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.

Other Investment Policy Reviews

The World Trade Organization (WTO) completed a Trade Policy Review of Albania in May 2016 ( https://www.wto.org/english/tratop_e/tpr_e/tp437_e.htm  ). In November 2017, the United Nations Conference on Trade and Development (UNCTAD) completed the first Investment Policy Review of South-East European (SEE) countries, including Albania ( http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1884  ).

Business Facilitation

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.

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.

According to the World Bank’s 2020 Doing Business Report, Albania ranked 39th out of 190 countries in the insolvency index. A referenced analysis of resolving insolvency can be found at the following link:   http://documents.worldbank.org/curated/en/255991574747242507/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies-Economy-Profile-of-Albania  

Capital Markets and Portfolio Investment

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.

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.

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.

In the World Bank’s 2020 Doing Business report, Algeria’s ranking for starting a business was unchanged at 157 out of 190 countries ( http://www.doingbusiness.org/en/data/exploreeconomies/algeria ).

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.

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.

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.

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.

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.

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.

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).

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.

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:

1. Values corresponding to dividends;
2. Values corresponding to the proceeds of the liquidation of their enterprises;
3. Values corresponding to due compensations;
4. 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.

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 2020 survey 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.

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:

1. dividends, interest and other income resulting from their investments;
2. shareholder loan repayments;
3. proceeds of the sale of securities listed on the stock exchange;
4. 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:

1. The sale of the whole or a part of an investment;
2. The dissolution of the participated entity;
3. 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.

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.

The GRA created a privatization commission on February 27, 2018 and a website https://igape.minfin.gov.ao/PortalIGAPE/#!/sala-de-imprensa/noticias/5413/anuncio-de-concurso-tender-announcement   for submission of tenders. Full tender documents can be obtained by visiting the below link: http://www.ucm.minfin.gov.ao/cs/groups/public/documents/document/zmlu/mdu4/~edisp/minfin058842.zip

Alternatively, contact igape@minfin.gov.ao .

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).

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.

Laws and Regulations on Foreign Direct Investment

The ABIA provides guidance on the relevant laws, rules, procedures, and reporting requirements for investors. These are available at http://www.theiguides.org/public-docs/guides/antiguabarbuda  and http://investantiguabarbuda.org .

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.

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.

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.

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 from 25 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.

In December 2020, the government issued the regulatory framework for the Knowledge Based-Economy Law, which was passed in October 2020. The Law establishes tax benefits for entrepreneurs until December 2029. The complete list of activities included in the tax benefit can be found at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do;jsessionid=56625A2FC5152F34ECE583158D581896?id=346218 .

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.

Details on how to register a company can be found at the Ministry of Productive Development’s website: https://www.argentina.gob.ar/produccion/crear-una-empresa . Instructions on how to obtain a tax identification code can be found at: https://www.argentina.gob.ar/obtener-el-cuit-por-internet .

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 Ministry of Productive Development offers attendance-based courses and online training for businesses. The training menu can be viewed at: https://www.argentina.gob.ar/produccion/capacitacion .

Outward Investment

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.

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 .

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.

In November 2017, the Government of Argentina launched a new website to communicate how the government spends public funds in a user-friendly format ( https://www.argentina.gob.ar/economia/transparencia/presupuesto ).

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:

Ministry of Productive Development ( https://www.argentina.gob.ar/produccion )

Ministry of Economy ( https://www.argentina.gob.ar/economia )

The Central Bank of the Argentine Republic ( http://www.bcra.gob.ar/ )

The National Securities Exchange Commission (https://www.argentina.gob.ar/cnv)

The National Investment and Trade Promotion Agency (https://www.inversionycomercio.org.ar/)

Investors can download Argentina’s investor guide through this link: ( https://drive.google.com/file/d/0B-086VB27JBjN0x0NmM4Y09GODA/view )

Competition and Antitrust Laws

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

Alternative dispute resolution (ADR) mechanisms can be stipulated in contracts. Argentina also has ADR mechanisms available such as the Center for Mediation and Arbitrage (CEMARC) of the Argentine Chamber of Trade. More information can be found at: http://www.intracen.org/Centro-de-Mediacion-y-Arbitraje-Comercial-de-la-Camara-Argentina-de-Comercio—CEMARC–/#sthash.RagZdv0l.dpuf .

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.

Bankruptcy Regulations

Argentina’s bankruptcy law was codified in 1995 in Law 24,522. The full text can be found at: http://www.infoleg.gov.ar/infolegInternet/anexos/25000-29999/25379/texact.htm .

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.

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:

1. Profits and dividends are be declared in closed and audited financial statements.
2. The dividends in foreign currency should not exceed the dividends determined by the shareholders’ meeting in local currency.
3. 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.
4. 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.

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.

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.

Other Investment Policy Reviews

In 2019, the U.N. Conference on Trade and Development (UNCTAD) published its first  investment policy review for Armenia . The World Trade Organization (WTO) published a  Trade Policy Review for Armenia  in 2018.

Business Facilitation

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.

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.

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.

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 .

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.

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.

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.

Further details on the size and performance of Australia’s banking sector are available on the websites of the Australian Prudential Regulatory Authority (APRA) and the RBA:  https://www.apra.gov.au/statistics  https://www.rba.gov.au/chart-pack/banking-indicators.html 

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.

Further details of these funds are available at: https://www.futurefund.gov.au/ 

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.

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.

For sole proprietorships, it is possible under certain conditions to use an online registration process via government websites in the German language to either found or register a company: https://www.usp.gv.at/Portal.Node/usp/public/content/gruendung/egruendung/269403.html : or www.gisa.gv.at/online-gewerbeanmeldung . It is advisable to seek information from ABA or the WKO before applying to register a firm.

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.

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.

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.

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.

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.

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 accession 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 Convention on 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’s section on resolving insolvency, Azerbaijan’s ranking decreased from 45 in 2019 to 47 in 2020 out of 190 countries.

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 .

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.

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. See http://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.

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.

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.

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.

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.

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.

Below is a link to a site designed to assist foreign investors to navigate the laws, rules, and procedures related to investing in Bahrain: http://cbb.complinet.com/cbb/microsite/laws.html 

Competition and Anti-Trust Laws

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:

1. Submitting the dispute to a local court or administrative tribunals of the host country.
2. Invoking dispute-resolution procedures previously agreed upon by the foreign investor or company and the host country government; or,
3. 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.

GCC Commercial Arbitration Center
P.O. Box 2338
Manama, Kingdom of Bahrain
Arbitration Boards’ Secretariat
Tel: + (973) 17278000
Email: case@gcccac.org 
Website: http://www.gcccac.org/en/ 

Bankruptcy Regulations

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.

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.

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.

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.
• Large-scale infrastructure projects (e.g., elevated expressway, monorail, economic zone, inland container depot/container freight station).
• 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.

Other Investment Policy Reviews

In 2013 Bangladesh completed an investment policy review (IPR) with the United Nations Conference on Trade and Development (UNCTAD):  https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=756  

A Trade Policy Review was done by the World Trade Organization in April 2019 and can be found at:  https://www.wto.org/english/tratop_e/tpr_e/tp485_e.htm  

Business Facilitation

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.

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 telecommunication sectors. 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.

General Contact for WTO-TBT National Enquiry Point:
Email: bsti_std@bangla.net; bsti_ad@bangla.net
Website: http://www.bsti.gov.bd/ 

Focal Point for TBT:

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.

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.

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

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.

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.

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.

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 .

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.

For more on starting a business in Belarus see: https://www.belarus.by/en/business/companies 

Outward Investment

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.

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.

The GOB regularly updates the following websites with the latest in laws, rules, procedures and reporting requirements for foreign investors: http://www.investinbelarus.by/en/    http://www.economy.gov.by/  http://president.gov.by/en/official_documents_en/ 

Competition and Antitrust Laws

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 ).

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.

Resources for Rights Holders

U.S. Embassy MinskEconomic Sectiontel.+375 (17) 210-1283e-mail:  usembassyminsk@state.gov 

Money and Banking System

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.

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.

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:

https://www.oecd.org/belgium/in-depth-productivity-review-of-belgium-88aefcd5-en.htm

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:

Flanders: Flanders Investment & Trade, https://www.flandersinvestmentandtrade.com/en

Wallonia: Invest in Wallonia, http://www.investinwallonia.be/home

Brussels: Brussels Invest & Export, http://why.brussels/

Outward Investment

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.

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.

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.

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.

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.

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.

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.

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.

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 https://www.sbee.bj/site/demande-de-raccordement-des-pme-pmi-conditions/

Outward Investment

Transparency of the Regulatory System

Benin is a member of UNCTAD’s international network of transparent investment procedures. Foreign and domestic investors can find detailed information on administrative procedures applicable to investment and income generating operations at https://unctad.org/news/how-un-helped-benin-become-worlds-fastest-place-start-business-mobile-phone , including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures. There is no rule to prevent a monopoly over a particular business sector. The Benin Private Investment Council ( http://www.cipb.bj/ ) is the only business-related think-tank or body that advocates for investors. Generally, draft bills are not available for public comment though promulgated laws are available at https://sgg.gouv.bj/documentheque/lois/ . Individuals, including non-citizens, have the option to file appeals about or challenge enacted laws with the Constitutional Court.

International Regulatory Considerations

Benin is a member of WAEMU and the Organization for the Harmonization of African Business Law (OHADA) and has adopted OHADA’s Universal Commercial Code (codified law) to manage commercial disputes and bankruptcies within member countries. Benin is also a member of OHADA’s Common Court of Justice and Arbitration and the International Center for the Settlement of Investment Disputes (ICSID). OHADA provisions govern bankruptcy. Debtors may file for reorganization only, and the creditors may file for liquidation only. Benin is a member of the WTO and notifies all draft technical regulations to the organization’s Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Benin has a civil law system. The legal framework includes various legislative and regulatory texts covering family law, land law, labor law, criminal law, criminal procedure, and civil, commercial, social, and administrative proceedings. The Cotonou commercial court, created in 2017, enforces commercial laws and regulations. In 2018, Benin created an anti-terrorism, drugs, and economic crimes court (CRIET), which until recently lacked a mechanism for substantive appeal. The CRIET has convicted and sentenced numerous government detractors and political opponents, raising concerns about its independence. In February 2020, Benin created an appeals chamber within the CRIET. In general, judicial processes are slow, and challenges to the enforcement of court decisions are common. Magistrates and judges, though independent by law, are appointed by the Executive. Benin’s courts enforce rulings of foreign courts and international arbitration.

Laws and Regulations on Foreign Direct Investment

The Investment Code provides the legal framework for foreign direct investment. The Code establishes conditions, advantages, and rules applicable to domestic and foreign direct investment. The GOB website https://benindoingbusiness.bj/  makes available online information on foreign direct investment regulations and procedures, though its website is often incomplete and out of date. Benin is a member of OHADA’s Common Court of Justice and Arbitration (CCJA) and the International Center for the Settlement of Investment Disputes (ICSID). Investors may include arbitration provisions in their contracts in order to avoid prolonged entanglements in the Beninese courts. The United Nations investment guide for Benin ( https://www.theiguides.org/public-docs/guides/benin/ ) provides a general guide for foreign direct investment steps and procedures.

Competition and Antitrust Laws

Benin’s legal framework does not address anti-trust or competition issues. The government does not have an agency or office that reviews transactions for competition-related concerns.

Expropriation and Compensation

The government is forbidden by law from nationalizing private enterprises operating in Benin.

In July 2020 West African hotel developer Teyliom International filed a request for arbitration with the World Bank International Center for Settlement of Investment Disputes (ICSID) in relation to the Beninese government’s expropriation of a hotel the company had been constructing in Cotonou. The arbitration case is currently pending at ICSID.

In 2017, the government announced that it was terminating concessions for the management of four state-owned hotels (two in Cotonou and two in northern Benin), and instructed the Minister of Justice to file reparations claims against the concessionaires on the grounds that they had not fulfilled their concession agreements.

Dispute Settlement

ICSID Convention and New York Convention

Benin is a member of ICSID. Benin is a party to the New York Convention of 1958 on the Recognition and enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

Benin does not have a bilateral investment treaty with the United States.

There is an ongoing investment dispute between the Beninese government and a U.S. immigration and aviation security company. In 2016, the U.S. company alleged the government canceled a contract for the provision of immigration security systems at Cotonou’s airport. In 2017, the U.S. company filed a request for arbitration with the International Chamber of Commerce (ICC). In 2019, the ICC found the government at fault for cancelling the contract and issued a $95 million judgment in favor of the U.S. company. In 2020, the ICC upheld its earlier decision. The government has not respected the ICC decision.

Since 2010, three other disputes between U.S. investors and the Beninese government were resolved in favor of the U.S. investors.

International Commercial Arbitration and Foreign Courts

Benin has adopted OHADA’s Universal Commercial Code (codified law) to manage commercial disputes and bankruptcies. Benin is a member of the OHADA, CCJA, and ICSID.

Bankruptcy Regulations

OHADA provisions govern bankruptcy. Debtors may file for reorganization only, and creditors may file for liquidation only. Benin ranked 108 out of 190 in the “Resolving Insolvency” category of the 2020 World Bank Doing Business report.

Capital Markets and Portfolio Investment

Government policy supports free financial markets, subject to oversight by the Ministry of Finance and the West African States Central Bank (BCEAO). Foreign investors may seek credit from Benin’s private financial institutions and the WAEMU Regional Stock Exchange (Bureau Regional des Valeurs Mobilieres – BRVM) headquartered in Abidjan, Cote d’Ivoire, with local branches in each WAEMU member country. There are no restrictions for foreign investors to establish a bank account in Benin and obtain loans on the local market. However, proof of residency or evidence of company registration is required to open a bank account.

Money and Banking System

The banking sector is generally reliable. Twelve private commercial banks operate in Benin in addition to the BCEAO and a planned subsidiary of the African Development Bank. Taking into account microfinance institutions, roughly 22.5 percent of the population had access to banking services in 2018, the latest year for which data is available. In recent years, non-performing loans have been growing; 15 percent of total banking sector assets are estimated to be non-performing. The BCEAO regulates Beninese banks. Foreign banks are required to obtain a banking license before operating branches in Benin. They are subject to the same prudential regulations as local or regional banks. Benin has lost no correspondent banking relationships during the last three years. There is no known current correspondent banking relationship in jeopardy. Foreigners are required to present proof of residency to open bank accounts.

Foreign Exchange and Remittances

Foreign Exchange

All funds entering the country from abroad for investment purposes require reporting and registration with the Ministry of Finance at the time of arrival of funds. Evidence of registration is required to justify remittances of investment capital, earnings, loan/lease repayments, or royalties. Such remittances are allowed without restrictions. Funds entering the country from abroad for investment purposes must be converted into local currency. For the purposes of repatriating such funds, either the invested funds or the interest/earnings or royalties can be converted into any world currency.

The currency of Benin is BCEAO-CFA Franc (international code: XOF). XOF has a fixed parity with the Euro and fluctuates against all other currencies based on this parity. This parity was established at the time of the Euro’s creation (January 1, 1999) and has not changed since then. The parity stands at XOF 655.957= EUR 1.00, guaranteed by the French government under an arrangement between the Treasury of France and the European Union.

Remittance Policies

There have been no recent changes to investment remittance policies. Banks require documents to justify remittances related to investments. The waiting time to remit investment returns does not exceed 60 days in practice.

Sovereign Wealth Funds

Benin does not have a sovereign wealth fund.

There are several wholly owned SOEs operating in the country, including public utilities, fixed and mobile telecommunications, postal services, port and airport management, gas distribution, pension funds, agricultural production, and hotel and convention center management. There is also a number of partially owned SOEs in Benin. Some of these receive subsidies and assistance from the government. There are no available statistics regarding the number of individuals employed by SOEs.

With the exception of public utilities, pension funds, and landline telephone service for which the public telephone company retains a monopoly, many private enterprises compete with public enterprises on equal terms.

SOE senior management may report directly to a government ministry, a parent agency, or a board of directors comprised of senior government officials along with representatives of civil society and other parastatal constituencies. SOEs are required by law to publish annual reports and hold regular meetings of their boards of directors. Financial statements of SOEs are reviewed by certified accountants, private auditors, and the government’s Bureau of Analysis and Investigation (BAI). The government audits SOEs, though it does not make available information on financial transfers to and from SOEs.

SOEs are established pursuant to presidential decrees, which define their mission and responsibilities. The government appoints senior management and members of the Board of Directors. SOEs are generally run like private entities and are subject to the same tax policies as the private sector. The courts process disputes between SOEs and private companies or organizations.

Privatization Program

Foreign investors may participate in privatization programs. The Talon administration has targeted divestiture programs rather than total privatization of state-owned enterprises.  The state-owned telecommunications company, Benin Telecom Infrastructure, is targeted for either a divestiture program or dissolution by 2021.  With support from MCC, SBEE is managed privately through a management contract through 2023, even though the government retains full ownership.  The government is pursuing major transactions to attract private investment into thermal and solar power generation, as well as natural gas supply for power generation. In 2017, the government signed a three-year renewable management contract for the Port of Cotonou with the Belgian firm Port of Antwerp International (PAI).  PAI took over management of the port in May 2018. The move was intended to improve port management and attract foreign investors to fund a planned project to modernize and expand the port.

Policies Towards Foreign Direct Investment 

Bermuda welcomes foreign direct investment (FDI). The Bermuda Business Development Agency (BDA) is an independent, public-private partnership, funded by both the Bermuda Government and the private sector. The agency is governed by a Board of Directors comprised of senior industry professionals representing the diversity of Bermuda’s financial services sector.  The BDA carries out pro-active, targeted marketing and business development strategies to stimulate growth in the Bermuda economy and create and maintain jobs. (http://bda.bm)

The BDA acts as a partner for existing Bermuda-based companies and assists entities that are considering establishing operations in Bermuda. It connects prospective companies with industry partners and relevant representatives in the Bermuda Monetary Authority (BMA) and the Bermuda Government’s Business Development Unit, making formal introductions, troubleshooting, and communicating with clients to simplify the process. The BDA has segmented its business development efforts into four distinct pillars or industry areas of focus: Risk (insurance, reinsurance, captives, and insurance linked securities), Asset Management, Trust & Private Client, and International Commerce (technology, international markets, etc.). These are key sectors of the Bermuda marketplace, or areas for potential growth, and the BDA has separate business development managers, strategies and goals for each.

Limits on Foreign Control and Right to Private Ownership and Establishment 

The 60/40 rule in Bermuda requires all companies to be controlled by at least 60% Bermudians. In February 2020, the Bermuda Government proposed to introduce a bill that will reduce the current required ownership regulations for a local company from 60% owned by a Bermudian, to 40%, as outlined in the 2020 Budget Report, to help stimulate and promote economic competition.

Some local businesses support relaxing the 60/40 rule to encourage FDI, increase liquidity in the local market, and boost the economy. Other businesses oppose it out of concern that they might not be able to compete with majority foreign-owned businesses.

In addition to ownership regulations, there are restrictions governing ownership of land by businesses.

‘Control’ is defined as the percentage of Bermudian directors, and the percentage of its shares beneficially owned by Bermudians, in the company being not less than 60% in each case. Amendments are expected to create more opportunities and foreign investments by Permanent Resident Certificate (PRC) holders who reside on the island.

Local companies can be exempted from the 60/40 rule by obtaining a license (pursuant to section 114B of the Companies Act) from the Minister of Finance, who decides if the granting of a license is in the best interest of the country. When considering an application for a Section 114B license, the Minister considers:

• The economic situation in Bermuda and the due protection of persons already engaged in business in Bermuda.
• The nature and previous conduct of the company and the persons having an interest in the company whether as directors, shareholders or otherwise.
• Any advantage or disadvantage which may result from the company carrying on business in Bermuda.
• The desirability of retaining in the control of Bermudians the economic resources of Bermuda.

Certain activities are excluded from the requirement of a license, including:

• Doing business with other exempted undertakings (e.g., exempted companies, permit companies, exempted partnerships and exempted unit trust schemes) in furtherance of the business of the exempted company that is being conducted outside Bermuda.
• Dealing in securities of exempted undertakings, local companies, or partnerships; and
• Carrying on business as manager or agent for, or consultant or advisor to, any exempted company or permit company which is affiliated (whether or not incorporated in Bermuda) with the exempted company or an exempted partnership in which the exempted company is a partner or, in the case of mutual funds, selling or distributing their shares in Bermuda.

In 2012 local companies were exempted from the 60/40 rule if its shares were listed on a designated Stock Exchange, the company conducted business in a material way in a ‘prescribed industry,’ or if the company was a wholly owned subsidiary of such a listed company.

The prescribed industries are capital-heavy and include, inter alia, telecommunications, energy, insurance, hotel operations, banking, or international transportation services (by ship or aircraft).

Other Investment Policy Reviews 

Bermuda is a World Trade Organization (WTO) member through the United Kingdom. Bermuda has not conducted an investment policy review through the OECD, WTO, or UNCTAD within the past three years.

Business Facilitation 

The Investment Business Act 2003 is the statutory basis for regulating investment business in Bermuda. The act provides a licensing regime for any person or entity (unless otherwise exempted or excluded) engaging in investment business, as defined by the act, either in or from Bermuda.

There are several options for registering a business in Bermuda which depend on the nature of the business and whether business will be conducted in the local market. The Registrar of Companies (ROC) is responsible for the day-to-day responsibilities regarding the administration of companies including name reservation, fees, insolvency and real estate. (https://www.gov.bm/department/registrar-companies).

Formation of a limited company, partnership or LLC, which does not require consent of the Minister of Finance may be accomplished within one day after an application is received. Where a business requires the consent from the Minister, the processing time can take up to one week. The ROC reviews all information relating to the company, and all personal declarations from the proposed beneficial owners.

The Bermuda Government requires those seeking to establish a limited company, partnership or LLC, to get assistance from a law firm, accounting firm, or corporate service provider (CSP) located in Bermuda for guidance on completing steps towards establishing a company, including:

• Name reservation
• Disclosure and vetting of proposed beneficial owners of the company, including personal declarations where required
• Drafting the Memorandum of Association and byelaws of the company
• Based on the nature of the proposed business activities, any license or permit applications required to be submitted
• Selecting a registered office in Bermuda
• Selection of directors, officers, and company secretary
• Payment of government fees
• Regulations for the emerging Fintech industry have been established. Fintech Bermuda offers information to assist those seeking to establish a digital business on the island (https://fintech.bm/start-a-business/) In 2018, the Government of Bermuda established the Digital Asset Business Act, which outlines the foundation for the government’s regulatory approach towards the industry. The Bermuda Business Development Agency (BDA) also provides guidance for those seeking to establish a digital business on the island and can provide information about immigration, tax and social insurance applications. The BDA also liaises with the Bermuda Monetary Authority, Department of Immigration, Ministry of Finance, Fintech Business Unit and ROC as needed for new incorporations and to monitor the processing of new applications.

Outward Investment 

Bermuda is not involved in outward investment.

Transparency of the Regulatory System 

Bermuda is a cooperative jurisdiction and practices ethical transparency standards. Bermuda’s legal, regulatory and accounting systems adhere to a high level of transparency, compliance, cooperation and exchange of information.

Bermuda is a member of regulatory standard-setting bodies for banking (via the Basel Committee on Bank Supervision), insurance (via the International Association of Insurance Supervisors or IAIS), and investment business (via the Financial Services Authority or FSA).  In December 2013, Bermuda signed the Foreign Account Transaction Compliance Act (FATCA) Intergovernmental Model 2 Agreement with the U.S. to promote transparency on tax matters, having concluded a FATCA-type agreement with the UK in the previous month.  Bermuda financial institutions now automatically transmit FATCA information to the U.S. and UK.

The BMA is the sole regulatory body for financial services, responsible for the licensing, supervision, and regulation of financial institutions conducting deposit-taking, insurance, investment, and trust business on the island.  The Bermuda Government continues to strengthen its anti-money laundering and anti-terrorism financing (AML/ATF) framework to ensure a high level of compliance with international standards.  Amendments to the Proceeds of Crime Act in 2013 created an obligation to report suspicions of money laundering or terrorist financing and to allow civil proceedings before the Supreme Court for the recovery of property obtained through unlawful conduct. Neither unlicensed nor unregistered entities are permitted to operate in the financial services sector.

Bermuda’s Financial Intelligence Agency is a member of the Egmont Group of Financial Intelligence Units.  It shares information with other agencies, within and outside Bermuda.  The BMA Amendment (No. 3) Act 2004 clarified the power of the BMA to share information with other overseas authorities.  Other laws that authorize the sharing of information with overseas regulators include the Banks and Deposit Companies Act 1999, the Trusts (Regulation of Trust Business) Act 2001, and the Investment Act 2003.

The Investment Business Amendment Act 2012, the Trust (Regulation of Trust Business) Amendment Act 2012, and the Banks and Deposit Companies Amendment Act 2012 regulate investment businesses, trusts, and banks in the areas of civil penalties, public censure, prohibitions against providing certain services, and publication of decisions.  The Investment Business Act 2003 granted the BMA stronger intervention powers, including the ability to cooperate with foreign bodies, while the Investment Business Investment Act 2012 brought the Bermuda Stock Exchange (BSX) under the regulation of the BMA.  Other provisions provide for criminal penalties, e.g., the Banks and Deposit Companies Amendment Act.

The BMA regulates collective investment schemes (CIS).  The 1997 Proceeds of Crime Act (POCA) and the 2006 Investment Funds Act (IFA) regulate fund administrators. CIS are also subject to IFA, which clarifies and codifies the current regulation of funds in order to strengthen Bermuda’s position in the international funds market.

For more information and a list of Bermuda laws, visit www.bermudalaws.bm. For draft legislation and bills, visit, http://www.parliament.bm.

International Regulatory Considerations 

In February 2020, EU Finance Ministers (ECOFIN) listed Bermuda as a ‘cooperative jurisdiction’ with respect to tax good governance. ECOFIN endorsed the assessment of the European Commission and the EU’s Code of Conduct Group on Business Taxation (CoCG) that Bermuda has met its commitments to address concerns raised by the EU in 2019, relating to economic substance requirements. The announcement followed Bermuda’s placement on the EU’s ‘Blacklist’ of uncooperative jurisdictions and ‘Grey-list’ respectively, for jurisdictions that have undertaken sufficient commitment to reform tax policies. The Government reported that the listings were a result of a technical error in its submission to the EU and not because of regulation standards.

Legal System and Judicial Independence 

Bermuda’s legal system is based on the English common law of England and Wales and has a Westminster form of government. The Judiciary is established by the Bermuda Constitution as a separate and independent branch of government and is considered to be competent, fair and reliable. The court system is made up of the Court of Appeal, Supreme Court and Magistrates’ Court. There is a specialized Commercial Court within the Supreme Court which also includes civil matters. The final appeal stage is the UK’s Privy Council. Bermuda’s legal system marked its 400th anniversary in 2016.

Laws and Regulations on Foreign Direct Investment 

The Bermuda Monetary Authority (BMA) acts as Bermuda’s principal regulatory body. It is responsible for processing applications for incorporation and approving the issue of shares. It approves the beneficial ownership of all entities created in Bermuda and supervises and regulates the financial services sector. The BMA also acts as a central bank, advising the government on banking, financial and monetary matters. www.bma.bm

The Registrar of Companies, previously a department of the Ministry of Finance, is now a division of the Bermuda Monetary Authority. It monitors and regulates all companies operating within Bermuda. The Registrar’s responsibilities include incorporating and registering new companies and international partnerships, granting licenses to allow overseas companies and partnerships to do business on the Island, collecting and storing public documents such as prospectuses, and registering charges against companies.

The BMA also assists other authorities in Bermuda to detect and prevent financial crime and develops risk-based financial regulations that it applies to the supervision of Bermuda’s banks, trust companies, investment businesses, and insurance companies. The Companies Act 1981 as amended is the principal statute governing the formation and operation of Bermuda companies and foreign investment.

Compliance with Organization for Economic Cooperation and Development (OECD) guidelines that seek to eliminate separate regulatory regimes for local and international companies may have been a factor contributing to the decision to ease ownership restrictions. The Limited Liability Company Act was passed in 2016, which introduced the limited liability company (LLC) vehicle, a hybrid entity which merges characteristics of both a partnership and a company limited by shares, for the first time ever in Bermuda. This provides a useful alternative structuring option to complement the existing choice of vehicles available in Bermuda. 2016 also saw the introduction of the Contracts (Rights of Third Parties) Act 2016 modelled on the UK equivalent which allows parties to vary the common law doctrine of privacy of contract. Bermuda is the leading market for the relatively recent mass influx of insurance-linked securities, catastrophe bonds and other alternative risk transfer vehicles. Insurance-linked funds converge the investment funds industry and insurance/reinsurance industry, and Bermuda is by far the most popular jurisdiction for ILS-linked fund managers with approximately US$55 billion in aggregate under management in Bermuda.

Bermuda continues to promote transparency and global compliance standards and has adopted the OECD’s Common Reporting Standard as an early adopter jurisdiction which took effect on 1 January 2016. In April 2016, Bermuda became the 33rd signatory of the Multilateral Competent Authority Agreement for Country-by-Country reporting which is a component of the OECD’s base erosion and profit shifting (BEPS) project.

Bermuda’s commercial (re)insurance regime also became fully equivalent with Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II Directive), as amended in 2016 meaning Bermuda has “third-country equivalence”. This is a significant step for Bermuda and Bermuda commercial reinsurers, insurers and insurance groups as it ensures that they are on equal footing when operating in Europe or globally.

Recent company law changes mean that Bermuda companies are now required to file director information with the Registrar of Companies to be held in a central database that will be open to public inspection and 2016 saw the implementation of the requirement by the Bermuda Monetary Authority for Bermuda’s corporate service providers to be licensed and regulated.

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Competition and Anti-Trust Laws 

The Regulatory Authority promotes fair business practices and promotes sustainable competition in the telecommunications sector, covering services such as fixed and mobile telephone, long distance, internet access and subscription television and Regulate electricity licensees to ensure compliance with the provisions of the Electricity Act 2016.

The Registrar of Companies, now a division of the Bermuda Monetary Authority, monitors and regulates all companies operating within Bermuda.

Expropriation and Compensation 

The Housing Loan Insurance (Mortgage) Regulations 1984 and the Municipalities Act 1923 regulate expropriations. There is no history of expropriation in Bermuda without proper compensation and no expropriator acts against foreign investors.

Dispute Settlement 

ICSID Convention and New York Convention

Through the United Kingdom, Bermuda has ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).  Under the convention, foreign arbitral awards are enforceable within Bermuda’s domestic courts. Likewise, under the United Kingdom, Bermuda is also a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention).

Bankruptcy Regulations 

The Bankruptcy Act 1989, the Companies Act 1981, and the Companies (Winding Up) Rules 1982 govern bankruptcy and the winding-up of companies. The Supreme Court (the first instance court of general jurisdiction) administers the bankruptcy process. A foreign creditor may apply for the bankruptcy of an individual or for the winding-up of a company provided the creditor follows the procedures set out in the aforementioned statutes.

Capital Markets and Portfolio Investment 

The Bermuda Stock Exchange (BSX) offers a variety of domestic and international listing options. Established in 1971, the BSX is globally recognized for commercially sensible listing requirements and partners with the Bermuda Monetary Authority (BMA) and Bermuda Business Development Agency (BBDA) to further develop Bermuda’s reputation.

Bermuda does not have a central bank, but the BMA issues and redeems notes and coins, supervises, regulates, and inspects financial institutions which operate in or from Bermuda, and generally promotes the financial stability and soundness of financial institutions.  The BMA does not, however, determine interest rates, which are set by the market, regulated by the Ministry of Finance, and usually follow the Federal Reserve System rates.

Bermuda does not have developed capital markets and does not control monetary policy.  Commercial credit lines are normally arranged through U.S. or other overseas institutions.  Credit is allocated on market terms, and foreign investors may get credit on the local and international markets.  The private sector has access to various credit instruments via local banks.  Many companies, particularly the larger ones, maintain external banking relationships.

Money and Banking System 

Bermuda is a highly successful offshore financial center. The Bermuda Monetary Authority (BMA) oversees financial services with a risk-based approach to the regulation and supervision of banks and deposit companies in Bermuda. The regulatory and supervisory framework is supported by principal legislation, The Banks and Deposit Companies Act 1999, which is regularly supplemented with updated statements of principles, policy and guidance.

There are four banks on the island – HSBC Bank Bermuda Ltd., Clarien Bank Ltd., Bank of Butterfield Ltd. and Bermuda Commercial Bank.

The BMA published the ‘Basel III for Bermuda Banks – Final Rule’ effective from 1 January 2015, which was updated in November 2017. The Authority’s final Basel III document outlines a range of new capital and liquidity standards as prescribed by the Basel Committee on Banking Supervision (BCBS). The Authority has adopted all three pillars as proposed by Basel III: i) Pillar I – minimum capital requirements; ii) Pillar II – supervisory review process; and iii) Pillar III – market discipline.

Whilst the final Basel III rules supersede Basel II, elements of Basel II and corresponding guidance will remain in force subject to future revisions, and as such relevant components of the Authority’s ‘Revised Framework for Regulatory Capital Assessment’ remain applicable.

Guidance for Basel III and Basel II can be found at, https://www.bma.bm/document-centre/policy-and-guidance-banking 

The BMA updated its regulatory framework in response to new international standards proposed by the Basel Committee. The following changes were introduced throughout 2018 and 2019:

• Net Stable Funding Ratio (NSFR) as a new component to our liquidity requirements
• Revisions to our stress testing guidance to include new standards around Interest Rate Risk in the Banking Book (IRRBB)
• New required forms and templates for the Pillar 3 Disclosure requirement
• Transitional arrangements for the regulatory treatment of new accounting standards around provisions

The BMA helped to establish a Banking Liaison Panel (BLP) in 2017 – a statutory body contemplated in the Banking (Special Resolution Regime) Act 2016. In addition, the Authority joined the IAIS Resolution Working Group with a view to commencing work on a special resolution regime for large international insurers.

The Banks and Deposit Companies Act 1999 implemented the Base Committee’s Core Principles for Effective Banking Supervision.  Bermuda banks are compliant with the Basel II Accord and have either implemented or are moving toward full implementation of Basel III.

Supervision is intended to assist the Authority with assessing the ongoing financial viability of a money service provider, the fitness and propriety of its management, the prudent conduct of its business and its compliance with the Money Service Business Act 2016 (the Act).

The BMA’s supervision of money service businesses involves regular meetings with senior management of licensed firms, together with scrutiny of financial and statistical information in connection with the institution’s business activities and periodic compliance visits to the institution’s premises. In addition to prudential assessments, a review of compliance in relation to the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008 also forms part of the Authority’s visits.

The Authority expects licensed institutions to cooperate fully in providing all relevant information and documents without its having routine recourse to legal powers as provided under the Act.

Section 2 of the Act defines money service business as “the business of providing any or all of the following services to the public”, including:

• Money transmission services.
• Cashing checks which are made payable to customers and guaranteeing checks.
• Issuing, selling or redeeming drafts, money orders or traveler’s checks for cash.
• Payment services business.
• Operating a bureau de change whereby cash in one currency is exchanged for cash in another currency.”

Institutions licensed under the Banks and Deposit Companies Act 1999 are exempted from the Act. In addition, where a company provides any of the services listed above as an ancillary service to its clients and does not levy a separate charge, the Authority is not likely to treat such an activity as being within scope of the Act. For further details, please refer to section 7 of the Guidance Notes.

The Digital Asset Business Act 2018 (the Act) is the statutory basis for regulating Digital Asset Business (DAB) in Bermuda. The Act provides for a licensing regime for any person or undertaking (unless otherwise exempted) which carries out any of the following activities:

• Issuing, selling or redeeming virtual coins, tokens or any other form of digital assets.
• Operating as a payment service provider business utilizing digital assets which
• Includes the provision of services for the transfer of funds.
• Operating as an electronic exchange.
• Providing custodial wallet services.
• Operating as a digital asset’s services vendor.

According to the Act, “digital asset” means anything that exists in binary format and comes with the right to use it and includes a digital representation of value that—

• Is used as a medium of exchange, unit of account, or store of value and is
• Not legal tender, whether or not denominated in legal tender;
• Is intended to represent assets such as debt or equity in the promoter;
• Is otherwise intended to represent any assets or rights associated with such assets; but does not include—
• A transaction in which a person grants value as part of an affinity or rewards program, which value cannot be taken from or exchanged with the person for legal tender, bank credit or any digital asset, or a
• Digital representation of value issued by or on behalf of the publisher and used within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform.

There have been notable employment changes at the Rosebank location of Butterfield Bank. Eleven positions were made redundant in April 2019 and over thirty employees accepted early retirement packages. It was reported that the closure was a result of increased use of electronic services, causing a fifty percent reduction in the volume of in-person transactions. Butterfield Bank has three other locations on the island that are still operating at full capacity.

Foreign Exchange and Remittances 

Foreign Exchange

The Bermuda Dollar (BMD) is interchangeable with U.S. currency with an exchange rate of 1:1. Both currencies are freely interchangeable and transferable without any restrictions.

The BMA issues Bermuda’s national currency and manages exchange control transactions. It administers the Exchange Control Act 1972 that states that no capital or exchange controls apply to non-residents or to the various forms of offshore entities, which are free to import and export funds in all currencies.

The Exchange Control Regulations 1973 and the Companies Act 1981 regulate the issue, transfer, redemption, and repurchase of securities.  For exchange control purposes, the BMA must give prior approval for issues to and transfers of securities in Bermuda companies involving non-residents, except where general permission has been granted pursuant to the Notice to the Public of June 2005.

The 2009 Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Amendment gave the BMA the authority to oversee all money transactions involving wire transfers.  The act requires financial institutions to verify the accuracy and completeness of the information on the payer before authorizing the transfer of funds. The institution must also retain all the records pertaining to the transaction for a period of no less than five years.  In 2013, amendments created an obligation to report suspicious money transactions which could possibly be linked to money laundering or to monies being used to fund terrorism. It established a civil proceeding before the Supreme Court for the purpose of recovering money obtained through unlawful conduct.

In 2009, Bermuda updated the 1898 Revenue Act to strengthen the requirements related to cross-border transporting of currency and negotiable instruments.  The threshold was set at USD 10,000, after a financial transaction surpasses that amount; the financial institution is automatically required to report the transaction.  Passengers arriving to Bermuda (regardless of point of embarkation) must complete a mandatory declaration form. This mandatory disclosure system applies to all outgoing passengers traveling to the U.S., Canada, and the UK.

The 2010 Foreign Currency Purchase Tax Amendment Act is applied to the purchase of all non-local currencies, including the USD.

Bermuda is a member of the Caribbean Financial Action Task Force (CFATF), an organization of states and territories of the Caribbean basin which have agreed to implement common countermeasures against money laundering, and it is listed under the 2014 International Narcotics Control Strategy Report (INCSR) as being a monitored country.

The Bermuda Financial Network (BFN) Limited is a local international financial services firm. Its main objective is to facilitate banking transactions for consumer and business including e-commerce and money service businesses. In May 2008, the BFN was granted a Money Service Business License from the Bermuda Monetary Authority (BMA) in conjunction with the launch of its Western Union agency in Bermuda which offers international money transfer services. The BFN provides guidance on compliance policies and procedures with local regulations. Money transfer services are popular among foreign workers looking to send funds to their families overseas. The Money Shop is another business providing financial services in Bermuda with money transfer options through MoneyGram or wire transfers.

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

Remittance Policies

The Bermuda Financial Network (BFN) Limited is a local international financial services firm. Their main objective is to facilitate banking transactions for consumer and business including e-commerce and money service businesses. The BFN provides guidance on compliance policies and procedures with local regulations. Money transfer services are popular among foreign workers looking to send funds to their families overseas through businesses including The Money Shop, MoneyGram and Western Union.

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

Sovereign Wealth Funds 

Not applicable/information unavailable.

Bermuda has some traditional state-owned enterprises (SOEs) that compete with the private sector, including public transit, waste management, and the postal service.  Governance of SOEs is led by a politically appointed Cabinet Minister.  SOEs must provide financial information to the Minister, who submits the information annually to the Auditor General.  Most are prohibited from having a board of directors but may have an advisory board.

Bermuda also has quasi-autonomous, non-governmental organizations (QUANGOs)/Public Authorities, established under their respective legislative incorporation acts.  The Government of Bermuda controls several other organizations either through the possession of shares or voting rights or by some other means.  These organizations include the National Sports Center, Port Royal Golf Course, Ocean View Golf Course, Bermuda College, Bermuda Housing Trust, Bermuda Housing Corporation, Bermuda Land Development Corporation, West End Development Corporation, Bermuda Hospitals Board, Bermuda Health Council, the Regulatory Authority (telecommunications), Bermuda Tourism Authority, Bermuda Economic Development Corporation, Pension Commission, and parish councils.

SOEs purchase or supply goods or services locally.  However, the vast majority of goods are imported, because Bermuda produces virtually nothing of its own.  Bermuda’s state-owned businesses are heavily subsidized, but nothing in law prohibits private-sector competition.  Bermuda has no state-owned banks, development banks, or sovereign wealth funds or other state-owned investment vehicle.

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

Privatization Program

In 2017, a public-private partnership between the Bermuda Airport Authority, Government of Bermuda and Bermuda Skyport Corporation led to Bermuda’s new airport redevelopment project. The new L.F. Wade International Airport Passenger Terminal opened its doors to the public in December 2020. The Bermuda Airport Authority is the public sector party to the agreement, representing the interests of the Government of Bermuda and owner of the L.F. Wade International Airport. The Bermuda Skyport Corporation Limited is the private sector party to the project agreement. Skyport, a wholly owned subsidiary of Aecon, was responsible for delivering the new airport terminal building and is responsible for its ongoing operation and maintenance. The Authority continues to retain oversight of Skyport’s operations and maintenance for the duration of the project agreement.

Other examples of public-private partnerships are the King Edward VII Memorial Hospital Redevelopment Project and the establishment of the Bermuda Tourism Authority, formerly a government entity. In awarding contracts, the Government of Bermuda does not always follow established bidding processes if the Accountant General agrees that not doing so is in the public interest.

Policies Towards Foreign Direct Investment

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

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

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

Specifically, Article 320 of the Bolivian Constitution states:

1. Bolivian investment takes priority over foreign investment.
2. Every foreign investment will be subject to Bolivian jurisdiction, laws, and authorities, and no one may invoke a situation for exception, nor appeal to diplomatic claims to obtain more favorable treatment.
3. Economic relations with foreign states or enterprises shall be conducted under conditions of independence, mutual respect and equity.  More favorable conditions may not be granted to foreign states or enterprises than those established for Bolivians.
4. The state makes all decisions on internal economic policy independently and will not accept demands or conditions imposed on this policy by states, banks or Bolivian or foreign financial institutions, multilateral entities or transnational enterprises.
5. Public policies will promote internal consumption of products made in Bolivia.

Article 262 of the Constitution states:

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

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

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

Bolivia does not currently have an investment promotion agency to facilitate foreign investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

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

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

The Telecommunications, Technology and Communications General Law from 2012 (Law 164, Article 28) stipulates that the licenses for radio broadcasts will not be given to foreign persons or entities.  Further, in the case of broadcasting associations, the share of foreign investors cannot exceed 25 percent of the total investment, except in those cases approved by the state or by international treaties.

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

Other Investment Policy Reviews

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

Business Facilitation

According to the World Bank’s Doing Business 2020 rankings, Bolivia ranks 150 out of 190 countries on the ease of doing business, much lower than most countries in the region.  Bolivia ranks 175 out of 190 on the ease of starting a business.

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

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

Outward Investment

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

Transparency of the Regulatory System

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

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

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

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

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

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

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

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

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

International Regulatory Considerations

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

Legal System and Judicial Independence

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

Laws and Regulations on Foreign Direct Investment

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

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

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

Investor-State Dispute Settlement

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

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

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

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

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

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

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

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

Capital Markets and Portfolio Investment

The government’s general attitude toward foreign portfolio investment is neutral.  Established Bolivian firms may issue short or medium-term debt in local capital markets, which act primarily as secondary markets for fixed-return securities.  Bolivian capital markets have sought to expand their handling of local corporate bond issues and equity instruments.  Over the last few years, several Bolivian companies and some foreign firms have been able to raise funds through local capital markets.  However, the stock exchange is small and is highly concentrated in bonds and debt instruments (more than 95 percent of transactions).  The amount of total transactions in 2020 was around 35 percent of GDP.

From 2008-2019, the financial markets experienced high liquidity, which led to historically low interest rates.  However, liquidity has been more limited in recent years, and there are some pressures to increase interest rates.  The Bolivian financial system is not well integrated with the international system and there is only one foreign bank among the top ten banks of Bolivia.

In October 2012, Bolivia returned to global credit markets for the first time in nearly a century, selling USD 500 million worth of 10-year bonds at the New York Stock Exchange.  The sovereign bonds were offered with an interest rate of 4.875 percent and demand for the bonds well surpassed the offer, reaching USD 1.5 billion.  U.S. financial companies Bank of America, Merrill Lynch, and Goldman Sachs were the lead managers of the deal.  In 2013, Bolivia sold another USD 500 million at 5.95 percent for ten years.  HSBC, Bank of America, and Merrill Lynch were the lead managers of the deal.  In 2017, Bolivia sold another USD 1 billion at 4.5 percent for ten years, with Bank of America and JP Morgan managing the deal.  The resources gained from the sales were largely used to finance infrastructure projects.  A sovereign bond issuance of up to $3 billion was approved by the National Assembly for 2021 but had not yet occurred as of May 2021.

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

Foreign investors legally established in Bolivia are able to get credits on the local market.  However, due to the size of the market, large credits are rare and may require operations involving several banks.  Credit access through other financial instruments is limited to bond issuances in the capital market.  The 2013 Financial Services Law directs credit towards the productive sectors and caps interest rates.

Money and Banking System

The Bolivian banking system is small, composed of 16 banks, 6 banks specialized in mortgage lending, 3 private financial funds, 30 savings and credit cooperatives, and 8 institutions specialized in microcredit.  Of the total number of personal deposits made in Bolivia through December 2020 (USD 29 billion), the banking sector accounted for 80 percent of the total financial system.  Similarly, of the total loans and credits made to private individuals (USD 28 billion) through December 2020, 80 percent were made by the banking sector, while private financial funds and the savings and credit cooperatives accounted for the other 20 percent.

Bolivian banks have developed the capacity to adjudicate credit risk and evaluate expected rates of return in line with international norms.  The banking sector was stable and healthy with delinquency rates at less than 2.0 percent in 2020. In 2020, delinquency rates rose after the government permitted clients to defer bank loan payments until June 2021 without penalty as a mitigating measure for the COVID-19 pandemic.  While delinquency rates still remain relatively low, there are concerns this measure could potentially harm the banking sector’s stability.

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

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

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

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

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

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

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

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

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

Foreign Exchange and Remittances

Foreign Exchange

The Banking Law (#393, 2013) establishes regulations for foreign currency hedging and authorizes banks to maintain accounts in foreign currencies.  A significant, but dropping, percentage of deposits are denominated in U.S. dollars (currently less than 14 percent of total deposits).  Bolivian law currently allows repatriation of profits, with a 12.5 percent withholding tax.  However, a provision of the 2009 Constitution (Article 351.2) requires reinvestment within Bolivia of private profits from natural resources.  Until specific implementing legislation is passed, it is unclear how this provision will be applied.  In addition, all bank transfers in U.S. dollars within the financial system and leaving the country must pay a Financial Transaction Tax (ITF) of 2 percent.  This tax applies to foreign transactions for U.S. dollars leaving Bolivia, not to money transferred internally.

Any banking transaction above USD 10,000 (in one operation or over three consecutive days) requires a form stating the source of funds.  In addition, any hard currency cash transfer from or to Bolivia equal to or greater than USD 10,000 must be registered with the customs office.  Amounts between USD 20,000 and USD 500,000 require authorization by the Central Bank and quantities above USD 500,000 require authorization by the Ministry of the Economy and Public Finance.  The fine for underreporting any cash transaction is equal to 30 percent of the difference between the declared amount and the quantity of money found.  The reporting standard is international, but many private companies in Bolivia find the application cumbersome due to the government requirement for detailed transaction breakdowns rather than allowing for blanket transaction reporting.

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

The Central Bank charges a fee for different kinds of international transactions related to banking and trade.  The current list of fees and the details can be found at:

https://www.bcb.gob.bo/webdocs/01_resoluciones/RD%20152%202019.pdf

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

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

Remittance Policies

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

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

Sovereign Wealth Funds

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

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

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

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

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

Privatization Program

There are currently no privatization programs in Bolivia.

Policies Towards Foreign Direct Investment

Bosnia and Herzegovina struggles to attract foreign investment.  Complex labor and pension laws, the lack of a single economic space, and inadequate judicial and regulatory protections deter investment.  Under the BiH constitution, established through the Dayton Accords that ended the 1990s war, Bosnia and Herzegovina (henceforth “the state”) is divided into two “entities,” the Federation of BiH (the Federation) and the Republika Srpska (RS).  A third, smaller area, the Brčko District, operates under a separate administration.  The Federation is further divided into ten cantons, each with its own government and responsibilities.  There are also 143 municipalities in BiH: 63 in the RS and 80 in the Federation.  As a result, BiH has a multi-tiered legal and regulatory framework that can be duplicative and contradictory, and is not conducive to attracting foreign investors.

Employers bear a heavy burden toward governments.  They must contribute 69 percent on top of wages in the Federation and 52 percent in the RS to the health and pension systems.  The labor and pension laws are also deterrents to investment, though both are being reformed to decrease burdens on employers.  While corporate income taxes in the two entities and Brčko District are now harmonized at 10 percent, entity business registration requirements are not harmonized.  The RS has its own registration requirements, which apply to the entire entity.  Each of the Federation’s ten cantons has different business regulations and administrative procedures affecting companies.  Simplifying and streamlining this framework is essential to improving the investment climate.  The EU Reform Agenda targets changes that should improve the investment climate by clarifying and simplifying regulation and procedures while decreasing fees faced by businesses at the entity, canton, and municipal levels.

Generally, BiH’s legal framework does not discriminate against foreign investors.  However, given the high level of corruption, foreign investors can be at a significant disadvantage in relation to entrenched local companies, especially those with formal or informal backing by BiH’s various levels of government.

