicly released external audits (though the audit of state oil firm Sonangol is publicly released). The standards used are often questioned. Not all SOEs fulfill their legal obligations, and few are sanctioned.
Angola’s supreme audit institution, Tribunal de Contas, is responsible for auditing SOEs. However, reports from the Tribunal de Contas are only made public after a few years. The most recently published report, for 2017, was published in 2019. Angola’s fiscal transparency would be improved by ensuring its supreme audit institution’s audits of SOEs and the government’s annual financial accounts are made public within a reasonable period. Publicly available audit reports would also improve the transparency of contracts between private companies and SOEs.
In November 2016, the Angolan Government revised Law 1/14 “Legal Regime on Issuance and Management of Direct and Indirect Debt,” which now differentiates between ‘direct’ and ‘indirect’ public debt. The GRA considers SOE debt as indirect public debt, and only accounts in its state budget for direct government debt, thus effectively not reflecting some substantial obligations in fact owed by the government. President Lourenço has launched various reforms to improve financial sector transparency, enhance efficiency in the country’s SOEs as part of the National Development plan 2018-2022 and Macroeconomic Stability Plan. The strategy included the prospective privatization of 195 SOE assets that are deemed not profitable to the state. The privatization will possibly include the restructuring of the national air carrier TAAG, as well as Sonangol and its subsidiaries. The latter intends to sell off its non-core businesses as part of its restructuring strategy to make the parastatal more efficient.
Angola is not a party to the WTO’s Government Procurement Agreement (GPA). Angola does not adhere to the OECD guidelines on corporate governance for SOEs.
Privatization Program
In 2020 the GRA increased the number of assets to be privatized by 2022 from 90 to 195 through the Angola Debt and Securities Exchange market (BODIVA) and under the supervision of the Institute of Management of Assets and State Holdings (IGAPE). The privatization program “PROPRIV,” implements the Government’s Interim Macroeconomic Stabilization Program (PEM), which aims to rid the government of unprofitable public institutions. The GRA plans to privatize part of state-owned Angola Telecommunications Company, companies in the oil and energy sector, as well as several textile and beverages industries. The GRA has stated that the privatization process will be open to interested foreign investors and has guaranteed a transparent bidding process. The tenders are open to local and foreign investors. In 2020 PROPRIV helped the government raise over USD 500 million through the privatization of 33 assets following public tenders.
The oil company Sonangol, the State’s largest SOE, sold 14 of the 20 companies it planned to privatize in 2019. It also sold 19 out of 26 planned to be sold in 2020. The Covid-19 pandemic has slowed privatization efforts, and the rest of the total 70 assets to be privatized will likely be sold in 2021 and 2022. The list includes divestments in the subsidiaries and assets of Sonangol Cabo Verde – Sociedade e Investimentos and Óleos de São Tomé and Príncipe, as well as stakes in Founton (Gibraltar), Sonatide Marine (Cayman Islands), Solo Properties Knightbridge (United Kingdom), Societé Ivoiriense de Raffinage (Cote d’Ivoire), Puma Energy Holdings (Singapore) and Sonandiets Services (Panama), by 2021.
Sonangol will sell its stake in WTA-Houston Express and French company WTA, as well as assets in Portuguese real estate companies Puaça, Diraniproject III and Diraniproject V, in Sonacergy – Serviços e Construções, Sonafurt International Shipping and Atlantis Viagens e Turismo. Sonangol also holds assets to be privatized in Angolan companies in the Health, Education, Transport, Telecommunications, Energy, Civil Construction, Mineral Resources and Oil and Banking sectors.
The sale of more than 60 non-core assets will make the company “financially more robust,” and allow it to focus on its core business.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The government of Antigua and Barbuda encourages foreign direct investment, particularly in industries that create jobs, enhance economic activity, earn foreign currency, and have a positive impact on its citizens. Diversification of the economy remains a priority.
Through the ABIA, the government facilitates and supports foreign direct investment in the country and maintains an open dialogue with current and potential investors. All potential investors are afforded the same level of business facilitation services. ABIA offers complementary support services to investors exploring business opportunities, including facilitation of incentives and concessions, project monitoring, and general assistance. ABIA’s website is http://investantiguabarbuda.org. The government launched an additional website in early 2021 to serve as a “business hub for potential investors,” http://antiguabarbuda.com.
While the government welcomes all foreign direct investment, it has identified tourism and related services, manufacturing, agriculture and fisheries, information and communication technologies, business process outsourcing, financial services, health and wellness services, creative industries, education, yachting and marine services, real estate, and renewable energy as priority investment areas. Uncertainty about the trajectory of economic recovery of the tourism, commercial aviation, and cruise industries impacts the potential for projects in those sectors.
Limits on Foreign Control and Right to Private Ownership and Establishment
There are no limits on foreign control of investment and ownership in Antigua and Barbuda. Foreign investors may hold up to 100 percent of an investment, and a local or foreign entrepreneur needs about 40 days from start to finish to transfer the title on a piece of property. In 1995, the government established a permanent residency program to encourage high-net-worth individuals to establish residency in Antigua and Barbuda for up to three years. As residents, their income is free of local taxation. In 2020, the government established the Nomad Digital Residence Visa program in which eligible remote workers can apply for a two-year special resident authorization. These programs are separate from the Citizenship by Investment (CBI) program.
The ABIA evaluates all foreign direct investment proposals applying for government incentives and provides intelligence, business facilitation, and investment promotion to establish and expand profitable business enterprises. The ABIA also advises the government on issues that are important to the private sector and potential investors to increase the international competitiveness of the local economy.
The government of Antigua and Barbuda treats foreign and local investors equally with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.
Other Investment Policy Reviews
The OECS, of which Antigua and Barbuda is a member, has not conducted a trade policy review in the last three years.
Business Facilitation
Established in 2006, the ABIA facilitates foreign direct investment in priority sectors and advises the government on the formation and implementation of policies and programs to attract investment. The ABIA provides business support services and market intelligence to all investors. Its website is http://investantiguabarbuda.org. It also offers an online guide that is useful for navigating the laws, rules, procedures, and registration requirements for foreign investors. The guide is available at http://www.theiguides.org/public-docs/guides/antiguabarbuda.
All potential investors applying for government incentives must submit their proposals for review by the ABIA to ensure the project is consistent with national interests and provides economic benefits to the country.
In the World Bank’s 2020 Doing Business Report, Antigua and Barbuda ranked 130th out of 190 in the ease of starting a business. The establishment of a new business takes nine procedures and 19 days to complete. This time was reduced by three days because the government made improvements to the exchange of information between public entities involved in company incorporation. The general practice is to retain a local attorney who prepares all the relevant incorporation documents. A business must register with the Intellectual Property and Commercial Office (IPCO), the Inland Revenue Department, the Medical Benefits Scheme, the Social Security Scheme, and the Board of Education.
The Antigua and Barbuda Science Innovation Park (ABSIP) launched in 2019 to support and create business startup opportunities that will generate sustainable business enterprises. ABSIP provides business incubation and financing, access to business financing, branding, training, partnership establishment, and other services. ABSIP’s website is http://absip.gov.ag.
The Prime Minister’s Entrepreneurial Development Programme (EDP) supports the creation of micro and small businesses with the intent of increasing the Antiguan and Barbudan ownership share of the country’s economy. Priority sectors in which EDP grants loans are agriculture and agroprocessing, manufacturing, information technology, e-business, and tourism.
Outward Investment
Although the government of Antigua and Barbuda prioritizes investment return as a key component of its overall economic strategy, there are no formal mechanisms in place to achieve this. To sustain future economic growth, Antigua and Barbuda’s economy depends on significant foreign direct investment.
There is no restriction on domestic investors seeking to do business abroad. Local companies in Antigua and Barbuda are actively encouraged to take advantage of export opportunities specifically related to the country’s membership in the OECS Economic Union and the Caribbean Community Single Market and Economy (CSME).
3. Legal Regime
Transparency of the Regulatory System
The government of Antigua and Barbuda publishes laws, regulations, administrative practices, and procedures of general application and judicial decisions that affect or pertain to investments or investors in the country. Where the government establishes policies that affect or pertain to investments or investors that are not expressed in laws and regulation or by other means, the national government has committed to make them publicly available.
Rulemaking and regulatory authority lie with the bicameral parliament of the government of Antigua and Barbuda. The House of Representatives has 19 members, 17 of whom are elected for a five-year term in single-seat constituencies, one of whom is an ex-officio member, and one of whom is Speaker. The Senate has 17 appointed members.
Respective line ministries develop relevant national laws and regulations, which are then drafted by the Ministry of Legal Affairs. Laws relating to the ABIA and the CBI program are the main laws relevant to foreign direct investment. The laws of Antigua and Barbuda are available online at http://laws.gov.ag/new/. This website contains the full text of laws already in force, as well as those Parliament is currently considering.
While some draft bills are not subject to public consideration, input from stakeholder groups may be considered. The government encourages stakeholder organizations to support and contribute to the legal development process by participating in technical committees and providing comments on drafts.
Accounting, legal, and regulatory procedures are generally transparent and consistent with international norms. The International Financial Accounting Standards, which stem from the General Accepted Accounting Principles, govern the accounting profession.
The constitution provides for the independent Office of the Ombudsman to guard against abuses of power by government officials. The Ombudsman is responsible for investigating complaints about acts or omissions by government officials that violate the rights of members of the public.
The ABIA has primary responsibility for investment supervision, and the Ministry of Finance, Corporate Governance and Public-Private Partnerships monitors investments to collect information for national statistics and reporting purposes. The ABIA can revoke an issued Investment Certificate if the holder fails to comply with certain stipulations detailed in the Investment Authority Act and its regulations.
Antigua and Barbuda’s membership in regional organizations, particularly the OECS and its Economic Union, commits the state to implement all appropriate measures to fulfill its various treaty obligations. The eight member states and territories of the ECCU tend to enact laws uniformly, though minor differences in implementation may exist. The enforcement mechanisms of these regulations include penalties and other sanctions.
The government of Antigua and Barbuda has stated its commitment to achieving better development outcomes through improved transparency and accountability in the management of public finances. Before the COVID-19 pandemic, the government of Antigua and Barbuda committed to reaching a debt ratio target of 60 percent by 2030. This commitment has been challenged by economic constraints imposed by the pandemic, as the country’s debt-to-GDP ratio rose from 67 percent to 89 percent over the course of 2020. The government has stated its commitment to make timely debt repayments, but it is not possible to accurately assess the government’s financial condition because it provides minimal transparency into its budget.
The most recent Caribbean Financial Action Task Force (CFATF) Mutual Evaluation assessment found Antigua and Barbuda to be largely compliant.
The ECCB is the supervisory authority over financial institutions registered under the Banking Act of 2015.
International Regulatory Considerations
As a member of the OECS and the ECCU, Antigua and Barbuda subscribes to principles and policies outlined in the Revised Treaty of Basseterre. The relationship between national and regional systems is such that each participating member state is expected to coordinate and adopt, where possible, common national policies aimed at the progressive harmonization of relevant policies and systems across the region. Thus, Antigua and Barbuda is obligated to implement regionally developed regulations, such as legislation passed under the authority of the OECS, unless it seeks specific concessions to do otherwise.
The Antigua and Barbuda Bureau of Standards is a statutory body that prepares and promulgates standards in relation to goods, services, processes, and practices. Antigua and Barbuda is a signatory to the World Trade Organization (WTO) Agreement on the Technical Barriers to Trade and is obligated to notify the Committee of any draft new and updated technical regulations.
Antigua and Barbuda ratified the WTO Trade Facilitation Agreement (TFA) in 2017. The TFA is intended to improve the speed and efficiency of border procedures, facilitate trade costs reduction, and enhance participation in the global value chain. Antigua and Barbuda has implemented a number of TFA requirements, but it has also missed two implementation deadlines. A full list is available at https://tfadatabase.org/members/antigua-and-barbuda.
Legal System and Judicial Independence
Antigua and Barbuda bases its legal system on the British common law system. The Attorney General, the Chief Justice of the Eastern Caribbean Supreme Court, junior judges, and magistrates administer justice. The Eastern Caribbean Supreme Court Act establishes the Supreme Court of Judicature, which consists of the High Court and the Eastern Caribbean Court of Appeal. The High Court hears criminal and civil matters and rules on constitutional law issues. Parties may appeal first to the Eastern Caribbean Supreme Court, an itinerant court that hears appeals from all OECS members. The final appellate authority is the Judicial Committee of the UK Privy Council.
The Caribbean Court of Justice (CCJ) has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas. Antigua and Barbuda is only subject to the original jurisdiction of the CCJ.
Antigua and Barbuda is a party to the WTO. The WTO Dispute Settlement Panel and Appellate Body resolves disputes over WTO agreements, while courts of appropriate jurisdiction in both countries resolve private disputes. Antigua and Barbuda brought a case before the WTO against the United States concerning the cross-border supply of online gambling and betting services. The WTO ruled in favor of Antigua and Barbuda, but agreement on settlement terms remains outstanding.
The ABIA may grant concessions as specified in the Investment Authority Act Amended 2019. These concessions are listed on Antigua and Barbuda’s iGuide website. Investors must apply to ABIA to take advantage of these incentives.
Citizenship by Investment
Under the CBI program, foreign individuals can obtain citizenship in accordance with the Citizenship by Investment Act of 2013, which grants citizenship (without voting rights) to qualified investors. Applicants are required to undergo a due diligence process before citizenship can be granted. The minimum contribution for investors under the CBI is $100,000 (270,225 Eastern Caribbean dollars) to the National Development Fund for a family of up to four people and $125,000 (337,818 Eastern Caribbean dollars) for a family of five, with additional contributions of $15,000 (40,538 Eastern Caribbean dollars) per person for up to four additional family members. Individual applicants can also qualify for the program by buying real estate valued at $400,000 (1,081,020 Eastern Caribbean dollars) or more or making a business investment of $1.5 million (4,053,825 Eastern Caribbean dollars). Alternatively, at least two applicants can propose to make a joint investment in an approved business with a total investment of at least $5 million (13.5 million Eastern Caribbean dollars). Each investor must contribute at least $400,000 (1,081,020 Eastern Caribbean dollars) to the joint investment. CBI investors must own real estate for a minimum of five years before selling it. A fourth CBI option involves a contribution of $150,000 (405,383 Eastern Caribbean dollars) to the University of the West Indies (UWI) Fund for a family of four people, which entitles one member of the family to a one-year tuition-only scholarship at UWI’s Five Islands campus. All applicants must also pay relevant government and due diligence fees, and provide a full medical certificate, police certificate, and evidence of the source of funds. Further information is available at https://www.cip.gov.ag/.
Competition and Antitrust Laws
Chapter 8 of the Revised Treaty of Chaguaramas outlines the competition policy applicable to CARICOM states. Member states are required to establish and maintain a national competition authority for implementing the rules of competition. CARICOM established a Caribbean Competition Commission (CCC) to rule on complaints of anti-competitive cross-border business conduct. CARICOM competition policy addresses anti-competitive business conduct such as collusion between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction, or distortion of competition within the Community, and actions by which an enterprise abuses its dominant position within the Community. Antigua and Barbuda does not have any legislation regulating competition. The OECS agreed to establish a regional competition body to handle competition matters within its single market. The draft OECS bill has been submitted to the Ministry of Legal Affairs for review.
Expropriation and Compensation
According to the Investment Authority Act of 2006, investments in Antigua and Barbuda will not be nationalized, expropriated, or subject to indirect measures having an equivalent effect, except as necessary for the public good, in accordance with the due process of law, on a non-discriminatory basis, and accompanied by prompt, adequate, and effective compensation. Compensation in such cases is the fair market value of the expropriated investment immediately before the expropriation or the impending expropriation became public knowledge, whichever is earlier. Compensation includes interest from the date of dispossession of the expropriated property until the date of payment and is required to be paid without delay.
There is an unresolved dispute regarding the alleged expropriation of an American-owned property. Although the government of Antigua and Barbuda paid the former property owner a total of $39.8 million (107.56 million Eastern Caribbean dollars) in compensation, it still owes interest payments of $20 million (54 million Eastern Caribbean dollars). In 2019, a judge dismissed a case brought by former property owners against the government for payment of the outstanding balance. However, the owners intend to appeal. For this reason, the U.S. government recommends caution when investing in real estate in Antigua and Barbuda.
Dispute Settlement
ICSID Convention and New York Convention
Antigua and Barbuda is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. However, it is a member of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Arbitration Convention. Private parties may use international or national arbitration if specified in contracts. The Arbitration Act Cap. 33 (1975) is the main legislation which governs arbitration in Antigua and Barbuda.
Investor-State Dispute Settlement
Investors may use national or international arbitration to resolve contractual disputes with the state. Antigua and Barbuda also has bilateral investment treaties with Germany and the UK that recognize binding international arbitration of investment disputes. Antigua and Barbuda does not have a bilateral investment treaty or a free trade agreement with an investment chapter with the United States. U.S. Embassy Bridgetown is not aware of any current investment disputes with Antigua and Barbuda.
Antigua and Barbuda ranked 36th out of 190 countries in enforcing contracts in the 2020 World Bank Doing Business Report. According to the report, dispute resolution in Antigua and Barbuda generally takes an average of 476 days. The slow court system and bureaucracy are widely seen as the main hindrances to timely resolutions to commercial disputes. Through the Arbitration Act, the local courts recognize and enforce foreign arbitral awards issued against the government.
International Commercial Arbitration and Foreign Courts
As mandated by the Arbitration Act, alternative dispute mechanisms are available as a means of settling disputes between two private parties. Parties may use voluntary mediation or conciliation. The Arbitration Act mandates the legal recognition and enforcement of judgments of foreign courts by local courts. Thus, the High Court of Antigua and Barbuda recognizes and enforces foreign arbitral awards. The Eastern Caribbean Supreme Court’s Court of Appeals provides meditation on commercial contracts.
Bankruptcy Regulations
Under the Bankruptcy Act (1975), Antigua and Barbuda has a bankruptcy framework that grants certain rights to debtors and creditors. The World Bank’s 2020 Doing Business Report addresses the strength of the framework and its limitations in resolving insolvency in Antigua and Barbuda. Antigua and Barbuda ranked 132nd out of 190 countries in this area.
6. Financial Sector
Capital Markets and Portfolio Investment
As a member of the ECCU, Antigua and Barbuda is also a member of the Eastern Caribbean Stock Exchange (ECSE) and the Regional Government Securities Market. The ECSE is a regional securities market established by the ECCB and licensed under the Securities Act of 2001, a uniform regional body of legislation governing securities market activities. As of March 31, 2020, there were 154 securities listed on the ECSE, comprising 134 sovereign debt instruments, 13 equities, and seven corporate bonds. Market capitalization stood at $666 million (1.8 billion Eastern Caribbean dollars), representing a 0.3 percent decrease from the previous year. Antigua and Barbuda is open to portfolio investment.
Antigua and Barbuda accepted the obligations of Article VIII of the International Monetary Fund Agreement Sections 2, 3, and 4, and maintains an exchange system free of restrictions on making international payments and transfers. The government normally does not grant foreign tax credits except in cases where taxes are paid in a Commonwealth country that grants similar relief for Antigua and Barbuda taxes, or where an applicable tax treaty provides a credit. The private sector has access to credit on the local market through loans, purchases of non-equity services, and trade credits, as well as other accounts receivable that establish a claim for repayment.
Money and Banking System
Antigua and Barbuda is a signatory to the 1983 agreement establishing the ECCB. The ECCB controls Antigua and Barbuda’s currency and regulates its domestic banks.
The Banking Act 2015 is a harmonized piece of legislation across the ECCU member states. The ECCB and the Ministers of Finance of member states jointly carry out banking supervision under the Act. The Minsters of Finance usually act in consultation with the ECCB with respect to those areas of responsibility within the Minister of Finance’s portfolio.
Domestic and foreign banks can establish operations in Antigua and Barbuda. The Banking Act requires all commercial banks and other institutions to be licensed. The ECCB regulates financial institutions. As part of supervision, licensed financial institutions are required to submit monthly, quarterly, and annual performance reports to the ECCB. In its latest annual report, the ECCB listed the commercial banking sector as stable. Assessments including effects of the pandemic are not yet available. Assets of commercial banks totaled $2.07 billion (5.6 billion Eastern Caribbean dollars) at the end of December 2019 and remained relatively consistent during the previous year. The reserve requirement for commercial banks was six percent of deposit liabilities.
Antigua and Barbuda is well-served by bank and non-bank financial institutions. There are minimal alternative financial services offered. Some people still participate in informal community group lending, but the practice is declining.
The Caribbean region has witnessed a withdrawal of correspondent banking services by U.S., Canadian, and European banks due to risk management concerns. CARICOM remains committed to engaging with key stakeholders on the issue and appointed a Committee of Ministers of Finance on Correspondent Banking to continue to monitor the issue.
Antigua and Barbuda’s Digital Assets Business Bill 2020 created a comprehensive regulatory framework for digital asset businesses, clients, and customers. The bill states that all digital asset businesses in the country must obtain a license for issuing, selling, or redeeming virtual coins, operating as a payment service or electronic exchange, providing custodial wallet services, among other activities. The government aspires to develop Antigua and Barbuda into a regional center for blockchain and cryptocurrency. At the end of 2020, over 40 major businesses accepted bitcoin cash.
Bitt, a Barbadian company, developed digital currency DCash in partnership with the ECCB. The first successful DCash retail central bank digital currency (CDBC) consumer-to-merchant transaction took place in Grenada in February 2021 following a multi-year development process. The CBB and the FSC established a regulatory sandbox in 2018 where financial technology entities can do live testing of their products and services. This allowed regulators to gain a better understanding of the product or service and to determine what, if any, regulation is necessary to protect consumers. Bitt completed its participation and formally exited the sandbox in 2019. Bitt launched DCash in Antigua and Barbuda in March 2021.
Foreign Exchange and Remittances
Foreign Exchange
Antigua and Barbuda is a member of the ECCU and the ECCB. The currency of exchange is the Eastern Caribbean dollar (XCD). As a member of the OECS, Antigua and Barbuda has a foreign exchange system that is fully liberalized. The Eastern Caribbean dollar has been pegged to the U.S. dollar at a rate of XCD 2.70 to USD 1.00 since 1976. As a result, the Eastern Caribbean dollar does not fluctuate, creating a stable currency environment for trade and investment in Antigua and Barbuda.
Remittance Policies
Companies registered in Antigua and Barbuda have the right to repatriate all capital, royalties, dividends, and profits free of all taxes or any other charges on foreign exchange transactions. The government levies withholding taxes on non-resident corporations and individuals receiving income in the form of dividends, preferred share dividends, interest and rentals, management fees, and royalties, as well as on interest on bank deposits to non-resident corporations. A person must be present on the island for no less than four years without interruption to be considered a resident. Antigua and Barbuda is a member of the CFATF.
In 2017, the government of Antigua and Barbuda signed an intergovernmental agreement in observance of the FATCA, making it mandatory for banks in Antigua and Barbuda to report the banking information of U.S. citizens.
Sovereign Wealth Funds
Neither the government of Antigua and Barbuda nor the ECCB, of which Antigua and Barbuda is a member, maintains a sovereign wealth fund.
7. State-Owned Enterprises
State-owned enterprises (SOEs) in Antigua and Barbuda are governed by their respective legislation and do not generally pose a threat to investors, as they are not designed for competition. The government established many SOEs to create economic activity in areas where the private sector is perceived to have little interest. A list of SOEs can be found at: https://ab.gov.ag/detail_page.php?page=1.
SOEs are headed by boards of directors to which senior managers report. In 2016, Parliament passed the Statutory Corporations (General Provisions) Act, which specifies the ministerial responsibilities in the appointment and termination of board members, decisions of the board, and employment in these SOEs. To promote diversity and independence on SOE boards, professional associations, non-governmental organizations (NGOs), and civil society may nominate directors for boards.
Privatization Program
Antigua and Barbuda does not have a targeted privatization program.
Argentina
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Government of Argentina has identified its top economic priorities for 2021 as resolving its debt situation with the IMF, controlling inflation, responding to the COVID-19 pandemic by providing financial aid to the most vulnerable sectors of society. When the Fernandez administration took office in late 2019, the Ministry of Foreign Affairs, International Trade, and Worship became the lead governmental entity for investment promotion. The Fernandez administration does not have a formal business roundtable or other dialogue established with international investors, although it does engage with domestic and international companies.
Market regulations such as capital controls, trade restrictions, and price controls enhance economic distortion that hinders the investment climate in the country.
Foreign and domestic investors generally compete under the same conditions in Argentina. The amount of foreign investment is restricted in specific sectors such as aviation and media. Foreign ownership of rural productive lands, bodies of water, and areas along borders is also restricted.
Argentina has a National Investment and Trade Promotion Agency that provides information and consultation services to investors and traders on economic and financial conditions, investment opportunities, and Argentine laws and regulations. The agency also provides matchmaking services and organizes roadshows and trade delegations. Upon the change of administration, the government placed the Agency under the direction of the Ministry of Foreign Affairs (MFA) to improve coordination between the Agency and Argentina´s foreign policy. The Under Secretary for Trade and Investment Promotion of the MFA works as a liaison between the Agency and provincial governments and regional organizations. The new administration also created the National Directorate for Investment Promotion under the Under Secretary for Trade and Investment Promotion, making the Directorate responsible for promoting Argentina as an investment destination. The Directorate´s mission also includes determining priority sectors and projects and helping Argentine companies expand internationally and/or attract international investment.
The agency’s web portal provides information on available services (https://www.inversionycomercio.org.ar/). The 23 provinces and the City of Buenos Aires also have their own provincial investment and trade promotion offices.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law 19,550), the Argentina Civil and Commercial Code, and rules issued by the regulatory agencies. Foreign private entities can establish and own business enterprises and engage in all forms of remunerative activity in nearly all sectors.
Full foreign equity ownership of Argentine businesses is not restricted, for the most part, with exception in the air transportation and media industries. The share of foreign capital in companies that provide commercial passenger transportation within the Argentine territory is limited to 49 percent per the Aeronautic Code Law 17,285. The company must be incorporated according to Argentine law and domiciled in Buenos Aires. In the media sector, Law 25,750 establishes a limit on foreign ownership in television, radio, newspapers, journals, magazines, and publishing companies to 30 percent.
Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes that a foreigner cannot own land that allows for the extension of existing bodies of water or that are located near a Border Security Zone. In February 2012, the government issued Decree 274/2012 further restricting foreign ownership to a maximum of 30 percent of national land and 15 percent of productive land. Foreign individuals or foreign company ownership is limited to 1,000 hectares (2,470 acres) in the most productive farming areas. In June 2016, the Government of Argentina issued Decree 820 easing the requirements for foreign land ownership by changing the percentage that defines foreign ownership of a person or company, raising it from25 percent to 51 percent of the social capital of a legal entity. Waivers are not available.
Argentina does not maintain an investment screening mechanism for inbound foreign investment. U.S. investors are not at a disadvantage to other foreign investors or singled out for discriminatory treatment.
Other Investment Policy Reviews
Argentina was last subject to an investment policy review by the OECD in 1997 and a trade policy review by the WTO in 2013. The United Nations Conference on Trade and Development (UNCTAD) has not done an investment policy review of Argentina.
Business Facilitation
In 2019, stemming from the country’s deteriorating financial and economic situation, the Argentine government re-imposed capital controls on business and consumers, limiting their access to foreign exchange. Strict capital controls and increases in taxes on exports and imports the Argentine government instituted at the end of 2019 have generated uncertainty in the business climate.
With the stated aim of keeping inflation under control and avoiding production shortages during the COVID-19 pandemic, the government increased market interventions in 2020, creating further market distortions that may deter investment. Argentina currently has two consumer goods price control programs, “Precios Cuidados,” a voluntary program established in 2014, and “Precios Máximos,”an emergency program established in March 2020. The Argentine Congress also passed the Shelves Law (No. 27,545), which regulates the supply, display, and distribution of products on supermarket shelves and virtual stores. Key articles of the Law are still pending implementing regulations. Private companies expressed concern over the final regulatory framework of the Law, which could affect their production, distribution, and marketing business model.
In August 2020, the government issued an edict freezing prices for telecommunication services (mobile and land), cable and satellite TV, and internet services until December 2020, later extending the measure into 2021. In Argentina’s high inflation environment, companies sought a 20 to 25 percent increase, however, the regulator allowed the telecom sector a five percent rate increase as of January 2021. The health sector was also subject to limits on price increases. In February 2021, the Secretary of Trade took administrative action against major consumer firms and food producers for purportedly causing supermarket shortages by withholding production and limiting distribution. Companies are currently contesting this decision. In March 2021, the Secretary of Domestic Trade issued Resolution 237/2021 establishing a national registry to monitor the production levels, distribution, and sales of private companies. If companies fail to comply, they could be subject to fines or closure. Tighter import controls imposed by the Fernandez administration have affected the business plans of private companies that need imported inputs for production. The private sector noted increased discretion on the part of trade authorities responsible for approving import licenses.
The Ministry of Production eased bureaucratic hurdles for foreign trade through the creation of a Single Window for Foreign Trade (“VUCE” for its Spanish acronym) in 2016. The VUCE centralizes the administration of all required paperwork for the import, export, and transit of goods (e.g., certificates, permits, licenses, and other authorizations and documents). The Argentine government has not fully implemented the VUCE for use across the country. Argentina subjects imports to automatic or non-automatic licenses that are managed through the Comprehensive Import Monitoring System (SIMI, or Sistema Integral de Monitoreo de Importaciones), established in December 2015 by the National Tax Agency (AFIP by its Spanish acronym) through Resolutions 5/2015 and 3823/2015. The SIMI system requires importers to submit detailed information electronically about goods to be imported into Argentina. Once the information is submitted, the relevant Argentine government agencies can review the application through the VUCE and make any observations or request additional information. The list of products subject to non-automatic licensing has been modified several times since the beginning of the SIMI system. Due to the Covid-19 pandemic, the government reclassified goods needed to combat the health emergency previously subject to non-automatic import licenses to automatic import licenses. Approximately 1,500 tariff lines are currently subject to non-automatic licenses.
The Argentine Congress approved an Entrepreneurs’ Law in March 2017, which allows for the creation of a simplified joint-stock company (SAS, or Sociedad por Acciones Simplificada) online within 24 hours of registration. However, in March 2020, the Fernandez administration annulled the 24-hour registration system. Industry groups said this hindered the entrepreneurship ecosystem by revoking one of the pillars of the Entrepreneurs´ Law.
Foreign investors seeking to set up business operations in Argentina follow the same procedures as domestic entities without prior approval and under the same conditions as local investors. To open a local branch of a foreign company in Argentina, the parent company must be legally registered in Argentina. Argentine law requires at least two equity holders, with the minority equity holder maintaining at least a five percent interest. In addition to the procedures required of a domestic company, a foreign company establishing itself in Argentina must legalize the parent company’s documents, register the incoming foreign capital with the Argentine Central Bank, and obtain a trading license.
A company must register its name with the Office of Corporations (IGJ, or Inspección General de Justicia). The IGJ website describes the registration process and some portions can be completed online (https://www.argentina.gob.ar/justicia/igj/guia-de-tramites). Once the IGJ registers the company, the company must request that the College of Public Notaries submit the company’s accounting books to be certified with the IGJ. The company’s legal representative must obtain a tax identification number from AFIP, register for social security, and obtain blank receipts from another agency. Companies can register with AFIP online at www.afip.gob.ar or by submitting the sworn affidavit form No. 885 to AFIP.
The enterprise must also provide workers’ compensation insurance for its employees through the Workers’ Compensation Agency (ART, or Aseguradora de Riesgos del Trabajo). The company must register and certify its accounting of wages and salaries with the Secretariat of Labor, within the Ministry of Labor, Employment, and Social Security.
In April 2016, the Small Business Administration of the United States and the Ministry of Production of Argentina signed a Memorandum of Understanding (MOU) to set up small and medium sized business development centers (SBDCs) in Argentina. Under the MOU, in June 2017, Argentina set up a SBDC in the province of Neuquén to provide small businesses with tools to improve their productivity and increase their growth.
The National Directorate for Investment Promotion under the Under Secretary for Trade and Investment Promotion at the MFA assists Argentine companies in expanding their business overseas, in coordination with the National Investment and Trade Promotion Agency. Argentina does not have any restrictions regarding domestic entities investing overseas, nor does it incentivize outward investment.
3. Legal Regime
Transparency of the Regulatory System
The Secretary of Strategic Affairs under the Cabinet is in charge of transparency policies and the digitalization of bureaucratic processes as of December 2019.
Argentine government authorities and a number of quasi-independent regulatory entities can issue regulations and norms within their mandates. There are no informal regulatory processes managed by non-governmental organizations or private sector associations. Rulemaking has traditionally been a top-down process in Argentina, unlike in the United States where industry organizations often lead in the development of standards and technical regulations. The Constitution establishes a procedure that allows for citizens to draft or propose legislation, which is subject to Congressional and Executive approval before being passed into law.
Ministries, regulatory agencies, and Congress are not obligated to provide a list of anticipated regulatory changes or proposals, share draft regulations with the public, or establish a timeline for public comment. They are also not required to conduct impact assessments of the proposed legislation and regulations.
All final texts of laws, regulations, resolutions, dispositions, and administrative decisions must be published in the Official Gazette (https://www.boletinoficial.gob.ar ), as well as in the newspapers and the websites of the Ministries and agencies. These texts can also be accessed through the official website Infoleg (http://www.infoleg.gob.ar/ ), overseen by the Ministry of Justice and Human Rights. Interested stakeholders can pursue judicial review of regulatory decisions.
In September 2016, Argentina enacted a Right to Access Public Information Law (27,275) that mandates all three governmental branches (legislative, judicial, and executive), political parties, universities, and unions that receive public funding are to provide non-classified information at the request of any citizen. The law also created the Agency for the Right to Access Public Information to oversee compliance.
During 2017, the government introduced new procurement standards including electronic procurement, formalization of procedures for costing-out projects, and transparent processes to renegotiate debts to suppliers. The government also introduced OECD recommendations on corporate governance for state-owned enterprises to promote transparency and accountability during the procurement process. The regulation may be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=306769 .
In April 2018, Argentina passed the Business Criminal Responsibility Law (27,041) through Decree 277. The decree establishes an Anti-Corruption Office in charge of outlining and monitoring the transparency policies with which companies must comply to be eligible for public procurement.
Under the bilateral Commercial Dialogue, Argentina and the United States discuss good regulatory practices, conducting regulatory impact analyses, and improving the incorporation of public consultations in the regulatory process. Similarly, under the bilateral Digital Economy Working Group, Argentina and the United States shared best practices on promoting competition, spectrum management policy, and broadband investment and wireless infrastructure development.
The Argentine government has sought to increase public consultation in the rulemaking process; however, public consultation is non-binding and has been done in an ad-hoc fashion. In 2017, the Government of Argentina issued a series of legal instruments that seek to promote the use of tools to improve the quality of the regulatory framework. Amongst them, Decree 891/2017 for Good Practices in Simplification establishes a series of tools to improve the rulemaking process. The decree introduces tools on ex-ante and ex-post evaluation of regulation, stakeholder engagement, and administrative simplification, amongst others. Nevertheless, no formal oversight mechanism has been established to supervise the use of these tools across the line of ministries and government agencies, which make implementation difficult and severely limit the potential to adopt a whole-of-government approach to regulatory policy, according to a 2019 OECD publication on Regulatory Policy in Argentina.
Some ministries and agencies developed their own processes for public consultation by publishing drafts on their websites, directly distributing the draft to interested stakeholders for feedback, or holding public hearings.
The Argentine government also made an effort to improve citizens’ understanding of the budget, through the citizen’s budget “Presupuesto Ciudadano” website: https://www.economia.gob.ar/onp/presupuesto_ciudadano/seccion6.php . The initiative aligns with the Global Initiative for Fiscal Transparency (GIFT) and UN Resolution 67/218 on promoting transparency, participation, and accountability in fiscal policy.
Argentina requires public companies to adhere to International Financial Reporting Standards (IFRS). Argentina is a member of UNCTAD’s international network of transparent investment procedures.
International Regulatory Considerations
Argentina is a founding member of MERCOSUR and has been a member of the Latin American Integration Association (ALADI for Asociación Latinoamericana de Integración) since 1980. Once any of the decision-making bodies within MERCOSUR agrees on applying a certain regulation, each of the member countries has to incorporate it into its legislation according to its own legislative procedures. Once a regulation is incorporated in a MERCOSUR member’s legislation, the country has to notify MERCOSUR headquarters.
Argentina has been a member of the WTO since 1995, and it ratified the Trade Facilitation Agreement in January 2018. Argentina notifies technical regulations, but not proposed drafts, to the WTO Committee on Technical Barriers to Trade. Argentina submitted itself to an OECD regulatory policy review in March 2018, which was released in March 2019. The Fernandez administration has not actively pursued OECD accession. Argentina participates in all 23 OECD committees.
Additionally, the Argentine Institute for Standards and Certifications (IRAM) is a member of international and regional standards bodies including the International Standardization Organization (ISO), the International Electrotechnical Commission (IEC), the Pan-American Commission on Technical Standards (COPAM), the MERCOSUR Association of Standardization (AMN), the International Certification Network (i-Qnet), the System of Conformity Assessment for Electrotechnical Equipment and Components (IECEE), and the Global Good Agricultural Practice network (GLOBALG.A.P.).
Legal System and Judicial Independence
Argentina follows a Civil Law system. In 2014, the Argentine government passed a new Civil and Commercial Code that has been in effect since August 2015. The Civil and Commercial Code provides regulations for civil and commercial liability, including ownership of real and intangible property claims. The current judicial process is lengthy and suffers from significant backlogs. In the Argentine legal system, appeals may be brought from many rulings of the lower court, including evidentiary decisions, not just final orders, which significantly slows all aspects of the system. The Justice Ministry reported in December 2018 that the expanded use of oral processes had reduced the duration of 68 percent of all civil matters to less than two years.
According to the Argentine constitution, the judiciary is a separate and equal branch of government. In practice, there are continuous instances of political interference in the judicial process. Companies have complained that courts lack transparency and reliability, and that the Argentine government has used the judicial system to pressure the private sector. Media revelations of judicial impropriety and corruption feed public perception and undermine confidence in the judiciary.
Many foreign investors prefer to rely on private or international arbitration when those options are available. Claims regarding labor practices are processed through a labor court, regulated by Law 18,345 and its subsequent amendments and implementing regulations by Decree 106/98. Contracts often include clauses designating specific judicial or arbitral recourse for dispute settlement.