The Foreign Investment Promotion Agency (FIPA) is a state-level organization mandated by the Council of Ministers to facilitate and support FDI (www.fipa.gov.ba).  FIPA provides data, analysis, and advice on the business and investment climate to foreign investors.  All FIPA services are free of charge.

BiH does not maintain an ongoing, formal dialogue with foreign investors.  Sporadically, high-ranking government officials give media statements inviting foreign investments in the energy, transportation, and agriculture industries; however, the announcements are rarely supported by tangible, commercially-viable investment opportunities.

Limits on Foreign Control and Right to Private Ownership and Establishment

According to the Law on the Policy of FDI, foreign investors are entitled to invest in any sector of the economy in the same form and under the same conditions as those defined for local residents.  Exceptions include the defense industry and some areas of publishing and media where foreign ownership is restricted to 49 percent; and electric power transmission, which is closed to foreign investment.  In practice, additional sectors are dominated by government monopolies (such as airport operation), or characterized by oligopolistic market structures (such as telecommunications and electricity generation), making it difficult for foreign investors to engage.  There have been no significant privatizations of government-owned enterprises in the past few years.

Other Investment Policy Reviews

In the past three years, the BiH government has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD); the World Trade Organization (WTO); or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

Establishing a business in BiH can be an extremely burdensome and time-consuming process for investors.  The World Bank estimates there are an average of 13 procedures (actual number depends on the type of business), taking a total of 81 days, to register a new business in the capital city of Sarajevo.  Registration in BiH can sometimes be expedited if companies retain a local lawyer to follow up at each step of the process.  The RS established a one-stop shop for business registration in the entity.  On paper, this dramatically reduced the time required to register a business in the RS, bringing the government-reported time to register a company down to an average of 7 to 14 days.  Some businesses, however, report that in practice it can take significantly longer.

The entity, cantonal, and municipal levels of government each establish their own laws and regulations on business operations, creating redundant and inconsistent procedures that enable corruption.  It is often difficult to understand all the laws and rules that might apply to certain business activities, given overlapping jurisdictions and the lack of a central information source.  It is therefore critical that foreign investors obtain local assistance and advice.  Investors in the Federation may register their business as a branch in the RS and vice versa.

The most common U.S. business presence found in BiH are representative offices.  A representative office is not considered to be a legal entity and its activities are limited to market research, contract or investment preparations, technical cooperation, and similar business facilitation activities.  The BiH Law on Foreign Trade Policy governs the establishment of a representative office.  To open a representative office, a company must register with the Registry of Representative Offices, maintained by the BiH Ministry of Foreign Trade and Economic Affairs (MoFTER) and the appropriate entity’s ministry of trade.

Additional English-language information on the business registration process can be found at:

BiH Ministry of Foreign Trade & Economic Relations (MoFTER):
Ph: +387-33-220-093
www.mvteo.gov.ba

BiH Foreign Investment Promotion Agency (FIPA):
Ph: + 387 33 278 080
www.fipa.gov.ba

Republika Srpska Company Registration Website: http://www.investsrpska.net

Outward Investment

The government does not restrict domestic investors from investing abroad.  There are no programs to promote or incentivize outward investment.

Transparency of the Regulatory System

The government has adequate laws to foster competition; however, due to corruption, laws are often not implemented transparently or efficiently.  The multitude of state, entity, cantonal (in the Federation only), and municipal administrations – each with the power to establish laws and regulations affecting business – creates a heavily bureaucratic, non-transparent system.  Ministries and/or regulatory agencies are not typically obligated to publish the text of proposed regulations before they are enacted.  Some local and international companies have expressed frustration with generally limited opportunities to provide input and influence/improve draft legislation that impacts the business community.

Foreign investors have criticized government and public procurement tenders for a lack of openness and transparency.  Dispute resolution is also challenging as the judicial system moves slowly, often does not adhere to existing deadlines, and provides no recourse if the company in question re-registers under a different name.

In an effort to promote the growth of business in its entity, the Republika Srpska government passed a series of amendments in 2013 to create an RS one-stop-shop for business registration.  This institution centralizes the process of registering a business, ostensibly making it easier, faster, and cheaper for new business owners to register their companies in the RS.  The Federation’s announced plans to establish a one-stop-shop have long been delayed.

Businesses are subject to inspections from a number of entity and cantonal/municipal agencies, including the financial police, labor inspectorate, market inspectorate, sanitary inspectorate, health inspectorate, fire-fighting inspectorate, environmental inspectorate, institution for the protection of cultural monuments, tourism and food inspectorate, construction inspectorate, communal inspectorate, and veterinary inspectorate.  Some investors have complained about non-transparent fees levied during inspections, changing rules and regulations, and an ineffective appeals process to protest these fines.

International Regulatory Considerations

BiH is not a part of the EU, the WTO, or a signatory to the Trade Facilitation Agreement (TFA).

Legal System and Judicial Independence

BiH has an overloaded court system and it often takes several years for a case to be brought to trial.  Moreover, commercial cases with subject matter that judges do not have experience adjudicating, such as intellectual property rights, are often left unresolved for lengthy periods of time.  Most judges have little to no in-depth knowledge of adjudicating international commercial disputes and require training on applicable international treaties and laws.  Regulations or enforcement actions can be appealed, and appeals are adjudicated in the national court system.

The U.S. government has provided training to judges, trustees, attorneys, and other stakeholders at the state and entity levels to assist in the development of bankruptcy and intellectual property laws.  Those laws are now in effect at both the entity and state levels, but have not been fully implemented.

Laws and Regulations on Foreign Direct Investment

The state-level Law on the Policy of Foreign Direct Investment accords foreign investors the same rights as domestic investors and guarantees foreign investors national treatment, protection against nationalization/expropriation, and the right to dispose of profits and transfer funds.  In practice, most business sectors in Bosnia and Herzegovina are fully open to foreign equity ownership.  Notable exceptions to this general rule are select strategic sectors, such as defense; electric power transmission, which is closed to foreign investment; and some areas of publishing and media, where foreign ownership is restricted to 49 percent (see below).  However, one of the sub-national governments (Federation of BiH, Republika Srpska) may decide that companies normally subject to this limitation are not subject to restrictions.

According to legal amendments adopted in March 2015, foreign investors can now own more than 49 percent of capital business entities dealing with media activities, such as publishing newspapers, magazines and other journals, publishing of periodical publications, production and distribution of television programs, privately owned broadcasting of radio and TV programs, and other forms of daily or periodic publications.  The new law maintains the restriction that foreign investors cannot own more than 49 percent of public television and radio services.  The March 2015 amendments also set conditions to enhance legal security and clarity for foreign direct investment flows.  The Foreign Investment Promotion Agency maintains a list of laws relevant to investors on its website:

http://www.fipa.gov.ba/publikacije_materijali/zakoni/default.aspx?id=317&langTag=en-US

The complex legal environment in BiH underlines the utility of local legal representation for foreign investors.  Bosnian attorneys’ experience base is still limited with respect to legal questions and the issues that arise in a market-oriented economy.  However, local lawyers are quickly gaining experience in working with international organizations and companies operating in BiH.  Companies’ in-house legal counsel should be prepared to oversee their in-country counsel, with explicit explanations and directions regarding objectives.  The U.S. Embassy maintains a list of local lawyers willing to represent U.S. citizens and companies in BiH.  The list can be accessed at https://ba.usembassy.gov/u-s-citizen-services/attorneys/

Competition and Antitrust Laws

BiH has a Competition Council, designed to be an independent public institution to enforce anti-trust laws, prevent monopolies, and enhance private sector competition.  The Council reviews and approves foreign investments in cases of mergers and acquisitions of local companies by foreign companies.  The Competition Council consists of six members appointed for six-year terms of office with the possibility of one reappointment.  The BiH Council of Ministers appoints three Competition Council members, the Federation Government appoints two members, and the RS Government appoints one member.  From the six-member Competition Council, the BiH Council of Ministers affirms a president of the Council for a one-year term without the possibility of reappointment.

Expropriation and Compensation

BiH investment law forbids expropriation of investments, except in the public interest.  According to Article 16, “Foreign investment shall not be subject to any act of nationalization, expropriation, requisition, or measures that have similar effects, except where the public interest may require otherwise.”  In such cases of public interest, expropriation of investments would be executed in accordance with applicable laws and regulations, be free from discrimination, and include payment of appropriate compensation.  Neither the entity governments nor the state government have expropriated any foreign investments to date.

Dispute Settlement

ICSID Convention and New York Convention

Bosnia and Herzegovina is a signatory of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).  Bosnia and Herzegovina is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID), also known as the Washington Convention.

Investor-State Dispute Settlement

Over the last decade, there have been two cases of legal disputes involving U.S. investors and the local government.  While efforts are being made to improve BiH’s commercial court system, its current capacity and practical inefficiencies limit timely resolution of commercial disputes.

International Commercial Arbitration and Foreign Courts

BiH has been a member of the International Center for the Settlement of Investment Disputes since 1997.  BiH does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United States.  It accepts international arbitration to settle private investment disputes if the parties outline this option in a contract.

The only domestic arbitration body in BiH, the Arbitration Court of the BiH Foreign Trade Chamber, is an inexperienced institution.  It needs updated and modernized laws and regulations to comply with international norms and standards.  The Arbitration Court would benefit from licensed and trained arbitrators.  Domestic arbitration legislation is encompassed within the Civil Procedure Code and is not currently modeled on internationally-accepted regulations.  As for the legislation, arbitration is generally poorly addressed.  There are few provisions in the entities’ laws that regulate litigation procedures, which are the legal basis for parties in dispute to entrust the dispute to arbitration.  There is no legislation that is modelled on internationally accepted regulations, such as the model law of the United Nations Commission on International Trade Law (UNICITRAL).

Bankruptcy Regulations

Both the Federation and Republika Srpska entities have Laws on Bankruptcy.  However, bankruptcy proceedings are not resolved in a timely manner, and there is insufficient emphasis placed on companies’ rehabilitation and/or reorganization.  The entities’ laws define the rights of creditors, equity shareholders, and holders of other financial contracts.  Foreign contract holders enjoy the same rights as local contract holders.  Bankruptcy is not criminalized.  The U.S. government provided recent training to judges on international bankruptcy principles.

Capital Markets and Portfolio Investment

Capital markets remain underdeveloped in BiH.  Both entities have created their own modern stock market infrastructure with separate stock exchanges in Sarajevo (SASE) and Banja Luka (BLSE), both of which started trading in 2002.  The small size of the markets, lack of privatization, weak shareholder protection, and public mistrust of previous privatization programs has impeded the development of the capital market.

Both the RS and Federation issued government securities for the first time during 2011, as part of their plans to raise capital in support of their budget deficits during this period of economic stress.  Both entity governments continue to issue government securities in order to fill budget gaps.  These securities are also available for secondary market trading on the stock exchanges.

In August 2020,  the international rating agency Standard and Poor’s (S&P) affirmed the credit rating of Bosnia and Herzegovina as “B” with a stable outlook.  The agency stated that the stable outlook reflects the anticipation that the risks coming from the economic impact of the coronavirus pandemic will be balanced over the next 12 months by the potential implementation of structural reforms and S&P’s expectations for stronger economic growth beyond 2020.Prior to the COVID-19 pandemic, the Agency forecasts real GDP growth of 2.7 percent over the next four years. The ratings on BiH continue to be supported by the favorable structure of state debt. Even taking into account the impact of the pandemic, net general government debt should remain about 30% of GDP over the next four years. Almost all external debt (which accounts for more than 70% of gross general government debt) is due to official bilateral or multilateral lenders, and is characterized by long maturities and favorable interest rates. The quality of banking regulations was also positively evaluated.  Positive reforms, according to analysts’ expectations, could include reducing the labor cost burden on business and enhancing governance of the country’s state-owned enterprise sector.

Money and Banking System

The banking and financial system has been stable with the most significant investments coming from Austria.  As of March 2020, there are 23 commercial banks operating in BiH: 15 with headquarters in the Federation and eight in the Republika Srpska.  Twenty-two commercial banks are members of a deposit insurance program, which provides for deposit insurance of KM 50,000 (USD 28,000).  The banking sector is divided between the two entities, with entity banking agencies responsible for banking supervision.  The BiH Central Bank maintains monetary stability through its currency board arrangement, and supports and maintains payment and settlement systems.  It also coordinates the activities of the entity Banking Agencies, which are in charge of bank licensing and supervision. Reforms of the banking sector, mandated by the IMF and performed in conjunction with the IMF and World Bank, are in progress.

BiH passed a state-level framework law in 2010 mandating the use of international accounting standards, and both entities passed legislation that eliminated differences in standards between the entities and Brčko District.  All governments have implemented accounting practices that are fully in line with international norms.

Foreign Exchange and Remittances

Foreign Exchange

The Law on Foreign Direct Investment guarantees the immediate right to transfer and repatriate profits and remittances.  Local and foreign companies may hold accounts in one or more banks authorized to initiate or receive payments in foreign currency.  The implementing laws in both entities include transfer and repatriation rights.  The Central Bank’s adoption of a currency board in 1997 guarantees the local currency, the convertible mark or KM (aka BAM), is fully convertible to the euro with a fixed exchange rate of KM 1.95583 = €1.00.

Remittance Policies

BiH has no remittance policy, although remittances are generally high due to a large diaspora.  Remittances are estimated to range up to 15 percent of total GDP.  Based on the two entities’ Laws on Foreign Currency Exchange, all payments in the country must be in national currency.

Sovereign Wealth Funds

BiH does not have a government-affiliated Sovereign Wealth Fund.

In BiH, subnational governments own the vast majority of government-owned companies: the two entities and ten cantons.  Private enterprises can compete with state-owned enterprises (SOEs) under the same terms and conditions with respect to market share, products/services, and incentives.  In practice, however, SOEs have the advantage over private enterprises, especially in sectors such as telecommunications and electricity, where government-owned enterprises have traditionally held near-monopolies and are able to influence regulators and courts in their favor.  Generally, government-owned companies are controlled by political parties, increasing the possibilities for corruption and inefficient company management.  With the exception of SOEs in the telecom, electricity, and defense sectors, many of the remaining public companies are bankrupt or on the verge of insolvency, and represent a growing liability to the government.

The country is not party to the Government Procurement Agreement within the framework of the WTO.

Privatization Program

There have been no significant privatizations in the past few years.  Privatization offerings are scarce and often require unfavorable terms.  Some formerly successful state-owned enterprises have accrued significant debts from unpaid health and pension contributions, and potential investors are required to assume these debts and maintain the existing workforce.  Under the state-level FDI Law, foreign investors may bid on privatization tenders.  International financial organizations, such as the European Bank for Reconstruction and Development (EBRD) are seeking to be engaged on privatization and restructuring efforts across the remaining portfolio of state owned enterprises.  Historically, the privatization process in BiH has resulted in economic loss due to corruption.  From 1999 to 2015, more than 1,000 companies were fully privatized, while around 100 were partially privatized.  Some privatizations led to the loss of value of state property and many of the privatized companies were weakened or ruined in the privatization process.  The history of corrupt privatizations has raised concerns that further privatization would only lead to additional unemployment and the enrichment of a few politically-connected individuals.  Successful privatizations and restructurings that improve service delivery, business productivity, and employment would be very beneficial for the BiH economy, could help the image of privatization, and would build support for a long overdue shift away from a government-led economy.

The Federation government is focused on privatizing or restructuring some SOEs based on the Federation Agency for Privatization’s 2019 privatization plan.  The privatization plan includes the fuel retailer Energopetrol dd. Sarajevo, the engineering company Energoinvest, and the insurer Sarajevo-Osiguranje.  The remaining companies listed in the privatization plan have posted losses and suffered significant declines in their value, while others have only a small amount of government ownership.  The Federation government rejected media speculation that it plans to privatize the two majority government-owned telecom companies, BH Telecom (90 percent stake) and HT Mostar (50.1 percent stake).  At the same time, it has completed due diligence on the two telecom companies as part of its arrangement with the IMF.

The privatization process in the RS is carried out by the RS Investment Development Bank (IRBRS).  Many prospective companies have been already privatized, and out of 163 not yet privatized companies, many are being liquidated or undergoing bankruptcy.  In 2016, the RS government announced plans to sell its capital in 22 companies but the plan has not been implemented yet.  The plan envisions the privatizations to take place via the sale of government shares on the stock exchange.  Although the RS National Assembly passed a decision that the entity has no plans to privatize the energy sector, the RS government maintains the possibility of joint ventures in the energy sector.

Policies Towards Foreign Direct Investment

The GoB publicly emphasizes the importance of attracting (FDI) and drafted an investment facilitation law recommended by the 2014 Organization for Economic Co-operation and Development (OECD) Investment Review. While the draft was completed in 2016 with technical assistance from UNCTAD, it was never enacted. The draft is still under review and will be presented to Parliament for approval. The GoB has launched initiatives to promote economic activity and foreign investment in specific areas, such as establishing a diamond hub which brought more value-added businesses (i.e., cutting and polishing) into the country. Additional investment opportunities in Botswana include large water, electricity, transportation, and telecommunication infrastructure projects. Economists have also noted Botswana’s considerable potential in the mining, mineral processing, beef, tourism, solar energy, and financial services sectors. BITC assists foreign investors with projects intended to diversify export revenue, create employment, and transfer skills to Botswana citizens. The High Level Consultative Council (HLCC), chaired by the President, and an Exporter Roundtable organized by BITC and Botswana’s Exporters and Manufacturers Association (BEMA), are mechanisms employed by the GoB to focus on a healthy business environment for FDI.

Limits on Foreign Control and Right to Private Ownership and Establishment

Botswana’s 2003 Trade Act reserves licenses for citizens in 35 sectors, including butcheries, general trading establishments, gas stations, liquor stores, supermarkets (excluding chain stores), bars (other than those associated with hotels), certain types of restaurants, boutiques, auctioneers, car washes, domestic cleaning services, curio shops, fresh produce vendors, funeral homes, hairdressers, various types of rental/hire services, laundromats, specific types of government construction projects under a certain dollar amount, certain activities related to road and railway construction and maintenance, and certain types of manufacturing activities including the production of furniture for schools, welding, and bricklaying. The law allows foreigners to participate in these sectors as minority joint venture partners in medium-sized businesses. Foreigners can hold the majority share if they obtain written approval from the trade minister.

The Ministry of Investment, Trade, and Industry (MITI) administers the citizen participation initiative and takes an expansive interpretation of the term chain stores, so that it encompasses any store with more than one outlet. This broad interpretation has resulted in the need to apply exemptions to certain supermarkets, simple specialty operations, and general trading stores. These exceptions were generally granted prior to 2015 and many large general merchandise markets, restaurants, and grocery networks are owned by foreigners as a result. Since 2015, the GoB has denied some exception requests, but reports they have approved some based on localization agreements directly negotiated between the ministry and the applying company. These agreements reportedly include commitments to purchase supplies locally and capacity building for local workers and industry. BITC conducts due diligence on companies that are looking to invest in the country and the Directorate of Intelligence Services (DIS) handles background checks for national security.

Other Investment Policy Reviews

In December of 2014, the OECD released an Investment Policy Review on Botswana. ( http://www.oecd-ilibrary.org/finance-and-investment/oecd-investment-policy-reviews-botswana-2014_9789264203365-en ).

Botswana has been a World Trade Organization (WTO) member since 1995. In 2016, the WTO conducted a trade policy review of the Southern African Customs Union to which Botswana belongs ( https://www.wto.org/english/tratop_e/tpr_e/tp322_e.htm ).

Business Facilitation

To operate a business in Botswana, one needs to register a company with the GoB’s CIPA through the OBRS at:   https://www.cipa.co.bw/types-of-entities 

CIPA asserts that the company registration process can be completed in a day and is integrated with BURS which allows for a fast-tracked tax registration in 30 days. Additional work is required to open bank accounts and obtain necessary licenses and permits. The World Bank ranked Botswana 159 out of 190 in its ease of starting a business category.

BITC ( www.bitc.co.bw ), the GoB’s investment promotion agency, was designed to serve as a one-stop shop to assist investors in setting up a business and finding a location for operation. BITC’s ability to streamline procedures varies based on GoB entity and bureaucratic requirements. BITC assesses investment projects on their ability to diversify the economy away from its continued dependence on diamond mining, contribute towards export-led growth, and job creation for and skills transfer to Batswana citizens. BITC also hosts the Botswana Trade Portal ( https://www.botswanatradeportal.org.bw ) that is designed to ease trade across borders. It is a single point of contact for all information relating to import and export to and from Botswana and represents a number of ministries and parastatals.

Botswana has several incentives and preferences for both citizen-owned and locally based companies. Foreign-owned companies can benefit from local procurement preferences which are usually required for government tenders. MITI instituted a program in 2015 to give locally based small companies a 15 percent preferential price margin in GoB procurement, with mid-sized companies receiving a 10 percent margin, and large companies a five percent margin. Under this policy, MITI defines small companies as having less than five million pula in annual revenue reflected in their financial statements, medium companies with five to 20 million pula in revenue, and large companies with revenues exceeding 20 million pula. The directive applies to 27 categories of goods and services ranging from textiles, chemicals, and food, as well as a broad range of consultancy services. The government can also offer up to 50 million pula in funding through Citizen Entrepreneurial Development Agency (CEDA) to joint ventures between foreign and citizen owned companies.

For Companies Act registration purposes, enterprises are classified as: Micro Enterprises – fewer than six employees including the owner and an annual revenue below 60 thousand pula; Small Enterprises – fewer than 25 employees and an annual revenue between 60 thousand and 1.5 million pula; Medium Enterprises – fewer than 100 employees and annual revenue between 1.5 and 5 million pula; Large Enterprises – over 100 employees and an annual revenue of at least 5 million pula. This classification system permits foreigners to participate as minority shareholders in medium-sized enterprises in the 35 business sectors reserved for citizens.

Outward Investment

The GoB neither promotes nor restricts outward investment.

Transparency of the Regulatory System

Bureaucratic procedures necessary to start and maintain a business tend to be transparent but slow. Regulatory procedures can be cumbersome to navigate. In 2018, Botswana launched a Regulatory Impact Assessment Strategy to improve the regulatory environment, ensure legislation is necessary and cost effective, reduce administrative burdens imposed by the regulatory environment to businesses, and to improve transparency, consultation, and government accountability. Most complaints by foreign investors are about the inefficiency and/or unresponsiveness of mid- and low-level government bureaucrats. The GoB has introduced a Performance Management System to improve the service and accountability of its employees. Unfair business practices or conduct can be reported to the Competition Authority, which seeks to level the playing field for all business operators and foster a conducive environment for business. Bills in Botswana, including investment laws, go through a public consultation process and are available for public comment. Bills are also debated in Parliament sessions that are open to the public.

The Companies Act of 2004 requires all companies registered in Botswana to prepare annual financial statements on the basis of generally accepted accounting principles. It further requires every public company, including non-exempt private companies, to prepare their Financial Statement in accordance with the International Financial Reporting Standards.

The Public Procurement and Asset Disposal Board (PPADB) oversees all government tenders. Prospective government contractors are required to register with the PPADB. The PPADB maintains a process by which tender decisions can be challenged; bidders can also challenge a tender procedure in the courts. The PPADB publishes its decisions concerning awarded tenders, prequalification lists, and newly registered contractors. Since 2014, PPADB has partnered with the United States Trade and Development Agency’s (USTDA) Global Procurement Initiative, a shared commitment to utilizing best-value determination procurement practices and promoting professionalization in procurement.

PPADB successfully implemented the Integrated Procurement Management System (IPMS) to level the procurement playing field by automating contractor registration, e-bidding and other operations. This has enabled them to introduce a Procurement Plan Platform where government entities list all their procurement plans for the year, allowing companies to plan ahead. An e-bidding system, which is in the pilot stage, will allow companies to compete for and submit tenders online.

Online services are available at https://ipms.ppadb.co.bw/login 

The PPADB Act calls for preferential procurement of citizen-owned contractors for works, service, and supplies. It also calls for procurement through disadvantaged women’s communities, though it states that such preferences must be time-bound, phased in and out as necessary, and consistent with the country’s external obligations and its “market-oriented, macroeconomic framework.” When a procuring entity wishes to reserve a tender for citizen-only participation, it is required to publish a notice to that effect either in the bid document or the pre-qualification notice.

Health and safety laws, embodied in the Factories Act of 1973, provide basic protection for workers from unsafe working conditions. Minimum working conditions required on work premises include cleanliness of the premises, adequate ventilation and sanitation, sufficient lighting, and the provision of safety precautions. Health inspectors and the Botswana Bureau of Standards carry out periodic checks at both new and operating factories.

International Regulatory Considerations

Botswana is a member of SACU and SADC. Neither has authority over member state national regulatory systems. Botswana is a member of the World Trade Organization (WTO) and notifies all draft technical regulations to the WTO’s Technical Barriers to Trade (TBT) Committee.

Legal System and Judicial Independence

The Constitution provides for an independent judiciary system. Botswana’s legal system is based on Roman-Dutch law as influenced by English common law. This type of system exists with legislation, judicial decisions, and local customary law. The courts enforce commercial contracts, and the judicial system is widely regarded as being fair. Both foreign and domestic investors have equal access to the judicial system. Botswana does not have a dedicated commercial court. The Industrial Court, set up by the Trade Dispute Act of 2004, primarily addresses labor matters.

The GoB is planning to create a corps of commercially specialized judges within the civil court system. Under the new system, commercial cases will be overseen by these commercial judges to expedite handling and ensure relevant expertise. Botswana already has a specialized anti-corruption court that handles all corruption cases.

Some U.S. litigants have reported that the time to obtain and enforce a judgment in a commercial dispute is unreasonably long. The turnaround time for civil cases is approximately two years. To improve adjudications efficiency, the GoB has established a land tribunal, and industrial, small claims, and corruption courts. In the past several years, some dockets have improved, but progress has been uneven.

Local laws are accessible through the Botswana Attorney General’s Office website ( www.elaws.gov.bw ). It can take up to 24 months for a law, once passed, to appear on the website.

Laws and Regulations on Foreign Direct Investment

Under Botswana’s Company Act, foreigners who wish to operate a business are required to register, as well as obtain, the relevant licenses and permits as prescribed by the Trade Act of 2008.

Licenses are required for a wide spectrum of businesses, including banking, non-bank financial services, transportation, medical services, mining, energy provision, and alcohol sales. Although amendments to the Trade Act have eliminated the catchall miscellaneous business license category, investors have reported on local authorities insisting a business apply for a license even when it does not fall within the established categories. In addition, some businesses have observed that the enforcement of licenses, as well as the time taken for inspections to comply with licensing requirements, varies widely across local government authorities.

Competition and Antitrust Laws

Botswana has developed anti-trust legislation and policies to ensure appropriate competition in business. Under the Competition Act, the Competition Authority (CA) monitors mergers and acquisitions. In 2019, the CA expanded its mandate by taking over the operations of the Consumer Protection Act from MITI and rebranded itself as the Competition and Consumer Authority (CCA). CCA has already taken up the responsibilities of consumer education and is also resuscitating consumer groups across the country. During the year 2019/2020, the CCA engaged in stakeholder education to combat bid rigging. The authority investigated a total of 32 competition related cases and successfully closed 50 percent of them; the remaining 50 percent are under investigation and have been carried over to the 2020/21 financial year. The CCA is empowered to reject mergers deemed not in the public interest. CCA interprets this power to mean that it can prohibit mergers that concentrate most shares in the hands of foreign investors.

Expropriation and Compensation

Section 8 of Botswana’s Constitution prohibits the nationalization of private property. The GoB has never pursued a forced nationalization policy and is highly unlikely to adopt one. The Acquisition of Property Act provides a process for any expropriation, including parameters to determine market value and receive compensation. The 2007 Amendment to the Electricity Supply Act allows the GoB to revoke an Independent Power Producer’s license and confiscate the operations, with compensation, for public interest purposes.

Dispute Settlement

ICSID Convention and New York Convention

GoB has ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). GoB is also a member state to the International Centre for Settlement of Investment Disputes (ICSID convention), and the Multilateral Investment Guarantee Agency (MIGA).

Investor-State Dispute Settlement

There are no known investment disputes involving U.S. persons. Botswana accepts international arbitration to settle investment disputes. Judgments by GoB-recognized foreign courts are enforceable in the local courts where the appropriate bilateral agreements between the countries exist.

International Commercial Arbitration and Foreign Courts

There are no known complaints about transparency or discrimination by local courts in Botswana.

Bankruptcy Regulations

Botswana’s commercial and bankruptcy laws are comprehensive. Secured and unsecured creditors enjoy similar rights under bankruptcy proceedings as those they would enjoy in the United States. Botswana ranks number 84 out of 190 countries on the ease of resolving insolvency according to the World Bank’s doing business report.

Capital Markets and Portfolio Investment

The government encourages foreign portfolio investment, although there are limits on foreign ownership in certain sectors. It also embraces the establishment of new and diverse financial institutions to support increased foreign and domestic investment and to fill existing gaps where finance is not commercially available. There are nine commercial banks, one merchant bank, one offshore bank, two statutory deposit-taking institutions, and one credit union operating in Botswana. All have corresponding relationships with U.S. banks. Additional financial institutions include various pension funds, insurance companies, microfinance institutions, stock brokerage companies, asset management companies, statutory finance institutions, collective investment undertakings, and statutory funds. Historically, commercial banks have accounted for 92 percent of total deposits and 98 percent of total loans in Botswana. A large portion of the population does not participate in the formal banking sector.

Money and Banking System

The central bank, the Bank of Botswana, acts as banker and financial advisor to the GoB and is responsible for the management of the country’s foreign exchange reserves, the administration of monetary and exchange rate policies, and the regulation and supervision of financial institutions in the country. Monetary policy in Botswana is widely regarded as prudent, and the GoB has successfully managed to maintain a sensible exchange rate and a stable inflation rate, generally within the target of three to six percent.

Banks may lend to non-resident-controlled companies without seeking approval from the Bank of Botswana. Foreign investors usually enjoy better access to credit than local firms. In July 2014, USAID’s Development Credit Authority (now DFC – U.S. International Development Finance Corporation), in collaboration with ABSA (formerly Barclays Bank of Botswana), implemented a program to allow small and medium-sized enterprises (SME) to access up to USD 15 million in loans in an effort to diversify the economy.

At the end of 2019, there were 25 companies on the Domestic Board and eight companies on the Foreign Equities Board of the Botswana Stock Exchange (BSE). In addition, there were 46 listed bonds and three exchange traded funds listed on the Exchange. The total market capitalization for listed companies at year-end 2019 was USD 37 billion, though one company constitutes the majority of that figure, Anglo-American plc, which has a market capitalization of approximately USD 30 billion. The BSE is still highly illiquid compared to larger African markets and is dominated by mining companies which adds to index volatility. Laws prohibiting insider trading and securities fraud are clearly stipulated under Section 35 – 37 of the Securities Act, 2014 and charges for contravening these laws are listed under Section 54 of the same Act.

The government has legitimized offshore capital investments and allows foreign investors, individuals and corporate bodies, and companies incorporated in Botswana, to open foreign currency accounts in specified currencies. The designated currencies are U.S. Dollar, British Pound sterling, Euro, and the South African Rand. There are no known practices by private firms to restrict foreign investment participation or control in domestic enterprises. Private firms are not permitted to adopt articles of incorporation or association which limit or prohibit foreign investment, participation, or control.

In general, Botswana exercises careful control over credit expansion, the pula exchange rate, interest rates, and foreign and domestic borrowing. Banking legislation is largely in line with industry norms for regulation, supervision, and payments. However, Botswana failed to meet the compliance requirements of the Financial Action Task Force (FATF), resulting in a grey listing in October 2018. Botswana is implementing an action plan to remedy the situation. In February 2021, FATF listed Botswana among the countries that had made significant progress toward combating money laundering and terrorist financing despite the challenges posed by COVID-19. FATF encouraged the GoB to continue to address the strategic deficiencies. The Non-Bank Financial Institutions Regulatory Authority (NBFIRA) was established in 2008 and provides regulatory oversight for the non-banking sector. It extends know-your-customer practices to non-banking financial institutions to help deter money laundering and terrorist financing. NBFIRA is also responsible for regulating the International Financial Services Centre, a hub charged with promoting the financial services industry in Botswana.

Foreign Exchange and Remittances

Foreign Exchange

There are no foreign exchange controls in Botswana or restrictions on capital outflows through financial institutions. Commercial banks are required to ensure customers complete basic forms indicating name, address, purpose, and other details prior to processing funds transfer requests or loan applications. The finance ministry monitors data collected on the forms for statistical information on capital flows, but the form does not require government approval prior to processing a transaction and does not delay capital transfers.

To encourage portfolio investment, develop domestic capital markets, and diversify investment instruments, non-residents can trade in and issue Botswana pula-denominated bonds with maturity periods of more than one year, provided such instruments are listed on the Botswana Stock Exchange (BSE). Only Botswana citizens can purchase Botswana’s Letlole National Savings Certificate (equivalent to a U.S. Treasury bond). Foreigners can hold shares in BSE-listed Botswana companies.

Travelers are not restricted to the amount of currency they may carry but are required to declare to customs at the port of departure any cash amount exceeding 10,000 pula (~USD 905). There are no quantitative limits on foreign currency access for current account transactions.

Bank accounts denominated in foreign currency are allowed in Botswana. Commercial banks offer accounts denominated in U.S. Dollars, British Pounds, Euros and South African Rand. Businesses and other bodies incorporated or registered domestically may open accounts without prior approval from the Bank of Botswana. The GoB also permits the issuance of foreign currency denominated loans.

Upon disinvestment by a non-resident, the non-resident is allowed immediate repatriation of all proceeds including profits, rents, and fees.

The Botswana Pula has a crawling peg exchange rate and is tied to a basket of currencies of major trading partner countries. In 2018 the weights of the pula basket currencies were maintained at 45 percent for the South African Rand and 55 percent for the Special Drawing Rights (consisting of the U.S. Dollar, the Euro, British Pound, Japanese Yen, and Chinese Renminbi) respectively. Government maintained these exchange rate parameters for 2021. However, the downward rate of crawl of the pula exchange was adjusted from 1.51 percent to 2.87 percent per annum in May 2020. Movements of the South African Rand against the U.S. Dollar heavily influence the Pula. There is no difficulty in obtaining foreign exchange. Shortages of foreign exchange that would lead banks to block transactions are highly unlikely.

Remittance Policies

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

Sovereign Wealth Funds

The Bank of Botswana maintains a long-term sovereign wealth fund, known as the Pula Fund, in addition to a regular foreign reserve account providing basic import cover. The Pula Fund was established under the Bank of Botswana Act and forms part of the country’s foreign exchange reserves, which are primarily funded by diamond revenues. The Pula Fund is wholly invested in foreign currency-denominated assets and is managed by the Bank of Botswana Board with input from recognized international financial management and investment firms. All realized market currency gains or losses are reported in the Bank of Botswana’s income statement. The Fund has been affected severely by the COVID-19 pandemic, with the GoB making withdrawals to address significant COVID-19-related revenue shortfalls. As a result, the Pula Fund, long a fiscal cushion against economic shocks, is significantly depleted from 20 percent of GDP in 2011 to 7 percent of GDP as of mid-2020 – from $1.69 billion to $510 million – a decline of more than 70 percent. Botswana is a founding member of the International Forum of Sovereign Wealth Fund and was one of the architects of the Santiago Principles in 2008. More information is available at: https://www.bankofbotswana.bw/sites/default/files/BOTSWANA-PULA-FUND-SANTIAGO-PRINCIPLES.pdf

State-owned enterprises (SOEs), known as “parastatals,” are majority or 100 percent owned by the GoB. There is a published list of SOEs at the GoB portal ( www.gov.bw ) with profiles of financial and development SOEs. Some SOEs are state-sanctioned monopolies, including the Botswana Meat Commission, the Water Utilities Corporation, Botswana Railways, and the Botswana Power Corporation.

The same business registration and licensing laws govern private and government-owned enterprises. No law or regulation prohibits or restricts private enterprises from competing with SOEs. Botswana law requires SOEs to publish annual reports, and private sector accountants or the Auditor General audits SOEs depending on how they are constituted. GoB ministries together with their respective SOEs are compelled on an annual basis to appear before the Parliamentary Public Accounts Committee to provide reports and answer questions regarding their performance. Some SOEs are not performing well and have been embroiled in scandals involving alleged fraud and mismanagement. Botswana is not party to the Government Procurement Agreement within the framework of the WTO.

Privatization Program

The GOB has committed to privatization on paper. It established a task force in 1997 to privatize all of its state-owned companies and formed a Public Enterprises Evaluation and Privatization Agency (PEEPA) to oversee this process. Implementation of its privatization commitments has been limited to the January 2016 sale offer of 49 percent of the stock of the state-owned Botswana Telecommunications Corporation to Botswana citizens only. In February 2017, the GoB issued an Expressions of Interest for the privatization of its national airline, but progress stopped due to the decision to re-fleet the airline before privatization. In early 2019, President Masisi announced the Botswana Meat Commission was being placed in the hands of a private management company prior to privatization. Conversely, the GoB has created new SOEs such as the Okavango Diamond Company, the Mineral Development Company, and Botswana Oil Limited in recent years. A Rationalization Strategy covering all parastatals has been developed and its implementation will address issues such as duplication of activities, overlapping mandates, and issues of corporate governance. This may finally result in some SOEs being privatized or merged while some may be closed.

Policies Towards Foreign Direct Investment

Brazil was the world’s sixth-largest destination for Foreign Direct Investment (FDI) in 2019, with inflows of $72 billion, according to UNCTAD.  The GoB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, and transportation infrastructure sectors – to introduce greater innovation into Brazil’s economy and to generate economic growth. GoB investment incentives include tax exemptions and low-cost financing with no distinction made between domestic and foreign investors.  Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, and insurance sectors.

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

In 2019, the Ministry of Economy created the Ombudsman’s office to provide foreign investors with a single point of contact for concerns related to FDI.  The plan seeks to eventually streamline foreign investments in Brazil by providing investors, foreign and domestic, with a simpler process for the creation of new businesses and additional investments in current companies.  Currently, the Ombudsman’s office is not operating as a single window for services, but rather as an advisory resource for FDI.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

Screening of FDI

Foreigners investing in Brazil must electronically register their investment with the Central Bank of Brazil (BCB) within 30 days of the inflow of resources to Brazil.  In cases of investments involving royalties and technology transfer, investors must register with Brazil’s patent office, the National Institute of Industrial Property (INPI).  Investors must also have a local representative in Brazil. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM).

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

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

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

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

The National Land Reform and Settlement Institute administers the purchase and lease of Brazilian agricultural land by foreigners.  Under the applicable rules, the area of agricultural land bought or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal district.  Additionally, no more than 10 percent of agricultural land in any given municipal district may be owned or leased by foreign nationals from the same country.  The law also states that prior consent is needed for purchase of land in areas considered indispensable to national security and for land along the border.  The rules also make it necessary to obtain congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding.  In December 2020, the Senate approved a bill (PL 2963/2019; source:  https://www25.senado.leg.br/web/atividade/materias/-/materia/136853) to ease restrictions on foreign land ownership; however, the Chamber of Deputies has yet to consider the bill. Brazil is not yet a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but submitted its application for accession in May 2020.  In February 2021, Brazil formalized its initial offer to start negotiations.  The submission establishes a series of thresholds above which foreign sellers will be allowed to bid for procurements.  Such thresholds differ for different procuring entities and types of procurements.  The proposal also includes procurements by some states and municipalities (with restrictions) as well as state-owned enterprises, but it excludes certain sensitive categories, such as financial services, strategic health products, and specific information technologies.  Brazil’s submission still must be negotiated with GPA members.

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

Other Investment Policy Reviews

The Organization for Economic Co-operation and Development’s (OECD) December 2020 Economic Forecast Summary of Brazil summarized that, despite new COVID-19 infections and fatalities remaining high, the economy started to recover across a wide range of sectors by the end of 2020.  Since the publication, Brazil’s economy is faltering due to the continuing pandemic’s financial impact.  The strong fiscal and monetary policy response managed to prevent a sharper economic contraction, cushioning the impact on household incomes and poverty.  Nonetheless, fiscal vulnerabilities have been exacerbated by these necessary policy responses and public debt has risen.  Failure to continue structural reform progress could hold back investment and future growth.  As of March 2021, forecasts are for economic recovery in 2021 and high unemployment.  The OECD report recommended reallocating some expenditures and raising spending efficiency to improve social protections, and resuming the fiscal adjustments under way before the pandemic.  The report also recommended structural reforms to enhance domestic and external competition and improve the investment climate.

The IMF’s 2020 Country Report No. 20/311 on Brazil highlighted the severe impact of the pandemic in Brazil’s economic recovery but praised the government’s response, which averted a deeper economic downturn, stabilized financial markets, and cushioned income loss for the poorest.  The IMF assessed that the lingering effects of the crisis will restrain consumption while investment will be hampered by idle capacity and high uncertainty.  The IMF projected inflation to stay below target until 2023, given significant slack in the economy, but with the sharp increase in the primary fiscal deficit, gross public debt is expected to rise to 100 percent of GDP and remain high over the medium-term.  The IMF noted that Brazil’s record low interest rate (Selic) helped the government reduce borrowing costs, but the steepening of the local currency yield curve highlighted market concerns over fiscal risks.  The WTO’s 2017 Trade Policy Review of Brazil noted the country’s open stance towards foreign investment, but also pointed to the many sector-specific limitations (see above).  All three reports highlighted the uncertainty regarding reform plans as the most significant political risk to the economy. These reports are located at the following links:

• OECD Report: http://www.oecd.org/economy/brazil-economic-snapshot/
• IMF Report: https://www.imf.org/en/Publications/CR/Issues/2020/12/01/Brazil-2020-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-49927
• WTO Report: https://www.wto.org/english/tratop_e/tpr_e/tp458_e.htm

Business Facilitation

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

Overall, Brazil dropped in the World Bank’s Doing Business Report from 2019 to 2020; however, it improved in the following areas: registering property; starting a business; and resolving insolvency.  According to Doing Business, some Brazilian states (São Paulo and Rio de Janeiro) made starting a business easier by allowing expedited business registration and by decreasing the cost of the digital certificate.  On March 2021, the GoB enacted a Provisional Measure (MP) to simplify the opening of companies, the protection of minority investors, the facilitation of foreign trade in goods and services, and the streamlining of low-risk construction projects.  The Ministry of Economy expects the MP, together with previous actions by the government, to raise Brazil by 18 to 20 positions in the ranking.  Adopted in September 2019, the Economic Freedom Law 13.874 established the Economic Freedom Declaration of Rights and provided for free market guarantees.  The law includes several provisions to simplify regulations and establishes norms for the protection of free enterprise and free exercise of economic activity.

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

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

For foreign companies that will be a partner or shareholder of a Brazilian national company, the governing regulation is DREI Normative Instruction 81/2020 DREI Normative Instruction 81/2020.  The contact information of the DREI is drei@economia.gov.br and +55 (61) 2020-2302.

References:

• https://investmentpolicy.unctad.org/country-navigator provides investment measures, laws and treaties enacted by selected countries.
• http://www.doingbusiness.org/data/ provides indicators from economies on the ease of starting a limited liability company.
• GER.co provides links to business registration sites worldwide.

Outward Investment

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

Brazil incentivizes outward investment.  Apex-Brasil organizes several initiatives aimed at promoting Brazilian investments abroad.  The Agency´s efforts comprised trade missions, business round tables, support for the participation of Brazilian companies in major international trade fairs, arranging technical visits of foreign buyers and opinion makers to learn about the Brazilian productive structure, and other select activities designed to strengthen the country’s branding abroad.

The main sectors of Brazilian investments abroad are financial services and assets (totaling 50.5 percent); holdings (11.6 percent); and oil and gas extraction (10.9 percent).  Including all sectors, $416.6 billion was invested abroad in 2019.  The regions with the largest share of Brazilian outward investments are the Caribbean (47 percent) and Europe (37.7 percent), specifically the Netherlands and Luxembourg.

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

Sale of cross-border mutual funds are only allowed to certain categories of investors, not to the general public.  International financial services companies active in Brazil submitted to Brazilian regulators in late 2020 a proposal to allow opening these mutual funds to the general public, and hope this will be approved in mid 2021.

Transparency of the Regulatory System

In the 2020 World Bank Doing Business report, Brazil ranked 124th out of 190 countries in terms of overall ease of doing business in 2019, a decrease of 15 positions compared to the 2019 report.  According to the World Bank, it takes approximately 17 days to start a business in Brazil. Brazil is seeking to streamline the process and decrease the amount to time it takes to open a small or medium enterprise (SME) to five days through its RedeSimples Program.  Similarly, the government has reduced regulatory compliance burdens for SMEs through the continued use of the SIMPLES program, which simplifies the collection of up to eight federal, state, and municipal-level taxes into one single payment.

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

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

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

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

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

The United States and Brazil conduct regular discussions on customs and trade facilitation, good regulatory practices, standards and conformity assessment, digital issues, and intellectual property protection.  The 18^th plenary of the Commercial Dialogue took place in May 2020, and regular exchanges at the working level between U.S. Department of Commerce, Brazil’s Ministry of Economy, and other agencies and regulators occur throughout the year.

Regulatory agencies complete Regulatory Impact Analyses (RIAs) on a voluntary basis. The Senate approved a bill on Governance and Accountability (PLS 52/2013 in the Senate, and PL 6621/2016 in the Chamber) into Law 13,848 in June 2019.  Among other provisions, the law makes RIAs mandatory for regulations that affect “the general interest.”

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

In 2020, the Department of State found that Brazil had met its minimum fiscal transparency requirements in its annual Fiscal Transparency Report.  The International Budget Partnership’s Open Budget Index ranked Brazil slightly ahead of the United States in terms of budget transparency in its most recent (2019) index.  The Brazilian government demonstrates adequate fiscal transparency in managing its federal accounts, although there is room for improvement in terms of completeness of federal budget documentation.  Brazil’s budget documents are publicly available, widely accessible, and sufficiently detailed.  They provide a relatively full picture of the GoB’s planned expenditures and revenue streams.  The information in publicly available budget documents is considered credible and reasonably accurate.

International Regulatory Considerations

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

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

Legal System and Judicial Independence

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

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

Laws and Regulations on Foreign Direct Investment

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

Competition and Antitrust Laws

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

In 2020, CADE conducted 471 total formal investigations, of which 76 related to cases that allegedly challenged the promotion of the free market.  It approved 423 merger and/or acquisition requests and did not reject any requests.

Expropriation and Compensation

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

Contract disputes in Brazil can be lengthy and complex.  Brazil has both a federal and a state court system, and jurisprudence is based on civil code and contract law.  Federal judges hear most disputes in which one of the parties is the State and rule on lawsuits between a foreign State or international organization and a municipality or a person residing in Brazil.  Five regional federal courts hear appeals of federal judges’ decisions.  The 2020 World Bank Doing Business report found that on average it took 801 days to litigate a breach of contract.

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

Brazil’s commercial code governs most aspects of commercial association, while the civil code governs professional services corporations.  In December 2020, Brazil approved a new bankruptcy law (Law 14,112), which largely models UNCITRAL Model Law on International Commercial Arbitration, and addresses criticisms that its previous bankruptcy legislation favored holders of equity over holders of debt.  The new law facilitates judicial and extrajudicial resolution between debtors and creditors, and accelerates reorganization and liquidation processes.  Both debtors and creditors are allowed to provide reorganization plans that would eliminate non-performing activities and sell-off assets, thus avoiding bankruptcy.  The new law also establishes a framework for cross-border insolvencies that recognizes legal proceedings outside of Brazil.  The World Bank’s 2020 Doing Business Report ranks Brazil 77th out of 190 countries for ease of “resolving insolvency.”

Capital Markets and Portfolio Investment

The Brazil Central Bank (BCB) embarked in October 2016 on a sustained monetary easing cycle, lowering the Special Settlement and Custody System (Selic) baseline reference rate from a high of 14 percent in October 2016 to a record-low 2 percent by the end of 2020.  The downward trend was reversed by an increase to 2.75 percent in March 2021.  As of March 2021, Brazil’s banking sector projects the Selic will reach 5 percent by the end of 2021.  Inflation for 2020 was 4.52 percent, within the target of 4 percent plus/minus 1.5 percent.  The National Monetary Council (CMN) set the BCB’s inflation target at 3.75 percent for 2021, at 3.5 percent for 2022 and at 3.25 percent at 2023.  Because of a heavy public debt burden and other structural factors, most analysts expect the “neutral” policy rate will remain higher than target rates in Brazil’s emerging-market peers (around five percent) over the forecast period.

In 2020, the ratio of public debt to GDP reached 89.3 percent according to BCB, a new record for the country, although below original projections.  Analysts project that the debt/GDP ratio will be at or above92 percent by the end of 2021.

The role of the state in credit markets grew steadily beginning in 2008, with public banks now accounting for over 55 percent of total loans to the private sector (up from 35 percent).  Directed lending (that is, to meet mandated sectoral targets) also rose and accounts for almost half of total lending.  Brazil is paring back public bank lending and trying to expand a market for long-term private capital.

While local private sector banks are beginning to offer longer credit terms, state-owned development bank BNDES is a traditional source of long-term credit in Brazil.  BNDES also offers export financing.  Approvals of new financing by BNDES increased 40 percent in 2020 from 2019, with the infrastructure sector receiving the majority of new capital.

The São Paulo Stock Exchange (BOVESPA) is the sole stock market in Brazil, while trading of public securities takes place at the Rio de Janeiro market.  In 2008, the Brazilian Mercantile & Futures Exchange (BM&F) merged with the BOVESPA to form B3, the fourth largest exchange in the Western Hemisphere, after the NYSE, NASDAQ, and Canadian TSX Group exchanges.  In 2020, there were 407 companies traded on the B3 exchange.  The BOVESPA index increased only 2.92 percent in valuation during 2020, due to the economic impact of the COVID-19 pandemic.  Foreign investors, both institutional and individuals, can directly invest in equities, securities, and derivatives; however, they are limited to trading those investments on established markets.

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

Money and Banking System

The Brazilian financial sector is large and sophisticated. Banks lend at market rates that remain relatively high compared to other emerging economies.  Reasons cited by industry observers include high taxation, repayment risk, concern over inconsistent judicial enforcement of contracts, high mandatory reserve requirements, and administrative overhead, as well as persistently high real (net of inflation) interest rates.  According to BCB data collected for final quarter of 2019, the average rate offered by Brazilian banks to non-financial corporations was 13.87 percent.