Laws and Regulations on Foreign Direct Investment
According to the Foreign Direct Investment Law 21,382 and Decree 1853/93, foreign investors may invest in Argentina without prior governmental approval, under the same conditions as investors domiciled within the country. Foreign investors are free to enter into mergers, acquisitions, greenfield investments, or joint ventures. Foreign firms may also participate in publicly-financed research and development programs on a national treatment basis. Incoming foreign currency must be identified by the participating bank to the Central Bank of Argentina (www.bcra.gob.ar).
All foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law No. 19,550) and the rules issued by the commercial regulatory agencies. Decree 27/2018 amended Law 19,550 to eliminate regulatory barriers and reduce bureaucratic burdens, expedite and simplify processes in the public domain, and deploy existing technological tools to better focus on transparency. Full text of the decree can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/305000-309999/305736/norma.htm. All other laws and norms concerning commercial entities are established in the Argentina Civil and Commercial Code, which can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/235000-239999/235975/norma.htm
Further information about Argentina’s investment policies can be found at the following websites:
The National Commission for the Defense of Competition and the Secretariat of Domestic Trade, both within the Ministry of Productive Development, have enforcement authority of the Competition Law (Law 25,156). The law aims to promote a culture of competition in all sectors of the national economy. In May 2018, the Argentine Congress approved a new Defense of Competition Law (Law 27,442), which would have, among other things, established an independent competition agency and tribunal. The new law incorporates anti-competitive conduct regulations and a leniency program to facilitate cartel investigation. The full text of the law can be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=310241 . The Government of Argentina, however, has thus far not taken steps to establish the independent agency or tribunal. In February 2021, a bill introducing amendments to the Defense of Competition Law was passed by the Senate and is currently under study in the Lower House. The main changes are related to the removal of the “Clemency Program,” which encourages public reports of collusive and cartel activities, and the elimination of public hearings to appoint members of the Competition Office. The private sector has expressed concern over this bill, stating these changes are contrary to transparency standards embodied in the Law.
In September 2014, Argentina amended the 1974 National Supply Law to expand the ability of the government to regulate private enterprises by setting minimum and maximum prices and profit margins for goods and services at any stage of economic activity. Private companies may be subject to fines and temporary closure if the government determines they are not complying with the law. Although the law is still in effect, the U.S. Government has not received any reports of it being applied since December 2015. However, the Fernandez administration has expressed its potential use in response to the COVID-19 pandemic.
In March 2020, the Government of Argentina enacted the Supermarket Shelves Law (Law 27,545) that states that any single manufacturer and its associated brands cannot occupy more than 30 percent of a retailer’s shelf space devoted to any one product category. The law’s proponents claim it will allow more space for domestic SME-produced products, encourage competition, and reduce shortages. U.S. companies have expressed concern over the pending regulations, seeking clarification about issues such as whether display space percentages would be considered per brand or per production company, as it could potentially affect a company’s production, distribution, and marketing business model.
Expropriation and Compensation
Section 17 of the Argentine Constitution affirms the right of private property and states that any expropriation must be authorized by law and compensation must be provided. The United States-Argentina BIT states that investments shall not be expropriated or nationalized except for public purposes upon prompt payment of the fair market value in compensation.
Argentina has a history of expropriations under previous administrations. The most recent expropriation occurred in March 2015 when the Argentine Congress approved the nationalization of the train and railway system. A number of companies that were privatized during the 1990s under the Menem administration were renationalized under the Kirchner administrations. Additionally, in October 2008, Argentina nationalized its private pension funds, which amounted to approximately one-third of total GDP, and transferred the funds to the government social security agency.
In May 2012, the Fernandez de Kirchner administration nationalized oil and gas company Repsol-YPF. Most of the litigation between the Government of Argentina and Repsol was settled in 2016. An American hedge fund still holds a claim against YPF and is in litigation in U.S. courts.
Dispute Settlement
ICSID Convention and New York Convention
Argentina is signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards, which the country ratified in 1989. Argentina is also a party to the International Center for Settlement of Investment Disputes (ICSID) Convention since 1994.
There is neither specific domestic legislation providing for enforcement under the 1958 New York Convention nor legislation for the enforcement of awards under the ICSID Convention. Companies that seek recourse through Argentine courts may not simultaneously pursue recourse through international arbitration.
Investor-State Dispute Settlement
The Argentine government officially accepts the principle of international arbitration. The United States-Argentina BIT includes a chapter on Investor-State Dispute Settlement for U.S. investors.
In the past ten years, Argentina has been brought before the ICSID in 54 cases involving U.S. or other foreign investors. Argentina currently has three pending arbitration cases filed against it by U.S. investors. For more information on the cases brought by U.S. claimants against Argentina, go to: https://icsid.worldbank.org/en/Pages/cases/AdvancedSearch.aspx #.
Local courts cannot enforce arbitral awards issued against the government based on the public policy clause. There is no history of extrajudicial action against foreign investors.
Argentina is a member of the United Nations Commission on International Trade Law (UNCITRAL) and the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
Argentina is also a party to several bilateral and multilateral treaties and conventions for the enforcement and recognition of foreign judgments, which provide requirements for the enforcement of foreign judgments in Argentina, including:
Treaty of International Procedural Law, approved in the South-American Congress of Private International Law held in Montevideo in 1898, ratified by Argentina by law No. 3,192.
Treaty of International Procedural Law, approved in the South-American Congress of Private International Law held in Montevideo in 1939-1940, ratified by Dec. Ley 7771/56 (1956).
Panama Convention of 1975, CIDIP I: Inter-American Convention on International Commercial Arbitration, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 24,322 (1995).
Montevideo Convention of 1979, CIDIP II: Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 22,921 (1983).
International Commercial Arbitration and Foreign Courts
Argentina does not have a specific law governing arbitration, but it has adopted a mediation law (Law 24.573/1995), which makes mediation mandatory prior to litigation. Some arbitration provisions are scattered throughout the Civil Code, the National Code of Civil and Commercial Procedure, the Commercial Code, and three other laws. The following methods of concluding an arbitration agreement are non-binding under Argentine law: electronic communication, fax, oral agreement, and conduct on the part of one party. Generally, all commercial matters are subject to arbitration. There are no legal restrictions on the identity and professional qualifications of arbitrators. Parties must be represented in arbitration proceedings in Argentina by attorneys who are licensed to practice locally. The grounds for annulment of arbitration awards are limited to substantial procedural violations, an ultra petita award (award outside the scope of the arbitration agreement), an award rendered after the agreed-upon time limit, and a public order violation that is not yet settled by jurisprudence when related to the merits of the award. On average, it takes around 21 weeks to enforce an arbitration award rendered in Argentina, from filing an application to a writ of execution attaching assets (assuming there is no appeal). It takes roughly 18 weeks to enforce a foreign award. The requirements for the enforcement of foreign judgments are set out in section 517 of the National Procedural Code.
No information is available as to whether the domestic courts frequently rule in cases in favor of state-owned enterprises (SOE) when SOEs are party to a dispute.
Under the law, debtors are generally able to begin insolvency proceedings when they are no longer able to pay their debts as they mature. Debtors may file for both liquidation and reorganization. Creditors may file for insolvency of the debtor for liquidation only. The insolvency framework does not require approval by the creditors for the selection or appointment of the insolvency representative or for the sale of substantial assets of the debtor. The insolvency framework does not provide rights to the creditor to request information from the insolvency representative, but the creditor has the right to object to decisions by the debtor to accept or reject creditors’ claims. Bankruptcy is not criminalized; however, convictions for fraudulent bankruptcy can carry two to six years of prison time.
Financial institutions regulated by the Central Bank of Argentina (BCRA) publish monthly outstanding credit balances of their debtors; the BCRA National Center of Debtors (Central de Deudores) compiles and publishes this information. The database is available for use of financial institutions that comply with legal requirements concerning protection of personal data. The credit monitoring system only includes negative information, and the information remains on file through the person’s life. At least one local NGO that makes microcredit loans is working to make the payment history of these loans publicly accessible for the purpose of demonstrating credit history, including positive information, for those without access to bank accounts and who are outside of the Central Bank’s system. Equifax, which operates under the local name “Veraz” (or “truthfully”), also provides credit information to financial institutions and other clients, such as telecommunications service providers and other retailers that operate monthly billing or credit/layaway programs.
The World Bank’s 2020 Doing Business Report ranked Argentina 111 out of 190 countries for the effectiveness of its insolvency law, remaining unchanged compared to 2019 ranking. The report notes that it takes an average of 2.4 years and 16.5 percent of the estate to resolve bankruptcy in Argentina.
6. Financial Sector
Capital Markets and Portfolio Investment
The Argentine Constitution sets as a general principle that foreign investors have the same status and the same rights as local investors. Foreign investors have free access to domestic and international financing.
Argentina’s economic recession began in 2018 and deepened further in 2019 after the presidential primary election. To slow the outflow of dollars from its reserves, in September 2019 the Argentine Central Bank introduced tight capital controls prohibiting transfers and payments that are likely in conflict with IMF Article VIII and tightened them thereafter. The Argentine government also implemented price controls and trade restrictions. In December 2019, the Fernandez administration passed an economic emergency law that created new taxes, increased export duties, and delegated broad powers to the Executive Branch, with the objectives of increasing social spending for the most vulnerable populations and negotiating revised terms for Argentina’s sovereign debt. These measures deteriorated the investment climate for local and foreign investors.
In April 2020, the government issued a decree postponing debt payments (both interest and principal) of dollar-denominated debt issued under local law until December 31, 2020. In May 2020, Argentina recorded its ninth sovereign default.
The government of Argentina restructured international law bonds for $65 billion and domestic law bonds for $42 billion in September 2020 bringing financial relief of $37.7 billion over the period 2020-2030. In August 2020, the government of Argentina formally notified the International Monetary Fund (IMF) of its intent to renegotiate $45 billion due to the Fund from the 2018 Stand-By Arrangement starting in 2021.
The Argentine Securities and Exchange Commission (CNV or Comisión Nacional de Valores) is the federal agency that regulates securities markets offerings. Securities and accounting standards are transparent and consistent with international norms. Foreign investors have access to a variety of options on the local market to obtain credit. Nevertheless, the domestic credit market is small – credit is 16 percent of GDP, according to the World Bank. To mitigate the recessionary impact of the COVID-19 crisis, the government introduced low-cost lending credit lines (carrying negative real interest rates), and the Central Bank reduced banks’ minimum reserve requirements to encourage banks to expand credit, particularly to SMEs. The Buenos Aires Stock Exchange is the organization responsible for the operation of Argentina’s primary stock exchange, located in Buenos Aires city. The most important index of the Buenos Aires Stock Exchange is the MERVAL (Mercado de Valores).
U.S. banks, securities firms, and investment funds are well-represented in Argentina and are dynamic players in local capital markets. In 2003, the government began requiring foreign banks to disclose to the public the nature and extent to which their foreign parent banks guarantee their branches or subsidiaries in Argentina.
Money and Banking System
Argentina has a relatively sound banking sector based on diversified revenues, well-contained operating costs, and a high liquidity level. Argentina’s banking sector has been resilient in the face of a multi-year economic contraction. Supported by government measures during the COVID-19 pandemic, credit to the private sector in local currency (for both corporations and individuals) increased 10 percent in real terms in 2020. Non-performing private sector loans constitute less than four percent of banks’ portfolios. However, the performance of the financial system has largely been driven by a series of temporary counter-cyclical measures, namely subsidized government-backed loans for small businesses. The banking sector is well positioned due to macro and micro-prudential policies introduced since 2002 that have helped to reduce asset-liability mismatches. The sector is highly liquid and its exposure to the public sector is modest, while its provisions for bad debts are adequate.
Private banks have total assets of approximately ARS 6.1 billion (USD $65 billion). Total financial system assets are approximately ARS 9.9 billion (USD $105 billion). The Central Bank of Argentina acts as the country’s financial agent and is the main regulatory body for the banking system.
Foreign banks and branches can establish operations in Argentina. They are subject to the same regulation as local banks. Argentina’s Central Bank has many correspondent banking relationships, none of which are known to have been lost in the past three years.
In November 2020, the Central Bank launched a new payment system, “Transfers 3.0,” seeking to reduce the use of cash. This system will boost digital payments and further financial inclusion in Argentina, expanding the reach of instant transfers to build an open and universal digital payment ecosystem.
The Central Bank has enacted a resolution recognizing cryptocurrencies and requiring that they comply with local banking and tax laws. No implementing regulations have been adopted. Block chain developers report that several companies in the financial services sector are exploring or considering using block chain-based programs externally and are using some such programs internally.
Foreign Exchange and Remittances
Foreign Exchange
Beginning in September 2019 and throughout 2020, the Argentine government and Central Bank issued a series of decrees and norms regulating and restricting access to foreign exchange markets.
As of October 2019, the Central Bank (Notice A6815) limits cash withdrawals made abroad with local debit cards to foreign currency bank accounts owned by the client in Argentina. Pursuant to Notice A6823, cash advances made abroad from local credit cards are limited to a maximum of USD $50 per transaction.
As of September 2020, and pursuant to Notice A7106, Argentine individuals can purchase no more than USD $200 per month on a rolling monthly basis. However, purchases abroad with credit and debit cards will be deducted from the USD $200 per month quota. While no limit on credit/debit card purchases is imposed, if the monthly expenses surpass the USD $200 limit, the deduction will be carried over to subsequent months until the amount acquired is completed. Also, the regulation prohibits individual recipients of government assistance programs and high-ranking federal government officials from purchasing foreign exchange. Purchases above the USD $200 limit require Central Bank approval. Pursuant to Public Emergency Law 27,541, issued December 23, 2019, all dollar purchases and individual expenses incurred abroad, in person or online, including international online purchases from Argentina, paid with credit or debit cards will be subject to a 30 percent tax. Pursuant to AFIP Resolution 4815 a 35 percent withholding tax in advance of the payment of income and/or wealth tax is also applied.
Non-Argentine residents are required to obtain prior Central Bank approval to purchase more than USD $100 per month, except for certain bilateral or international organizations, institutions and agencies, diplomatic representation, and foreign tribunals.
Companies and individuals need to obtain prior clearance from the Central Bank before transferring funds abroad. In the case of individuals, if transfers are made from their own foreign currency accounts in Argentina to their own accounts abroad, they do not need to obtain Central Bank approval.
Per Notice A6869 issued by the Central Bank in January 2020, companies will be able to repatriate dividends without Central Bank authorization equivalent to a maximum of 30 percent of new foreign direct investment made by the company in the country. To promote foreign direct investment the Central Bank announced in October 2020 (Notice A7123) that it will allow free access to the official foreign exchange market to repatriate investments as long as the capital contribution was transferred and sold in Argentine Pesos through the foreign exchange market as of October 2, 2020 and the repatriation takes place at least two years after the transfer and settlement of those funds.
Exporters of goods are required to transfer the proceeds from exports to Argentina and settle in pesos in the foreign currency market. Exporters must settle according to the following terms: exporters with affiliates (irrespective of the type of good exported) and exporters of certain goods (including cereals, seeds, minerals, and precious metals, among others) must convert their foreign currency proceeds to pesos within 15 days (or 30 days for some products) after the issuance of the permit for shipment; other exporters have 180 days to settle in pesos. Despite these deadlines, exporters must transfer the funds to Argentina and settle in pesos within five business days from the actual collection of funds. Argentine residents are required to transfer to Argentina and settle in pesos the proceeds from services exports rendered to non-Argentine residents that are paid in foreign currency either in Argentina or abroad, within five business days from collection of funds.
Payment of imports of goods and services from third parties and affiliates require Central Bank approval if the company needs to purchase foreign currency. Since May 2020, the Central Bank requires importers to submit an affidavit stating that the total amount of payments associated with the import of goods made during the year (including the payment that is being requested). The total amount of payments for importation of goods should also include the payments for amortizations of lines of credit and/or commercial guarantees.
In September 2020, the Central Bank limited companies’ ability to purchase foreign currency to cancel any external financial debt (including other intercompany debt) and dollar denominated local securities offerings. Companies were granted access to foreign currency for up to 40 percent of the principal amount coming due from October 15, 2020 to December 31, 2020. For the remaining 60 percent of the debt, companies had to file a refinancing plan with the Central Bank. In February 2021, the Central Bank extended the regulation to include debt maturing up to December 31, 2021. Indebtedness with international organizations or their associated agencies or guaranteed by them and indebtedness granted by official credit agencies or guaranteed by them are exempted from this restriction.
The Central Bank (Notice A7001) prohibited access to the foreign exchange market to pay for external indebtedness, imports of goods and services, and saving purposes for individuals and companies that have made sales of securities with settlement in foreign currency or transfers of these to foreign depositary entities within the last 90 days. They also should not make any of these transactions for the following 90 days.
Pre-cancellation of debt coming due abroad in more than three business days requires Central Bank approval to purchase dollars.
Per Resolution 36,162 of October 2011, locally registered insurance companies are mandated to maintain all investments and cash equivalents in the country. The Central Bank limits banks’ dollar-denominated asset holdings to 5 percent of their net worth.
In January 2020, the Central Bank presented its monetary policy framework showing that monetary and financial policies will be subject to the government’s objective of addressing current social and economic challenges. In particular, the Central Bank acknowledged that it would continue to provide direct financial support to the government (in foreign and domestic currency) as external credit markets remain closed. The Central Bank determined that a managed exchange rate is a valid instrument to avoid sharp fluctuations in relative prices, international competitiveness, and income distribution. The Central Bank also noted the exchange rate policy should also facilitate the preemptive accumulation of international reserves.
Remittance Policies
In response to the economic crisis in Argentina, the government introduced capital controls in September 2019 and tightened them in 2020. Under these restrictions, companies in Argentina (including local affiliates of foreign parent companies) must obtain prior approval from the Central Bank to access the foreign exchange market to purchase foreign currency and to transfer funds abroad for the payment of dividends and profits. In January 2020, the Central Bank amended the regime for the payment of dividends abroad to non-residents. The new regime allows companies to access the foreign exchange market to transfer profits and dividends abroad without prior authorization of the Central Bank, provided the following conditions are met:
Profits and dividends are be declared in closed and audited financial statements.
The dividends in foreign currency should not exceed the dividends determined by the shareholders’ meeting in local currency.
The total amount of dividends to be transferred cannot exceed 30 percent of the amount of new capital contributions made by non-residents into local companies since January 2020.
The resident entity must be in compliance with filing the Central Bank Survey of External Assets and Liabilities.
Sovereign Wealth Funds
The Argentine government does not maintain a Sovereign Wealth Fund.
7. State-Owned Enterprises
The Argentine government has state-owned enterprises (SOEs) or significant stakes in mixed-capital companies in the following sectors: civil commercial aviation, water and sanitation, oil and gas, electricity generation, transport, paper production, satellite, banking, railway, shipyard, and aircraft ground handling services.
By Argentine law, a company is considered a public enterprise if the state owns 100 percent of the company’s shares. The state has majority control over a company if the state owns 51 percent of the company’s shares. The state has minority participation in a company if the state owns less than 51 percent of the company’s shares. Laws regulating SOEs and enterprises with state participation can be found at http://www.saij.gob.ar/13653-nacional-regimen-empresas-estado-lns0001871-1955-03-23/123456789-0abc-defg-g17-81000scanyel.
Through the government’s social security agency (ANSES), the Argentine government owns stakes ranging from one to 31 percent in 46 publicly listed companies. U.S. investors also own shares in some of these companies. As part of the ANSES takeover of Argentina’s private pension system in 2008, the government agreed to commit itself to being a passive investor in the companies and limit the exercise of its voting rights to 5 percent, regardless of the equity stake the social security agency owned. A list of such enterprises can be found at: http://fgs.anses.gob.ar/participacion.
State-owned enterprises purchase and supply goods and services from the private sector and foreign firms. Private enterprises may compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives. Private enterprises also have access to financing terms and conditions similar to SOEs. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors. SOEs are not currently subject to firm budget constraints under the law and have been subsidized by the central government in the past. Between 2016 and 2019, the Government of Argentina reduced subsidies in the energy, water, and transportation sectors. However, in 2019 the Government postponed its subsidy reduction program and redesigned it several times, citing pressing macroeconomic issues. During 2020 subsidies increased to maintain a tariff freeze on public services given the COVID-19 pandemic. The 2021 budget targets a reduction in subsidies in an effort to contain spending. Argentina does not have regulations that differentiate treatment of SOEs and private enterprises. Argentina has observer status under the WTO Agreement on Government Procurement and, as such, SOEs are subject to the conditions of Argentina’s observance.
Argentina does not have a specified ownership policy, guideline or governance code for how the government exercises ownership of SOEs. The country generally adheres to the OECD Guidelines on Corporate Governance of SOEs. The practices for SOEs are mainly in compliance with the policies and practices for transparency and accountability in the OECD Guidelines. In 2018, the OECD released a report evaluating the corporate governance framework for the Argentine SOE sector relative to the OECD Guidelines, which can be viewed here: http://www.oecd.org/countries/argentina/oecd-review-corporate-governance-soe-argentina.htm.
Argentina does not have a centralized ownership entity that exercises ownership rights for each of the SOEs. The general rule in Argentina is that requirements that apply to all listed companies also apply to publicly-listed SOEs.
Privatization Program
The current administration has not developed a privatization program.
Armenia
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The government of Armenia officially welcomes foreign investment. The Ministry of Economy is the main government body responsible for the development of investment policy in Armenia. Armenia has achieved respectable rankings on some global indices measuring the country’s business climate. Armenia’s investment and trade policy is relatively open; foreign companies are entitled by law to the same treatment as Armenian companies. Armenia has strong human capital and a well-educated population, particularly in the science, technology, engineering, and mathematics fields, leading to significant investment in the high-tech and information technology sectors. Many international companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists and position within the Eurasian Economic Union (EAEU). However, many businesses have identified challenges with Armenia’s investment climate in terms of the country’s small market (with a population of less than three million), limited consumer buying power, relative geographic isolation due to closed borders with Turkey and Azerbaijan, and concerns related to weaknesses in the rule of law.
Following a revolution in April/May 2018 fueled in large measure by popular frustration with endemic corruption, Armenia’s government launched a high-profile anti-corruption campaign. The campaign has yielded a number of high-profile cases. Beyond these successes, the fight against corruption needs to be institutionalized in the long term, especially in critical areas such as the judiciary, tax and customs operations, and health, education, military, and law enforcement sectors. Foreign investors remain concerned about the rule of law, equal treatment, and ethical conduct by government officials. U.S companies have reported that the investment climate is tainted by a failure to enforce intellectual property rights. There have been concerns regarding the lack of an independent and strong judiciary, which undermines the government’s assurances of equal treatment and transparency and reduces access to effective recourse in instances of investment or commercial disputes. Concerns about equal treatment, particularly on the basis of nationality, are fueled by perceptions of the uneven application of laws and regulations across enterprises in specific industries. Representatives of U.S. entities have raised concerns about the quality of stakeholder consultation by the government with the private sector and government responsiveness in addressing concerns among the business community. Government officials have publicly responded to private sector concerns about perceptions of slow movement in the government bureaucracy as a function of needing to guard against corruption-related risks. The Armenian National Interests Fund and Investment Support Center are responsible for attracting and facilitating inward foreign direct investment.
Limits on Foreign Control and Right to Private Ownership and Establishment
There are very few restrictions with regard to limitations on foreign ownership or control of commercial enterprises. There are some restrictions on foreign ownership within the media and commercial aviation sectors. Local incorporation is required to obtain a license for the provision of auditing services.
The Armenian government does not maintain investment screening mechanisms for foreign direct investment in particular. Government approval is required to take advantage of certain tax and customs privileges, and foreign investors are subject to the same requirements as domestic investors where regulatory approvals may be involved.
Armenia has traditionally fared well in the World Bank’s Ease of Doing Business report. The government has announced its commitment to addressing deficiencies that prevent Armenia from obtaining a higher ranking. Companies can register electronically here . This single window service was launched in 2011 and allows individual entrepreneurs and companies to complete name reservation, business registration, and tax identification processes all at once. The application can be completed in one day. An electronic signature is needed in order to be able to register online. Foreign citizens can obtain an e-signature and more detailed information from the e-signature portal . In December 2019, the government launched a new e-regulations platform that provides a step-by-step guide for business and investment procedures. The platform is available here . According to the World Bank’s most recent Ease of Doing Business report, it takes four days to complete the company registration process in Armenia.
Outward Investment
The Armenian government does not restrict domestic investors from investing abroad.
3. Legal Regime
Transparency of the Regulatory System
The Armenian government nominally uses transparent policies and laws to foster competition. Some report that Armenia’s new government has pursued a more consistent execution of these laws and policies in an effort to improve market competition and remove informal barriers to market entry, especially for small- and medium-sized enterprises. Armenia’s legislation on the protection of competition has been improved with a number of clarifications regarding key concepts. There have been some procedural improvements for delivering conclusions and notifications of potential anti-competitive behavior via electronic means. However, companies regard the efforts of the State Commission for the Protection of Economic Competition (SCPEC) alone as insufficient to ensure a level playing field. They indicate that improvements in other state institutions and authorities that support competition, like the courts, tax and customs, public procurement, and law enforcement, are necessary. Numerous studies observe a continuing lack of contestability in local markets, many of which are dominated by a few incumbents. Banking supervision is relatively well developed and largely consistent with the Basel Core Principles. The Central Bank of Armenia is the primary regulator of the financial sector and exercises oversight over banking, securities, insurance, and pensions. Armenia has adopted IFRS as the accounting standard for enterprises. Data on Armenia’s public finances and debt obligations are broadly transparent, and the Ministry of Finance publishes periodic reports that are available online.
Safety and health requirements, many of them holdovers from the Soviet period, generally do not impede investment activities. Nevertheless, investors consider bureaucratic procedures to be sometimes burdensome, and discretionary decisions by individual officials may present opportunities for petty corruption. A unified online platform for publishing draft legislation was launched in March 2017 and is available here . Proposed legislation is available for the public to view. Registered users can submit feedback and see a summary of comments on draft legislation. However, the time period devoted to public comments is often regarded as insufficient to solicit proper feedback. The results of consultations have not been reported by the government in the past. The government maintains other portals, including http://www.e-gov.am and http://www.arlis.am , that make legislation and regulations available to the public. Some regulations that affect Armenia are developed within the Eurasian Economic Commission, the executive body for the EAEU.
International Regulatory Considerations
Armenia is a member of the EAEU and adheres to relevant technical regulations. Armenia’s entry into CEPA will lead it to pursue harmonization efforts with the EU on a range of laws, regulations, and policies relevant to economic affairs. Armenia is also a member of the WTO, and the Armenian government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade. Armenia is a signatory to the Trade Facilitation Agreement and has already sent category “A”, “B,” and “C” notifications to the WTO.
Legal System and Judicial Independence
Armenia has a hybrid legal system that includes elements of both civil and common law. Although Armenia is developing an international commercial code, the laws regarding commercial and contractual matters are currently set forth in the civil code. Thus, because Armenia lacks a commercial court, all disputes involving contracts, ownership of property, or other commercial matters are resolved by litigants in courts of general jurisdiction, which handle both civil and criminal cases. Courts that handle civil matters may be overwhelmed by the volume of cases before them and are frequently seen by the public as corrupt. Despite the ability of courts to use the precedential authority of the Court of Cassation and the European Court of Human Rights, many judges presiding over civil matters do not do so, increasing the unpredictability of civil court decisions in the eyes of investors.
Businesses tend to perceive that many Armenian courts suffer from low levels of efficiency, independence, and professionalism, which drives a need to strengthen the judiciary. Very often in proceedings when additional forensic expertise is requested, the court may suspend a case until the forensic opinion is received, a process that can take several months. Businesses have noted that many judges at courts of general jurisdiction may be reluctant to make decisions without getting advice from higher court judges. Thus, the public opinion is that decisions may be influenced by factors other than the law and merits of individual cases. In general, the government honors judgments from both arbitration proceedings and Armenian national courts.
Due to the nature and complexity of commercial and contractual issues and the caseload of judges presiding over civil matters, many matters involving investment or commercial disputes take months or years to work their way through the civil courts. In addition, businesses have complained of the inefficiencies and institutional corruption of the courts. Even though the Armenian constitution provides investors the tools to enforce awards and their property rights, investors claim that there is little predictability in what a court may do.
Laws and Regulations on Foreign Direct Investment
Basic legal provisions covering foreign investment are specified in the 1994 Law on Foreign Investment. Foreign companies are entitled by law to the same treatment as Armenian companies. A Law on Public-Private Partnership (PPP), adopted in 2019, establishes a framework for the government to attract investment for projects focused on infrastructure. The secondary implementing legislation to clarify key aspects of the PPP framework, including comprehensive criteria for project selection, is being developed.
The Investment Support Center is Armenia’s national authority for investment and export promotion. It provides information to foreign investors on Armenia’s business climate, investment opportunities, and legislation; supports investor visits; and serves as a liaison for government institutions. More information is available via the Investment Support Center’s website .
Competition and Antitrust Laws
SCPEC reviews transactions for competition-related concerns. Relevant laws, regulations, commission decisions, and more information can be found on SCPEC’s website . Concentrations, including mergers, acquisitions of shares or assets, amalgamations, and incorporations, are subject to ex ante control by SCPEC in accordance with the law. Whenever a concentration gives rise to concerns about harm to competition, including the creation or strengthening of a dominant position, SCPEC can prohibit such a transaction or impose certain remedies. Armenia’s Law on Protection of Economic Competition has been amended several times in recent years to bring Armenia’s competition framework into alignment with EAEU and CEPA requirements. The law was recently changed to improve SCPEC’s capabilities to investigate anti-competitive behavior, in collaboration with Armenia’s investigative bodies, whereas before SCPEC had to rely primarily on document studies and request information from other state bodies.
Expropriation and Compensation
Under Armenian law, foreign investment cannot be confiscated or expropriated except in extreme cases of natural or state emergency upon obtaining an order from a domestic court. According to the Armenian constitution, equivalent compensation is owed prior to expropriation.
Dispute Settlement
ICSID Convention and New York Convention
Armenia is party to the ICSID Convention (Washington Convention) and Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).
Under Article 5 of the Armenian constitution, international treaties ratified by Armenia take precedence over domestic law.
Investor-State Dispute Settlement
According to the Law on Foreign Investment, all disputes that arise between a foreign investor and Armenia must be settled in Armenian courts. A Law on Commercial Arbitration, enacted in 2007, provides a wider range of options for resolving commercial disputes. The U.S.–Armenia BIT provides that in the event of a dispute involving a U.S. investor and the state, the investor may take the case to international arbitration. As of March 2021, two investment disputes brought against Armenia under the U.S.–Armenia BIT were pending with the International Center for Settlement of Investment Disputes.
International Commercial Arbitration and Foreign Courts
Commercial disputes may be brought before an Armenian or any other competent court, as provided by law or in accordance with party agreements. Commercial disputes are heard in courts of general jurisdiction. Specialized administrative courts adjudicate cases brought against state entities. Decisions of general and administrative courts may be appealed first to the Civil Court of Appeal and Administrative Court of Appeal, then to the Civil and Administrative Chamber of the Court of Cassation.
The Law on Arbitration Courts and Arbitration Procedures provides rules governing the settlement of disputes by arbitration. In accordance with the New York Convention and Article 5 of the Armenian constitution, domestic courts must recognize foreign arbitral awards.
Armenia intends to develop an alternative dispute resolution (ADR) mechanism that will include mediation and arbitration. ADR could be used not only in commercial matters, including those involving mobile property and secured transactions, but also in cases involving family and labor disputes. While ADR options are available to those who seek alternatives to litigation, they currently are not widely used or trusted.
Bankruptcy Regulations
According to the Law on Bankruptcy adopted in 2006, creditors and equity and contract holders (including foreign entities) have the right to participate and defend their interests in bankruptcy cases. Armenia decided with the passage of a new Judicial Code in 2018 to adopt a new, specialized bankruptcy court, which began operations in 2019. Creditors have the right to access all materials relevant to cases, submit claims to court, participate in meetings of creditors, and nominate candidates to administer cases. Monetary judgments are usually made in local currency. The Armenian Criminal Code defines penalties for false and deliberate bankruptcy, concealment of property or other assets of the bankrupt party, or other illegal activities during the bankruptcy process. UNCTAD observes that Armenia’s framework for bankruptcy procedures needs improvement, adding that insolvency cases are expensive and almost always result in liquidation. Armenia amended its bankruptcy law in December 2019 to reduce the cost of bankruptcy proceedings. In addition, premiums have been set for bankruptcy managers for submitting financial recovery plans, as well as for the recovery of a bankrupt person, with the aim of raising rates of financial recovery. In 2020, the debt threshold to launch bankruptcy proceedings was raised to grant companies a greater ability to pay off debts rather than having their assets frozen.
According to the World Bank’s 2020 Ease of Doing Business Index, Armenia stands at 95 in the ranking of 190 economies on the ease of resolving insolvency. Resolving insolvency takes 1.9 years on average and costs 11 percent of the debtor’s estate, with the most likely outcome being that the company will be broken up and sold. The average recovery rate is 39.2 cents on the dollar.
6. Financial Sector
Capital Markets and Portfolio Investment
The banking system in Armenia is sound and well-regulated, but the financial sector is not highly developed, according to investors. Banking sector assets account for over 80 percent of total financial sector assets. Financial intermediation tends to be poor. Nearly all banks require collateral located in Armenia, and large collateral requirements often prevent potential borrowers from entering the market. U.S. businesses have noted that this creates a significant barrier for small- and medium-sized enterprises and start-up companies.
The Armenian government welcomes foreign portfolio investment and there is a supporting system and legal framework in place. Armenia’s securities market is not well developed and has only minimal trading activity through the Armenia Securities Exchange, though efforts to grow capital markets are underway. Liquidity sufficient for the entry and exit of sizeable positions is often difficult to achieve due to the small size of the Armenian market. The Armenian government hopes that as a result of pension reforms in 2014, which brought two international asset managers to Armenia, capital markets will play a more prominent role in the country’s financial sector. Armenia adheres to its IMF Article VIII commitments by refraining from restrictions on payments and transfers for current international transactions. Credit is allocated on market terms and foreign investors are able to access credit locally.
Money and Banking System
Since 2020, the banking sector has withstood the twin shocks created by COVID-19 and the Nagorno-Karabakh conflict. Indicators of financial soundness, including capital adequacy and non-performing loan ratios, have remained broadly strong, though with some deterioration more recently. The sector is well capitalized and liquid. Non-performing loans have ticked upward slightly from rates of around five percent of all loans. Dollarization, historically high for deposits and lending, has been falling in recent years. There are 17 commercial banks in Armenia and 13 universal credit organizations. There are extensive branch networks throughout Armenia. At the end of 2020, the top three Armenian banks by estimated total assets were Ameriabank (909 billion Armenian drams (AMD), or $1.7 billion), Armbusinessbank (889 billion AMD, or $1.7 billion), and Ardshinbank (880 billion AMD, or $1.7 billion). The minimum capital requirement for banks is 30 billion AMD (around $58 million). There are no restrictions on foreigners to open bank accounts. Residents and foreign nationals can hold foreign currency accounts and import, export, and exchange foreign currency relatively freely in accordance with the Law on Currency Regulation and Currency Control. Foreign banks may establish a subsidiary, branch, or representative office, and subsidiaries of foreign banks are allowed to provide the same types of services as domestically-owned banks.
The Central Bank of Armenia (CBA) is responsible for the regulation and supervision of the financial sector. The authority and responsibilities of the CBA are established under the Law on the Central Bank of Armenia. Numerous other articles of legislation and supporting regulations provide for financial sector oversight and supervision.
Foreign Exchange and Remittances
Foreign Exchange
Armenia has no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, or management or technical service fees. Most banks can transfer funds internationally within two to four days. Armenia maintains the Armenian dram as a freely convertible currency under a managed float. The AMD/USD exchange rate has been generally stable in recent years, but the dram experienced a notable depreciation against the dollar following the fall 2020 intensive fighting in the Nagorno-Karabakh conflict. The depreciation was stemmed in part by sales of foreign exchange reserves by the CBA. The CBA maintains levels of reserves that are broadly seen as adequate.
According to the Law on Currency Regulation and Currency Control, prices for all goods and services, property, and wages must be set in AMD. There are exceptions in the law, however, for transactions between resident and non-resident businesses and for certain transactions involving goods traded at world market prices. The law requires that interest on foreign currency accounts be calculated in that currency, but paid in AMD.
Remittance Policies
Armenia imposes no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, lease payments, private foreign debt, or management or technical service fees.
Sovereign Wealth Funds
Armenia does not have a sovereign wealth fund.
7. State-Owned Enterprises
Most of Armenia’s state-owned enterprises (SOEs) were privatized in the 1990s and early 2000s, but SOEs are still active in a number of sectors. SOEs in Armenia operate as state-owned closed joint stock companies that are managed by the Department of State Property Management and state non-commercial organizations. There are no laws or rules that ensure a primary or leading role for SOEs in any specific industry. Armenia is party to the WTO Government Procurement Agreement, and SOEs are covered under that agreement. SOEs in Armenia are subject to the same tax regime as their private competitors, and private enterprises in Armenia can compete with SOEs under the same terms and conditions. The Department of State Property Management maintains a public list of state-owned closed joint stock companies on its website .
Privatization Program
Most of Armenia’s state owned enterprises were privatized in the 1990s and early 2000s. Many of the privatization processes for Armenia’s large assets were reported to be neither competitive nor transparent, and political considerations in some instances prevailed over fair tender processes. The most recent law on privatization, the fifth, is the Law on the 2017–2020 Program for State Property Privatization, which lists 47 entities for privatization. The Department of State Property Management oversees the management of the state’s shares in entities slated for privatization. Details of the privatization program are available on the Department of State Property Management website .
Australia
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Australia is generally welcoming to foreign direct investment (FDI), with foreign investment widely considered to be an essential contributor to Australia’s economic growth. Other than certain required review and approval procedures for designated types of foreign investment described below, there are no laws that discriminate against foreign investors.
A number of investment promotion agencies operate in Australia. The Australian Trade Commission (often referred to as Austrade) is the Commonwealth Government’s national “gateway” agency to support investment into Australia. Austrade provides coordinated government assistance to promote, attract, and facilitate FDI, supports Australian companies to grow their business in international markets, and delivers advice to the Australian Government on its trade, tourism, international education and training, and investment policy agendas. Austrade operates through a number of international offices, with U.S. offices primarily focused on attracting foreign direct investment into Australia and promoting the Australian education sector in the United States. Austrade in the United States operates from offices in Boston, Chicago, Houston, New York, San Francisco, and Washington, DC. In addition, state and territory investment promotion agencies also support international investment at the state level and in key sectors.