The banking sector in Brazil is highly concentrated with BCB data indicating that the five largest commercial banks (excluding brokerages) account for approximately 80 percent of the commercial banking sector assets, totaling $1.58 trillion as of the final quarter of 2019.  Three of the five largest banks (by assets) in the country – Banco do Brasil, Caixa Econômica Federal, and BNDES – are partially or completely federally owned.  Large private banking institutions focus their lending on Brazil’s largest firms, while small- and medium-sized banks primarily serve small- and medium-sized companies.  Citibank sold its consumer business to Itaú Bank in 2016, but maintains its commercial banking interests in Brazil.  It is currently the sole U.S. bank operating in the country.  Increasing competitiveness in the financial sector, including in the emerging fintech space, is a vital part of the Brazilian government’s strategy to improve access to and the affordability of financial services in Brazil.

On November 16, 2020, Brazil’s Central Bank implemented a twenty-four hour per day instant payment and money transfer system called PIX.  The PIX system is supposed to deconcentrate the banking sector, increase financial inclusion, stimulate competitiveness, and improve efficiency in the payments market.

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

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

Foreign Exchange and Remittances

Foreign Exchange

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

Brazil’s banking system has adequate capitalization and has traditionally been highly profitable, reflecting high interest rate spreads and fees.  Per an October 2020 Central Bank Financial Stability Report, despite the economic difficulties caused by the pandemic, all banks exceeded required solvency ratios, and stress testing demonstrated that the banking system has adequate loss-absorption capacity in all simulated scenarios.  Furthermore, the report noted 99.9 percent of banks already met Basel III requirements and possess a projected Common Equity Tier 1 (CET1) capital ratio above the minimum 7 percent required at the end of 2019.

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

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

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

Remittance Policies

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

Under Law 13259/2016 passed in March 2016, capital gain remittances are subject to a 15 to 22.5 percent income withholding tax, with the exception of capital gains and interest payments on tax-exempt domestically issued Brazilian bonds.  The capital gains marginal tax rates are: 15 percent up to $874,500 in gains; 17.5 percent for $874,500 to $1,749,000 in gains; 20 percent for $1,749,000 to $5,247,000 in gains; and 22.5 percent for more than $5,247,000 in gains.  (Note:  exchange rate used was 5.717 reais per dollar, based on March 30, 2021 values.)

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

Sovereign Wealth Funds

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

The GoB maintains ownership interests in a variety of enterprises at both the federal and state levels.  Typically, boards responsible for state-owned enterprise (SOE) corporate governance are comprised of directors elected by the state or federal government with additional directors elected by any non-government shareholders.  Although Brazil participates in many OECD working groups, it does not follow the OECD Guidelines on Corporate Governance of SOEs.  Brazilian SOEs are prominent in the oil and gas, electricity generation and distribution, transportation, and banking sectors.  A number of these firms also see a portion of their shares publicly traded on the Brazilian and other stock exchanges.

Notable examples of majority government-owned and controlled firms include national oil and gas giant Petrobras and power conglomerate Eletrobras.  Both Petrobras and Eletrobras include non-government shareholders, are listed on both the Brazilian and American stock exchanges,  and are subject to the same accounting and audit regulations as all publicly traded Brazilian companies.

Privatization Program

Given limited public investment spending, the GoB has focused on privatizing state–owned energy, airport, road, railway, and port assets through long-term (up to 30 year) infrastructure concession agreements, although the pace of privatization efforts slowed in 2020 due to the COVID-19 pandemic.

In 2019, Petrobras sold its natural gas distribution pipeline network, started the divestment of eight oil refineries, sold its controlling stake in Brazil’s largest retail gas station chain, and is in the process of selling its shares in regional natural gas distributors.  While the pandemic resulted in a slowdown in the refinery divestments, momentum is increasing once again as of early 2021.  Since 2016, foreign companies have been allowed to conduct pre-salt exploration and production activities independently, and no longer must include Petrobras as a minority equity holder in pre-salt oil and gas operations.  Nevertheless, the 2016 law still gives Petrobras right –of first refusal in developing pre-salt offshore fields and obligates operators to share a percentage of production with the Brazilian state.  The GoB supports legislation currently in Congress to further liberalize the development of pre-salt fields by removing Petrobras’ right-of-first refusal as well as production sharing requirements.

In March 2021, Brazil approved legislation to reform Brazil’s natural gas markets, which aims to create competition by unbundling production, transportation, and distribution of natural gas, currently dominated by Petrobras and regional gas monopolies.  Creation of a truly competitive market, however, will still require lengthy state-level regulatory reform to liberalize intrastate gas distribution, in large part under state-owned distribution monopolies.

Eletrobras successfully sold its six principal, highly-indebted power distributors, and the GoB intends to privatize Eletrobras through issuance of new shares that would dilute the government’s majority stake and in early 2021 submitted a legislative proposal to Congress to advance this process.

In March 2021, the GoB included the state-owned postal service Correios in its National Divestment Plan (PND).  As in the case of Eletrobras, privatization will require further Congressional legislation.

In 2016, Brazil created the Investment Partnership Program (PPI) to accelerate the concession of public works projects to private enterprise and the privatization of some state entities.  PPI takes on priority federal concessions in road, rail, ports, airports, municipal water treatment, electricity transmission and distribution, and oil and gas exploration and production.  Since 2016, PPI has auctioned off 200 projects, collecting $35 billion in auction bonuses and securing private investment commitments of $179 billion, including 28 projects, $1.43 billion in auction bonuses, and commitments of $8.14 billion in 2020.  The full list of PPI projects is located at: https://www.ppi.gov.br/schedule-of-projects

While some subsidized financing through BNDES will be available, PPI emphasizes the use of private financing and debentures for projects.  All federal and state-level infrastructure concessions are open to foreign companies with no requirement to work with Brazilian partners.

In 2008, the Ministry of Health initiated the use of Production Development Partnerships (PDPs) to reduce the increasing dependence of Brazil’s healthcare sector on international drug production and to control costs in the public healthcare system, which provides services as an entitlement enumerated in the constitution.  The healthcare sector accounts for 9 percent of GDP, 10 percent of skilled jobs, and more than 25 percent of research and development nationally.  PDP agreements provide a framework for technology transfer and development of local production by leveraging the volume purchasing power of the Ministry of Health. In the current administration, there is increasing interest in PDPs as a cost saving measure.  U.S. companies have both competed for these procurements and at times raised concerns about the potential for PDPs to be used to subvert intellectual property protections under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Policies Towards Foreign Direct Investment

Brunei has an open economy favorable to foreign trade and FDI as the government continues its economic diversification efforts to limit its long reliance on oil and gas exports.

FDI is important to Brunei as it plays a key role in the country’s economic and technological development. Brunei encourages FDI in the domestic economy through various investment incentives offered by the Ministry of Finance and Economy.

Improving Brunei’s Ease of Doing Business status by upgrading the domestic business regulatory environment through a whole-of-nation approach has been a priority for the government. The World Bank Ease of Doing Business report indicated that Brunei ranked 66th overall out of 190 world economies in 2019. Brunei ranked first in the report’s “Getting Credit” category, tied with New Zealand, indicative of Brunei’s strong credit reporting mechanisms.

Brunei amended its laws to make it easier and quicker for entrepreneurs and investors to establish businesses. The Business License Act (Amendment) of 2016 exempts several business activities (eateries, boarding and lodging houses or other places of public resort; street vendors and stalls; motor vehicle dealers; petrol stations, including places for storing petrol and inflammable material; timber store and furniture factories; and retail shops and workshops) from needing to obtain a business license. The Miscellaneous License Act (Amendment) of 2015 reduced the wait times for new business registrants to start operations, with low-risk businesses like eateries and shops able to start operations immediately.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is no restriction on foreign ownership of companies incorporated in Brunei. The Companies Act requires locally incorporated companies to have at least one of the two directors—or if more than two directors, at least two of them—to be ordinarily resident in Brunei, but exemptions may be obtained in some circumstances. The corporate income tax rate is the same whether the company is locally or foreign owned and managed.

All businesses in Brunei must be registered with the Registry of Companies and Business Names at the Ministry of Finance and Economy. Foreign investors can fully own incorporated companies, foreign company branches, or representative offices, but not sole proprietorships or partnerships.

More information on incorporation of companies can be found on the Ministry of Finance and Economy website .

Other Investment Policy Reviews

The World Trade Organization (WTO) Secretariat prepared a Trade Policy Review of Brunei  in December 2014 and a revision in February 2015.

Business Facilitation

As part of Brunei’s effort to attract foreign investment, the government established the Brunei Economic Development Board (BEDB) and Darussalam Enterprise (DARe) as facilitating agents under the Ministry of Finance and Economy. These organizations work together to smooth the process of obtaining permits, approvals, and licenses. Facilitating services are now consolidated into one government website .

BEDB is the government’s frontline agency that promotes and facilitates foreign investment into Brunei. BEDB is responsible for evaluating investment proposals, liaising with government agencies, and obtaining project approval from the government’s Foreign Direct Investment and Downstream Industry Committee.

Outward Investment

A major share of outward investment is made by the government through its sovereign wealth funds, which are managed by the Brunei Investment Agency (BIA) under the Ministry of Finance and Economy. No data is available on the total investment amount due to a strict policy of secrecy. It is believed that the majority of sovereign wealth funds are invested in foreign portfolio investments and real estate. Despite the limited availability of public information regarding the amount, the funds are generally viewed positively and managed well by BIA.

Transparency of the Regulatory System

Brunei’s regulatory system is generally seen as lacking in transparency. There is little to no transparency in lawmaking processes, nor is there available information on whether impact assessments are made prior to proposing regulations. Each ministry is responsible for coordinating with the Attorney General’s Chambers to draft proposed legislation. Legislation does not receive broad review and little input is provided from outside of the originating ministry. The sultan has final authority to approve proposed legislation. Laws and regulations are readily accessible on the Attorney General’s Chambers website .

International Regulatory Considerations

Brunei is an active member of ASEAN, through which it has concluded FTAs with Australia & New Zealand, China, India, Japan and South Korea. Brunei became a WTO member in 1995 and a signatory to the General Agreement on Tariffs and Trade (GATT) in 1993.

Legal System and Judicial Independence

Brunei’s constitution does not specifically provide for judicial independence, but in practice the court system operates without government interference. Brunei’s legal system includes two parallel systems: one based on common law and the other based on Islamic law. The common law judicial system is presided over by the Supreme Court, which comprises the Court of Appeal and the High Court.

Recognizing the importance of protecting investors’ rights and contract enforcement, Brunei established a Commercial Court in 2016.

In 2014, Brunei implemented the first phase of its Sharia Penal Code (SPC), which expanded existing restrictions on minor offenses—such as eating during Ramadan—that are punishable by fines or imprisonment. On April 3, 2019 Brunei commenced full implementation of the SPC, introducing the possibility of harsher punishments such as stoning to death for rape, adultery, or sodomy, and execution for apostasy, contempt of the Prophet Muhammad, or insult of the Quran. However, these forms of punishment require higher standards of proof than the common-law-based penal code (for example, four pious men must personally witness an act of fornication to support a sharia-based harsh sentence), placing them under a de facto moratorium. The sultan confirmed the moratorium in a 2019 public statement.

Laws and Regulations on Foreign Direct Investment

The basic legislation on investment includes the Investment Incentive Order 2001 and the Income Tax (As Amended) Order 2001. Investment Order 2001 supports economic development in strategically important industrial and economic enterprises and, through the Ministry of Finance and Economy, offers investment incentives through a favorable tax regime. Although Brunei does not have a stock exchange, the government is reportedly planning to establish a securities market.

Foreign ownership of companies is not restricted, although under the Companies Act, at least one of two directors of a locally incorporated company must be a resident of Brunei, unless granted an exemption from the appropriate authorities.

Business Registration

All businesses in Brunei must be registered with the Registry of Companies and Business Names at the Ministry of Finance and Economy. Except for sole proprietorships and partnerships, foreign investors can fully own incorporated companies, foreign company branches, or representative offices. Foreign direct investments by multinational corporations do not require local partnership in setting up a subsidiary of their parent company in Brunei. However, at least one company director must be a Brunei citizen or permanent resident of Brunei. Brunei’s “one-stop-shop” website for investments and business start-ups can be found here .

The Business License Act (Amendment) of 2016 exempts several business activities (eateries, boarding and lodging houses or other places of public resort; street vendors and stalls; motor vehicle dealers; petrol stations including places for storing petrol and inflammable materials; timber stores and furniture factories; and retail shops and workshops) from needing to obtain a business license.

Competition and Antitrust Laws

Brunei’s Competition Order, published in 2015 to promote and maintain fair and healthy competition to enhance market efficiency and consumer welfare, entered into force on January 1, 2020. The sultan also announced the establishment of the Competition Commission in 2017 to oversee and act on competition issues that include adjudicating anti-competitive cases and imposing penalties on companies that violate the Competition Order.

Expropriation and Compensation

Brunei is a signatory to the 1987 ASEAN Agreement for the Promotion and Protection of Investments. There is no history of expropriation of foreign owned property in Brunei, but there have been cases of domestically owned private property being expropriated for infrastructure development. The government provided compensation in such cases and claimants were afforded due process.

Dispute Settlement

ICSID Convention and New York Convention

Brunei is a member state to the convention on the International Center for Settlement of Investment Disputes (ICSID Convention) and a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Legislation related to dispute settlement is covered under Brunei’s Arbitration Order 2009.

Investor-State Dispute Settlement

In 2016, Brunei’s Supreme Court announced the establishment of a commercial court to deal with business-related cases. More information about Brunei’s judiciary system is available through the judiciary website. 

International Commercial Arbitration and Foreign Courts

In May 2016, Brunei’s Attorney General’s Chambers announced the establishment of the Brunei Darussalam Arbitration Center (BDAC). BDAC delivers services and administration for arbitration and mediation to fulfill the needs of domestic and international users in relation to commercial disputes as a resolution alternative to court proceedings.

The International Arbitration Order (IAO), which regulates international and domestic arbitrations, came into effect in February 2010. More information about Brunei’s Attorney General’s Chambers is available on its website .

Bankruptcy Regulations

In 2012, amendments to Brunei’s Bankruptcy Act increased the minimum threshold for a creditor to present a bankruptcy petition against a debtor from BND 500 to BND 10,000 (USD350 to USD7,060) and enabled an appointed bankruptcy trustee to direct the Controller of Immigration to impound and retain the debtor’s passport, certificate of identity, or travel document to prevent the debtor from leaving the country. The amendment also requires the debtor to deliver all property under the debtor’s possession to the trustee. Information about Brunei’s bankruptcy laws is available on the judiciary’s website .

Capital Markets and Portfolio Investment

In 2013, Brunei signed a Memorandum of Understanding (MOU) with the Securities

Commission Malaysia (SCM) designed to strengthen collaboration in the development of fair and efficient capital markets in the two countries. It also provided a framework to facilitate greater cross-border capital market activities and cooperation in the areas of regulation as well as capacity building and human capital development, particularly in the area of Islamic capital markets. In March 2021, the Minister of Finance and Economy II renewed its annual budget of USD292 million to fund infrastructure, technology, and socio-economic studies related to the implementation of Brunei’s own stock exchange.

Money and Banking System

Brunei has a small banking sector which includes both conventional and Islamic banking. The Monetary Authority of Brunei Darussalam (AMBD) is the sole central authority for the banking sector, in addition to its role as the country’s central bank. Banks have high levels of liquidity, good capital adequacy ratios, and well-managed levels of non-performing loans. Several foreign banks such as Standard Chartered Bank and Bank of China (Hong Kong) have established operations in Brunei. In March 2018, HSBC officially ended its operations in Brunei after announcing its planned departure from Brunei in late 2016. All banks fall under the supervision of AMBD, which has also established a credit bureau that centralizes information on applicants’ credit worthiness.

The Brunei dollar (BND) is pegged to the Singapore dollar, and each currency is accepted in both countries.

Foreign Exchange and Remittances

Foreign Exchange

In June 2013, the Financial Action Task Force (FATF) announced that Brunei would no longer be subject to FATF’s monitoring process under its global Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) compliance process. Brunei’s Mutual Evaluation Report cited Brunei’s significant progress in improving its AML/CFT regime and noted that Brunei had established the legal and regulatory framework to meet its commitments in its Action Plan regarding strategic deficiencies that the FATF identified in June 2011.

Remittance Policies

Any person or company providing services for the transmission of money must be licensed by the Brunei government. Only Brunei citizens may hold remittance licenses. Local financial institutions such as Bank Islam Brunei Darussalam (BIBD) and Standard Chartered Bank provide remittance services. Remittance companies require the customer’s full name, identification number, address, and purpose of the remittance. They are also required to file suspicious transaction reports with AMBD.

Sovereign Wealth Funds

The Brunei Investment Agency (BIA) manages Brunei’s General Reserve Fund and their external assets. Established in 1983, BIA’s assets are estimated to be USD60-75 billion. BIA’s activities are not publicly disclosed and are ranked the lowest in transparency ratings by the Sovereign Wealth Fund Institute.

Brunei’s state-owned enterprises (SOEs), managed by Darussalam Assets under the Ministry of Finance and Economy, lead key sectors of the economy including oil and gas, telecommunications, transport, and energy generation and distribution. These enterprises also receive preferential treatment when responding to government tenders. Some of the largest SOEs include the following:

The telecommunications industry is dominated by government-linked companies Telekom Brunei (TelBru), Data Stream Technologies (DST) Communications, and Progresif Cellular. In 2019 the government consolidated the infrastructure of all three companies under a state-owned wholesale network operator called Unified National Networks (UNN).

Royal Brunei Technical Services (RBTS), established in 1988 as a government owned corporation, is responsible for managing the acquisition of a wide range of systems and equipment.

Brunei Energy Services and Trading (BEST) is the national oil company owned by the Brunei government. The company was granted all mineral rights in eight prime onshore and offshore petroleum blocks totaling 20,552 sq. km. PB manages contracts with Shell and Petronas, which are exploring Brunei’s onshore and deep-water offshore blocks. The government continues to modify BEST’s role in the oil and gas industry. In 2019, the government established Petroleum Authority as the oil and gas sector’s regulatory body, a function which had been filled by BEST.

Royal Brunei Airlines started operations in 1974 and is the country’s national carrier. The airline flies a combination of Boeing and Airbus aircraft.

Privatization Program

Brunei’s Ministry of Transportation and Info-Communication has made corporatization and privatization part of its strategic plan, which calls for the Ministry to shift its role from a service provider to a regulatory body with policy-setting responsibilities. The Ministry is studying initiatives to privatize a few state-owned agencies, including the Postal Services Department and public transportation services. These services are not yet completely privatized and there is no timeline for privatization. Guidelines regarding the role of foreign investors and the bidding process are not yet available.

Policies Towards Foreign Direct Investment

There are no legal limits on foreign ownership or control of firms. With some exceptions, foreign entities are given the same treatment as national firms and their investments are not screened or otherwise restricted.

The Invest Bulgaria Agency (IBA), the government’s investment attraction body, provides information, administrative services, and incentive assessments to prospective foreign investors. Its website http://www.investbg.government.bg contains general information for foreign investors. IBA serves as a one-stop shop for foreign investors and certifies proposed investments for eligibility for administrative services.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits to foreign and domestic private entities establishing and owning businesses in Bulgaria.  The Offshore Company Act lists 28 activities (including government procurement, natural resource exploitation, national park management, banking, insurance) banned for business by companies registered in offshore jurisdictions with more than 10 percent foreign participation. The law, however, allows those companies to do business if the physical owners of the parent company are Bulgarian citizens and known to the public, if the parent company’s stock is publicly traded, or if the parent company is registered in a jurisdiction with which Bulgaria enjoys a bilateral tax treaty for the avoidance of double taxation (including the United States).

Bulgaria has no specific law or coordinated mechanism in place for screening individual foreign investments.  A potential foreign investment can be scrutinized on the grounds of its potential national security risk or through the Law on the Measures against Money Laundering. As each ministry is responsible for screening investments within its purview, interagency coordination is lacking, and there are no common standards. Since the full adoption of the EU investment screening regulation in October 2020, Bulgaria has fulfilled the preliminary requirements of the EU mechanism for cooperation in prescreening new FDI.

Other Investment Policy Reviews

There have been no recent Investment Policy Reviews of Bulgaria by multilateral economic organizations.  In 2019, Organization for Economic Cooperation and Development (OECD) published reviews of Bulgaria’s healthcare sector and state-owned enterprises.  As part of Bulgaria’s Action Plan for deeper cooperation, in January 2021 OECD published an Economic Assessment of Bulgaria in which it acknowledged the successful integration of Bulgarian manufacturing firms into global production chains and sound macroeconomic policies prior to the pandemic. At the same time the report highlighted as key policy challenges Bulgaria’s high income inequality, relative poverty, and an aging and rapidly shrinking population. In February 2021 OECD published a study of Bulgarian municipalities that acknowledged solid progress in local governance standards but also noted insufficient progress in bridging regional disparities.

Business Facilitation

Bulgaria typically supports small- and medium-sized business creation and development in conjunction with EU-funded innovation and competitiveness programs and with a special emphasis on export capacity.  The state-owned Bulgarian Development Bank has committed to supporting small- and medium-sized businesses in Bulgaria, including through the post-COVID-19 recovery period.  Typically, a new business is expected to register an account with the state social security agency and, in some cases, with the local municipality as well. Electronic company registration is available at: https://portal.registryagency.bg/commercial-register. Women receive equitable treatment to men, and the Bulgarian law does not discriminate against minorities doing business.

Bulgaria dropped two places to 61st (out of 190 surveyed economies worldwide) in the World Bank’s 2020 Doing Business (DB) report, scoring lowest in the Getting Electricity category, in 151st place, and in the Starting a New Business category, in 113th place.  The relatively large number of administrative procedures for a business to complete either of these actions, along with the associated delays, contributed to the low scores in both categories.  It took an average of 23 days to start a limited liability company in Bulgaria in 2020, compared to the OECD (high income) average of 9.2 days and peer average of 11.9 days.

Outward Investment

There is no government agency for outward investment promotion, and no restrictions exist for local businesses to invest abroad.

Transparency of the Regulatory System

In general, the regulatory environment in Bulgaria is characterized by complexity, lack of transparency, and arbitrary or weak enforcement.  These factors create incentives for public corruption.  Public procurement rules are at times tailored to match certain local business interests.  Bulgarian law lists 38 operations subject to licensing. The law requires all regulations to be justified by defined need (in terms of national security, environmental protection, or personal and material rights of citizens), and prohibits restrictions merely incidental to the stated purposes of the regulation. The law also requires the regulating authority, or the member of Parliament sponsoring the draft law containing the regulation, to perform a cost-benefit analysis of any proposed regulation. This requirement, however, is often ignored when Parliament reviews draft bills. With few exceptions, all draft bills are made available for public comment, both on the central government website and the respective agency’s website, and interested parties are given 30 days to submit their opinions. The government maintains a web platform, www.strategy.bg , on which it posts draft legislation. Тhe government posts all its decisions on pris.government.bg 

In addition, the law eliminates bureaucratic discretion in granting requests for routine economic activities and provides for silent consent (default judgement in favor of the requestor) when the government does not respond to a request in the allotted time. Local companies in which foreign partners have controlling interests may be requested to provide additional information or to meet additional mandatory requirements in order to engage in certain licensed activities, including production and export of arms and ammunition, banking and insurance, and the exploration, development, and exploitation of natural resources. The Bulgarian government licenses the export of dual-use goods and bans the export of all goods under international trade sanctions lists.  The Bulgarian government’s budget is assessed as transparent and in accordance with international standards and principles.  Central government debt and debt guarantees are published monthly, and debt obligations by individual state-owned enterprises (SOEs) are published every three months on the website of the Ministry of Finance.

International Regulatory Considerations

Bulgaria became a member of the World Trade Organization (WTO) in December 1996. Under the provisions of Article 207 of the Treaty on the Functioning of the European Union (Lisbon Treaty), common EU trade policies are exclusively the responsibility of the EU and the European Commission, which coordinates them with the 27 member states.

Legal System and Judicial Independence

The 1991 Constitution serves as the foundation of the legal system and creates an independent judicial branch comprised of judges, prosecutors, and investigators. The judiciary continues to be one of the least trusted institutions in the country, with widespread allegations of nepotism, corruption, and undue political and business influence.  Despite some recent improvements, the busiest courts in Sofia continue to suffer from serious backlogs, limited resources, and inefficient procedures that hamper the swift and fair administration of justice. Trials often take years to complete because of the inefficient procedures laid out in the criminal procedure code.

There are three levels of courts. Bulgaria’s 113 regional courts exercise jurisdiction over civil and criminal cases. Above them, 29 district courts (including the Sofia City Court and the Specialized Court for Organized Crime and High Level Corruption) serve as courts of appellate review for regional court decisions and have trial-level (first-instance) jurisdiction in serious criminal cases and in civil cases where claims exceed BGN 25,000 (USD 15,375), excluding alimony, labor disputes, and financial audit discrepancies, or in property cases where the property’s value exceeds BGN 50,000 (USD 30,750). Six appellate courts review the first-instance decisions of the district courts. The Supreme Court of Cassation is the court of last resort for criminal and civil appeals. There is a separate system of 28 specialized administrative courts which rule on the legality of local and national government decisions, with the Supreme Administrative Court serving as the court of final instance. The Constitutional Court, which is separate from the rest of the judiciary, issues final rulings on the compliance of laws with the Constitution.

Bulgaria’s legislation has been largely aligned with EU directives to provide adequate means of enforcing property and contractual rights. In practice, however, investors regularly complain about regulatory impediments, prosecutorial intervention in administrative cases, and inconsistent jurisprudence.  Overall, the government’s handling of investment disputes has been slow, interagency coordination is poor, and intervention at the highest political level is often required.

Laws and Regulations on Foreign Direct Investment

The 2004 Investment Promotion Act stipulates equal treatment of foreign and domestic investors. The law encourages investment in manufacturing and high technology, knowledge intensive services, education, and human resource development. It creates investment incentives by helping investors purchase land, providing state financing for basic infrastructure and training new staff, and facilitating tax incentives and opportunities for public-private partnerships (PPPs) with the central and local governments. The most common form of PPPs are concessions, which include the lease of government property for private use for up to 35 years for a construction and service concession and up to 25 years for other types of concession. The term of the concession may be extended by a maximum of one third of the original term.

Foreign investors must comply with the 1991 Commercial Law, which regulates commercial and company enterprise law, and the 1951 Law on Obligations and Contracts, which regulates civil transactions.

The Invest Bulgaria Agency (IBA) is the government’s investment attraction body and serves as a one-stop-shop for foreign investors. It provides information, administrative services, and incentive assessments to prospective foreign investors.

Competition and Antitrust Laws

The Commission for Protection of Competition (the “Commission”) oversees market competition and enforces the Law on the Protection of Competition (the “Competition Law”). The Competition Law, enacted in 2008, is intended to implement EU rules that promote competition. The law forbids monopolies, restrictive trade practices, abuse of market power, and certain forms of unfair competition. Monopolies can only be legally established in enumerated categories of strategic industries. In practice, the Competition Law has been applied inconsistently, and some of the Commission’s decisions are questionable and appear subject to political influence.

Expropriation and Compensation

Private real property rights are legally protected by the Bulgarian Constitution. Only in the case where a public need cannot be met by other means may the Council of Ministers or a regional governor expropriate land, in which case the owner is compensated at fair market value. Expropriation actions by the Council of Ministers, by regional authorities, or by municipal mayor can be appealed at a local administrative court. In its Bilateral Investment Treaty (BIT) with the United States, Bulgaria committed to international arbitration to judge expropriation claims and other investment disputes.

Dispute Settlement

ICSID Convention and New York Convention

Bulgaria is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention) and the 1961 European Convention on International Commercial Arbitration. Bulgaria is a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

Investor-State Dispute Settlement

Bulgaria accepts binding international arbitration in disputes with foreign investors.  There are more than 20 arbitration institutions in Bulgaria, the Arbitration Court of the Bulgarian Chamber of Commerce and Industry (BCCI) is the oldest.

International Commercial Arbitration and Foreign Courts

Arbitral awards, both foreign and domestic, are enforced through the judicial system. The party must petition the Sofia City Court for a writ of execution and then execute the award according to the general framework for execution of judgments. Foreclosure proceedings may also be initiated.

Bulgarian law instructs courts to act on civil litigation cases within three months after a claim is filed. In practice, however, dispute settlement can take years.

Bankruptcy Regulations

The 1994 Commercial Law Chapter on Bankruptcy provides for reorganization or rehabilitation of a legal entity, maximizes asset recovery, and provides for fair and equal distribution among all creditors. The law applies to all commercial entities, except public monopolies or state-owned enterprises (SOEs). The 2015 Insurance Code regulates insurance company failures, while bank failures are regulated under the 2002 Bank Insolvency Act and the 2006 Credit Institutions Act. The 2014 bankruptcy of the country’s fourth-largest bank, Corporate Commercial bank, was a test case that showed serious deficiencies in the process of recovery and preservation of bank assets during bankruptcy proceedings.

Non-performance of a financial obligation must be adjudicated before the bankruptcy court can determine whether the debtor is insolvent. There is a presumption of insolvency when the debtor is unable to perform an executable obligation under a commercial transaction or public debt or related commercial activities, has suspended all payments, or is able to pay only the claims of certain creditors. The debtor is deemed over-indebted if its assets are insufficient to cover its short-term monetary obligations.

Bankruptcy proceedings may be initiated on two grounds: the debtor’s insolvency, or the debtor’s excessive indebtedness. Under Part IV of the Commercial Law, debtors or creditors, including state authorities such as the National Revenue Agency, can initiate bankruptcy proceedings. The debtor must declare bankruptcy within 30 days of becoming insolvent or over-indebted. Bankruptcy proceedings supersede other court proceedings initiated against the debtor except for labor cases, enforcement proceedings, and cases related to receivables securitized by third parties’ property. Such cases may be initiated even after bankruptcy proceedings begin.

Creditors must declare to the trustee all debts owed to them within one month of the start of bankruptcy proceedings. The trustee then has seven days to compile a list of debts. A rehabilitation plan must be proposed within one month after publication of the list of debts in the Commercial Register. After creditors’ approval, the court endorses the rehabilitation plan, terminates the bankruptcy proceeding, and appoints a supervisory body for overseeing the implementation of the rehabilitation plan. The court must endorse the plan within seven days and put it forward to the creditors for approval. The creditors must convene to discuss the plan within a period of 45 days. The court may renew the bankruptcy proceedings if the debtor does not fulfill its obligations under the rehabilitation plan.

The Bulgarian National Bank may revoke the operating license of an insolvent bank when the bank’s own capital is negative, and the bank has not been restructured according to the procedure defined in Article 51 in the Law on the Recovery and Resolution of Credit Institutions and Investment Firms.  The license of a bank may be withdrawn under the conditions set out in Article 36, par. 1 of the Law on Credit Institutions.

Bulgaria ranks 61 out of 190 economies in the Resolving Insolvency category of the World Bank’s Doing Business 2020 Report.

Capital Markets and Portfolio Investment

The Bulgarian Stock Exchange (BSE), the only securities-trading venue in Bulgaria, operates under a license from the Financial Supervision Commission and is majority-owned by the Ministry of Finance. The 1999 Law on Public Offering of Securities regulates the issuance of securities, securities transactions, stock exchanges, and investment intermediaries.   The law is aimed at providing investor protection and at developing a transparent local capital market. In 2004 BSE performed its first IPO transaction. In 2018 BSE acquired 100 percent of the Independent Bulgarian Energy Exchange (IBEX), Bulgaria’s first independent electricity platform trader.

Since its 2007 entry in the EU, Bulgaria has aligned its regulation of securities markets with EU standards under the Markets in Financial Instruments Directive (MiFID).  The BSE is a full member of the Federation of European Stock Exchanges (FESE) and operates under the Deutsche Boerse’s trading platform Xetra.  The BSE’s total market capitalization comprised 25 percent of Bulgaria’s GDP in 2020, up slightly from 2019.

Bulgarian companies strongly prefer to obtain financing from local banks instead of drawing from the local financial markets. At the end of 2018, the Financial Supervision Commission approved the ‘SME beam market,’ a special market that provides small and medium-sized businesses the opportunity to more easily raise new capital.

Foreign investors can access credit on the local market.

Money and Banking System

The Bulgarian bank system is well capitalized and liquid. As of the end of September 2020, the total capital adequacy ratio was 22.9 percent, above the EU average and adequately shielding domestic banks against potential macroeconomic risks. In 2020 the Bulgarian National Bank imposed a temporary payment deferral of existing loans as an anti-COVID-19 measure. As of September 2020, there were 24 banks (including 6 branches), with total assets of BGN 119.2 billion (USD 73.9 billion), equivalent to 100.4 percent of GDP. The market share of EU-owned banks amounted to 74.9 percent, the share of local banks was 22.1 percent, and the share of non-EU banks was 3.1 percent. The top five banks’ weight in the banking system was 66.2 percent in September 2020. Non-performing loans were equal to 8.6 percent of the total loan portfolio of the banking system.

The Bulgarian government has raised funds by issuing both Euro-denominated and Leva- denominated bonds.  Commercial banks and private pension funds and insurance companies are the primary purchasers of these instruments. EU-based banks are eligible to be primary dealers of Bulgarian government bonds.

Foreign Exchange and Remittances

Foreign Exchange

Bulgaria operates a Currency Board Arrangement (CBA) whereby the lev (BGN) is fixed to Euro, exchanging EUR 1 for BGN 1.95583. This CBA prohibits the central bank from bailing out insolvent domestic banks or paying for the government’s deficit spending. Foreign exchange is freely accessible. The Foreign Currency Act stipulates that anyone may import or export up to EUR 10,000 or its foreign exchange equivalent without filling out a customs declaration. The import or export of over EUR 10,000 or its equivalent in Bulgarian leva or another currency across the border to or from a non-EU country must be declared to the customs authorities; in the case of an EU country, it must be declared if requested by the customs authorities. Exporting over BGN 30,000 (USD 18,750) in cash requires a declaration about the source of the funds, supported by documents certifying that the exporter does not owe taxes (unless the funds were earlier imported and declared).  When there is evidence for existing debt obligations of over BGN 5,000 (USD 3,125), customs authorities will prevent the transfer of funds.

In 2014, United States and Bulgaria signed an intergovernmental agreement that implements provisions of the Foreign Account Tax Compliant Act (FATCA), which targets tax non-compliance by U.S. persons who do business with Bulgarian financial institutions. Parliament ratified the agreement in 2015.

Bulgaria joined the Eurozone’s precursor mechanism ERM II in July 2020 and the EU Banking Union in October 2020.

Remittance Policies

There is no official policy regarding remittances. Remittances are an increasingly important source of funding for Bulgarian families with relatives overseas. Over the last several years, remittances have exceeded the new flow of FDI in the country. In 2020, due to COVID-19, that trend reversed, with Bulgarians working in other countries remitting only EUR 340 million, compared with EUR 2.1 billion in new FDI. According to Bulgarian National Bank data, this remittances sum marked a 72 percent decline compared to EUR 880 million in 2019.

Sovereign Wealth Funds

Bulgaria does not have a sovereign wealth fund.  The government maintains a multiannual fiscal savings reserve, a farmer subsidy fund, and an electricity price premium fund. Their annual budgeting is compliant with the government’s budget plans.

Upon EU accession, Bulgaria was recognized as a market economy, in which the majority of the companies are private.  Significant state-owned enterprises (SOEs) remain, however, such as railways and the postal service.  SOEs also predominate in the healthcare, infrastructure, and energy sectors; many of these are collectively managed by the same holding company (also an SOE).  Some of the SOEs receive annual government subsidies for current and capital expenditures, regardless of their actual performance.  SOEs’ budgets and audit reports are posted on the Ministry of Finance website. The list of all SOEs can be found on:  http://www.minfin.bg/bg/page/948 .  According to the Bulgarian National Statistical Institute (NSI), there is a sizeable state-owned sector consisting of approximately 350 SOEs held by the central government and 580 by subnational governments.  In 2019, the government participation in the overall economy equalled 9.3 percent.

In 2019 Parliament approved the State Enterprise Act, introducing updated corporate standards and management practices.  The law lists timeline and criteria for SOE senior management approval.  SOEs are typically run by government elected boards.

Public and private sector companies are equally treated vis-à-vis bidding on concessions, taxation, or other government-controlled processes.  Bulgaria became party to the WTO’s Government Procurement Agreement (GPA) upon its entry into the EU in 2007.

Privatization Program

No major privatizations are currently planned in Bulgaria. Parliament must approve government proposals to privatize any company with over 50 percent government ownership.  All majority or minority state-owned properties are eligible for privatization, with the exception of those included in a specific list, including water management companies, state hospitals, and state sports facilities. The sale of specific parts of such companies follows a Council of Ministers decision or a decision of the Agency for Public Enterprises and Control, after a proposal made by the government-owned majority holder of the company. State-owned military manufacturers can be privatized with Parliamentary approval.

Municipally owned property can be privatized upon decision by a municipal council or authorized body, and upon publication of the municipal privatization list in the national gazette.

The 2010 Privatization and Post-Privatization Act created a single Privatization and Post-Privatization Agency responsible for privatization oversight.  The new State Enterprise Act in 2019 reshuffled and renamed the agency into the Agency for Public Enterprises and Control (www.appk.government.bg/bg/17).

Foreign investors can participate in privatization programs.

Policies Towards Foreign Direct Investment

Although the military regime has told investors and foreign chambers of commerce it welcomes foreign investment, its actions have undercut recent efforts to improve the enabling environment for investment. Many foreign investors have withdrawn from the market, evacuated foreign national employees, or suspended their operations in Burma.

The 2016 Myanmar Investment Law (MIL) and the 2018 Companies Law continue to govern treatment of foreign investment. The MIL includes a “negative list” of prohibited and restricted sectors for foreign investment. The Companies Law implemented in August 1, 2018 permits foreign investment of up to 35 percent in domestic companies— which also opened the stock exchange to limited foreign participation.

The Directorate for Investment and Company Administration (DICA), which is part of the Ministry of Investment and Foreign Economic Relations (MIFER) serves as Burma’s investment promotion agency. However, following the coup, DICA has limited operations because of staff participation in the civil disobedience movement. Previously, DICA encouraged and facilitated foreign investment by providing information, fostering networks between investors, and providing market advice to potential investors.

The government maintains a private sector advisory forum with the Union of Myanmar Chamber of Commerce and Industry, which principally includes domestic businesses. However, military authorities have summoned business leaders for command appearances rather than conduct voluntary consultations. The U.S. Trade Representative suspended the U.S.-Myanmar Trade and Investment Framework in March 2021. Foreign Chambers of Commerce have limited interactions with the military regime following the coup.

Limits on Foreign Control and Right to Private Ownership and Establishment

Generally, foreign and domestic private entities have the right to establish and own business enterprises and engage in remunerative activity with some sectoral exceptions. Under Article 42 of the Myanmar Investment Law, the Burmese government restricts investment in certain sectors. Some sectors are only open to government or domestic investors. Other sectors require foreign investors to set up a joint-venture with a citizen of Burma or citizen-owned entity or obtain a recommendation from the relevant ministries.

The State-Owned Economic Enterprises Law, enacted in March 1989, stipulates that SOEs have the sole right to carry out a range of economic activities in certain sectors, including teak extraction, oil and gas, banking and insurance, and electricity generation. However, in practice many of these areas have been opened to private sector investment. For instance, the 2016 Rail Transportation Enterprise Law allows foreign and local businesses to make certain investments in railways, including in the form of public-private partnerships.

The Myanmar Investment Commission (MIC), “in the interest of the State,” can also make exceptions to the State-Owned Enterprises Law. The MIC has routinely granted exceptions, including through joint ventures or special licenses in the areas of insurance, mining, petroleum and natural gas extraction, telecommunications, radio and television broadcasting, and air transport services, although whether such exceptions will continue to be granted after the coup is unclear.

As one of their key functions, the Directorate of Investment and Company Administration (DICA) and the MIC are responsible for screening and approving inbound foreign investment to ensure it does not pose a risk to national security, as well as to make a determination that such investment sufficiently furthers Burma’s growth and development.

Other Investment Policy Reviews.

In 2020, the OECD conducted an investment review for Myanmar, which can be found at http://www.oecd.org/investment/countryreviews.htm 

In February 2021, the World Trade Organization produced a trade policy review for Myanmar based on pre-coup information, which can be found at http://www.wto.org/english/tratop_e/tpr_e/tpr_e.htm 

Business Facilitation

Following the military coup, the military regime’s governance has caused a sharp reduction in commercial activities including in Yangon and Mandalay. Many routine services that businesses require like customs, ports, and banks were not fully operational as of April 2021. Many companies report difficulty accessing bank funds to pay employees and suppliers and there is limited foreign and local currency available. The security situation is unstable and some companies’ local staff have been killed by security forces and foreign-owned factories have been burned. The government previously provided limited business facilitation services through the Directorate of Investment and Company Administration, but services are restricted at present.

The government instituted online company registration through “MyCo” ( https://www.myco.dica.gov.mm  ). Investors were able to submit forms, pay registration fees, and check availability of a company name through a searchable company registry on the “MyCo” website. However, military regime officials have publicly threatened to take down the company registration website so it may not continue to operate, and military-imposed restrictions on internet and mobile access limit businesses’ ability to access this website.

The Myanmar Investment Commission (MIC) is responsible for verification and approval of investment proposals above USD5 million. Companies can use the DICA website to retrieve information on requirements for MIC permit applications and submit a proposal to the MIC. If the proposal meets the criteria, it will be accepted within 15 days. If accepted, the MIC will review the proposal and reach a decision within 90 days. In 2016, state and regional investment committees were granted the right to approve any investment of less than USD5 million. The World Bank assessed that it takes on average seven days to start a business in Myanmar involving six procedures. Following the coup, it is likely to take substantially longer to register a business because of the suspension of many government services, bank closures, and internet access restrictions and suspensions. Post-coup, the MIC has approved several pending investment applications. According to DICA data, the number of new companies registered in February and March 2021 (the first two months following the coup) fell to just 15 percent of the average level in previous two years.

Transparency of the Regulatory System

The military regime has not demonstrated an interest in providing, or ability to provide, clear rules. Regulatory and legal transparency are significant challenges for foreign investors in Burma. The military established a State Administrative Council, which appears to be vested with authority to make and issue laws, regulations, and notifications with no oversight or transparency. Previously, government ministries drafted most laws and regulations relevant to foreign investors, which were reviewed by the Attorney General and then voted on and discussed by Parliament. The current law-making process is opaque and amendments to at least one law were made without public consultation.

The government is not legally obligated to share regulatory development plans with the public or conduct public consultations.

There is not a centralized online location where key regulatory actions are published similar to the Federal Register in the U.S. The Burmese government previously published new regulations and laws in government-run newspapers and “The State Gazette,” and also sometimes posted new regulations on government ministries’ official Facebook pages. The military regime announces some regulatory changes via state media or in the Commander-in-Chief’s public addresses, but copies of the changes are not easily accessibly or routinely posted anywhere.

There are no oversight or enforcement mechanisms to ensure the government follows administrative processes.

Foreign investors previously could appeal adverse regulatory decisions. For instance, under the Myanmar Investment Law, the Myanmar Investment Commission (MIC) serves as the regulatory body and has the authority to impose penalties on any investor who violates or fails to comply with the law. Investors have the right to appeal any decision made by the MIC to the government within 60 days from the date of decision.

Under the military regime, there is no demonstrated action or espoused commitment to transparent public finance and debt obligations. There are allegations that the military is incurring off-budget debt and using government funds beyond which was allocated in the government budget. Prior to the coup, public finance and debt obligations, exclusive of contingent liabilities, were public and transparent. Budget reports were published on the Ministry of Planning, Finance, and Industry (MOPFI) website ( https://www.mopfi.gov.mm/en/content/budget-news  ). Burma has issued the annual Citizen Budget in the Burmese language since FY 2015-16. The Ministry of Planning, Finance, and Industry has published quarterly budget execution reports, six-month-overview-of-budget-execution reports, and annual budget execution reports on its website since FY 2015-16. However, details regarding the budget allocations for defense expenditures were not transparent, which is a problem that has been exacerbated since the military coup. The Burmese government also previously published its debt obligation report on the Treasury Department’s Facebook page. (See:  https://www.facebook.com/pages/biz/Treasury-Department-of-Myanmar-777018172438019/  ). The Public Expenditure and Financial Accountability (PEFA) program reviewed Burma’s public finance system in 2020 (https://www.pefa.org/about).

International Regulatory Considerations

Burma has been a member of the Association of South East Asian Nations (ASEAN) since July 1997. However, there is not a consistent relationship between ASEAN and Burma regulatory standards. As an ASEAN member state, Burma’s regulatory systems are expected to conform to harmonization principles established in the ASEAN Trade in Goods Agreement (ATIGA) to support regional economic integration.

Burma’s regulatory system does not consistently use international norms or standards. It contains a mix of unique Burma-developed standards and some British-colonial era standards. Prior to the coup, the government had been making progress on legal reforms to ensure the country’s regulations and standards reflected international norms or standards, including ASEAN-developed standards. In an example of ASEAN regulatory harmonization, Burma officially joined the ASEAN Single Window in March 2020 with the launch of the National Single Window Routing Platform, which streamlined the import process by adopting the ASEAN Certificate of Origin Form D.

Burma is a WTO member but it does not regularly notify draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

Burma’s legal system is a unique combination of customary law, English common law, statutes introduced through the pre-independence India Code, and post-independence Burmese legislation. Where there is no statute regulating a particular matter, courts are to apply Burma’s general law, which is based on English common law as adopted and modified by Burmese case law.  Every state and region has a High Court, with lower courts in each district and township. High Court judges are appointed by the President while district and township judges are appointed by the Chief Justice through the Office of the Supreme Court of the Union. The Union Attorney General’s Office law officers (prosecutors) operate sub-national offices in each state, region, district, and township.

Immediately following the military coup, the military regime replaced several members of the Supreme Court with jurists seen as more reliable to their interests. After several weeks of largely peaceful protest and increasingly violent responses by security forces including arbitrary detentions, the military regimes placed several Yangon district under martial law, where court proceedings are conducted by military judges who have meted out harsh punishments with limited to no due process rights for those accused.

The Ministry of Home Affairs, led by an active-duty military minister appointed by the Commander-in-Chief, controls the Myanmar Police Force, which files cases directly with the courts. The Attorney General prosecutes criminal cases in civilian court and reviews pending legislation. While foreign companies have the right to bring cases to and defend themselves in local courts, there are deep concerns about the impartiality and lack of independence of the courts.

Burma does not have specialized civil or commercial courts.

In order to address the concerns of foreign investors regarding dispute settlement, the government acceded in 2013 to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). In 2016, Burma’s parliament enacted the Arbitration Law, putting the New York Convention into effect and replacing arbitration legislation that was more than 70 years old. Since April 2016, foreign companies can pursue arbitration in a third country. However, the Arbitration Law does not eliminate all risks. There is a limited track record of enforcing foreign awards in Burma and inherent jurisdictional risks remain in any recourse to the local legal system.

Certain regulatory actions are appealable and are adjudicated with the respective ministry. For instance, according to the Myanmar Investment Law, investment disputes that cannot be settled amicably are “settled in the competent court or the arbitral tribunal in accord with the applicable laws.” An investor dissatisfied with any enforcement action made by the regulatory body has the right to appeal to the government within 60 days from the date of administrative decision. The government may amend, revoke, or approve any decision made by the regulatory body. This decision is considered final and conclusive.

Laws and Regulations on Foreign Direct Investment

The Myanmar Investment Law outlines the procedures the Myanmar Investment Commission (MIC) must take when considering foreign investments. The MIC evaluates foreign investment proposals and stipulates the terms and conditions of investment permits. The MIC does not record foreign investments that do not require MIC approval. Many smaller investments may go unrecorded. Foreign companies may register locally without an MIC license, in which case they are not entitled to receive the benefits and incentives provided for in the Myanmar Investment Law.

There is no “one-stop-shop” for investors except in Special Economic Zones. Burma has three Special Economic Zones (SEZs) in Thilawa, Dawei, and Kyauk Phyu with preferential policies for businesses that locate there, including “one-stop-shop” service. Of the three SEZs, Thilawa is the only SEZ currently in operation.

Competition and Antitrust Laws

A Competition Law went into effect in 2017. The objective of the law is to protect public interest from monopolistic acts, limit unfair competition, and prevent abuse of dominant market position and economic concentration that weakens competition. The Myanmar Competition Commission serves as the regulatory body to enforce the Competition Law and its rules. The Commission is chaired by the Minister of Commerce, with the Director General of the Department of Trade serving as Secretary. Members also include a mixture of representatives from relevant line ministries and professional bodies, such as lawyers and economists.

Expropriation and Compensation

The 2016 Myanmar Investment Law prohibits nationalization and states that foreign investments approved by the MIC will not be nationalized during the term of their investment. In addition, the law stipulates that the Burmese government will not terminate an enterprise without reasonable cause, and upon expiration of the contract, the Burmese government guarantees an investor the withdrawal of foreign capital in the foreign currency in which the investment was made. Finally, the law states that “the Union government guarantees that it shall not terminate an investment enterprise operating under a Permit of the Commission before the expiry of the permitted term without any sufficient reason.”

However, under previous military regimes, private companies have been nationalized. The current military regime has threatened private banks with nationalization if they fail to reopen, including threatening to transfer certain deposits in private banks to state-owned or military-affiliated banks. In addition, security forces physical cuts of private company’s fiber wires and the military regimes onerous restrictions and suspension of mobile internet service have deprived private telecommunication operators and internet service providers of their property without any compensation offered. The military regime has also banned several private media print outlets from publication and restricted citizen’s access to other private company’s internet platforms.

There is a high risk of nationalization and expropriation by the military regime, particularly in the financial and telecommunications sectors. There is no expectation of due process should the military regime pursue nationalization of private companies despite the provisions in the Myanmar Investment Law prohibiting nationalization and expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Burma is not a party to the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of other States. In 2016, the Burmese parliament enacted the Arbitration Law, putting the 1958 New York Convention into effect (see international arbitration below).

Investor-State Dispute Settlement

To date, Burma has not been party to any investment dispute or dispute settlement proceeding at the WTO.

Burma does not have a Bilateral Investment Treaty or Free Trade Agreement with the United States.

There are no reported investment disputes by U.S. persons against the government of Burma.

International Commercial Arbitration and Foreign Courts

Under the 2016 Arbitration Law, local courts must recognize and enforce foreign arbitral awards against the government unless a valid ground for refusal to enforce exists. Valid grounds for refusal include: one or more parties’ inability to conclude an arbitration agreement; the invalidity of the arbitration agreement, lack of due process, the award falls outside the scope of the arbitration agreement; the arbitration was not in compliance with the applicable laws; or the award is not in force or has been set aside.

The 2016 Arbitration Law is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law (Model Law), addressing arbitration in Burma as well as the enforcement of a foreign award in Burma. For example, the provisions relating to the definition of an arbitration agreement, the procedure of appointing arbitrator(s) and the grounds for setting aside an award are mirrored in the Arbitration Law and the Model Law; However, there are some differences between these two laws. For instance, while parties are free to decide on the substantive law in an international commercial arbitration, the Arbitration Law provides that arbitrations seated in Burma must adopt Burmese law as the substantive law. According to the Arbitration Law, foreign arbitral awards can be enforced if they are the result of a commercial dispute and were made at a place covered by international conventions connected to Burma and as notified in the State Gazette by the President. If the Burmese court is satisfied with the award, it must enforce it as if it were a decree of a Burmese court.

There is no public record of foreign investor disputes with state-owned enterprises.

Bankruptcy Regulations

In February 2020, the government of Burma passed the new Insolvency Law. The law adopted the UNCITRAL Model Law on cross-border insolvency, providing greater legal certainty on transnational insolvency issues.

The legislation established an insolvency regime that addresses both corporate and personal insolvency, with a focus on protecting micro, small and medium-sized enterprises. With regards to personal insolvency, the new law encourages debtors to enter into a voluntary legally binding arrangement with their creditors. This agreement allows part or all of the debt to be written off over a fixed period of time. The law also provides equitable treatment for creditors by enabling an efficient liquidation process to ensure creditors receive maximum financial recovery from the property value of a non-viable business.

The law also established the Myanmar Insolvency Practitioners’ Regulatory Council to act as an independent regulatory body and assigned DICA the role of Registrar with the authority to fine individuals contravening the law. In addition, the court with legal jurisdiction can order an individual to make good on the default within a specified time.

Capital Markets and Portfolio Investment

The military regime’s attitude towards foreign portfolio investment is unknown. Previously, the Burmese government had gradually opened up to foreign portfolio investment, but both the stock and bond markets are small and lack sufficient liquidity to enter and exit sizeable positions.

Myanmar has a small stock market with infrequent trading. In July 2019, the Securities and Exchange Commission announced that foreign individuals and entities are permitted to hold up to 35 percent of the equity in Burmese companies listed on the Yangon Stock Exchange.

Burma also has a very small publicly traded debt market. Banks have been the primary buyers of government bonds issued by the Central Bank of Myanmar, which has established a nascent bond market auction system. The Central Bank issues government treasury bonds with maturities of two, three, and five years.

The Central Bank of Myanmar (CBM) sets commercial loan interest rates and saving deposit rates that banks can offer, so banks cannot conduct risk-based pricing for credit. Consequently, credit is not strictly allocated on market terms. Foreign investors generally seek financing outside of Myanmar because of the lack of sophisticated credit instruments offered by Burmese financial institutions and lack of risk-based pricing.

Money and Banking System

There is limited penetration of banking services in the country, but the usage of mobile payments had grown rapidly prior to the coup. A government 2020 census found 14 percent of the population has access to a savings account through a traditional bank. The banking system is fragile with a high volume of non-performing loans (NPLs). Financial analysts estimate that NPLs at some local banks account for 40 to 50 percent of outstanding credit but accurate calculations are hard because of accounting inconsistencies about what constitutes a non-performing loan.

As of December 2019, total assets in Burma’s banking system were 72 trillion kyat (USD47 billion).

The Central Bank of Myanmar (CBM) is responsible for the country’s monetary and exchange rate policies as well as regulating and supervising the banking sector.

Prior to the coup, the government had gradually opened the banking sector to foreign investors. The government began awarding limited banking licenses to foreign banks in October 2014. In November 2018, the CBM published guidelines that permit foreign banks with local licenses to offer “any financing services and other banking services” to local corporations. Previously, foreign banks were only allowed to offer export financing and related banking services to foreign corporations.

Following the military coup and the imposition of U.S. sanctions on Burma, including on two large military holding companies, some international banks are considering whether to terminate their correspondent banking relationship with Myanmar banks. No U.S. banks have a correspondent relationship with Burmese banks.

Foreigners are allowed to open a bank account in Burma in either U.S. dollars or Burmese kyat. To open a bank account, foreigners must provide proof of a valid visa along with proof of income or a letter from their employer.

The Germany development agency GIZ published the fifth edition the GIZ Banking Report in January 2021 (https://2020.giz-banking-report-myanmar.com/).

5. Foreign Exchange and Remittances

Foreign Exchange

According to Chapter 15 of the Myanmar Investment Law, foreign investors are able to convert, transfer, and repatriate profits, dividends, royalties, patent fees, license fees, technical assistance and management fees, shares and other current income resulting from any investment made under this law. Nevertheless, in practice, the transfer of money in or out of Burma has been difficult, as many international banks have internal prohibitions on conducting business in Burma given the long history of sanctions and significant money-laundering risks. The closure of most banks following the coup, shortage of U.S. dollars, and low cash withdrawal limits have further limited investors’ ability to conduct foreign exchange transactions and other necessary business operations.

Under the Foreign Exchange Management Law, transfer of funds can be made only through licensed foreign exchange dealers, using freely usable currencies. The Central Bank of Myanmar (CBM) grants final approval on any new loans or loan transfers by foreign investors. According to a new regulation in the Foreign Exchange Management Law, foreign investors applying for an offshore loan must get approval from the CBM. Applications are submitted through the Myanmar Investment Commission by providing a company profile, audited financial statements, draft loan agreement, and a recent bank credit statement.

Since February 5, 2019, the Central Bank calculates a market-based reference exchange rate from the volume-weighted average exchange rate of interbank and bank-customer deals during the day. In April 2021, a parallel market exchange rate developed which diverges from the Central Bank rate. Remittance Policies

Remittance Policies

According to the Myanmar Investment Law, foreign investors can remit foreign currency through authorized banks. Nevertheless, in practice, the transfer of money in or out of Burma has been difficult, as many international banks have internal prohibitions on conducting business in Burma given the long history of sanctions and significant money-laundering risks. The military coup has further exacerbated these investment remittance challenges.

The challenge of repatriating remittances through the formal banking system are also reflected in the continued use of informal remittance services (such as the “hundi system”) by both the public and businesses. On November 15, 2019, the Central Bank of Myanmar adopted the Remittance Business Regulation in order to bring these informal networks into the official financial system. The regulations require remittance business licenses to conduct inward and outward remittance businesses from the Central Bank of Myanmar. It is unclear how the military regime will proceed with this regulation and the training of businesses to grant them a license to conduct remittances.

Sovereign Wealth Funds

Burma does not have a sovereign wealth fund.

State-owned enterprises (SOEs) in Burma are active in various sectors, including natural resource extraction, print news, energy production and distribution, banking, mobile telecommunications, and transportation. SOEs employ approximately 145,000 people, according to a 2018 report by the Natural Resource Governance Institute. The 1989 State-Owned Economic Enterprises Law does not establish a system of monitoring enterprise operations, hence detailed information on Burmese SOEs is difficult to obtain. However, according to commercial statements, the total net income of all SOEs during fiscal year 2018-19 was approximately USD1.1 billion. The top profit-making SOEs are found in the natural resource sector, namely the Myanma Oil and Gas Enterprise, Myanma Gems Enterprise, and Myanma Timber Enterprise. Within Burma, there are 32 SOEs that are managed directly by six ministries without independent boards.

SOEs enjoy several advantages including serving in some cases as the market regulator, preferential land access, and access to low-interest credit. According to the State-Owned Economic Enterprises Law, SOEs wield regulatory powers that provide SOEs a significant market advantage, including through an ability to recommend specific tax exemptions to the Myanmar Investment Commission on behalf of private sector joint-venture partners and to monitor private sector companies’ compliance with contracts. In addition, the law stipulates that SOE managers have sole discretion in awarding contracts and licenses to private sector partners with limited oversight. SOEs can secure loans at low interest rates from state-owned banks, with approval from the cabinet. Private enterprises, unlike SOEs, are forced to provide land or other real estate as collateral in order to be considered for a loan. SOEs have historically had an advantage over private entities in land access because under the Constitution the State owns all the land.

In April 2021, the U.S. Department of Treasury sanctioned three Burmese SOEs for their roles in financing the military regime: the Myanma Gems Enterprise, the Myanma Timber Enterprise; and the Myanmar Pearl Enterprise. Additionally, two Myanmar military holding companies: Myanmar Economic Corporation and Myanmar Economic Holdings Limited are also subject to U.S. Department of Treasury sanctions. Investors should closely consult the Special Designated National list to check which entities are subject to U.S. sanctions.

Privatization Program

The military regime has not publicly announced any plans or timeline for privatization and in the past has preferred nationalization and supporting state-owned enterprises. Prior to the coup, the government had been implementing a privatization plan, which permitted foreign investment.

Policies Towards Foreign Direct Investment

The Government of Burundi (GoB) is generally supportive of FDI and seeks investment as a means to promote economic growth. Uneven implementation of laws and regulations, however, limits the predictability of the environment for Burundian and foreign investors alike. The GoB has not implemented laws, regulations, or economic or industrial strategies that limit market access or discriminate against foreign investors. There is a minimum initial foreign investment of $50,000, which does not apply to domestic investors. An overview of the legal framework for foreign investment can be found at: http://www.eatradehub.org/burundi_investment_policy_assessment_2018_presentation 

Based on the Burundi Investment Code enacted in 2008, the government established the Burundi Investment Promotion Agency (API) in 2009. API is the government authority in charge of promoting investment, improving the business climate, and facilitating market entry for investors in Burundi. API offers a range of services to potential investors, including assistance in acquiring the licenses, certificates, approvals, authorizations, and permits required by law to set up and operate a business enterprise in Burundi. API has set up a “one-stop shop” to facilitate and simplify business registration in Burundi. For now, investors must be physically present in country to register with API. API provides investors with information on investment and export promotion, assists them with legal formalities, including obtaining the required documents, and intervenes when laws and regulations are not properly applied. API also designs reforms required for the improvement and the ease of doing business environment and ensures that the impact of investments on development is beneficial and sustainable.

The GoB conducts dialogue with national and foreign investors to promote investment. API is the initial and primary point of entry for investors, but government ministries meet regularly with private investors to discuss regulatory and legal issues.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic companies have the same rights to establish and own businesses in the country and engage in all forms of activities. However, there are restrictions on foreign investments in weaponry, ammunition, and any sort of military or para-military enterprises. There are no other restrictions nor are there any other sectors in which foreign investors are denied the same treatment as domestic firms. There are no general limits on foreign ownership or control.

Article 63 of the 2013 mining code stipulates that the GoB must own at least 10 percent of shares in any foreign company with an industrial mining license and state participation cannot be diluted in the event of an increase in the share capital.

Burundi does not maintain an investment screening mechanism for inbound foreign investment.

Other Investment Policy Reviews

No investment policy review from a multilateral organization has taken place in the last three years. The most recent review was performed in 2010 by UNCTAD.

Business Facilitation

In addition to fiscal advantages provided in the investment code, Burundi has implemented reforms, including reinforcing the capabilities of the one-stop shop at API, simplifying tax procedures for small and medium enterprises, launching an electronic single window for business transactions, and harmonizing commercial laws with those of the East African Community.

Business registration takes approximately four hours and costs 40,000 Burundian francs (around $21). For more details and information on registration procedures, time and costs, investors may visit API’s website at https://www.investburundi.bi/ .

There is no specific mechanism for ensuring equitable treatment of women and underrepresented minorities.

Outward Investment

The host government does not have mechanisms for promoting or incentivizing outward investment. The host government does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Although parts of the government are working to create more transparent policies for fostering competition, Burundi lacks much necessary regulatory framework. Many policies for foreign investment are not transparent, and laws or regulations on the books are often ineffective or unenforced. Burundi’s regulatory and accounting systems are generally transparent and consistent with international norms on paper, but a lack of capacity or training for staff and political constraints sometimes limit the regularity and transparency of their implementation.

Rule-making and regulatory authority is exercised exclusively at the national level. Relevant ministries and the Council of Ministers exercise regulatory and rule-making authority, based on laws passed by the Senate and National Assembly. In practice, government officials sometimes exercise influence over the application and interpretation of rules and regulations outside of formal structures. The government sometimes discusses proposed legislation and rule-making with private sector interlocutors and civil society but does not have a formal public comment process. There are no informal regulatory processes managed by non-governmental organizations (NGOs) or private sector associations.

Draft bills or regulations are not subject to a public consultation process. There are no conferences that involve citizens in a consultative process to give them an opportunity to make comments or contributions, especially at the time of project development, and, even if this were the case, the public does not have access to the detailed information needed to participate in this process.

Burundi does not have a centralized online location where key regulatory actions are published; however, regulatory actions are sometimes posted on the websites of GoB institutions (typically that of the Office of the President or respective ministries).

Burundi has sectoral regulatory agencies covering taxes and revenues, mining and energy, water, and agriculture. Regulatory actions are reviewable by courts. There have been no recent reforms to the regulatory enforcement system.

The government generally issues terms of reference and recruits private consultants who prepare a study on the draft legislation for review and comment by the private sector. The government analyzes these comments and takes them into consideration when drafting new regulations. New regulations can be issued by a presidential decree or Parliament can make them into a law. This mechanism applies to laws and regulations on investment.

Information on public finances and debt obligations (including explicit and contingent liabilities) is published in the Burundi Central Bank’s Reports and on its website: https://www.brb.bi/  . However, some publications on the website are not up to date.

International Regulatory Considerations

Burundi is a member of the East African Community (EAC), a regional economic bloc composed by six member states, the republics of Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda. The EAC Integration process is anchored on four pillars: a customs union, a common market, a monetary union, and political federation. Each member state must harmonize its national regulatory system with that of the EAC.

Burundian law and regulations reference several standards, including the East African Standards, Codex Alimentarius Standards, the International Organization for Standardization (ISO), and Burundi’s own standards. ISO remains the main standard of reference.

The country joined the WTO on July 23, 1995. According to the Ministry of Trade, Transport, Industry and Tourism, Burundi has not notified the WTO Committee on Technical Barriers to Trade of all its draft technical regulations.

Legal System and Judicial Independence

The country’s legal system is civil (Roman), based on German and French civil codes. For local civil matters, customary law also applies. Burundi’s legal system contains standard provisions guaranteeing the right to private property and the enforcement of contracts. The country has a written commercial law and a commercial court. The investment code offers plaintiffs recourse in the national court system and to international arbitration.

The judicial system is not effectively independent of the executive branch. A lack of capacity hinders judicial effectiveness, and judicial procedures are not rigorously observed.

Laws and Regulations on Foreign Direct Investment

There were no major laws, regulations, or judicial decisions pertaining to foreign investment in the past year. In 2014, API created a follow-up mechanism to make sure that investors are implementing projects for which they received tax exemptions and other advantages provided in the investment code.

In 2018, the Council of Ministers reviewed draft legislation updating the investment code and then referred it to a technical committee for review and improvement; it remains a work in progress. Among other changes, the draft contains new measures to ensure the protection of the property of foreign investors and penalties for malfeasance by foreign investors.

Competition and Antitrust Laws

There is no Burundian agency in charge of reviewing transactions for competition-related concerns.

Expropriation and Compensation

Burundian law allows the GoB to expropriate property for exceptional and state-approved reasons, but the GoB is then committed to provide compensation based on the fair market value prior to expropriation.

There are no recent cases involving expropriation of foreign investments nor do any foreign firms have active pending complaints regarding compensation in Burundian courts.

Dispute Settlement

ICSID Convention and New York Convention

Burundi is a full member of ICSID Convention since 1969 and became the 150th country to sign the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Burundi’s commercial law allows enforcement of judgments in foreign courts by local courts.

Investor-State Dispute Settlement

Burundi is a signatory of the International Centre for Settlement of Investment Disputes (ICSID) and Multilateral Investment Guarantee Agency (MIGA) in which international arbitration of investment disputes is recognized. Burundi has no bilateral investment treaty with the United States.

There have been limited instances of foreign investors seeking restitution from the GoB over allegations of breach of contract and corruption.

In cases involving international parties, the GoB accepts international arbitration and recognizes and enforces foreign arbitral awards. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

In rare cases involving international elements, the GoB accepts international arbitration and recognizes and enforces foreign arbitral awards. In investment disputes between private parties, international arbitration is accepted as a means of settlement provided one of the parties is a non-national. In 2007, the GoB created a Center for Arbitration and Mediation (CEBAC) to handle such disputes, but it is not very active.

There is no operational commercial arbitration body in the country besides CEBAC. Foreign arbitral awards are recognized, but local courts are not legally equipped to enforce them. No Burundian private entity has been involved in a foreign arbitration. In the past, one registered case involved the GoB and a private gold refining company. The GoB lost the case, but enforced the ICSID’s against the GoB.

Bankruptcy Regulations

Burundi has two laws governing or pertaining to bankruptcy: Law N°1/07 of March 15, 2006, on bankruptcy and Law N°1/08 of March 15, 2006, on legal settlement of insolvent companies. Under Burundian law, creditors have the right to file for liquidation and the right to request personal or financial information about the debtors from the legal bankruptcy agent. The bankruptcy framework does not require that creditors approve the selection of the bankruptcy agent and does not provide creditors the right to object to decisions accepting or rejecting creditors’ claims.

Capital Markets and Portfolio Investment

Although there are no regulatory restrictions on foreign portfolio investment, Burundi does not have capital markets that would enable it. Capital allocation within Burundi is entirely dependent on commercial banks.

The country does not have its own stock market. There is no regulatory system to encourage and facilitate portfolio investment. Existing policies do not actively facilitate nor impede the free flow of financial resources into product and factor markets.

There is no regulation restricting international transactions. In practice, however, the government restricts payments and transfers for international transactions due to a shortage of foreign currency.

In theory, foreign investors have access to all existing credit instruments and on market terms. In practice, available credit is extremely limited.

Money and Banking System

Burundi has very limited banking services penetration according to the most recent national survey on financial inclusion conducted by the central bank. In this 2016 survey, the Bank of the Republic of Burundi (BRB) found a penetration level of approximately 22 percent.  Several local commercial banks have branches in urban centers. Micro-finance institutions mostly serve rural areas. The Burundian government is a minority shareholder in three banks.The banking sector’s soundness has improved with capitalization and liquidity ratios above regulatory standards and profitability indicators on the rise. However, bank portfolio quality remains a concern, with the level of non-performing loans (NPLs) reaching six percent when five percent is the benchmark rate among East African Community states. The sector also suffered from shortages of foreign currency following the Central Bank’s establishment of de facto capital controls in 2019.

The financial sector includes 14 credit institutions (Banks) including a new youth investment bank and an agricultural bank, 40 microfinance institutions, 16 insurance companies, three social security institutions and three payment institutions. A bank for women is also under development. All these institutions aim at reducing unemployment by creating job opportunities, particularly small and medium-scale entrepreneurship. The banking market is dominated by the three largest and systemically important banks: Credit Bank of Bujumbura (BCB), Burundi Commercial Bank (BANCOBU), and Interbank Burundi (IBB).Foreign banks can establish operations in the country.  Foreign banks operating in the country include ECOBANK (Pan African Bank-West Africa), CRDB (Tanzanian Bank), DTB and KCB (both Kenyan Banks).  The central bank directs banking regulatory policy, including prudential measures for the banking system.  Foreigners and locals are subject to the same conditions when opening a bank account; the only requirement is the presentation of identification.

Foreign Exchange and Remittances

Foreign Exchange

According to the law, after paying taxes, there are no restrictions on expatriating funds associated with an investment. In practice, foreign investors have encountered difficulties in converting funds associated with investments into foreign currency due to de facto capital controls implemented by the BRB in 2019.

According to the GoB, funds associated with an investment can be converted into a freely usable currency at a legal market rate, pending their availability. Due to a shortage of foreign currency, the central bank prioritizes companies in specific strategic industries for access to foreign exchange accommodation. In practice, the Burundian franc (BIF) is not freely convertible at the official government rate.

The BRB publishes the daily exchange rate on its website each morning. In practice, the BIF fluctuates, and the government has imposed de facto capital controls to prevent abrupt exchange rate movements; there is a significant gap between the official rate and a floating parallel unofficial market rate.

Remittance Policies

The government has not passed any new laws regarding a change to investment remittances policies. The average delay for remitting investment returns (once all taxes have been paid) is three months due to general inefficiency in the banking sector and the rarity of such transactions in an environment with very little foreign direct investment.

Sovereign Wealth Funds

Burundi does not have a sovereign wealth fund.

There are five SOEs in Burundi with 100 percent government ownership: REGIDESO (public utility company), ONATEL (telecom), SOSUMO (sugar), OTB (tea), COGERCO (cotton) and ODECA (Coffee). No statistics on assets are available for these companies as their reports are not available to the public. Board members for SOEs are appointed by the GoB and report to its ministries. The GoB has a minority (40 percent) share in Brarudi, a branch of the Heineken Group, and in three banking companies.

There is no published list of SOEs.

SOEs have no market-based advantages and compete with other investors under the same terms and conditions; however, Burundi does not adhere to the OECD guidelines on corporate governance for SOEs.

Privatization Program

In 2002, Burundi entered an active phase of political stabilization, national reconciliation and economic reform. In 2004, it received an emergency post-conflict program from the IMF and the World Bank, paving the way for the development of the Strategic Framework for Growth and Poverty Alleviation (PRSP). After the 2005 elections, the GoB made the decision to open several state-owned enterprises in different sectors of the economy to private investment, including foreign investment. The Burundian government, considering coffee a strategic sector of its economy, decided to opt for the privatization of the coffee sector first in an effort to modernize it. However, following the crisis of 2015, the GoB decided to suspend immediately the privatization program. At that time, it had not yet privatized other sectors such as tea or sugar. In late 2019, the GoB regained control of the coffee sector, citing as its rationale perceived mismanagement on the part of the privatized companies during the 2015-2019. It is unclear if or when the privatization program will continue.

The privatization program was open to all potential buyers, including foreigners, and there was no explicit discrimination against foreign investors at any stage of the investment process. Public bidding was mandatory. The process is transparent and non-discriminatory. When the government intends to sell a business or shares in a business, offers are published in local newspapers.

Policies Towards Foreign Direct Investment

Cabo Verde seeks both domestic and foreign investment to drive economic recovery, diversification, and growth following the COVID-19 crisis.  The government’s Ambition 2030 strategy, completed in September 2020, emphasizes development of sustainable tourism, transformation of the country into a transportation and logistics platform, renewable energy, blue and digital economy, and export-oriented industries.  The government promotes a market-oriented economic model in which all investors, regardless of nationality, have the same rights and are subject to the same duties and obligations under the law.  Improvement of the business climate to attract investment remains an economic priority, as does reduction of the state’s role in the economy, though the COVID-19 pandemic has put plans to privatize state-owned enterprises on hold.    

In 2020, approved investment projects reached an all-time high of USD 1.5 billion, confirming investor confidence in Cabo Verde despite pandemic uncertainties.  Foreign investment continues to be concentrated in tourism and light manufacturing.  In 2020, 80 percent of the approved investment projects were in the tourism sector.  

Cabo Verdean law offers tax benefits for foreign citizens who decide to buy a second home in Cabo Verde and grants permanent residence to any foreigner whose investment exceeds 180 million escudos (USD 2 million).  The legal framework also establishes conditions for investment in the country by Cabo Verdean emigrants, including fiscal incentives.

Investment promotion agency Cabo Verde TradeInvest (CVTI) is a one-stop shop for all investors.  Through CVTI, the government maintains dialogue with investors using personalized and virtual meetings, round tables, conferences, and workshops.  CVTI offers investors a “One-Stop Shop for Investments” electronic platform and help in formalizing expressions of interest and monitoring the investment process.  It also provides investors and exporters information about trade agreements and benefits (including AGOA, ECOWAS), market information, details on trade fairs and events, and contacts with other state institutions and potential partners.  In addition, CVTI can assist with obtaining authorizations and licensing, tax and customs incentives, work permits for foreign workers, visas for company workers, registration of workers with social security, and introductions to service providers, such as banks, lawyers, accountants, and real estate agents.

For investments of less than USD 500,000, government entities ProEmpresa and the Casa do Cidadao (Commercial Registry Department) provide similar services.  

The International Business Center (Centro Internacional de Negocios – CIN) provides a set of tax and customs benefits for companies that do international business, with the aim of promoting, supporting, and strengthening the emergence of new industrial, commercial, and service provision activities in Cabo Verde.  

Limits on Foreign Control and Right to Private Ownership and Establishment

The Investment Law applies to both foreign and domestic investors, and it enshrines the principle of freedom of investment regardless of the nationality.  However, sectoral legislation imposes restrictions on some activities such as fishing and maritime transport.  The Investment Law further protects against direct and indirect expropriation.  Private property is protected from unilateral requisition and nationalization, except for public interest reasons, in accordance with the Law and the non-discrimination principle, subject to prompt, full, and fair compensation.

Other Investment Policy Reviews

During 2018, the United Nations Conference on Trade and Development (UNCTAD) conducted an Investment Policy Review (IPR) at the request of the Government of Cabo Verde.  The report contains strategic analysis on how Cabo Verde can utilize foreign direct investment (FDI) in the tourism sector to advance sustainable development objectives.  https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2248

Business Facilitation

Cabo Verde offers benefits to attract private-sector investment.  Although equality of treatment and non-discrimination are granted to all investors, certain investment projects, given their nature or size, may receive special treatment and support from the government.  

In an effort to reduce approval time for investment projects, the government has established a maximum period of 15 days for analysis and 30 days for approval of investment and export projects.  In addition, Cabo Verde has adopted measures to facilitate and stimulate business activity, including lowering the maximum personal income tax (IRPS) one percentage point to 24 percent, eliminating double taxation, and waiving tax installment payments for taxpayers who had negative results or began their business activity in the previous year.  Investments of at least 500 million escudos (USD 4.8 million) qualify for contractual benefits.  Those that create a minimum number of jobs or expand into new strategic sectors qualify for a 50 percent investment credit, which can be deducted over 15 years.

Laws commit the government to paying its bills within 45 days; the law further commits the government to paying interest on late payments.  These measures were adopted to ensure predictability in the payment of the state’s obligations to companies.  The 2021 budget prioritizes expenditures on measures to support families, save companies and jobs in the context of the pandemic, and includes benefits to attract private sector investments and improve the business environment.

Registering a company is straightforward.  The Commercial Registry Department (Casa do Cidadao) is a one-stop shop where a company can be created and registered in less than a day.  Information on business registration procedures is available at https://portondinosilhas.gov.cv/ and http://caboverde.eregulations.org/show-list.asp?l=pt&mid=1.  Step-by-step information on procedures, time, and cost involved in starting a company can be found at http://www.doingbusiness.org/data/exploreeconomies/cabo-verde/starting-a-business/.  The CVTI website also offers information on investing in Cabo Verde, including Cabo Verde’s Investment Law, the Code of Fiscal Benefits, and the Contractual Tax Benefits-Incentives:  https://cvtradeinvest.com/.

Outward Investment

The government does not restrict domestic investors from investing abroad.  There is no information or data available on outward investments.

Transparency of the Regulatory System

Cabo Verde is a regional model of transparency and good governance.  The government is committed to improving conditions for foreign investment and encouraging a more transparent and competitive economic environment.  Laws to promote exports and free-zone enterprises stress the government’s commitment to encouraging investment in export-oriented industries.  The tax regime encourages entrepreneurial activity, and government policies support free trade and open markets.

In Cabo Verde, there is free online access to all laws through the government’s official register website.  This is viewable at https://kiosk.incv.cv/.

Regulations on economic activity sectors can also be viewed on the Cabo Verde TradeInvest website:  http://cvtradeinvest.com/.

Public finance and debt obligations are in line with international norms and standards on budget credibility, thoroughness, and fiscal transparency.  Cabo Verde continues to improve its processes for the planning, execution, and control of its budgets.  The Ministry of Finance uses a digital platform to publish public accounts.  With this web portal, any institution or citizen can observe the execution of the budget in real time.  A Public Finance Council independently assesses the sustainability of budget and policies.  Cabo Verde has an independent Supreme Audit Institution (SAI), which operates in accordance with International Standards of Supreme Audit Institutions and the Mexico Declaration and is responsible for verifying and publishing the government’s annual financial statements.

International Regulatory Considerations

Cabo Verde formally acceded to the World Trade Organization (WTO) in 2008.  Cabo Verde has not notified the WTO of any measures that are inconsistent with its Agreement on Trade-Related Investment Measures (TRIM)s obligations.

Cabo Verde is committed to integration into the Economic Community of West African States (ECOWAS) but has postponed the implementation of the ECOWAS Common External Tariffs to 2022 and does not foresee adoption of an ECOWAS single currency.

Legal System and Judicial Independence

Cabo Verde’s legal system is based on the civil law system of Portugal.  The 1992 constitution provides for a judiciary independent from the executive branch.  The judicial system is composed of the Supreme Court, the Constitutional Court, and regional courts.  Judges cannot be affiliated with political parties.

The Ministry of Justice and Labor appoints local judges.  The judiciary generally provides due process rights; however, an overburdened and understaffed judicial system constrains the right to an expeditious trial.  Cabo Verde has modern commercial and contractual laws.  The judicial system in Cabo Verde is transparent and independent.  There is no government interference in the court system, but judicial decisions are often delayed by years.

The right to private ownership and establishment is guaranteed under the constitution.  Property rights are also recognized and guaranteed by several Cabo Verdean laws.  There is a legal entity that records secured interests in property, both chattel and real estate.  The legal system also protects and facilitates acquisition and disposition of all property rights.

Laws and Regulations on Foreign Direct Investment

Cabo Verdean laws concerning FDI include the Investment Law of 2012, which applies to both foreign and domestic investors, and preserves the principle of freedom of investment.  The Industrial Development Statute regulates incentives and the investment approval process.  Other relevant legislation includes Law n. 41 / 2016 of 2016, which defines the mandate of Cabo Verde TradeInvest as a one-stop shop for external investors.

Competition and Antitrust Laws

Regulatory agencies in charge of and responsible for competition-related concerns differ according to sector.

The law protects competition in all economic activities.

Expropriation and Compensation

The Investment Law protects against direct and indirect expropriation.  Private property is protected against requisition and nationalization, except for public interest reasons (Investment Law, art. 6.1).  Under the law, in the event of expropriation, the government is to compensate the owner on the basis of prevailing market prices or the actual market value of the property.  To date there have been no cases of unlawful expropriation or claims of discriminatory behavior against foreigners by the government.  

In case of noncompliance of investment projects, the law states that land can be recovered by the state and made available to new investment projects.

Dispute Settlement

ICSID Convention and New York Convention

In 2011, Cabo Verde became a contracting state to the ICSID convention.  Cabo Verde is not a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Disputes between the government and investors concerning the interpretation and application of the law which cannot be resolved amicably or via negotiation are submitted for resolution by the judicial authorities, in accordance with Cabo Verdean law.  Disputes between the government and foreign investors on investments authorized and made in the country are settled by arbitration if no other process has been agreed upon.

International Commercial Arbitration and Foreign Courts

The law favors arbitration as a mechanism for settling investment disputes between the Government of Cabo Verde and foreign investors, under national and international dispute resolution rules, and the courts recognize and enforce foreign arbitral awards.  Generally, arbitration will be carried out in Cabo Verde and in Portuguese unless the parties agree on another location and language.  The decision of the single referee or the arbitration committee is final and there is no appeal.  In 2018, the Tax Arbitration Center was created to resolve disputes regarding tax matters.

Bankruptcy Regulations

Cabo Verde law provides for a reorganization procedure and a framework that allows creditors more involvement in insolvency proceedings.  The World Bank’s 2020 Doing Business Report ranked Cabo Verde 168th in the category of Resolving Insolvency.

Capital Markets and Portfolio Investment

Limited capital market and portfolio investment opportunities exist in Cabo Verde.  The Cabo Verdean stock market, Bolsa de Valores de Cabo Verde (BVC), is fully operational.  It has been most active in the issuance of bonds.  Foreign investors must open an account with a bank in Cabo Verde before buying stocks or bonds from BVC.

Foreign interests may access credit under the same market conditions as Cabo Verdeans.

Money and Banking System

Cabo Verde has a small financial sector supervised and regulated by the Central Bank of Cabo Verde (BCV).  According to data from BCV, more than 90 percent of the Cabo Verdean population is served by banks.  Internet-based tools and services in the banking sector continue to grow in Cabo Verde, particularly during the COVID-19 pandemic, changing the model of the client-bank relationship.  New ICT products allow customers alternatives to in-person support as well as making certain decisions outside of working hours and through the internet.

Banking represents more than 80 percent of the assets of the entire Cabo Verdean financial system.  Two banks – Banco Comercial do Atlantico (BCA) and Caixa Economica de Cabo Verde (CECV) – together held 67.3 percent of the market share in credit and 71.8 percent in deposits pre-pandemic.

Legislation approved by the National Assembly in January 2020 terminated the issuance of restricted licenses for offshore banking operations, calling for generic licenses and operations with resident clients.  BCV subsequently informed that banks with a restricted license (offshore), serving non-residents would have to adjust to the new requirements.  Otherwise, BCV would revoke their authorization and enforce administrative liquidation.  Offshore banks operating in Cabo Verde have until December 2021 to complete the transition.    

To establish a bank account, the client must provide proper identification and obtain a taxpayer number from the Commercial Registry Department (Casa do Cidadao), a process that takes approximately 10 minutes.  Bank credit is available to foreign investors under the same conditions as for domestic investors.  The private sector has access to credit instruments such as loans, letters of credit, and lines of credit.

Foreign Exchange and Remittances

Foreign Exchange

Foreign investors have the right to convert their investment to any other freely convertible currency and transfer all their income.  The government gives foreign investors important guarantees, such as privately managed foreign currency accounts, which can be credited from abroad or from other foreign accounts in Cabo Verde.  In addition, it allows undisputed repatriation of dividends, profits, and capital from foreign investment operations.  To receive these benefits, the investor has to qualify for foreign investor status through the government’s investment promotion agency, CVTI.

Regulatory legislation specifies that for a company’s first five years of operation, its dividends may be freely expatriated without tax and that for the next 15 years dividends may be expatriated with a flat tax rate of 10 percent.  Incentives for outward investment in developing countries are not included in the legislation, but they have been provided on an ad hoc basis.

Cabo Verde’s exchange-rate fluctuation risk is low as the country’s currency, the escudo, is pegged at the rate of 110.27 to the Euro.  This fixed exchange rate arrangement is under the Credit Facility Contract, granted to Cabo Verde by Portugal and managed by a joint Cabo Verdean and Portuguese body named the Commission on the Agreement for Exchange Cooperation (Comissao do Acordo de Cooperaçao Cambial – COMACC).  In 2018, the government liberalized foreign exchange operations in Cabo Verde, allowing the free movement of money overseas.

Remittance Policies

Current law permits a foreign investor to request transfer, loan repayment, revenue/profits, and capital gains overseas from the BCV within 30, 60, and 90 days, respectively.

Sovereign Wealth Funds

The government created a Sovereign Private Investment Guarantee Fund in 2019.  The fund aims to guarantee the issuance of securities, in particular debt securities, by private commercial companies to fund large private investments.  BCV will oversee the fund, which is to maintain a rating of at least “A” from financial rating agencies.  The initial share capital of approximately USD 120 million is guaranteed by the state.

Starting in the mid-1990s, Cabo Verde implemented a series of reforms that have transformed a centrally planned economy into a market-oriented economy.  Since then, the number of major enterprises of which the state is a majority owner has decreased from 40 to six.  State-owned enterprises (SOEs) are most active in the transportation sector.  They are generally managed by a board of directors nominated by the minister in charge of the respective sector.  These boards of directors have between three and five members.  SOEs are generally evaluated based on their economic or financial performance.  All SOEs are required to produce annual reports and must submit their books to independent auditors.  Even though not all directors are politically appointed, they must maintain the confidence and support of the government.

Cabo Verde is not a party to the Government Procurement Agreement (GPA) within the framework of the WTO.  In principle, it tries to adhere to the Organization for Economic Cooperation and Development (OECD) Guidelines on Corporate Governance.

Privatization Program

The government continues to look at privatizations and concessions as tools to bring new dynamics to the economy, through new business and investment opportunities for the domestic and international private sectors. 

 Both foreign and domestic investors can participate in the public bidding process, which is transparent and non-discriminatory.  On hold due to the COVID-19 crisis are the privatizations or concessions for the management of the national port and airport authorities (ENAPOR and ASA, respectively), the pharmaceutical company (EMPROFAC), and the electric and water utility (Electra).

Policies Towards Foreign Direct Investment

Cambodia has a liberal foreign investment regime and actively courts FDI. The primary law governing investment is the 1994 Law on Investment. The government permits 100 percent foreign ownership of companies in most sectors. In a handful of sectors, such as cigarette manufacturing, movie production, rice milling, and gemstone mining and processing, foreign investment is subject to local equity participation or prior authorization from authorities.  While there is little or no official legal discrimination against foreign investors, some foreign businesses report disadvantages vis-a-vis Cambodian or other foreign rivals that engage in acts of corruption or tax evasion or take advantage of Cambodia’s weak regulatory environment.

The Council for the Development of Cambodia (CDC) is the principal government agency responsible for providing incentives to stimulate investment. Investors are required to submit an investment proposal to either the CDC or the Provincial-Municipal Investment Sub-committee to obtain a Qualified Investment Project (QIP) status depending on capital level and location of the investment question.  QIPs are then eligible for specific investment incentives.

The CDC also serves as the secretariat to Cambodia’s Government-Private Sector Forum (G-PSF), a public-private consultation mechanism that facilitates dialogue within and among 10 government/private sector working groups. More information about investment and investment incentives in Cambodia may be found at: www.cambodiainvestment.gov.kh.

Cambodia has created special economic zones (SEZs) to further facilitate foreign investment. As of April 2021, there are 23 SEZs in Cambodia.  These zones provide companies with access to land, infrastructure, and services to facilitate the set-up and operation of businesses. Services provided include utilities, tax services, customs clearance, and other administrative services designed to support import-export processes. Cambodia offers incentives to projects within the SEZs such as tax holidays, zero rate VAT, and import duty exemptions for raw materials, machinery, and equipment. The primary authority responsible for Cambodia’s SEZs is the Cambodia Special Economic Zone Board (CSEZB). The largest of its SEZs is in Sihanoukville and hosts primarily Chinese companies.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are few limitations on foreign control and ownership of business enterprises in Cambodia. Foreign investors may own 100 percent of investment projects except in the sectors mentioned Section 1. According to Cambodia’s 2003 Amended Law on Investment and related sub-decrees, there are no limitations based on shareholder nationality or discrimination against foreign investors except in relation to investments in property or state-owned enterprises. For property, both the Law on Investment and the 2003 Amended Law state that the majority of interest in land must be held by one or more Cambodian citizens.  For state-owned enterprises, the Law on Public Enterprise provides that the Cambodian government must directly or indirectly hold more than 51 percent of the capital or the right to vote in state-owned enterprises.

Another limitation concerns the employment of foreigners in Cambodia. A QIP allows employers to obtain visas and work permits for foreign citizens as skilled workers, but the employer may be required to prove to the Ministry of Labor and Vocational Training that the skillset is not available in Cambodia. The Cambodian Bar has periodically taken actions to restrict or impede the work of foreign lawyers or foreign law firms in the country.

Other Investment Policy Reviews

The OECD conducted an Investment Policy Review of Cambodia in 2018. The report may be found at this  link .

The World Trade Organization (WTO) last reviewed Cambodia’s trade policies in 2017; the first review was done in 2011.  The 2017 report can be found at this link .

Business Facilitation

All businesses are required to register with the Ministry of Commerce (MOC) and the General Department of Taxation (GDT).  Registration with MOC is possible through an online business registration portal ( link ) that allows all existing and new businesses to register.  Depending on the types of business activity, new businesses may also be required to register with other relevant ministries.  For example, travel agencies must also register with the Ministry of Tourism, and private universities must also register with the Ministry of Education, Youth, and Sport.  The GDT also has an online portal for tax registration and other services, which can be located here .

The World Bank’s 2020 Ease of Doing Business Report ranks Cambodia 144 of 190 countries globally for the ease of starting a business. The report notes that it takes nine separate procedures and three months or more to complete all business, tax, and employment registration processes.

Outward Investment

There are no restrictions on Cambodian citizens investing abroad. Some Cambodian companies have invested in neighboring countries – notably, Thailand, Laos, and Myanmar.

Transparency of the Regulatory System

In general, Cambodia’s regulatory system, while improving, still lacks transparency. This is the result of the lack of legislation and the limited capacity of key institutions, which is further exacerbated by a weak court system. Investors often complain that the decisions of Cambodian regulatory agencies are inconsistent, arbitrary, or influenced by corruption. For example, in May 2016, in what was perceived as a populist move, the government set caps on retail fuel prices, with little consultation with petroleum companies.  In April 2017, the National Bank of Cambodia introduced an interest rate cap on loans provided by the microfinance industry with no consultation with relevant stakeholders. More recently, investors have regularly expressed concern over draft legislation that has not been subject to stakeholder consultations.

Cambodian ministries and regulatory agencies are not legally obligated to publish the text of proposed regulations before their enactment. Draft regulations are only selectively and inconsistently available for public consultation with relevant non-governmental organizations (NGOs), private sector, or other parties before their enactment. Approved or passed laws are available on websites of some ministries but are not always up to date. The Council of Jurists, the government body that reviews laws and regulations, publishes a list of updated laws and regulations on its website.

International Regulatory Considerations

As a member of ASEAN since 1999, Cambodia is required to comply with certain rules and regulations regarding free trade agreements with the 10 ASEAN member states. These include tariff-free importation of information and communication technology (ICT) equipment, harmonizing custom coding, harmonizing the medical device market, as well as compliance with tax regulations on multi-activity businesses, among others.

As a WTO member, Cambodia has both drafted and modified laws and regulations to comply with WTO rules. Relevant laws and regulations are notified to the WTO legal committee only after their adoption. A list of Cambodian legal updates in compliance with the WTO is described in the above section regarding Investment Policy Reviews.

Legal System and Judicial Independence

Although the Cambodian Constitution calls for an independent judiciary, both local and foreign businesses report problems with inconsistent judicial rulings, corruption, and difficulty enforcing judgments. For these reasons, many commercial disputes are resolved through negotiations facilitated by the Ministry of Commerce, the Council for the Development of Cambodia, the Cambodian Chamber of Commerce, and other institutions. Foreign investors often build into their contracts clauses that dictate that investment disputes must be resolved in a third country, such as Singapore.

The Cambodian legal system is primarily based on French civil law. Under the 1993 Constitution, the King is the head of state and the elected Prime Minister is the head of government. Legislative power is vested in a bicameral parliament, while the judiciary makes up the third branch of government. Contractual enforcement is governed by Decree Number 38 D Referring to Contract and Other Liabilities. More information on this decree can be found at this link .

Laws and Regulations on Foreign Direct Investment

Cambodia’s 1994 Law on Investment created an investment licensing system to regulate the approval process for FDI and provide incentives to potential investors. In 2003, the government amended the law to simplify licensing and increase transparency (Amended Law on Investment). Sub-decree No. 111 (2005) lays out detailed procedures for registering a QIP, which is entitled to certain taxation incentives, with the CDC and provincial/municipal investment subcommittees.

Information about investment and investment incentives in Cambodia may be found on the CDC’s website .

Competition and Anti-Trust Laws

A draft antitrust and competition law is reportedly near completion. Once enacted, it will be enforced by Cambodia’s Import-Export Inspection and Fraud Repression Directorate-General (CAMCONTROL). Cambodia enacted a Law on Consumer Protection in November 2019, but it has not been fully implemented as of April 2021.

Expropriation and Compensation

Land rights are a contentious issue in Cambodia, complicated by the fact that most property holders do not have legal documentation of their ownership because of the policies and social upheaval during Khmer Rouge era in the 1970s. Numerous cases have been reported of influential individuals or groups acquiring land titles or concessions through political and/or financial connections and then using force to displace communities to make way for commercial enterprises.

In late 2009, the National Assembly approved the Law on Expropriation, which sets broad guidelines on land-taking procedures for public interest purposes. It defines public interest activities to include construction, rehabilitation, preservation, or expansion of infrastructure  projects, and development of buildings for national defense and civil security. These provisions include construction of border crossing posts, facilities for research and exploitation of natural resources, and oil pipeline and gas networks. Property can also be expropriated for natural disasters and emergencies, as determined by the government. Legal procedures regarding compensation and appeals are expected to be established in a forthcoming sub-decree, which is under internal discussion within the technical team of the Ministry of Economy and Finance.

The government has shown willingness to use tax issues for political purposes. For instance, in 2017, a U.S.-owned independent newspaper had its bank account frozen purportedly for failure to pay taxes. It is believed that, while the company may have had some tax liability, the action taken by the General Department of Taxation, notably an inflated tax assessment, was politically motivated and intended to halt operations. These actions took place at the same time the government took steps to reduce the role of press and independent media in the country as part of a wider anti-democratic crackdown.

Dispute Settlement

ICSID Convention and New York Convention

Cambodia has been a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) since 2005. Cambodia is also a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) since 1960.

Investor-State Dispute Settlement

International arbitration is available for Cambodian commercial disputes. In March 2014, the Supreme Court of Cambodia upheld the decision of the Cambodian Court of Appeal, which had ruled in favor of the recognition and enforcement of an arbitral award issued by the Korean Commercial Arbitration Board of Seoul, South Korea. Cambodia became a member of the World Bank’s International Center for Settlement of Investment Disputes in January 2005.  In 2009, the International Center approved a U.S. investor’s request for arbitration in a case against the Cambodian government, and in 2013, the tribunal rendered an award in favor of Cambodia.

International Commercial Arbitration and Foreign Courts

Commercial disputes can also be resolved through the National Commercial Arbitration Center (NCAC), Cambodia’s first alternative dispute resolution mechanism, which was officially launched in March 2013. Arbitral awards issued by foreign arbitrations are admissible in the Cambodian court system. An example can be drawn from its recognition and enforcement of the arbitral award issued by the Korean Commercial Arbitration Board in 2014.

Bankruptcy Regulations

Cambodia’s 2007 Law on Insolvency was intended to provide collective, orderly, and fair satisfaction of creditor claims from debtor properties and, where appropriate, the rehabilitation of the debtor’s business. The law applies to the assets of all businesspeople and legal entities in Cambodia. The World Bank’s 2020 Doing Business Report ranks Cambodia 82 out of 190 countries in terms of the “ease of resolving insolvency.”

In 2012, Credit Bureau Cambodia (CBC) was established in an effort to create a more transparent credit market in the country. CBC’s main role is to provide credit scores to banks and financial institutions and to improve access to credit information.

Capital Markets and Portfolio Investment

In a move designed to address the need for capital markets in Cambodia, the Cambodia Securities Exchange (CSX) was founded in 2011 and started trading in 2012. Though the CSX is one of the world’s smallest securities markets, it has taken steps to increase the number of listed companies, including attracting SMEs. At the end of 2020, market capitalization stood at USD2.5 billion and the average daily trading value averages USD150,000. The CSX currently has seven listed companies: the Phnom Penh Water Supply Authority; Taiwanese garment manufacturer Grand Twins International; the Phnom Penh Autonomous Port; the Sihanoukville Autonomous Port; Phnom Penh SEZ Plc; ACLEDA Bank; and Pestech Plc.

In September 2017, the National Bank of Cambodia (NBC) adopted a regulation on Conditions for Banking and Financial Institutions to be listed on the Cambodia Securities Exchange. The regulation sets additional requirements for banks and financial institutions that intend to issue securities to the public. This includes prior approval from the NBC and minimum equity of KHR 60 billion (approximately USD15 million).

Cambodia’s bond market is at the beginning stages of development. The regulatory framework for corporate bonds was bolstered in 2017 through the publication of several regulations covering public offering of debt securities, the accreditation of bondholders’ representatives, and the accreditation of credit rating agencies. The country’s first corporate bond was issued in 2018 by Hattha Kaksekar Limited. Four additional companies have since been added to the bond market: LOLC (Cambodia) Plc.; Advanced Bank of Asia Limited; Phnom Penh Commercial Bank Plc; and RMA (Cambodia) Plc. RMA, which issued its bonds in early 2020, was the first non-bank financial institution to be listed.  There is currently no sovereign bond market, but the government has stated its intention of making government securities available to investors by 2022.

Money and Banking System

The NBC regulates the operations of banking systems in Cambodia. Foreign banks and branches are freely allowed to register and operate in the country. There are 44 commercial banks, 14 specialized banks (set up to finance specific turn-key projects such as real estate development), 74 licensed microfinance institutions (MFIs), and seven licensed microfinance deposit taking institutions in Cambodia. The NBC has also granted licenses to 12 financial leasing companies and one credit bureau company to improve transparency and credit risk management and encourage lending to small- and medium-sized enterprise customers.

Prior to the COVID-19 pandemic, Cambodia’s banking sector experienced strong growth. The banking sector’s assets, including those of MFIs, rose 21.4 percent year-over-year in 2018 to 139.7 trillion riel (USD34.9 billion), while credit grew 24.3 percent to 81.7 trillion riel (USD20.4 billion). Loans and deposits grew 18.3 percent and 24.5 percent respectively, which resulted in a decrease of the loan-to-deposit ration from 114 percent to 110 percent. The ratio of non-performing loans was measured at 1.6 percent in 2019.

The government does not use the regulation of capital markets to restrict foreign investment. Banks have been free to set their own interest rates since 1995, and increased competition  between local institutions has led to a gradual lowering of interest rates from year to year.  However, in April 2017, at the direction of Prime Minister Hun Sen, the NBC capped interest rates on loans offered by MFIs at 18 percent per annum. The move was designed to protect borrowers, many of whom are poor and uneducated, from excessive interest rates.