Limits on Foreign Control and Right to Private Ownership and Establishment
Within Australia, foreign and domestic private entities may establish and own business enterprises and may engage in all forms of remunerative activity in accordance with national legislative and regulatory practices. See Section 4: Legal Regime – Laws and Regulations on Foreign Direct Investment below for information on Australia’s investment screening mechanism for inbound foreign investment.
Other than the screening process described in Section 4, there are few limits or restrictions on foreign investment in Australia. Foreign purchases of agricultural land greater than AUD 15 million (USD 11 million) are subject to screening. This threshold applies to the cumulative value of agricultural land owned by the foreign investor, including the proposed purchase. However, the agricultural land screening threshold does not affect investments made under the Australia-United States Free Trade Agreement (AUSFTA). The current threshold remains AUD 1.216 billion (USD 940 million) for U.S. non-government investors. Investments made by U.S. non-government investors are subject to inclusion on the foreign ownership register of agricultural land and to Australian Tax Office (ATO) information gathering activities on new foreign investment.
The Foreign Investment Review Board (FIRB), which advises Australia’s Treasurer, may impose conditions when approving foreign investments. These conditions can be diverse and may include: retention of a minimum proportion of Australian directors; certain requirements on business activities, such as the requirement not to divest certain assets; and certain taxation requirements. Such conditions are in keeping with Australia’s policy of ensuring foreign investments are in the national interest.
Other Investment Policy Reviews
Australia has not conducted an investment policy review in the last three years through either the OECD or UNCTAD system. The WTO reviewed Australia’s trade policies and practices in 2019, and the final report can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp496_e.htm.
The Australian Trade Commission compiles an annual “Why Australia Benchmark Report” that presents comparative data on investing in Australia in the areas of Growth, Innovation, Talent, Location, and Business. The report also compares Australia’s investment credentials with other countries and provides a general snapshot on Australia’s investment climate. See: http://www.austrade.gov.au/International/Invest/Resources/Benchmark-Report.
Business Facilitation
Business registration in Australia is relatively straightforward and is facilitated through a number of government websites. The government’s business.gov.au website provides an online resource and is intended as a “whole-of-government” service providing essential information on planning, starting, and growing a business. Foreign entities intending to conduct business in Australia as a foreign company must be registered with the Australian Securities and Investments Commission (ASIC). As Australia’s corporate, markets, and financial services regulator, ASIC’s website provides information and guides on starting and managing a business or company in the country.
In registering a business, individuals and entities are required to register as a company with ASIC, which then gives the company an Australian Company Number, registers the company, and issues a Certificate of Registration. According to the World Bank “Starting a Business” indicator, registering a business in Australia takes two days, and Australia ranks 7th globally on this indicator.
Outward Investment
Australia generally looks positively towards outward investment as a way to grow its economy. There are no restrictions on investing abroad. Austrade, Export Finance Australia (EFA), and various other government agencies offer assistance to Australian businesses looking to invest abroad, and some sector-specific export and investment programs exist. The United States is the top destination, by far, for Australian investment overseas.
3. Legal Regime
Transparency of the Regulatory System
The Australian Government utilizes transparent policies and effective laws to foster national competition and is consultative in its policy making process. The government generally allows for public comment of draft legislation and publishes legislation once it enters into force. Details of the Australian government’s approach to regulation and regulatory impact analysis can be found on the Department of Prime Minister and Cabinet’s website: https://www.pmc.gov.au/regulation
Regulations drafted by Australian Government agencies must be accompanied by a Regulation Impact Statement when submitted to the final decision maker (which may be the Cabinet, a Minister, or another decision maker appointed by legislation.) All Regulation Impact Statements must first be approved by the Office of Best Practice Regulation (OBPR) which sits within the Department of Prime Minister and Cabinet, prior to being provided to the relevant decision maker. They are required to demonstrate the need for regulation, the alternative options available (including non-regulatory options), feedback from stakeholders, and a full cost-benefit analysis. Regulations are subsequently required to be reviewed periodically. All Regulation Impact Statements, second reading speeches, explanatory memoranda, and associated legislation are made publicly available on Government websites. Australia’s state and territory governments have similar processes when making new regulations.
The Australian Government has tended to prefer self-regulatory options where industry can demonstrate that the size of the risks are manageable and that there are mechanisms for industry to agree on, and comply with, self-regulatory options that will resolve the identified problem. This manifests in various ways across industries, including voluntary codes of conduct and similar agreements between industry players.
The Australian Government has recognized the impost of regulations and has undertaken a range of initiatives to reduce red tape. This has included specific red tape reduction targets for government agencies and various deregulatory groups within government agencies. In 2019, the Australian Government established a Deregulation Taskforce within its Treasury Department, stating its goal was to “drive improvements to the design, administration and effectiveness of the stock of government regulation to ensure it is fit for purpose.”
Australian accounting, legal, and regulatory procedures are transparent and consistent with international standards. Accounting standards are formulated by the Australian Accounting Standards Board (AASB), an Australian Government agency under the Australian Securities and Investments Commission Act 2001. Under that Act, the statutory functions of the AASB are to develop a conceptual framework for the purpose of evaluating proposed standards; make accounting standards under section 334 of the Corporations Act 2001, and advance and promote the main objects of Part 12 of the ASIC Act, which include reducing the cost of capital, enabling Australian entities to compete effectively overseas and maintaining investor confidence in the Australian economy. The Australian Government conducts regular reviews of proposed measures and legislative changes and holds public hearings into such matters.
Australian government financing arrangements are transparent and well governed. Legislation governing the type of financial arrangements the government and its agencies may enter into is publicly available and adhered to. Updates on the Government’s financial position are regularly posted on the Department of Finance and Treasury websites. Issuance of government debt is managed by the Australian Office of Financial Management, which holds regular tenders for the sale of government debt and the outcomes of these tenders are publicly available. The Australian Government also publishes and adheres to strict procurement guidelines. Australia formally joined the WTO Agreement on Government Procurement in 2019.
International Regulatory Considerations
Australia is a member of the WTO, G20, OECD, and the Asia-Pacific Economic Cooperation (APEC), and became the first Association of Southeast Nations (ASEAN) Dialogue Partner in 1974. While not a regional economic block, Australia’s free trade agreement with New Zealand provides for a high level of integration between the two economies with the ultimate goal of a single economic market. Details of Australia’s involvement in these international organizations can be found on the Department of Foreign Affairs and Trade’s website: https://www.dfat.gov.au/trade/organisations/Pages/wto-g20-oecd-apec
Legal System and Judicial Independence
The Australian legal system is firmly grounded on the principles of equal treatment before the law, procedural fairness, judicial precedent, and the independence of the judiciary. Strong safeguards exist to ensure that people are not treated arbitrarily or unfairly by governments or officials. Property and contractual rights are enforced through the Australian court system, which is based on English Common Law. Australia’s judicial system is fully independent and separate from the executive branch of government.
Laws and Regulations on Foreign Direct Investment
Information regarding investing in Australia can be found in Austrade’s “Guide to Investing” at http://www.austrade.gov.au/International/Invest/Investor-guide. The guide is designed to help international investors and businesses navigate investing and operating in Australia.
Foreign investment in Australia is regulated by the Foreign Acquisitions and Takeovers Act 1975 and Australia’s Foreign Investment Policy. The Foreign Investment Review Board (FIRB) is a non-statutory body, comprising independent board members advised by a division within the Treasury Department, established to advise the Treasurer on Australia’s foreign investment policy and its administration. The FIRB screens potential foreign investments in Australia above threshold values, and based on advice from the FIRB, the Treasurer may deny or place conditions on the approval of particular investments above that threshold on national interest grounds. In March 2020 the Treasurer announced thresholds would be reduced to zero for the period covering the COVID-19 crisis. In effect, this meant that all foreign investment would be screening over this period. This lower threshold ended with the introduction in January 2021 of new legislation, the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020, which tightened Australia’s investment screening rules with respect to investments in sensitive national security businesses.
The Australian Government applies a “national interest” consideration in reviewing foreign investment applications. “National interest” covers a broader set of considerations than national security alone, and may include tax or competition implications of an investment. Further information on foreign investment screening, including screening thresholds for certain sectors and countries, can be found at FIRB’s website: https://firb.gov.au/. Under the AUSFTA agreement, all U.S. greenfield investments are exempt from FIRB screening.
Australia has recently taken steps to increase the analysis of national security implications of foreign investment in certain sectors, particularly critical infrastructure and investments in defense or other national security supply chains. The new Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 introduced the concept of a “national security business” and “national security land,” the acquisition of either triggering a FIRB review. The legislation also allows the Treasurer to “call in” any investment for FIRB review, meaning any investment can be screened regardless of whether it meets the criteria for a mandatory review.
Competition and Antitrust Laws
The Australian Competition and Consumer Commission (ACCC) enforces the Competition and Consumer Act 2010 and a range of additional legislation, promotes competition, and fair trading, and regulates national infrastructure for the benefit of all Australians. The ACCC plays a key role in assessing mergers to determine whether they will lead to a substantial lessening of competition in any market. The ACCC also engages in consumer protection enforcement and has, in recent years, been given expanded responsibilities to monitor energy assets, the national gas market, and digital industries.
Expropriation and Compensation
Private property can be expropriated for public purposes in accordance with Australia’s constitution and established principles of international law. Property owners are entitled to compensation based on “just terms” for expropriated property. There is little history of expropriation in Australia.
Dispute Settlement
ICSID Convention and New York Convention
Australia is a member of the International Centre for the Settlement of Investment Disputes (ICSID Convention) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The International Arbitration Act 1974 governs international arbitration and the enforcement of awards.
Investor-State Dispute Settlement
Investor-State Dispute Settlement (ISDS) is included in 11 of Australia’s 13 FTAs and 18 of its 21 BITs. AUSFTA establishes a dispute settlement mechanism for investment disputes arising under the Agreement. However, AUSFTA does not contain an investor-state dispute settlement (ISDS) mechanism that would allow individual investors to bring a case against the Australian government. Regardless of the presence or absence of ISDS mechanisms, there is no history of extrajudicial action against foreign investors in Australia.
International Commercial Arbitration and Foreign Courts
Australia has an established legal and court system for the conduct or supervision of litigation and arbitration, as well as alternate dispute resolutions. Australia is a leader in the development and provision of non-court dispute resolution mechanisms. It is a signatory to all the major international dispute resolution conventions and has organizations that provide international dispute resolution processes.
Bankruptcy Regulations
Bankruptcy is a legal status conferred under the Bankruptcy Act 1966 and operates in all of Australia’s states and territories. Only individuals can be made bankrupt, not businesses or companies. Where there is a partnership or person trading under a business name, it is the individual or individuals who make up that firm that are made bankrupt. Companies cannot become bankrupt under the Bankruptcy Act though similar provisions (called “administration and winding up”) exist under the Corporations Act 2001. Bankruptcy is not a criminal offense in Australia.
Creditor rights are established under the Bankruptcy Act 1966, the Corporations Act 2001, and the more recent Insolvency Law Reform Act 2016. The latter legislation commenced in two tranches over 2017 and aims to increase the efficiency of insolvency administrations, improve communications between parties, increase the corporate regulator’s oversight of the insolvency market, and “improve overall consumer confidence in the professionalism and competence of insolvency practitioners.” Under the combined legislation, creditors have the right to: request information during the administration process; give direction to a liquidator or trustee; appoint a liquidator to review the current appointee’s remuneration; and remove a liquidator and appoint a replacement.
The Australian parliament passed the Corporations Amendment (Corporation Insolvency Reforms) Act 2020 in December 2020. The legislation is a response to the economic impacts of the COVID-19 pandemic and is designed to both assist viable businesses remain solvent and simplify the liquidation process for insolvent businesses. The new insolvency process under this legislation came into effect in January 2021.
Australia ranks 20th globally on the World Bank’s Doing Business Report “resolving insolvency” measure.
6. Financial Sector
Capital Markets and Portfolio Investment
The Australian Government takes a favorable stance towards foreign portfolio investment with no restrictions on inward flows of debt or equity. Indeed, access to foreign capital markets is crucial to the Australian economy given its relatively small domestic savings. Australian capital markets are generally efficient and able to provide financing options to businesses. While the Australian equity market is one of the largest and most liquid in the world, non-financial firms face a number of barriers in accessing the corporate bond market. Large firms are more likely to use public equity, and smaller firms are more likely to use retained earnings and debt from banks and intermediaries. Australia’s corporate bond market is relatively small, driving many Australian companies to issue debt instruments in the U.S. market. Foreign investors are able to obtain credit from domestic institutions on market terms. Australia’s stock market is the Australian Securities Exchange (ASX).
Money and Banking System
Australia’s banking system is robust, highly evolved, and international in focus. Bank profitability is strong and has been supported by further improvements in asset performance. Total assets of Australian banks at the end of 2020 was USD4.1 trillion and the sector has delivered an annual average return on equity of around 10 percent.
According to Australia’s central bank, the Reserve Bank of Australia (RBA), the ratio of non-performing assets to total loans was approximately one percent at the end of 2020, having remained at around that level for the last five years after falling from highs of nearly two percent following the Global Financial Crisis. The RBA is responsible for monitoring and reporting on the stability of the financial sector, while the Australian Prudential Regulatory Authority (APRA) monitors individual institutions. The RBA is also responsible for monitoring and regulating payments systems in Australia.
Foreign banks are allowed to operate as a branch or a subsidiary in Australia. Australia has generally taken an open approach to allowing foreign companies to operate in the financial sector, largely to ensure sufficient competition in an otherwise small domestic market.
Foreign Exchange and Remittances
Foreign Exchange
The Commonwealth Government formulates exchange control policies with the advice of the Reserve Bank of Australia (RBA) and the Treasury. The RBA, charged with protecting the national currency, has the authority to implement exchange controls, although there are currently none in place.
The Australian dollar is a fully convertible and floating currency. The Commonwealth Government does not maintain currency controls or limit remittances. Such payments are processed through standard commercial channels, without governmental interference or delay.
Remittance Policies
Australia does not limit investment remittances.
Sovereign Wealth Funds
Australia’s main sovereign wealth fund, the Future Fund, is a financial asset investment fund owned by the Australian Government. The Fund’s objective is to enhance the ability of future Australian Governments to discharge unfunded superannuation (pension) liabilities. As a founding member of the International Forum of Sovereign Wealth Funds (IFSWF), the Future Fund’s structure, governance, and investment approach is in full alignment with the Generally Accepted Principles and Practices for Sovereign Wealth Funds (the “Santiago principles”).
The Future Fund’s investment mandate is to achieve a long-term return of at least inflation plus 4-5 percent per annum. As of December 2020, the Fund’s portfolio consists of: 29 percent global equities, 7 percent Australian equities, 28 percent private equity (including 7 percent in infrastructure), and the remaining 36 percent in debt, cash, and alternative investments.
In addition to the Future Fund, the Australian Government manages five other specific-purpose funds: the DisabilityCare Australia Fund; the Medical Research Future Fund; the Emergency Response Fund; the Future Drought Fund; and the Aboriginal and Torres Strait Islander Land and Sea Future Fund. In total, these five funds have assets of AUD 47 billion (USD 37 billion), while the main Future Fund has assets of AUD 171 billion (USD 132 billion) as of December 31, 2020.
In Australia, the term used for a Commonwealth Government State-Owned Enterprise (SOE) is “government business enterprise” (GBE). According to the Department of Finance, there are nine GBEs: two corporate Commonwealth entities and seven Commonwealth companies. (See: https://www.finance.gov.au/resource-management/governance/gbe/) Private enterprises are generally allowed to compete with public enterprises under the same terms and conditions with respect to markets, credit, and other business operations, such as licenses and supplies. Public enterprises are not generally accorded material advantages in Australia. Remaining GBEs do not exercise power in a manner that discriminates against or unfairly burdens foreign investors or foreign-owned enterprises.
Privatization Program
Australia does not have a formal and explicit national privatization program. Individual state and territory governments may have their own privatization programs. Foreign investors are welcome to participate in any privatization programs subject to the rules and approvals governing foreign investment.
Austria
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Austrian government welcomes foreign direct investment, particularly when such investments have the potential to create new jobs, support advanced technology fields, promote capital-intensive industries, and enhance links to research and development.
There are limited restrictions on foreign investment. American investors have not complained of discriminatory laws against foreign investors. Austria strengthened its national security investment screening law, lowering the threshold at which government approval of the transaction is required to 10 percent foreign ownership for sensitive sectors. Please see the “Laws and Regulations on Foreign Investment” section below for further details. The corporate tax rate, a 25 percent flat tax, is above the OECD average of 21.5 percent. The government announced plans to reduce it to 21 percent in 2024 but the global pandemic may delay these plans. U.S. citizens and investors have occasionally reported that it is difficult to establish and maintain banking services since the U.S.-Austria Foreign Account Tax Compliance Act (FATCA) Agreement went into force in 2014, as some Austrian banks have been reluctant to take on this reporting burden.
Potential investors should also be aware of Austria’s lengthy environmental impact assessments in their investment decision-making. Some sectors also suffer from heavy regulation that may affect certain investments. For example, the requirement that over 50 percent of an energy provider must be publicly owned places a potential cap on investments in the energy sector. Strict liability and co-existence regulations in the agriculture sector restrict research and virtually outlaw the cultivation, marketing, or distribution of biotechnology crops. The mining and transportation sectors are also heavily regulated.
Austria’s national investment promotion organization, the Austrian Business Agency (ABA), is a useful first point of contact for foreign companies interested in establishing operations in Austria. It provides comprehensive information about Austria as a business location, identifies suitable sites for greenfield investments, and consults in setting up a company. ABA provides its services free of charge.
The Austrian Economic Chamber (WKO) and the American Chamber of Commerce in Austria (Amcham) are also good resources for foreign investors. Both conduct annual polls of their members to measure their satisfaction with the business climate, thus providing early warning to the government of problems identified by investors.
Limits on Foreign Control and Right to Private Ownership and Establishment
There are limited restrictions on foreign ownership of private businesses in Austria. A local managing director must be appointed to any newly established enterprise. For non-EU citizens to establish and own a business, the Austrian Foreigner’s Law mandates a residence permit that includes the right to run a business. Many Austrian trades are regulated, and the right to run a business in regulated trade sectors is only granted when certain preconditions are met, such as certificates of competence, and recognition of foreign education.
Austria’s updated national security investment screening law, strengthened in July 2020, retains an investment screening process to review potential high-risk foreign acquisitions of 25% or more of a company essential to the country’s infrastructure, lowering the threshold to 10% ownership for sensitive sectors (see the “Laws and Regulations on Foreign Investment” section below for further details). In April 2019, the EU Regulation on establishing a framework for the screening of foreign direct investments entered into force. It creates a cooperation mechanism through which EU countries and the European Commission will exchange information and raise concerns related to specific investments which could potentially threaten the security of other EU countries.
Other Investment Policy Reviews
Not applicable.
Business Facilitation
While the World Bank ranked Austria as the 27th best country in 2020 with regard to “ease of doing business” (www.doingbusiness.org), starting a business takes time and requires many procedural steps (Austria ranked 127th in this category in 2020). The average time to set up a company is 21 days, while the average time in OECD high income countries is 9.2 days.
In order to register a new company or open a subsidiary in Austria, a company must first be listed on the Austrian Companies Register at a local court. The next step is to seek confirmation of registration from the Austrian Economic Chamber (WKO) establishing that the company is really a new business. The investor must then notarize the “declaration of establishment,” deposit a minimum capital requirement with an Austrian bank, register with the tax office, register with the district trade authority, register employees for social security, and register with the municipality where the business will be located. Finally, membership in the WKO is mandatory for all businesses in Austria.
The website of the ABA contains further details and contact information and is intended to serve as a first point of contact for foreign investors in Austria: https://investinaustria.at/en/starting-business/.
Outward Investment
The Austrian government encourages outward investment. Advantage Austria, the “Austrian Foreign Trade Service” is a special section of the WKO that promotes Austrian exports and also supports Austrian companies establishing an overseas presence. Advantage Austria operates six offices in the United States (Washington D.C., New York, Chicago, Atlanta, Los Angeles, and San Francisco). Overall, it has about 100 trade offices in 70 countries across the world, reflecting Austria’s strong export focus and the important role the WKO plays. (https://www.wko.at/service/aussenwirtschaft/aussenwirtschaftscenter.html#heading_aussenwirtschaftscenter) The Ministry for Digital and Economic Affairs and the WKO run a joint program called “Go International,” providing services to Austrian companies that are considering investing for the first time in foreign countries. The program provides grants for market access costs and provides “soft subsidies,” such as counseling, legal advice, and marketing support.
3. Legal Regime
Transparency of the Regulatory System
Austria’s legal, regulatory, and accounting systems are transparent and consistent with international norms.
Federal ministries generally publish draft laws and regulations, including investment laws, for public comment prior to their adoption by Austria’s cabinet and/or Parliament. Relevant stakeholders such as the “Social Partners” (Economic Chamber, Agricultural Chamber, Labor Chamber, and Trade Union Association), the Federation of Industries, and research institutions are invited to provide comments and suggestions for improvement, which may be taken into account before adoption of laws. These comments are publicly available. Austria’s nine provinces can also adopt laws relevant to investments; their review processes are generally less extensive, but local laws are less important for investments than federal laws. The judicial system is independent from the executive branch, helping ensure the government follows administrative processes. The government is required to follow administrative processes and its compliance is monitored by the courts, primarily the Court of Auditors. Individuals can file proceedings against the government in Austria’s courts, if the government did not act in accordance with the law. Similarly, the public prosecution service can file cases against the government.
Draft legislation by ministries (“Ministerialentwürfe”) and resulting government draft laws and parliamentary initiatives (“Regierungsvorlagen und Gesetzesinitiativen”) can be accessed through the website of the Austrian Parliament: https://www.parlament.gv.at/PAKT/ (all in German). The parliament also publishes a history of all law-making processes. All final Austrian laws can be accessed through a government database, partly in English: https://www.ris.bka.gv.at/defaultEn.aspx.
The effectiveness of regulations is not reviewed as a regular process, only on an as-needed basis. Austrian regulations governing accounting provide U.S. investors with internationally standardized financial information. In line with EU regulations, listed companies must prepare their consolidated financial statements according to the International Financial Reporting Standards (IAS/IFRS) system.
Public finances are transparent and easily accessible, through the Finance Ministry’s website, Austria’s Central Bank, and various economic research institutes. Overall, Austria has no legal restrictions, formally or informally, that discriminate against foreign investors.
International Regulatory Considerations
Austria is a member of the EU. As such, its laws must comply with EU legislation and the country is therefore subject to European Court of Justice (ECJ) jurisdiction. Austria is a member of the WTO and largely follows WTO requirements. Austria has ratified the Trade Facilitation Agreement (TFA) but has not taken specific actions to implement it.
Legal System and Judicial Independence
The Austrian legal system is based on Roman law. The constitution establishes a hierarchy, according to which each legislative act (law, regulation, decision, and fines) must have its legal basis in a higher legislative instrument. The full text of each legislative act is available online for reference. All final Austrian laws can be accessed through a government database, partly in English: https://www.ris.bka.gv.at/defaultEn.aspx.
Commercial matters fall within the competence of ordinary regional courts except in Vienna, which has a specialized Commercial Court. The Commercial Court also has nationwide competence for trademark, design, model, and patent matters. There is no special treatment of foreign investors, and the executive branch does not interfere in judicial matters.
The legal system provides an effective means for protecting property and contractual rights of nationals and foreigners. Sensitive cases must be reported to the Ministry of Justice, which can issue instructions for addressing them. Austria’s civil courts enforce property and contractual rights and do not discriminate against foreign investors. Austria allows for court decisions to be appealed, first to a Regional Court and in the last instance, to the Supreme Court.
Laws and Regulations on Foreign Direct Investment
Austria has national security restrictions on investments in industries designated as critical infrastructure, technology, resources, and industries with access to sensitive information and involved in freedom and plurality of the media. The government must approve any foreign acquisition of a 25% or higher stake in any companies that generally fall within these areas. The threshold is 10% for sensitive sectors, defined as military goods and technology, operators of critical energy or digital infrastructure and water, system operators charged with guarding Austria’s data sovereignty and R&D in medicine and pharmaceutical products. Additional screenings are required when an investor in the above categories plans to increase the stake above the thresholds of 25% or 50%. The investment screening review period generally takes 1-2 months. The Austrian government has reported an increase in filed applications since the law was implemented but has not reported any rejected applications under the new law.
There is no discrimination against foreign investors, but businesses are required to follow numerous local regulations. Although there is no requirement for participation by Austrian citizens in ownership or management of a foreign firm, at least one manager must meet Austrian residency and other legal requirements. Expatriates may deduct certain expenses (costs associated with moving, maintaining a double residence, education of children) from Austrian-earned income.
The “Law to Support Investments in Municipalities” (published in the Federal Law Gazette, 74/2017, available online in German only on the federal legal information system www.ris.bka.gv.at), allows federal funding of up to 25 percent of the total investment amount of a project to “modernize” a municipality. The Austrian government also introduced several investment incentives, due to COVID-19 (see the “Investment Incentives” section for details). The Austrian Business Agency serves as a central contact point for companies looking to invest in Austria. It does not serve as a one-stop-shop but can help answer any questions potential investors may have (https://investinaustria.at/en/)
Competition and Antitrust Laws
Austria’s Anti-Trust Act (ATA) is in line with EU anti-trust regulations, which take precedence over national regulations in cases concerning Austria and other EU member states. The Austrian Anti-Trust Act prohibits cartels, anticompetitive practices, and the abuse of a dominant market position. The independent Federal Competition Authority (FCA) and the Federal Anti-trust Prosecutor (FAP) are responsible for administering anti-trust laws. The FCA can conduct investigations and request information from firms. The FAP is subject to instructions issued by the Justice Ministry and can bring actions before Austria’s Cartel Court. Additionally, the Commission on Competition may issue expert opinions on competition policy and give recommendations on notified mergers. The most recent amendment to the ATA was in 2017. This amendment facilitated enforcing private damage claims, strengthened merger control, and enabled appeals against verdicts from the Cartel Court.
Companies must inform the FCA of mergers and acquisitions (M&A). Special M&A regulations apply to media enterprises, such as a lower threshold above which the ATA applies, and the requirement that media diversity must be maintained. A cartel court is competent to rule on referrals from the FCA or the FCP. For violations of anti-trust regulations, the cartel court can impose fines of up to the equivalent of 10 percent of a company’s annual worldwide sales. The independent energy regulator E-Control separately examines antitrust concerns in the energy sector but must also submit cases to the cartel court.
Austria’s Takeover Law applies to friendly and hostile takeovers of corporations headquartered in Austria and listed on the Vienna Stock Exchange. The law protects investors against unfair practices, since any shareholder obtaining a controlling stake in a corporation (30 percent or more in direct or indirect control of a company’s voting shares) must offer to buy out smaller shareholders at a defined fair market price. The law also includes provisions for shareholders who passively obtain a controlling stake in a company. The law prohibits defensive action to frustrate bids. The Shareholder Exclusion Act allows a primary shareholder with at least 90 percent of capital stock to force out minority shareholders. An independent takeover commission at the Vienna Stock Exchange oversees compliance with these laws. Austrian courts have also held that shareholders owe a duty of loyalty to each other and must consider the interests of fellow shareholders in good faith.
Expropriation and Compensation
According to the European Convention on Human Rights and the Austrian Civil Code, property ownership is guaranteed in Austria. Expropriation of private property in Austria is rare and may be undertaken by federal or provincial government authorities only based on special legal authorization “in the public interest” such as land use planning, and infrastructure project preparations. The government can initiate such a procedure only in the absence of any other alternatives for satisfying the public interest; when the action is exclusively in the public interest; and when the owner receives just compensation. For example, in 2017-18, the government expropriated Hitler’s birth house in order to prevent it from becoming a place of pilgrimage for neo-Nazis, paying the former owner €1.5 million (USD 1.8 million) in compensation. The expropriation process is non-discriminatory toward foreigners, including U.S. firms. There is no indication that further expropriations will take place in the foreseeable future.
Dispute Settlement
ICSID Convention and New York Convention
Austria is a member of both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning local courts must enforce foreign arbitration awards in Austria. There is no specific domestic legislation in this regard, but local courts must enforce arbitration decisions where the affected companies have their business locations.
Investor-State Dispute Settlement
Austria is a member of the UN Commission on International Trade Law (UNCITRAL). Its arbitration law largely conforms to the UNCITRAL model law. The main divergence is that an award may only be set aside if the arbitral procedure is not in accordance with Austrian public policy.
Austria does not have a BIT or FTA with the United States. There is no special domestic arbitration body.
International Commercial Arbitration and Foreign Courts
The Vienna International Arbitral Center of the Austrian Federal Economic Chamber acts as Austria’s main arbitration institution, handling both national and international cases. Legislation is modeled after the UNCITRAL model law (see above). The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC) overrides most of Austria’s domestic provisions, where applicable, and Austrian courts are consistent in applying it.
Bankruptcy Regulations
The Austrian Insolvency Act contains provisions for business reorganization and bankruptcy proceedings. Reorganization requires a restructuring plan and the debtor to be able to cover costs or advance some of the costs up to a maximum of EUR 4,000 (USD 4,480). The plan must offer creditors at least 20 percent of what is owed, payable within two years of the date the debtor’s obligation is determined. The plan must be approved by a majority of all creditors and a majority of creditors holding at least 50 percent of all claims.
If the restructuring plan is not accepted, a bankruptcy proceeding is begun. Bankruptcy proceedings take place in court upon application of the debtor or a creditor; the court appoints a receiver for winding down the business and distributing proceeds to the creditors. Bankruptcy is not criminalized, provided the affected person performed all his documentation and reporting obligations on time and in accordance with the law.
Due to COVID-19, Austria provided an extension for initiating bankruptcy proceedings for companies becoming technically bankrupt between March 1, 2020 and March 31, 2021. The court may, upon application of any of the parties involved, extend procedural deadlines by 90 days. For applications filed by December 31, 2020, the deadline for paying the 20 percent owed to creditors has been extended to three years, instead of two.
Austria’s major commercial association for the protection of creditors in cases of bankruptcy is the “KSV 1870 Group”, www.ksv.at, which also carries out credit assessments of all companies located in Austria. Other European-wide credit bureaus, particularly “CRIF” and “Bisnode”, also monitor the Austrian market.
6. Financial Sector
Capital Markets and Portfolio Investment
Austria has sophisticated financial markets that allow foreign investors access without restrictions. The government welcomes foreign portfolio investment. The Austrian National Bank (OeNB) regulates portfolio investments effectively.
Austria has a national stock exchange that currently includes 61 companies on its regulated market and several others on its multilateral trading facility (MTF). The Austrian Traded Index (ATX) is a price index consisting of the 20 largest stocks on the market and forms the most important index of Austria’s stock market. The size of the companies listed on the ATX is roughly equivalent to those listed on the MDAX in Germany. The market capitalization of Austrian listed companies is small compared to the country’s western European counterparts, accounting for 30% of Austria’s GDP, compared to 54% in Germany or 148% in the United States.
Unlike the other market segments in the stock exchange, the Direct Market and Direct Market Plus segments, targeted at SMEs and young, developing companies, are subject only to the Vienna Stock Exchange’s general terms of business, not more stringent EU regulations. These segments have lower reporting requirements but also greater risk for investors, as prices are more likely to fluctuate, due to the respective companies’ low level of market capitalization and lower trading volumes.
Austria has robust financing for product markets, but the free flow of resources into factor markets (capital, raw materials) could be improved. Overall, financing is primarily available through banks and government-sponsored funding organizations with relatively little private venture capital available. The Austrian government is aware of this but has taken few tangible steps to improve the availability of private venture capital.
Austria is fully compliant with IMF Article VIII, all financial instruments are available, and there are no restrictions on payments. Credit is available to foreign investors at market-determined rates. Austria’s financial system ranked 30th in the 2019 World Economic Forum’s Global Competitiveness Report, out of 141 countries examined, compared to 28th place in 2018 and 30th in 2017.
Money and Banking System
Austria has one of the most fragmented banking networks in Europe, with more than 3,500 branch offices registered in 2020, yet is considered to be one of the most stable in the world. The banking system is highly developed, with worldwide correspondent banks and representative offices and branches in the United States and other major financial centers. Large Austrian banks also have extensive networks in Central and Southeast European (CESEE) countries and the countries of the former Soviet Union. Total assets of the banking sector amounted to EUR 1.02 trillion (USD 1.1 trillion) in 2019 (approximately 2.5 times the country’s GDP). Approximately EUR 400 million of banking sector assets are held by Austria’s two largest banks, Erste Group and Raiffeisen Bank International (RBI). Austria’s banking sector is managed and overseen by the Austrian National Bank (OeNB) and the Financial Market Authority (FMA). Four Austrian banks with assets in excess of EUR 30 billion (USD 34 billion) are subject to the Eurozone’s Single Supervisory Mechanism (SSM), as is Sberbank Europe AG, a Russian bank subsidiary headquartered in Austria, and Addiko Bank AG due to their significant cross-border assets, as well as Volksbank Wien AG, due to its importance for the economy. All other Austrian banks continue to be subject to the country’s dual-oversight banking supervisory system with roles for the OeNB and the FMA, both of which are also responsible for policing irregularities on the stock exchange and for supervising insurance companies, securities markets, and pension funds. Foreign banks are allowed to establish operations in the country with no legal restrictions that place them at a disadvantage compared to local banks.
Due to U.S. financial reporting requirements, Austrian banks are very cautious in committing the time and expense required to accept U.S. clients and U.S. investors without clearly established U.S. corporate headquarters.
Foreign Exchange and Remittances
Foreign Exchange
Austria has no restrictions on cross-border capital transactions, including the repatriation of profits and proceeds from the sale of an investment, for non-residents and residents. The Euro, a freely convertible currency and the only legal tender in Austria and 18 other Euro-zone member states, shields investors from exchange rate risks within the Euro-zone.
Remittance Policies
Not applicable
Sovereign Wealth Funds
Austria has no sovereign wealth funds.
7. State-Owned Enterprises
Austria has two major wholly state-owned enterprises (SOEs): The OeBB (Austrian Federal Railways) and Asfinag (highway financing, building, maintenance, and administration). Other government industry holding companies are bundled in the government holding company OeBAG (http://www.oebag.gv.at)
The government has direct representation in the supervisory boards of its companies (commensurate with its ownership stake), and OeBAG has the authority to buy and sell company shares, as well as purchase minority stakes in strategically relevant companies. Such purchases are subject to approval from an audit committee consisting of government-nominated independent economic experts.
OeBAG holds a 53 percent stake in the Post Office, 51 percent in energy company Verbund, 33 percent in the gambling group Casinos Austria, 31.5 percent in the energy company OMV, 28 percent in the Telekom Austria Group, and a few other minor ventures. Local governments own the majority of utilities, Vienna International Airport, and more than half of Austria’s 264 hospitals and clinics.
Private enterprises in Austria can generally compete with public enterprises under the same terms and conditions with respect to market access, credit, and other such business operations as licenses and supplies. While most SOEs must finance themselves under terms similar to private enterprises, some large SOEs (such as OeBB) benefit from state-subsidized pension systems. As a member of the EU, Austria is also a party to the Government Procurement Agreement (GPA) of the WTO, which indirectly also covers the SOEs (since they are entities monitored by the Austrian Court of Auditors).
The five major OeBAG-controlled companies (Postal Service, Verbund AG, Casinos Austria, OMV, Telekom Austria), are listed on the Vienna stock exchange. Senior managers in these companies do not directly report to a minister, but to an oversight board. That being said, the government often appoints management and board members who have strong political affiliations.
Privatization Program
The government has not privatized any public enterprises since 2007. Austrian public opinion is skeptical regarding further privatization and there are no indications of any government privatizations on the horizon. In prior privatizations, foreign and domestic investors received equal treatment. Despite a historical government preference for maintaining blocking minority rights for domestic shareholders, foreign investors have successfully gained full control of enterprises in several strategic sectors of the Austrian economy, including in telecommunications, banking, steel, and infrastructure. In March 2020, the government chose not to intervene when the Czech Sazka group increased its stake in the partially state-owned gambling group Casinos Austria to a majority share.
Azerbaijan
1. Openness To, and Restrictions Upon, Foreign Investment
Policies towards Foreign Direct Investment
The Azerbaijani government actively seeks foreign direct investment. Flows of foreign direct investment to Azerbaijan have risen steadily in recent years, primarily in the energy sector. Foreign investment in the government’s priority sectors for economic diversification (agriculture, transportation, tourism, and ICT) has thus far been limited.
Foreign investments enjoy complete and unreserved legal protection under the Law on the Protection of Foreign Investment, the Law on Investment Activity, and guarantees contained within international agreements and treaties. In accordance with these laws, Azerbaijan will treat foreign investors, including foreign partners in joint ventures, in a manner no less favorable than the treatment accorded to national investors. Azerbaijan’s Law on the Protection of Foreign Investments protects foreign investors against nationalization and requisition, except under specific circumstances. The Azerbaijani government has not shown any pattern of discriminating against U.S. persons or entities through illegal expropriation.
Azerbaijan’s primary body responsible for investment promotion is the Azerbaijan Export and Investment Promotion Agency (AzPromo). AzPromo is a joint public-private initiative, established by the Ministry of Economy and Industry in 2003 to foster the country’s economic development and diversification by attracting foreign investment into the non-oil sector and stimulating non-oil exports. A January 2018 decree called for new legislation, which has not yet been introduced, to ensure Azerbaijan conforms to international standards to protect foreign investor rights. The Azerbaijani government meets regularly with the American Chamber of Commerce (AmCham) to solicit the input from the business community, particularly as part of AmCham’s biennial white paper process. In 2018, AmCham reported the government accepted around 50 percent of the proposals put forth in their white paper. The next white paper, planned for 2020, was postponed due to the COVID-19 pandemic.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreigners are allowed to register business entities by opening a fully owned subsidiary, acquiring shares of an existing company, or by creating a joint venture with a local partner. Foreign companies are also permitted to operate in Azerbaijan without creating a local legal entity by registering a representative or branch office with the tax authorities.
Foreigners are not permitted to own land in Azerbaijan but are permitted to lease land and own real estate. Under Azerbaijani laws, the state must retain a controlling stake in companies operating in the mining, oil and gas, satellite communication, and military arms sectors, limiting foreign or domestic private ownership to a 49 percent share of companies in these industries. Foreign ownership in the media sector is also strictly limited. Furthermore, a special license to conduct business is required for foreign or domestic companies operating in telecommunications, sea and air transportation, insurance, and other regulated industries. Azerbaijan does not screen inbound foreign investment, and U.S. investors are not specifically disadvantaged by any existing control mechanisms.