In March 2016, the NBC doubled the minimum capital reserve requirement for banks to USD75 million for commercial banks and USD15 million for specialized banks. Based on the new regulations, deposit-taking microfinance institutions now have a USD30 million reserve requirement, while traditional microfinance institutions have a USD1.5 million reserve requirement.

In March 2020, the NBC issued several regulations to ensure liquidity and promote lending amid the COVID-19 pandemic. They include: (1) delaying the implementation of Conservation Capital Buffer (CCB) for financial institutions; (2) reducing the minimum interest rate of Liquidity-Providing Collateralized Operations (LPCO); (3) reducing the interest rates of Negotiable Certificate of Deposit (NCD); (4) reducing the reserve requirement rate (RRR) from 8 percent (KHR) and 12.5 percent (USD) to 7 percent (KHR and USD) for 6 months starting from April 2020; and (5) reducing the liquidity coverage ratio.  The NBC also requested financial institutions to delay dividend payouts in order to preserve financial sector liquidity. The government has also encouraged banks to continue restructuring loans to help avoid defaults. In late 2020, the government announced that businesses in the garment and footwear, tourism, and aviation sectors would continue to receive tax incentives in 2021. In addition, financial institutions’ borrowings from both local and foreign sources will benefit from reduced tax withholdings in 2021.

Financial technology (Fintech) in Cambodia is still at early stage of development. Available technologies include mobile payments, QR codes, and e-wallet accounts for domestic and cross-border payments and transfers. In 2012, the NBC launched retail payments for cheques and credit remittances. A “Fast and Secure Transfer” (FAST) payment system was introduced in 2016 to facilitate instant fund transfers. The Cambodian Shared Switch (CSS) system was launched in October 2017 to facilitate the access to network automated teller machines (ATMs) and point of sale (POS) machines.

In February 2019, the Financial Action Task Force (FATF), an international intergovernmental organization whose purpose is to develop policies to combat money laundering, cited Cambodia for being “deficient” with regard to its anti-money laundering and countering financing of terrorism (AML/CFT) controls and policies and included Cambodia on its “grey list.”  The government committed to working with FATF to address these deficiencies through a jointly developed action plan, although progress to date has not been sufficient and Cambodia remains on the grey list in 2021. Should Cambodia not take appropriate action, FATF could move it to the “black list,” which could negatively impact the cost of capital as well as the banking sector’s ability to access international capital markets.

Foreign Exchange and Remittances

Foreign Exchange

Though Cambodia has its own currency, the riel (denoted as KHR), U.S. dollars are in wide circulation in Cambodia and remain the primary currency for most large transactions. There are no restrictions on the conversion of capital for investors.

Cambodia’s 1997 Law on Foreign Exchange states that there shall be no restrictions on foreign exchange operations through authorized banks. Authorized banks are required, however, to report the amount of any transfer equaling or exceeding USD100,000 to the NBC on a regular basis.

Loans and borrowings, including trade credits, are freely contracted between residents and nonresidents, provided that loan disbursements and repayments are made through an authorized intermediary. There are no restrictions on the establishment of foreign currency bank accounts in Cambodia for residents.

The exchange rate between the riel and the U.S. dollar is governed by a managed float and has been stable at around one U.S. dollar to KHR 4,000 for the past several years.  Daily fluctuations of the exchange rate are low, typically under three percent.  The Cambodian government has taken steps to increase general usage of the riel, including phasing out in June 2020 the circulation of small-denominated U.S. dollar bills; however, the country’s economy remains largely dollarized.

Remittance Policies

Article 11 of Cambodia’s 2003 Amended Law on Investment states that QIPs can freely remit abroad foreign currencies purchased through authorized banks for the discharge of financial obligations incurred in connection with investments. These financial obligations include payment for imports and repayment of principal and interest on international loans; payment of royalties and management fees; remittance of profits; and repatriation of invested capital in case of dissolution.

Sovereign Wealth Funds

Cambodia does not have a sovereign wealth fund.

Cambodia currently has 15 state-owned enterprises (SOEs):  Electricite du Cambodge; Sihanoukville Autonomous Port; Telecom Cambodia; Cambodia Shipping Agency; Cambodia Postal Services; Rural Development Bank; Green Trade Company; Printing House; Siem Reap Water Supply Authority; Construction and Public Work Lab; Phnom Penh Water Supply Authority; Phnom Penh Autonomous Port; Kampuchea Ry Insurance; Cambodia Life Insurance; and the Cambodia Securities Exchange.

In accordance with the Law on General Stature of Public Enterprises, there are two types of commercial SOEs in Cambodia: one that is 100 percent owned by the state; and another that is a joint-venture in which a majority of capital is owned by the state and a minority is owned by private investors.

Each SOE is under the supervision of a line ministry or government institution and is overseen by a board of directors drawn from among senior government officials. Private enterprises are generally allowed to compete with state-owned enterprises under equal terms and conditions.  SOEs are also subject to the same taxes and value-added tax rebate policies as private-sector enterprises. SOEs are covered under the law on public procurement, which was promulgated in January 2012, and their financial reports are audited by the appropriate line ministry, the Ministry of Economy and Finance, and the National Audit Authority.

Privatization Program

There are no ongoing privatization programs, nor has the government announced any plans to privatize existing SOEs.

Policies Towards Foreign Direct Investment

Creating a conducive business environment to attract foreign direct investments is a corner stone of Cameroon’s development strategy. Governance and strategic management of the state constitutes one of the four pillars of the National Development Strategy 2030 (NDS 30), which was launched on November 16, 2020. The government of Cameroon acknowledges that the challenging nature of the domestic business climate remains a concern. To fight corruption, rebuild a weak legal system, and modernize an inefficient public service, the NDS 30 has adopted a holistic approach to governance, which includes political and institutional governance, administrative governance, economic and financial governance, regional governance, and social and cultural governance.

Cameroon has put in place an arsenal of institutions and laws to improve governance. The country has prevention programs and has reinforced the powers of the judiciary through the creation of the Special Crime Tribunal on corruption and economic crimes. This special tribunal, which began activities on December 14, 2012, is empowered to trial perpetrators of economic crimes amounting to at least $100,000. The court specifically targets custodians of public funds as well as officials who have the prerogatives to collect or spend money on behalf of the state. Since its creation, the tribunal has tried 225 cases and recovered $323 million. However, corruption and administrative mismanagement continue to hamper the business climate in Cameroon. Cameroon consistently ranks at the bottom of the World Bank’s Ease of Doing Business index and Transparency International’s Corruption Perceptions Index. In 2020, Cameroon ranked 167 of 190 on the Ease of Doing Business index and 149 of 180 on the Corruption Perceptions Index.

Despite the active presence of state-owned companies in important sectors of the economy, private entities – both domestic and foreign – can create and own businesses that engage in all forms of legal remunerative activities. They can also enter joint ventures and public-private partnerships with the government. There are no general economy-wide (statutory, de facto, or otherwise) limits on foreign ownership or control. Cameroon has no laws or regulations that prescribe outright prohibition on investment, equity caps, mandatory domestic joint venture partners, licensing restrictions, or mandatory intellectual property (IP)/technology transfer requirements. Cameroon has a screening process, which is applicable to all domestic and foreign investments.  This screening process ensures that investors have legitimate registered businesses and are able to meet criteria, such as employment creation and export quantities, to qualify for private investment incentives.

The Cameroon Investment Promotion Agency (CIPA) was created in 2010. To date, the CIPA has signed 172 investment agreements and generated the creation of over 60,000 jobs. CIPA’S mission, in collaboration with other state institutions and private bodies, is to contribute to the development and implementation of government policy in the field of investment promotion. The agency seeks also to foster an enabling environment for investments in Cameroon.

The investment incentives offered by CIPA cover existing and emerging economic sectors. The agency also serves as a one-stop-shop facilitator through the assistance it provides to foreign and domestic investors. It processes application files for approval in compliance with its investment charter and assists in the alignment of projects with the general tax code. It can support potential foreign investors for visas applications. The agency also follows up to monitor the implementation of commitments made by approved companies.

CIPA’s sector coverage

Sources: National Institute of Statistics, IMF, Internal estimates 2019-2020

The government maintains dialogue with business associations such as the Groupement Inter-Patronal du Cameroun (GICAM) and Enterprise Cameroon through the Cameroon Business Forum, which is sponsored by the World Bank.  Over the past year, GICAM has been critical of the government handling of the negative impact of COVID-19 on business.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no general economy-wide (statutory, de facto, or otherwise) limits on foreign ownership or control. Apart from national defense and security areas, there are no sector-specific restrictions, limitations, or requirements applied to foreign ownership and control. Despite an active government presence in most sectors of the economy, private entities – both domestic and foreign – can create and own businesses that engage in all forms of legal remunerative activities. They can also enter joint ventures and public-private partnerships with the government.

Cameroon has no laws or regulations that prescribe outright prohibition on investment, equity caps, mandatory domestic joint venture partners, licensing restrictions, or mandatory intellectual property/technology transfer requirements.  Cameroon has a screening process, which is applicable to all domestic and foreign investments.  This screening process ensures that investors meet the criteria, such as employment and export quantities, to qualify for private investment incentives.

Other Investment Policy Reviews

On June 22, 2020, the Minister of Economy and Regional Planning (MINEPAT) announced an economic stimulus package to counter the negative economic and social impacts of the COVID –19 pandemic. With a total expected budget of $798 million, the package planned to allocate funds to five areas, which include strengthening the health system ($97.3 million), supporting economic and financial resilience ($625 million), and maintaining strategic suppliers of essential goods ($9.1 million). In addition to these financial measures, the government introduced a set of temporary tax rebates, incentives, moratoria, and deferred payments for private companies. Cameroon has also benefitted from regional measures introduced by the regional central bank, Banque des Etats de l’Afrique Centrale (BEAC). Throughout 2020, BEAC maintained low interest rates, increased liquidity provisions, and widened the range of private financial instruments accepted as collateral for monetary policy operations.

The pandemic emerged as Cameroon prepared to close a three-year Extended Credit Facility agreement with the International Monetary Fund (IMF), which it signed in June 2017.  The program included structural reforms to accelerate and consolidate growth and control spending.  Under the terms of the agreement, the IMF has conducted five policy reviews outlined below.  Copies of the reviews can be found on the IMF website.

• First Review (January 2018)
• Second Review (July 2018)
• Third Review (December 2018)
• Fourth Review (July 24, 2019)
• Fifth Review (February 14, 2020)

The evaluation and closure of the program has been disrupted by the eruption of COVID-19. But on January 22, 2021, IMF said the economic shock associated with the COVID-19 pandemic was set to have long-lasting effects on the economic outlook for the Central African Economic and Monetary Community (CEMAC). The IMF indicated that the CEMAC economic outlook is highly uncertain and contingent on the evolution of the pandemic and its impact on oil prices. Before COVID-19, IMF expressed satisfaction with the progress of the implementation of reforms, while urging the country to implement stronger measures on budget transparency and improvement of the business climate.

Sources: Cameroon Ministry of Finance and IMF

The IMF estimates that the economic shock associated with the COVID-19 pandemic is set to have long-lasting effects on the economic outlook for Cameroon and other CEMAC members. The IMF has granted financial resources to individual countries in the region to fight the pandemic. This emergency financial support has contained the initial economic fallout. Uncertainties remain in the long-term impact, especially in the context of stagnating oil prices. The IMF outlook projects that CEMAC’s fiscal and external adjustments will be slower than previously envisaged, entailing large external financing needs (around $7.7 billion for 2021–23). The IMF concludes that the outlook is highly uncertain and contingent on the evolution of the pandemic and its impact on oil prices.

Business Facilitation

Entrepreneurs obtain a unique tax identifying number when they open a company in Cameroon. This taxpayer’s identification number, known as the single identification number, is attributed to the business owners immediately when they start the registration procedure of their business. Any entity or sole proprietor starting a business in Cameroon is attributed this single identification number by the Directorate General of Taxation. The number is attributed on a permanent basis upon effective localization of the taxpayer and only after the taxpayer has filed an application to register the business with the competent tax authority within 15 working days following the commencement of activities.

According to the World Bank, it takes 14 procedures and 82 days to establish a foreign-owned limited liability company in Douala, Cameroon’s largest city and economic capital.  This process is lengthier and more complex than regional and global averages.  For foreign investors, a declaration of foreign investment to the Ministry of Finance is mandatory 30 days prior to the beginning operations. In addition, if the company wants to engage in international trade, registration in the importers’ file is required to obtain an automated customs systems number (Système Douanier Automatisé, or “sydonia”).  This number facilitates the entry and exit of goods produced by the company.  The authentication of the parent company’s documentation abroad is required only to establish a subsidiary. Foreign-owned resident companies that wish to maintain foreign currency bank accounts must obtain prior approval.  The Minister of Finance issues such authorization, which is subject to approval from the Bank of Central African States (BEAC) as per Section 24 of the exchange control regulations.  This approval takes on average 38 days to obtain.  There is a minimum paid-in capital requirement of CFA 1,000,000 (~USD 1,800) for establishing LLCs.

In Cameroon, business registration remains manual after the failure of a registration portal launched by the Ministry of Small and Medium-Sized Enterprises that was supposed to automate the process. To register, entrepreneurs must go to one of the regional centers for the creation of enterprises, which can complete the registration procedure within one week.

Outward Investment

The Cameroonian government does not promote or incentivize outward investment, nor does it restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Cameroon laws are consistent with international business and legal norms. Cameroon legal architecture is made of national, regional (CEMAC), and supra-national regulations, most of which are applicable to domestic and foreign businesses. Weak implementation and investigating capacity, a lack of understanding of international business practices, and corruption in the judiciary limit the effectiveness of the rule of law. In many circumstances, judicial loopholes persist, leading to arbitrary interpretations of the texts.

Some government ministries, though not all, consult with public and private sector organizations through targeted outreach to stakeholders, such as business associations or other groups. There is no formal process for such consultations. Ministries do not report the results of consultations, but there is no evidence that such processes disadvantage U.S. or other foreign investors.

Cameroon’s National Assembly and Senate pass laws. The Executive proposes bills and then executes laws. Though there is technically a separation of powers, the Presidency is the supreme rule-making and regulatory authority. Decentralized institutions in the regions and municipalities have little additional regulatory authority. Draft bills and regulations are not made available for public comment. The website for the Office of the Prime Minister (www.spm.gov.cm) contains PDF versions of most new regulatory actions published in the Cameroon Tribune, the country’s newspaper of record.

Ministries and regulatory agencies do not have a list of anticipated regulatory changes or proposals intended to be adopted/implemented within a specified period. Ministries do not have a legal obligation to publish the text of proposed regulations before their enactment. There is no period set by law for the text of the proposed regulations to be publicly available. There is no specialized government body tasked with reviewing and monitoring regulatory impact assessments conducted by other individual agencies or government bodies.

Cameroon has administrative courts that specialize in the application and enforcement of public laws. From a strictly legal perspective, the Supreme Court has oversight on enforcement mechanisms, but a lack of separation of powers prevents the judiciary from carrying out its responsibilities. There have been no new regulatory or enforcement reforms announced since the 2020 Investment Climate Statement.

Cameroon does not meet the minimum standards of fiscal transparency. This is partly because many of the state-owned enterprises do not have public accounts. But companies that are listed or aspire to be listed on the Central African Stock Exchange (CASE) have more stringent transparency requirements. There are only four publicly listed companies on the CASE. All four use the Organization for the Harmonization of Business Law in Africa (OHADA) accounting system, which does not align completely with International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP) standards. Cameroon is a member of CEMAC and is thus subject to its regulations, though implementation remains weak. CEMAC’s central bank, BEAC, controls monetary policy and is the de facto finance sector regulator, in coordination with the Ministry of Finance.

The National Institute of Statistics (INS) conducts surveys and produces statistics, which are meant to inform policy decisions. Some of these statistics are cited in government documents when ministries are drafting legislative proposals or during parliamentary debates. Quantitative analysis conducted by the INS have often been used by multilateral lenders such as the IMF, the World Bank, and the African Development Bank. However, empirical evaluation and data-driven assessments of the impact of new and existing regulations are limited. Similarly, public comments are not the main drivers of regulations. However, some consultations take place for the national budget, which is produced each year, but there is little oversight to ensure adherence to the document. The framework of the IMF’s 2017 Extended Credit Facility has induced the publication of more information on public debt by the Debt Management Office (better known by its French acronym CAA).

International Regulatory Considerations

Cameroon is a CEMAC member. CEMAC regulations supersede those of individual members, though areas such as the free movement of people, goods, and services are not respected by some states. Recent reforms by CEMAC’s central bank, BEAC, have met stiff resistance and delays in their application by individual member states, including Cameroon.

The government requires use of OHADA accounting standards, which is used by 14 African nations. No other norms or standards are referenced in the country’s regulatory system.

Cameroon joined the World Trade Organization (WTO) on December 13, 1995 and was previously a member of the General Agreement on Taxes and Tariffs. On March 11, 2019, Cameroon was suspended from the WTO for failure to meet its designated 180 million CFA (USD 308,000) contribution to the organization. The government of Cameroon is expected to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

The Cameroonian legal system is a legacy of French, German (Codified Laws), English (Common law), and domestic national customs, which varies for each ethnic group. The government wants to harmonize these different legal traditions to equip Cameroon with laws that are applicable across the country and to reduce the need to navigate different legal opinions. This project, however, is being met with stiff resistance from English-speaking lawyers, who believe that the initiative will undermine the English system to which they are accustomed.

In terms of standards, Cameroon’s commercial legal system follows the OHADA rules, which are supposed to be aligned with International Financial Reporting Standards (IFRS).  Enforcement is weak partly because of lack of capacity. Cameroon does not train enough specialized judges in the commercial and economic fields. Consequently, poor enforcement of laws and accounting standards tends to create confusion for foreign investors. Despite efforts to align OHADA standards to international norms, government accounting regulations remain obsolete in the context of rapid developments in international finance and capital markets.  To circumvent the problem, U.S. enterprises and investors often maintain two sets of accounting records, one in accordance with U.S. Generally Accepted Accounting Principles (GAAP) or suitable international standards, and another set to address the OHADA standards and government reporting requirements.

The judicial system is not independent of the executive branch.  The executive regularly interferes in judiciary matters.  The current judicial process is not procedurally competent, fair, or reliable. Endemic corruption, lack of funding, and political considerations makes the courts unable to function as independent arbiters of disputes.

Arbitration is becoming the solution of choice to solve business disputes in Cameroon.  Arbitration is in the OHADA corporate law. Since OHADA is a supra-national law, Cameroon is bound by its decisions. In OHADA, regulations and enforcement actions are appealable, and they can also be adjudicated in the national court system. Due to the court’s lack of objectivity, few businesses attempt to appeal unfavorable rulings.

Laws and Regulations on Foreign Direct Investment

Foreign direct investments are governed by Law No. 2013/004 of 18 April 2013, which defines incentives for private investment in Cameroon, while proposing generic and special incentives and affirming the government’s responsibilities towards private investors.  The law remains valid for domestic and foreign investors.  Additional laws and regulations that refer to specific economic sectors are available on the website of the Ministry of Finance (http://www.minfi.gov.cm/index.php/en/documents ).

The 2021 finance law is the main new legal instrument to have been published in the past year.  The new finance law has created new taxes, while maintaining some existing exonerations, notably on value-added taxes and life insurance savings. Full implementation started on February 2021. The Cameroon Investment Promotion Agency maintains a list of relevant laws, rules, procedures, and reporting requirements for investors ( https://investincameroon.net/en/ ).

Competition and Antitrust Laws

The National Competition Commission handles anti-competition and anti-trust disputes.  In some cases, the regulator of a specific economic sector can play the anti-trust role. State-owned companies tend to have quasi-monopoly or monopsony status in their markets.

Expropriation and Compensation

Decree N°.85-9 of 4 July 1985 and the subsequent implementation of Decree N°.87-1872 of 16 December 1987 outline the procedure governing expropriation for public purposes and conditions for compensation. Some of the provisions of these legal texts were repealed by Instruction n°005/I/Y.25/MINDAF/D220 of 29 December 2005. Essentially, for the public interest the state may expropriate privately-owned land. The laws also explain the formalities to be observed within the context of the procedure, both at the central and local levels.

In recent years, the government of Cameroon has expropriated in the context of the construction of large infrastructure projects, such as roads and hydroelectric dams. The government has a compensation process in place to meet the losses of those affected by such decisions.

Despite weakness in the actual implementation and execution of laws on the ground, compensation after expropriation generally follows a due process. There are no cases of indirect expropriation, confiscatory tax regimes, or regulatory actions that deprive investors of substantial economic benefits from their investments. However, serious allegations of corruption have plagued compensation procedures over the last decade. These incidents, often carried out by civil servants, have undermined trust in the process.

Dispute Settlement

ICSID Convention and New York Convention  

Cameroon ratified the “International Centre for Settlement of Investment Disputes” (ICSID) Convention on January 3, 1967 and the New York Convention on February 19, 1988. There is no specific domestic legislation providing for enforcement under the 1958 New York Convention and for the enforcement of awards under the ICSID Convention.

Investor-State Dispute Settlement  

The OHADA-signatory nations adopted a uniform act on arbitration (the Uniform Act) on March 11, 1999. The Uniform Act sets out the basic rules applicable to any arbitration, where the seat of arbitration is in an OHADA member state.  The Uniform Act is based on the United Nations Commission on International Trade Law (UNCITRAL) model law.  It supersedes the national laws on arbitration of the OHADA states. Cameroon’s arbitration law is contained in its code of civil and commercial procedure in the third volume, Articles 576 to 601.

Cameroon has a Bilateral Investment Treaty (BIT) with the United States. There have been no claims against the BIT since it came into force in 1989. While there have been disputes between Cameroonian partners and U.S. companies, few have risen to the level of requiring arbitration. Misunderstandings between partners have led to conflicts, but such cases have been infrequent over the past 10 years.

Local courts may recognize foreign arbitral awards issued against the government, but they are not well-equipped to enforce such decisions. Post is aware of several such awards against state-owned companies that have not been enforced. In general, foreign investors complain more about administrative harassment or bottlenecks, and less about extrajudicial actions.

International Commercial Arbitration and Foreign Courts  

The OHADA system serves both as domestic and primary reference legislation for alternative dispute resolution but is rarely used. GICAM, the country’s largest business lobby group, has an arbitration center based in Douala. In principle, local courts have the power to recognize and enforce foreign arbitral awards issued against the government if found at fault. As a treaty, OHADA standards prevail over domestic laws.  An international arbitration award can prevail especially if operating through the OHADA framework. The Common Court of Justice and Arbitration (CCJA) enforced under OHADA are both an arbitration institution and a judicial court, with jurisdiction overall OHADA states.

Judicial processes are bureaucratic, expensive, time-intensive, and lengthy. This is true even for domestic and state-owned companies, which like their foreign competitors, also suffer from the weaknesses of the legal system and are not guaranteed any better treatment in case of dispute.

In a prominent November 2019 case, the general manager of a state-owned hydrocarbon distribution company complained that debts owed by the state-owned electricity company, in combination with frequent power cuts, had caused millions of dollars in financial losses. Instead of addressing the issue or seeking arbitration, the company fired the manager.

Bankruptcy Regulations

Cameroon has bankruptcy laws, which recognize the right of creditors, the equity of shareholders and other types of liabilities. Bankruptcy is not criminalized unless it can be proven that it is a deliberate collusion to avoid tax or mislead investors. In 2020, Cameroon ranked 167th out of 190 economies in the World Bank’s ranking of the ease of doing business and 129th on its ability to resolve insolvency. In bankruptcy situations, it takes 2.8 years on average and costs 33.5 percent of the debtor’s estate, with the most likely outcome being that the company will be sold piecemeal. The average recovery rate is 15.8 cents on the dollar.

Capital Markets and Portfolio Investment

The Cameroonian government is open to portfolio investment. With the encouragement of IMF and BEAC, Cameroon and other members of the CEMAC region have designed policies that facilitate the free flow of financial resources into the product and factor markets.

The Financial Markets Commission (CMF) of Cameroon physically merged with the Libreville-based Central African Financial Market Supervisory Board (CONSUMAF) in February 2019.  The merger has led to the establishment of a unique regional stock exchange called the Central African Stock Exchange (CASE). Cameroon’s financial sector is underdeveloped, and government policies have limited bearing on the free flow of financial resources into the product and factor markets. Foreign investors can get credit on the local market and the private sector has access to a variety of credit instruments. In 2016, Cameroon sought to encourage the development of capital markets through Law No 2016/010 of 12 July 2016, governing undertakings for collective investment in transferable securities in Cameroon.

Cameroon is connected to the international banking payment system. The country is a CEMAC member, which maintains a central bank, BEAC.  The current governor of BEAC is Abbas Mahamat Tolli (from Chad). CEMAC’s central bank works with the IMF on monetary policies and public finance reform.  BEAC respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.  Despite generally respecting Article VIII, BEAC has instituted several restrictions on payments to boost foreign exchange reserves. Throughout much of 2019-2020, financial institutions and importers complained of a backlog of requests for foreign exchange. BEAC is currently negotiating with several international oil companies on repatriation of revenues before external payments. While the situation has improved over the last six months, investors should be aware that timely repatriation of profits may be a stumbling block.

In 2020, with the support of the IMF, BEAC took steps to address the economic impact of COVID-19 in the region. The central bank eased monetary policy and introduced accommodative measures to ensure adequate liquidity in the banking system to supporting internal and external stability. Concomitantly, the regional banking sector controller (Commission Bancaire de l’Afrique Centrale or COBAC) eased prudential regulations to help banks delay pandemic-related losses.

Money and Banking System

Less than 15 percent of Cameroonians have access to formal banking services. The Cameroonian government has often spoken of increasing access, but no coherent policy or action has been taken to alleviate the problem. Mobile money, introduced by local and international telecom providers, is the closest tool to banking services that most Cameroonians can access.

The banking sector is generally healthy.  Large, international commercial banks do most of the lending.  One local bank, Afriland, operates in multiple other countries. Most smaller banks deal in small loans of short duration. Retail banking is not common. According to the World Bank, non-performing loans were 10.31 percent of total bank loans in 2016. The Cameroonian government does not keep statistics on non-performing assets. Cameroon’s largest banks are:

1.  Afriland First Bank ($3 billion)
2.  Société Générale Cameroon ($2.5 billion)
3.  Banque Internationale Du Cameroun Pour L’Epargne Et Le Crédit-BICEC ($2.1 billion)
4.  EcoBank ($1.4 billion)
5.  BGFI Bank Cameroon ($918 million)
6.  Union Bank of Africa Cameroon ($ 811 million)

(Source: Jeune Afrique, October 2020)

Foreign banks can establish operations in Cameroon.  Most notably, Citibank and Standard Chartered Bank have operated in Cameroon for more than 20 years. They are subject to the same regulations as locally developed banks. Post is unaware of any lost correspondent banking relationships within the past three years. There are no restrictions on foreigners establishing bank accounts, credit instruments, business financing, or other such transactions.

The country has 412 registered microfinance institutions, 19 insurance companies, 4 electronic money institutions, and one Post Office bank. Two major money transfer operators are also present, essentially offering over-the-counter services. The Cameroon market is at the startup stage for its digital financial system. This emerging market segment is currently provided by banks in partnership with telecom operators. According to the World Bank (June 2020), in Cameroon, mobile money accounts are held by 15.1 percent of the adult population, which falls right after Gabon (43.6 percent). The specific market for e-payments is also less developed when compared to peer countries in the region such as Côte d’Ivoire (38.9 percent) and Senegal (31.8 percent).

Financial inclusion is low despite some progress brought about by mobile telephony. There were 21 million mobile telephony subscriptions at the end of 2019 in Cameroon (Agence de Regulation des Telecommunications – ART, 2018). Putting aside the multi-SIM effect, the penetration rate in terms of unique subscribers was about 50 percent at the end of 2019, which puts Cameroon in the lower end in the Central African region.

Foreign Exchange and Remittances

Foreign Exchange

In May 2020, the BEAC reported that foreign reserves had increased by 30 percent compared to 2019. According to the central bank, this is the result of the tightening of regulations after foreign exchange reserves plummeted in the aftermath of the 2014 oil shock. At the time, the IMF estimated that the volume of foreign exchange assets illegally held outside the CEMAC zone by local firms and institutions was five trillion CFA ($8.3 billion).

On March 1, 2019, CEMAC members states through BEAC adopted a new foreign exchange currency regulation, which restricts payments in foreign currency by individuals and businesses. All sectors of the economy without exception will be subject to the new regulations. Given the importance of the oil sector in the economy of the region and the challenges in the implementation, BEAC allowed for an implementation period until December 31, 2020. In November 2020, this moratorium on implementing the foreign exchange regulations was extended until December 31, 2021. In addition, the bank has tightened administrative procedures. Each request for a foreign exchange transaction requires a “dossier” that would include various documents. The documents required vary based on the type of transaction to demonstrate the “legitimacy” of the planned purchase in foreign exchange that BEAC would approve. The formal list of required documents from BEAC includes a significant number of required supporting documents.

The IMF has stated that forex transactions of less than one million U.S. dollars only require approval by local BEAC representatives in each country and should take place in a matter of days. Forex transactions exceeding one million U.S. dollars require approval from BEAC headquarters in Yaoundé and should occur in less than 48 hours. Banks and other financial institutions complain that requests are often rejected on minor technical grounds. In practice, approved requests often take more than two weeks to process.

As of May 2020, BEAC is requiring international oil companies to repatriate 70 percent of proceeds from the sale of oil and gas and then apply to receive dollars or euros. Several Ministers of Finance and/or Energy in CEMAC countries have assured oil companies that they do not need to comply with the regulation, creating uncertainty for the operators.  In theory, funds associated with any form of investment can be freely converted into any world currency, but the current BEAC restrictions are causing currency conversion concerns at financial institutions and oil companies.

The Central African CFA Franc is the currency of six independent states in Central Africa: Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, and Gabon. It is administered by BEAC and is currently pegged at roughly 657.02 CFA to one Euro (April 08, 2021).

Remittance Policies and Sovereign Wealth Funds

According to the United Nations High Commissioner for Refugees, officially recorded inbounded remittances to Cameroon are estimated at $242 million and outbound remittances at $2.55 billion in 2017. Therefore, Cameroon is a net sender of remittances. Also according to UNHCR, ninety percent of the outbound remittances from Cameroon are sent to Nigeria.

Apart from the tightening of foreign exchange and remittance rules in 2019, Post is unaware of any recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances. There are no time limitations on transactions beyond the classic banking transactions timeline. BEAC regulates remittance policies and banking transactions. Foreign investors can remit through convertible and negotiable instruments through legal channels recognized by BEAC, subject to the recent issues mentioned above. Cameroon does not have a sovereign wealth fund.

Cameroon has at least 200 SOEs. Roughly 70 percent of SOEs are profit-oriented, though most are a net negative on government finances. Some provide public services. Many SOEs are so dominant in their markets that they act as de facto regulators, specifically in telecommunications and media. The Government of Cameroon has over 130 state-owned companies in which it has majority ownership, and which operate in key sectors of the economy including agribusiness, energy, and mining. SOEs are also present in real estate, transportation, services, information and communication technology, finance, and travel.

In 2017, the National Assembly voted into law a new regulation to govern SOEs. The stated objective is to improve the services offered and the competitiveness of public companies, in line with the country’s development objectives. Some of the innovations of this law include the diversification of the investment universe of SOEs, modern control through reporting requirements, and compliance with modern governance principles. As of 2021, it does not appear that any of these objectives have been completed.  SOEs competing in the domestic market receive non-market-based advantages from the Cameroonian government. They receive taxpayer subsidies, and in many markets, serve as de facto regulators. They also have a history of accumulating unpaid tax arrears while at the same time benefitting from preferential access to land and to public funds through state interventions.

The Supreme Audit Chamber of Cameroon indicates in its yearly reports that SOEs are not financially transparent. Only about 22 percent of these companies publish financial accounts. Other reports have highlighted corruption cases involving managers of SOEs, inefficiencies, severe dysfunctions, and opacity in the management of SOEs. These problems are exacerbated by the government’s failure to impose any performance targets, productivity requirements, and quality of service standards nor any significant budget constraints on SOEs. The governing boards and senior executive teams are political appointees and connected individuals.  The SOEs have means to avoid tax burdens levied on private enterprises, receive specialized consideration for subsidies and enhanced operating budgets, and obtain generally preferential treatment from the government (including courts).

Privatization Program

In general, privatization appears to be on hold. The government favors Public-Private Partnerships or some variations of outsourcing of contractual management, with the state retaining some ownership of assets or of the business, rather than outright privatization. In some cases, the state also prefers to participate in ventures, such as mining companies, rather than creating a state-owned company. Yet, in at least one case, the government has appeared to be reversing privatization.  This is the case for the country’s utility sectors, such as water and electricity, where the government has outsourced distribution to private operators. The state retains control of infrastructure, and there are no indications that this situation will change soon. There has been call for the government to list part of its stakes in state-owned companies on the Central African Stock Exchange (CASE).

Foreign investors can and do participate in the privatization programs. According to some analysts, of the 30 state-owned companies that were privatized before 2004, foreign bidders won the majority (22). For example, a British private equity firm owns the controlling share in ENEO, the country’s electricity monopoly. The public bidding on tender offers is transparent. They are advertised in the media, but the actual process of awarding contracts may still be tainted by corruption, particularly on large projects. The listing of public tenders in the Cameroon Tribune newspaper – the government-owned paper of record –and publication of which firms received the contract do not guarantee a fully transparent process of awards.

Policies Towards Foreign Direct Investment

Canada actively encourages FDI and maintains a sound enabling environment (23 out of 190 countries on the World Bank’s 2020 Doing Business Report). Investors are attracted to Canada’s proximity to the United States, highly skilled workforce, strong legal protections, and abundant natural resources. Once established, foreign-owned investments are treated equally to domestic investments. As of 2019, the United States had a stock of USD 402 billion of foreign direct investment in Canada. U.S. FDI stock in Canada represents 47 percent of Canada’s total investment. Canada’s FDI stock in the United States totaled USD 496 billion.

The USMCA modernizes the previous NAFTA investment protection rules and investor-state dispute settlement provisions. Parties to the USMCA agree to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.

Invest in Canada is Canada’s investment attraction and promotion agency. It provides information and advice on doing business in Canada, strategic market intelligence on specific industries, site visits, and introductions to provincial, territorial, and municipal investment promotion agencies. Still, non-tariff barriers to trade across provinces and territories contribute to structural issues that have held back the productivity and competitiveness of Canada’s business sector.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investment in Canada is regulated under the provisions of the Investment Canada Act (ICA). U.S. FDI in Canada is also subject to the provisions of the World Trade Organization (WTO), the USMCA, and the NAFTA. The ICA mandates the review of significant foreign investments to ensure they provide an economic net benefit and do not harm national security.

Canada is not a party to the USMCA’s chapter on investor-state dispute settlement (ISDS). Ongoing NAFTA arbitrations are not affected by the USMCA, and investors can file new NAFTA claims by July 1, 2023, provided the investment(s) were “established or acquired” when NAFTA was still in force and remained “in existence” on the date the USMCA entered into force. An ISDS mechanism between the United States and Canada will cease following a three-year window for NAFTA-protected legacy investments.

The Canadian government announced revised ICA foreign investment screening guidelines on March 24, 2021. The revised guidelines include additional national security considerations such as sensitive technology areas, critical minerals, and sensitive personal data. The new guidelines are aligned with Innovation, Science, and Economic Development Canada’s April 2020 update on greater scrutiny for foreign investments by state-owned investors, as well as investments involving the supply of critical goods and services.

Foreign ownership limits apply to Canadian telecommunication, airline, banking, and cultural sectors. Telecommunication carriers, including internet service providers, that own and operate transmission facilities are subject to foreign investment restrictions if they hold a 10 percent or greater share of total Canadian communication annual market revenues as mandated by The Telecommunications Act. These investments require Canadian ownership of 80 percent of voting shares, Canadians holding 80 percent of director positions, and no indirect control by non-Canadians. If the company is a subsidiary, the parent corporation must be incorporated in Canada and Canadians must hold a minimum of 66.6 percent of the parent’s voting shares. Foreign ownership of Canadian airlines is limited to 49 percent with no individual non-Canadian able to control more than 25 percent by mandate of the 2018 Transportation Modernization Act. Foreign banks can establish operations in Canada but are generally prohibited from accepting deposits of less than USD 112,000. Foreign banks must receive Department of Finance and the Office of the Superintendent of Financial Institutions (OSFI) approval to enter the Canadian market. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of net benefit to Canada.

Other Investment Policy Reviews

The World Trade Organization conducted a trade policy review of Canada in 2019. The report is available at: https://www.wto.org/english/tratop_e/tpr_e/tp489_e.htm  . The Organization of Economic Development completed an Economic Forecast Summary and released the results in March 2021. The report is available at: http://www.oecd.org/economy/canada-economic-snapshot/ 

Business Facilitation

Canada ranks 3 out of 190 countries on starting a business in the 2020 World Bank’s Ease of Doing Business rankings. The Canadian government provides information necessary for starting a business at: https://www.canada.ca/en/services/business/start.html . Business registration requires federal or provincial government-based incorporation, the application of a federal business number and corporation income tax account from the Canada Revenue Agency, the registration as an extra-provincial or extra-territorial corporation in all other Canadian jurisdictions of business operations, and the application of relevant permits and licenses. In some cases, registration for these accounts is streamlined (a business can receive its business number, tax accounts, and provincial registrations as part of the incorporation process); however, this is not true for all provinces and territories.

Outward Investment

Canada prioritizes export promotion and inward investment. Outward investment has been identified as a tool to enhance future Canadian competitiveness and productivity. Canada does not restrict domestic investors from investing abroad except when recipient countries or businesses are designated under the government’s sanctions regime.

Transparency of the Regulatory System

Canada’s regulatory transparency is similar to the United States. Regulatory and accounting systems, including those related to debt obligations, are transparent and consistent with international norms. Proposed legislation is subject to parliamentary debate and public hearings, and regulations are issued in draft form for public comment prior to implementation in the Canada Gazette, the government’s official journal of record. While federal and/or provincial licenses or permits may be needed to engage in economic activities, regulation of these activities is generally for statistical or tax compliance reasons. Under the USMCA, parties agreed to make publicly available any written comments they receive, except to the extent necessary to protect confidential information or withhold personal identifying information or inappropriate content.

Canada publishes an annual budget and debt management report. According to the Ministry of Finance, the design and implementation of the domestic debt program are guided by the key principles of transparency, regularity, prudence, and liquidity.

International Regulatory Considerations

Canada addresses international regulatory norms through its FTAs and actively engages in bilateral and multilateral regulatory discussions. U.S.-Canada regulatory cooperation is guided by Chapter 28 of the USMCA “Good Regulatory Practices” and the bilateral Regulatory Cooperation Council (RCC). The USMCA aims to promote regulatory quality through greater transparency, objective analysis, accountability, and predictability. The RCC is a bilateral forum focused on harmonizing health, safety, and environmental regulatory differences. Canada-EU regulatory cooperation is guided by Chapter 21 “Regulatory Cooperation” of the CETA and the Regulatory Cooperation Forum (RCF). CETA encourages regulators to exchange experiences and information and identify areas of mutual cooperation. The RCF seeks to reconstitute regulatory cooperation under the previous Canada-EU Framework on Regulatory Cooperation and Transparency. The RCF is mandated to seek regulatory convergence where feasible to facilitate trade. CPTPP Chapter 25 “Regulatory Coherence” seeks to encourage the use of good regulatory practices to promote international trade and investment, economic growth, and employment. The CPTPP also established a Committee on Regulatory Coherence charged with considering developments to regulatory best practices in order to make recommendations to the CPTPP Commission for improving the chapter provisions and enhancing benefits to the trade agreement.

Canada is a member of the WTO and notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade. Canada is a signatory to the Trade Facilitation Agreement, which it ratified in December 2016.

Legal System and Judicial Independence

Canada’s legal system is based on English common law, except for Quebec, which follows civil law. Law-making responsibility is split between the Parliament of Canada (federal law) and provincial/territorial legislatures (provincial/territorial law). Canada has both written commercial law and contractual law, and specialized commercial and civil courts. Canada’s Commercial Law Directorate provides advisory and litigation services to federal departments and agencies whose mandate includes a commercial component and has legal counsel in Montréal and Ottawa.

The judicial branch of government is independent of the executive branch and the current judicial process is considered procedurally competent, fair, and reliable. The provinces administer justice in their jurisdictions, including management of civil and criminal provincial courts.

Laws and Regulations on Foreign Direct Investment

Foreign investment in Canada is regulated under the provisions of the ICA. U.S. FDI in Canada is also subject to the provisions of the WTO, the USMCA, and the NAFTA. The purpose of the ICA is to review significant foreign investments to ensure they provide an economic net benefit and do not harm national security.

Canada relies on its Invest In Canada promotion agency to provide relevant information to foreign investors: https://www.investcanada.ca/ 

Competition and Antitrust Laws

Competition Bureau Canada is an independent law enforcement agency charged with ensuring Canadian businesses and consumers prosper in a competitive and innovative marketplace as stipulated under the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act, and the Precious Metals Marking Act. The Bureau is housed under the Department of Innovation, Science, and Economic Development (ISED) and is headed by a Commissioner of Competition. Competition cases, excluding criminal cases, are brought before the Competition Tribunal, an adjudicative body independent from the government. The Competition Bureau and Tribunal adhere to transparent norms and procedures. Appeals to Tribunal decisions may be filed with the Federal Court of Appeal as per section 13 of the Competition Tribunal Act. Criminal violations of competition law are investigated by the Competition Bureau and are referred to Canada’s Public Prosecution Service for prosecution in federal court.

Competition Bureau Canada assumed the rotating one-year presidency of the International Consumer Protection Enforcement Network (ICPEN), a global consumer protection law enforcement network, starting July 1, 2020. The Bureau has focused the ICPEN on COVID-19, artificial intelligence, digital platforms, and environmental issues during its presidency. As part of these efforts, the Bureau hosted the first annual Digital Enforcement Summit to share best practices, and explore new tools and strategies for tackling emerging enforcement issues in the digital era with international counterparts.

The Bureau announced a USD 6.7 million penalty settlement in May 2020 with A major U.S. social media company after the Competition Tribunal agreed with the Bureau’s claim the company made false or misleading claims about the privacy of Canadians’ personal information on its platform.

In September 2020, the Bureau signed the Multilateral Mutual Assistance and Cooperation Framework for Competition Authorities (MMAC) with the Australian Competition and Consumer Commission, the New Zealand Commerce Commission, the United Kingdom Competition & Markets Authority, the U.S. Department of Justice, and the U. S. Federal Trade Commission. The MMAC aims to improve international cooperation through information sharing and inter-organizational training.

Expropriation and Compensation

Canadian federal and provincial laws recognize both the right of the government to expropriate private property for a public purpose and the obligation to pay compensation. The federal government has not nationalized a foreign firm since the nationalization of Axis property during World War II. Both the federal and provincial governments have assumed control of private firms, usually financially distressed companies, after reaching agreement with the former owners.

The USMCA, like the NAFTA, requires expropriation only be used for a public purpose and done in a nondiscriminatory manner, with prompt, adequate, and effective compensation, and in accordance with due process of law.

Dispute Settlement

ICSID Convention and New York Convention

Canada ratified the International Centre for Settlement of Investment Disputes (ICSID) Convention on December 1, 2013 and is a signatory to the 1958 New York Convention, ratified on May 12, 1986. Canada signed the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (known as the Mauritius Convention on Transparency) in March 2015.

Investor-State Dispute Settlement

Canada accepts binding arbitration of investment disputes as obligated under its bilateral and multilateral agreements. As part of the USMCA, the United States and Canada agreed to phase out NAFTA’s investor state dispute settlement procedures over a three-year period. Under the USMCA, U.S. and Canadian investors rely on domestic courts and other mechanisms for dispute resolution. Ongoing NAFTA arbitrations are not affected by the USMCA and investors can file new NAFTA claims by July 1, 2023 provided the investment(s) were “established or acquired” when NAFTA was still in force and remained “in existence” on the date the USMCA entered into force.

Over the history of the NAFTA, 28 disputes have been filed against the Government of Canada. For more information about cases filed under NAFTA Chapter 11, please visit https://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/gov.aspx?lang=eng 

International Commercial Arbitration and Foreign Courts

Provinces have the primary responsibility for regulating arbitration within Canada. Each province, except Quebec, has legislation adopting the UNCITRAL Model Law. The Quebec Civil Code and Code of Civil Procedure are consistent with the UNCITRAL Model Law. The Canadian Supreme Court has ruled that arbitration agreements must be broadly interpreted and enforced. Canadian courts respect arbitral proceedings and have been willing to lend their enforcement powers to facilitate the effective conduct of arbitration proceedings, by requiring witnesses to attend and give evidence, and to produce documents and other evidence to arbitral tribunals.

Bankruptcy Regulations

Bankruptcy in Canada is governed at the federal level in accordance with the provisions of the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act. Each province also has specific laws for dealing with bankruptcy. Canada’s bankruptcy laws stipulate that unsecured creditors may apply for court-imposed bankruptcy orders. Debtors and unsecured creditors normally work through appointed trustees to resolve claims. Trustees will generally make payments to creditors after selling the debtors assets. Equity claimants are subordinate to all other creditor claims and are paid only after other creditors have been paid in full per Canada’s insolvency ladder. In all claims, provisions are made for cross-border insolvencies and the recognition of foreign proceedings. Secured creditors generally have the right to take independent actions and fall outside the scope of the BIA. Canada was ranked 13th for ease of “resolving insolvency” by the World Bank in 2020.

Capital Markets and Portfolio Investment

Canada’s capital markets are open, accessible, and regulated. Credit is allocated on market terms, the private sector has access to a variety of credit instruments, and foreign investors can get credit on the local market. Canada has several securities markets, the largest of which is the Toronto Stock Exchange, and there is sufficient liquidity in the markets to enter and exit sizeable positions. The Canadian government and Bank of Canada do not place restrictions on payments and transfers for current international transactions.

Money and Banking System

The Canadian banking system is composed of 36 domestic banks and18 foreign bank subsidiaries. Six major domestic banks are dominant players in the market and manage close to USD 5.2 trillion in assets. Many large international banks have a presence in Canada through a subsidiary, representative office, or branch. Ninety-nine percent of Canadians have an account with a financial institution. The Canadian banking system is viewed as very stable due to high capitalization rates that are well above the norms set by the Bank for International Settlements. The OSFI, Canada’s primary banking regulator, is working on implementing the Basel III Framework to strengthen Canadian banks and improve their ability to handle financial shocks. The OSFI is consulting with industry on proposed regulatory changes and plans to introduce final guidance in late 2021.

Foreign financial firms interested in investing submit their applications to the OSFI for approval by the Minister of Finance. U.S. and other foreign banks can establish banking subsidiaries in Canada. Several U.S. financial institutions maintain commercially focused operations, principally in the areas of lending, investment banking, and credit card issuance. Foreigners can open bank accounts in Canada with proper identification and residency information.

The Bank of Canada is the nation’s central bank. Its principal role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act. The Bank’s four main areas of responsibility are: monetary policy; promoting a safe, sound, and efficient financial system; issuing and distributing currency; and being the fiscal agent for Canada.

Foreign Exchange and Remittances

Foreign Exchange

The Canadian dollar is a free-floating currency with no restrictions on its transfer or conversion.

Remittance Policies

The Canadian dollar is fully convertible, and the central bank does not place time restrictions on remittances.

Sovereign Wealth Funds

Canada does not have a federal sovereign wealth fund. The province of Alberta maintains the Heritage Savings Trust Fund to manage the province’s share of non-renewable resource revenue. The fund’s net financial assets were valued at USD 13 billion as of December 31, 2020. The Fund invests in a globally diversified portfolio of public and private equity, fixed income, and real assets. The Fund follows the voluntary code of good practices known as the “Santiago Principles” and participates in the IMF-hosted International Working Group of SWFs. The Heritage Fund holds approximately 45 percent of its value in equity investments, seven percent of which are domestic.

Policies Towards Foreign Direct Investment

The GOC’s policies towards foreign direct investment (FDI) are generally positive. Chad’s laws and regulations encourage FDI, and there are few formal restrictions on foreign trade and investment. Under Chadian law, foreign and domestic entities may establish and own business enterprises.

The National Investment Charter of 2008 permits full foreign ownership of companies in Chad. The only limit on foreign control is on ownership of companies deemed related to national security. The National Investment Charter guarantees both foreign companies and individuals equal standing with Chadian companies and individuals in the privatization process. In principle, tenders for foreign investment in state-owned enterprises (SOEs) and for government contracts are conducted through open international bid procedures. The National Investment Charter also offers incentives to certain foreign companies establishing significant operations in Chad, including up to five years of tax-exempt status.

Chad’s National Agency for Investment and Exports (ANIE, Agence Nationale des Investissements et des Exports), an agency of the Ministry of Industrial and Commercial Development & Private Sector Promotion, facilitates foreign investment. ANIE’s mandate is to contribute to the creation of a business environment that meets international standing, promote investment and exports, support the development of SMEs, and inform GOC decision makers about economic policy. ANIE acts as a one-stop shop for new investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign ownership or control. There are no sector-specific restrictions that discriminate against market access for U.S. or other foreign investors, and no de facto anti-foreign discriminatory practices.

Other Investment Policy Reviews

UNCTAD published a French-language Investment Policy Review on Chad in July 2019 ( https://investmentpolicy.unctad.org/publications/1212/investment-policy-review-of-chad ).

The World Trade Organization (WTO) published a joint trade policy review for Chad, Cameroon, Republic of Congo, Gabon, and Central African Republic in 2013 ( https://www.wto.org/english/tratop_e/tpr_e/tp385_e.htm ), and a standalone trade policy review for Chad in 2007 ( https://www.wto.org/english/tratop_e/tpr_e/tp275_e.htm ).

The OECD has not published any investment policy reviews of Chad.

Business Facilitation

Foreign businesses interested in investing in or establishing an office in Chad should contact ANIE, which offers a one-stop shop for filing the legal forms needed to start a business. The process officially takes 72 hours and is the most important legal requirement for investment. ANIE’s website ( www.anie-tchad.com ) provides additional information. Online business registration is not yet available via the Global Enterprise Registration web site ( www.GER.co ) or the Business Facilitation Program ( www.businessfacilitation.org ).

The World Bank’s Doing Business 2020 report ranked Chad 182 out of 190 countries for ease of starting a business, which included factors beyond registration such as permitting and access to office space, energy, and capital.

Contracts are tailored to each investment and often include additional incentives and concessions, such as permissions to import labor or agreements to work with specific local suppliers. Some contracts are confidential. Occasionally, government ministries attempt to change the terms of contracts or apply new laws broadly, even to companies that have pre-existing agreements that exempt them. Chad’s judicial system is weak, and rulings, including those relating to contract disputes, are susceptible to government interference. There is limited capacity within the judiciary to address commercial issues, including contract disputes. Parties usually settle disputes directly or through arbitration provided by the Chamber of Commerce, Industry, Agriculture, Mining, and Crafts (CCIAMA) or through an outside entity, such as the International Chamber of Commerce (ICC) in Paris.

Outward Investment

The GOC does not offer any programs or incentives encouraging outward investment. The GOC does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Chad implements laws to foster competition and establish clear rules based on Uniform Acts produced by the Organization for the Harmonization of Business Law in Africa (OHADA, Organisation pour l’Harmonisation en Afrique du Droit des Affaires, www.ohada.com ). However, certain Chadian and foreign companies may encounter difficulties from well-established companies with a corner on the market, discouraging competition.

Regulations and financial policies generally do not impede competition in the financial sector. Legal, regulatory, and accounting systems pertaining to banking are transparent and consistent with international norms. Chad began using OHADA’s accounting system in 2002, bringing its national standards into harmony with accounting systems throughout the region. Several international accounting firms have offices in Chad. However, while accounting, legal, and regulatory procedures are consistent with international norms, some local firms do not use generally accepted standards and procedures in their business practices.

Chad develops forward regulatory plans to encourage foreign investment and budget support. Government ministries draft regulations, subject to approval by the Secretary General of the Government, Council of Ministers, National Assembly, and President. National regulations are most relevant to foreign investors. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations. The GOC occasionally provides opportunities for local associations, such as the National Council of Employers (CNPT, Conseil National du Patronat Tchadien) or the CCIAMA to comment on proposed laws and regulations pertaining to investment. All contracts and practices are subject to legal review, which can be weak.

The Government publishes all budget information, including on the Ministry of Finance and Budget website. Other proposed laws and regulations are not published in draft form for public comment. The Observatory on Public Finance is an online framework for the dissemination of public finance data and the operationalization of the Code of Transparency and Good Governance. This code is an implementation of one of the six CEMAC Directives on the new harmonized framework for public financial management.

The Presidential Council to Improve the Business Climate was announced in 2018, met once in late 2019, and formally launched in January 2021 due to the negative impact of COVID-19 in 2020. This effort to reform Chad’s investment climate and improve Chad’s performance in World Bank assessments is still in its embryonic stage.

Chad is not listed on www.businessfacilitation.org .

International Regulatory Considerations

Chad has been a member of the WTO since October 19, 1996 and a member of GATT since July 12, 1963. Chad is a member of OHADA and the CEMAC ( www.cemac.int ). Since 2017, Chad is gradually implementing business and economic laws and regulations based on CEMAC standards and OHADA Uniform Acts. Chad’s banking sector is regulated by COBAC (Commission Bancaire de l’Afrique Centrale), a regional agency.

Legal System and Judicial Independence

Chad’s legal system and commercial law are based on the French Civil Code. The constitution recognizes customary and traditional law if it does not interfere with public order or constitutional rights. Chad’s judicial system rules on commercial disputes in a limited technical capacity. The Chadian President appoints judges without National Assembly confirmation, and thus the judiciary may be subject to executive influence. Courts normally award monetary judgments in local currency, although it may designate awards in foreign currencies based on the circumstances of the disputed transaction.

Chad’s commercial laws are based on standards promulgated by CEMAC, OHADA, and the Economic Community of Central African States (CEEAC, Communaute Economique des Etats de l’Afrique Centrale, http://www.ceeac-eccas.org ). The Government and National Assembly are in the process of adopting legislation to comply fully with all these provisions.

Specialized commercial tribunal courts were authorized in 1998 and operationalized in 2004. These tribunals exist in five major cities but lack adequate technical capacity to perform their duties. Firms not satisfied with judgments in these tribunals may appeal to OHADA’s regional court in Abidjan, Ivory Coast, that ensures uniformity and consistent legal interpretations across its member countries. Several Chadian companies have done so. OHADA also allows foreign companies to utilize tribunals outside of Chad, generally in Paris, France, to adjudicate business disputes. Finally, CEMAC established a regional court in N’Djamena in 2001 to hear business disputes, but this body is not widely used.

Contracts and investment agreements can stipulate arbitration procedures and jurisdictions for settlement of disputes. If both parties agree and settlements do not violate Chadian law, Chadian courts will respect the decisions of courts in the nations where particular agreements were signed, including the United States. This principle also applies to disputes between foreign companies and the Chadian Government. Such disputes can be arbitrated by the International Chamber of Commerce (ICC). Foreign companies frequently choose to include clauses in their contract to mandate ICC arbitration.

Bilateral judicial cooperation is in effect between Chad and certain nations. Chad signed the Antananarivo Convention in 1970, covering the discharge of judicial decisions and serving of legal documents, with eleven other former French colonies (Benin, Burkina Faso, Cameroon, CAR, Congo-Brazzaville, Gabon, Cote d’Ivoire, Madagascar, Mauritania, Niger, and Senegal). Chad has similar arrangements in place with France, Nigeria, and Sudan.

Laws and Regulations on Foreign Direct Investment

The National Investment Charter encourages foreign direct investment. Chad is a member of CEMAC and OHADA. Since 2017, Chad is gradually implementing business and economic laws and regulations based on CEMAC standards and OHADA Uniform Acts.

Foreign investors using the court system are not generally subject to executive interference. In addition, the OHADA Treaty allows foreign companies to utilize tribunals outside of Chad, e.g., the ICC in Paris, France, to adjudicate any disputes. Companies may also access the OHADA’s court located in Abidjan, Côte d’Ivoire.

Foreign businesses interested in investing in or establishing an office in Chad should contact ANIE, which offers a one-stop shop for filing the legal forms needed to start a business. The process officially takes 72 hours and is the most important legal requirement for investment. ANIE’s website ( www.anie-tchad.com ) provides additional information.

Competition and Anti-Trust Laws

Regulation of competition is covered by the OHADA Uniform Acts that form the basis for Chadian business and economic laws and regulations. The Office of Competition in Chad’s Ministry of Industrial and Commercial Development & Private Sector Promotion reviews transactions for competition-related concerns.

Expropriation and Compensation

Chadian law protects businesses from nationalization and expropriation, except in cases where expropriation is in the public interest. There were no government expropriations of foreign-owned property in 2020. There are no indications that the GOC intends to expropriate foreign property in the near future.

Chad’s Fourth Republic Constitution adopted in May 2018 and amended in December 2020 prohibits seizure of private property except in cases of urgent public need, of which there are no known cases. A 1967 Land Law prohibits deprivation of ownership without due process, stipulating that the state may not take possession of expropriated properties until 15 days after the payment of compensation. The government continues to work on reform of the 1967 law.

Dispute Settlement

ICSID Convention and New York Convention

Chad has been a signatory and contracting state of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”) since 1966.

Chad is not a contracting state of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Arbitration Convention”).

Investor-State Dispute Settlement

Chad is signatory to an investment agreement among the member states of CEMAC, CEAC, and OHADA. The OHADA Investment Arrangement, with provisions for securities, arbitration, dispute settlement, bankruptcy, recovery, and other aspects of commercial regulation, has defined the commercial rights of several economic stakeholders, e.g., the Chadian Treasury, and provides for the enforcement of foreign arbitral awards. Chad has no Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter with the United States.

There is no formal record of the government’s handling of investment disputes. Some U.S. and other foreign investors have been involved in disputes with the GOC, particularly over issues regarding taxes and duties, though there are no official statistics. Investment disputes involving foreign investors are frequently arbitrated by an independent body.

International Commercial Arbitration and Foreign Courts

In addition to independent courts, such as the ICC, Chad’s constitution recognizes customary and traditional law as long as it does not interfere with public order or constitutional rights. As most businesses operate in the informal sector, customary and traditional law function as alternative dispute resolution (ADR) mechanisms when parties are from the same tribe or clan and express their desire to settle outside of the formal court.

Specialized commercial tribunal courts were authorized in 1998 and became operational in 2004. These tribunals exist in five major cities but lack adequate capacity to perform their duties. The N’Djamena Commercial Tribunal has heard disputes involving foreign companies.

Foreign investors using the court system are not generally subject to executive interference. In addition, the OHADA Treaty allows foreign companies to utilize tribunals outside of Chad, e.g., the ICC in Paris, France, to adjudicate any disputes. Companies may also access OHADA’s court located in Abidjan, Côte d’Ivoire.

Bankruptcy Regulations

Chad’s bankruptcy laws are based on OHADA Uniform Acts. According to Section 3, Articles 234 – 239 of OHADA’s Uniform Insolvency Act, creditors and equity shareholders may designate trustees to lodge complaints or claims to the commercial court collectively or individually. These laws criminalize bankruptcy and the OHADA provisions grant Chad the discretion to apply its own sentences.

The World Bank’s Doing Business 2020 report ranked Chad’s ease of resolving insolvency at 155 of 190 ( http://www.doingbusiness.org/data/exploreeconomies/chad/#resolving-insolvency ).

Capital Markets and Portfolio Investment

Chad’s financial system is underdeveloped. There are no capital markets or money markets in Chad. A limited number of financial instruments are available to the private sector, including letters of credit, short- and medium-term loans, foreign exchange services, and long-term savings instruments.

Commercial banks offer credit on market terms, often at rates of 12 to 25 percent for short-term loans. Access to credit is available but is prohibitively expensive for most Chadians in the private sector. Medium-term loans are difficult to obtain, as lending criteria are rigid. Most large businesses maintain accounts with foreign banks and borrow money outside of Chad. There are ATMs in some major hotels, N’Djamena airport, and in most neighborhoods of N’Djamena, and in major cities.

Chad does not have a stock market and has no effective regulatory system to encourage or facilitate portfolio investments. A small regional stock exchange, known as the Central African Stock Exchange, in Libreville, Gabon, was established by CEMAC countries in 2006. Cameroon, a CEMAC member, launched its own market in 2005. Both exchanges are poorly capitalized.

Money and Banking System

Chad’s banking sector is small and continues to streamline lending practices and reduce the volume of bad debt accumulated before and during the 2016-2017 economic crisis. While Chad’s banking rate remains low due to low aggregate savings and limited exposure to and trust in banks, according to the World Bank it increased from 9 to 22 percent between 2009 and 2017.

Chad’s four largest banks have been privatized. The former Banque Internationale pour l’Afrique au Tchad (BIAT) became a part of Togo-based Ecobank; the former Banque Tchadienne de Credit et de Depôt was re-organized as the Societe Generale Tchad; the former Financial Bank became part of Togo-based Orabank; and the former Banque de Developpement du Tchad (BDT) was reorganized as Commercial Bank Tchad (CBT), in partnership with Cameroon-based Commercial Bank of Cameroon. There are two Libyan banks in Chad, BCC (formerly Banque Libyenne) and BSCIC (Banque Sahelo-Saharienne pour l’Investissement et le Commerce), along with one Nigerian bank — United Bank for Africa (UBA). In 2018, the GOC funded a new bank Banque de l’Habitat du Tchad (BHT) with the GOC as majority shareholder with 50 percent of the shares and two public companies, the National Social Insurance Fund (Caisse Nationale de Prevoyance Sociale, CNPS) and the Chadian Petroleum Company (Societe des Hydrocarbures du Tchad, SHT), each holding 25 percent.

Chad, as a CEMAC member, shares a central bank with Cameroon, Central African Republic, Republic of Congo, Equatorial Guinea, and Gabon – the Central African Economic Bank (BEAC, Banque des Etats de l’Afrique Centrale), headquartered in Yaounde, Cameroon.

Foreigners must establish legal residency in order to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

The BEAC implemented foreign exchange regulation in 2019 that required full repatriation of export earnings and centralizing foreign currency holdings with the BEAC, though extractive industry companies received an exemption through December 2021.

The government does not restrict converting funds associated with an investment (including remittances of investment capital, earnings, loan repayments, lease payments, royalties) into a freely usable currency at legal market-clearing rates. There are currently no restrictions on repatriating these funds, although there are some limits associated with transferring funds. Individuals transferring funds exceeding 1,000 USD must document the source and purpose of the transfer with the local sending bank. Transactions of 10,000 USD or more for individuals and 50,000 USD or more for companies are automatically notified to the COBAC. Companies and individuals transferring more than 800,000 USD out of Chad need BEAC authorization to do so. Authorization may take up to three working days. To request authorization for a transfer, companies and individuals must submit contact information for the sender and recipient, a delivery timetable, and proof of the sender’s identity. Approvals are routine, although the Central Bank has occasionally temporarily restricted capital outflows. Businesses can obtain advance approval for regular money transfers.

Chad is a member of the African Financial Community (CFA) and uses the Central African CFA Franc (FCFA) as its currency. The FCFA is pegged to the Euro at a fixed rate of one Euro to 655.957 FCFA exactly (100 FCFA = 0.152449 Euro). There are no official restrictions on obtaining foreign exchange, but in practice foreign exchange can be difficult to acquire.

Remittance Policies

There are no recent changes to or plans to change investment remittance policies. There are no time limitations on remittances, dividends, returns on investment, interest, and principal on private foreign debt, lease payments, royalties, or management fees.

Chad does not engage in currency manipulation.

Chad is a member state of the Action Group against Money Laundering in Central Africa (GABAC), which is in the process of becoming a Financial Action Task Force (FATF)-style regional body. On the national level, the National Financial Investigation Agency (ANIF) has implemented GABAC recommendations to prevent money laundering and terrorist financing.

Sovereign Wealth Funds

The GOC does not currently maintain a Sovereign Wealth Fund.

All Chadian SOEs operate under the umbrella of government ministries. SOE senior management reports to the minister responsible for the relevant sector, as well as a board of directors and an executive board. The President of the Republic appoints SOE boards of directors, executive boards, and CEOs. The boards of directors give general directives over the year, while the executive boards manage general guidelines set by the boards of directors. Some executive directors consult with their respective ministries before making business decisions.

The GOC operates SOEs in several sectors, including Energy and Environmental Industries; Agribusiness; Construction, Building and Heavy Equipment; and Information and Communication. The percentage SOEs allocate to research and development (R&D) is unknown.

There were no reports of discriminatory action taken by SOEs against the interests of foreign investors in 2020, and some foreign companies operated in direct competition with SOEs. Chad’s Public Tender Code (PTC) provides preferential treatment for domestic competitors, including SOEs.

SOEs are not subject to the same tax burden and tax rebate policies as their private sector competitors and are often afforded material advantages such as preferential access to land and raw materials. SOEs receive government subsidies under the national budget; however, in practice they do not respect the budget. State and company funds are often commingled.

Chad is not a party to the Agreement on Government Procurement within the framework of the WTO. Chadian practices are not consistent with the OECD Guidelines on Corporate Governance for SOEs.

Privatization Program

Foreign investors are permitted and encouraged to participate in the privatization process. There is a public, non-discriminatory bidding process. Having a local contact in Chad to assist with the bidding process is important. To combat corruption, the GOC has recently hired private international companies to oversee the bidding process for government tenders. Despite the GOC’s willingness to privatize loss-making SOEs, there remain several obstacles to privatization.

The Chamber of Commerce submitted a ‘white paper’ (livre blanc) in 2018 with recommendations for the GOC to facilitate and simplify private sector operations, including establishing a Business Observatory and a Presidential Council, which would implement over 70 recommendations to improve the investment climate in Chad. The Presidential Council became operational in January 2021.

Chad is considering privatization in the following sectors:

• Information & Communication (SOTEL Tchad)
• Food Processing & Packaging (the Société Tchadienne de Jus de Fruit (STJF), which produces fruit juice in Doba; and the Société Moderne de Abbatoires (SMA), a slaughterhouse and meat packaging company in Farcha)

Policies Towards Foreign Direct Investment

For more than four decades, promoting inward FDI has been an essential part of the Chilean government’s national development strategy. The country’s market-oriented economic policy creates significant opportunities for foreign investors to participate. Laws and practices are not discriminatory against foreign investors, who receive treatment similar to Chilean nationals. Chile’s business climate is generally straightforward and transparent, and its policy framework has remained consistent despite developments such as civil unrest in 2019 and the COVID-19 pandemic starting in 2020. However, the permitting process for infrastructure, mining, and energy projects is contentious, especially regarding politically sensitive environmental impact assessments, water rights issues, and indigenous consultations.

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

Other Investment Policy Reviews

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

Business Facilitation

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

According to the World Bank, Chile has one of the shortest and smoothest processes among Latin American and Caribbean countries – 11 procedures and 29 days – to establish a foreign-owned limited liability company (LLC). Drafting statutes of a company and obtaining an authorization number can be done online at the platform https://www.registrodeempresasysociedades.cl/. Electronic signature and invoicing allow foreign investors to register a company, obtain a tax payer ID number and get legal receipts, invoices, credit and debit notes, and accountant registries. A company typically needs to register with Chile’s Internal Revenue Service, obtain a business license from a municipality, and register either with the Institute of Occupational Safety (public) or with one of three private nonprofit entities that provide work-related accident insurance, which is mandatory for employers. In addition to the steps required of a domestic company, a foreign company establishing a subsidiary in Chile must authenticate the parent company’s documents abroad and register the incoming capital with the Central Bank. This procedure, established under Chapter XIV of the Foreign Exchange Regulations, requires a notice of conversion of foreign currency into Chilean pesos when the investment exceeds $10,000 (USD). The registration process at the Registry of Commerce of Santiago is available online.

Outward Investment

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

Transparency of the Regulatory System

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

Four institutions play key roles in the rule-making process in Chile: The General-Secretariat of the Presidency (SEGPRES), the Ministry of Finance, the Ministry of Economy, and the General Comptroller of the Republic. However, Chile does not have a regulatory oversight body. Most regulations come from the national government; however, some, in particular those related to land use, are decided at the local level. Both national and local governments are involved in the issuance of environmental permits. Regulatory processes are managed by governmental entities. NGOs and private sector associations may participate in public hearings or comment periods. The OECD’s April 2016 “Regulatory Policy in Chile” report asserts that Chile took steps to improve its rule-making process, but still lags behind the OECD average in assessing the impact of regulations, consulting with outside parties on their design and evaluating them over time.

In Chile, non-listed companies follow norms issued by the Accountants Professional Association, while publicly listed companies use the International Financial Reporting Standards (IFRS). Since January 2018, IFRS 9 entered into force for companies in all sectors except for banking, in which IFRS 15 will be applied. IFRS 16 entered into force in January 2019. On January 12, 2021, Chile’s Financial Market Commission (CMF) published for consultation a regulation to implement the IFRS 17 accounting standards in the Chilean insurance market.

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

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

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

Chile still lacks a comprehensive, “whole of government” regulatory reform program. The World Bank´s Global Indicators of Regulatory Governance project finds that Chile is not part of the countries that have improved their regulatory governance framework since 2017.

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

International Regulatory Considerations

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

Legal System and Judicial Independence

Chile’s legal system is based on civil law. Chile’s legal and regulatory framework provides for effective means for enforcing property and contractual rights. Laws governing issues of interest to foreign investors are found in several statutes, including the Commercial Code of 1868, the Civil Code, the Labor Code and the General Banking Act. Chile has specialized courts for dealing with tax and labor issues.

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

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

Laws and Regulations on Foreign Direct Investment

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

Competition and Antitrust Laws

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

In April 2020, Chile’s Supreme Court ruled on a collusion case introduced by the FNE in 2016 and more than doubled sanctions previously decided by the TDLC in 2019. Supermarket chains Walmart, Cencosud, and SMU were fined USD 7.9 million, USD 8.2 million, and USD 4.9 million, respectively. The ruling established that these retailers set up a minimum price accord in the market for fresh poultry.

In March 2020 and March 2021, respectively, after completing separate anti-trust reviews, the FNE cleared a Chinese state-owned enterprise’s acquisitions of two Chilean energy companies. In May 2020, the FNE approved the acquisition of a domestic e-commerce and delivery services digital platformby a U.S. ridesharing technology technology company. In August 2020, the Supreme Court ruled on a collusion case related to maritime transportation of cars into Chile between 2010 and 2013. In April 2019, the TDLC previously applied fines on two Japanese shipping and transport companies. – The Court accepted FNE’s complaint and extended fines to three other Chilean, Japanese, and Korean firms that participated in the agreement. Total fines amount to USD 30.5 million.

In September 2020, the FNE requested fines amounting to USD 4.1 million on a U.S. entertainment company and its subsidiary for failing to provide accurate information and to adopt adequate mitigation measures during the approval process for its acquisition of a U.S. multimedia company.

In December 2020, the FNE approved the merger between Fiat Chrysler Automobiles and Peugeot, provided that some remedies provided by the companies would mitigate the risks to competition in the retail car market.

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

Since 1991, Chile has been a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). In 1975, Chile became a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

National arbitration law in Chile includes the Civil Procedure Code (Law Num. 1552, modified by Law Num. 20.217 of 2007), and the Law Num. 19.971 on International Commercial Arbitration.

Investor-State Dispute Settlement

Apart from the New York Convention, Chile is also a party to the Pan-American Convention on Private International Law (Bustamante Code) since 1934, the Inter-American Convention on International Commercial Arbitration (Panama Convention) since 1976, and the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States since 1992.

The U.S.-Chile FTA, in force since 2004, includes an investment chapter that provides the right for investors to submit claims under the ICSID Convention, the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules, or any other mutually agreed upon arbitral institution. So far, U.S. investors have filed no claims under the agreement.

Over the past 10 years, there were only two investment dispute cases brought by foreign investors against the state of Chile before the World Bank’s International Center for Settlement of Investment Disputes (ICSID) tribunal. In the first case, a Spanish-Chilean citizen demanded USD 338.3 million in compensation for the expropriation of a Chilean newspaper company in 1975 by Chile’s military regime. Despite an ICSID decision from 2016 in favor of the Chilean state, the claimant requested the nullification of the ruling, which extended the total duration of the case to 22 years. On January 7, 2020, ICSID issued a final ruling in favor of the Chilean state and rejecting the claimant’s case. The second case was brought in 2017 by a Colombian firm, which held concession contracts as operators of Transantiago, the public transportation system in Santiago de Chile. The Columbian firm claimed USD 347 million for Chilean government actions that allegedly created unfavorable operating conditions for the claimants’ subsidiaries and resulted in bankruptcy proceedings. On January 7, 2021, ICSID ruled in favor of the Chilean state, rejecting the claims.

Local courts respect and enforce foreign arbitration awards, and there is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Mediation and binding arbitration exist in Chile as alternative dispute resolution mechanisms. A suit may also be brought in court under expedited procedures involving the abrogation of constitutional rights. The U.S.-Chile FTA investment chapter encourages consultations or negotiations before recourse to dispute settlement mechanisms. If the parties fail to resolve the matter, the investor may submit a claim for arbitration. Provisions in Section C of the FTA ensure that the proceedings are transparent by requiring that all documents submitted to or issued by the tribunal be available to the public, and by stipulating that proceedings be public. The FTA investment chapter establishes clear and specific terms for making proceedings more efficient and avoiding frivolous claims. Chilean law is generally to be applied to all contracts. However, arbitral tribunals decide disputes in accordance with FTA obligations and applicable international law. The tribunal must also accept amicus curiae submissions.

In Chile, the Judiciary Code and the Code of Civil Procedure govern domestic arbitration. Local courts respect and enforce foreign arbitral awards and judgments of foreign courts. Chile has a dual arbitration system in terms of regulation, meaning that different bodies of law govern domestic and international arbitration. International commercial arbitration is governed by the International Commercial Arbitration Act that is modeled on the 1985 UNCITRAL Model Law on International Commercial Arbitration. In addition to this statute, there is also Decree Law Number 2349 that regulates International Contracts for the Public Sector and sets forth a specific legal framework for the State and its entities to submit their disputes to international arbitration.

No Chilean state-owned enterprises (SOEs) have been involved in investment disputes in recent decades. A Chilean government agency filed an arbitration case in February 2021 against a U.S. firm at the International Chamber of Commerce International Court of Arbitration. The case remains pending.

Bankruptcy Regulations

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

Capital Markets and Portfolio Investment

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

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

Money and Banking System

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

The Chilean banking system is healthy and competitive, and many Chilean banks already meet Basel III standards. The new General Banking Act (LGB), published in January 2019, defined general guidelines for establishing a capital adequacy system in line with Basel standards, and gave the CMF the authority to establish the capital framework. All Basel III regulations were published by December 2020. Due to the pandemic, the CMF decided on March 2020 to postpone the implementation of Basel III requirements for one year. The system’s liquidity position (Liquidity Coverage Ratio) remains above regulatory limits (70 percent). Capital adequacy ratio of the system equaled 14.3 percent as of October 2020 and remains robust even when including discounts due to market and/or operational risks. Non-performing loans decreased after August 2020 due to government relief measures for households, including legislation authorizing two rounds of withdrawals from pension accounts. As of December 2020, non-performing loans equaled 1.58 percent compared to 2 percent at the end of 2019) when measured by the standard 90 days past due criterion.

As of December 2020, the total assets of the Chilean banking system amounted to USD 454.3 billion, according to the Superintendence of Banks and Financial Institutions. The largest six banks (Banco de Crédito e Inversiones, Banco Santander-Chile, Banco Estado, Banco de Chile, Scotiabank Chile and Itaú-Corpbanca) accounted for 88 percent of the system’s assets. Chile’s Central Bank conducts the country’s monetary policy, is constitutionally autonomous from the government, and is not subject to regulation by the Superintendence of Banks.

Foreign banks have an important presence in Chile, comprising three out of the six largest banks of the system. Out of 18 banks currently in Chile, five are foreign-owned but legally established banks in Chile and four are branches of foreign banks. Both categories are subject to the requirements set out under the Chilean banking law. There are also 21 representative offices of foreign banks in Chile. There are no reports of correspondent banking relationships withdrawal in Chile.

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

Foreign Exchange and Remittances

Foreign Exchange

Law 20.848, which regulates FDI (described in section 1), prohibits arbitrary discrimination against foreign investors and guarantees access to the formal foreign exchange market, as well as the free remittance of capital and profits generated by investments. There are no other restrictions or limitations placed on foreign investors for the conversion, transfer or remittance of funds associated with an investment.

Investors, importers, and others are guaranteed access to foreign exchange in the official inter-bank currency market without restriction. The Central Bank of Chile (CBC) reserves the right to deny access to the inter-bank currency market for royalty payments in excess of five percent of sales. The same restriction applies to payments for the use of patents that exceed five percent of sales. In such cases, firms would have access to the informal market. The Chilean tax service reserves the right to prevent royalties of over five percent of sales from being counted as expenses for domestic tax purposes.

Chile has a free floating (flexible) exchange rate system. Exchange rates of foreign currencies are fully determined by the market. The CBC reserves the right to intervene under exceptional circumstances to correct significant deviations of the currency from its fundamentals. This authority was used in 2019 following an unusual 20.5 percent depreciation of the Chilean peso (CLP) after six weeks of civil unrest, an unprecedented circumstance that triggered a similarly unusual USD 20 billion intervention (half of the CBC foreign currency reserves) that successfully arrested the currency slide.

Remittance Policies

Remittances of profits generated by investments are allowed at any time after tax obligations are fulfilled; remittances of capital can be made after one year following the date of entry into the country. In practice, this permanency requirement does not constitute a restriction for productive investment, because projects normally need more than one year to mature. Under the investment chapter of the U.S.–Chile FTA, the parties must allow free transfer and without delay of covered investments into and out of its territory. These include transfers of profits, royalties, sales proceeds, and other remittances related to the investment. However, for certain types of short-term capital flows this chapter allows Chile to impose transfer restrictions for up to 12 months as long as those restrictions do not substantially impede transfers. If restrictions are found to impede transfers substantially, damages accrue from the date of the initiation of the measure. In practice, these restrictions have not been applied in the last two decades.

Sovereign Wealth Funds

The Government of Chile maintains two sovereign wealth funds (SWFs) built with savings from years with fiscal surpluses. The Economic and Social Stabilization Fund (FEES) was established in 2007 and was valued at USD 8.7 billion as of February 2021. The purpose of the FEES is to fund public debt payments and temporary deficit spending, in order to keep a countercyclical fiscal policy. The Pensions Reserve Fund (FRP) was built up in 2006 and amounted to USD 10.1 billion as of February 2021. The purpose of the FRP is to anticipate future needs of payments to those eligible to receive pensions, but whose contributions to the private pension system fall below a minimum threshold.

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

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

Chile had 29 state-owned enterprises (SOEs) in operation as of 2019. Twenty-eight SOEs are commercial companies and the newest one (FOINSA) is an infrastructure fund that was created to facilitate public-private partnership projects. 26 SOEs are not listed and are fully owned by the government, while the remaining three are majority government owned. Ten Chilean SOEs operate in the port management sector, seven in the services sector, three in the defense sector, three in the mining sector (including CODELCO, the world’s largest copper producer, and ENAP, an oil and gas company), two in transportation, one in the water sector, one is a TV station, and one is a state-owned bank (Banco Estado). The state holds a minority stake in four water companies as a result of a privatization process. In 2019, total assets of Chilean SOEs amounted to USD 74.2 billion, while their total net income was USD 556.7 million. SOEs employed 50,208 people in 2019.

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

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

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

Privatization Program

Chile does not have a privatization program.

FDI has historically played an essential role in China’s economic development. Chinese government officials have prioritized promoting relatively friendly FDI policies promising market access expansion and non-discriminatory, “national treatment” for foreign enterprises through general improvements to the business environment.  They also have made efforts to strengthen China’s regulatory framework to enhance broader market-based competition.

In 2020, China issued an updated nationwide “negative list” that made some modest openings to foreign investment, most notably in the financial sector, and promised future improvements to the investment climate through the implementation of China’s new FIL.  MOFCOM reported FDI flows grew by 4.5 percent year-on-year, reaching USD144 billion.  In 2020, U.S. businesses expressed concern over China’s COVID-19 restrictive travel restrictions, excessive cyber security and personal data-related requirements, increased emphasis on the role of CCP cells in foreign enterprises, and an unreliable legal system.  See the following: HYPERLINK “https://www.amchamchina.org/white_paper/2020-american-business-in-china-white-paper/” t “_blank” American Chamber of Commerce China 2020 American Business in China White Paper

• American Chamber of Commerce China 2020 American Business in China White Paper
• American Chamber of Commerce China 2020 Business Climate Survey

Limits on Foreign Control and Right to Private Ownership and Establishment

Entry into the Chinese market is regulated by the country’s “negative lists,” which identify the sectors in which foreign investment is restricted or prohibited, and a catalogue for encouraged foreign investment, which identifies the sectors in which the government encourages investment.

• (the “FTZ Negative List”) used in China’s 20 FTZs and one free trade port.
• (̈the “Nationwide Negative List”) came into effect on June 23, 2020.
•  released on December 27, 2020.  The PRC uses this list to encourage FDI inflows to key sectors, in particular semiconductors and other high-tech industries, to help China achieve MIC 2025 objectives.
• The “Encouraged list” is subdivided into a cross-sector nationwide catalogue and a separate catalogue for western and central regions, China’s least developed regions.

MOFCOM and NDRC also released on September 16 the annual  Market Access Negative List  to guide FDI. This negative list – unlike the previous lists that apply only to foreign investors – defines prohibitions and restrictions for all investors, foreign and domestic.  Launched in 2016, this list highlights what economic sectors are only open to state-owned investors.  In restricted industries, foreign investors face equity caps or joint venture requirements to ensure control is maintained by a Chinese national and enterprise.  Due to these requirements, foreign investors often feel compelled to enter into partnerships that require transfer of technology in order to participate in China’s market.  Foreign investors report fearing government retaliation if they publicly raise instances of technology coercion.

Below are a few examples of industries where these sorts of investment restrictions apply:

• Preschool to higher education institutes require a Chinese partner with a dominant role.
• Establishment of medical institutions require a Chinese JV partner.

Examples of foreign investment sectors requiring Chinese control include:

• Selective breeding and seed production for new varieties of wheat and corn.
• Basic telecommunication services and radio/television market research.

The 2020 negative lists made minor modifications to some industries, reducing the number of restrictions and prohibitions from 40 to 33 in the nationwide negative list, and from 37 to 30 in China’s pilot FTZs. Notable changes included openings in the services sector, yet most of these openings had previously been announced in 2019. In the service sector, the lists codified the removal of equity caps in financial services, eliminated requirements for investing in water and sewage systems for any city of half a million residents or fewer, and scrapped the ban on foreign investment in air traffic control.  While U.S. businesses welcomed market openings, foreign investors remained underwhelmed and disappointed by Chinese government’s lack of ambition and refusal to provide more significant liberalization.  Foreign investors noted these announced measures occurred mainly in industries that domestic Chinese companies already dominate.

Other Investment Policy Reviews

China is not a member of the Organization for Economic Co-Operation and Development (OECD), but the OECD Council established a country program of dialogue and co-operation with China in October 1995.  The OECD completed its most recent investment policy review for China in 2008 and published an update in 2013.

China’s 2001 accession to the World Trade Organization (WTO) boosted China’s economic growth and advanced its legal and governmental reforms.  The WTO completed its most recent investment trade review for China in 2018, highlighting that China remains a major destination for FDI inflows and a key market for multinational companies.

In 2020, China improved its rating in the World Bank’s Ease of Doing Business Survey to 31st place out of 190 economies.  This was partly due to regulatory reforms that helped streamline some business processes. This ranking does not account, however, for major challenges U.S. businesses face in China like IPR violations and market access.  Moreover, China’s ranking is based on data limited only to the business environments in Beijing and Shanghai.    HYPERLINK “https://www.doingbusiness.org/en/rankings?region=east-asia-and-pacific” t “_blank” World Bank Ease of Doing Business

• World Bank Ease of Doing Business

Created in 2018, the State Administration for Market Regulation (SAMR) is now responsible for business registration processes.  Under SAMR’s registration system, investors in sectors outside of the Foreign Negative List are required to report when they (1) establish a Foreign Invested Enterprise (FIE); (2) establish a representative office in China; (3) acquire stocks, shares, assets or other similar equity of a domestic Chinese company; (4) re-invest and establish subsidiaries in China; and (5) invest in new projects.  While an improvement relative to previous requirements for similar activities to require regulatory approval, foreign companies still complain about continued challenges when setting up a business relative to their Chinese competitors. Many companies offer consulting, legal, and accounting services for establishing operations in China. Investors should review their options carefully with an experienced advisor before investing.

 Outward Investment

Since 2001, China has pursued a “going-out” investment policy.  At first, the PRC mainly encouraged SOEs to invest overseas but in recent years, China’s overseas investments have diversified with both state and private enterprises investing in nearly all industries and economic sectors.  While China remains a major global investor, total outbound direct investment (ODI) flows fell 4.3 percent year-on-year in 2019 to USD136.9 billion, according to 2019 Statistical Bulletin of China’s Outward Foreign Director Investment .

The Chinese government also created “encouraged,” “restricted,” and “prohibited” outbound investment categories to suppress significant capital outflow pressure in 2016 and to guide Chinese investors into “more” strategic sectors. While the Sensitive Industrial-Specified Catalogue of 2018  restricted Chinese outbound investment in sectors like property, cinemas, sports teams and non-entity investment platforms, they encouraged outbound investment in sectors that supported China’s industrial policy by acquiring advanced manufacturing and high-tech assets.  Chinese firms involved in MIC 2025 sectors often receive preferential government financing and subsidies for outbound investment.  The guidance also encourages investments that promoted China’s Belt and Road Initiative (BRI), which seeks to create cooperation agreements with other countries via infrastructure investment, construction projects, etc.

Transparency of the Regulatory System

One of China’s WTO accession commitments was to establish an official journal dedicated to the publication of laws, regulations, and other measures pertaining to or affecting trade in goods, services, trade related aspects of intellectual property rights (TRIPS), and the control of foreign exchange.  Despite mandatory 30-day public comment periods, Chinese ministries continue to post only some draft administrative regulations and departmental rules online, often with a public comment period of less than 30 days. As part of the Phase One Agreement, China committed to providing at least 45 days for public comment on all proposed laws, regulations, and other measures implementing the Phase One Agreement. While China has made some progress, U.S. businesses operating in China consistently cite arbitrary legal enforcement and the lack of regulatory transparency among the top challenges of doing business in China.

In China’s state-dominated economic system, the relationships are often blurred between the CCP, the Chinese government, Chinese business (state- and private-owned), and other Chinese stakeholders.  Foreign-invested enterprises (FIEs) perceive that China prioritizes political goals, industrial policies, and a desire to protect social stability at the expense of foreign investors, fairness, and the rule of law.  The World Bank   Global Indicators of Regulatory Governance gave China a composite score of 1.75 out 5 points, attributing China’s relatively low score to stakeholders not having easily accessible and updated laws and regulations; the lack of impact assessments conducted prior to issuing new laws; and other concerns about transparency.

For accounting standards, Chinese companies use the Chinese Accounting Standards for Business Enterprises (ASBE) for all financial reporting within mainland China. Companies listed overseas or in Hong Kong may choose to use ASBE, the International Financial Reporting Standards, or Hong Kong Financial Reporting Standards.

International Regulatory Considerations

As part of its WTO accession agreement, China agreed to notify the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations.  However, China continues to issue draft technical regulations without proper notification to the TBT Committee.

Legal System and Judicial Independence

The Chinese legal system borrows heavily from continental European legal systems, but with “Chinese characteristics.”  The rules governing commercial activities are found in various laws, regulations, administrative rules, and Supreme People’s Court (SPC) judicial interpretations, among other sources. While China does not have specialized commercial courts, it has created specialized courts and tribunals for the hearing of intellectual property disputes (IP), including in Beijing, Guangzhou, Shanghai, and Hainan.  In 2020, the original IP Courts continued to be popular destinations for both Chinese and foreign-related IP civil and administrative litigation, with the IP court in Shanghai experiencing a year-on-year increase of above 100 percent. China’s constitution and laws, however, are clear that Chinese courts cannot exercise power independent of the Party.  Further, in practice, influential businesses, local governments, and regulators routinely influence courts.  U.S. companies may hesitate in challenging administrative decisions or bringing commercial disputes before local courts due to perceptions of futility or fear of government retaliation.

Laws and Regulations on Foreign Direct Investment

China’s new investment law, the FIL, came into force on January 1, 2020, replacing China’s previous foreign investment framework. The FIL provides a five-year transition period for foreign enterprises established under previous foreign investment laws, after which all foreign enterprises will be subject to the same domestic laws as Chinese companies, such as the Company Law. The FIL standardized the regulatory regimes for foreign investment by including the negative list management system, a foreign investment information reporting system, and a foreign investment security review system all under one document. The FIL also seeks to address foreign investors complaints by explicitly banning forced technology transfers, promising better IPR, and the establishment of a complaint mechanism for investors to report administrative abuses. However, foreign investors remain concerned that the FIL and its implementing regulations provide Chinese ministries and local officials significant regulatory discretion, including the ability to retaliate against foreign companies.

In December 2020, China also issued a revised investment screening mechanism under the Rules on Security Reviews on Foreign Investments without any period for public comment or prior consultation with the business community. Foreign investors complained that China’s new rules on investment screening were expansive in scope, lacked an investment threshold to trigger a review, and included green field investments – unlike most other countries. Moreover, new guidance on Neutralizing Extra-Territorial Application of Unjustified Foreign Legislation Measures, a measure often compared to “blocking statutes” from other markets, added to foreign investors’ concerns over the legal challenges they would face in trying to abide by both their host-country’s regulations and China’s. Foreign investors complained that market access in China was increasingly undermined by national security-related legislation. In 2020, the State Council and various central and local government agencies issued over 1000 substantive administrative regulations and departmental/local rules on foreign investment. While not comprehensive, a list of published and official Chinese laws and regulations is available here .

FDI Requirements for Investment Approvals

Foreign investments in industries and economic sectors that are not explicitly restricted on China’s negative lists do not require MOFCOM pre-approval.  However, investors have complained that in practice, investing in an industry not on the negative list does not guarantee a foreign investor “national treatment,” or treatment no less favorable than treatment accorded to a similarly situated domestic investor.  Foreign investors must still comply with other steps and approvals such as receiving land rights, business licenses, and other necessary permits.  When a foreign investment needs ratification from the NDRC or a local development and reform commission, that administrative body is in charge of assessing the project’s compliance with a panoply of Chinese laws and regulations.  In some cases, NDRC also solicits the opinions of relevant Chinese industrial regulators and consulting agencies acting on behalf of Chinese domestic firms, creating potential conflicts of interest disadvantageous to foreign firms.

The Anti-Monopoly Bureau of the SAMR enforces China’s Anti-Monopoly Law (AML) and oversees competition issues at the central and provincial levels.  The agency reviews mergers and acquisitions, and investigates cartel and other anticompetitive agreements, abuse of a dominant market position, and abuse of administrative powers by government agencies.  SAMR also oversees the Fair Competition Review System (FCRS), which requires government agencies to conduct a review prior to issuing new and revising existing laws, regulations, and guidelines to ensure such measures do not inhibit competition. SAMR issues implementation guidelines and antitrust provisions to fill in gaps in the AML, address new trends in China’s market, and help foster transparency in enforcement. Generally, SAMR has sought public comment on proposed measures, although comment periods are sometimes less than 30 days.

In January 2020, SAMR published draft amendments to the AML for comment, which included, among other changes, stepped-up fines for AML violations and specified the factors to consider in determining whether an undertaking in the Internet sector has a dominant market position, when investigating the undertaking for abuse of market dominance. SAMR also issued four sets of AML guidelines. These guidelines addressed leniency in horizontal monopoly agreements, undertakings’ commitments to resolve Anti-Monopoly cases, the application of AML to the automobile industry, and the application of the AML to intellectual property rights. In February 2021, SAMR published (after public comment) the “Antitrust Guidelines for the Platform Economy.” The Guidelines address monopolistic behaviors of online platforms operating in China, most notably exclusionary agreements and abuses of a dominant market position. Contacts predicted the Guidelines would lead to an uptick in SAMR investigations of online platform behavior, particularly around M&A and variable interest entities.

Foreign companies have expressed concern that the government uses AML enforcement in support of China’s industrial policies, such as promoting national champions, particularly for companies operating in strategic sectors.  The AML explicitly protects the lawful operations of government monopolies in industries that affect the national economy or national security.  U.S. companies have expressed concerns that in SAMR’s consultations with other Chinese agencies when reviewing M&A transactions, those agencies raise concerns not related to antitrust enforcement in order to block, delay, or force transacting parties to comply with preconditions, including technology transfer, in order to receive approval.

Expropriation and Compensation

Chinese law prohibits nationalization of FIEs, except under vaguely specified “special circumstances” where there is a national security or public interest need. Chinese law requires fair compensation for an expropriated foreign investment but does not detail the method used to assess the value of the investment.  The Department of State is not aware of any cases since 1979 in which China has expropriated a U.S. investment, although the Department has notified Congress through the annual 527 Investment Dispute Report of several cases of concern.

Dispute Settlement

ICSID Convention and New York Convention

China is a contracting state to the Convention on the Settlement of Investment Disputes (ICSID Convention) and has ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).  Chinese legislation that provides for enforcement of foreign arbitral awards related to these two Conventions includes the Arbitration Law, the Civil Procedure Law, and other laws with similar provisions that have embraced many of the fundamental principles of the United Nations Commission on International Trade Law’s Model Law on International Commercial Arbitration.

Investor-State Dispute Settlement (ISDS)

Initially, China was disinclined to accept ISDS as a method to resolve investment disputes based on its suspicions of international law and arbitration, as well as its emphasis on state sovereignty. China’s early BITs, such as the 1982 China–Sweden BIT, only included state–state dispute settlement. As China has become a capital exporter under its initiative of “Going Global” and infrastructure investments under BRI, its views on ISDS have shifted to allow foreign investors with unobstructed access to international arbitration to resolve any investment dispute that cannot be amicably settled within six months. Chinese investors did not use ISDS mechanisms until 2007, and the first known ISDS case against China was initiated in 2011 by Malaysian investors. China submitted a proposal on ISDS reform to the United Nations Commission on International Trade Law (UNCITRAL) Working Group III in 2019. Under the proposal, China reaffirmed its commitment to ISDS as an important mechanism for resolving investor-state disputes under public international law. However, it suggested various pathways for ISDS reform, including supporting the study of a permanent appellate body.

International Commercial Arbitration and Foreign Courts

Chinese officials typically urge private parties to resolve commercial disputes through informal mediation.  If formal mediation is necessary, Chinese parties and the authorities typically prefer arbitration to litigation.  Many contract disputes require arbitration by the Beijing-based China International Economic and Trade Arbitration Commission (CIETAC).  Established by the State Council in 1956 under the auspices of the China Council for the Promotion of International Trade (CCPIT), CIETAC is China’s most widely utilized arbitral body for foreign-related disputes.  Some foreign parties have obtained favorable rulings from CIETAC, while others have questioned CIETAC’s fairness and effectiveness.  Besides CIETAC, there are also provincial and municipal arbitration commissions.  A foreign party may also seek arbitration in some instances from an offshore commission.  Foreign companies often encounter challenges in enforcing arbitration decisions issued by Chinese and foreign arbitration bodies.  In these instances, foreign investors may appeal to higher courts.  The Chinese government and judicial bodies do not maintain a public record of investment disputes.  The SPC maintains an annual count of the number of cases involving foreigners but does not provide details about the cases.

In 2018, the SPC established the China International Commercial Court (CICC) to adjudicate international commercial cases, especially cases related to BRI. The CICC has established three locations in Shenzhen, Xi’an, and Suzhou. As of June 2020, the courts have accepted a total of 213 international commercial cases, with most cases filed in Suzhou. Despite its international orientation, CIIC’s 16 judges are all PRC citizens and Mandarin Chinese is the court’s working language. Parties to a dispute before the CICC can only be represented by Chinese law-qualified lawyers, as foreign lawyers do not have a right of audience in Chinese courts; and unlike other international courts, foreign judges are not permitted to be part of the proceedings. Judgments of the CICC, given it is a part of the SPC, cannot be appealed from, but are subject to possible “retrial” under the Civil Procedure Law.

China has bilateral agreements with 27 countries on the recognition and enforcement of foreign court judgments, but not with the United States. Under Chinese law, local courts must prioritize the Party’s needs, China’s laws and other regulatory measures above foreign court judgments.

Bankruptcy Regulations

China introduced formal bankruptcy laws in 2007, under the Enterprise Bankruptcy Law (EBL), which applies to all companies incorporated under Chinese laws and subject to Chinese regulations.  After a decade of heavy borrowing, China’s growth has slowed and forced the government to make needed bankruptcy reforms. China now has more than 90 U.S.-style specialized bankruptcy courts. In 2020 the government added new courts in Nanjing, Suzhou, Jinan, Qingdao and Xiamen.  Court-appointed administrators – law firms and accounting firms that help verify claims, organize creditors’ meetings, list, and sell assets online – look to handle more cases and process them faster.  China’s SPC recorded over 19,000 liquidation and bankruptcy cases in 2019, double the number of cases in 2017.  National data is unavailable for 2020, but local courts have released some information that suggest an over 40 percent increase in liquidation and bankruptcy cases in cities such as Shanghai and Shandong. While Chinese authorities are taking steps to address mounting corporate debt and are gradually allowing some companies to fail, companies generally avoid pursing bankruptcy because of the potential for local government interference and fear of losing control over the bankruptcy outcome. According to experts, Chinese courts not only lack the resources and capacity to handle bankruptcy cases, but bankruptcy administrators, clerks, and judges lack relevant experience.

In May 2020, China released the Civil Code, one of the most important set of contract and property rights rules that will have a direct impact to upcoming amendments to China’s bankruptcy laws, especially the EBL. The National People’s Congress (NPC) has listed amendments to the EBL as the top work priority for 2021. In August 2020, Shenzhen released the Personal Bankruptcy Regulations of Shenzhen Special Economic Zone, to take effect on March 1, 2021. This is China’s first regulation on personal bankruptcy.

Capital Markets and Portfolio Investment

China’s leadership has stated that it seeks to build a modern, highly developed, and multi-tiered capital market.  Since their founding over three decades ago, the Shanghai and Shenzhen Exchanges, combined, are ranked the third largest stock market in the world with over USD11 trillion in assets, according to statistics from World Federation of Exchanges.  China’s bond market has similarly expanded significantly to become the second largest worldwide, totaling approximately USD17 trillion.  In 2020, China fulfilled its promises to open certain financial sectors such as securities, asset management, and life insurance. Direct investment by private equity and venture capital firms has increased but has also faced setbacks due to China’s capital controls, which obfuscate the repatriation of returns. As of 2020, 54 sovereign entities and private sector firms, including BMW and Xiaomi Corporation, have since issued roughly USD41 billion in “Panda Bonds,” Chinese renminbi (RMB)-denominated debt issued by foreign entities in China.  China’s private sector can also access credit via bank loans, bond issuance, trust products, and wealth management. However, the vast majority of bank credit is disbursed to state-owned firms, largely due to distortions in China’s banking sector that have incentivized lending to state-affiliated entities over their private sector counterparts.  China has been an IMF Article VIII member since 1996 and generally refrains from restrictions on payments and transfers for current international transactions.  However, the government has used administrative and preferential policies to encourage credit allocation towards national priorities, such as infrastructure investments.