Other Investment Policy Reviews
Azerbaijan has not conducted an Organization for Economic Cooperation and Development (OECD) investment policy review, a United Nations Conference on Trade and Development (UNCTAD) investment policy review, or a WTO Trade Policy Review.
Business Facilitation
Azerbaijani law requires all companies operating in the country to register. Without formal registration, a company may not maintain a bank account or clear goods through customs. As part of the ongoing business law reforms, a “Single Window” principle was introduced January 1, 2008, significantly streamlining the registration process. Businesses must now only register with the tax authorities, which takes approximately three days for commercial organizations. Since 2011, companies have also been able to e-register at http://taxes.gov.az.
In the World Bank’s “Doing Business 2020” report, Azerbaijan’s final published score was 78.5, ranking 28 out of 190 countries worldwide. This rank placed Azerbaijan as a “top ten reformer” country per the report.
Outward Investment
Azerbaijan does not actively promote or incentivize outward investment, though Azerbaijani entities, particularly the State Oil Company of Azerbaijan (SOCAR) and the State Oil Fund of Azerbaijan (SOFAZ), have invested in various countries, including the United States. SOFAZ investment is typically limited to real estate, precious metals, and low-yield government securities. SOCAR has invested heavily in oil and gas infrastructure and petrochemicals processing in Turkey and Georgia, as well as gas pipeline networks in Greece, Albania, and Italy as part of the Southern Gas Corridor that transports Azerbaijani gas to European markets. The government does not restrict domestic investors from investing overseas.
3. Legal Regime
Transparency of the Regulatory System
Azerbaijan’s central government is the primary source of regulations relevant to foreign businesses. Azerbaijan’s regulatory system has improved in recent years, although enforcement is inconsistent, and decision-making remains opaque. Private sector associations do not play a significant role in regulatory processes. Draft legislation is neither routinely made available for public comment nor usually involves a public consultation process. The government has more regularly engaged business organizations, such as the American Chamber of Commerce in Azerbaijan (AmCham), and consulting firms on various draft laws. The website of Azerbaijan’s National Parliament, http://meclis.gov.az/ lists all the country’s laws, but only in the Azerbaijani language.
Legal entities in Azerbaijan must adhere to the International Financial Reporting Standards (IFRS). These are only obligatory for large companies. Medium-sized companies can choose between reporting based on IFRS or IFRS-SME standards, which are specially designed for large and medium enterprises. Small and micro enterprises can choose between reporting based on IFRS, IFRS-SME, or simplified accounting procedures established by the Finance Ministry.
Several U.S. companies with operations and investments in Azerbaijan previously reported they had been subjected to repeated tax audits, requests for prepayment of taxes, and court-imposed fines for violations of the tax code. These allegations have markedly decreased since 2017.
On October 19, 2015, Azerbaijan suspended inspections of entrepreneurs for two years, but inspections still may occur if a complaint is lodged. This suspension was subsequently extended through January 1, 2022. Food and pharmaceutical products are not subject to this suspension order and are inspected for quality and safety.
The government has also simplified its licensing regime. All licenses are now issued with indefinite validity through ASAN service centers and must be issued within 10 days of application. The Economy Ministry also reduced the number of activities requiring a license from 60 to 32. Over the 2020 calendar year, the Economy Ministry continued work to improve the operation of the “Licenses and Permits” portal and the integration of information systems into ASAN systems. In 2020, 358 electronic licenses were issued to entrepreneurs through the portal. 1,790 electronic licenses have been issued from the launch of the portal on March 1, 2018 to January 1, 2021.
International Regulatory Considerations
Azerbaijan has held observer status at the World Trade Organization (WTO) since 1997 but has not made significant progress toward joining the WTO for the past several years. A working party on Azerbaijan’s succession to the WTO was established on July 16, 1997 and Azerbaijan began negotiations with WTO members in 2004. The WTO Secretariat reports Azerbaijan is less than a quarter of the way to full membership. In 2016, Azerbaijan imposed higher tariffs on a number of imported goods, including agricultural products, to promote domestic production and reduce imports. In February 2020, Azerbaijani President Ilham Aliyev made public remarks outlining Azerbaijan’s “cautious” approach to the WTO, saying that “the time [had] not come” for Azerbaijan’s membership. Currently, Azerbaijan is negotiating bilateral market access with 19 economies.
Legal System and Judicial Independence
Azerbaijan’s legal system is based on civil law. Disputes or disagreements arising between foreign investors and enterprises with foreign investment, Azerbaijani state bodies and/or enterprises, and other Azerbaijani legal entities, are to be settled in the Azerbaijani court system or, upon agreement between the parties, in a court of arbitration, including international arbitration bodies. The judiciary consists of the Constitutional Court of the Republic of Azerbaijan, the Supreme Court of the Republic of Azerbaijan, the appellate courts of the Republic of Azerbaijan, trial courts, and other specialized courts. Trial court judgments may be appealed in appellate courts and the judgments of appellate courts can be appealed in the Supreme Court. The Supreme Court is the highest court in the country. Under the Civil Procedure Code of Azerbaijan, appellate court judgments are published within three days of issuance or within ten days in exceptional circumstances. The Constitutional Court has the authority to review laws and court judgments for compliance with the constitution.
Businesses report problems with the reliability and independence of judicial processes in Azerbaijan. While the government promotes foreign investment and the law guarantees national treatment, in practice investment disputes can arise when a foreign investor or trader’s success threatens well-connected or favored local interests. According to Freedom House’s 2020 flagship report, Azerbaijan’s court system is “subservient to the executive.” The U.S. business community has complained about inconsistent application of regulations and non-transparent decision-making.
Laws and Regulations on Foreign Direct Investment
Foreign investment in Azerbaijan is regulated by a number of international treaties and agreements, as well as domestic legislation. These include the Bilateral Investment Treaty (BIT) between the United States and Azerbaijan, the Azerbaijan-European Commission Cooperation Agreement, the Law on Protection of Foreign Investment, the Law on Investment Activity, the Law on Investment Funds, the Law on Privatization of State Property, the Second Program for Privatization of State Property, and sector-specific legislation. Azerbaijani law permits foreign direct investment in any activity in which a national investor may also invest, unless otherwise prohibited (see “Limits on Foreign Control and Right to Private Ownership and Establishment” for further information).
A January 2018 Presidential decree called for drafting a new law on investment activities to conform to international standards. The decree also established mechanisms to protect investor rights and regulate damages, including lost profit caused to investors. The details of the proposed new law have not been publicized as of April 2021.
Competition and Anti-Trust Laws
The State Service for Antimonopoly Policy and Consumer Protection under the Economy Ministry is responsible for implementing competition-related policy. The law on Antimonopoly Activity was amended in April 2016 to introduce regulations on price fixing and other anti-competitive behavior. Parliament began revising a new version of the Competition Code in late 2014, but it has not yet been adopted. Azerbaijan’s antimonopoly legislation does not constrain the size or scope of the handful of large holding companies that dominate the non-oil economy.
Expropriation and Compensation
The Law on the Protection of Foreign Investments forbids nationalization and requisition of foreign investment, except under certain circumstances. Nationalization of property can occur when authorized by parliamentary resolution, although there have been no known cases of official nationalization or requisition against foreign firms in Azerbaijan. By a decision of the Cabinet of Ministers, requisition is possible in the event of natural disaster, an epidemic, or other extraordinary situation. In the event of nationalization or requisition, foreign investors are legally entitled to prompt, effective, and adequate compensation. Amendments made to Azerbaijan’s Constitution in September 2016 enabled authorities to expropriate private property when necessary for social justice and effective use of land. According to Freedom House’s 2020 report, “[property] rights and free choice of residence are affected by government-backed development projects that often entail forced evictions, unlawful expropriations, and demolitions with little or no notice.” The Azerbaijani government has not shown any pattern of discriminating against U.S. persons by way of direct expropriations.
Dispute Settlement
ICSID Convention and New York Convention
Azerbaijan is a member of the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID convention) as well as the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The Supreme Court of Azerbaijan is responsible for recognizing and enforcing arbitral awards rendered pursuant to the Conventions. For the time being, as a method of resolving disputes in Azerbaijan, international arbitration is unpopular and underdeveloped. Domestic parties still prefer litigation as the main method of dispute settlement. Arbitration practice in Azerbaijan is limited to the recognition of foreign arbitral awards by the Supreme Court and their enforcement by the Ministry of Justice. Although there is an Azerbaijan International Commercial Arbitration Court, at present its activity is limited. Azerbaijan adopted a Law on Mediation on March 29, 2019 which requires attendance at an initial mediation session before bringing an action concerning family, labor, and business disputes. New laws amending the Civil Procedural Code and the Law on Courts and Judges were published in July 2019. Per the amendments, administrative-economic courts charged with administrative and economic disputes are divided into administrative courts and commercial courts. The newly established commercial courts are authorized to hear all commercial disputes and some other disputes affecting entrepreneurial activities. Legal experts anticipate commercial courts and administrative courts will grow to specialize respectively in commercial matters and administrative disputes, with such specialization increasing the quality of justice.
Investor-State Dispute Settlement
Azerbaijan is party to the European Conventionon Foreign Commercial Arbitration dated April 21, 1961. The Bilateral Investment Treaty (BIT) between the United States and Azerbaijan, which went into force in 2001, provides U.S. investors recourse to settle any investment dispute using the ICSID convention. Azerbaijan has been a party to three ICSID cases, two of which (Barmek v. Azerbaijan and Fondel Metal Participations and B.V. v. Azerbaijan) were settled and one of which (Azpetrol v. Azerbaijan) was decided in favor of the State. Thus far, the ICSID has not issued arbitral awards against the government of Azerbaijan. Over the past 10 years, the U.S. Embassy in Baku has been notified of three investment dispute cases regarding U.S. citizens. None of these cases, however, have been resolved.
International Commercial Arbitration and Foreign Courts
International arbitration in Azerbaijan is regulated by the Law on International Commercial Arbitration, based on the UNCITRAL model law. Parties may select arbitrators of any nationality, the language of the proceedings, the national law to be applied, and the arbitration procedure to be used. In cases in which parties did not stipulate the terms of the proceedings, the Supreme Court of the Republic of Azerbaijan will resolve the omission. In 1999 Azerbaijan acceded to the New York Convention on the enforcement of foreign arbitral awards. Azerbaijan also passed a Law “On International Arbitration.” Accession to the New York Convention has greatly increased the utility of overseas arbitrations, while the Law “On International Arbitration” provides for international arbitrations with the place of arbitration in Baku. This law aimed to resolve difficulties in instances where it is impractical or inadvisable to arbitrate abroad (for example, for reasons of cost, language, or law). However, as no procedural mechanism has been established in Azerbaijan for the enforcement of a local arbitral award, arbitration proceedings inside Azerbaijan are fraught with difficulties. Though both the Law “On International Arbitration” and the New York Convention have been in force in Azerbaijan for several years, foreign arbitration is not necessarily effective and attempts to enforce foreign arbitral awards have been largely untested.
Bankruptcy Regulations
Azerbaijan’s Bankruptcy Law applies only to legal entities and entrepreneurs, not to private individuals. Either a debtor facing insolvency or any creditor may initiate bankruptcy proceedings. In general, the legislation focuses on liquidation procedures. The bankruptcy law in Azerbaijan is underdeveloped, which restricts private sector economic development by deterring entrepreneurship. Amendments to Azerbaijan’s bankruptcy law adopted in 2017 extended the obligations of bankruptcy administrators and defined new rights for creditors. In the World Bank’s “Doing Business” report’ssection on resolving insolvency, Azerbaijan’s ranking decreased from 45 in 2019 to 47 in 2020 out of 190 countries.
6. Financial Sector
Capital Markets and Portfolio Investment
Access to capital is a critical impediment to business development in Azerbaijan. An effective regulatory system that encourages and facilitates portfolio investment, foreign or domestic, is not fully in place. Though the Baku Stock Exchange opened in 2000, there is insufficient liquidity in the market to enter or exit sizeable positions. The Central Bank assumed control over all financial regulation in January 2020, following disbandment of a formerly independent regulator. Non-bank financial sector staples such as capital markets, insurance, and private equity are in the early stages of development. The Capital Market Modernization Project is an attempt by the government to build the foundation for a modern financial capital market, including developing market infrastructure and automation systems, and strengthening the legal and market frameworks for capital transactions. One major hindrance to the stock market’s growth is the difficulty in encouraging established Azerbaijani businesses to adapt to standard investor-friendly disclosure practices, which are generally required for publicly listed companies.
Azerbaijan’s government and Central Bank do not restrict payments and transfers for international transactions. Foreign investors are permitted to obtain credit on the local market, but smaller companies and firms without an established credit history often struggle to obtain loans on reasonable commercial terms. Limited access to capital remains a barrier to development, particularly for small and medium enterprises.
Money and Banking System
The country’s financial services sector – of which banking comprises more than 90 percent – is underdeveloped, which constrains economic growth and diversification. The drop in world oil prices in 2014/2015 and the resulting strain on Azerbaijan’s foreign currency earnings and the state budget exacerbated existing problems in the country’s banking sector and led to rising non-performing loans (NPLs) and high dollarization. Subsequent reforms have improved overall sector stability. President Aliyev signed a decree in February 2019 to provide partial relief to retail borrowers on foreign-currency denominated loans that meet certain criteria.
As of January 1, 2021, 26 banks were registered in Azerbaijan, including 12 banks with foreign capital and two state-owned banks. These banks employ 18,708 people and have a combined 455 branches and 2,715 ATMs nationwide. Total banking sector assets stood at approximately USD 18.5 billion as of January 2021, with the top five banks holding almost 60 percent of this amount.
In December 2019, Azerbaijan carried out a banking management reform that gave the Central Bank of Azerbaijan control over banks and credit institutions, closing the Chamber for Control over Financial Markets, which had held regulatory powers following Azerbaijan’s 2014/2015 economic crisis and resulting currency devaluations. Concurrently, the Central Bank announced “recovery of the banking sector” would be one of the main challenges it would tackle in 2020. The Central Bank closed four insolvent banks (Attabank, AGBank, NBCBank, and Amrah Bank) in April/May 2020, bringing the number of banks in the country down from 30 to 26. Only a limited number of banks are able to conduct correspondent banking transactions with the United States.
Foreign banks are permitted in Azerbaijan and may take the form of representative offices, branches, joint ventures, and wholly owned subsidiaries. These banks are subject to the same regulations as domestic banks, with certain additional restrictions. Foreign individuals and entities are also permitted to open accounts with domestic or foreign banks in Azerbaijan.
Foreign Exchange and Remittances
Foreign Exchange
Azerbaijan’s Central Bank officially adopted a floating exchange rate in 2016 but continues to operate under an “interim regime” that effectively pegs the exchange rate at AZN 1.7 per USD. Azerbaijan’s foreign currency reserves are based on the reserves of the Central Bank, those of the State Oil Fund of Azerbaijan (SOFAZ), and the assets of the State Treasury Agency under the Finance Ministry. Foreign currency reserves of the Central Bank increased by 2 percent during 2020 and totaled USD 6.36 billion in January 2021. Between January 2020 and January 2021, SOFAZ assets increased by 0.5 percent to reach USD 43.5 billion.
Foreign exchange transactions are governed by the Law on Currency Regulation. The Central Bank administers the overall enforcement of currency regulation. Currency conversion is carried out through the Baku Interbank Currency Exchange Market and the Organized Interbank Currency Market.
There are no statutory restrictions on converting or transferring funds associated with an investment into freely usable currency at a legal, market-clearing rate. The average time for remitting investment returns is two to three business days. Some requirements on disclosure of the source of currency transfers have been imposed to reduce illicit transactions.
Remittance Policies
Corporate branches of foreign investors are subject to a remittance tax of 10 percent on all profits derived from its business activities in Azerbaijan. There have not been any recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances. There do not appear to be time limitations on remittances, including dividends, returns on investment, interest and principal on private foreign debt, lease payments, royalties, and management fees. Nor does there appear to be limits on the inflow or outflow of funds for remittances of profits or revenue.
Sovereign Wealth Funds
Azerbaijan’s sovereign wealth fund is the State Oil Fund of Azerbaijan (SOFAZ). Its mission is to transform hydrocarbon reserves into financial assets generating perpetual income for current and future generations and to finance strategically important infrastructure and social projects of national scale. While its main statutory focus is investing in assets outside of the country, since it was established in 1999 SOFAZ has financed several socially beneficial projects in Azerbaijan related to infrastructure, housing, energy, and education. The government’s newly adopted fiscal rule places limits on pro-cyclical spending, with the aim of increasing hydrocarbon revenue savings. SOFAZ publishes an annual report which it submits for independent audit. The fund’s assets totaled USD 43.5 billion as of January 1, 2021. More information is available at oilfund.az.
7. State-Owned Enterprises
In Azerbaijan, state-owned enterprises (SOEs) are active in the oil and gas, power generation, communications, water supply, railway, and air passenger and cargo sectors, among others. There is no published list of SOEs. While there are no SOEs that officially have been delegated governmental powers, companies such as the State Oil Company of Azerbaijan (SOCAR), Azerenerji (the national electricity utility), and Azersu (the national water utility) – all of which are closed joint-stock companies with majority state ownership and limited private investment – enjoy quasi-governmental or near-monopoly status in their respective sectors.
SOCAR is wholly owned by the government of Azerbaijan and takes part in all oil and gas activities in the country. It publishes regular reports on production volumes, the value of its exports, estimates of investments in exploration and development, production costs, the names of foreign companies operating in the country, production data by company, quasi-fiscal activities, and the government’s portion of production-sharing contracts. SOCAR is also responsible for negotiating Production Sharing Agreements (PSAs) with all foreign partners for hydrocarbon development. SOCAR’s annual financial reports are audited by an independent external auditor and include the consolidated accounts of all SOCAR’s subsidiaries, although revenue data is incomplete.
There have been instances where state-owned enterprises have used their regulatory authority to block new entrants into the market. SOEs are, in principle, subject to the same tax burden and tax rebate policies as their private sector competitors. However, in sectors that are open to both private and foreign competition, SOEs generally receive a larger percentage of government contracts or business than their private sector competitors. While SOEs regularly purchase or supply goods or services from private sector firms, domestic and foreign private enterprises have reported problems competing with SOEs under the same terms and conditions with respect to market share, information, products and services, and incentives. Private enterprises do not have the same access (including terms) to financing as SOEs. SOEs are also afforded material advantages such as preferential access to land and raw materials – advantages that are not available to private enterprises. There is little information available on Azerbaijani SOEs’ budget constraints, due to the limited transparency in their financial accounts.
Privatization Program
A renewed privatization process started with the May 2016 presidential decree implementing additional measures to improve the process of state property privatization and the July 2016 decree on measures to accelerate privatization and improve the management efficiency of state property. The State Committee on Property Issues launched a portal to provide privatization information, privatization.az, in July 2016. The portal contains information about the properties, their addresses, location, and initial costs with the aim of facilitating privatization. Azerbaijan’s current privatization efforts focus on smaller state-owned properties. While there are no immediate plans to privatize large SOEs, Azerbaijan is moving 21 major government-owned companies to a new state holding company tasked to improve efficiency and corporate governance as well as prepare them for possible privatization. However, the government has no plans to sell stakes in state companies in 2021, including in state oil company SOCAR.
Bahamas, The
1. Openness To, and Restrictions Upon, Foreign Investment
Policies towards Foreign Direct Investment
The government encourages FDI, particularly in the tourism and financial services sector. The National Investment Policy (NIP) and the Commercial Enterprises Act (CEA) explicitly encourage foreign investment in certain sectors of the economy: touristic resorts; upscale villas, condominium, timeshare, and second home development; international business centers; aircraft and maritime services; marinas; information and data processing; information technology services; light industry manufacturing and assembly; agro-industries; mari-culture; food and beverage processing; banking and other financial services; offshore medical centers and services; e-commerce; arbitration; international arbitrage; computer programming; software design and writing; bioinformatics and analytics; and data storage and warehousing.
The Bahamas has an investment promotion strategy that includes multiple government agencies working to attract foreign direct investment. The Bahamas Investment Authority (BIA) (www.bahamas.gov.bs/bia) takes the lead on administering investment policies, functions as the investment facilitation agency, and acts as a ‘one stop shop’ to assist investors in navigating the cumbersome approvals process. All foreign investors must apply for approval from the BIA. Each administration has consistently supported new investment and has generally honored agreements made by previous administrations. The current government has introduced policies and legislative support for Small and Medium Enterprises (which represent 85 percent of registered businesses), and in 2018 launched the Small Business Development Centre (SBDC). The SBDC provides business advisory services, training, professional development opportunities, incubation services, access to capital, and advocacy for individual businesses. In response to the pandemic and to create opportunities for Bahamian entrepreneurs, the government earmarked $250 million in 2020 for loans and grants over five years to local small and medium enterprises.
The Bahamas reserves certain sectors of the economy for Bahamian investors. The reserved areas are: wholesale and retail operations (although international investors may engage in the wholesale distribution of any product they produce locally); agencies engaged in import or export; real estate agencies and domestic property management; domestic newspapers and magazine publications; domestic advertising and public relations firms; nightclubs and restaurants except specialty, gourmet, and ethnic restaurants, and those operating in a hotel, resort or tourist attraction; security services; domestic distribution of building supplies; construction companies except for special structures requiring foreign expertise; personal cosmetic or beauty establishments; commercial fishing including both deep water fishing and shallow water fishing of crustaceans, mollusks, fish, and sponges; auto and appliance services; public transportation including boat charters; and domestic gaming. The government does make exceptions to this policy on a case-by-case basis, and the Embassy is aware of several cases in which the Bahamian government has granted foreign investors full market access.
With the exception of these sectors, the Bahamian government does not give preferential treatment to investors based on nationality, and investors have equal access to incentives, which include land grants, tax concessions, and direct marketing and budgetary support. The government provides guidelines for investment through the National Investment Policy (NIP), administered by the BIA, and through the Commercial Enterprises Act (CEA) administered by the Ministry of Financial Services, Trade & Industry and Immigration. The CEA provides incentives to domestic and foreign investors to establish specific investment projects, including approval of a specified number of work permits for senior posts and the expedited issuance of work permits.
Large foreign investment projects, particularly those that require environmental and economic impact assessments, require approval by the National Economic Council (NEC) of The Bahamas. This process generally requires review by multiple government agencies prior to NEC consideration. Bureaucratic impediments are not limited to the NEC approvals process, and the country continues to lag on international metrics related to starting a business. According to the 2020 World Bank Doing Business rankings, The Bahamas scores 119 out of 190 countries overall, 181 in registering property, 77 in getting construction permits, 152 in access to credit, and 71 in resolving insolvency. All these categories saw a decrease in ratings from 2019 metrics, with the exception of getting construction permits. The Embassy is aware of cases of significant delays in the approvals process, including cases where the Bahamian government failed to respond to investment applications. Despite bureaucratic challenges and the impact of COVID-19, investment continues in tourism, finance, construction, and fast-food franchises.
In response to the losses from Hurricane Dorian and the economic fallout from COVID-19, the government announced efforts to accelerate FDI, including liberalization of requirements for investment and accelerating the review process for proposals. In April 2020, the government also appointed an Economic Recovery Committee (ERC) – a public-private coalition to develop recommendations for government policies to addresses the economic impact of the COVID-19 pandemic. The ERC’s full report can be accessed via https://opm.gov.bs/economic-recovery-committee-executive-summary-report-2020/.
The ERC’s nearly two dozen recommendations were intended to transform the Bahamian investment regime, remove structural impediments, and incentivize domestic and foreign investment. The government accepted certain recommendations, including the establishment of an entrepreneur visa for persons wishing to work or study from The Bahamas for one year (www.bahamasbeats.com), limiting approvals for projects under $10 million, creating special economic zones on lesser developed islands, and establishing an autonomous agency to oversee a modern investment regime (INVESTBAHAMAS). With this new agency in place, bureaucratic delays, functionality and transparency are expected to improve. The agency will reportedly give priority to high-tech financial products, biotechnology, renewable energy investments, and climate adaptability projects. INVESTBAHAMAS remains in the planning stages.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign investors have the right to establish private enterprises and, after approval, most companies operate unencumbered. Key considerations for approval include economic impact, job creation, infrastructural development, economic diversification, environmental protection and corporate social responsibility. With the assistance of a local attorney, investors can create the following types of businesses: sole proprietorship, limited or general partnership, joint stock company, or subsidiary of a foreign company. The most popular all-purpose vehicles for foreign investors are the International Business Company (IBC) and the Limited Duration Company (LDC). Both benefit from income, capital gains, gift, estate, inheritance, and succession tax exemptions. Investors are required to establish a local company and be registered to operate in The Bahamas.
Other Investment Policy Reviews
The Bahamas ranks 119 out of 190 countries in terms of “ease of doing business” in the 2020 World Bank Doing Business Report. Seehttp://doingbusiness.org/rankings. The Bahamas is the only Western Hemisphere country not in the WTO, and therefore has never benefitted from a WTO trade policy review. The current government launched accession negotiations with the WTO in April 2019, initially announcing the goal of full membership later the same year. However, the government later described the 2019 target as purely aspirational, confirming it was unlikely accession would take place before 2025. A vocal domestic constituency opposes WTO accession on the grounds that membership will hurt domestic producers and service providers.
Neither the OECD nor UNCTAD have conducted investment policy reviews. The Bahamas achieved the G-20 standard on transparency and cooperation on tax matters, a standard initially advanced by the OECD.
Business Facilitation
According to the 2020 World Bank Doing Business Index, starting a business in The Bahamas takes 12 days, requires seven procedures, and costs the same for both men and women. In 2017, the Bahamian government streamlined this process and launched an e-business portal, which allowed companies to apply for or renew their business licenses online (http://inlandrevenue.finance.gov.bs/business-licence/copy-applying-b-l/).
In 2020, as part of the business license application process, the government expanded provisional licenses for many small, domestic businesses so the majority would be able to start operations while awaiting formal approval. The government also removed the fee for starting a new business and renewed business licenses in under 48 hours. Foreign companies and most larger businesses are not eligible for provisional licenses, expedited renewals, or new business license fee exemptions.
All companies with an annual turnover of $100,000 or more are required to register with the government to receive a Tax Identification Number and a Value Added Tax Certificate. The lengthy registration processes are generally viewed as an impediment to the ease of doing business.
Outward Investment
The Bahamian government neither promotes nor prohibits its citizens from investing internationally, however, all outward direct investments by residents require the prior approval of the Exchange Control Department of the Central Bank of The Bahamas (https://www.centralbankbahamas.com/exchange-control-notes-and-guidelines). Applications are considered in light of the probable impact the investments may have on The Bahamas’ balance of payments, specifically business activities that promote the receipt of foreign currency.
3. Legal Regime
Transparency of the Regulatory System
The Bahamas’ legal and regulatory systems are transparent and generally consistent with international norms. The Bahamian government is reforming public accounting procedures to conform to international financial reporting standards. In March 2021, the government passed a suite of legislation aimed at improving the country’s fiscal governance by enhancing transparency and accountability. The legislation included the Public Debt Management Bill (2021) that seeks to enshrine proper debt management policies into law and improve transparency concerning central government and SOE debt; the Public Finance Management Bill (2021) that expands budgetary and fiscal reporting requirements for central government and SOEs; the Statistics Bill (2021) that transforms the current Department of Statistics into a quasi-independent National Statistics Institute; and the Public Procurement Bill (2020), that overhauls current arrangements for government contracts to improve transparency and accountability.
Proposed legislation is available at the Government Publications Office and public engagement is encouraged, particularly on controversial legislation. There is no equivalent to the Federal Register, but the government regularly updates its website ( www.bahamas.gov.bs ) to list draft legislation, bills before parliament, and its legislative agenda. Regulatory system reform legislation has not been fully implemented. Public consultation on investment proposals is not required by law. The Embassy is unaware of any informal regulatory processes managed by non-governmental organizations (NGOs) or private sector associations that restrict foreign participation in the economy.
The Fiscal Responsibility Act (FRA) was passed in 2018 to establish broad parameters related to revenue, expenditure, deficits, and public debt. It also calls for an annual Fiscal Strategy Report (FSR) which provides a three-year fiscal forecast that sets targets for the preparation of the government’s annual budgets. The 2020 FSR gave a detailed synopsis of the state of public finances and future plans for revenue, expenditure, debt, and economic growth. The government presents the FSR and makes financial information available during the budget submissions to parliament. The information is also published on the government’s budget website ( www.bahamasbudget.gov.bs ) in simple and non-technical language.
Although efforts have been made to fulfill FRA reporting obligations, The Bahamas’ supreme audit institution, the Office of the Auditor General, has not published a timely audit report of the government’s budget for several years. The last publicly available audit covers fiscal year 2016/2017. Acknowledging the need to meet international standards, the Office of the Auditor General is liaising with the U.S. Global Accountability Office to identify ways to fulfill its reporting obligations.
The government has taken on increasing levels of debt during the COVID-19 pandemic in order to provide social safety nets while stimulating the economy. Some observers consider the debt levels unsustainable and have even speculated about the possibility of default. The Central Bank of The Bahamas denies this speculation and provides quarterly updates on debt obligations on its website ( www.centralbankbahamas.com ).
International Regulatory Considerations
The Bahamas is not a member of the WTO, so does not notify the WTO Committee on Technical Barriers to Trade (TBT) of draft technical regulations. As part of WTO accession negotiations launched in 2018, The Bahamas announced it is reviewing investment policies with the aim of developing comprehensive, WTO-compliant investment legislation. The Bahamas is not a member of UNCTAD’s international network of transparent investment procedures, nor is it a member of a regional economic bloc.
The Bahamas has enacted basic laws governing standards. The Bahamas Bureau of Standards and Quality (BBSQ), launched in 2016, governs standards for goods and services, particularly metrology (weights and balances). BBSQ also cooperates with other ministries on quality standards, such as sanitary and phytosanitary standards with the Ministry of Agriculture and Marine Resources and the Bahamas Health and Food Safety Agency (BAHFSA). BBSQ serves as the country’s focal point on trade barrier issues and is supported by the EU and the Caribbean Regional Organization for Standards and Quality (CROSQ) in the development of national standards. Trade barriers are not a hindrance to trade with the United States and U.S. products are widely accepted.
Legal System and Judicial Independence
The Bahamian legal system is based on English common law and foreign nationals are afforded full rights in Bahamian legal proceedings. Contracts are legally enforced through the courts, however, there are instances where local and foreign investors have civil disputes tied up in the court system for many years. Investors have been defrauded of sums ranging from several hundred thousand to several million dollars, but the court system has lacked the capacity to recover their investments. Throughout 2020, a U.S. investor and a government utility company were engaged in a civil dispute concerning the termination of a contract, non-payment for services provided, and ownership of equipment and materials. This case is ongoing.
The judiciary is independent and allegations of government interference in the judicial process are rare. With the recommendation of the Prime Minister, the Governor General appoints the highest-ranking officials in the judicial system, including the Chief Justice of the Supreme Court, the Attorney General, the Director of Public Prosecutions, and the President of the Court of Appeals. The Bahamas is a member of the Commonwealth of Nations and uses the Privy Council Judicial Committee in London as the final court of appeal and also contributes financially to the operations of the Caribbean Court of Justice. The Bahamas continues to advance efforts to develop its reputation as a center for international arbitration by drafting legislation to govern domestic arbitration and incorporate key provisions of the Model Law of the United Nations Commission on International Trade Law (UNCITRAL). The legislation has not yet been passed.
In 2020, the government announced it continued to leverage alternative dispute resolution (ADR) as a method of resolving disputes without resorting to the court system, including by establishing an ADR unit in mid-August 2020 and developing a two-year strategic plan to promote this method for settling commercial and other types of disputes.
Judgments by British courts and select Commonwealth countries can be registered and enforced in The Bahamas under the Reciprocal Enforcement of Judgments Act. Court judgments from other countries, including those of the United States, must be litigated in local courts and are subject to Bahamian legal requirements. The current government is taking steps to increase judicial transparency and efficiency. Their goal is to modernize the justice system by digitizing court records, streamlining court administration, constructing a new Supreme Court complex, and drafting new rules and legislation to govern court procedures. Progress has been mixed.
Laws and Regulations on Foreign Direct Investment
While some public pronouncements have been made on FDI policies, no major laws, regulations, or judicial decisions have been passed since the 2020 Investment Climate Statement. The government has drafted a Foreign Investment Bill purported to codify the existing National Investment Policy, align with international best practices, and bring additional transparency, accountability, and predictability to the country’s foreign investment process. The Embassy is not aware of efforts to advance this Bill in 2020.
Competition and Anti-Trust Laws
The Utilities Regulation and Competition Authority (URCA) regulates the telecommunications and energy sectors and imposes antitrust restrictions in these sectors. However, there is no legislation governing competition or anti-trust. A Competition (Antitrust) Bill has been drafted in line with The Bahamas’ CARIFORUM-EU obligations and WTO accession requirements, and initial public consultations were held in August 2018. The Embassy is not aware of any efforts to advance this Bill in 2020.
URCA continues to build technical capacity with the support of the U.S. Government.
Expropriation and Compensation
Property rights are protected under Article 27 of the Bahamian constitution, which prohibits the deprivation of property without prompt and adequate compensation. There have been compulsory acquisitions of property for public use, but in all instances, there was satisfactory compensation at fair market value.
The Emergency Power (COVID-19) Regulations, passed in March 2020 to stem COVID-19 infections, grant the government authorization to requisition any building, ship, aircraft, or article if it is reasonably required for any statutory purpose for the duration of the emergency. At the conclusion of the requisition, the government is to make prompt and adequate compensation to the owner. The Regulations are expected to expire upon cancelation of the state of emergency. The Embassy is not aware of any instance in 2020 where the government invoked this law.
Dispute Settlement
ICSID Convention and New York Convention
The Bahamas is a member of both the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) Convention and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the New York Convention). Disputes between companies are generally handled in local courts, but foreign investors can refer cases to ICSID and in at least one instance, recourse was sought in a U.S. court in a dispute involving a $4 billion resort development. The Bahamas’ Arbitration Act of 2009 enacted the New York Convention and provides a legal framework.
Investor-State Dispute Settlement
Order 66 of the Rules of the Bahamian Supreme Court provides rules for arbitration proceedings. The 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards entered into force for The Bahamas on March 20, 2007. This convention provides for the enforcement of agreements for commercial disputes. Under the convention, courts of a contracting state can enforce such an agreement by referring the parties to arbitration. There are no restrictions on foreign investors negotiating arbitration provisions in private agreements.
The Bahamas is a signatory to Economic Partnership Agreements between CARIFORUM and the European Union (2008) and CARIFORUM and the United Kingdom (2019). Both agreements include dispute settlement provisions and procedures. The Bahamas has not yet ratified either of the trade agreements, but provisionally applies both.
Investment disputes in The Bahamas that directly involve the Bahamian government are rare and there is no history of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
The Bahamas is a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA), which insures investors against current transfer restrictions, expropriation, war and civil disturbances, and breach of contract by member countries. Local courts enforce and recognize foreign arbitral awards and foreign investors are provided national treatment. The Embassy is not aware of any cases involving state owned enterprises that resulted in litigation.
Bankruptcy Regulations
Company liquidations, voluntary or involuntary, proceed according to the Companies Act. Liquidations are routinely published in newspapers in accordance with the legislation. Creditors of bankrupt debtors and liquidated companies participate in the distribution of the bankrupt debtor’s or liquidated company’s assets according to statute. U.S. investors should be aware that there is no equivalent to Chapter 11 bankruptcy law provisions to protect assets located in The Bahamas.
The Bahamas ranked 152 out of 190 countries with regards to getting credit in the 2020 Ease of Doing Business report, indicating relatively weak credit reporting systems and the ineffectiveness of collateral and bankruptcy laws in facilitating lending. Recognizing the need for credit reforms, the Credit Reporting Act was passed in February 2018, and the Central Bank confirmed that Italian-based CRIF S.P.A. would launch The Bahamas’ first credit bureau in 2021. Bahamian commercial banks and other lenders will be required to share their clients’ credit history with CRIF and allowed to access credit reports.
6. Financial Sector
Capital Markets and Portfolio Investment
The government encourages the free flow of capital markets, and the Central Bank supports this flow through its regulatory functions. The Bahamas is an Article VIII member of the IMF and has agreed not to place restrictions on currency transactions, such as payments for imports. The Bahamas Securities Commission regulates the activities of investment funds, securities, and capital markets ( www.scb.gov.bs ). The fledgling local stock market, established in 1999, excludes foreign investors but is effectively regulated by the Securities Commission.
There are no legal limitations on foreigners’ access to the domestic credit market, and commercial banks make credit available at market rates. The government encourages Bahamian-foreign joint ventures, which are eligible for financing through both commercial banks and the Bahamas Development Bank ( http://www.bahamasdevelopmentbank.com/ ).
Customarily, the government does not prohibit its citizens from investing internationally. However, all outward direct investments by residents, including foreign portfolio investments, require the prior approval of the Exchange Control Department of the Central Bank of The Bahamas ( www.centralbankbahamas.com/exchange – controls). Applications are assessed by their probable impact on The Bahamas’ balance of payments, specifically business activities that promote the receipt of foreign currency.
In an effort to maintain adequate foreign reserves during the economic crisis brought on by COVID-19, the Central Bank suspended purchases of foreign currency on May 4, 2020 for specific transactions that could drain reserves and jeopardize the country’s ability to maintain a fixed, one-to-one exchange rate with the U.S. dollar. The Central Bank also suspended Bahamian investments in U.S.-dollar denominated investment funds created by local brokers seeking higher returns in overseas markets. The Central Bank warned it was prepared to act swiftly in imposing even harsher restrictions, if necessary, to maintain the country’s fixed exchange rate and to conserve foreign currency reserves. The suspension remained in place throughout 2020 and had not been lifted as of spring 2021.
Money and Banking System
The financial sector of The Bahamas is highly developed and consists of savings banks, trust companies, offshore banks, insurance companies, a development bank, a publicly controlled pension fund, a housing corporation, a public savings bank, private pension funds, cooperative societies, credit unions, commercial banks, and the state-owned Bank of The Bahamas. These institutions provide a wide array of services via several types of financial intermediaries. The financial sector is regulated by The Central Bank of The Bahamas, the Securities Commission, Insurance Commission, the Inspector of Financial and Corporate Service Providers, and the Compliance Commission.
According to the Central Bank’s Quarterly Economic Review of December 2020, the contraction in domestic credit outpaced the reduction in the deposit base during the fourth quarter of 2020. Consequently, both bank liquidity and external reserves expanded, bolstered by foreign currency inflows from the government’s external borrowings. However, banks’ credit indicators deteriorated during the fourth quarter due to the adverse impact of the COVID-19 pandemic. Further, data from the third quarter revealed a reduction in banks’ overall profitability, reflecting higher levels of provisioning for bad debt.
In the external sector, the estimated current account balance went from a surplus in 2019 to a deficit during the final quarter of 2020. The services account also moved from surplus to deficit, as travel restrictions associated with the COVID-19 pandemic led to a significant reduction in travel receipts. In contrast, the surplus on the capital and financial account increased considerably, owing primarily to an expansion in debt-financed government spending.
In the domestic banking sector, four of the eight commercial banks are subsidiaries of Canadian banks, three are locally owned, and one is a branch of a U.S.-based institution. Continued reorganization by the Canadian banks has severely limited banking services on some of the less populated islands.
The Central Bank’s strategic goals include responding to the loss of brick-and-mortar banks by implementing digital banking across the country. To this end, the Central Bank introduced the “Sand Dollar” in December 2019, the first central bank-backed digital currency in the world. The introduction of the new currency aims to provide individuals with efficient and non-discriminatory access to financial services. Since its launch, domestic financial and political elites have welcomed the financial inclusion of unbanked and underbanked residents. To date, nine firms (including clearing banks, money transfer services, credit unions and payment service providers) have successfully completed the cybersecurity assessment and been authorized to distribute Sand Dollars within their proprietary mobile wallets.
Although Sand Dollar accounts and transactions are theoretically subject to the same stringent anti-money laundering and Know Your Customer (KYC) safeguards as traditional commercial banks, the Central Bank’s capacity to enforce these safeguards, as well as account audit capabilities, may be limited. Additional information on the Sand Dollar can be accessed via www.sanddollar.bs/ .
Foreign Exchange and Remittances
Foreign Exchange Policies
The Bahamas maintains a fixed exchange rate policy, which pegs the Bahamian dollar one-to-one with the U.S. dollar. The legal basis for the policy is the Exchange Control Act of 1974 and Exchange Control Regulations. The controls ensure adequate foreign exchange flows are always available to support the fixed parity of the Bahamian dollar against the U.S. dollar. The peg removes issues of rate conversions and allows for unified pricing of goods and services for tourists and residents. To maintain this structure, individuals and corporations resident in The Bahamas are subject to restrictions on foreign exchange transactions, including currency purchases, payments, and investments. Similarly, Bahamians cannot make payments or investments in foreign currencies without Central Bank approval.
Exchange controls are not an impediment to foreign investment in the country. The government requires all non-resident investors in The Bahamas to register with the Central Bank, and the government allows non-resident investors who finance their projects substantially from foreign currency transferred into The Bahamas to convert and repatriate profits and capital gains freely. They do this with minimal bureaucratic formalities and without limitations on the inflows or outflows of funds.
In the administration of exchange controls, the Central Bank does not withhold or delay approval for legitimate foreign exchange purchases for currency transactions and, in the interest of facilitating international trade, it delegates this authority to major commercial banks and selected trust companies. International and local commercial banks, which are registered by the Central Bank as ‘Authorized Dealers,’ may administer and conduct foreign currency transactions with residents of The Bahamas. Similarly, private banks and trust companies which are designated as ‘Authorized Agents’ are permitted to act as depositories for foreign securities of residents and to conduct securities transactions for non-resident companies under their management.
The Central Bank directly approves foreign exchange transactions that fall outside of the delegated authority, including loans, dividends, issues and transfer of shares, travel facilities, and investment currency. The government has continued gradual liberalization of exchange controls over the years with the most recent measure implemented in April 2016. The most recent measures delegated increased authority to commercial banks for exchange control and seek to regularize nationals holding accounts in the United States by allowing nationals to open U.S. dollar denominated accounts within the jurisdiction.
Remittance Policies
There are no restrictions on investment remittances. Foreign investors who receive a Central Bank designation as a non-resident may open foreign currency-denominated bank accounts and repatriate those funds freely. In addition, with Central Bank approval, a foreign investor may open an account denominated in Bahamian currency to pay local expenses. As mentioned, increased authority has been delegated to commercial banks and money transfer businesses.
The Bahamas is one of 25 member countries that make up the Caribbean Financial Action Task Force (CFATF), an organization dedicated to address the problem of money laundering. The organization’s most recent peer review evaluation and follow-up reports can be found at ( https://www.cfatf-gafic.org/index.php/member-countries/the-bahamas ).
Sovereign Wealth Funds
The Bahamian government passed omnibus legislation for the effective management of the oil and gas sector in 2017, which included the creation of a sovereign wealth fund, but has not yet promulgated supporting regulations. Discussions of a possible sovereign wealth fund were reignited when the Bahamas Petroleum Company, an Isle of Man-registered company, began exploratory oil drilling in Bahamian waters. The company confirmed in February 2021 that its exploratory drilling did not produce commercially viable quantities of oil.
The government nevertheless announced plans in January 2021 to accelerate the establishment of a Sovereign Wealth Fund and an accompanying National Infrastructure Fund. The government stressed the funds would derive income from royalty payments from all the country’s natural resources (such as salt, sand, rock and aragonite exports), not just potential earnings from oil exploration. The government suggested both funds would mobilize public assets and private capital to generate hundreds of millions of dollars in infrastructure investments across the country. The government committed to embrace international best practices designed to address issues of transparency, accountability and the governance structure of such funds.
7. State-Owned Enterprises
State-Owned Enterprises (SOEs) are active in the utilities and services sectors of the Bahamian economy. A list of the 25 SOEs available on www.bahamas.gov.bs includes key SOEs, such as Bahamasair Holdings Ltd. (the national airline); Public Hospitals Authority; Civil Aviation Authority; Nassau Airport Development Authority; University of The Bahamas; Health Insurance Authority; Bank of The Bahamas; Bahamas Power and Light (BPL); Water and Sewerage Corporation (WSC); Broadcasting Corporation of The Bahamas (ZNS); Nassau Flight Services; and the Hotel Corporation of The Bahamas.
In April 2019, the government announced plans to introduce a State-Owned Enterprises Bill to impose proper corporate governance and address the risk inefficient SOEs pose to its financial health. The Embassy is unaware of efforts to advance this Bill in 2020, though a suite of legislation passed in March 2021 aimed at improving the country’s fiscal governance may also improve the performance and accountability of SOEs.
Within the past decade, no SOE has returned profits or paid dividends, although SOEs account for significant government expenditure, with approximately $408 million budgeted for fiscal year 2020-2021. The latest budget also reveals that on average, nearly 16 percent of the government’s recurrent spending goes to SOE subventions, noting several SOEs required increased funding given the financial stress brought on by the COVID-19 pandemic. However, the government has maintained SOE reforms are integral to its fiscal consolidation plans and announced plans to reduce subsidies by $100 million annually over the next four years. Cost-recovery measures are to begin in mid-2021 for Bahamasair and the Water & Sewerage Cooperation in particular. The savings from SOE reform are expected to assist with meeting additional debt servicing obligations.
The government has permitted foreign investment in sectors where SOEs operate and has approved licenses to private suppliers of electrical and water and sewerage services. These licenses have been issued for private real estate developments or where there is limited government capacity to provide services. An exception is the city of Freeport on the island of Grand Bahama, which has its own licensing authority and maintains monopolies for the provision of electricity, water, and sanitation services.
Privatization Program
The Bahamian government has not taken definitive steps to privatize SOEs but has held up public-private partnerships as the preferred model going forward. The government divested 49 percent of the Bahamas Telecommunication Company in 2011 but issued a second license for cellular services and retained 51 percent equity in the new company. In his February 2018 speech, the then-Deputy Prime Minister announced the government’s intention to divest additional equity in the Bahamian telecommunications sector. In February 2019, the government accepted UK-based Global Ports Holding’s $250 million proposal to redevelop the Nassau Cruise Port, entering a 25-year lease agreement with the company. In early 2019, the company announced a bond offering to raise $130 million for the new port.
Bahrain
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The GOB has a liberal approach to foreign investment and actively seeks to attract foreign investors and businesses. Increasing FDI is a top GOB priority. The GOB permits 100 percent foreign ownership of a business or branch office, without the need for a sponsor or local business partner. The GOB does not tax corporate income, personal income, wealth, capital gains, withholding or death/inheritance. There are no restrictions on repatriation of capital, profits or dividends, aside from income generated by companies in the oil and gas sector, where profits are taxable at the rate of 46 percent. Bahrain Economic Development Board (EDB), charged with promoting FDI in Bahrain, places particular emphasis on attracting FDI to the manufacturing, logistics, ICT, financial services and tourism and leisure sectors. As a reflection of Bahrain’s openness to FDI, the EDB won the 2019 United Nations Top Investment Promotion Agency in the Middle East award for its role in attracting large-scale investments.
The United States and Bahrain signed an MOU in 2021 to establish a U.S Trade Zone in Bahrain, which aims to facilitate U.S. trade to the Gulf Cooperation Council (GCC) market.
To date, U.S. investors have not alleged any legal or practical discrimination against them based on nationality.
Limits on Foreign Control and Right to Private Ownership and Establishment
The GOB permits foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity. The GOB imposes only minimal limits on foreign control, and the right of ownership and establishment of a business. The Ministry of Industry, Commerce, and Tourism (MoICT) maintains a small list of business activities that are restricted to Bahraini ownership, including press and publications, Islamic pilgrimage, clearance offices, and workforce agencies. The U.S.-Bahrain FTA outlines all activities in which the two countries restrict foreign ownership.
U.S citizens may own and operate companies in Bahrain, though many such individuals choose to integrate influential local partners into the ownership structure to facilitate quicker resolution of bureaucratic issues such as labor permits, issuance of foreign visas, and access to industrial zones. The most common challenges faced by U.S firms are those related to bureaucratic government processes, lack of market information, and customs clearance.
Other Investment Policy Reviews
The World Trade Organization (WTO) conducts a formal Trade Policy Review of Bahrain every seven years. Its last formal review was in 2014. Bahrain is on the WTO’s Provisional Programme of Reviews for December 2021.
Business Facilitation
Bahrain ranked 43 out of 190 countries on the World Bank’s overall Ease of Doing Business Indicator in 2020.
The CBB’s regulatory sandbox allows local and international FinTech firms and digitally focused financial institutions to test innovative solutions in a regulated environment, allowing successful firms to obtain licensing upon successful product application.
The MoICT operates the online commercial registration portal “Sijilat” (www.sijilat.bh) to facilitate the commercial registration process. Through Sijilat, local and foreign business owners can obtain a business license and requisite approvals from relevant ministries. The business registration process normally takes two to three weeks but can take longer if a business requires specialized approvals. In practice, some business owners retain an attorney or clearing agent to assist them through the commercial registration process.
In addition to obtaining primary approval to register a company, most business owners must also obtain licenses from the following entities to operate their businesses:
MoICT
Electricity and Water Authority
The Municipality in which their business will be located
Labour Market Regulatory Authority
General Organization for Social Insurance
National Bureau for Revenue (Mandatory if the business revenue exceeds BD 37,500)
To incentivize foreign investment in Bahrain’s targeted sectors and investment zones, the GOB provides industrial lands at reduced rental rates; customs duty exemptions for industrial and manufacturing projects, including imports of raw material, plant machinery equipment, and spare parts; and a five-year exemption of the “Bahrainization” recruitment restriction.
Outward Investment
The GOB neither promotes nor incentivizes outward investment. The GOB does not restrict domestic investors from investing abroad.
3. Legal Regime
Transparency of the Regulatory System
In 2018, the GOB issued a competition law, a personal data protection law, a bankruptcy law, and a health insurance law to enhance the country’s investment eco-system. The Law of Commerce (Legislative Decree No. 7, passed in 1987) addresses the concept of unfair competition and prohibits acts that would have a damaging effect on competition. Companies also are forbidden from undertaking practices detrimental to their competitors or from attracting the customers of their competitors through anti-competitive means. There is no official competition authority in Bahrain and the country has yet to institute comprehensive anti-monopoly laws or an independent anti-corruption agency.
Bahrain’s industrial sector exhibits dominance by state-controlled companies such as Aluminum Bahrain (ALBA) and Gulf Petrochemical Industries Company (GPIC). De facto monopolies also exist in some industries led by individuals or family-run businesses.
The GOB uses International Financial Reporting Standards (IFRS) as part of its implementation of Generally Accepted Accounting Principles (GAAP). IFRS are used by domestic listed and unlisted companies in their consolidated financial statements for external financial reporting.
Bahrain adopted International Accounting Standard 1 (IAS 1) in 1994 in the absence of other local standards. Non-listed banks and other business enterprises use IASs in the preparation of financial statements.
The 2001 Bahrain Commercial Companies Law requires each registered entity to produce a balance sheet, a profit-and-loss account and the director’s report for each financial year. All branches of foreign companies, limited liability companies and corporations, must submit annual audited financial statements to the Directorate of Commerce and Company Affairs at the MoICT, along with the company’s articles and /or articles of association.
Depending on the company’s business, financial statements may be subject to other regulatory agencies such as the Bahrain Monetary Agency (BMA) and the Bahrain Stock Exchange (banks and listed companies).
Bahrain encourages firms to adhere to both the International Financial Reporting Standards (IFRS) and Bahrain’s Code of Corporate Governance. Bahrain-based companies by and large remain in compliance with IAS-1 disclosure requirements.
There are no informal regulatory processes managed by non-governmental organizations or private sector associations.
According to the World Bank, the GOB does not have the legal obligation to publish the text of proposed regulations before their enactment and there is no period of time set by law for the text of the proposed regulations to be publicly available. Bahrain, therefore, ranks among the countries with low rule-making transparency. ( http://rulemaking.worldbank.org/en/data/explorecountries/bahrain )
Bahrain’s laws can be drafted or proposed by the Cabinet or originate in the bicameral National Assembly, comprised of an elected, lower house Council of Representatives (COR) and an appointed, upper house Consultative Council. The independent Legislation and Legal Opinion Commission drafts legislation based on the proposals. The King’s signature is required to ratify any laws following parliamentary approval; laws are in force once published in the Official Gazette. The King may issue royal decrees (known as Decree Laws), that are immediately effective once issued, unless otherwise stated; some royal decrees are later re-drafted as legislation. GOB ministers and heads of agencies are authorized to issue regulations that pertain to the administration of their respective bodies.
Bahrain is a member of the GCC, which created a Unified Economic Agreement to expedite trade and the movement of people and goods within GCC borders. It also has adopted a number of unified GCC model laws, such as the GCC Trademark Law. Bahrain is a signatory to the Apostille Convention and is a member of the Permanent Court of Arbitration. It is a dualist state, therefore, international treaties are not directly incorporated into its law and must be approved by the National Assembly and ratified by the King.
Commercial regulations can be proposed by the EDB, MoICT, Cabinet or COR. Draft regulations are debated within the COR and Shura Council. The Bahrain Chamber of Commerce and Industry board of directors may raise concerns over drafting legislation at committee meetings or send written comments for review by Members of Parliament, but the bills are otherwise not available for public comment. The Cabinet issues final approval of regulations.
The e-Government portal and the Legislation and Legal Opinion Commission website list laws by category and date of issuance. Some laws are translated into English. The National Audit Office publishes results of its annual audits of government ministries and parastatals.
International Regulatory Considerations
As a GCC member, Bahrain has agreed to enforce GCC standards and regulations where they exist, and not to create any domestic rules that contradict established GCC-wide standards and regulations. In certain cases, the GOB applies international standards where domestic or GCC standards have not been developed. For example, the GOB mandates that imported vehicles meet either the U.S. Federal Motor Vehicle Safety Standards or the so-called “1958 Agreement” standards developed by the United Nations Economic Commission for Europe. Bahrain is a member of the WTO and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. Bahrain ratified the Trade Facilitation Agreement (TFA) in September 2016 through Law No. 17 of 2016.
Legal System and Judicial Independence
Bahrain’s Constitution defines the Kingdom as a sovereign, independent, Arab Muslim State. Although Article 2 of the Constitution states that Islamic Sharia (Islamic law) is the main source of legislation, general matters and private transactions are governed mainly by laws derived from international legislation. Three types of courts are present in Bahrain: civil, criminal, and family (Sharia) courts. The civil court system consists of lower courts, courts of appeal, and the Court of Cassation – the highest appellate court in the Kingdom, hearing a variety of civil, criminal, and family cases. Civil courts deal with all administrative, commercial, and civil cases, as well as disputes related to the personal status of non-Muslims. Family courts deal primarily with personal status matters, such as marriage, divorce, custody, and inheritance.
High-ranking judges in Bahrain come from prominent families, and in some cases, may be non-Bahraini citizens. Bahraini law borrows elements from European other Arab states’ legal codes.
Bahrain has a long-established framework of commercial law. English is widely used, and a number of well-known international (including U.S.) law firms, working in association with local partners, are authorized to practice law in Bahrain and provide expert legal services both nationally and regionally. Fees are charged according to internationally accepted practices. Non-Bahraini lawyers can represent clients in Bahraini courts. In April 2007, the government permitted international law firms to be established in Bahrain. These firms provide services such as commercial and financial consultancy in legal matters.
Entrenched local business interests with government influence can sometimes cause problems for foreign companies. Interpretation and application of the law sometimes varies by Ministry and may be dependent on the stature and connections of an investor’s local partner. These departures from the consistent, transparent application of regulations and the law are not common, and investors report general satisfaction with government cooperation and support.
The GOB is eager to develop its legal framework. The U.S. Department of Commerce’s Commercial Law Development Program (CLDP) has conducted training and capacity-building programs in Bahrain for years, in cooperation with the National Assembly, Ministry of Justice, Islamic Affairs, and Endowments, Supreme Judicial Council, and Judicial and Legal Studies Institute, and MoICT.
Judgments of foreign courts are recognized and enforceable under local courts. Article nine of the U.S.-Bahrain BIT outlines the disposition of U.S. investment cases within the Bahraini legal system. The most common investment-related concern in Bahrain has been the slow or incomplete application of the law. In general, the judicial process is fair, and cases can be appealed.
Laws and Regulations on Foreign Direct Investment
The U.S.-Bahrain BIT provides benefits and protection to U.S. investors in Bahrain, such as most-favored nation and national treatment, the right to make financial transfers freely and immediately, the application of international legal standards for expropriation and compensation cases, and access to international arbitration. The BIT guarantees national treatment for U.S. investments across most sectors, with exceptions of a limited list of activities, including ownership of television, radio or other media, fisheries, real estate brokerages, and land transportation. Bahrain provides most-favored nation or national treatment status to U.S. investments in air transportation, the purchase or ownership of land, and the purchase or ownership of shares traded on the Bahrain Bourse.
The national treatment clause in the BIT ensures American firms interested in selling products exclusively in Bahrain are no longer required to appoint a commercial agent, though they may opt to do so. A commercial agent is any Bahraini party appointed by a foreign party to represent the foreign party’s product or service in Bahrain.
Bahrain generally permits 100 percent foreign ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without local sponsors or business partners. Wholly foreign-owned companies may be set up for regional distribution services and may operate within the domestic market as long as they do not exclusively pursue domestic commercial sales. Private investment (foreign or Bahraini) in petroleum extraction is permitted.
Expatriates may own land in designated areas in Bahrain. Non-GCC nationals, including Americans, may own high-rise commercial and residential properties, as well as properties used for tourism, banking, financial and health projects, and training centers.
Bahrain issued Bankruptcy Law No. 22 in May 2018 governing corporate reorganization and insolvency. The law is based on U.S. Chapter 11 insolvency legislation and provides companies in financial difficulty with an opportunity to restructure under court supervision.
The GOB issued Competition Law No. 31 in July 2018 to prevent the formation of monopolies or the practice of anti-competitive behavior. This law makes it easier for new businesses to enter existing markets and compete with significant players.
MoICT’s Consumer Protection Directorate is responsible for ensuring that the law determining price controls is implemented and that violators are punished.
Expropriation and Compensation
There have been no expropriations in recent years, and there are no cases in contention. The U.S.-Bahrain BIT protects U.S. investments by banning all expropriations (including “creeping” and “measures tantamount to”) except those for a public purpose. Such transactions must be carried out in a non-discriminatory manner, with due process, and prompt, adequate, effective compensation.
Dispute Settlement
ICSID Convention and New York Convention
Bahrain uses multiple international and regional conventions to enhance its commercial arbitration legal framework. Bahrain is a party to the UNCITRAL Model Law on International Commercial Arbitration, the New York Convention, the International Centre for the Settlement of Investment Disputes (ICSID), and the GCC Convention for Execution of Judgments, among others. These conventions and international agreements established the foundation for the GCC Arbitration Centre, and the Bahrain Chamber for Disputes & Resolution (BCDR). Bahrain’s Constitution stipulates international conventions and treaties have the power of law.
Investor-State Dispute Settlement
Article 9 of The U.S.-Bahrain BIT provides for three dispute settlement options:
Submitting the dispute to a local court or administrative tribunals of the host country.
Invoking dispute-resolution procedures previously agreed upon by the foreign investor or company and the host country government; or,
Submitting the dispute for binding arbitration to the International Center for Settlement of Investment Disputes (ICSID) or, the Additional Facility of ICSID, or ad hoc arbitration using the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), or any other arbitral institution or rules agreed upon by both parties.
Bahrain Chamber for Dispute Resolution Court
The Bahrain Chamber for Dispute Resolution (BCDR) Court was established by Legislative Decree No. 30 of 2009. It operates in partnership with the American Arbitration Association (AAA). BCDR’s casework emanates from disputes brought before the BCDR Court and BCDR’s international arbitration wing, BCDR-AAA.
The BCDR Court administers disputes in excess of 500,000 Bahraini Dinars (approximately USD 1.3 million) in which at least one party is a financial institution licensed by the Central Bank of Bahrain, or the dispute is of an international commercial nature.
Between its establishment in 2010 and the end of 2020, BCDR registered 298 cases under its jurisdiction as a court with monetary claims totaling over USD 5.79 billion. Of these cases, 27 percent were decided or settled within 6 months; 43 percent were decided/settled within 6 to 12 months; 14 percent were decided or settled within 12 to 18 months; seven percent were decided or settled within 18 to 24 months; three percent were decided or settled after 24 months; one percent was suspended, and 5.0 percent are ongoing.
BCDR-AAA International Arbitration Center
BCDR-AAA is an international arbitration center with jurisdiction over disputes with respect to which the parties have agreed in writing that the BCDR-AAA Arbitration Rules shall apply.
As of December 2020, BCDR-AAA registered 17 cases under its jurisdiction as an international arbitration center, one in 2013, one in 2015, three in 2016, five in 2017, two in 2019, and five in 2020. Of these cases only seven are ongoing, one filed in 2017, one filed in 2019, five filed in 2020, and the rest were awarded or settled.
Bahrain Chamber for Dispute Resolution
Suite 301, Park Plaza
Bldg. 247, Road 1704
P.O. Box 20006
Manama, Kingdom of Bahrain
Tel: + (973) 17-511-311
Website: www.bcdr-aaa.org
The United Nations Conference on Trade and Development (UNCTAD) reported that Bahrain faced its first known Investor-State Dispute Settlement (ISDS) claim in 2017. The case involved investor claims over the CBB’s 2016 move to close the Manama branch of Future Bank, a commercial bank whose shareholders included Iranian banks. Bahrain and Iran are party to a BIT. UNCTAD reported another investor-state dispute case involving Qatar Airways in 2020.
International Commercial Arbitration and Foreign Courts
Arbitration procedures are largely a contractual matter in Bahrain. Disputes historically have been referred to an arbitration body as specified in the contract, or to the local courts. In dealings with both local and foreign firms, Bahraini companies have increasingly included arbitration procedures in their contracts. Most commercial disputes are resolved privately without recourse to the courts or formal arbitration. Resolution under Bahraini law is generally specified in all contracts for the settlement of disputes that reach the stage of formal resolution but is optional in those designating the BCDR. Bahrain’s court system has adequately handled occasional lawsuits against individuals or companies for nonpayment of debts.
Bahrain Law No. 9 of 2015 promulgating the Arbitration Law (the “New Arbitration Law”) came into effect on August 9, 2015. The law provides that the UNCITRAL 1985 Model Law with its 2006 amendments on international commercial arbitration (the “UNCITRAL Law”) will apply to any arbitration, taking place in Bahrain or abroad, if the parties to the dispute agreed to be subject to the UNCITRAL Law.
The GCC Commercial Arbitration Center, established in 1995, serves as a regional specialized body providing arbitration services. It assists in resolving disputes among GCC countries or between other parties and GCC countries. The Center implements rules and regulations in line with accepted international practice. Thus far, few cases have been brought to arbitration. The Center conducts seminars, symposia, and workshops to help educate and update its members on any new arbitration-related matters.
The GOB enacted its original bankruptcy and insolvency law through Decree by Law No. 11 in 1987. In May 2018, the GOB issued and ratified Law No. 22, updating the original legislation. Modeled on U.S. Chapter 11 legislation, the law introduces reorganization whereby a company’s management may continue business operations during the administration of a case. The Bankruptcy Law also includes provisions for cross-border insolvency, and special insolvency provisions for small and medium-sized enterprises that were further amended in July 2020 and enhanced creditors rights and expediting liquidation proceedings. The Bahrain credit reference bureau, known as “BENEFIT,” is licensed by the CBB and operates as the credit monitoring authority in Bahrain.
6. Financial Sector
Capital Markets and Portfolio Investment
Consistent with the GOB’s liberal approach to foreign investment, government policies facilitate the free flow of financial transactions and portfolio investments. Expatriates and Bahraini nationals have ready access to credit on market terms. Generally, credit terms are variable, but often are limited to 10 years for loans under USD 50 million. For major infrastructure investments, banks often offer to assume a part of the risk, and Bahrain’s wholesale and retail banks have shown extensive cooperation in syndicating loans for larger risks. Commercial credit is available to private organizations in Bahrain but has been increasingly crowded out by the government’s local bond issuances.
In 2016, the GOB launched a new fund designed to inject greater liquidity in the Bahrain Bourse, worth USD 100 million. The Bahrain Liquidity Fund is supported by a number of market participants and acts as a market maker, providing two-way quotes on most of the listed stocks with a reasonable spread to allow investors to actively trade their stocks. Despite these efforts, the market remains relatively small compared to others in the region.
In October 2019, the GOB established a BD 130 million (USD 344 million) Liquidity Fund to assist distressed companies in restructuring financial obligations, which was expanded in March 2020 to BD 200 million (USD 530 million) in response to the Covid-19 pandemic.
The GOB and the CBB are members of the IMF and fully compliant with Article VIII.
Money and Banking System
The CBB is the single regulator of the entire financial sector, with an integrated regulatory framework covering all financial services provided by conventional and Islamic financial institutions. Bahrain’s banking sector remains quite healthy despite sustained lower global oil prices. Bahrain’s banks remain well capitalized, and there is sufficient liquidity to ensure a healthy rate of investment. Bahrain remains a financial center for the GCC region, though many financial firms have moved their regional headquarters to Dubai over the last decade. The GOB continues to be a driver of innovation and expansion in the Islamic finance sector. In 2020, Bahrain ranked as the GCC’s leading Islamic finance market and placed third globally, according to the ICD-Thomson Reuters Islamic Finance Development Indicator (IFDI).
Bahrain has an effective regulatory system that encourages portfolio investment, and the CBB has fully implemented Basel II standards, while attempting to bring Bahraini banks into compliance with Basel III standards. Bahrain’s banking sector includes 91 retail banks, of which 61 are wholesale banks, 17 are branches of foreign banks, and 13are locally incorporated. Of these, eight are representative offices, and 18 are Islamic banks.
There are no restrictions on foreigners opening bank accounts or corporate accounts. Bahrain is home to many prominent financial institutions, among them Citibank, American Express, and JP Morgan Chase. Ahli United Bank is Bahrain’s largest bank with total assets estimated at USD 40.1 billion as of December 2020.
Bahrain implemented the Real-Time Gross Settlement (RTGS) System and the Scripless Securities Settlement (SSS) System in 2007 to enable banks to carry out their payment and securities-related transactions securely on a real time basis.
In 2017, Bahrain became the first in the GCC to introduce fintech “sandbox” regulations that enabled the launch of cryptocurrency and blockchain startups. The same year, the CBB released additional regulations for conventional and Sharia-compliant financing-based crowdfunding businesses. Any firm operating electronic financing/lending platforms must be licensed in Bahrain under the CBB Rulebook Volume 5 – Financing Based Crowdfunding Platform Operator. In February 2019, the CBB issued cryptocurrency regulations.
Foreign Exchange and Remittances
Foreign Exchange
Bahrain has no restrictions on the repatriation of profits or capital and no exchange controls. Bahrain’s currency, the Bahraini Dinar (BD), is fully and freely convertible at the fixed rate of USD 1.00 = BD 0.377 (1 BD = USD 2.659). There is no black market or parallel exchange rate. There are no restrictions on converting or transferring funds, whether or not associated with an investment.
Remittance Policies
The CBB is responsible for regulating remittances, and its regulations are based on the Central Bank Law ratified in 2006. Foreign workers comprise the majority of the labor force in Bahrain, many of whom remit significant quantities of funds to their countries of origin. Commercial banks and currency exchange houses are licensed to provide remittances services.
Commercial banks and currency exchange houses require two forms of identification before processing a routine remittance request, and any transaction exceeding USD 10,000 must include a documented source of the income.
Bahrain enables foreign investors to remit funds through a legal parallel market, with no limitations on the inflow or outflow of funds for remittances of profits or revenue. The GOB does not engage in currency manipulation tactics.
The GCC is a member of the Financial Action Task Force (FATF). Bahrain is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), whose headquarters are located in Bahrain. Participating countries commit to combat the financing of terrorist groups and activities in all its forms and to implement FATF recommendations. The GOB hosted the MENAFATF’s 26th Plenary Meeting Manama in 2017.
Sovereign Wealth Funds
Bahrain established Mumtalakat, its sovereign wealth fund, in 2006. Mumtalakat, which maintains an investment portfolio valued at roughly BD 7.1 billion (USD 18.9 billion) as of 2019, issues an annual report online. The annual report follows international financial reporting standards and is audited by external auditing firms. By law, state-owned enterprises (SOEs) under Mumtalakat are audited and monitored by the National Audit Office. In 2019, Mumtalakat received the highest-possible ranking in the Linaburg-Maduell Transparency Index for the sixth consecutive year, which specializes in ranking the transparency of sovereign wealth funds. However, Bahrain’s sovereign wealth fund does not follow the Santiago Principles.
Mumtalakat holds majority stakes in several firms. Mumtalakat invests 63 percent of its funds in the Middle East, 29 percent in Europe, and eight percent in the United States. The fund is diversified across a variety of business sectors including real estate and tourism, financial services, food and agriculture, and industrial manufacturing.
Mumtalakat often acts more as an active asset management company than a sovereign wealth fund, including by taking an active role in managing SOEs. Most notably, Mumtalakat has been instrumental in helping Gulf Air, Bahrain’s state-owned airline, restructure and contain losses. A significant portion of Mumtalakat’s portfolio is invested in 31 Bahrain-based SOEs.
Through 2016, Mumtalakat had not been directly contributing to the State Budget. Beginning in September 2017, however, Mumtalakat annually contributed USD 53 million to the State Budget, which was increased to USD 106 million in the 2021-2022 State Budget.
7. State-Owned Enterprises
Bahrain’s major SOEs include the Bahrain Petroleum Company (BAPCO), Aluminum Bahrain (ALBA), Gulf Petrochemical Industries Company (GPIC), Gulf Air, Bahrain Telecommunications Company (BATELCO), National Bank of Bahrain (NBB), Bahrain Flour Mills, Tatweer Petroleum, and Arab Shipbuilding and Repair Yard (ASRY). While the GOB maintains full ownership of oil production, refineries, and heavy industries, it allows investment in ALBA, BATELCO, and ASRY, and encourages private sector competition in the banking, manufacturing, telecommunications, shipyard repair, and real estate sectors.
The SOEs are managed by two government-run holding companies: The National Oil and Gas Authority (NOGA) Holding Company, which owns nine energy sector companies, and Mumtalakat, which owns 31 domestic companies in all other sectors. The full portfolio of the NOGA Holding Company can be viewed at www.nogaholding.com/portfolio/, while the full portfolio of Mumtalakat companies can be viewed at www.bmhc.bh.
Bahrain is not a party to the WTO Government Procurement Agreement (GPA), however, in 2008 Bahrain was granted “observer” status in the GPA committee.
Private enterprises can, in theory, compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives. In practice, however, given the relatively small size of Bahrain’s economy, large SOEs such as ALBA, BAPCO, GPIC and ASRY have an outsized influence in the market.
In 2002, the GOB instituted guidelines to ensure its SOEs were in line with OECD policies on corporate governance. SOEs produce quarterly reports. The National Audit Office monitors all SOEs and annually reports any irregularities, mismanagement, and corruption.
Both funds are managed by government-appointed boards: Mumtalakat’s board is chaired by the Deputy Prime Minister Khalid bin Abdulla Al Khalifa, and NOGA Holding’s board is chaired by the Minister of Oil Mohammed bin Khalifa Al Khalifa.
All Bahraini SOEs have an independent board of trustees with well-structured management. The Mumtalakat Holding Company is represented by a Board of Trustees appointed by the Crown Prince, while NOGA Holding’s Board of Trustees is appointed by a Royal Decree. Each holding company then appoints the Board of Trustees for the SOEs under its authority. In some cases, the appointment of the Board of Trustees is politically driven.
Privatization Program
The GOB has been supportive of privatization as part of its Economic Vision 2030, and advocates for increased foreign investment as a means of driving private sector growth. The GOB’s decision to privatize the telecommunications sector in the early 2000s is an example of incentivizing private sector growth in Bahrain. In 2018, the GOB began to privatize some government administered medical services, such as pre-employment screenings. It has also begun the process of privatizing other support services at GOB medical facilities, such as transportation, cleaning, laundry, textiles, maintenance, and security.
In May 2019, the GOB loosened foreign ownership restrictions in the oil and gas sector, allowing 100 percent foreign ownership in oil and gas extraction projects, under certain production-sharing agreements.
Bangladesh
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Bangladesh actively seeks foreign investment. Sectors with active investments from overseas include agribusiness, garment and textiles, leather and leather goods, light manufacturing, electronics, light engineering, energy and power, information and communications technology (ICT), plastic, healthcare, medical equipment, pharmaceutical, ship building, and infrastructure. It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.
Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:
Arms and ammunition and other defense equipment and machinery.
Forest plantation and mechanized extraction within the bounds of reserved forests.
Production of nuclear energy.
Security printing (items such as currency, visa foils, and tax stamps).
The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with supervising and promoting private investment. The BIDA Act of 2016 approved the merger of the now-disbanded Board of Investment and the Privatization Committee. BIDA is directly supervised by the Prime Minister’s Office and the Executive Chairman of BIDA holds a rank equivalent to Senior Secretary, the highest rank within the civil service. BIDA performs the following functions:
Provides pre-investment counseling services.
Registers and approves private industrial projects.
Issues approval of branch/liaison/representative offices.
Issues work permits for foreign nationals.
Issues approval of royalty remittances, technical know-how, and technical assistance fees.
Facilitates import of capital machinery and raw materials.
Issues approvals of foreign loans and supplier credits.
BIDA’s website has aggregated information regarding Bangladesh investment policies, incentives, and ease of doing business indicators: http://bida.gov.bd/
In addition to BIDA, there are three other Investment Promotion Agencies (IPAs) responsible for promoting investments in their respective jurisdictions.
Bangladesh Export Processing Zone Authority (BEPZA) promotes investments in Export Processing Zones (EPZs). The first EPZ was established in the 1980s and there are currently eight EPZs in the country. Website: https://www.bepza.gov.bd/
Bangladesh Economic Zones Authority (BEZA) plans to establish approximately 100 Economic Zones (EZs) throughout the country over the next several years. Site selections for 97 EZs have been completed as of February 2021, of which 11 private EZs are already licensed and operational while development of several other public and private sector EZs are underway. While EPZs accommodate exporting companies only, EZs are open for both export- and domestic-oriented companies. Website: https://www.beza.gov.bd/
Bangladesh Hi-Tech Park Authority (BHTPA) is responsible for attracting and facilitating investments in the high-tech parks Bangladesh is establishing across the country. Website: http://bhtpa.gov.bd/
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Bangladesh allows private investment in power generation and natural gas exploration, but efforts to allow full foreign participation in petroleum marketing and gas distribution have stalled. Regulations in the area of telecommunication infrastructure currently include provisions for 60 percent foreign ownership (70 percent for tower sharing). In addition to the four sectors reserved for government investment, there are 17 controlled sectors that require prior clearance/ permission from the respective line ministries/authorities. These are:
Fishing in the deep sea.
Bank/financial institutions in the private sector.
Insurance companies in the private sector.
Generation, supply, and distribution of power in the private sector.
Exploration, extraction, and supply of natural gas/oil.
Exploration, extraction, and supply of coal.
Exploration, extraction, and supply of other mineral resources.
Crude oil refinery (recycling/refining of lube oil used as fuel).
Medium and large industries using natural gas/condensate and other minerals as raw material.
Telecommunications service (mobile/cellular and land phone).
Satellite channels.
Cargo/passenger aviation.
Sea-bound ship transport.
Seaports/deep seaports.
VOIP/IP telephone.
Industries using heavy minerals accumulated from sea beaches.
While discrimination against foreign investors is not widespread, the government frequently promotes local industries, and some discriminatory policies and regulations exist. For example, the government closely controls approvals for imported medicines that compete with domestically manufactured pharmaceutical products and it has required majority local ownership of new shipping and insurance companies, albeit with exemptions for existing foreign-owned firms. In practical terms, foreign investors frequently find it necessary to have a local partner even though this requirement may not be statutorily defined. In certain strategic sectors, the GOB has placed unofficial barriers on foreign companies’ ability to divest from the country.
BIDA is responsible for screening, reviewing, and approving investments in Bangladesh, except for investments in EPZs, EZs, and High-Tech Parks, which are supervised by BEPZA, BEZA, and BHTPA respectively. Both foreign and domestic companies are required to obtain approval from relevant ministries and agencies with regulatory oversight. In certain sectors (e.g., healthcare), foreign companies may be required to obtain a No Objection Certificate (NOC) from the relevant ministry or agency stating the specific investment will not hinder local manufacturers and is in line with the guidelines of the ministry concerned. Since Bangladesh actively seeks foreign investments, instances where one of the Investment Promotion Agencies (IPAs) declines investment proposals are rare.