Money and Banking System

China’s monetary policy is run by the People’s Bank of China (PBOC), China’s central bank.  The PBOC has traditionally deployed various policy tools, such as open market operations, reserve requirement ratios, benchmark rates and medium-term lending facilities, to control credit growth.  The PBOC had previously also set quotas on how much banks could lend but ended the practice in 1998.  As part of its efforts to shift towards a more market-based system, the PBOC announced in 2019 that it will reform its one-year loan prime rate (LPR), which would serve as an anchor reference for other loans.  The one-year LPR is based on the interest rate that 18 banks offer to their best customers and serves as the benchmark for rates provided for other loans.  In 2020, the PBOC requested financial institutions to shift towards use of the one-year LPR for their outstanding floating-rate loan contracts from March to August. Despite these measures to move towards more market-based lending, China’s financial regulators still influence the volume and destination of Chinese bank loans through “window guidance” – unofficial directives delivered verbally – as well as through mandated lending targets for key economic groups, such as small and medium sized enterprises. In 2020, the China Banking and Insurance Regulatory Commission (CBIRC) also began issuing laws to regulate online lending by banks including internet companies such as Ant Financial and Tencent, which had previously not been subject to banking regulations.

The CBIRC oversees China’s 4,607 lending institutions, about USD49 trillion in total assets.  China’s “Big Five” – Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, and Industrial and Commercial Bank of China – dominate the sector and are largely stable, but over the past year, China has experienced regional pockets of banking stress, especially among smaller lenders.  Reflecting the level of weakness among these banks, in November 2020, the PBOC announced in “China Financial Stability Report 2020” that 12.4 percent of the 4400 banking financial institutions received a “fail” rating (high risk) following an industry-wide review in 2019.  The assessment deemed 378 firms, all small and medium sized rural financial institutions, “extremely risky.”  The official rate of non-performing loans among China’s banks is relatively low: 1.92 percent as of the end of 2020.  However, analysts believed the actual figure may be significantly higher.  Bank loans continue to provide the majority of credit options (reportedly around 60.2 percent in 2020) for Chinese companies, although other sources of capital, such as corporate bonds, equity financing, and private equity are quickly expanding in scope, reach, and sophistication in China.

As part of a broad campaign to reduce debt and financial risk, Chinese regulators have implemented measures to rein in the rapid growth of China’s “shadow banking” sector, which includes wealth management and trust products.  These measures have achieved positive results. In December 2020, CBIRC published the first “Shadow Banking Report,” and claimed that the size of China’s shadow banking had shrunk sharply since 2017 when China started tightening the sector. By the end of 2019, the size of China’s shadow banking by broad measurement dropped to 84.8 trillion yuan from the peak of 100.4 trillion yuan in early 2017. Shadow banking to GDP ratio had also dropped to 86 percent at the end of 2019, yet the report did not provide statistics beyond 2019. Foreign owned banks can now establish wholly-owned banks and branches in China, however, onerous licensing requirements and an industry dominated by local players, have limited foreign banks market penetration. Foreigners are eligible to open a bank account in China but are required to present a passport and/or Chinese government issued identification.

Foreign Exchange and Remittances

Foreign Exchange

While the central bank’s official position is that companies with proper documentation should be able to freely conduct business, in practice, companies have reported challenges and delays in obtaining approvals for foreign currency transactions by sub-national regulatory branches. Chinese authorities instituted strict capital control measures in 2016, when China recorded a surge in capital flight.  China has since announced that it would gradually reduce those controls, but market analysts expect they would be re-imposed if capital outflows accelerate again. Chinese foreign exchange rules cap the maximum amount of RMB individuals are allowed to convert into other currencies at approximately USD50,000 each year and restrict them from directly transferring RMB abroad without prior approval from the State Administration of Foreign Exchange (SAFE).  SAFE has not reduced the USD50,000 quota, but during periods of higher-than-normal capital outflows, banks are reportedly instructed by SAFE to increase scrutiny over individuals’ requests for foreign currency and to require additional paperwork clarifying the intended use of the funds, with the intent of slowing capital outflows. China’s exchange rate regime is managed within a band that allows the currency to rise or fall by 2 percent per day from the “reference rate” set each morning.

Remittance Policies

According to China’s FIL, as of January 1, 2020, funds associated with any forms of investment, including profits, capital gains, returns from asset disposal, IPR loyalties, compensation, and liquidation proceeds, may be freely converted into any world currency for remittance. Based on the “2020 Guidance for Foreign Exchange Business under the Current Account” released by SAFE in August, firms do not need any supportive documents or proof that it is under USD50,000. For remittances over USD50,000, firms need to submit supportive documents and taxation records.  Under Chinese law, FIEs do not need pre-approval to open foreign exchange accounts and are allowed to retain income as foreign exchange or convert it into RMB without quota requirements. The remittance of profits and dividends by FIEs is not subject to time limitations, but FIEs need to submit a series of documents to designated banks for review and approval.  The review period is not fixed and is frequently completed within one or two working days of the submission of complete documents.  For remittance of interest and principal on private foreign debt, firms must submit an application, a foreign debt agreement, and the notice on repayment of the principal and interest.  Banks will then check if the repayment volume is within the repayable principal.  There are no specific rules on the remittance of royalties and management fees. Based on guidance for remittance of royalties and management fees, firms shall submit relevant contracts and invoice.  In October 2020, SAFE cut the reserve requirement for foreign currency transactions from 20 percent to zero, reducing the cost of foreign currency transactions as well as easing Renminbi appreciation pressure.

Sovereign Wealth Funds

China officially has only one sovereign wealth fund (SWF), the China Investment Corporation (CIC), which was launched in 2007 to help diversify China’s foreign exchange reserves. CIC is ranked the second largest SWF by total assets by Sovereign Wealth Fund Institute (SWFI). With USD200 billion in initial registered capital, CIC manages over USD1.04 trillion in assets as of 2020 and invests on a 10-year time horizon.  CIC has since evolved into three subsidiaries:

• CIC International was established in September 2011 with a mandate to invest in and manage overseas assets.  It conducts public market equity and bond investments, hedge fund, real estate, private equity, and minority investments as a financial investor.
• CIC Capital was incorporated in January 2015 with a mandate to specialize in making direct investments to enhance CIC’s investments in long-term assets.
• Central Huijin makes equity investments in Chinese state-owned financial institutions.

China also operates other funds that function in part like sovereign wealth funds, including: China’s National Social Security Fund, with an estimated USD372 billion in assets; the China-Africa Development Fund (solely funded by the China Development Bank), with an estimated USD10 billion in assets; the SAFE Investment Company, with an estimated USD417.8 billion in assets; and China’s state-owned Silk Road Fund, established in December 2014 with USD40 billion in assets to foster investment in BRI partner countries.  Chinese state-run funds do not report the percentage of their assets that are invested domestically.  However, Chinese state-run funds follow the voluntary code of good practices known as the Santiago Principles and participate in the IMF-hosted International Working Group on SWFs. While CIC affirms that they do not have any formal government guidance to invest funds consistent with industrial policies or designated projects, CIC is still expected to pursue government objectives.

China has approximately 150,000 wholly-owned SOEs, of which 50,000 are owned by the central government, and the remainder by local or provincial governments.  SOEs, both central and local, account for 30 to 40 percent of total gross domestic product (GDP) and about 20 percent of China’s total employment.  Non-financial SOE assets totaled roughly USD30 trillion.  SOEs can be found in all sectors of the economy, from tourism to heavy industries.  State funds are spread throughout the economy and the state may also be the majority or controlling shareholder in an ostensibly private enterprise.  China’s leading SOEs benefit from preferential government policies aimed at developing bigger and stronger “national champions.” SOEs enjoy favored access to essential economic inputs (land, hydrocarbons, finance, telecoms, and electricity) and exercise considerable power in markets like steel and minerals.  SOEs have long enjoyed preferential access to credit and the ability to issue publicly traded equity and debt.  A comprehensive, published list of all Chinese SOEs does not exist.

PRC officials have indicated China intends to utilize OECD guidelines to improve the SOEs independence and professionalism, including relying on Boards of Directors that are free from political influence.  Other recent reforms have included salary caps, limits on employee benefits, and attempts to create stock incentive programs for managers who have produced mixed results.  However, analysts believe minor reforms will be ineffective if SOE administration and government policy remain intertwined, and Chinese officials make minimal progress in primarily changing the regulation and business conduct of SOEs.  SOEs continue to hold dominant shares in their respective industries, regardless of whether they are strategic, which may further restrain private investment in the economy.  Among central SOEs managed by the State-owned Assets Supervision and Administration Commission (SASAC), senior management positions are mainly filled by senior party members who report directly to the CCP, and double as the company’s party secretary.  SOE executives often outrank regulators in the CCP rank structure, which minimizes the effectiveness of regulators in implementing reforms.  The lack of management independence and the controlling ownership interest of the state make SOEs de facto arms of the government, subject to government direction and interference.  SOEs are rarely the defendant in legal disputes, and when they are, they almost always prevail.  U.S. companies often complain about the lack of transparency and objectivity in commercial disputes with SOEs.

Privatization Program

Since 2013, the PRC government has periodically announced reforms to SOEs that included selling SOE shares to outside investors or a mixed ownership model, in which private companies invest in SOEs and outside managers are hired.  The government has tried these approaches to improve SOE management structures, emphasize the use of financial benchmarks, and gradually infuse private capital into some sectors traditionally monopolized by SOEs like energy, finance, and telecommunications.  In practice, however, reforms have been gradual, as the PRC government has struggled to implement its SOE reform vision and often preferred to utilize a SOE consolidation approach.  Recently, Xi and other senior leaders have increasingly focused reform efforts on strengthening the role of the state as an investor or owner of capital, instead of the old SOE model in which the state was more directly involved in managing operations.

Policies Towards Foreign Direct Investment

The Colombian government actively encourages foreign direct investment (FDI). The economic liberalization reforms of the early 1990s provided for national treatment of foreign investors, lifted controls on remittance of profits and capital, and allowed foreign investment in most sectors. Colombia imposes the same investment restrictions on foreign investors that it does on national investors. Generally, foreign investors may participate in the privatization of state-owned enterprises without restrictions. All FDI involving the establishment of a commercial presence in Colombia requires registration with the Superintendence of Corporations and the local chamber of commerce. All conditions being equal during tender processes, national offers are preferred over foreign offers. Assuming equal conditions among foreign bidders, those with major Colombian national workforce resources, significant national capital, and/or better conditions to facilitate technology transfers are preferred.

ProColombia is the Colombian government entity that promotes international tourism, foreign investment, and non-traditional exports. ProColombia assists foreign companies that wish to enter the Colombian market by addressing specific needs, such as identifying contacts in the public and private sectors, organizing visit agendas, and accompanying companies during visits to Colombia. All services are free of charge and confidential. Priority sectors include business process outsourcing, software and IT services, cosmetics, health services, automotive manufacturing, textiles, graphic communications, and electric energy. ProColombia’s “Invest in Colombia” web portal offers detailed information about opportunities in agribusiness, manufacturing, and services in Colombia (www.investincolombia.com.co/sectors ). The Duque administration – including senior leaders at the Presidency, ProColombia, and the Ministry of Commerce, Industry, and Trade – continue to stress Colombia’s openness to foreign investors and aggressively market Colombia as an investment destination.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investment in the financial, hydrocarbon, and mining sectors is subject to special regimes, such as investment registration and concession agreements with the Colombian government, but is not restricted in the amount of foreign capital. The following sectors require that foreign investors have a legal local representative and/or commercial presence in Colombia: travel and tourism agency services; money order operators; customs brokerage; postal and courier services; merchandise warehousing; merchandise transportation under customs control; international cargo agents; public service companies, including sewage and water works, waste disposal, electricity, gas and fuel distribution, and public telephone services; insurance firms; legal services; and special air services, including aerial fire-fighting, sightseeing, and surveying.

According to the Colombian constitution and foreign investment regulations, foreign investment in Colombia receives the same treatment as an investment made by Colombian nationals. Foreign investment is permitted in all sectors, except in activities related to defense, national security, and toxic waste handling and disposal. There are no performance requirements explicitly applicable to the entry and establishment of foreign investment in Colombia.

Foreign investors face specific exceptions and restrictions in the following sectors:

Media: Only Colombian nationals or legally constituted entities may provide radio or subscription-based television services. For National Open Television and Nationwide Private Television Operators, only Colombian nationals or legal entities may be granted concessions to provide television services. Foreign investment in national television is limited to a maximum of 40 percent ownership of an operator.

Accounting, Auditing, and Data Processing: To practice in Colombia, providers of accounting services must register with the Central Accountants Board and have uninterrupted domicile in Colombia for at least three years prior to registry. A legal commercial presence is required to provide data processing and information services in Colombia.

Banking: Foreign investors may own 100 percent of financial institutions in Colombia, but are required to obtain approval from the Financial Superintendent before making a direct investment of ten percent or more in any one entity. Foreign banks must establish a local commercial presence and comply with the same capital and other requirements as local financial institutions. Every investment of foreign capital in portfolios must be through a Colombian administrator company, including brokerage firms, trust companies, and investment management companies.

Fishing: A foreign vessel may engage in fishing activities in Colombian territorial waters only through association with a Colombian company holding a valid fishing permit. If a ship’s flag corresponds to a country with which Colombia has a complementary bilateral agreement, this agreement shall determine whether the association requirement applies for the process required to obtain a fishing license. The costs of fishing permits are greater for foreign flag vessels.

Private Security and Surveillance Companies: Companies constituted with foreign capital prior to February 11, 1994 cannot increase the share of foreign capital. Those constituted after that date can only have Colombian nationals as shareholders.

Transportation: Foreign companies can only provide multimodal freight services within or from Colombian territory if they have a domiciled agent or representative legally responsible for its activities in Colombia. International cabotage companies can provide cabotage services (i.e. between two points within Colombia) “only when there is no national capacity to provide the service.” Colombia prohibits foreign ownership of commercial ships licensed in Colombia. The owners of a concession providing port services must be legally constituted in Colombia, and only Colombian ships may provide port services within Colombian maritime jurisdiction, unless there are no capable Colombian-flag vessels.

Other Investment Policy Reviews

The WTO most recently reviewed Colombia’s trade policy in June 2018. https://www.wto.org/english/tratop_e/tpr_e/tp472_e.htm 

Business Facilitation

New businesses must register with the chamber of commerce of the city in which the company will reside. Applicants also register using the Colombian tax authority’s (DIAN) portal at: www.dian.gov.co  to obtain a taxpayer ID (RUT). Business founders must visit DIAN offices to obtain an electronic signature for company legal representatives, and obtain – in-person or online – an authorization for company invoices from DIAN. In 2019, Colombia made starting a business a step easier by lifting a requirement of opening a local bank account to obtain invoice authorization. Companies must submit a unified electronic form to self-assess and pay social security and payroll contributions to the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), the Colombian Family Welfare Institute (Instituto Colombiano de Bienestar Familiar, or ICBF), and the Family Compensation Fund (Caja de Compensación Familiar). After that, companies must register employees for public health coverage, affiliate the company to a public or private pension fund, affiliate the company and employees to an administrator of professional risks, and affiliate employees with a severance fund.

According to the World Bank’s “Doing Business 2020” report, recent reforms simplified starting a business, trading across borders, and resolving insolvency. According to the report, starting a company in Colombia requires seven procedures and takes an average of 10 days. Information on starting a company can be found at http://www.ccb.org.co/en/Creating-a-company/Company-start-up/Step-by-step-company-creation ; https://investincolombia.com.co/how-to-invest.html ; and http://www.dian.gov.co .

Outward Investment

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

Transparency of the Regulatory System

The Colombian legal, accounting, and regulatory systems are generally transparent and consistent with international norms. The written commercial code and other laws cover broad areas, including banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law. The civil code contains provisions relating to contracts, mortgages, liens, notary functions, and registries. There are no identified private-sector associations or non-governmental organizations leading informal regulatory processes. The ministries generally consult with relevant actors, both foreign and national, when drafting regulations. Proposed laws are typically published as drafts for public comment, although sometimes with limited notice. Information on Colombia’s public finances and debt obligations is readily available and is published in a timely manner.

Enforcement mechanisms exist, but historically the judicial system has not taken an active role in adjudicating commercial cases. The Constitution establishes the principle of free competition as a national right for all citizens and provides the judiciary with administrative and financial independence from the executive branch. Colombia has transitioned to an oral accusatory system to make criminal investigations and trials more efficient. The new system separates the investigative functions assigned to the Office of the Attorney General from trial functions. Lack of coordination among government entities as well as insufficient resources complicate timely resolution of cases.

Colombia is a member of UNCTAD’s international network of transparent investment procedures (see http://www.businessfacilitation.org  and Colombia’s websites http://colombia.eregulations.org  and https://www.colombiacompra.gov.co). Foreign and national investors can find detailed information on administrative procedures for investment and income generating operations, including the number of steps, name, and contact details of the entities and people in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures.

International Regulatory Considerations

Colombia became the 37th member of the OECD in April 2020. Colombia is part of the World Trade Organization (WTO). The government generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. In August 2020, Colombia fully joined the WTO Trade Facilitation Agreement (TFA). Regionally, Colombia is a member of organizations such as the Inter-American Development Bank (IADB), the Pacific Alliance, and the Andean Community of Nations (CAN).

Legal System and Judicial Independence

Colombia has a comprehensive, civil law-based legal system. Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community. The judicial framework includes the Council of State, the Constitutional Court, the Supreme Court of Justice, and various departmental and district courts, which collectively are overseen administratively by the Superior Judicial Council. The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch. Regulations and enforcement actions are appealable through the different stages of legal court processes in Colombia. The judicial system in general remains hampered by time-consuming bureaucratic requirements.

Laws and Regulations on Foreign Direct Investment

Colombia has a comprehensive legal framework for business and FDI that incorporates binding norms resulting from its membership in the Andean Community of Nations and the WTO, as well as other free trade agreements and bilateral investment treaties.

Colombia’s official investment portal explains procedures and relevant laws for those wishing to invest (see https://investincolombia.com.co/en/how-to-invest).

Competition and Antitrust Laws

The Superintendence of Industry and Commerce (SIC), Colombia’s independent national competition authority, monitors and protects free economic competition, consumer rights, compliance with legal requirements and regulations, and protection of personal data. It also manages the national chambers of commerce. The SIC has been strengthened in recent years with the addition of personnel, including economists and lawyers. The SIC has recently investigated companies, including U.S.-based technology firms and Colombian banks, for failing to protect customer data. Other investigations include those related to pharmaceutical pricing, “business cartelization” among companies supplying public entities, and misleading advertising by a major brewing company. One U.S. gig-economy platform was temporarily barred from operating in Colombia in early 2020, although other similarly-situated companies remained; a court overturned the prohibition on appeal. U.S. companies have expressed concern about limited ability to appeal SIC orders and the SIC’s increasing reliance on orders to remedy perceived problems. Other U.S. companies have noted that SIC investigations can be drawn-out and opaque, similar to the judicial system in general.

Expropriation and Compensation

Article 58 of the Constitution governs indemnifications and expropriations and guarantees owners’ rights for legally-acquired property. For assets taken by eminent domain, Colombian law provides a right of appeal both on the basis of the decision itself and on the level of compensation. The Constitution does not specify how to proceed in compensation cases, which remains a concern for foreign investors. The Colombian government has sought to resolve such concerns through the negotiation of bilateral investment treaties and strong investment chapters in free trade agreements, such as the CTPA.

Dispute Settlement

ICSID Convention and New York Convention

Colombia is a member of the New York Convention on Investment Disputes, the International Center for the Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency. Colombia is also party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The National and International Arbitration Statute (Law 1563), modeled after the UNCITRAL Model Law, has been in effect since 2012.

Investor-State Dispute Settlement

Domestic law allows contracting parties to agree to submit disputes to international arbitration, provided that: the parties are domiciled in different countries; the place of arbitration agreed to by the parties is a country other than the one in which they are domiciled; the subject matter of the arbitration involves the interests of more than one country; and the dispute has a direct impact on international trade. The law permits parties to set their own arbitration terms, including location, procedures, and the nationality of rules and arbiters. Foreign investors have found the arbitration process in Colombia complex and dilatory, especially with regard to enforcing awards, and slow and unresponsive at times. However, some progress has been made in the number of qualified professionals and arbitrators with ample experience on transnational transactions, arbitrage centers with cutting-edge infrastructure and administrative capacity, and courts that are progressively more accepting of arbitration processes.

There were several pending investment disputes in Colombia in 2020, including:

• A project management consultant contract with a state-owned entity related to the refurbishment of an oil refinery. Claims arise out of a $2.4 billion liability imposed by the national comptroller general.
• Two separate shareholder claims related to a Colombian bank that Colombia put under new management and ultimately seized in 1998.
• Three separate claims related to ownership and mining rights related to the Constitutional Court’s decision to ban mining in a range of high-altitude wetlands.
• Ownership of a mobile communications subsidiary, with claims arising out of the government’s order that certain assets revert to State control on expiration of a concession.
• Majority shareholder claims arising out of the government’s decision to seize and liquidate an electricity provider.

According to the Doing Business 2020 report, the time from the moment a plaintiff files a lawsuit until actual payment and enforcement of the contract averages 1,288 days. Traditionally, most court proceedings are carried out in writing and only the evidence-gathering stage is carried out through hearings, including witness depositions, site inspections, and cross-examinations. The government has accelerated proceedings and reduced the backlog of court cases by allowing more verbal public hearings and creating alternative court mechanisms. The Code of General Procedure that entered into force in 2014 also establishes oral proceedings that are carried out in two hearings, and there are now penalties for failure to reach a ruling in the time limit set by the law. Enforcement of an arbitral award can take between six months and one and a half years; a regular judicial process can take up to seven years for private parties and upwards of 15 years in conflicts with the State. Thus, arbitration results are cheaper and much more efficient. According to the Doing Business report, Colombia has made enforcing contracts easier by simplifying and speeding up the proceedings for commercial disputes. In 2020, Colombia’s global ranking in the enforcing contracts category of the report held at 177.

International Commercial Arbitration and Foreign Courts

Foreign judgments are recognized and enforced in Colombia once an application is submitted to the Civil Chamber of the Supreme Court. In 2012, Colombia approved the use of the arbitration process via adoption of new legislation (Law 1563) based on the UNCITRAL Model Law. The statute stipulates that arbitral awards are governed by both domestic law as well as international conventions (New York Convention, Panama Convention, etc.). This has made the enforcement of arbitral awards easier for all parties involved. Arbitration in Colombia is completely independent from judiciary proceedings, and, once arbitration has begun, the only competent authority is the arbitration tribunal itself. The CTPA protects U.S. investments by requiring a transparent and binding international arbitration mechanism and allowing investor-state arbitration for breaches of investment agreements if certain parameters are met. The judicial system is notoriously slow, leading many foreign companies to include international arbitration clauses in their contracts.

Bankruptcy Regulations

Colombia’s 1991 Constitution grants the government the authority to intervene directly in financial or economic affairs, and this authority provides solutions similar to U.S. Chapter 11 filings for companies facing liquidation or bankruptcy. Colombia’s bankruptcy regulations have two major objectives: to regulate proceedings to ensure creditors’ protection, and to monitor the efficient recovery and preservation of still-viable companies. This was revised in 2006 to allow creditors to request judicial liquidation, which replaces the previous forced auctioning option. Now, inventories are valued, creditors’ rights are considered, and either a direct sale takes place within two months or all assets are assigned to creditors based on their share of the company’s liabilities. The insolvency regime for companies was further revised in 2010 to make proceedings more flexible and allow debtors to enter into a long-term payment agreement with creditors, giving the company a chance to recover and continue operating. Bankruptcy is not criminalized in Colombia. In 2013, a bankruptcy law for individuals whose debts surpass 50 percent of their assets value entered into force.

Restructuring proceedings aim to protect the debtors from bankruptcy. Once reorganization has begun, creditors cannot use collection proceedings to collect on debts owed prior to the beginning of the reorganization proceedings. All existing creditors at the moment of the reorganization are recognized during the proceedings if they present their credit. Foreign creditors, equity shareholders (including foreign equity shareholders), and holders of other financial contracts (including foreign contract holders) are recognized during the proceeding. Established creditors are guaranteed a vote in the final decision. According to the Doing Business 2020 report Colombia is ranked 32nd for resolving insolvency and it takes an average of 1.7 years – the same as OECD high-income countries – to resolve insolvency; the average time in Latin America is 2.9 years.

Capital Markets and Portfolio Investment

The Colombian Securities Exchange (BVC after its acronym in Spanish) is the main forum for trading and securities transactions in Colombia. The BVC is a private company listed on the stock market. The BVC, as a multi-product and multi-market exchange, offers trading platforms for the stock market, along with fixed income and standard derivatives. The BVC also provides listing services for issuers.

Foreign investors can participate in capital markets by negotiating and acquiring shares, bonds, and other securities listed by the Foreign Investment Statute. These activities must be conducted by a local administrator, such as trust companies or Financial Superintendence-authorized stock brokerage firms. Direct and portfolio foreign investments must be registered with the Central Bank. Foreigners can establish a bank account in Colombia as long as they have a valid visa and Colombian government identification.

The market has sufficient liquidity for investors to enter and exit sizeable positions. The central bank respects IMF Article VIII and does not restrict payments and transfers for current international transactions. The financial sector in Colombia offers credit to nationals and foreigners that comply with the requisite legal requirements.

Money and Banking System

In 2005, Colombia consolidated supervision of all aspects of the banking, financial, securities, and insurance sectors under the Financial Superintendence. Colombia has an effective regulatory system that encourages portfolio investment, and the country’s financial system is strong by regional standards. Commercial banks are the principal source of long-term corporate and project finance in Colombia. Loans rarely have a maturity in excess of five years. Unofficial private lenders play a major role in meeting the working capital needs of small and medium-sized companies. Only the largest of Colombia’s companies participate in the local stock or bond markets, with the majority meeting their financing needs either through the banking system, by reinvesting their profits, or through credit from suppliers.

Colombia’s central bank is charged with managing inflation and unemployment through monetary policy. Foreign banks are allowed to establish operations in the country, and must set up a Colombian subsidiary in order to do so. The Colombian central bank has a variety of correspondent banks abroad.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on transferring funds associated with FDI. Foreign investment into Colombia must be registered with the central bank in order to secure the right to repatriate capital and profits. Direct and portfolio investments are considered registered when the exchange declaration for operations channeled through the official exchange market is presented, with few exceptions. The official exchange rate is determined by the central bank. The rate is based on the free market flow of the previous day. Colombia does not manipulate its currency to gain competitive advantages.

Remittance Policies

The government permits full remittance of all net profits regardless of the type or amount of investment. Foreign investments must be channeled through the foreign exchange market and registered with the central bank’s foreign exchange office within one year in order for those investments to be repatriated or reinvested. There are no restrictions on the repatriation of revenues generated from the sale or closure of a business, reduction of investment, or transfer of a portfolio. Colombian law authorizes the government to restrict remittances in the event that international reserves fall below three months’ worth of imports. International reserves have remained well above this threshold for decades.

Sovereign Wealth Funds

In 2012, Colombia began operating a sovereign wealth fund called the Savings and Stabilization Fund (FAE), which is administered by the central bank with the objective of promoting savings and economic stability in the country. Colombia is not a member of the International Forum of Sovereign Wealth Funds. The fund can administer up to 30 percent of annual royalties from the extractives industry. Its primary investments are in fixed securities, sovereign and quasi-sovereign debt (both domestic and international), and corporate securities, with just eight percent invested in stocks. The government transfers royalties not dedicated to the fund to other internal funds to boost national economic productivity through strategic projects, technological investments, and innovation. In 2020, the government authorized up to 80 percent of the FAE’s USD 3.9 billion in assets to be lent to the Fund for the Mitigation of Emergencies (FOME) created in response to the pandemic.

Since 2015, the Government of Colombia has concentrated its industrial and commercial enterprises under the supervision of the Ministry of Finance. According to Ministry’s 2019 annual report, the number of state-owned companies is 105, with a combined value of USD 20 billion. The government is the majority shareholder of 39 companies and a minority shareholder in the remaining 66. Among the most notable companies with a government stake are Ecopetrol (Colombia’s majority state-owned and privately-run oil company), ISA (electricity distribution), Banco Agrario de Colombia, Bancoldex, and Satena (regional airline). SOEs competing in the Colombian market do not receive non-market-based advantages from the government. The Ministry of Finance normally updates their annual report on SOEs every June.

Privatization Program

Colombia has privatized state-owned enterprises under article 60 of the Constitution and Law Number 226 of 1995.  This law stipulates that the sale of government holdings in an enterprise should be offered to two groups:  first to cooperatives and workers’ associations of the enterprise, then to the general public.  During the first phase, special terms and credits have to be granted, and in the second phase, foreign investors may participate along with the general public.  A series of privatizations planned for 2020 were postponed to 2021 due to the pandemic.  The government views stimulating private-sector investment in roads, ports, electricity, and gas infrastructure as a high priority.  The government is increasingly turning to concessions and using public-private partnerships (PPPs) to secure and incentivize infrastructure development.

In order to attract investment and promote PPPs, Colombian modified infrastructure regulations to clarify provisions for frequently-cited obstacles to participate in PPPs, including environmental licensing, land acquisition, and the displacement of public utilities.  The law puts in place a civil procedure that facilitates land expropriation during court cases, allows for expedited environmental licensing, and clarifies that the cost to move or replace public utilities affected by infrastructure projects falls to private companies.  However, infrastructure development companies considering bidding on tenders have raised concerns about unacceptable levels of risk that result from a law (Ley 80) establishing a framework for public works projects.  Interpretations of Ley 80 do not establish a liability cap on potential judgments and view company officials equal to those with fiscal oversight authority when it comes to criminal liability for misfeasance.

Municipal enterprises operate many public utilities and infrastructure services.  These municipal enterprises have engaged private sector investment through concessions.  There are several successful concessions involving roads.  These kinds of partnerships have helped promote reforms and create a more attractive environment for private, national, and foreign investment.

Policies Towards Foreign Direct Investment

Costa Rica actively courts FDI, placing a high priority on attracting and retaining high-quality foreign investment. There are some limitations to both private and foreign participation in specific sectors, as detailed in the following section.

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

Other Investment Policy Reviews

The OECD accession process for Costa Rica, which began in 2015, resulted in a wide swath of legal and technical changes across the economy that should help the economy function in a more just and competitive manner. Toward that goal, the OECD will continue to monitor Costa Rican progress in a number of areas and will publish periodic progress updates and sector analysis that may be useful to prospective investors. A comprehensive review of the Costa Rican economy was published by the OECD at the conclusion of the accession process, which offered valuable insights into challenges faced by the economy, “OECD Economic Surveys Costa Rica 2020: https://www.oecd.org/countries/costarica/oecd-economic-surveys-costa-rica-2020-2e0fea6c-en.htm  . In the same context, the OECD offers a review of international investment in Costa Rica: https://www.oecd.org/countries/costarica/OECD-Review-of-international-investment-in-Costa-Rica.pdf .

Additionally, in recent years the OECD has published a number of reports focused on specific aspects of economic growth and investment policy – several of these reports are referenced elsewhere in this report. For the index of OECD reports on Costa Rica, go to https://www.oecd.org/countries/costarica/3/ .

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

The United Nations Conference on Trade and Development (UNCTAD) produced in 2019 the report Overview of Economic and Trade Aspects of Fisheries and Seafood Sectors in Costa Rica: https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2583  .

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

Business Facilitation

Costa Rica’s single-window business registration website, crearempresa.go.cr  , brings together the various entities – municipalities and central government agencies – which must be consulted in the process of registering a business in Costa Rica. A new company in Costa Rica must typically register with the National Registry (company and capital registry), Internal Revenue Directorate of the Finance Ministry (taxpayer registration), National Insurance Institute (INS) (basic workers’ comp), Ministry of Health (sanitary permit), Social Security Administration (CCSS) (registry as employer), and the local Municipality (business permit). Legal fees are the biggest single business start-up cost, as all firms registered to individuals must hire a lawyer for a portion of the necessary paperwork. Crearempresa is rated 17th of 33 national business registration sites evaluated by “Global Enterprise Registration” ( www.GER.co ), which awards Costa Rica a relatively lackluster rating because Crearempresa has little payment facility and provides only some of the possible online certificates.

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

Within the World Bank’s “Doing Business” evaluation for 2020, http://www.doingbusiness.org , Costa Rica is ranked 144/190 for “starting a business”, with the process taking 10 days.

Outward Investment

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

Transparency of the Regulatory System

Costa Rican laws, regulations, and practices are generally transparent and meant to foster competition in a manner consistent with international norms, except in the sectors controlled by a state monopoly, where competition is explicitly excluded. Rule-making and regulatory authority is housed in any number of agencies specialized by function (telecom, financial, health, environmental) or location (municipalities, port authorities). Tax, labor, health, and safety laws, though highly bureaucratic, are not seen as unfairly interfering with foreign investment. It is common to have Professional Associations that play a regulatory role. For example, the Coffee Institute of Costa Rica (ICAFE), a private sector organization, promotes standardization of production models among national producers, roasters and exporters, as well as setting minimum market prices.

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

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

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

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

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

Costa Rica is transparent in reporting its public finances and debt obligations, including explicit and contingent liabilities. The Ministry of Finance provides updates on public debt through the year, with the debt categorized as Central Government, Central Government and Non-Financial Sector, and Central Bank of Costa Rica: https://www.hacienda.go.cr/contenido/12519-informacion-de-la-deuda-publica 

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

The following chart covers contingent debt as of December 31, 2020: https://www.hacienda.go.cr/docs/60088ea554e11_12-2020%20Resumen%20Deuda%20Contingente%20publicar.xlsx

https://www.hacienda.go.cr/docs/60088ea554e11_12-2020%20Resumen%20Deuda%20Contingente%20publicar.xlsx

The General Controller’s Office produced the following 2019 report on unregistered debt, summing to 1.27 percent of GDP: https://cgrfiles.cgr.go.cr/publico/docs_cgr/2019/SIGYD_D_2019015487.pdf

https://cgrfiles.cgr.go.cr/publico/docs_cgr/2019/SIGYD_D_2019015487.pdf

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

Furthermore, Costa Rica’s product market regulations are more stringent than in any other OECD country, according to the OECD’s 2020 Product Market Regulations Indicator, leading to market inefficiencies. Find this explanation as well as a detailed review of the regulatory challenges Costa Rica faces in the September 2020 OECD report on regulatory reform: https://www.oecd.org/countries/costarica/enhancing-business-dynamism-and-consumer-welfare-in-costa-rica-with-regulatory-reform-53250d35-en.htm 

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

International Regulatory Considerations

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

Legal System and Judicial Independence

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

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

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

Laws and Regulations on Foreign Direct Investment

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

Competition and Antitrust Laws

Two public institutions are responsible for consumer protection as it relates to monopolistic and anti-competitive practices. The “Commission for the Promotion of Competition” (COPROCOM), an autonomous agency housed in the Ministry of Economy, Industry and Commerce, is charged with investigating and correcting anti-competitive behavior across the economy. The Telecommunications Superintendence (SUTEL) shares that responsibility with COPROCOM in the Telecommunications sector. Both agencies are charged with defense of competition, deregulation of economic activity, and consumer protection. COPROCOM has traditionally been underfunded and weak, although a law passed in 2019 is designed to change that by giving COPROCOM greater regulatory independence and sufficient operating budget.

For an analysis of opportunities for improvement in Costa Rica’s regulatory environment, including in competition and antitrust, see: https://www.oecd.org/countries/costarica/enhancing-business-dynamism-and-consumer-welfare-in-costa-rica-with-regulatory-reform-53250d35-en.htm . For the OECD assessment of competition law and policy in Costa Rica, see: https://www.oecd.org/countries/costarica/costarica-competition.htm .

Expropriation and Compensation

The three principal expropriating government agencies in recent years have been the Ministry of Public Works – MOPT (highway rights-of-way), the state-owned Costa Rican Electrical Institute – ICE (energy infrastructure), and the Ministry of Environment and Energy – MINAE (National Parks and protected areas). Expropriations generally conform to Costa Rica’s laws and treaty obligations, but there are allegations of expropriations of private land without prompt or adequate compensation.

Article 45 of Costa Rica’s Constitution stipulates that private property can be expropriated without proof that it is done for public interest. The 1995 Law 7495 on expropriations further stipulates that expropriations require full and prior payment. The law makes no distinction between foreigners and nationals. Provisions include: (a) return of the property to the original owner if it is not used for the intended purpose within ten years or, if the owner was compensated, right of first refusal to repurchase the property back at its current value; (b) detailed provisions for determination of a fair price and appeal of that determination on the part of the former owner; (c) provision that upon full deposit of the calculated amount the government may take possession of land despite the former owner’s dispute of the price; and (d) provisions providing for both local and international arbitration in the event of a dispute. The expropriations law was amended in 1998, 2006, and 2015 to clarify and expedite some procedures, including those necessary to expropriate land for the construction of new roads. (For full detail go to https://PGRweb.go.cr/SCIJ  . When reviewing the articles of the law go to the most recent version of each article.)

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

Dispute Settlement

ICSID Convention and New York Convention

In 1993, Costa Rica became a member state to the convention on International Center for Settlement of Investment Disputes (ICSID Convention). Costa Rica paid the awards resulting from unfavorable ICSID rulings, most recently in 2012 regarding private property belonging to a German national within National Park boundaries.

Costa Rica is a signatory of the convention on the Recognition and Enforcement of Arbitral Awards (1958 New York Convention). Consequently, within the Costa Rican legal hierarchy the Convention ranks higher than local laws although still subordinate to the Constitution. Costa Rican courts recognize and enforce foreign arbitral awards. Judgments of foreign courts are recognized and enforceable under the local courts and the Supreme Court.

Investor-State Dispute Settlement

Disputes between investors and the government grounded in the government’s alleged actions or failure to act – termed investment disputes ‒ may be resolved administratively or through the legal system.

Under Chapter 10 of the CAFTA-DR agreement, Costa Rica legally obligated itself to answer investor arbitration claims submitted under ICSID or the United Nations Commission on International Trade Law (UNCITRAL), and accept the arbitration verdict. To date there have been two claims by U.S. citizen investors under the provisions of CAFTA-DR. Extensive documentation for both cases is filed on the Foreign Trade Ministry (COMEX) website: http://www.comex.go.cr/tratados/cafta-dr/ , under “documentos relevantes”. No local court denies or fails to enforce foreign arbitral awards issued against the government.

In some coastal areas of Costa Rica, there is a history of invasion and occupation of private property by squatters who are often organized and sometimes violent. It is not uncommon for squatters to return to the parcels of land from which they were evicted, requiring expensive and potentially dangerous vigilance over the land. Nevertheless, in recent years the Supreme Court has refused title to squatters on land already titled, thus removing some incentive for persistent squatters.

International Commercial Arbitration and Foreign Courts

The right to solve disputes through arbitration is guaranteed in the Costa Rican Constitution. For years, the practical application was regulated by the Civil Procedural Code, which made it ineffective with no arbitration cases until 1998, the year the local arbitration law #7727 was enacted. A 2011 law on International Commercial Arbitration (Law 8937), drafted from the UNCITRAL model law (version 2006), brought Costa Rica to a dual arbitration system, with two valid laws, one law for local arbitration and one for international arbitration. Under the local act, arbitration has to be conducted in Spanish and only attorneys admitted to the local Bar Association may be named as arbitrators.  All cases brought before an arbitration panel, under the rules of local arbitration centers, will normally be resolved within two months of the closing arguments hearing.  Parties can withdraw their case or reach an out-of-court settlement before the arbitral tribunal delivers an award.  If the award meets the review criteria, the losing party has the option to request that the Costa Rican Supreme Court examine the award, but only on procedural matters and never on the merits. Under the local Law for International Arbitration, proceedings may be held in English and foreign attorneys are authorized to serve as arbitrators. The following arbitration centers are in operation in Costa Rica:

Centro de Conciliacion y Arbitraje. Costa Rican Chamber of Commerce (CCA)

Centro de Resolución de Controversias. Costa Rican Association of Engineers and Architects (CFIA)

Centro Internacional de Conciliacion y Arbitraje (CICA). Costa Rican American Chamber of Commerce (AMCHAM)

Centro de Arbitraje y Mediacion/Centro Iberoamericano de Arbitraje (CAM). Costa Rican Bar Association.

Beyond such arbitration options, law #7727 also facilitates courts’ enforcement of conciliation agreements reached under the law. Some universities and municipalities operate “Casas de Justicia” (Justice Houses) open to the public and offering mediation and conciliation at no cost. Law #8937 empowered local arbitration centers, beginning with that pertaining to the Engineers and Architects’ Association, to implement Dispute Board regulations, as a method to address construction disputes. Dispute Boards have acquired importance lately in construction contracts; with CFIA implementing new by-laws favoring the use of Dispute Boards in such contracts.

Outcomes in local courts do not appear to favor state-owned enterprises (SOEs) any more or less than other actors.  SOEs can sign arbitral agreements, but must follow strict public laws to obtain the permissions necessary and follow correct procedures, otherwise the agreement could be voided. Once SOEs find themselves in arbitration, they are subject to the same standards and treatment as any other actor.

U.S. companies cite the unpredictability of outcomes as a source of rising judicial insecurity in Costa Rica. The legal system is significantly backlogged, and civil suits may take several years from start to finish. In the tax arena, several U.S. businesses have objected to the Ministry of Finance’s aggressive stance in interpreting transfer pricing principles, compounded by what the businesses perceive as a lack of specialized judges to competently address such cases. Some U.S. firms and citizens satisfactorily resolved their cases through the courts, while others see proceedings drawn out over a decade without a final resolution. Commercial arbitration has become an increasingly common dispute resolution mechanism.

Bankruptcy Regulations

The Costa Rican bankruptcy law, addressed in both the commercial code and the civil procedures code, has long been similar to corresponding U.S. law. In February 2021, Costa Rica’s National Assembly approved a comprehensive bankruptcy law reform #21.436 “LEY CONCURSAL”. As of late March 2021, the bill was waiting to be signed by the President and published in the official Gazette. It will come into effect six months after publication.

The new law will ease bankruptcy processes and help companies in financial distress to move through the “administrative intervention” intended to save the companies. The previous law too often ended with otherwise viable companies ceasing operations, rather than allowing them to recover, due to a bias towards dissolution of companies in distress. The new law simplifies processes in court, reduces time and costs, and allows judges to act fast, with a system that is clear and expeditious.

As in the United States, penal law will also apply to criminal malfeasance in some bankruptcy cases. In the World Bank’s “resolving insolvency” ranking within the 2020 “Doing Business” report, Costa Rica ranked #137 of 190 (http://www.doingbusiness.org/rankings ).

Capital Markets and Portfolio Investment

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

Costa Rica accepted the obligations of IMF Article VIII, agreeing not to impose restrictions on payments and transfers for current international transactions or engage in discriminatory currency arrangements, except with IMF approval. There are no controls on capital flows in or out of Costa Rica or on portfolio investment in publicly traded companies. Some capital flows are subject to a withholding tax (see section on Foreign Exchange and Remittances). Within Costa Rica, credit is largely allocated on market terms, although long-term capital is scarce. Favorable lending terms for USD-denominated loans compared to colon-denominated loans have made USD-denominated mortgage financing popular and common. Foreign investors are able to borrow in the local market; they are also free to borrow from abroad, although withholding tax may apply.

Money and Banking System

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

The banking sector is healthy, although the 2020 non-performing loan ratio of 2.46 percent of total loans as of December 2020 would be significantly higher if not for Covid-19 temporary regulatory measures allowing banks to readjust loans. The state-owned commercial banks had a higher 3.24 percent average. The country hosts a large number of smaller private banks, credit unions, and factoring houses, although the four state-owned banks are still dominant, accounting for just under 50 percent of the country’s financial system assets. Consolidated total assets of those state-owned banks were approximately USD 29.5 billion in December 2020, while consolidated total assets of the eleven private commercial and cooperative banks were about USD 21.5 billion. Combined assets of all bank groups (public banks, private banks and others) were approximately USD 63.1 billion as of December 2020. As of February 2020, Costa Rica adopted a deposit guarantee fund and bank resolution regime for the financial system, ending the previous much-criticized situation in which only publicly owned banks benefitted from de-facto state guarantees.

Costa Rica’s Central Bank performs the functions of a central bank while also providing support to the four autonomous financial superintendencies (Banking, Securities, Pensions and Insurance) under the supervision of the national council for the supervision of the financial system (CONASSIF). The Central Bank developed and operates the financial system’s transaction settlement and direct transfer mechanism “SINPE” through which clients transfer money to and from accounts with any other account in the financial system. The Central Bank’s governance structure is strong, having benefitted in 2019 from reforms that increase the Bank’s autonomy from the Executive Branch.

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

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

Foreign Exchange and Remittances

Foreign Exchange

No restrictions are imposed on expatriation of royalties or capital except when these rights are otherwise stipulated in contractual agreements with the government of Costa Rica. However, Costa Rican sourced rents and benefits remitted overseas, including royalties, are subject to a withholding tax (see below). When such remittances are paid to a parent company or related legal entity, transfer pricing rules and certain limitations apply.

There are no restrictions on receiving, holding, or transferring foreign exchange. There are no delays for foreign exchange, which is readily available at market clearing rates and readily transferable through the banking system. Dollar bonds and other dollar instruments may be traded legally. Euros are increasingly available in the market. Costa Rica has a floating exchange rate regime in which the Central Bank is ready to intervene, if necessary, to smooth any exchange rate volatility.

Remittance Policies

Costa Rica does not have restrictions on remittances of funds to any foreign country; however, all funds remitted are subject to applicable withholding taxes that are paid to the country’s tax administration.  The default level of withholding tax is 30 percent with royalties capped at 25 percent, dividends at 15 percent, professional services at 25 percent, transportation and communication services at 8.5 percent, and reinsurance at 5.5 percent (different withholding taxes also apply for other types of services).  By Costa Rican law, in order to pay dividends, procedures need to be followed that include being in business in the corresponding fiscal year and paying all applicable local taxes.  Those procedures for declaring dividends in effect put a timing restriction on them.  Withholding tax does not apply to payment of interest to multilateral and bilateral banks that promote economic and social growth, and companies located in free trade zones pay no dividend withholding tax.  Spain, Germany, and Mexico have double-taxation tax treaties with Costa Rica, lowering the withholding tax on dividends paid by companies from those countries.

Sovereign Wealth Funds

Costa Rica does not have a Sovereign Wealth Fund.

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

No Costa Rican state-owned enterprise currently requires continuous and substantial state subsidy to survive. Many SOEs turn a profit, which is allocated as dictated by law and boards of directors. Financial allocations to and earnings from SOEs may be found in the CGR “Sistema de Informacion de Planes y Presupuestos (SIPP)”.

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

• According to Law 7200, electricity generated privately must be purchased by public entities and the installed capacity of the private sector is limited to 30 percent of total electrical installed capacity in the country: 15 percent to small privatelyowned renewable energy plants and 15 percent to larger “buildoperatetransfer” (BOT) operations.
• Telecoms and technology sector companies have called attention to the fact that government agencies often choose SOEs as their telecom services providers despite a full assortment of privatesector telecom companies. The Information and Telecommunications Business Chamber (CAMTIC) has been advocating for years against what its members feel to be unfair use by government entities of a provision (Article 2) in the public contracting law that allows noncompetitive award of contracts to public entities (also termed “direct purchase”) when functionaries of the awarding entity certify the award to be an efficient use of public funds. CAMTIC has compiled detailed statistics showing that while the yearly total dollar value of Costa Rican government direct purchases in the IT sector under Article 2 has dropped considerably from USD 226 million in 2017, to $72.5 million in 2018, USD 27.5 million in 2019, and USD 7.1 million in 2020, the number of purchases has actually increased from 56 purchases in both 2017 and 2018 to 86 in 2019 and 83 in 2020.
• The stateowned insurance provider National Insurance Institute (INS) has been adjusting to private sector competition since 2009 but in 2020 still registered 70 percent of total insurance premiums paid; 13 insurers are now registered with insurance regulator SUGESE: ( https://www.sugese.fi.cr/SitePages/index.aspx ). Competitors point to unfair advantages enjoyed by the stateowned insurer INS, including a strong tendency among SOE’s to contract their insurance with INS.

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

Privatization Program

Costa Rica does not have a privatization program and the markets that have been opened to competition in recent decades – banking, telecommunications, insurance and Atlantic Coast container port operations – were opened without privatizing the corresponding state-owned enterprise(s). However, in response to the growing fiscal deficit, the current administration has signaled willingness to privatize two relatively minor state owned enterprises: the state liquor company (Fanal), and the International Bank of Costa Rica (Bicsa).

Policies Towards Foreign Direct Investment

The government actively encourages Foreign Direct Investment (FDI) and is committed to increasing it. Foreign companies are free to invest and list on the regional stock exchange Bourse Régionale des Valeurs Mobilières (BRVM), which is based in Abidjan and covers the eight countries of the West African Economic and Monetary Union (WAEMU). WAEMU members are part of the Regional Council for Savings and Investment, a regional securities regulatory body.

In most sectors, there are no laws that limit foreign investment. There are restrictions, however, on foreign investment in the health sector, law and accounting firms, and travel agencies.

Land tenure is a complicated and sensitive issue. Land tenure disputes exist all over the country owing to multiple forms of traditional collective tenure and the lack of formal private land ownership in most areas. Companies that wish to purchase land must have the property surveyed before obtaining title. Surveying is tightly controlled by a small group of companies and can often cost more than the value of the parcel of land. Freehold land tenure in rural areas is difficult to negotiate, however, and can inhibit foreign investment. Most businesses, including agribusinesses and forestry companies, circumvent the complicated land purchase process by acquiring long-term leases instead. There are regulations designed to control land speculation in urban areas, but they do not prevent foreigners from owning land.

The Ivoirian government’s investment promotion agency, the Center for the Promotion of Investment in Côte d’Ivoire (CEPICI), promotes and attracts national and foreign investment. Its services are available to all investors, provided through a one-stop shop intended to facilitate business creation, operation, and expansion. CEPICI ensures that investors receive incentives outlined in the investment code and facilitates access to industrial land. More information is available at http://www.cepici.gouv.ci/ .

Côte d’Ivoire maintains an ongoing dialogue with investors through various business networks and platforms, such as CEPICI, the Ivoirian Chamber of Commerce (CCI-CI), the association of large enterprises (CGECI), and the bankers’ association.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors generally have access to all forms of remunerative activity on terms equal to those enjoyed by Ivoirians. The government encourages foreign investment, including state-owned firms that the government is privatizing, although in most cases of privatization the state reserves an equity stake in the new company.

There are no general, economy-wide limits on foreign ownership or control, and few sector-specific restrictions. There are no laws specifically directing private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control in those firms, and no such practices have been reported.