In February 2018, the Bangladesh Parliament passed the “One Stop Service Bill 2018,” which aims to streamline business and investment registration processes. The four IPAs — BIDA, BEPZA, BEZA, and BHTPA — are mandated to provide one-stop services (OSS) to local and foreign investors under their respective jurisdictions. Expected streamlined services include company registration, taxpayer’s identification number (TIN) and value added tax (VAT) registration, work permit issuance, power and utilities connections, capital and profit repatriation, and environment clearance. In 2019 Bangladesh made reforms in three key areas: starting a business, getting electricity, and getting credit. These and other regulatory changes led to an improvement by eight ranks on the World Bank’s Doing Business score, moving up from 176 to 168 of the 190 countries rated. BIDA offers more than 40 services under its OSS as of March 2021 and has a plan to expand to 154 services covering 35 agencies. The GOB is also planning to integrate the services of all four investment promotion agencies under a single online platform. Progress on realizing a comprehensive OSS for businesses has been slowed by bureaucratic delays and a lack of interagency coordination.
Companies can register their businesses at the Office of the Registrar of Joint Stock Companies and Firms (RJSC): www.roc.gov.bd . However, the online business registration process, while improving, can at times be unclear and inconsistent. Additionally, BIDA facilitates company registration services as part of its OSS, which is available at: https://bidaquickserv.org/. BIDA also facilitates other services including office set-up approval, work permits for foreign employees, environmental clearance, outward remittance approval, and tax registration with National Board of Revenue. Other agencies with which a company must typically register are:
City Corporation – Trade License
National Board of Revenue – Tax & VAT Registration
Chief Inspector of Shops and Establishments – Employment of Workers Notification
It takes approximately 20 days to start a business in the country according to the World Bank. The company registration process at the RJSC generally takes one or two days to complete. The process for trade licensing, tax registration, and VAT registration requires seven days, one day, and one week respectively, as of February 2021.
Outward Investment
Outward foreign direct investment is generally restricted through the Foreign Exchange Regulation Act of 1947. As a result, the Bangladesh Bank plays a key role in limiting outbound investment. In September 2015, the government amended the Foreign Exchange Regulation Act of 1947 by adding a “conditional provision” that permits outbound investment for export-related enterprises. Private sector contacts note the few international investments approved by the Bangladesh Bank have been limited to large exporting companies with international experience.
3. Legal Regime
Transparency of the Regulatory System
Since 1989, the government has gradually moved to decrease regulatory obstruction of private business. Various chambers of commerce have called for privatization and for a greater voice for the private sector in government decisions, but at the same time many support protectionism and subsidies for their own industries. The result is policy and regulations which are often unclear, inconsistent, or little publicized. Registration and regulatory processes are frequently alleged by businesses to be used as rent-seeking opportunities. The major rule-making and regulatory authority exists at the national level under each Ministry with many final decisions being made at the top-most levels, including the Prime Minister’s Office (PMO). The PMO is actively engaged in directing policies, as well as foreign investment in government-controlled projects.
Bangladesh has made incremental progress in using information technology both to improve the transparency and efficiency of some government services and develop independent agencies to regulate the energy and telecommunicationsectors. Some investors cited government laws, regulations, and lack of implementation as impediments to investment. The government has historically limited opportunities for the private sector to comment on proposed regulations. In 2009, Bangladesh adopted the Right to Information Act providing for multilevel stakeholder consultations through workshops or media outreach. Although the consultation process exists, it is still weak and in need of further improvement.
Ministries and regulatory agencies do not generally publish or solicit comments on draft proposed legislation or regulations. However, several government organizations, including the Bangladesh Bank (the central bank), Bangladesh Securities and Exchange Commission, BIDA, the Ministry of Commerce, and the Bangladesh Telecommunications Regulatory Commission have occasionally posted draft legislation and regulations online and solicited feedback from the business community. In some instances, parliamentary committees have also reached out to relevant stakeholders for input on draft legislation. The media continues to be the main information source for the public on many draft proposals. There is also no legal obligation to publish proposed regulations, consider alternatives to proposed regulation, or solicit comments from the general public.
The government printing office, The Bangladesh Government Press (http://www.dpp.gov.bd/bgpress/), publishes the “Bangladesh Gazette” every Thursday and Extraordinary Gazettes as and when needed. The Gazette provides official notice of government actions, including issuance of government rules and regulations and the transfer and promotion of government employees. Laws can also be accessed at http://bdlaws.minlaw.gov.bd/.
Bangladesh passed the Financial Reporting Act of 2015 which created the Financial Reporting Council in 2016 aimed at establishing transparency and accountability in the accounting and auditing system. The country follows Bangladesh Accounting Standards and Bangladesh Financial Reporting Standards, which are largely derived from International Accounting Standards and International Financial Reporting Standards. However, the quality of reporting varies widely. Internationally known firms have begun establishing local offices in Bangladesh and their presence is positively influencing the accounting norms in the country. Some firms are capable of providing financial reports audited to international standards while others maintain unreliable (or multiple) sets of accounting records. Regulatory agencies do not conduct impact assessments for proposed regulations; consequently, regulations are often not reviewed on the basis of data-driven assessments. Not all national budget documents are prepared according to internationally accepted standards.
International Regulatory Considerations
The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) aims to integrate regional regulatory systems among Bangladesh, India, Burma, Sri Lanka, Thailand, Nepal, and Bhutan. However, efforts to advance regional cooperation measures have stalled in recent years and regulatory systems remain uncoordinated.
Local laws are based on the English common law system but most fall short of international standards. The country’s regulatory system remains weak and many of the laws and regulations are not enforced and standards are not maintained.
Bangladesh has been a member of the World Trade Organization (WTO) since 1995. WTO requires all signatories to the Agreement on Technical Barriers to Trade (TBT) to establish a National Inquiry Point and Notification Authority to gather and efficiently distribute trade-related regulatory, standards, and conformity assessment information to the WTO Member community. The Bangladesh Standards and Testing Institute (BSTI) has been working as the National Enquiry Point for the WTO-TBT Agreement since 2002. There is an internal committee on WTO affairs in BSTI and it participates in notifying WTO activities through the Ministry of Commerce and the Ministry of Industries.
Mr. Md. Golam Baki,
Deputy Director (Certification Marks), BSTI;
Email: baki_cm@bsti.gov.bd,
Tel: +88-02-8870288,
Cell: +8801799828826, +8801712240702
Focal Point for other WTO related matters:
Mr. Md. Hafizur Rahman,
Director General, WTO Cell, Ministry of Commerce
Email: dg.wto@mincom.gov.bd,
Tel: +880-2-9545383,
Cell: +88 0171 1861056
Mr. Mohammad Mahbubur Rahman Patwary,
Director-1, WTO Cell, Ministry of Commerce
Email: director1.wto@mincom.gov.bd,
Tel: +880-2-9540580,
Cell: +88 0171 2148758
Legal System and Judicial Independence
Bangladesh is a common law-based jurisdiction. Many of the basic laws, such as the penal code, civil and criminal procedural codes, contract law, and company law are influenced by English common law. However, family laws, such as laws relating to marriage, dissolution of marriage, and inheritance are based on religious scripts and therefore differ among religious communities. The Bangladeshi legal system is based on a written constitution and the laws often take statutory forms that are enacted by the legislature and interpreted by the higher courts. Ordinarily, executive authorities and statutory corporations cannot make any law, but can make by-laws to the extent authorized by the legislature. Such subordinate legislation is known as rules or regulations and is also enforceable by the courts. However, as a common law system, the statutes are short and set out basic rights and responsibilities but are elaborated by the courts in the application and interpretation of those laws. The Bangladeshi judiciary acts through: (1) The Superior Judiciary, having appellate, revision, and original jurisdiction; and (2) The Sub-Ordinate Judiciary, having original jurisdiction.
Since 1971, Bangladesh has updated its legal system concerning company, banking, bankruptcy, and money loan court laws, and other commercial laws. An important impediment to investment in Bangladesh is its weak and slow legal system in which the enforceability of contracts is uncertain. The judicial system does not provide for interest to be charged in tort judgments, which means procedural delays carry no penalties. Bangladesh does not have a separate court or court division dedicated solely to commercial cases. The Joint District Judge court (a civil court) is responsible for enforcing contracts.
Some notable commercial laws include:
The Contract Act, 1872 (Act No. IX of 1930).
The Sale of Goods Act, 1930 (Act No. III of 1930).
The Partnership Act, 1932 (Act No. IX of 1932).
The Negotiable Instruments Act, 1881 (Act No. XXVI of 1881).
The Bankruptcy Act, 1997 (Act No. X of 1997).
The Arbitration Act, 2001 (Act No. I of 2001).
The judicial system of Bangladesh has never been completely independent from interference by the executive branch of the government. In a significant milestone, the government in 2007 separated the country’s judiciary from the executive but the executive retains strong influence over the judiciary through control of judicial appointments. Other pillars of the justice system, including the police, courts, and legal profession, are also closely aligned with the executive branch. In lower courts, corruption is widely perceived as a serious problem. Regulations or enforcement actions are appealable under the Appellate Division of the Supreme Court.
Laws and Regulations on Foreign Direct Investment
Major laws affecting foreign investment include: the Foreign Private Investment (Promotion and Protection) Act of 1980, the Bangladesh Export Processing Zones Authority Act of 1980, the Companies Act of 1994, the Telecommunications Act of 2001, and the Bangladesh Economic Zones Act of 2010.
Bangladesh industrial policy offers incentives for “green” (environmental) high-tech or “transformative” industries. It allows foreigners who invest $1 million or transfer $2 million to a recognized financial institution to apply for Bangladeshi citizenship. The GOB will provide financial and policy support for high-priority industries (those creating large-scale employment and earning substantial export revenue) and creative industries – architecture, arts and antiques, fashion design, film and video, interactive laser software, software, and computer and media programming. Specific importance is given to agriculture and food processing, RMG, ICT and software, pharmaceuticals, leather and leather products, and jute and jute goods.
In addition, Petrobangla, the state-owned oil and gas company, has modified its production sharing agreement contract for offshore gas exploration to include an option to export gas. In 2019, Parliament approved the Bangladesh Flag Vessels (Protection) Act 2019 with a provision to ensure Bangladeshi flagged vessels carry at least 50 percent of foreign cargo, up from 40 percent. In 2020, the Ministry of Commerce amended the digital commerce policy to allow fully foreign-owned e-commerce companies in Bangladesh and remove a previous joint venture requirement.
The One Stop Service (OSS) Act of 2018 mandated the four IPAs to provide OSS to local and foreign investors in their respective jurisdictions. The move aims to facilitate business services on behalf of multiple government agencies to improve ease of doing business. In 2020, BIDA issued time-bound rules to implement the Act of 2018. Although the IPAs have started to offer a few services under the OSS, corruption and excessive bureaucracy have held back the complete and effective roll out of the OSS. BIDA has a “one-stop” website that provides information on relevant laws, rules, procedures, and reporting requirements for investors at: http://www.bida.gov.bd/.
Aside from information on relevant business laws and licenses, the website includes information on Bangladesh’s investment climate, opportunities for businesses, potential sectors, and how to do business in Bangladesh. The website also has an eService Portal for Investors which provides services such as visa recommendations for foreign investors, approval/extension of work permits for expatriates, approval of foreign borrowing, and approval/renewal of branch/liaison and representative offices.
Competition and Anti-Trust Laws
Bangladesh formed an independent agency in 2011 called the “Bangladesh Competition Commission (BCC)” under the Ministry of Commerce. Parliament then passed the Competition Act in 2012. However, the BCC has not received sufficient resources to operate effectively.
In 2018, the Bangladesh Telecommunication Regulatory Commission (BTRC) finalized Significant Market Power (SMP) regulations to promote competition in the industry. In 2019, BTRC declared the country’s largest telecom operator, Grameenphone (GP), the first SMP based on its revenue share of more than 50 percent and customer shares of about 47 percent. Since the declaration, the BTRC has attempted to impose restrictions on GP’s operations, which GP has challenged in the judicial system.
Expropriation and Compensation
Since the Foreign Investment Act of 1980 banned nationalization or expropriation without adequate compensation, Bangladesh has not nationalized or expropriated property from foreign investors. In the years immediately following independence in 1971, widespread nationalization resulted in government ownership of more than 90 percent of fixed assets in the modern manufacturing sector, including the textile, jute and sugar industries and all banking and insurance interests, except those in foreign (but non-Pakistani) hands. However, the government has taken steps to privatize many of these industries since the late 1970s and the private sector has developed into a main driver of the country’s sustained economic growth.
Dispute Settlement
ICSID Convention and New York Convention
Bangladesh is a signatory to the International Convention for the Settlement of Disputes (ICSID) and acceded in May 1992 to the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards. Alternative dispute resolutions are possible under the Bangladesh Arbitration Act of 2001. The current legislation allows for enforcement of arbitral awards.
Investor-State Dispute Settlement
Bangladeshi law allows contracts to refer investor-state dispute settlement to third country fora for resolution. The U.S.-Bangladesh Bilateral Investment Treaty also stipulates that parties may, upon the initiative of either and as a part of their consultations and negotiations, agree to rely upon non-binding, third-party procedures, such as the fact-finding facility available under the rules of the “Additional Facility” of the International Centre for the Settlement of Investment Disputes. If the dispute cannot be resolved through consultation and negotiation, the dispute shall be submitted for settlement in accordance with the applicable dispute-settlement procedures upon which the parties have previously agreed. Bangladesh is also a party to the South Asia Association for Regional Cooperation (SAARC) Agreement for the Establishment of an Arbitration Council, signed in 2005, which aims to establish a permanent center for alternative dispute resolution in one of the SAARC member countries.
International Commercial Arbitration and Foreign Courts
The Bangladesh Arbitration Act of 2001 and amendments in 2004 reformed alternative dispute resolution procedures. The Act consolidated the law relating to both domestic and international commercial arbitration. It thus creates a single and unified legal regime for arbitration. Although the new Act is principally based on the UNCITRAL Model Law, it is a patchwork as some unique provisions are derived from the Indian Arbitration and Conciliation Act 1996 and some from the English Arbitration Act 1996.
In practice, arbitration results are unevenly enforced and the GOB has challenged ICSID rulings, especially those that involve rulings against the government. The timeframe for dispute resolution is unpredictable and has no set limit. It can be done as quickly as a few months, but often takes years depending on the type of dispute. Anecdotal information indicates average resolution time can be as high as 16 years. Local courts may be biased against foreign investors in resolving disputes.
Bangladesh is a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and recognizes the enforcement of international arbitration awards. Domestic arbitration is under the authority of the district court bench and foreign arbitration is under the authority of the relevant high court bench.
The Bangladeshi judicial system has little ability to enforce its own awards. Senior members of the government have been effective in using their offices to resolve investment disputes on several occasions, but the government’s ability to resolve investment disputes at a lower level is mixed. Bangladesh does not publish the numbers of investment disputes involving U.S. or foreign investors. Anecdotal evidence indicates investment disputes occur with limited frequency, and the involved parties often resolve the disputes privately rather than seeking government intervention.
Implementing Alternative Dispute Resolution (ADR) procedures in Bangladesh is impeded by a lack of funding for courts to provide ADR services, limited cooperation by lawyers, and instances of ADR participants acting in bad faith. Slow adoption of ADR mechanisms and sluggish judicial processes impede the enforcement of contracts and the resolution of business disputes in Bangladesh.
As in many countries, Bangladesh has adopted a “conflict of law” approach to determining whether a judgment from a foreign legal jurisdiction is enforceable in Bangladesh. This single criterion allows Bangladeshi courts broad discretion in choosing whether to enforce foreign judgments with significant effects on corporate and property disputes. Most enterprises in Bangladesh, and especially state-owned enterprises (SOEs), whose leadership is nominated by the ruling government party, maintain strong ties with the government. Thus, domestic courts strongly tend to favor SOEs and local companies in investment disputes.
Investors are also increasingly turning to the Bangladesh International Arbitration Center (BIAC) for dispute resolution. BIAC is an independent arbitration center established by prominent local business leaders in 2011 to improve commercial dispute resolution in Bangladesh to stimulate economic growth. The BIAC Board is headed by the President of the International Chamber of Commerce – Bangladesh and includes the presidents of other prominent chambers such as the Dhaka Chamber of Commerce and Industry and the Metropolitan Chamber of Commerce and Industry, among others. The Center operates under the Bangladesh Arbitration Act of 2001. According to BIAC, fast track cases are resolved in approximately six months while typical cases are resolved in one year. Major Bangladeshi trade and business associations such as the American Chamber of Commerce in Bangladesh can sometimes help resolve transaction disputes.
Bankruptcy Regulations
Many laws affecting investment in Bangladesh are outdated. Bankruptcy laws, which apply mainly to individual insolvency, are sometimes disregarded in business cases because of the numerous falsified assets and uncollectible cross-indebtedness supporting insolvent banks and companies. A Bankruptcy Act was passed by Parliament in 1997 but has been ineffective in addressing these issues. Some bankruptcy cases fall under the Money Loan Court Act which has more stringent and timely procedures.
6. Financial Sector
Capital Markets and Portfolio Investment
Capital markets in Bangladesh are still developing, and the financial sector remains highly dependent on bank lending. Current regulatory infrastructure inhibits the development of a tradeable bond market.
Bangladesh is home to the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE), both of which are regulated by the Bangladesh Securities and Exchange Commission (BSEC), a statutory body formed in 1993 and attached to the Ministry of Finance. As of February 2021, the DSE market capitalization stood at $54.8 billion, rising 35.8 percent year-over-year bolstered by increased liquidity and some sizeable initial public offerings.
Although the Bangladeshi government has a positive attitude toward foreign portfolio investors, participation in the exchanges remains low due to what is still limited liquidity for shares and the lack of publicly available and reliable company information. The DSE has attracted some foreign portfolio investors to the country’s capital market. However, the volume of foreign investment in Bangladesh remains a small fraction of total market capitalization. As a result, foreign portfolio investment has had limited influence on market trends and Bangladesh’s capital markets have been largely insulated from the volatility of international financial markets. Bangladeshi markets continue to rely primarily on domestic investors.
In 2019, BSEC undertook a number of initiatives to launch derivatives products, allow short selling, and invigorate the bond market. To this end, BSEC introduced three rules: Exchange Traded Derivatives Rules 2019, Short-Sale Rules 2019, and Investment Sukuk Rules 2019. Other recent, notable BSEC initiatives include forming a central clearing and settlement company – the Central Counterparty Bangladesh Limited (CCBL) – and promoting private equity and venture capital firms under the 2015 Alternative Investment Rules. In 2013, BSEC became a full signatory of the International Organization of Securities Commissions (IOSCO) Memorandum of Understanding.
BSEC has taken steps to improve regulatory oversight, including installing a modern surveillance system, the “Instant Market Watch,” providing real time connectivity with exchanges and depository institutions. As a result, the market abuse detection capabilities of BSEC have improved significantly. A mandatory Corporate Governance Code for listed companies was introduced in 2012 but the overall quality of corporate governance remains substandard. Demutualization of both the DSE and CSE was completed in 2013 to separate ownership of the exchanges from trading rights. A majority of the members of the Demutualization Board, including the Chairman, are independent directors. Apart from this, a separate tribunal has been established to resolve capital market-related criminal cases expeditiously. However, both domestic and foreign investor confidence remains low.
The Demutualization Act 2013 also directed DSE to pursue a strategic investor who would acquire a 25 percent stake in the bourse. Through a bidding process DSE selected a consortium of the Shenzhen and Shanghai stock exchanges in China as its strategic partner, with the consortium buying the 25 percent share of DSE for taka 9.47 billion ($112.7 million).
According to the International Monetary Fund (IMF), Bangladesh is an Article VIII member and maintains restrictions on the unapproved exchange, conversion, and/or transfer of proceeds of international transactions into non-resident taka-denominated accounts. Since 2015, authorities have relaxed restrictions by allowing some debits of balances in such accounts for outward remittances, but there is currently no established timetable for the complete removal of the restrictions.
Money and Banking System
The Bangladesh Bank (BB) acts as the central bank of Bangladesh. It was established on December 16, 1971 through the enactment of the Bangladesh Bank Order of1972. General supervision and strategic direction of the BB has been entrusted to a nine–member Board of Directors, which is headed by the BB Governor. A list of the bank’s departments and branches is on its website: https://www.bb.org.bd/aboutus/dept/depts.php.
According to the BB, four types of banks operate in the formal financial system: State Owned Commercial Banks (SOCBs), Specialized Banks, Private Commercial Banks (PCBs), and Foreign Commercial Banks (FCBs). Some 61 “scheduled” banks in Bangladesh operate under the control and supervision of the central bank as per the Bangladesh Bank Order of 1972. The scheduled banks, include six SOCBs, three specialized government banks established for specific objectives such as agricultural or industrial development or expatriates’ welfare, 43 PCBs, and nine FCBs as of February 2021. The scheduled banks are licensed to operate under the Bank Company Act of 1991 (Amended 2013). There are also five non-scheduled banks in Bangladesh, including Nobel Prize recipient Grameen Bank, established for special and definite objectives and operating under legislation enacted to meet those objectives.
Currently, 34 non-bank financial institutions (FIs) are operating in Bangladesh. They are regulated under the Financial Institution Act, 1993 and controlled by the BB. Of these, two are fully government-owned, one is a subsidiary of a state-owned commercial bank, and the rest are private financial institutions. Major sources of funds for these financial institutions are term deposits (at least three months’ tenure), credit facilities from banks and other financial institutions, and call money, as well as bonds and securitization.
Unlike banks, FIs are prohibited from:
Issuing checks, pay-orders, or demand drafts.
Receiving demand deposits.
Involvement in foreign exchange financing.
Microfinance institutions (MFIs) remain the dominant players in rural financial markets. According to the Bangladesh Microcredit Regulatory Authority, as of June 2019, there were 724 licensed micro-finance institutions operating a network of 18,977 branches with 32.3 million members. Additionally, Grameen Bank had nearly 9.3 million microfinance members at the end of 2019 of which 96.8 percent were women. A 2014 Institute of Microfinance survey study showed that approximately 40 percent of the adult population and 75 percent of households had access to financial services in Bangladesh.
The banking sector has had a mixed record of performance over the past several years. Industry experts have reported a rise in risky assets. Total domestic credit stood at 46.8 percent of gross domestic product at end of June 2020. The state-owned Sonali Bank is the largest bank in the country while Islami Bank Bangladesh and Standard Chartered Bangladesh are the largest local private and foreign banks respectively as of December 2020. The gross non-performing loan (NPL) ratio was 7.7 percent at the end of December 2020, down from 9.32 percent in December 2019. However, the decline in the NPLs was primarily caused by regulatory forbearance rather than actual reduction of stressed loans. Following the outbreak of COVID-19 in 2020, the central bank directed all banks not to classify any new loans as non-performing till December 2020. Industry contacts have predicted reported NPLs will demonstrate a sharp rise after the exemption expires unless the central bank grants additional forbearance in alternate forms. At 22.5 percent SCBs had the highest NPL ratio, followed by 15.9 percent of Specialized Banks, 5.9 percent of FCBs, and 5.6 percent of PCBs as of September 2020.
In 2017, the BB issued a circular warning citizens and financial institutions about the risks associated with cryptocurrencies. The circular noted that using cryptocurrencies may violate existing money laundering and terrorist financing regulations and cautioned users may incur financial losses. The BB issued similar warnings against cryptocurrencies in 2014.
Foreign investors may open temporary bank accounts called Non-Resident Taka Accounts (NRTA) in the proposed company name without prior approval from the BB in order to receive incoming capital remittances and encashment certificates. Once the proposed company is registered, it can open a new account to transfer capital from the NRTA account. Branch, representative, or liaison offices of foreign companies can open bank accounts to receive initial suspense payments from headquarters without opening NRTA accounts. In 2019, the BB relaxed regulations on the types of bank branches foreigners could use to open NRTAs, removing a previous requirement limiting use of NRTA’s solely to Authorized Dealers (ADs).
Foreign Exchange and Remittances
Foreign Exchange
Free repatriation of profits is allowed for registered companies and profits are generally fully convertible. However, companies report the procedures for repatriating foreign currency are lengthy and cumbersome. The Foreign Investment Act guarantees the right of repatriation for invested capital, profits, capital gains, post-tax dividends, and approved royalties and fees for businesses. The central bank’s exchange control regulations and the U.S.-Bangladesh Bilateral Investment Treaty (in force since 1989) provide similar investment transfer guarantees. BIDA may need to approve repatriation of royalties and other fees.
Bangladesh maintains a de facto managed floating foreign exchange regime. Since 2013, Bangladesh has tried to manage its exchange rate vis-à-vis the U.S. dollar within a fairly narrow range. Until 2017, the Bangladesh currency – the taka – traded between 76 and 79 taka to the dollar. The taka has depreciated relative to the dollar since October 2017 reaching 84.95 taka per dollar as of March 2020, despite interventions from the Bangladesh Bank from time to time. The taka is approaching full convertibility for current account transactions, such as imports and travel, but not for financial and capital account transactions, such as investing, currency speculation, or e-commerce.
Remittance Policies
There are no set time limitations or waiting periods for remitting all types of investment returns. Remitting dividends, returns on investments, interest, and payments on private foreign debts do not usually require approval from the central bank and transfers are typically made within one to two weeks. Some central bank approval is required for repatriating lease payments, royalties and management fees, and this process can take between two and three weeks. If a company fails to submit all the proper documents for remitting, it may take up to 60 days. Foreign investors have reported difficulties transferring funds to overseas affiliates and making payments for certain technical fees without the government’s prior approval to do so. Additionally, some regulatory agencies have reportedly blocked the repatriation of profits due to sector-specific regulations. The U.S. Embassy also has received complaints from American citizens who were not able to transfer the proceeds of sales of their properties.
The central bank has recently made several small-scale reforms to ease the remittance process. In 2019, the BB simplified the profit repatriation process for foreign firms. Foreign companies and their branches, liaison, or representative offices no longer require prior approval from the central bank to remit funds to their parent offices outside Bangladesh. Banks, however, are required to submit applications for ex post facto approval within 30 days of profit remittance. In 2020, the Bangladesh Bank relaxed regulations for repatriating disinvestment proceeds, authorizing banks to remit up to 100 million taka (approximately $1.2 million) in equivalent foreign currency without the central bank’s prior approval. The central bank also eased profit repatriation and reinvestment by allowing banks to transfer foreign investors’ dividend income into their foreign currency bank accounts.
The Financial Action Task Force (FATF) notes Bangladesh has established the legal and regulatory framework to meet its Anti-Money Laundering/Counterterrorism Finance (AML/CTF) commitments. The Asia/Pacific Group on Money Laundering (APG), an independent and collaborative international organization based in Bangkok, evaluated Bangladesh’s AML/CTF regime in 2018 and found Bangladesh had made significant progress since the last Mutual Evaluation Report (MER) in 2009, but still faces significant money laundering and terrorism financing risks. The APG reports are available online: http://www.fatf-gafi.org/countries/#Bangladesh
Sovereign Wealth Funds
In 2015, the Bangladesh Finance Ministry announced it was exploring establishing a sovereign wealth fund in which to invest a portion of Bangladesh’s foreign currency reserves. In 2017, the Cabinet initially approved a $10 billion “Bangladesh Sovereign Wealth Fund,” (BSWF) to be created with funds from excess foreign exchange reserves but the plan was subsequently scrapped by the Finance Ministry.
7. State-Owned Enterprises
Bangladesh’s 49 major non-financial SOEs, many of which are holding corporations owning or overseeing smaller state-owned entities, are spread among seven sectors – industrial; power, gas and water; transport and communication; trade; agriculture; construction; and services. The list of non-financial SOEs and relevant budget details are published in Bangla in the Ministry of Finance’s SOE Budget Summary 2020-21: https://mof.gov.bd/site/view/budget_mof_sow/2020-21/SOE-Budget.
The SOE contribution to gross domestic product, value-added production, employment generation, and revenue earning is substantial. SOEs usually report to the relevant ministries, though the government has allowed some enhanced autonomy for certain SOEs, such as Biman Bangladesh Airlines. SOEs maintain control of rail transportation whereas private companies compete freely in air and road transportation. Bangladesh has restructured its corporate governance of SEOs as per the guidelines published by the Organization for Economic Cooperation and Development (OECD), but the country’s practices are not up to OECD standards. While SOEs are required to prepare annual reports and make financial disclosures, disclosure documents are often unavailable to the public. Each SOE has an independent Board of Directors composed of both government and private sector nominees who report to the relevant regulatory ministry. Most SOEs have strong ties with the government, and the ruling party nominates most SOE leaders. As the government controls most of the SOEs, domestic courts tend to favor the SOEs in investment disputes.
The government has taken recent steps to restructure several SOEs to improve competitiveness. This included conversion of Biman Bangladesh Airline, the national airline, into a public limited company to initiate a rebranding and a fleet renewal program involving purchase of 12 aircraft from Boeing. Five of six state-owned commercial banks – Sonali, Janata, Agrani, Rupali, and BASIC – were converted to public limited companies; only Rupali Bank is publicly listed. In July 2020, the government announced closure of 25 out of 26 state-owned jute mills under the Bangladesh Jute Mills Corporation amid mounting losses due to mismanagement and outdated technology.
The Bangladesh Petroleum Act of 1974 grants the government the authority to award natural resources contracts, and the Bangladesh Oil, Gas and Mineral Corporation Ordinance of 1984 gives Petrobangla, the state-owned oil and gas company, authority to assess and award natural resource contracts and licenses to both SOEs and private companies. Currently, oil and gas firms can pursue exploration and production ventures only through production-sharing agreements with Petrobangla.
Privatization Program
The Bangladeshi government has privatized 74 state-owned enterprises (SOEs) over the past 20 years, but SOEs still retain an important role in the economy, particularly in the financial and energy sectors. Of the 74 SOEs, 54 were privatized through outright sale and 20 through offloading of shares.
Since 2010, the government’s privatization drive has slowed. Previous privatization drives were plagued by allegations of corruption, undervaluation, political favoritism, and unfair competition. Nonetheless, the government has publicly stated its goal is to continue the privatization drive. SOEs can be privatized through a variety of methods, including:
Sales through international tenders.
Sales of government shares in the capital market.
Transfers of some portion of the shares to the employees of the enterprises when shares are sold through the stock exchange.
Sales of government shares to a private equity company (restructuring).
Mixed sales methods.
Management contracts.
Leasing.
Direct asset sales (liquidation).
In 2010, 22 SOEs were included in the Privatization Commission’s (now the BIDA) program for privatization. However, a 2010 study on privatized industries in Bangladesh conducted by the Privatization Commission found only 59 percent of the entities were in operation after being privatized and 20 percent were permanently closed – implying a lack of planning or business motivation of their private owners. In 2014, the government declared SOEs would not be handed over to private owners through direct sales. Offloading shares of SOEs in the stock market, however, can be a viable way to ensure greater accountability of the management of the SOEs and minimize the government’s exposure to commercial activities. The offloading of shares in an SOE, unless it involves more than 50 percent of its shares, does not divest the government of the control over the enterprise. Both domestic and foreign companies can participate in privatization programs. Additional information is available on the BIDA website at: http://bida.gov.bd/?page_id=4771
Barbados
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The government of Barbados, through Invest Barbados, welcomes foreign direct investment with the stated goals of creating jobs, earning foreign exchange, transferring technology, enhancing skills, and contributing to economic growth. In 2021, the government announced plans to focus on encouraging foreign direct investment in renewable energy, manufacturing, technology, and biogenetic engineering.
Barbados encourages investment in the following key sectors: international financial services, information technology, and ship registration, as well as developing areas like financial technology, creative industries, agricultural processing, medical schools, medical tourism, and renewable energy. In the international financial services sector, the government maintains regulatory oversight via the Central Bank of Barbados to prevent money laundering and tax evasion.
Through Invest Barbados, the government facilitates domestic and foreign private investment. Invest Barbados’ mandate is to actively promote Barbados as a desirable investment location, to provide advice, and to assist prospective investors. Invest Barbados also provides customized support for investors to assist with the expansion and sustainability of the initial investment. It also serves as the primary liaison for existing investors. In April 2020, the government established a Jobs and Investment Council charged with supporting economic activity during the COVID-19 pandemic and post-pandemic recovery. In March 2021, the government announced plans to establish a Barbados Free Zone to help attract foreign direct investment.
Investors interested in doing business in Barbados must register in person with the country’s Corporate Affairs and Intellectual Property Office. While this is a requirement for foreign and domestic investors, the continuing barriers to international travel posed by COVID-19 currently make it more difficult for foreign investors without established local partners and legal representation to comply with this requirement. The government of Barbados has announced plans to fully digitize the registration process before the end of 2021.
Limits on Foreign Control and Right to Private Ownership and Establishment
There are no limits on foreign control in Barbados. Nationals and non-nationals may establish and own private enterprises and private property in Barbados. These rights extend to the acquisition and disposition of interests in private enterprises.
No industries are closed to private enterprise, although the government reserves the right not to allow certain investments. Some activities, such as telecommunications, utilities, broadcasting, franchises, banking, and insurance require a government license. There are no quotas or other restrictions on foreign ownership of a local enterprise or participation in a joint venture.
Other Investment Policy Reviews
Barbados has not conducted a trade policy review in the last three years.
Business Facilitation
Invest Barbados is the main investment promotion agency that attracts and facilitates foreign investment. Invest Barbados offers guidance and direction to new and established investors seeking to pursue investment opportunities in Barbados. The process is transparent and considers the size of capital investment as well as the economic impact of a proposed project.
Invest Barbados offers a website that is useful for navigating applicable laws, rules, procedures, and registration requirements for foreign investors. This is available at http://www.investbarbados.org. Invest Barbados’ iGuide website is an online guide which provides local and foreign investors with up-to-date information required to make certain investment decisions, including steps for setting up a business, opportunities for investment, labor and other business costs, and legal requirements, among other data. This is available at https://www.theiguides.org/public-docs/guides/barbados. The Corporate Affairs and Intellectual Property Office (CAIPO) maintains an online e-registry filing service for matters pertaining to the Corporate Registry. It is available to registered agents, who are usually attorneys. Information is available at www.caipo.gov.bb.
Barbados ranks 102nd out of 190 countries in the ease of starting a business, which takes seven procedures and approximately 16 days on average to complete, according to the 2020 World Bank Doing Business report. The general practice is to retain an attorney to prepare relevant incorporation documents. The business must register with CAIPO, the Barbados Revenue Authority, the Customs and Excise Department, and any relevant sector-specific licensing agencies.
The government of Barbados continues to facilitate programs and partnerships to assist entrepreneurs who are women and/or people with disabilities. The government of Barbados remains committed to working with civil society and other organizations to meet the UN Sustainable Development Goals by 2030.
Outward Investment
While no incentives are offered, Barbados generally encourages local companies to invest in other countries, particularly within the Caribbean region. Local companies in Barbados are actively encouraged to take advantage of export opportunities related to the country’s membership in the Caribbean Community (CARICOM) and the Caribbean Single Market and Economy (CSME). The Barbados Investment Development Corporation (BIDC) provides market development support for domestic companies seeking to enhance their export potential.
3. Legal Regime
Transparency of the Regulatory System
Barbados’ legal framework establishes clear rules for foreign and domestic investors regarding tax, labor, environmental, health, and safety concerns. These regulations are in keeping with international standards. The Ministry of Finance, Economic Affairs and Investment and Invest Barbados provide oversight aimed at ensuring the transparency of investment.
Rulemaking and regulatory authority rest with the bicameral parliament of the government of Barbados. The House of Assembly consists of 30 members who are elected in single-seat constituencies. The Senate consists of 21 members who are appointed by the Governor General. Responsibility for Senate appointments is expected to shift in the second half of 2021 when Barbados intends to remove the UK’s Queen Elizabeth as head of state and becomes a republic.
Foreign investment into Barbados is governed by a series of laws and implementing regulations. These laws and regulations are developed with the participation of relevant ministries, drafted by the Office of the Attorney General, and enforced by the relevant ministry or ministries. Additional compliance supervision is delegated to specific agencies, by sector, as follows:
Banking and financial services – Central Bank of Barbados (CBB)
Insurance and non-banking financial services – Financial Services Commission (FSC)
International business – International Business Unit, Ministry of International Business and Industry
Business incorporation and intellectual property – CAIPO
The Ministry of Finance, Economic Affairs and Investment monitors investments to collect information for national statistics and reporting purposes.
All foreign businesses must be registered or incorporated through CAIPO and will be regulated by one of the other agencies depending on the nature of the business.
Although Barbados does not have legislation that guarantees access to information or freedom of expression, access to information is generally available in practice. The government maintains a website and an information service to facilitate the dissemination of information such as government office directories and press releases. The Government Information Service (BGIS) website is available at http://gisbarbados.gov.bb/. The government also maintains a parliamentary website at http://www.barbadosparliament.com/ where it posts legislation prior to parliamentary debate and live streams House sittings. The government budget is also available on this website.
Although some bills are not subject to public consultation, input from various stakeholder groups and agencies is enlisted during the initial drafting of legislation. Public awareness campaigns, through print and electronic media, are used to inform the general public. Copies of regulations are circulated to stakeholders and are published in the Official Gazette after passage in parliament. The Official Gazette is available at https://gisbarbados.gov.bb/the-official-gazette/.
Accounting, legal, and regulatory procedures are transparent. Publicly listed companies publish annual financial statements and changes in portfolio shareholdings, including share value. Service providers are required to adhere to international best practice standards including International Financial Reporting Standards, International Standards on Auditing, and International Public Sector Accounting Standards for government and public sector bodies. They must also comply with the provisions of the Money Laundering and Financing of Terrorism Prevention and Control Act. Accounting professionals must engage in continuous professional development. The Corporate and Trust Service Providers Act regulates Barbados financial service providers. Failure to adhere to these laws and regulations may result in the revocation of the business license and/or cancellation of work permit(s). The most recent Caribbean Financial Action Task Force (CFATF) Mutual Evaluation assessment found Barbados to be largely compliant.
The Office of the Ombudsman is established by the constitution to guard against abuses of power by government officers in the performance of their duties. The Office of the Ombudsman aims to provide quality service in an impartial and expeditious manner when investigating complaints by Barbadian nationals or residents who consider the conduct of a government body or official unreasonable, improper, inadequate, or unjust.
The Office of the Auditor General is also established by the constitution and is regulated by the Financial Administration and Audit Act. The Auditor General is responsible for the audit and inspection of all public accounts of the Supreme Court, the Senate, the House of Assembly, all government ministries, government departments, government-controlled entities, and statutory bodies. The Office of the Auditor General’s annual reports can be found on the parliament of Barbados website.
International Regulatory Considerations
The OECD recognized Barbados as largely compliant with international regulatory standards. Barbados is a signatory to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, the Multilateral Competent Authority Agreement, and the Multilateral Convention to Implement Tax Treaty Related Matters to Prevent Base Erosion and Profit Sharing.
The Barbados National Standards Institution (BNSI) oversees a laboratory complex housing metrology, textile, engineering, and chemistry/microbiology laboratories. The primary functions of the BSNI include the preparation, promotion, and implementation of standards in all sectors of the economy, including the promotion of quality systems, quality control, and certification. The Standards Act (2006) and the Weights and Measures Act (1977) and Regulations (1985) govern the work of the BNSI. In February, BSNI launched a project intended to enhance metrology capacity in concert with a draft bill that would upgrade the organization’s governance structure and laboratory systems to bring them in line with international testing and certification standards. As a signatory to the World Trade Organization (WTO) Agreement to Technical Barriers to Trade, Barbados, through the BSNI, is obligated to harmonize all national standards to international norms to avoid creating technical barriers to trade.
Barbados ratified the WTO Trade Facilitation Agreement in 2018. With full implementation, the Agreement improves the speed and efficiency of border procedures, facilitates trade costs reduction, and enhances participation in the global value chain. In 2019 Barbados implemented the Automated System for Customs Data, which streamlined document compliance and inspections by port authorities. The government also increased issuance fees for certificates of origin, making trade more expensive. In the 2020 World Bank Doing Business report, Barbados is ranked 132nd out of 190 countries for trading across borders.
Legal System and Judicial Independence
Barbados’ legal system is based on the British common law. Modern corporate law is modeled on the Canadian Business Corporations Act. The Attorney General, the Chief Justice, junior judges, and magistrates administer justice in Barbados. The Supreme Court consists of the Court of Appeal and the High Court. The High Court hears criminal and civil (commercial) matters and makes determinations based on interpretation of the constitution.
The Caribbean Court of Justice (CCJ) is the regional judicial tribunal. The CCJ has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas (RTC). In 2005, Barbados became a full member of the CCJ, making the body its final court of appeal and original jurisdiction of the RTC.
The United States and Barbados are both parties to the WTO. The WTO Dispute Settlement Panel and Appellate Body resolve disputes over WTO agreements, while courts of appropriate jurisdiction in both countries resolve private disputes.
Laws and Regulations on Foreign Direct Investment
Invest Barbados’ foreign direct investment policy is to promote Barbados as a desirable investment location, to provide advice, and to assist prospective investors. The main laws concerning investment in Barbados are the Barbados International Business Promotion Act (2005), the Tourism Development Act (2005), and the Companies Act. There is also a framework of legislation that supports the jurisdiction as a global hub for business including insurance, shipping registration, and wealth management.
All proposals for investment concessions are reviewed by Invest Barbados to ensure proposed projects are consistent with the national interest and provide economic benefits to the country.
Invest Barbados provides complimentary “one-stop shop” facilitation services for investors to guide them through the investment process. It offers a website useful for navigating the laws, rules, procedures, and registration requirements for foreign investors: http://www.investbarbados.org.
Competition and Antitrust Laws
Chapter 8 of the RTC outlines the competition policy applicable to CARICOM states. Member states are required to establish and maintain a national competition authority for facilitating the implementation of the rules of competition. At the CARICOM level, a regional Caribbean Competition Commission (CCC) applies the rules of competition. The CARICOM competition policy addresses anticompetitive business conduct such as agreements between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction, or distortion of competition within the Community and actions by which an enterprise abuses its dominant position within the Community. The Fair Competition Act codified the establishment of the Barbados Fair Trading Commission (FTC) in 2001. The FTC is responsible for the promotion and maintenance of fair competition participates in the CCC. The FTC regulates the principles, rates, and standards of service for public utilities and other regulated service providers. The Telecommunications Act regulates competition in the telecommunications sector.
Expropriation and Compensation
The Barbados constitution and the Companies Act (Chap. 308) contain provisions permitting the government to acquire property for public use upon prompt payment of compensation at fair market value. U.S. Embassy Bridgetown is not aware of any outstanding expropriation claims or nationalization of foreign enterprises in Barbados.
Dispute Settlement
ICSID Convention and New York Convention
The government of Barbados wrote the New York Convention’s provisions into domestic law but did not ratify the convention. The Arbitration Act (1976) and the Foreign Arbitral Awards Act (1980), which recognizes the 1958 New York Convention on the Negotiation and Enforcement of Foreign Arbitral Awards, are the main laws governing dispute settlement in Barbados.
Barbados is also a member of the International Center for the Settlement of Investment Disputes (ICSID), also known as the Washington Convention. Individual agreements between Barbados and multilateral lending agencies also have provisions calling on Barbados officials to accept recourse to binding international arbitration to resolve investment disputes between foreign investors and the state.
Investor-State Dispute Settlement
The Barbados Arbitration Act (1976) and the Foreign Arbitral Awards Act (1980) provide for arbitration of investment disputes. Barbados does not have a bilateral trade treaty or a free trade agreement with an investment chapter with the United States. U.S. Embassy Bridgetown is not aware of any current investment disputes in Barbados.
Barbados ranks 170th out of 190 countries in enforcing contracts according to the 2020 World Bank Doing Business Report. Dispute resolution in Barbados generally takes an average of 1,340 days. The slow court system and bureaucracy are widely seen as the main hindrances to timely resolutions of commercial disputes. Through the Arbitration Act of 1976, local courts recognize and enforce foreign arbitral awards issued against the government. In 2019, the Supreme Court of Judicature Act was amended to include the establishment of a commercial division in the High Court which will oversee proceedings regarding arbitration. The U.S. Embassy does not know of recent cases of investment disputes in Barbados involving U.S. or other foreign investors.
International Commercial Arbitration and Foreign Courts
The Supreme Court of Barbados is the domestic arbitration body. Local courts enforce foreign arbitral awards. In 2019, two new court protocols in the Supreme and Magistrate courts were introduced for alternative dispute mechanisms in mediation and arbitration to be available to judges and attorneys for the remediation of civil matters.
Bankruptcy Regulations
Under the Bankruptcy and Insolvency Act (2002), Barbados has a bankruptcy framework that recognizes certain debtor and creditor rights. The Act gives a potentially bankrupt company three options: bankruptcy (voluntary or involuntary), receivership, or reorganization of the company. The Companies Act provides for the insolvency and/or liquidation of a company incorporated under this Act. In 2019, the Supreme Court of Judicature Act was amended to include the establishment of a commercial division in the High Court which will oversee proceedings connected to bankruptcy and insolvency. Barbados ranked 35th out of 190 countries in resolving insolvency in the 2020 World Bank Doing Business Report.
6. Financial Sector
Capital Markets and Portfolio Investment
Barbados has a small stock exchange, an active banking sector, and opportunities for portfolio investment. Local policies seek to facilitate the free flow of financial resources, although some restrictions may be imposed during exceptional periods of low liquidity. The CBB independently raises or lowers interest rates without government intervention. There are a variety of credit instruments in the commercial and public sectors that local and foreign investors may access.
Barbados continues to review legislation in the financial sector to strengthen and improve the regulatory regime and attract and facilitate retention of foreign portfolio investments. The government continues to improve its legal, regulatory, and supervisory frameworks to strengthen the banking system. The Anti-Money Laundering Authority and its operating arm, the government’s Financial Intelligence Unit, review anti-money laundering policy documents and analyze prudential returns.
The Securities Exchange Act of 1982 established the Securities Exchange of Barbados, which was reincorporated as the Barbados Stock Exchange (BSE) in 2001. The BSE operates a two-tier electronic trading system comprised of a regular market and an innovation and growth market (formerly the junior market). Companies applying for listing on the regular market must observe and comply with certain requirements. Specifically, they must have assets of at least 500,000 USD (1 million Barbados dollars) and adequate working capital, based on the last three years of their financial performance, as well as three-year performance projections. Companies must also demonstrate competent management and be incorporated under the laws of Barbados or another regulated jurisdiction approved by the Financial Services Commission. Applications for listing on the innovation and growth market are less onerous, requiring minimum equity of one million shares at a stated minimum value of 100,000 USD (200,000 Barbados dollars). Reporting and disclosure requirements for all listed companies include interim financial statements and an annual report and questionnaire. Non-nationals must obtain exchange control approval from the CBB to trade securities on the BSE.
The BSE has computerized clearance and settlement of share certificates through the Barbados Central Securities Depository Inc., a wholly owned subsidiary of the BSE. Under the Property Transfer Tax Act, the FSC can accommodate investors requiring a traditional certificate for a small fee. The FSC also regulates mutual funds in accordance with the Mutual Funds Act.
The BSE adheres to rules in accordance with International Organization of Securities Commissions guidelines designed to protect investors; ensure a fair, efficient, and transparent market; and reduce systemic risk. Public companies must file audited financial statements with the BSE no later than 90 days after the close of their financial year. The authorities may impose a fine not exceeding 5,000 USD (10,000 Barbados dollars) for any person under the jurisdiction of the BSE who contravenes or is not in compliance with any regulatory requirements.
The BSE launched the International Securities Market (ISM) in 2016. It is designed to operate as a separate market, allowing issuers from Barbados and other international markets. To date, the ISM has five listing sponsors.
The BSE collaborates with its regional partners, the Jamaica Stock Exchange and the Trinidad and Tobago Stock Exchange, through shared trading software. The capacity for this inter-exchange connectivity provides a wealth of potential investment opportunities for local and regional investors. The BSE obtained designated recognized stock exchange status from the UK in 2019. It is also a member of the World Federation of Exchanges.
Barbados has accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement and maintains an exchange system free of restrictions on current account transactions.
Money and Banking System
The government established the Central Bank of Barbados (CBB) in 1972. The CBB manages Barbados’ currency and regulates its domestic banks.
The Barbados Deposit Insurance Corporation (BDIC) provides protection for depositors. Oversight of the entire financial system is conducted by the Financial Oversight Management Committee, which consists of the CBB, the BDIC, and the FSC. The private sector has access to financing on the local market through short-term borrowing and credit, asset financing, project financing, and mortgage financing.
Commercial banks and other deposit-taking institutions set their own interest rates. The CBB requires banks to hold 17.5 percent of their domestic deposits in stipulated securities.
Bitt, a Barbadian company, developed digital currency DCash in partnership with the Eastern Caribbean Central Bank (ECCB). The first successful DCash retail central bank digital currency (CDBC) consumer-to-merchant transaction took place in Grenada in February following a multi-year development process. The CBB and the FSC established a regulatory sandbox in 2018 where financial technology entities can do live testing of their products and services. This allowed regulators to gain a better understanding of the product or service and to determine what, if any, regulation is necessary to protect consumers. Bitt completed its participation and formally exited the sandbox in 2019. Bitt has no immediate plans to launch DCash in Barbados, and will focus first on four of Barbados’ Eastern Caribbean neighbors. Bitt also offers a digital access exchange, remittance channel, and merchant-processing gateway available via mMoney, a mobile application.
The Caribbean region has witnessed a withdrawal of correspondent banking services by U.S., Canadian, and European banks in recent years due to concerns that the region is high-risk.
Foreign Exchange and Remittances
Foreign Exchange
Barbados’ currency of exchange is the Barbadian dollar (BBD). It is issued by the CBB. Barbados’ foreign exchange operates under a liberal system. The Barbadian dollar has been pegged to the U.S. dollar at a rate of BBD 2.00: USD 1.00 since 1975. This creates a stable currency environment for trade and investment in Barbados.
Remittance Policies
Companies can freely repatriate profits and capital from foreign direct investment if they are registered with the CBB at the time of investment. The CBB has the right to stagger these conversions depending on the level of international reserves available to the CBB at the time capital repatriation is requested.
The Ministry of Finance, Economic Affairs and Investment controls the flow of foreign exchange and the Exchange Control Division of the CBB executes foreign exchange policy under the Exchange Control Act. Individuals may apply through a local bank to convert the equivalent of 10,000 USD (20,000 Barbados dollars) per year for personal travel and up to a maximum of 25,000 USD (50,000 Barbados dollars) for business travel. The CBB must approve conversion of any amount over these limits. International businesses, including insurance companies, are exempt from these exchange control regulations.
Barbados is a member of the CFATF. In 2014, the government of Barbados signed an Intergovernmental Agreement in observance of FATCA, making it mandatory for banks in Barbados to report the banking information of U.S. citizens.
Sovereign Wealth Funds
Currently, the CBB does not maintain a sovereign wealth fund. In the past, the government announced plans to create a sovereign wealth fund to ensure national wealth is available for present and future generations of Barbados. Barbadians 18 years and older are expected to gain a stake in the fund after it is established. It is envisioned that the fund will hold governmental assets, including on- and offshore real property, revenues from oil and gas products, and non-tangible assets such as trademarks, patents, and intellectual property.
7. State-Owned Enterprises
State-owned enterprises (SOEs) in Barbados work in partnership with ministries, or under their remit, and carry out certain ministerial responsibilities. There are 33 SOEs in Barbados operating in areas such as travel and tourism, investment services, broadcasting and media, sanitation services, sports, and culture. Pre-pandemic total net income was estimated at 60 million USD (120 million Barbados dollars).
SOEs in Barbados are not found in the key areas earmarked for investment. They are all wholly owned government entities. They are headed by boards of directors to which their senior management reports.
As part of the ongoing BERT program, the government of Barbados is addressing the expenditure position of the SOEs by defining clear objectives for SOE reforms, reducing the wage bill of these entities, and implementing other necessary reform measures.
Privatization Program
Barbados does not currently have a targeted privatization program. The government has announced plans for public-private partnerships in airport management and broadcasting services, which will still see the government retaining ownership of these entities. The process remains open to foreign investors and is transparent. More information can be obtained at http://www.gisbarbados.gov.bb.
Belarus
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Attracting FDI is one of the government’s stated foreign policy priorities; net inflows of FDI have been included in the list of government performance targets since December 2015. The GOB has no specific requirements for foreigners wishing to establish a business in Belarus. Despite this official pro-investment stance, both the central and local governments’ policies reflect a deeply rooted, Soviet-style distrust of private enterprise – whether local or foreign. Technically the legal regime for foreign investments should be no less advantageous than the domestic one, yet FDI in many key sectors is limited, particularly in the petrochemical, agricultural, and alcohol production industries. FDI is prohibited for national security reasons in defense as well as production and distribution of narcotics and dangerous and toxic substances. FDI can also be restricted in activities and operations prohibited by law or in the interests of environmental protection, historical, and cultural values, public order, morality protection, public health, and rights and freedoms of individuals. Investments in businesses that have a dominant position in the commodity markets of Belarus are not allowed without approved by the Ministry of Trade and Antimonopoly Regulation.
Belarusian law officially provides for equal treatment and rights for all investors and foreign investors have the same right as local investors to conduct business operations in Belarus by incorporating separate legal entities. However, selective application of existing laws and practices often discriminate against the private sector, including foreign investors, regardless of the country of their origin. Investments in sectors dominated by SOEs have been known to come under threat from regulatory bodies. Local business owners and independent media observe that selective law enforcement and unwritten practices discriminate against private businesses, including those operated by foreign investors regardless of their country of origin. Serious concerns remain about the independence of the judicial system and its ability to objectively adjudicate cases rather than favor the powerful central government and state companies.
Belarus’ investment promotion agency is the National Agency of Investments and Privatization (NAIP). The NAIP is tasked with representing the interests of Belarus as it seeks to attract FDI into the country. The NAIP is a one-stop shop with services available to all investors, including: organizing fact-finding missions to Belarus; assisting with visa formalities; providing information on investment opportunities, special regimes and benefits, and procedures necessary for making investment decisions; selecting investment projects; and providing solutions and post-project support. https://investinbelarus.by/en/naip-and-what-we-do/
To maintain an ongoing dialogue with investors, Belarus has established the Foreign Investment Advisory Council (FIAC) chaired by the Prime Minister. FIAC activities include: developing proposals to improve investment legislation; participating in examining corresponding regulatory and legal acts; and approaching government agencies for the purpose of adopting, repealing or modifying the regulatory and legal acts that restrict the rights of investors. The FIAC includes the heads of government agencies and other state organizations subordinate to the GOB, as well as heads of international organizations and foreign companies and corporations.
Limits on Foreign Control and Right to Private Ownership and Establishment
While the GOB claims foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity, in reality the GOB imposes limits on a case-by-case basis. The limits on foreign equity participation in Belarus are above the average for the 20 countries covered by the World Bank Group’s Investing Across Borders indicators for Eastern Europe and the Central Asia region. Belarus limits foreign equity ownership in service industries in particular. Sectors such as fixed-line telecommunications services, electricity transmission and distribution, and railway freight transportation are closed to foreign equity ownership. In addition, a comparatively large number of sectors are dominated by government monopolies, including, but not limited to, those mentioned above. Those monopolies make it difficult for foreign companies to invest in Belarus. Finally, the government may restrict investments in the interests of national security (including environmental protection, historical and cultural values), public order, morality protection, and public health, as well as rights and freedoms of people.
While Belarus has no formal national security investment screening mechanism, it retains significant elements of a Soviet-style command economy and screens investments through an informal and hierarchical process that escalates through the bureaucracy depending on the size of the investment or the size of incentives an investor seeks from the GOB. The President and his administration prescreen and approve even multi-million-dollar foreign investments.
Additionally, Belarus’ Ministry of Antimonopoly Regulation and Trade is responsible for reviewing transactions for competition-related concerns (whether domestic or international).
Other Investment Policy Reviews
The UN Conference on Trade and Development reviewed Belarus’ investment policy in 2009 and made recommendations regarding the improvement of its investment climate. http://unctad.org/en/Docs/diaepcb200910_en.pdf
Individuals and legal persons can apply for business registration via the web portal of the Single State Register ( http://egr.gov.by/egrn/index.jsp?language=en ) – a resource that includes all relevant information on establishing a business and provides a single window for securing all necessary clearances and permissions from municipal authorities, tax and social security administrations, etc. Business registration normally takes no more than a day.
Belarus has a regime allowing for a simplified taxation system for micro and small businesses, including foreign-owned businesses. Belarus defines enterprises as follows:
Micro enterprises – fewer than 15 employees;Small enterprises – from 16 to 100 employees;Medium-sized enterprises – from 101 to 250 employees.
The government does not promote or incentivize outward investment, nor does it restrict domestic investors from investing abroad. According to government statistics, Belarusian businesses’ outward investments in 2020 totaled $4.9 billion.
3. Legal Regime
Transparency of the Regulatory System
According to Belarusian law, drafts of laws and regulations pertaining to investment and doing business are subject to public discussion, although the authorities rarely pay heed to public views. Draft legislation is published on government agencies’ websites. The government officially claims that its policies are transparent, and the implementation of laws is consistent with international norms to foster competition and establish clear rules of the road. However, independent economic experts note that private sector businesses are often discriminated against in relation to public sector businesses. In particular, SOEs receive government subsidies, benefits and exemptions, including cheaper loans and debt forgiveness, that is generally unavailable to private sector companies. Observers report that Lukashenka and his inner circle control private businesses that receive preferential treatment from the government.
International Financial Reporting Standards (IFRS) have been a part of Belarus’ legislative framework since 2016. Public-interest entities, which include banks, insurance companies, and public corporations with subsidiary companies, are required to publish their financial statements, which comply with the IFRS. Such statements are subject to statutory audit. The IFRS in Belarus can be accessed at: http://www.minfin.gov.by/ru/accounting/inter_standards/docs/
International Regulatory Considerations
Belarus’ Ministry of Finance posts regular updates and information on budgetary policy, public finances, and debt obligations on its website: http://www.minfin.gov.by/en/budgetary_policy/ and http://www.minfin.gov.by/en/public_debt/.
Belarus is not a WTO member but continues to seek membership. Belarus planned to complete its negotiations on WTO accession at the 12th WTO Ministerial Conference in June 2020 in Nur-Sultan, Kazakhstan, which was canceled due to the COVID-19 pandemic. Under its latest five-year development plan, the government asserts that it plans to bring the country’s legislation in line with WTO standards and secure Belarus’s actual accession to WTO no later than 2025.
Belarus is a member of the Eurasian Economic Union (EAEU); EAEU regulations and decisions supersede the national regulatory system.
Legal System and Judicial Independence
Belarus has a civil law system with a legal separation of branches and institutions and with the main source of law being legal act, not precedent. For example, Article 44 of Belarus’ Constitution guarantees the inviolability of property. Article 11 of the Civil Code officially safeguards property rights, but presidential edicts and decrees, controlled exclusively by Lukashenka, typically carry more force than legal acts adopted by the legislature. This risks weakening investor protections and incentives previously passed into law. There is sometimes a public comment process during drafting of legislation or presidential decrees, but the process is not transparent or sufficiently inclusive of investors’ concerns. Belarus has broadly codified commercial law but the law contains inconsistencies and is not considered business friendly.
According to the 2020 Human Rights Report: “The constitution provides for an independent judiciary, but authorities did not respect judicial independence and impartiality. Observers believed corruption, inefficiency, and political interference with judicial decisions were widespread.” Businesses complain the authorities selectively enforce regulations and criminal laws and that cases are often politically motivated. For example, in June 2020 executives at Belgazprombank were arrested on financial crimes charges and the bank was put under government administration after the bank’s chairperson Viktar Babaryka sought to compete as a candidate in the 2020 presidential election. In another example, in September 2020 the authorities arrested several employees of an IT company on financial crimes charges in what many said was retaliation for the political activities of the company’s CEO. In November 2020, Belarusian authorities allegedly seized over $500,0000 from local bank accounts associated with the charitable foundation @BY_Help, which sought to provide financial assistance to the victims of government oppression. At the February 2021 All Belarusian People’s Assembly, Lukashenka said he had ordered the closure of over 200 private businesses because of their perceived participation in the October 26, 2020 “People’s Ultimatum” organized by political opposition.
Each of Belarus’ six regions and the capital city of Minsk have economic courts to address commercial and economic issues. In addition, the Supreme Court has a judicial panel on economic issues. In 2000, Belarus established a judicial panel to enforce intellectual property rights. Under the Labor Code, any claims of unfair labor practices are heard by regular civil courts or commissions on labor issues. However, the judiciary’s lack of independence from the executive branch prevents it from acting as a reliable and impartial mechanism for resolving disputes, whether labor, economic, commercial, or otherwise. According to Freedom House’s 2018 Nations in Transit report, executive authorities can directly influence a judge’s decision-making if their political or economic interests are involved, and such influence usually takes the form of direct instructions from officials.
Local economic court proceedings normally do not exceed two months. The term of such proceedings with the participation of foreign persons is normally no longer than seven months, unless established otherwise by an international agreement signed by Belarus.
Laws and Regulations on Foreign Direct Investment
Foreign investment in Belarus is governed by the 2013 laws “On Investments” and “On Concessions,” the 2009 Presidential Decree No. 10 “On the Creation of Additional Conditions for Investment Activity in Belarus,” and other legislation as well as international and investment agreements signed and ratified by Belarus.
Issued in 2016, Presidential decree number 188 authorized the Ministry of Antimonopoly Regulation and Trade to counteract monopolistic activities and promote market competition.
Expropriation and Compensation
According to Article 12 of the Investment Code, neither party may expropriate or nationalize investments both directly and indirectly by means of measures similar to expropriation or nationalization, for other purposes than for the public benefit and on a nondiscriminatory basis; according to the appropriate legal procedure; and on conditions of compensation payment. Belarus has signed 68 bilateral agreements on the mutual protection and encouragement of investments which include obligations regarding expropriation.
In 2018, there was one nationally-reported case of nationalization – the Motor Sich aircraft repair factory in Orsha. The GOB claimed it compensated the Ukrainian owner market value for its shares, but the owner expressed dissatisfaction with the compensation. There was no public information about the Ukrainian owner pursuing the case further.
In 2018, the Belarusian parliament drafted amendments to the 2013 law on investment to establish procedures for paying compensation for the nationalized and confiscated property, but Lukashenka refused to sign them into law. There have been no instances of expropriation of business property as a penalty for violations of law since 2018.
Dispute Settlement
ICSID Convention and New York Convention
Belarus is a party to both the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, meaning that local courts recognize and enforce foreign arbitral awards in compliance with the above conventions, national laws, and regulations. The enforcement of arbitral awards in Belarus is governed by Chapter 28 of the Code of Commercial Procedure.
Investor-State Dispute Settlement
Belarus and the United States signed a Bilateral Investment Treaty (BIT), but entry into force is pending exchange of instruments of ratification. Most of the BITs concluded by Belarus include a provision on international investment arbitration as a mechanism for settling investor-State disputes and recognize the binding force of the awards issued by tribunals. Under Belarusian law, if an international treaty signed by Belarus establishes rules other than those established by local law, the rules of the international treaty prevail.
Since 2017, Belarus has faced three investment arbitration claims involving investors from the Netherlands and Russia. There were no known investment disputes between Belarusian government authorities and American investors in 2020.
International Commercial Arbitration and Foreign Courts
Judgments of foreign courts are accepted and enforced if there is a relevant international agreement signed by Belarus. Courts recognize and enforce foreign arbitral awards. The Belarusian Chamber of Commerce and Industry has an International Arbitration Court. The 2013 “Law on Mediation,” as well as codes of civil and economic procedures, established various alternative ways of addressing investment disputes.
Bankruptcy Regulations
Belarus’ 2012 bankruptcy law, related presidential edicts, and government resolutions are not always consistently applied. Additional legal acts, such as the Civil Code and Code of Economic Procedures, also include certain regulations on bankruptcy-related issues. Under the bankruptcy law, foreign creditors have the same rights as Belarusian creditors. Belarusian law criminalizes false and intentional insolvency as well as concealing insolvency. According to the World Bank’s 2020 Doing Business Index, Belarus was ranked 74 in Resolving Insolvency (rankings available at http://www.doingbusiness.org/data/exploreeconomies/belarus ).
6. Financial Sector
Capital Markets and Portfolio Investment
The Belarusian government officially claims to welcome portfolio investment. There have been no reports in 2020 on any impediments regarding such investment or a free flow of any financial instruments. The Belarusian Currency and Stock Exchange is open to foreign investors, but it is still largely undeveloped because the government only allows companies to trade stocks if they meet certain but often burdensome criteria. Private companies must be profitable and have net assets of at least EUR 1 million. In addition, any income from resulting operations is taxed at 24 percent. Finally, the state owns more than 70 percent of all stocks in the country, and the government appears hesitant and unwilling to trade in them freely. Bonds are the predominant financial instrument on Belarus’ corporate securities market.
In 2001, Belarus joined Article VIII of the IMF’s Articles of Agreement, undertaking to refrain from restrictions on payments and transfers under current international transactions. Loans are allocated on market terms and foreign investors are able to get them. However, the discount rate of 7.75 percent (as of March 2020) makes credit too expensive for many private businesses, which, unlike many SOEs, do not receive subsidized or reduced-interest loans.
Businesses buy and sell foreign exchange at the Belarusian Currency and Stock Exchange through their banks. Belarus used to require businesses to sell 10-20 percent of foreign currency revenues through the Belarusian Currency and Stock Exchange, however in late 2018 the National Bank abolished the mandatory sale rule.
Belarus has a central banking system led by the National Bank of the Republic of Belarus, which represents the interest of the state and is the main regulator of the country’s banking system. The President of Belarus appoints the Chair and Members of the Board of the National Bank, designates auditing organizations to examine its activities, and approves its annual report. Although the National Bank officially operates independently from the government, there is a history of government interference in monetary and exchange rate policies.
As of March 2021, the banking system of Belarus included 24 commercial banks and three non-banking credit and finance organizations. According to the National Bank, the share of non-performing loans in the banking sector was 4.8 percent as of January 1, 2021. The country’s seven largest commercial banks of systemic importance, all of which have some government share, accounted for 85 percent of the approximately USD 90.5 billion in total assets across the country’s banking sector. There are five representative offices of foreign banks in Belarus, with China’s Development Bank opening most recently in 2018. Regular banking services are widely available to customers regardless of national origin.
Belarusian law does not allow foreign banks to establish operations of their branches in Belarus. The subsidiaries of foreign banks are allowed to operate in Belarus and are subject to prudential measures and other regulations like any Belarusian bank. The U.S. Embassy is not aware of Belarus losing any correspondent banking relationships in the past three years. Foreign nationals are allowed to establish a bank account in Belarus without establishing residency status.
According to the IMF, Belarus’s state-dominated financial sector faces deep domestic structural problems and external sector challenges. Domestic structural problems include heavy state involvement in the banking and corporate sector, the lack of hard budget constraints for SOEs given state support, and high dollarization. Externally, Belarus’s economy remains exposed to spillovers from the Russian economy and Belarus’s foreign currency reserves offer a limited buffer to potential external shocks. The banking sector remains vulnerable to external shocks, given the high level of dollarization and the exposure to government and SOE debt. The political unrest following the August 2020 election led to deposit outflows from the banks, exacerbating risks to the banks’ financial portfolios. In September 2020, S&P Global Ratings downgraded Belarus’s long-term sovereign rating from stable to negative, citing the growing risks for the financial stability of Belarus’s banking system.
Foreign Exchange and Remittances
Foreign Exchange
According to the GOB, Belarus’ foreign exchange regulations do not include any restrictions or limitations regarding converting, transferring, or repatriating funds associated with investment. Foreign exchange transactions related to FDI, portfolio investments, real estate purchasing, and opening bank accounts are carried out without any restrictions. Foreign exchange is freely traded in the domestic foreign exchange market. Foreign investors can purchase foreign exchange from their Belarusian accounts in Belarusian banks for repaying investments and transferring it outside Belarus without any restrictions.
Since 2015, the Belarusian Currency and Stock Exchange has traded the U.S. dollar, the euro, and the Russian ruble in a continuous double auction regime. Local banks submit bids for buying and selling foreign currency into the trading system during the entire trading session. The bids are honored if and when the specified exchange rates are met. The National Bank uses the average weighted exchange rate of the U.S. dollar, the euro, and the Russian ruble set during the trading session to set official exchange rates from the day on which the trades are made. The cross rates versus other foreign currencies are calculated based on the data provided by other countries’ central banks or information from Reuters and Bloomberg. The stated quote becomes effective on the next calendar day and is valid until the new official exchange rate come into force. The IMF lists Belarus’ exchange rate regime in the floating exchange rate category.
Remittance Policies
There were no reports of problems exchanging currency or remitting revenues earned abroad.
Sovereign Wealth Funds
Belarus does not have a Sovereign Wealth Fund. The GOB manages the State Budget Fund of National Development, which supports major economic and social projects in the country.
7. State-Owned Enterprises
Although SOEs are outnumbered by private businesses, SOEs dominate the economy in terms of assets. According to experts, the share of Belarus’ GDP derived from SOEs is at least 70 percent. Belarus does not consider joint stock companies, even those with 100 percent government ownership of the stocks, to be state-owned and generally refers to them as part of the non-state sector, rendering official government statistics regarding the role of SOEs in the economy misleading. According to media reports, SOEs receive preferential access to government contracts, subsidized credits, and debt forgiveness. While SOEs are generally subject to the same tax burden and tax rebate policies as their private sector competitors, private enterprises do not have the same preferential access to land and raw materials. Since Belarus is not a WTO member, it is not a party to the Government Procurement Agreement (GPA).
Privatization Program
The GOB officially claims to welcome “strategic investors,” including foreign investors, and claim that any state-owned or state-controlled enterprise can be privatized. However, Belarus’ privatization program is in practice extremely limited. Notably, in April 2020, the government sold its controlling share in Belarus’ fifteenth-largest bank, Paritetbank. Otherwise, there was no privatization of state-controlled companies from 2018 to 2020. One SOE was bought by private investors in 2017, and no companies or shares were privatized in 2016. In early 2019, Belarus’ State Property Committee approved a list of 23 joint stock companies for full or partial privatization in 2019. Also in 2019, the World Bank concluded a pilot SOE privatization project that identified and helped prepare 12 Belarusian SOEs for privatization. However, the GOB allowed sale of the government share in these companies on the condition that the purchasing investors preserve existing jobs and production lines.
The State Property Committee reported that the government sold its minority share (under 25 percent) in two enterprises in 2019. The State Property Committee announced in early 2021 that it has no plans for any mass privatization in Belarus in 2021. For a list of open-joint stock companies whose shares are available for privatization, as well as a description of the assets and conditions for privatization, visit: http://gki.gov.by/en/inf_for_investors-ifi_on_priv/ .
Investors interested in assets on the published privatization list are encouraged to forward a brief letter of interest to the State Property Committee. A special commission reviews offers and makes a recommendation to the President on the process of privatization – via tender, auction, or direct sale. Investors may also send a letter of interest regarding assets that are not on the State Property Committee list and the government will examine such offers.
Additionally, the State Property Committee occasionally organizes and holds privatization auctions. Many of the auctions organized by the State Property Committee have low demand as the government conditions privatizations with strict requirements, including preserving or creating jobs, continuing in the same line of work or production, or launching a successful business project within a limited period of time, etc.
In 2016, Belarusian joint stocks were allowed trans-border placement via issuing depositary receipts, but to date this instrument of attracting investments has not been used in Belarus.
Belgium
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Belgium maintains an open economy and its prosperity remains highly dependent on international trade. Since World War II, making Belgium attractive to foreign investors has been the cornerstone of successive Belgian governments’ foreign and commercial policy. Competence over policies that weigh on the attractiveness of Belgium as a destination for foreign direct investment (FDI) lie predominantly with the federal government, which is responsible for developing domestic competition policy, wage setting policies, labor law and most energy and fiscal policies. Attracting FDI is, however, a responsibility of Belgium’s three regional governments and their investment promotion agencies: Flanders Investment and Trade (FIT), Wallonia Foreign Trade and Investment Agency (AWEX), and Brussels Invest and Export (BIE). One of their most visible activities is the organization of the Royal Trade Missions. In October 2021, a Royal Trade Mission led by Princess Astrid is planned to visit Atlanta, New York City, and Boston. Neither the federal government nor the regional governments currently maintain a formal dialogue with investors.
There are no laws in place that discriminate against foreign investors. Belgian authorities are developing a national security-based investment screening law, which will not likely be finalized and delivered to Parliament for a vote before the second half of 2021. The Belgian government, however, has coordinated with the European Commission on its investment screening mechanism. In practice, this arrangement allows the European Commission to issue opinions when an investment poses a threat to the security or public order of more than one member state. Furthermore, the regulation sets certain requirements for EU member states that wish to maintain or adopt a screening mechanism at the national level. Member states will keep the last word on whether or not a specific investment should or should not be allowed in their territory.
Limits on Foreign Control and Right to Private Ownership and Establishment
There are currently no limits on foreign ownership or control in Belgium and there are no distinctions between Belgian and foreign companies when establishing or owning a business, or setting up a remunerative activity. The forthcoming investment screening mechanism may establish some limits based on national security.
Other Investment Policy Reviews
In July 2019 the OECD published an in-depth productivity review of Belgium:
Belgium was included in the WTO Trade Policy Review of the European Union, which took place February 18-20, 2020: https://www.wto.org/english/tratop_e/tpr_e/tp495_e.htm
Business Facilitation
In order to set up a business in Belgium, one must:
1. Deposit at least 20% of the initial capital with a Belgian credit institution and obtain a standard certification confirming that the amount is held in a blocked capital account;
2. Deposit a financial plan with a notary, sign the deed of incorporation and the by-laws in the presence of a notary, who authenticates the documents and registers the deed of incorporation. The authentication act must be drawn up in either French, Dutch or German (Belgium’s three official languages); and
3. Register with one of the Registers of legal entities, VAT and social security at a centralized company docket and obtain a company number.
In most cases, the business registration process can be completed within one week (https://www.business.belgium.be/en/setting_up_your_business). The process is bureaucratic and can be challenging for foreigners, particularly if they do not speak the language of the region. Assistance from the regional Investment Authorities (see below) is recommended; these authorities are competitive and will offer support and incentives to companies considering establishing in their territory. Contacting the office of the U.S. Foreign Commercial Service at the U.S. Embassy in Brussels for assistance is also recommended.
Based on the number of employees, the projected annual turnover and the shareholder class, a company will qualify as a small or medium-sized enterprise (SME) according to the meaning of the Promotion of Independent Enterprise Act of February 10, 1998. For a small or medium-sized enterprise, registration will only be possible once a certificate of competence has been obtained. The person in charge of the daily management of the company must prove his or her knowledge of business management, with diplomas and/or practical experience. In the Global Enterprise Register, Belgium currently scores 7 out of 10 for ease of setting up a limited liability company.
Business facilitation agencies provide for equitable treatment of women and under-represented minorities in the economy.
A company is expected to allow trade union delegations if it employs 20 or more full-time equivalents (FTEs).
The three Belgian regions each have their own investment promotion agency, whose services are available to all foreign investors:
Belgium does not actively promote outward investment. There are no restrictions for domestic investors to invest in certain countries, other than those that fall under UN or EU sanction regimes.
3. Legal Regime
Transparency of the Regulatory System
The Belgian government has adopted a generally transparent competition policy. The government has implemented tax, labor, health, safety, and other laws and policies to avoid distortions or impediments to the efficient mobilization and allocation of investment, comparable to those in other EU member states. Draft bills are never made available for public comment, but have to go through an independent court for vetting and consistency. Belgium publishes all its relevant legislation and administrative guidelines in an official Gazette, called Le Moniteur Belge (www.moniteur.be).
Foreign and domestic investors in some sectors face stringent regulations designed to protect small- and medium-sized enterprises. Recognizing the need to streamline administrative procedures in many areas, in 2015 the federal government set up a special task force to simplify official procedures. It also agreed to streamline laws regarding the telecommunications sector into one comprehensive volume after new entrants in this sector had complained about a lack of transparency. Additionally the government strengthened its Competition Policy Authority with a number of academic experts and additional resources. Traditionally, scientific studies or quantitative analysis conducted on the impact of regulations are made publicly available for comment. However, not all stakeholder comments received by regulators are made public.
Accounting standards are regulated by the Belgian law of January 30, 2001, and balance sheet and profit and loss statements are in line with international accounting norms. Cash flow positions and reporting changes in non-borrowed capital formation are not required. However, contrary to IAS/IFRS standards, Belgian accounting rules do require an extensive annual policy report.
International Regulatory Considerations
Belgium is a founding member of the EU, whose directives and regulations are enforced. On May 25, 2018, Belgium implemented the General Data Protection Regulation (GDPR) (EU) 2016/679, an EU regulation on data protection and privacy for all individuals within the European Union.
Through the European Union, Belgium is a member of the WTO, and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Belgium does not maintain any measures that are inconsistent with the Agreement on Trade-Related Investment Measures (TRIMs) obligations.
Legal System and Judicial Independence
Belgium’s (civil) legal system is independent of the government and is a means for resolving commercial disputes or protecting property rights. Belgium has maintained a wide-ranging codified law system since 1830. Specialized commercial courts apply the existing commercial and contractual laws. As in many countries, Belgian courts labor under a growing caseload and ongoing budget cuts causing backlogs and delays. There are several levels of appeal.
Laws and Regulations on Foreign Direct Investment
Payments and transfers within Belgium and with foreign countries require no prior authorization. Transactions may be executed in euros as well as in other currencies.
Belgium has no debt-to-equity requirements. Dividends may be remitted freely except in cases in which distribution would reduce net assets to less than paid-up capital. No further withholding tax or other tax is due on repatriation of the original investment or on the profits of a branch, either during active operations or upon the closing of the branch.
There are three different regional Investment Authorities:
Flanders: www.flandersinvestmentandtrade.com
Wallonia; www.awex.be
Brussels: https://be.brussels/brussels
Competition and Antitrust Laws
The contact address for competition-related concerns:
Federal Competition Authority
City Atrium, 6th floor
Vooruitgangsstraat 50
1210 Brussels
tel: +32 2 277 5272
fax: +32 2 277 5323
email: info@bma-abc.be
EU member states are responsible for competition and anti-trust regulations if there are no cross-border dimensions. If cross-border effects are present, EU law applies and European institutions are competent.
Expropriation and Compensation
There are no outstanding expropriation or nationalization cases in Belgium with U.S. investors. There is no pattern of discrimination against foreign investment in Belgium.
When the Belgian government uses its eminent domain powers to acquire property compulsorily for a public purpose, current market value is paid to the property owners. Recourse to the courts is available if necessary. The only expropriations that occurred during the last decade were related to infrastructure projects such as port expansions, roads, and railroads.
Dispute Settlement
ICSID Convention and New York Convention
Belgium is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and regularly includes provision for ICSID arbitration in investment agreements.
Investor-State Dispute Settlement
The government accepts binding international arbitration of disputes between foreign investors and the state. There have been no public investment disputes involving a U.S. citizen within the past 10 years. Local courts are expected to enforce foreign arbitral awards issued against the government. To date, there has been no evidence of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
Alternative Dispute Resolution is not mandatory by law and is therefore not commonly used in disputes, except for matters where the determination by an expert is sought, whether appointed by the parties in agreement or in accordance with a contractual clause or appointed by the court in the context of dispute resolution.
Belgium has no domestic arbitration bodies. Local courts recognize and enforce foreign arbitral awards. Judgments of foreign courts are recognized and enforceable under the local courts. There are no reports or complaints targeting Court proceedings involving State Owned Enterprises (SOEs) or alleged favoritism for them.
Bankruptcy Regulations
Belgian bankruptcy law is governed by the Bankruptcy Act of 1997 and is under the jurisdiction of the commercial courts. The commercial court appoints a judge-auditor to preside over the bankruptcy proceeding and whose primary task is to supervise the management and liquidation of the bankrupt estate, in particular with respect to the claims of the employees. Belgian bankruptcy law recognizes several classes of preferred or secured creditors. A person who has been declared bankrupt may subsequently start a new business unless the person is found guilty of certain criminal offences that are directly related to the bankruptcy. The Business Continuity Act of 2009 provides the possibility for companies in financial difficulty to enter into a judicial reorganization. These proceedings are to some extent similar to Chapter 11 as the aim is to facilitate business recovery. In the World Bank’s 2020 Doing Business Index, Belgium ranks number 9 (out of 190) for the ease of resolving insolvency.
6. Financial Sector
Capital Markets and Portfolio Investment
Belgium has policies in place to facilitate the free flow of financial resources. Credit is allocated at market rates and is available to foreign and domestic investors without discrimination. Belgium is fully served by the international banking community and is implementing all relevant EU financial directives. At the same time, in 2020 Belgium ranked 67th out of 190 for “getting credit” on the World Bank’s “Doing Business” rankings, and in the bottom quintile among OECD high income countries.
The Belgian city of Bruges established the world’s first stock market almost 600 years ago, and the Belgian bourse is well-established today. On Euronext, a company may increase its capital either by capitalizing reserves or by issuing new shares. An increase in capital requires a legal registration procedure, and new shares may be offered either to the public or to existing shareholders. A public notice is not required if the offer is to existing shareholders, who may subscribe to the new shares directly. An issue of bonds to the public is subject to the same requirements as a public issue of shares: the company’s capital must be entirely paid up, and existing shareholders must be given preferential subscription rights. Details on the shareholders of the Bel20 (benchmark stock market index of Euronext Brussels) can be found on http://www.gresea.be/Qui-sont-les-actionnaires-du-BEL-20.
In 2016, the Belgian government passed legislation to improve entrepreneurial financing through crowdfunding and more flexible capital venture rules.
Money and Banking System
Because the Belgian economy is directed toward international trade, more than half of its banking activities involve foreign countries. Belgium’s major banks are represented in the financial and commercial centers of dozens of countries by subsidiaries, branch offices, and representative offices. The country does have a central bank, the National Bank of Belgium (NBB), whose governor is also a member of the Governing Council of the European Central Bank (ECB). Being a Eurozone member state, the NBB is part of the Euro system, meaning that it has transferred the sovereignty over monetary policy to the ECB.
Belgium has one of highest number of banks per capita in the world. Following a review of the 2008 financial crisis, the Belgian government decided in 2012 to shift the authority of bank supervision from the Financial Market Supervision Authority (FMSA) to the NBB. In 2017, supervision of systemically important Belgian banks shifted to the ECB. The country has not lost any correspondent banking relationships in the past three years, nor are there any correspondent banking relationships currently in jeopardy.
Since the introduction of the Single Supervisory Mechanism (SSM), the vast majority of the Belgian banking sector’s assets are held by banks that come under SSM supervision, including the “significant institutions” KBC Bank, Belfius Bank, Argenta, AXA Bank Europe, Bank of New-York Mellon and Bank Degroof/Petercam. Other banks governed by Belgian law – such as BNP Paribas Fortis and ING Belgium – are also subject to SSM supervision as they are subsidiaries of non-Belgian “significant institutions.”
In 2018, the banking sector conducted its business in a context of gradual economic recovery and persistently low interest rates. That situation had two effects: it put pressure on the sector’s profitability and caused a credit default problem in some European banks. The National Bank of Belgium designated eight Belgian banks as domestic systemically important institutions, and divided them into two groups according to their level of importance. A 1.5% capital surcharge was imposed on the first group (BNP Paribas Fortis, KBC Group and Belfius Bank). The second group (AXA Bank Europe, Argenta, Euroclear and The Bank of New York Mellon) is required to hold a supplementary capital buffer of 0.75%. These surcharges are being phased in over a three-year period.
Under pressure from the European Union, bank debt has decreased in volume overall, from close to 1.6 trillion euros in 2007 to just over 1 trillion euros in 2018, according to the National Bank of Belgium, particularly in the risky derivative markets.
It remains to be seen how the economic fallout of the COVID-19 crisis will impact banks on a long-term basis in Belgium.
Belgian banks use modern, automated systems for domestic and international transactions. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is headquartered in Brussels. Euroclear, a clearing entity for transactions in stocks and other securities, is also located in Brussels.
Opening a bank account in the country is linked to residency status. The U.S. FATCA (Foreign Account Tax Compliance Act) requires Belgian banks to report information on U.S. account holders directly to the Belgian tax authorities, who then release the information to the IRS.
With regard to cryptocurrencies, the National Bank of Belgium has no central authority overseeing the network.
Unlike most other EU countries, there are no cryptocurrency ATMs, and the NBB has repeatedly warned about potential adverse consequences of the use of cryptocurrencies for financial stability.
Foreign Exchange and Remittances
Foreign Exchange
Payments and transfers within Belgium and with foreign countries require no prior authorization. Transactions may be executed in euros as well as in other currencies.
Remittance Policies
Dividends may be remitted freely except in cases in which distribution would reduce net assets to less than paid-up capital. No further withholding tax or other tax is due on repatriation of the original investment or on the profits of a branch, either during active operations or upon the closing of the branch.
Sovereign Wealth Funds
Belgium has a sovereign wealth fund (SWF) in the form of the Federal Holding and Investment Company (FPIM-SFPI), a quasi-independent entity created in 2004 and now mainly used as a vehicle to manage the banking assets which were taken on board during the 2008 banking crisis. The SWF has a board whose members reflect the composition of the governing coalition and are regularly audited by the “Cour des Comptes” or national auditor. At the end of 2019, its total assets amounted to € 2.35 billion. The majority of the funds are invested domestically. Its role is to allow public entities to recoup their investments and support Belgian banks. The SWF is required by law to publish an annual report and is subject to the same domestic and international accounting standards and rules. The SWF routinely fulfills all legal obligations. However, it is not a member of the International Forum of Sovereign Wealth Funds.
7. State-Owned Enterprises
Belgium has approximately 80,000 employees working in SOEs, mainly in the railways, telecoms and general utility sectors. There are also several region-owned enterprises where the regions often have a controlling majority. Private enterprises are allowed to compete with SOEs under the same terms and conditions, but since the EU started to liberalize network industries such as electricity, gas, water, telecoms and railways, there have been regular complaints in Belgium about unfair competition from the former state monopolists. Complaints have ranged from lower salaries (railways) to lower VAT rates (gas and electricity) to regulators with a conflict of interest (telecom). Although these complaints have now largely subsided, many of these former monopolies are now market leaders in their sector, due mainly to their ability to charge high access costs to legacy networks that were fully amortized years ago.
Privatization Program
Belgium currently has no scheduled privatizations. There are ongoing discussions about the relative merits of a possible privatization of the state-owned bank Belfius and the government share in telecom operator Proximus. There are no indications that foreign investors would be excluded from these eventual privatizations.
Belize
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Belize’s government encourages FDI to relieve fiscal pressure and diversify the economy. While the government is interested in attracting FDI, certain bureaucratic and regulatory requirements impede investment and growth.
There are no laws that explicitly discriminate against foreign investors. In practice, however, investors complain that lack of transparency, land insecurity, bureaucracy, delays, and corruption are factors that make it difficult to do business in Belize. In 2020, businesses increasingly complained that foreign exchange shortages constrained both local and foreign owned operations as the Central Bank of Belize tighten measures to obtain approval for foreign exchange. U.S. firms have also identified challenges in participating and competing in areas related to the bidding, procurement and dispute settlement processes, particular to SOEs.
The Belize Trade and Investment Development Service (BELTRAIDE; www.belizeinvest.org.bz) is the investment and export promotion agency. It promotes FDI through various incentive packages and identified priority sectors for investment such as agriculture, agro-processing, fisheries and aquaculture, logistics and light manufacturing, food processing and packaging, tourism and tourism-related industries, business process outsourcing (BPOs), and sustainable energy. Export-orientated businesses operating in less developed areas also receive preferential treatment.
The Economic Development Council, https://edc.gov.bz, is a public-private sector advisor body established to advance public sector reforms, to promote private sector development and to inform policies for growth and development. The Cabinet Sub–Committee on Investment is composed of ministers whose portfolios are directly involved in considering and approving investment proposals. Additionally, there is an Office of the Ombudsman who addresses issues of official wrongdoing.
Limits on Foreign Control and Right to Private Ownership and Establishment
Belize acknowledges the right for foreign and domestic private entities to establish and own business enterprises and engage in remunerative activities. Foreign and domestic entities must first register their business before engaging in business. They must also register for the appropriate taxes, including business tax and general sales tax, as well as obtain a social security number and trade license.
Generally, Belize has no restrictions on foreign ownership and control of companies; however, foreign investments must be registered with the Central Bank of Belize and adhere to the Exchange Control Act and related regulations. To register a business name with the government, foreigners must apply with a Belizean partner or someone with a permanent residence. Additionally, persons seeking to open a bank account must also comply with Central Bank regulations. These may differ based on the applicant’s residency status and whether the individual is seeking to establish a local or foreign currency account. Note: many Belizeans perceive foreigners to receive favorable treatment from the government over access to capital during the start-up process.
Foreign investments must be registered and obtain an “Approved Status” from the Central Bank to facilitate inflows and outflows of foreign currency. Investments with “Approved Status” are generally granted permission to repatriate funds gained from profits, dividends, loan payments and interest. Additionally, the Exchange Control Regulation Act was amended in 2020 to relax the requirement for non-residents to obtain prior permission from the Central Bank to conduct transaction in securities and real estate. The amendment now provides for prior written notice to the Central Bank with full particulars of the transaction.
Some investment incentives show preference to Belizean-owned companies. For example, to qualify for a tour operator license, a business must be majority-owned by Belizeans or permanent residents of Belize (http://www.belizetourismboard.org). This qualification is negotiable particularly where a tour operation would expand into a new sector of the market and does not result in competition with local operators. The government does not impose any intellectual property transfer requirements.
The Cabinet Sub-Committee on Investment investigates investment projects which do not fall within Belize’s incentive regime or which may require special considerations. For example, an investment may require legislative changes, a customized memorandum of understanding or agreement from the government, or a public–private partnership. The government assesses proposals based on size, scope, and the incentives requested. In addition, proposals are assessed on a five-point system that analyses: 1) socio-economic acceptability of the project; 2) revenues to the government; 3) employment; 4) foreign exchange earnings; and 5) environmental considerations. There is no statutory timeframe for considering projects as the process largely depends on the nature and complexity of the project.
Foreign investors undertaking large capital investments are advised to adhere to environmental laws and regulations. Government requires project developers to prepare an Environmental Impact Assessment (EIA), should a project meet certain parameters such as land area, location, or industry criteria. When purchasing land or planning to develop in or near an ecologically sensitive zone, government recommends that the EIA fully address any measures by the investor to mitigate environmental risks. Developers must obtain environmental clearance prior to the start of site development. The Department of Environment website, http://www.doe.gov.bz has more information on the Environmental Protection Act and other regulations, applications and guidelines.
Other Investment Policy Reviews
In the past three years, there has been no investment policy review of Belize by the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD). Belize concluded its third Trade Policy Review in the World Trade Organization (WTO) in 2017.
Business Facilitation
BELTRAIDE (http://www.belizeinvest.org.bz ), a statutory body of the Government of Belize, operates as the country’s investment and export promotion agency. Its investment facilitation services are open to all investors – foreign and domestic. While there are support measures to advance greater inclusion of women and minorities in entrepreneurial initiatives and training, the business facilitation measures do not generally distinguish by gender or economic status.
In the midst of the COVID-19 pandemic, the government launched its National Economic Recovery Strategy, as well as, various fiscal and economic stimulus packages. In April 2020, BELTRAIDE concluded an online National Rapid Private Sector Economic Impact Assessment Survey to determine some of the challenges MSMEs faced as a result of the pandemic. Government thereafter launched its MSME Support Program (MSP) in August 2020 to offer an estimated US $7 million in financial relief through small grants, loans and wage subsidies to enterprises affected by the pandemic.
The Belize Companies and Corporate Affairs Registry (tel: +501 822 0421; email: info@belizecompaniesregistry.gov.bz; website: https://belizecompaniesregistry.gov.bz ) is responsible for the registration process of all local businesses and companies. On line services are available by downloading requisite forms off the Registry’s website, making payments to a local bank and emailing proof of payments. Belize does not operate a single-window registration process.
Businesses must register with the tax department to pay business and general sales tax. They must also register with their local city council or town board to obtain a trade license to operate a business. An employer should also register employees for social security. The 2020 Doing Business report (http://www.doingbusiness.org ) estimates it takes on average 48 days to start a company in Belize. The same report ranks Belize at 135 of 190 economies, losing ten spots compared to 2019.
Outward Investment
Belize does not promote or incentivize outward investments. Its government does not restrict domestic investors from investing abroad. However, the Central Bank places currency controls on investment abroad, with Central Bank approval required prior to foreign currency outflows.
3. Legal Regime
Transparency of the Regulatory System
There are no reports that Government policies, processes and laws significantly distort or discriminate against foreign investors. Nonetheless, some investors have complained of systematic shortfalls including that the regime for incentives did not always meet their needs, that land titles are not always reliable and secure, and that bureaucratic delays or corruption can hinder doing business in Belize. U.S. firms have also identified challenges in participating and competing in areas related to the bidding, procurement and dispute settlement processes, particular to SOEs.
There are no NGOs or private sector associations that manage regulatory processes. NGOs and private sector associations do lobby on behalf of their members but have no statutory authority.
Regulatory authority exists both at the local and national levels with national laws and regulations being most relevant to foreign businesses. The cabinet dictates government policies that are enacted by the legislature and implemented by the various government ministries. There are also quasi-governmental organizations mandated by law to manage specific regulatory processes on behalf of the Government of Belize, e.g. the Belize Tourism Board, BELTRAIDE, and the Belize Agricultural Health Authority. Regulations exist at the local level, primarily relating to property taxes and registering for trade licenses to operate businesses in the municipality.
Some supra-national organizations and regulatory structures exist. For example, some elements of international trade affecting U.S. businesses are affected by CARICOM treaties, as in the case of the export of sugar within CARICOM.
Accounting, legal, and regulatory systems are consistent with international norms. Publicly owned companies generally receive audits annually, and the reports are in accordance with International Financial Reporting Standards and International Standards on Auditing.
Draft bills or regulations are generally made available for public comment through a public consultation process. Once introduced in the House of Representatives, draft bills are sent to Standing Committees, which then meet and invite the public and interested persons to review, recommend changes, or object to draft laws prior to further debate. The mechanism for drafting bills, enacting regulations and legislation generally apply across the board and include investment laws and regulations. Public comments on draft legislation are not generally posted online nor made publicly available. In a few instances, laws are passed quickly without meaningful publication, public review or public debate.
Government does not generally disclose the basis on which it reviews regulations. Some government agencies make scientific studies publicly available for example studies related to environmental impact assessments.
Some government ministries also make available policies, laws, and regulations pertinent to their portfolio available on their respective ministry websites or Facebook pages. Printed copies of the Belize Government Gazette contain proposed as well as enacted laws and regulations and are publicly available for a subscription fee. Additionally, enacted laws are published free of cost on the website of the National Assembly or Parliament but there is a delay of a few weeks in updating the website.
Regulations and enforcement actions are appealable with regulatory decisions subject to judicial review. The Office of the Ombudsman also may investigate allegations of official wrongdoing but has no legal authority to bring judicial charges. Reports of wrongdoing are submitted to the affected Ministry. Additionally, the Annual Report of the Ombudsman is tabled before the National Assembly and is a publicly available document.
In March 2021, the Government amended the Central Bank Act authorizing the Central Bank to provide emergency programs and facilities to a wide array of institutions, including banks, financial institutions, statutory corporations and other similar bodies. These emergency programs and facilities will allow for wider array of financial support to businesses, including the “purchase of financial assets including debt, equity and securities, credit facilities or discounting of notes, drafts or bills of exchange.” Through this measure the Government hopes to make available US $25 million in liquidity to invest in the productive sector, particularly in tourism businesses. Additionally, this amendment increased the limit of direct advances that the Central Bank can make to Central Government from 8.5 percent to 12 percent of the previous year’s recurrent revenues.
Further legislative reforms introduced in February 2021 purport to increase transparency with regard to Government finances but are yet to be finalized in the National Assembly. The first was a motion to reconstitute the Public Accounts Committee (PAC) to include three representatives from the social partners. This change will allow for a combined majority to the opposition and social partners representatives. The Committee is chaired by a member of the Opposition. The amendment provides a significant shift to public transparency as the PAC was previously a defunct committee of the legislature where the Government majority ruled. The PAC holds an important function in examining, considering and reporting on Government’s budget and public expenditures as well as reports of the Auditor General. The second motion was an amendment to the Finance and Audit Reform Act that will establish a contingency fund to be used for urgent and unforeseen expenditures for which there are no other provisions. And the third motion will amend the Contractor General Act and establish a Public Contracts Commission to monitor the award and implementation of public contracts and to investigate fraud, corruption, mismanagement, waste or abuse in the award of public contracts.
Information on public finance, both the government’s budget and its debt obligations (including explicit and contingent liabilities) are widely accessible to the general public, with most documents available online. The budget documents do not include information on contingent or state owned enterprise debt unless Government guarantees or is paying these debts. Nonetheless, the audited annual reports of all major State Owned Enterprises (SOEs) were publicly available on their websites. The Auditor General’s report on government spending, however, is often years delayed.
International Regulatory Considerations
As a full member of the Caribbean Community (CARICOM), Belize’s foreign, economic and trade policies vis-a-vis non-members are coordinated regionally. The country’s import tariffs are largely defined by CARICOM’s Common External Tariff.
Besides CARICOM, Belize is a member of the Central American Integration System (SICA) at a political level but is not a part of the Secretariat of Central American Economic Integration (SIECA) that supports economic integration with Central America. Belize is also a member of the WTO and adheres to the organization’s agreements and reporting system.
The Belize Bureau of Standards (BBS) is the national standards body responsible for preparing, promoting and implementing standards for goods, services, and processes. The BBS operates in accordance with the WTO Agreement on Technical Barriers to Trade and the CARICOM Regional Organization for Standards and Quality. The BBS is also a member of the International Electrotechnical Commission (IEC), the International Organization for Standardization (ISO), and Codex Alimentarius.
Legal System and Judicial Independence
The Belize Constitution is the supreme law and is founded on the principle of separation of powers with independence of the judiciary from the executive and legislative branches of government. As a former British colony, Belize follows the English Common Law legal system, which is based on established case law and precedent.
Belize has a written Contract Act, supported by precedents from the national courts as well as from the wider English-speaking and Commonwealth case law. Contracts are enforced through the courts. There are specialized courts that deal with family related matters including divorce and child custody, but no specialized courts to deal with commercial disputes or cases.
The judicial system remains independent of the executive branch for the most part. Case law exists where the judiciary has ruled against the government, and its judgements are respected and authoritative. The highest appellate court exists outside of Belize at the Caribbean Court of Justice, providing a level of independence for the judiciary. Notwithstanding, the current judicial system has some systemic problems – frequent adjournments, delays, and a backlog of cases caused by only a small number of judges and justices. General information relating to Belize’s judicial and legal system, including links to Belize’s Constitution, Laws and judicial decisions are available at the Judiciary of Belize website www.belizejudiciary.org.
Businesses and citizens may appeal regulations and enforcement actions. Regulatory decisions are also subject to judicial review. Judgments by the Belize Supreme Court and the Court of Appeal are available at http://www.belizejudiciary.org.
As a Member of the Caribbean Community (CARICOM), Belize is also a member of the Caribbean Court of Justice (www.ccj.org) based in Trinidad and Tobago. This Court has two jurisdictions in relation to CARICOM Members States. In its appellate jurisdiction, the CCJ is the final court of appeal for both civil and criminal matters emanating from CARICOM Member States. In its original jurisdiction, this Court is responsible for interpreting and applying the Revised Treaty of Chaguaramas, the treaty establishing the Caribbean Community and CARICOM Single Market and Economy.
Laws and Regulations on Foreign Direct Investment
The country has an English Common Law legal system supplemented by local legislation and regulations. The legal system does not generally discriminate against foreign investment and there are no restrictions to foreign ownership. The Exchange Control Act and its subsidiary laws and regulations, however, provide the legal framework that applies to foreign ownership and control. Other laws stipulate that foreign investment can qualify for incentives; citizens have the right to private property; contracts are legally binding and enforceable, and regulations are subject to judicial review among other provisions favorable to foreign investment.
Major laws enacted or amended are generally available in the National Assembly’s website at www.nationalassembly.gov.bz. For the previous year, these include:
International Banking Act
Deposit Insurance Act
Mutual Administrative Assistance in Tax Act
Electronic Transactions Amendment Act
Cybercrime Act
There is no “one-stop-shop” website for investment and the laws, rules, procedures, and reporting requirements related to investors differ depending on the nature of the investment. BELTRAIDE provides advisory services for foreign investors relating to procedures for doing business in Belize and incentives available to qualifying investors. Further information is available at the BELTRAIDE website: http://www.belizeinvest.org.bz
Competition and Antitrust Laws
Belize does not have any laws governing competition, but there are attempts to limit outside competition in certain industries (such as food and agriculture) by levying high import duties and import licensing requirements.
Expropriation and Compensation
The Government has used the right of eminent domain in several cases to appropriate private property, including land belonging to foreign investors. There were no new expropriation cases in 2020. However, claimants in previous cases of expropriation assert that the Government failed to adhere to agreements entered into by a previous administration. Belizean law requires that the government assess and compensate according to fair market value. Expropriation cases can take several years to settle and there are a few cases where compensation is still pending. Belize nationalized two companies in public-private partnership: Belize Electricity Limited and Belize Telemedia Limited. These actions were challenged in the courts and resolved in 2015 and 2017, respectively.
Dispute Settlement
ICSID Convention and New York Convention
Belize formally acceded to the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) on March 15, 2021. Even though the Convention was extended to Belize by an act of the United Kingdom when Belize was a colony, Belize did not sign on to the Convention after independence.
The Arbitration Act governs arbitration and expressly incorporates three international conventions into domestic law. These conventions include the 1923 Geneva Protocol on Arbitration Clauses; the Convention on the Execution of Foreign Arbitral Awards; and the New York Convention. A 2013 Caribbean Court of Justice judgment also upheld the Arbitration Act giving effect to the New York Convention in domestic law.
The United Kingdom on behalf of Belize signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID convention) in 1965 and the country has not ratified it.
Investor-State Dispute Settlement
Belize is signatory to various investment agreements which make provisions for the settlement of investor-state disputes. Belize is also a member of the CARICOM Single Market and Economy, as well as a party to two Economic Partnership Agreements (EPA): 1) between CARIFORUM and the EU; and 2) CARIFORUM and the United Kingdom. These arrangements make provisions for the settlement of investor-state disputes.
Since Belize is not a party to any Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United States, investment disputes involving U.S. persons are taken either before the courts or before international arbitration panels.
Over the past decade, the Government of Belize has been involved in approximately five to eight investment disputes with one involving a U.S. company. Most cases were initially entered in arbitration panels, but were eventually appealed either before the U.S. District Court of Columbia or the Caribbean Court of Justice (CCJ). Most of the judgments went against the Government, which has settled the majority and continues to settle other cases.
Local courts are empowered to recognize and enforce foreign arbitral awards against the government, but these are generally challenged up to the CCJ. The Crown Proceedings (Amendment) Act and the Central Bank of Belize (International Immunities) Act were passed in 2017, affecting the enforcement of foreign arbitral awards against the government. Essentially, the Crown Proceedings Amendment Act provides that should a foreign judgment be entered against the government, but a court in Belize later declares the judgement “unlawful, void or otherwise invalid”, the foreign judgment would be legally set aside. The Act also provides for hefty penalties of fines and/or imprisonment on a person, individual or legal, seeking to enforce the foreign judgment after being set aside. The Central Bank (International Immunities) Act restates the immunity of the Central Bank of Belize assets “from legal proceedings in other states.” This Act similarly provides for penalties of fines and/or imprisonment on a person, individual or legal, which initiates any such proceedings.
There has not been a history of extrajudicial actions against foreign investors.
International Commercial Arbitration and Foreign Courts
Belize’s Arbitration Act allows the Supreme Court of Belize to support and supervise dispute settlement between private parties through arbitration. The Supreme Court also provides for a process of court-connected mediation as an alternative method to dispute settlement between private parties and as a means of reducing costs and duration of litigation.
Local courts are empowered to recognize and enforce foreign arbitral, but these are generally challenged up to the Caribbean Court of Justice (CCJ).
Cases involving State Owned Enterprises (SOEs) have gone before domestic courts with rulings both in favor and against the SOE. Foreign businesses generally consider these rulings fair and impartial.
Bankruptcy Regulations
The Bankruptcy Act of Belize provides for bankruptcy filings. The Act provides for the establishment of receivership, trustees, adjudication and seizures of the property of the bankrupt. The court may order the arrest of the debtor as well as the seizure of assets and documents in the event the debtor may flee or avoid payment to creditors. The Act also provides for imprisonment on conviction of certain specified offenses. The Director of Public Prosecutions may also institute proceedings for offenses related to the bankruptcy proceedings. The bankruptcy law generally outlines actions a creditor may take to recoup his losses. Bankruptcy protections are not as comprehensive as U.S. bankruptcy law.
Belize ranked 135 of 190 economies in the 2020 World Bank’s Doing Business Report. The poor ranking was attributed to low depth of credit information, the lack of a credit bureau and of a collateral registry as well as problems related to payment of debts in situations of bankruptcy. According to this report, a receivership proceeding takes at least two years until the creditor is repaid all or part of the money owed and has a cost of 22.5 percent of the debt. Additionally, the insolvency procedure does not have a good framework to commence operations, to manage debtor´s assets, and to involve creditors in the reorganization proceedings, among others.
6. Financial Sector
Capital Markets and Portfolio Investment
Belize’s financial system is small with little to no foreign portfolio investment transactions. It does not have a stock exchange and capital market operations are rudimentary. The government securities market is underdeveloped and the market for corporate bonds is almost non-existent.
Temporary restrictions are currently in place for certain current international transactions that relate to the IMF’s Article VIII obligation not to restrict payments and transfers for current international transactions.
Additionally, credit is made available on market terms with interest rates largely set by local market conditions prevailing within the commercial banks. The credit instruments accessible to the private sector include loans, overdrafts, lines of credit, credit cards, and bank guarantees. Foreign investors can access credit on the local market. Under the International Banking Act, foreign investors/nonresidents may access credit from international banks registered and licensed in Belize. However, permission to access credit from the domestic banks requires Central Bank approval.
The Belize Development Finance Corporation (DFC), a state-owned development bank, offers loan financing services in various sectors. To qualify for a loan from DFC, an individual must be a Belizean resident or citizen, while a company must be majority 51 percent Belizean owned. The National Bank of Belize is a state-owned bank that provides concessionary credit primarily to public officers, teachers, and low income Belizeans.
Money and Banking System
A financial inclusion survey undertaken by the Central Bank of Belize in 2019 showed that approximately 65.5 percent of adult Belizeans had access to a financial account. Belize’s financial system remains underdeveloped with a banking sector that may be characterized as stable but fragile. The Central Bank of Belize (CBB) (https://www.centralbank.org.bz) is responsible for formulating and implementing monetary policy focusing on the stability of the exchange rate and economic growth.
The Central Bank of Belize in November 2020 approved the sale of Scotia Bank Belize Limited by the Caribbean International Holdings Limited, the parent company Belize Bank Limited. The approval effectively makes the controversial Lord Ashcroft’s Belize Bank Limited the largest bank in the country. Concerns were initially raised on the possible effects on Belize’ correspondent banking situation and the potential withdraw of foreign exchange from the banking system.
To respond to the economic fallout caused by the COVID-19 pandemic, the Central Bank in April 2020 reduced the statutory liquid asset and cash reserve requirement by two percent points in an effort to expand liquidity and facilitate credit flow in the economy. In March 2021, the Government amended the Central Bank Act authorizing the Central Bank to provide emergency programs and facilities to a wide array of institutions including banks, financial institutions, statutory corporations and other similar bodies. These emergency programs and facilities will allow for wider array of financial support to businesses including the “purchase of financial assets including debt, equity and securities, credit facilities or discounting of notes, drafts or bills of exchange.” Through this measure the Government hopes to make available US $25 million in liquidity to invest in the productive sector, particularly in tourism businesses.
Additionally, this amendment increased the limit of direct advances that the Central Bank can make to Central Government from 8.5 percent to 12 percent of the previous year’s recurrent revenues.
Other measures which the Central Bank has put in place in the last year, to position the banking sector withstand shocks include several guidance to ease banking customers’ debt service payments like moratoria on interest and principal payments, consolidating and restructuring credit facilities, waiving loan, credit, and penalty fees. The Central Bank also issued guidance whereby forbearance measures to extend to December 2021.
Generally, there are no restrictions on foreigners opening bank accounts in Belize. However, persons seeking to open a bank account must comply with Central Bank regulations. Regulations differ based on residency status and whether the individual is seeking to establish a local bank account or a foreign currency account. Foreign banks and branches are allowed to operate in the country with all banks subject to Central Bank measures and regulations. Since 2015, all banks have regained correspondent banking relations. These relationships are still tenuous, with delays in transactions, and fewer services offered at higher costs.
In the last few years, Belize has enacted a number of reforms to strengthen the anti-money laundering and counterterrorism-financing regime, including amendments to the Money Laundering and Terrorism (Prevention) Amendment Act and the International Business Companies (Amendment) Act. In addition, the National Anti-Money Laundering Committee (NAMLC) is headed by the Financial Intelligence Unit with inter-agency support from key financial and law enforcement authorities.
Foreign Exchange and Remittances
Foreign Exchange
Belize has a stable currency, with the Belize dollar pegged to the United States Dollar since May 1976 at a fixed exchange rate of BZ $2.00 to the US $1.00.
The Government of Belize has established currency controls, and foreign investors seeking to convert, transfer, or repatriate funds must comply with Central Bank regulations. Foreign investments must be registered at the Central Bank to facilitate inflows and outflows of foreign currency. Foreign investors must register their inflow of funds to obtain an “Approved Status” for their investment and generally are approved for repatriation of funds thereafter. Additionally, he Exchange Control Regulation Act was amended in 2020 to relax the requirement for non-residents to obtain prior permission from the Central Bank to conduct transaction in securities and real estate. The amendment now provides for prior written notice to the Central Bank with full particulars of the transaction.
Businesses complained that foreign exchange shortages in 2020 constrained both local and foreign operations as the Central Bank of Belize tighten measures to obtain approval for foreign exchange. As such domestic banks prioritized foreign exchange sales to ensure that payments for essential goods and services are covered.
Remittance Policies
As mentioned above, foreign investors must obtain an “Approved Status” for their investment and register their inflow and outflow of funds with the Central Bank. Additionally, the Exchange Control Regulation Act was amended in 2020 to relax the requirement for non-residents to obtain prior permission from the Central Bank to conduct transaction in securities and real estate. The amendment now provides for prior written notice to the Central Bank with full particulars of the transaction.
Generally, there are no time limitations on remittances. Where there is a waiting period, it depends on the availability of foreign exchange, but does not generally exceed 60 days. The Central Bank however, placed a temporary suspension on all payments of cash dividends and repatriation of profits effective December 29, 2020 to June 30, 2021.
Sovereign Wealth Funds
Belize does not have a sovereign wealth fund.
7. State-Owned Enterprises
State Owned Enterprises (SOEs) exist largely in the utilities sectors, usually as a result of the government nationalization. The Government is the majority shareholder in the Belize Water Services Limited, the country’s sole provider of water services, the Belize Electricity Limited, the sole distributor of electricity, and the Belize Telemedia Limited, the largest telecommunications provider in the country. The Public Utilities Commission regulates all utilities.
To staff these companies’ boards of directors, SOEs usually select senior government officials, members of local business bureaus and chambers of commerce, labor organizations, and quasi-governmental agencies. The board serves to direct policy and shape business decisions of the SOE that is ostensibly independent. Current and previous administrations have been accused of nepotism and cronyism, and have been criticized for having conflicts of interest when board members or directors are also represented in organizations that do business with the SOEs.
There is no published list of SOEs. The following are the major SOEs operating in the country. Information relating to their operations is available on their websites:
Belize Electricity Limited at ;
Belize Telemedia Limited at ;
Belize Water Services Limited at
There are no third-party market analysis sources that evaluate whether SOEs receive non-market advantages by the government. The Belize Electricity Limited and the Belize Water Services Limited are the only service providers in their respective sectors. The Belize Telemedia Services, on the other hand, competes with one other provider for mobile connectivity and there are multiple players that provide internet and data services. U.S. firms have identified challenges in participating and competing in areas related to the bidding, procurement and dispute settlement processes, particular to SOEs.
Privatization Program
The Government does not currently have a privatization program.
Benin
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Beninese government encourages foreign investment, which it views as critical for economic development and successful implementation of the $15 billion PAG. APIEX aims to promote foreign direct investment and reduce administrative barriers to doing business. APIEX serves as the single investment promotion center and conduit of information between foreign investors and the Beninese government. It is the technical body responsible for reviewing applications for approval under the Investment Code and the administrative authority for special economic zones (SEZs). The agency has significantly reduced processing times for registration of new companies (from 15 days to one day) and construction permits (from 90 to 30 days), but the World Bank 2020 Doing Business report indicates that it takes 88 days to deal with construction permits. In practice, APIEX faces capacity constraints, processing times can be longer than stated, and its website is often out of date and lacks information on the latest regulations and laws. The Investment Code, amended in 2020, establishes conditions, advantages, and rules applicable to domestic and foreign direct investment. Additional information on business startup is available at https://monentreprise.bj/ .
Limits on Foreign Control and Right to Private Ownership and Establishment
Beninese law guarantees the right to own and transfer private property. The court system enforces contracts, but the judicial process is inefficient and suffers from corruption. Enforcement of rulings is problematic. Most firms entering the market work with an established local partner and retain a competent Beninese attorney. A list of English-speaking lawyers and legal counselors is available on the Embassy’s website: https://bj.usembassy.gov/u-s-citizen-services/attorneys/
Other Investment Policy Reviews
Business Facilitation
In an effort to facilitate business travel and tourism, Benin implements a visa-free system for African nationals and an online e-visa system for other foreign nationals. The country is working to open four new trade offices abroad to enhance Benin’s international business opportunities. One is already underway in Shenzhen, China; others are planned for Europe, the United States, and the Middle East.
Benin’s 2017 Property Code made property registration simpler and less expensive in order to boost the real estate market, improve access to credit, and reduce corruption in the registration process. The measures apply to real personal property, estate and mortgage taxes, and property purchase receipts. In order to register property, individuals and businesses must present a taxpayer identification number (registration for which is free). Land registration and property purchase certifications are free, but there is a fee for obtaining a property title.
Benin Control – a private company operating under the supervision of the Ministry of Infrastructure and Transport – is charged with expediting customs clearances and minimizing processing barriers to clearing cargo at the Port of Cotonou. Benin Control makes it possible to obtain cargo clearance within as little as 48 hours after its off-loading at the Port of Cotonou, though in practice this can take longer. The reinstitution of the cargo inspection and scanning program known as PVI, first tried in 2012, resumed operations at the Port of Cotonou in 2017. Under the PVI program, Benin Control scans between 30 and 45 randomly selected shipping containers per hour. Benin Control bills all containers exiting the Port of Cotonou – regardless of whether they are selected for scanning – at the rate of 35,000 FCFA ($68) for a 20-foot container, and 45,000 FCFA ($78) for a 40-foot container.
The government, through the state-owned Benin Water Company (SONEB) and Beninese Electric Energy Company (SBEE), provides service connections to potable water and electricity free of charge to Small and Medium Size Enterprises and Industries. Eligible companies are responsible for paying the water and electricity meter installation fees. Online application is available at https://www.soneb.bj/soneb15/pme-pmi-raccordement-gratuit and