Banks and insurance companies are subject to licensing requirements, but there are no restrictions designed to limit foreign ownership or to limit establishment of subsidiaries of foreign companies in this sector. Investments in health, law and accounting, and travel agencies are subject to prior approval and require appropriate licenses and association with an Ivoirian partner. The Ivoirian government has, on a case-by-case basis, mandated using local providers, hiring local employees, or arranging for eventual transfer to local control.

The government does not have an official policy to screen investments, and its overall economic and industrial strategy does not discriminate against foreign-owned firms. There are indications in some instances of preferential treatment for firms from countries with longstanding commercial ties to Côte d’Ivoire.

Other Investment Policy Reviews

Côte d’Ivoire has not conducted an investment policy review (IPR) through the OECD. The WTO last conducted a Trade Policy Review in October 2017, which can be found at https://www.wto.org/english/tratop_e/tpr_e/tp462_e.htm .

UNCTAD published an Investment Policy Review for Côte d’Ivoire in February 2020, which can be found at https://unctad.org/webflyer/investment-policy-review-cote-divoire 

The Government of Côte d’Ivoire provides information about sector policies and business opportunities in publicly available reports. More information can be found at: https://www.cepici.gouv.ci/ .

Business Facilitation

The CEPICI manages Côte d’Ivoire’s online information portal containing all documents dedicated to business creation and registration ( https://cotedivoire.eregulations.org/ ). All the necessary documentation for registration is available online, however actual registration must be done in person. Further information on business registration is also available on CEPICI’s website ( http://www.cepici.gouv.ci/ ).

Businesses can register at the CEPICI’s One-Stop Shop (Guichet Unique) in Abidjan. The One-Stop Shop allows businesses to register with the commercial registrar (Registre du Commerce et du Crédit Immobilier), the tax authority (Direction Générale d’Impôts) and the social security institute (Caisse Nationale de Prévoyance Sociale). The One-Stop Shop also publishes the legal notice of incorporation on CEPICI’s website. All necessary documents for registration are also available on the website. Registration takes between one and three days. The business licensing process, controlled by sector-specific governing bodies, is separate from the registration process.

Women have equal access to the registration process. There have not been any reports of discrimination in that regard.

Outward Investment

Côte d’Ivoire does not promote or incentivize outward investment.

However, the government does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

The government aims for transparency in law and policy to foster competition and provide clear rules of the game and a level playing field for domestic and foreign investors. Transparency of the Ivoirian regulatory system is a concern; both foreign and Ivoirian companies complain that new regulations are issued with little warning and without a period for public comment.

There are no informal regulatory processes managed by non-governmental organizations or private-sector associations.

Regulatory authority and decision-making exist only at the national level. Sub-national jurisdictions do not regulate business. For most industries or sectors, regulations are developed through the ministry responsible for that sector. In the telecommunications, electricity, cocoa, coffee, cotton, and cashew sectors, the government has established control boards or independent agencies to regulate the sector and pricing. Companies have complained that rules for buying prices determined by the agriculture commodity regulatory agencies tend to be opaque and local prices are set arbitrarily without reference to world prices.

Côte d’Ivoire’s accounting, legal, and regulatory procedures are consistent with international norms, though both foreign and Ivoirian businesses often complain about the government’s poor communication. Côte d’Ivoire is a member of the Organization for the Harmonization of African Business Law (OHADA), which is common to 16 countries and adheres to the WAEMU accounting system. In accounting, companies use the WAEMU system, which complies with international norms and is a source of economic and financial data.

Draft legislation and regulations are not published or made available for public comment. The government, however, often holds public seminars and workshops to discuss proposed plans with trade and industry associations.

Regulatory actions are published in the Journal Officiel de la République de Côte d’Ivoire (Official Journal of the Republic of Côte d’Ivoire), which is available for purchase at newsstands and by subscription on the Journal’s website http://www.sgg.gouv.ci/jo.php  and at https://abidjan.net/ .

The Autorité Nationale de Régulation des Marchés Publics (National Regulatory Authority for Public Procurement; ANRMP), polices transparency in public procurement and private sector compliance with public procurement rules. Consumers, trade associations, private companies, and individuals have the right to file complaints with ANRMP to hold the government to its own administrative processes.

The U.S. Government does not have any knowledge of regulatory system reforms that have been announced since the last ICS report, including enforcement reforms. The government has fully implemented regulatory reforms announced in prior years, with the goal of creating an enabling business environment, fostering competition, and building investor confidence.

Public and private institutions tasked with controlling and regulating various sectors make regulatory enforcement mechanisms available to the public.

Regulatory bodies regularly publish and promote access to their data for the business community and development partners, allowing for scientific and data-driven reviews and assessments. Quantitative analysis and public comments are made available.

The Ivoirian government promotes transparency of public finances and debt obligations (including explicit and contingent liabilities) with the publication of this information through the following websites: http://budget.gouv.ci 

https://www.tresor.gouv.ci/tres/fr_FR/rapport-de-la-dette-publique/ 

International Regulatory Considerations

The Ivoirian government incorporates WAEMU directives into its public procurement bidding policy, processes, and auditing. This includes separating auditing and regulating functions and increasing advance payment for the initial procurement of goods and services from 25 to 30 percent. The ANRMP regulates public procurement with a view to improving governance and transparency. It has the authority to sanction private-sector entities that do not comply with public-procurement regulations and to provide recommendations to ministries to address irregularities.

Ivoirian laws, codes, professional-association standards, and regional-body membership obligations are incorporated in the country’s regulatory system. The private sector often follows European norms to take advantage of the Ivoirian trade agreement with the EU – Côte d’Ivoire’s largest market.

Côte d’Ivoire has been a WTO member since 1995 but has not notified all draft technical regulations to the WTO Committee on Technical Barriers to Trade. Côte d’Ivoire signed the Trade Facilitation Agreement (TFA) in December 2013 and ratified it in December 2015. The National TFA Committee (NTFC) coordinates TFA implementation.

Legal System and Judicial Independence

The Ivoirian legal system is based on the French civil-law model. The law guarantees to all the right to own and transfer private property. Rural land, however, is governed by a separate set of laws, which makes ownership and transfer very difficult. The court system enforces contracts.

Côte d’Ivoire is a signatory to OHADA, which provides common corporate law and arbitration procedures for the 16 member states. The Commercial Court of Abidjan adjudicates corporate law cases and contract disputes. Mediation is also available through the Ivoirian legal framework in addition to the Commercial Court and the Arbitration Tribunal. The Commercial Court of Abidjan retains jurisdiction for the entire country.

The Ivoirian judicial system is ostensibly independent, but magistrates are sometimes subject to political or financial influence. Judges sometimes fail to prove that their decisions are based on the legal or contractual merits of a case and often rule against foreign investors in favor of entrenched interests. The greatest complaint from investors is the slow dispute-resolution process. Cases are often postponed or appealed without a reasonable explanation, moving from court to court for years or even decades. Regulations or enforcement actions are appealable and adjudicated through the national court system.

Laws and Regulations on Foreign Direct Investment

The 2018 Investment Code is the primary governing authority for investment conduct. The Code does not restrict foreign investment or the repatriation of funds. The Code offers a mixture of fiscal incentives, combining tax exoneration and tax credits to encourage investment. The government also offers incentives to promote small businesses and entrepreneurs, low-cost housing construction, factories, and infrastructure development, which the government considers key to the country’s economic development. Some sectors have additional laws that govern investment activity in those sectors. In mining, for example, the Mining Code allows a period for holding permits for ten years with a possibility to extend for two more years on a limited permit area of 400 square kilometers.

As of January 2021, the Government of Côte d’Ivoire has been preparing a bill detailing local content requirements for the petroleum sector for consideration by the legislature (see also Performance and Data Localization Requirements).

The CEPICI provides a one-stop shop website to assist investors. More information on Côte d’Ivoire’s laws, rules, procedures, and reporting requirements can be found at: www.apex-ci.org/ 

www.cepici.gouv.ci/ 

Competition and Antitrust Laws

The Ministry of Commerce, Industry and Small Business Promotion, through the Commission on Anti-Competition Practices, is responsible for reviewing competition–related concerns under the 1991 competition law, which was updated in 2013. ANRMP is responsible for reviewing the awarding of contracts.

No significant competition cases were reported over the past year.

Expropriation and Compensation

The Ivoirian constitution guarantees the right to own property and freedom from expropriation without compensation. The government may expropriate property with due compensation (fair market value) at the time of expropriation in the case of “public interest.” Perceived corruption and weak judicial and security capacity, however, have resulted in poor enforcement of private property rights, particularly when the entity in question is foreign and the plaintiff is Ivoirian or a long-established foreign resident.

Dispute Settlement

ICSID Convention and New York Convention

Côte d’Ivoire is a signatory to the International Center for Settlement of Investment Disputes (ICSID) and a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

In cases where a firm does not meet the nationality conditions stipulated by Article 25 of the Convention, the dispute must be resolved within the provisions of the supplementary mechanisms approved by the ICSID.

Investor-State Dispute Settlement

Côte d’Ivoire is a signatory to investment agreements subject to binding international arbitration of investment disputes. Côte d’Ivoire recognizes and has been known to enforce foreign arbitral awards, but enforcement is inconsistent.

Côte d’Ivoire does not have a Bilateral Investment Treaty (BIT) or a Free Trade Agreement (FTA) with the United States.

In the past 10 years, foreign investors have had investment disputes, which have often been resolved through arbitration or amicable settlement. There have been no reported disputes involving U.S. firms in the past 10 years. As Côte d’Ivoire is a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, local courts are obliged to enforce foreign arbitral awards.

The U.S. government is not aware of any history of extrajudicial action against foreign investors, including U.S. firms.

International Commercial Arbitration and Foreign Courts

The Abidjan-based regional Joint Court of Justice and Arbitration (CCJA) provides a means of solving contractual disputes. The arbitration tribunal has the ability to enforce awards more quickly, but most business contracts are written to specify that disputes will be settled in Ivoirian courts, thus the Ivoirian court system is the first resort.

Côte d’Ivoire is a member of OHADA, whose provisions adopted in 1999 have replaced domestic law on arbitration. The unified law is based on the model law of the United Nations Commission on International Trade Law (UNICITRAL).

Judgments of foreign courts are recognized but difficult to enforce in local courts. To avoid being forced to work through the Ivoirian legal system, some investors stipulate in contracts that disputes must be settled through international commercial arbitration. Yet, even if stipulated in the contract, decisions reached through OHADA are sometimes not honored by local courts.

The U.S. government is not aware of cases in which Côte d’Ivoire’s domestic courts have shown preferential treatment for state-owned enterprises involved in investment disputes.

Bankruptcy Regulations

Côte d’Ivoire is ranked 85 out of 190 countries for ease of resolving insolvency, according to the World Bank’s Doing Business Report. As a member of OHADA, Côte d’Ivoire has both commercial and bankruptcy laws that address the liquidation of business liabilities. OHADA is a regional system of uniform laws on bankruptcy, debt collection, and rules governing business transactions. OHADA permits three different types of bankruptcy liquidation: an ordered suspension of payment to permit a negotiated settlement; an ordered suspension of payment to permit restructuring of the company, similar to Chapter 11; and the complete liquidation of assets, similar to Chapter 7. Creditors’ rights, irrespective of nationality, are protected equally by the Act. Bankruptcy is not criminalized. Court-ordered monetary settlements resulting from declarations of bankruptcy are usually paid out in local currency.

The joint venture Credit Info – Volo West Africa manages regional credit bureaus in WAEMU.

Capital Markets and Portfolio Investment

Government policies generally encourage foreign portfolio investment.

The Regional Stock Exchange (BRVM) is located in Abidjan and the BRVM lists companies from the eight countries of the WAEMU. The existing regulatory system effectively facilitates portfolio investment through the West African Central Bank (BCEAO) and the Regional Council for Savings Investments (CREPMF). There is sufficient liquidity in the markets to enter and exit sizeable positions.

Government policies allow the free flow of financial resources into the product and factor markets.

The BCEAO respects IMF Article VIII on payment and transfers for current international transactions.

Credit allocation is based on market terms and has increased to support the private sector and economic growth, specifically for large businesses. Foreign investors can acquire credit on the local market.

Money and Banking System

As of December 2020, there were 29 commercial banks and two credit institutions in Côte d’Ivoire. Banks are expanding their national networks, especially in the secondary cities outside Abidjan, as domestic investment has increased up-country. The total number of bank branches has more than doubled from 324 in 2010 to 725 branches in 2019 (latest data available). According to the World Bank, in 2017 (latest data available) 41 percent of the population over the age of 15 have a bank account. Alternative financial services available include mobile money and microfinance for bill payments and transfers. Many Ivoirians prefer mobile money over banking, but mobile money does not yet offer the same breadth of financial services as banks.

Most Ivoirian banks are compliant with the BCEAO’s minimum capital requirements. Some public banks have large numbers of nonperforming loans. The government has been restructuring and privatizing the commercial banking sector over the past decade in order to remove low performers from government accounts.

The estimated total assets of the five largest banks are around USD 14 billion and account for more than half of total bank assets in the country.

The BCEAO is common to the eight member states of the WAEMU and manages banking regulations.

Foreign banks are allowed to operate in Côte d’Ivoire; at least one has been in Côte d’Ivoire for decades. They are subject to the WAEMU Banking Commission’s prudential measures and regulations. There have been no reports of Côte d’Ivoire losing any correspondent banking relationships in the past three years. No correspondent banking relationships are known to be in jeopardy.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on the transfer or repatriation of capital and income earned, or on investments financed with convertible foreign currency. Once an investment is established and documented, the government regularly approves the remittances of dividends and/or repatriation of capital. The same holds true for requests for other sorts of transactions (e.g. imports, licenses, and royalty fees).

Funds associated with investments funded with convertible currency are freely convertible into any world currency.

Côte d’Ivoire is a member of WAEMU, which uses the West African CFA Franc (XOF). The French Treasury holds the foreign exchange reserves of WAEMU member states and supports the fixed exchange rate of 655.956 CFA to the Euro. In December 2019, the Ivoirian President, concurrently serving as chairman of WAEMU, announced in the presence of the French President the forthcoming transition from the CFA to a new common regional currency to be called the Eco; details about the timeline or modalities of the change have not yet been published.

Remittance Policies

There are no recent changes or plans to change investment remittance policies.

There are no time limitations on remittances. Total personal remittances received by Ivoirians were about USD 338 million in 2019 or 0.6 percent of GDP.

Sovereign Wealth Funds

Côte d’Ivoire does not have a sovereign wealth fund, although there are reports as of late 2020 that the government is in the process of creating one.

Companies owned or controlled by the state are subject to national laws and the tax code. The Ivoirian government still holds substantial interests in many firms, including the refinery SIR (49 percent), the public transport firm (60 percent), the national television station RTI (98 percent), the national lottery (80 percent), the national airline Air Côte d’Ivoire (58 percent), and the land management agency Agence de Gestion Foncière AGEF (35 percent). Total assets of State-Owned Enterprises (SOEs) were USD 796 million and total net income of SOEs was USD 116 million in 2018 (latest figures). Of the 82 SOEs, 28 are wholly government-owned, 12 are majority government-owned, in seven the government has a blocking minority, and in 35 the government has a minority of shares. Each SOE has an independent board. The government has begun the process of divestiture for some SOEs (see next section). There are active SOEs in the banking, agri-business, mining, and telecom industries.

The published list of SOEs is available at https://dgpe.gouv.ci/ind ex.php?p=portefeuille_etat 

SOEs competing in the domestic market do not receive non-market-based advantages from the government. They are subject to the same tax burdens and policies as private companies.

Côte d’Ivoire does not adhere to OECD guidelines for SOE corporate governance (it is not a member of OECD).

Privatization Program

The government has been pursuing SOE privatization for decades. Most recently, in 2017, the government sold 90 percent of its shareholdings in the Ivoirian Textile Development Company (Compagnie Ivoirienne du Développement du Textile; CIDT) as well as in the Ity Mining Company (Société des mines d’Ity; SMI). In 2018, the government sold 51 percent of the Housing Bank of Côte d’Ivoire (Banque d’Habitat de Côte d’Ivoire; BHCI).

Contracts for participation in SOE privatization are competed through a French-language public tendering process, for which foreign investors are encouraged to submit bids. The Privatization Committee, which reports to the Prime Minister, maintains a website at: http://privatisation.gouv.ci .

Policies Towards Foreign Direct Investment

Croatia is generally open to foreign investment and the Croatian government continues to make efforts, through financial incentives, to attract foreign investors.  All investors, both foreign and domestic, are guaranteed equal treatment by law, with a handful of exceptions described below.  However, bureaucratic and political barriers remain.  Investors agree that an unpredictable regulatory framework, lack of transparency, judicial inefficiencies, lengthy administrative procedures, lack of structural reforms, and unresolved property ownership issues weigh heavily upon the investment climate.

Croatia is partnered with the World Bank on the “Croatia Business Environment Reform” project which intends to help Croatia implement various business reforms. The Ministry of Economy and Sustainable Development Directorate for Internationalization assists investors.  For more information, see:  http://investcroatia.gov.hr/ .  The Strategic Investment Act fast-tracks and streamlines bureaucratic processes for large projects valued at USD 10.7 million or more on the investor’s behalf.  Various business groups, including the American Chamber of Commerce, Foreign Investors’ Council, and the Croatian Employers’ Association, are in dialogue with the government about ways to make doing business easier and to keep investment retention as a priority.

Limits on Foreign Control and Right to Private Ownership and Establishment

Croatian law allows for all entities, both foreign and domestic, to establish and own businesses and to engage in all forms of remunerative activities.  Article 49 of the Constitution states all entrepreneurs have equal legal status.  However, the Croatian government restricts foreign ownership or control of services for a handful of strategic sectors:  inland waterways transport, maritime transport, rail transport, air to ground handling, freight-forwarding, publishing, ski instruction, and primary mandated healthcare.  Apart from these, the only regulatory requirements to market access involve occupational licensing requirements (architect, auditor, engineer, lawyer, veterinarian, etc.), about which detailed information can be found at  http://psc.hr/en/sectoral-requirements/ .  Over 90 percent of the banking sector is foreign owned.

Croatia does not have a foreign investment screening mechanism, but the government designated the Ministry of Economy and Sustainable Development Internationalization Directorate as the “National Contact Point” for reviewing direct investments and responding to requests for information from EU Member States or the European Commission, per European Union Directive 2019/452.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) last published an investment climate review for Croatia in June 2019: https://www.oecd.org/publications/oecd-investment-policy-reviews-croatia-2019-2bf079ba-en.htm .

The latest available World Bank Group “Doing Business” Economic Profile of Croatia was published in 2020: https://www.doingbusiness.org/content/dam/doingBusiness/country/c/croatia/HRV.pdf .

The European Commission’s Country Report Croatia 2020 assesses the country’s economic situation and outlook: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1584545612721&uri=CELEX%3A52020SC0510 .

Business Facilitation

The Croatian government offers two e-government options for on-line business registration,  www.hitro.hr   and  start.gov.hr  , both of which provide 24-hour access.  Start.gov.hr provides complete business registration for a limited liability company (d.o.o.), simple limited company (j.d.o.o.) or company, without any need to physically enter a public administration office.  The procedure guarantees a short turnaround on requests and provides deadlines by which the company can expect to be registered.  The Start.gov.hr procedure eliminates fees for public notaries, proxies, seals, and stamps, and reduces court registration fees by 50 percent.  Hitro.hr also provides on-line services but maintains offices in 60 Croatian cities and towns for those who want to register their business in person.

In 2020, the Global Enterprise Registration website ( www.GER.co ) rated Croatia’s business registration process 4 out of 10, while the latest available 2020 World Bank Ease of Doing Business report ranks Croatia as 114 out of 190 countries in this category.  The government pledged to improve conditions for business registration and continues to identify areas for removing burdensome regulations and processes.   Croatia’s business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.

The United Nations Conference on Trade and Development (UNCTAD) provides an outline of investment facilitation proposals at  https://investmentpolicy.unctad.org/country-navigator/53/croatia .

Outward Investment

Croatian foreign direct investment totals approximately USD 24.6 million in the United States, according to Croatian National Bank figures.  The government does not promote or incentivize outward investment.  Croatia has no restrictions on domestic investors who wish to invest abroad.

Transparency of the Regulatory System

Croatian legislation, which is harmonized with European Union legislation (acquis communautaire), affords transparent policies and fosters a climate in which all investors are treated equally. Nevertheless, bureaucracy and regulation can be complex and time-consuming, although the government is working to remove unnecessary regulations. The complete text of all legislation is published both on-line and in the National Gazette, available at:  www.nn.hr  .  There are no informal regulatory processes, and investors should rely solely on government-issued legislation to conduct business.

The Croatian Parliament promulgates national legislation, which is implemented at every level of government, although local regulations vary from county to county.  Members of Government and Members of Parliament, through working groups or caucuses, are responsible for presenting legislation.  Responsible ministries draft and present new legislation to the government for approval. When the Government approves a draft text, it is sent to Parliament for approval.  The approved act becomes official on the date defined by Parliament and when it is published in the National Gazette. Citizens maintain the right to initiate a law through their district Member of Parliament.  New legislation and changes to existing legislation which have a significant impact on citizens are made available for public commentary at https://esavjetovanja.gov.hr/ECon/Dashboard .  The Law on the Review of the Impact of Regulations defines the procedure for impact assessment, planning of legislative activities, and communication with the public, as well as the entities responsible for implementing the impact assessment procedure.

Croatia adheres to international accounting standards and abides by international practices through the Accounting Act, which is applied to all accounting businesses.  Publicly listed companies must adhere to these accounting standards by law.

Croatian courts are responsible for ensuring that laws are enforced correctly.  If an investor believes that the law or an administrative procedure is not implemented correctly, the investor may initiate a case against the government at the appropriate court.  However, judicial remedies are frequently ineffective due to delays or political influence.

The Enforcement Act defines the procedure for enforcing claims and seizures carried out by the Financial Agency (FINA), the state-owned company responsible for offering various financial services to include securing payment to claimants following a court enforced order.  FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. Enforcement proceedings are regulated by the Enforcement Act, last amended in 2017, and by laws regulating its execution, such as the Act on Implementation of the Enforcement over Monetary Assets, amended in 2020.  The legislation incorporates European Parliament and European Commission provisions for easily enforcing cross-border financial claims in both business and private instances.  Enforcement proceedings are conducted on the basis of enforcement title documents which specify the creditor and debtor, the subject, type, scope, and payment deadline.

More information can be found at  www.fina.hr  . Various types of regulation exist, which prescribe complicated or time-consuming procedures for businesses to implement.  Reports on public finances and public debt obligations are available to the public on the Ministry of Finance website at:  http://www.mfin.hr/en  .

Public finances and debt obligations are transparent and available on the Ministry of Finance website, in Croatian only, at  https://mfin.gov.hr/proracun-86/86  .

International Regulatory Considerations

Croatia, as an EU member, transposes all EU directives.  Domestic legislation is applied nationally and – while local regulations vary from county to county — there is no locally-based legislation that overrides national legislation.  Local governments determine zoning for construction and therefore have considerable power in commercial or residential building projects.  International accounting, arbitration, financial, and labor norms are incorporated into Croatia’s regulatory system.

Croatia has been a member of the World Trade Organization (WTO) since 2000. Croatia submits all draft technical regulations to the WTO, in coordination with the European Commission.

Legal System and Judicial Independence

The legal system in Croatia is civil and provides for ownership of property and enforcement of legal contracts.  The Commercial Company Act defines the forms of legal organization for domestic and foreign investors. It covers general commercial partnerships, limited partnerships, joint stock companies, limited liability companies and economic interest groupings.  The Obligatory Relations Act serves to enforce commercial contracts and includes the provision of goods and services in commercial agency contracts.

The Croatian constitution provides for an independent judiciary.  The judicial system consists of courts of general and specialized jurisdictions.  Core structures are the Supreme Court, County Courts, Municipal Courts, and Magistrate/Petty Crimes Courts.  Specialized courts include the Administrative Court and High and Lower Commercial Courts.  A Constitutional Court determines the constitutionality of laws and government actions and protects and enforces constitutional rights. Municipal courts are courts of first instance for civil and juvenile/criminal cases.  The High Commercial Court is located in Zagreb and has appellate review of lower commercial court decisions.  The Administrative Court has jurisdiction over the decisions of administrative bodies of all levels of government. The Supreme Court is the highest court in the country and, as such, enjoys jurisdiction over civil and criminal cases.  It hears appeals from the County Courts, High Commercial Court, and Administrative Court. Regulations and enforcement actions are appealable and adjudicated in the national court system.

On January 1, 2021 the government established a High Criminal Court, headquartered in Zagreb, which will be responsible for adjudication of second instance appeals against decisions made by County Courts in cases that involve criminal acts.

The Ministry of Justice and Public Administration continues to pursue a court reorganization plan intended to increase efficiency and reduce the backlog of judicial cases.  The World Bank approved a USD 110 million loan to Croatia for the Justice for Business Project in March 2020, specifically for the purpose of supporting ICT infrastructure upgrades, court process improvements, and other reforms that will improve justice sector services to improve the business climate.  This effort will be led by the Ministry of Justice and Public Administration, in coordination with the Economy Ministry and the Construction Ministry, from 2020 to 2024.

Reforms are underway, but significant challenges remain in relation to land registration, training court officers, providing adequate resources to meet the court case load, and reducing the backlog and length of bankruptcy procedures.  Investors often face problems with unusually protracted court procedures, lack of clarity in legal proceedings, contract enforcement, and judicial efficiency.  Croatian courts have decreased the number of civil, criminal. and commercial cases and decreased the disposition time for resolution of those cases, however there is still a significant case backlog.  The 2020 European Commission Country Report for Croatia assessed that the length of court proceedings continues to be a burden for business.

Laws and Regulations on Foreign Direct Investment

There are no specific laws aimed at foreign investment; both foreign and domestic market participants in Croatia are protected under the same legislation. The Company Act defines the forms of legal organization for domestic and foreign investors. The following entity types are permitted for foreigners: general partnerships; limited partnerships; branch offices; limited liability companies; and joint stock companies. The Obligatory Relations Act regulates commercial contracts.

The Ministry of Economy and Sustainable Development Internationalization Directorate ( https://investcroatia.gov.hr/en/ ) facilitates both foreign and domestic investment. The directorate’s website offers relevant information on business and investment legislation and includes an investment guide.

According to Croatian commercial law a number of significant or “strategic” business decisions must be approved by 75 percent of the company’s shareholders.  Minority investors with at least 25 percent ownership plus one share have what is colloquially called a “golden share,” meaning they can block or veto “strategic” decisions requiring a 75 percent vote. The law calls for minimum 75 percent shareholder approval to remove a supervisory board member, authorize a supervisory board member to make a business decision, revoke preferential shares, change company agreements, authorize mergers or liquidations, and to purchase or invest in something on behalf of the company that is worth more than 20 percent of the company’s initial capital. (Note: This list is not exhaustive.)

Competition and Anti-Trust Laws

The Competition Act defines the rules and methods for promoting and protecting competition.  In theory, competitive equality is the standard applied with respect to market access, credit, and other business operations, such as licenses and supplies.  In practice, however, state-owned enterprises (SOEs) and government-designated “strategic” firms may still receive preferential treatment. The Croatian Competition Agency is the country’s competition watchdog, determining whether anti-competitive practices exist and punishing infringements.  It has determined in the past that some subsidies to SOEs constituted unlawful state aid, however state aid issues are now handled by the Ministry of Finance.  Information on authorities of the Agency and past rulings can be found at  www.aztn.hr .  The website includes a “call to the public” inviting citizens to provide information on competition-related concerns.

Expropriation and Compensation

Croatian Law on Expropriation and Compensation gives the government broad authority to expropriate real property in economic and security-related circumstances, including eminent domain. The Law on Strategic Investments also provides for expropriation for projects that meet the criteria for “strategic” projects.  However, it includes provisions that guarantee adequate compensation, in either the form of monetary compensation or real estate of equal value to the expropriated property, in the same town or city.  The law includes an appeals mechanism to challenge expropriation decisions by means of a complaint to the Ministry of Justice and Public Administration within 15 days of the expropriation order.  The law does not describe the Ministry’s adjudication process.  Parties not pleased with the outcome of a Ministry decision can pursue administrative action against the decision, but no appeal to the decision is allowed.

Article III of the U.S.-Croatia Bilateral Investment Treaty (BIT) covers both direct and indirect expropriations.  The BIT bars all expropriations or nationalizations except those that are for a public purpose, carried out in a non-discriminatory manner, in accordance with due process of law, and subject to prompt, adequate, and effective compensation.

Dispute Settlement

ICSID Convention and New York Convention

In 1998 Croatia ratified the Washington Convention that established the International Center for the Settlement of Investment Disputes (ICSID).  Croatia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration: the 1923 Geneva Protocol on Arbitration Clauses; the 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions; the 1958 New York Convention on the Acceptance and Execution of Foreign Arbitration Decisions; and the 1961 European Convention on International Business Arbitration.

Investor-State Dispute Settlement

The Croatian Law on Arbitration addresses both national and international proceedings in Croatia. Parties to arbitration cases are free to appoint arbitrators of any nationality or professional qualifications and Article 12 of the Law on Arbitration requires impartiality and independence of arbitrators.  Croatia recognizes binding international arbitration, which may be defined in investment agreements as a means of dispute resolution.

The Arbitration Act covers domestic arbitration, recognition and enforcement of arbitration rulings, and jurisdictional matters.  Once an arbitration decision has been reached, the judgment is executed by court order.  If no payment is made by the established deadline, the party benefiting from the decision notifies the Commercial Court, which becomes responsible for enforcing compliance. Arbitration rulings have the force of a final judgment but can be appealed within three months.

In regard to implementation of foreign arbitral awards, Article 19 of the Act on Enforcement states that judgments of foreign courts may be executed only if they “fulfill the conditions for recognition and execution as prescribed by an international agreement or the law.”  The Act on Enforcement serves to decrease the burden on the courts by passing responsibility for the collection of financial claims and seizures to the Financial Agency (FINA), which is responsible for paying claimants once the court has rendered a decision ordering enforcement.  FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. More information can be found at  www.fina.hr .

Article Ten of the U.S.-Croatia BIT sets forth mechanisms for the resolution of investment disputes, defined as any dispute arising out of or relating to an investment authorization, an investment agreement, or an alleged breach of rights conferred, created, or recognized by the BIT with respect to a covered investment.

Croatia has no history of extra-judicial action against foreign investors. There are currently two known cases, pending for years, regarding U.S. investor claims before Croatian courts. Both investors have also announced plans to file claims at international arbitration courts, citing the U.S.-Croatia BIT as the basis for the action.

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution is implemented at the High Commercial Court, at the Zagreb Commercial Court, and at the six municipal courts around the country.  In order to reduce the backlog, non-disputed cases are passed to public notaries.

Both mediation and arbitration services are available through the Croatian Chamber of Economy. The Chamber’s permanent arbitration court has been in operation since 1965.  Arbitration is voluntary and conforms to UNCITRAL model procedures.  The Chamber of Economy’s Mediation Center has been operating since 2002 – see  http://www.hok-cba.hr/hr/center-za-mirenje-hoka  .

There are no major investment disputes currently underway involving state-owned enterprises, other than a dispute between the Croatian government and a Hungarian oil company over implementation of a purchase agreement with a Croatian oil and gas company. There is no evidence that domestic courts rule in favor of state-owned enterprises.

Bankruptcy Regulations

Croatia’s Bankruptcy Act corresponds to the EU regulation on insolvency proceedings and United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency.  All stakeholders in the bankruptcy proceeding, foreign and domestic are treated equally in terms of the Bankruptcy Act.  The last available World Bank Ease of Doing Business 2020 rating for Croatia in the category of resolving insolvency was 63 out of 190 countries.  Bankruptcy is not considered a criminal act.

The Financial Operations and Pre-Bankruptcy Settlement Act helps expedite proceedings and establish timeframes for the initiation of bankruptcy proceedings.  One of the most important provisions of pre-bankruptcy is that it allows a firm that has been unable to pay all its bills to remain open during the proceedings, thereby allowing it to continue operations and generate cash under financial supervision in hopes that it can recover financial health and avoid closure.

The Commercial Court of the county in which a bankrupt company is headquartered has exclusive jurisdiction over bankruptcy matters. A bankruptcy tribunal decides on initiating formal bankruptcy proceedings, appoints a trustee, reviews creditor complaints, approves the settlement for creditors, and decides on the closing of proceedings.  A bankruptcy judge supervises the trustee (who represents the debtor) and the operations of the creditors’ committee, which is convened to protect the interests of all creditors, oversee the trustee’s work and report back to creditors.  The Act establishes the priority of creditor claims, assigning higher priority to those related to taxes and revenues of state, local and administration budgets.  It also allows for a debtor or the trustee to petition to reorganize the firm, an alternative aimed at maximizing asset recovery and providing fair and equitable distribution among all creditors.

In April 2017, the Croatian government passed the “Law on Extraordinary Appointment of Management Boards for Companies of Systematic Importance to the Republic of Croatia,” when it became clear that Croatia’s largest corporation, Agrokor, was in crisis and would likely go bankrupt. The Law allowed the Government, in this instance, to install an Emergency Commissioner to restructure the company, which resulted in the creation of the Fortenova Group that took on the core business of the former Agrokor food and retail company.

Capital Markets and Portfolio Investment

Croatia’s securities and financial markets are open equally to domestic and foreign investment. Foreign residents may open non-resident accounts and may do business both domestically and abroad.  Specifically, Article 24 of the Foreign Currency Act states that non-residents may subscribe, pay in, purchase, or sell securities in Croatia in accordance with regulations governing securities transactions.  Non-residents and residents are afforded the same treatment in spending and borrowing.  These and other non-resident financial activities regarding securities are covered by the Foreign Currency Act, available on the central bank website ( https://www.hnb.hr/en/ ).

Securities are traded on the Zagreb Stock Exchange (ZSE), established in 1991.  Regulations that govern activity and participation in the ZSE can be found (in English) at:  https://zse.hr/en/legal-regulations/234 .  There are three tiers of securities traded on the ZSE.  The Capital Markets Act regulates all aspects of securities and investment services and defines the responsibilities of the Croatian Financial Services Supervisory Agency (HANFA). The Capital Market Act was amended in 2019 and went into force on February 22, 2020.  The amendments include the increase from USD 5.4 million to USD 8.7 million for mandatory publication of share prospectus, changes to administrative obligations, and a decrease in fees for issuing securities.  These amendments also give HANFA more authority over corporate management of those companies listed on the capital market.  All legislation associated with the Capital Market act can be found (in English) at:  http://www.hanfa.hr/regulations/capital-market/ .

There is sufficient liquidity in the markets to enter and exit sizeable positions.  There are no policies that hinder the free flow of financial resources.  There are no restrictions on international payments or transfers.  As such, Croatia is in accordance with IMF Article VIII.  The private sector, both domestic and foreign owned, enjoys open access to credit and a variety of credit instruments on the local market, on market terms.

Money and Banking System

The banking sector is mostly privatized and is highly developed, competitive, and increasingly offering diverse products to businesses (foreign and domestic) and consumers.  French, German, Italian, and Austrian companies own over 90 percent of Croatia’s banks. In 2016, Addiko Bank became the first U.S. bank registered in Croatia by taking over all of Hypo Bank’s holdings in Croatia.  The banking sector suffered no long-term consequences during the 2008 global banking crisis. According to conclusions from an IMF Virtual Visit with Croatia in November 2020, the banking sector is generally considered to be one of the strongest sectors of the Croatian economy, “comparable to other Central and Eastern European Countries.”   As of September 2020, there were 20 commercial banks and three savings banks, with assets totaling USD 68.24 billion.

The largest bank in Croatia is Italian-owned Zagrebacka Banka, with assets of USD 18.4 billion and a market share of 27.01 percent. The second largest bank is Italian-owned Privredna Banka Zagreb, with assets totaling USD 14.02 billion and 20.54 percent market share.  The third largest is Austrian Erste Bank, with assets totaling USD 10.9 billion and a 15.96 percent market share.  According to a December 2020 European Commission report, the non-performing loans (NPL) ratio for Croatia was 5.5 percent in the second quarter of 2020, putting Croatia among the top ten of EU countries for NPL in 2020. The country has a central bank system and all information regarding the Croatian National Bank can be found at  https://www.hnb.hr/en/ . Non-residents are able to open bank accounts without restrictions or delays.  The Croatian government has not introduced or announced any current intention to introduce block chain technologies in banking transactions.

Foreign Exchange and Remittances

Foreign Exchange

The Croatian Constitution guarantees the free transfer, conversion, and repatriation of profits and invested capital for foreign investments. Article VI of the U.S.-Croatia Bilateral Investment Treaty (BIT) additionally establishes protection for American investors from government exchange controls. The BIT obliges both countries to permit all transfers relating to a covered investment to be made freely and without delay into and out of each other’s territory.  Transfers of currency are additionally protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement ( http://www.imf.org/External/Pubs/FT/AA/index.htm#art7  ).

The Croatian Foreign Exchange Act permits foreigners to maintain foreign currency accounts and to make external payments.  The Foreign Exchange Act also defines foreign direct investment (FDI) in a manner that includes use of retained earnings for new investments/acquisitions, but excludes financial investments made by institutional investors such as insurance, pension and investment funds.  The law also allows Croatian entities and individuals to invest abroad.  Funds associated with any form of investment can be freely converted into any world currency.

The exchange rate is determined by the Croatian National Bank through “managed floating.”  The National Bank intervenes in the foreign exchange market to ensure the Euro-Croatian kuna rate remains stable as an explicit and longstanding policy.  On July 10, 2020 the European Central Bank and European Commission announced that Croatia had fulfilled its commitments and the Croatian kuna (HRK) was admitted into the Banking Union and European Exchange Rate Mechanism (ERM II), with the exchange rate between the kuna and the euro (EUR) pegged at EUR 1 to 7.53450 HRK. Any risk of currency devaluation or significant depreciation is generally low.

Remittance Policies

No limitations exist, either temporal or by volume, on remittances.  The U.S. Embassy in Zagreb has not received any complaints from American companies regarding transfers and remittances.

Sovereign Wealth Funds

Croatia does not own any sovereign wealth funds.

There are currently a total of 58 state-owned enterprises (SOEs) that are either wholly state-owned or in which the state has a majority stake.  The SOEs are managed through the Ministry of Physical Planning, Construction, and State Assets or the Center for Restructuring and Sale (CERP).  The Ministry of Physical Planning, Construction, and State Assets oversees 39 “special state interest” SOEs, including 19 wholly state-owned, 13 majority state-owned companies, six listed as “legal entities of special interest,” and one with less than 50 percent state ownership.  CERP oversees the other 19 SOEs, of which 11 are wholly state-owned and eight are majority state-owned.

These SOEs cover a range of sectors including infrastructure, energy, real estate, finance, transportation, and utilities.  The latest figures available, from 2019, show that SOEs employ a total of 72,256 people and have net revenues totaling USD 9.95 billion and assets of USD 46.6 billion.  The government appoints the members of SOE management and supervisory boards, making the companies very susceptible to political influence.

CERP also oversees 306 companies; of these, the state owns up to 10 percent of 220 companies, from 10 to 49 percent of 67 companies,50-99 percent of 8 companies, and 100 percent of 11 companies.  By statute, CERP must divest the state from these companies.  Lists of SOEs are published on the websites of the Ministry of Physical Planning, Construction, and State Assets at  https://imovina.gov.hr/  and on CERP’s website at  http://www.cerp.hr/ .

County and city level governments have majority ownership in approximately 500 companies, mostly utilities; however, exact data is not available.  The latest available European Commission 2020 Country Report for Croatia assesses that Croatia made slow progress in selling off holdings in non-strategic companies, and its targets are not ambitious.  The European Commission and the European Bank for Reconstruction and Development (EBRD) continue to provide support to Croatia through the Structural Reform Support Program for strengthening the functioning of state-owned enterprises and improvement of corporate governance: https://ec.europa.eu/info/funding-tenders/funding-opportunities/funding-programmes/overview-funding-programmes/structural-reform-support-programme-srsp_en . The EC notes that this project created an early warning system to allow Croatian authorities to “identify when a state-owned enterprise is having financial difficulties and to prepare and implement plans to improve financial and operational performance.”  The EC concluded “this reform will make state-owned enterprises more resilient and allow the State to act as an informed and active owner.”

The International Monetary Fund (IMF) Staff Virtual Visit with Croatia in November 2020 concluded that “streamlining the role of the state, predominantly through improved SOE governance is necessary.”

The Corporate Governance Code is available at https://zse.hr/en/corporate-governance-code/1780 .   Croatia is not a member of the OECD but adheres to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas.

Privatization Program

Croatia continues to slowly pursue privatization of SOEs through the Ministry of Physical Planning, Construction, and State Assets and the CERP.  There are no restrictions against foreigners participating in privatization tenders.  When Croatia initiated its privatization process in the late 1990’s foreign investors purchased assets in the banking and telecommunications sectors, as well as Croatia’s largest pharmaceutical company. The bidding process is public, tenders are published online, and terms are clearly defined in tender documentation, however, problems with bureaucracy and timely judicial remedies can significantly slow progress for projects.  There is no privatization timeline; however, the government views privatization as a means to reduce the budget deficit and increase output.  The Ministry of Physical Planning, Construction, and State Assets drafted the 2021 plan for Management of State Owned Property, as part of the National Strategy for Management of State Owned Property 2019-2025 (only in Croatian: https://narodne-novine.nn.hr/clanci/sluzbeni/2019_10_96_1863.html ).

Tenders are in Croatian and can be found at  https://imovina.gov.hr/vijesti/8 .

Policies Towards Foreign Direct Investment

Cyprus has a favorable attitude towards FDI and welcomes U.S. investors.  There is no discrimination against U.S. investment; however, there are some ownership limitations and licensing restrictions set by law on non-EU investment in certain sectors, such as private land ownership, media, and construction (see Limits on Foreign Control, below).  The ROC promotes FDI through a dedicated agency, Invest Cyprus, which is tasked with attracting FDI in the key economic sectors of shipping, education, real estate, tourism and hospitality, energy, investment funds, filming, and innovation and startups.  Invest Cyprus is the first point of contact for investors, and provides detailed information on the legal, tax, and business regulatory framework.  The ROC and Invest Cyprus also promote an ongoing dialogue with investors through a series of promotion seminars each year.  The Cyprus Chamber of Commerce and Industry (CCCI) is a robust organization with country-specific bilateral chambers, including the American Chamber (AmCham Cyprus), that is dedicated to promoting FDI and serving the business interests of foreign companies and trade partners operating in Cyprus.

For more information:

Invest Cyprus
9 Makariou III Avenue
Severis Building, 4^th Floor
1965 Nicosia, Cyprus
Tel: +357 22 441133
Fax: +357 22 441134
Email: info@investcyprus.org.cy
Website: https://www.investcyprus.org.cy

Cyprus Embassy Trade Center – New York
13 East 40^th Street
New York, NY 10016
Phone: (212) 213-9100
Fax: (212) 213-9100
Website: https://www.cyprustradeny.org/

AREA ADMINISTERED BY TURKISH CYPRIOTS

Turkish Cypriots welcome FDI and are eager to attract investments, particularly those that will lead to the transfer of advanced technology and technical skills.  Priority is also given to investments in export-oriented industries.  There are no laws or practices that discriminate against FDI.  The “Turkish Cypriot Investment Development Agency (YAGA)” provides investment consultancy services, guidance on the legal framework, sector specific advice and information about investor incentives.

“Turkish Cypriot Development Agency” (“YAGA”)
Tel: +90 392 – 22 82317
Website: https://yaga.gov.ct.tr/en-us/

Limits on Foreign Control and Right to Private Ownership and Establishment

REPUBLIC OF CYPRUS

The ROC does not currently have a mandatory foreign investment screening mechanism that grants approval to FDI other than sector-specific licenses granted by relevant ministries.  Invest Cyprus does grant approvals for investment under the film production incentive scheme.  Invest Cyprus often refers projects for review to other agencies.

The following restrictions apply to investing in the ROC:

• Non-EU entities (persons and companies) may purchase only two real estate properties for private use (two holiday homes or a holiday home and a shop or office). This restriction does not apply if the investment property is purchased through a domestic Cypriot company or a corporation elsewhere in the EU.  S. investment in such companies is welcome.
• Non-EU entities cannot invest in the production, transfer, and provision of electrical energy. The Council of Ministers may refuse granting a license for investment in hydrocarbons prospecting, exploration, and exploitation to a third-country national or company if that third country does not allow similar investment by Cyprus or other EU member states.  ROC hydrocarbon exploration is currently led by two U.S. companies.
• Individual non-EU investors may not own more than five percent of a local television or radio station, and total non-EU ownership of any single local TV or radio station is restricted to a maximum of 25 percent.
• The right to register as a building contractor in Cyprus is reserved for citizens of EU member states. Non-EU entities are not allowed to own a majority stake in a local construction company.  Non-EU physical persons or legal entities may bid on specific construction projects but only after obtaining a special license by the Council of Ministers.
• Non-EU entities cannot invest directly in private tertiary education institutions but may do so through ownership of Cypriot or EU companies.
• The provision of healthcare services on the island is subject to certain restrictions, applying equally to all non-residents.
• The Central Bank of Cyprus’s prior approval is necessary before any individual person or entity, whether Cypriot or foreign, can acquire more than 9.99 percent of a bank incorporated in Cyprus.

AREA ADMINISTERED BY TURKISH CYPRIOTS

According to the “Registrar of Companies Office,” all non-Turkish Cypriot ownership of construction companies is capped at 49 percent.  Currently, the travel agency sector is closed to foreign investment.  Registered foreign investors may buy property for investment purposes but are limited to one parcel or property.  Foreign natural persons also have the option of forming private liability companies, and foreign investors can form mutual partnerships with one or more foreign or domestic investors.

Other Investment Policy Reviews

Nothing to report.

Business Facilitation

REPUBLIC OF CYPRUS

The Ministry of Energy, Commerce and Industry (MECI) provides a “One Stop Shop” business facilitation service, as per contact details below.  The One-Stop-Shop offers assistance with the logistics of registering a business in Cyprus to all investors, regardless of origin and size.  Additionally, since September 2020, MECI offers a Fast Track Business Activation mechanism to provide efficient business registration services to eligible foreign investors who want to establish a physical presence on the island.  This program has already generated interest from abroad, attracting several firms in the technology, IT, and communications sectors.  Eligibility criteria and benefits are described here:

https://www.businessincyprus.gov.cy/fast-track-business-activation/

One-Stop-Shop & Point of Single Contact
Ministry of  Energy, Commerce, and Industry (MECI)
13-15 Andreas Araouzos
1421 Nicosia, Cyprus
Tel. +357 22 409318 or 321
Fax: +357 22 409432
Email 1: onestopshop@mcit.gov.cy
Email 2: psccyprus@mcit.gov.cy
Website: www.businessincyprus.gov.cy

MECI’s Department of the Registrar of Companies and Official Receiver (DRCOR) provides the following services: Registration of domestic and overseas companies, partnerships, and business names; bankruptcies and liquidations; and trademarks, patents, and intellectual property matters.

Domestic and foreign investors may establish any of the following legal entities or businesses in the ROC:

• Companies (private or public);
• General or limited partnerships;
• Business/trade name;
• European Company (SE); and
• Branches of overseas companies.

The registration process takes approximately two working days and involves completing an application for approval/change of name, followed by the steps outlined in the following link: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/All/A2E29870C32D7F17C2257857002E18C9?OpenDocument.

At the end of 2019, there were a total of 223,282 companies registered in the ROC, 12,781 of which had been registered in 2019 (for more statistics on company registrations, please see: https://www.companies.gov.cy/en/knowledgebase/statistics).

In addition to registering a business, foreign investors, like domestic business owners, are required to obtain all permits that may be necessary under Cypriot law.  At a minimum, they must obtain residence and employment permits, register for social insurance, and register with the tax authorities for both income tax and Valued Added Tax (VAT).  In order to use any building or premises for business, including commerce, industry, or any other income-earning activity, one also needs to obtain a municipal license.  Additionally, town planning or building permits are required for building new offices or converting existing buildings.  There are many sector-specific procedures.  Information on all the above procedures is available online at: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/eke08_en/eke08_en?OpenDocument.

The World Bank’s 2020 Doing Business report (http://www.doingbusiness.org/rankings) ranked Cyprus 54th out of 190 countries for ease of doing business.  Among the ten sub-categories that make up this index, Cyprus performed best in the areas of protecting minority investors (21/190) and paying taxes (29/190), and worst in the areas of enforcing contracts (142/190) and dealing with construction permits (125/190).  Cyprus has recorded small gains in almost all subcategories since the 2019 report, with a substantial improvement in the area of paying taxes, achieving a small overall climb in its ranking since last year.  Using another metric, in the Global Competitiveness Index, issued by the World Economic Forum, Cyprus maintained its ranking of 44^th out of 141 countries in the 2019 edition.  The two areas where Cyprus performed the worst in this report were in terms of its small market size and relatively low innovation capability.

The ROC follows the EU definition of micro-, small- and medium-sized enterprises (MSMEs), and foreign-owned MSMEs are free to take advantage of programs in Cyprus designed to help such companies, including the following:

• EUROSTRS Cyprus:  http://www.fundingprogrammesportal.gov.cy/easyconsole.cfm/page/programme/fsId/18/lang/en;
• EBRD Small Firm Competitiveness Program: http://www.ebrd.com/cs/Satellite?c=Content&cid=1395266780410&d=Mobile&pagename=EBRD%2FContent%2FContentLayout.

Foreign investors can take advantage of the services and expertise of Invest Cyprus, an agency registered under the companies’ law and funded mainly by the state, dedicated to attracting investment.

Invest Cyprus
9A Makarios III Ave
Severis Bldg., 4th Flr.
1065 Nicosia
Tel. +357-22-441133
Fax: +357-22-441134
Email: info@investcyprus.org.cy
Website: http://www.investcyprus.org.cy/

Additionally, the Association of Large Investment Projects, under the Cyprus Chamber of Commerce and Industry, can provide useful information on large ongoing investment projects:

Association of Large Investment Projects
38 Grivas Dhigenis Ave. & 3 Deligiorgis Str.,
P.O.Box 21455
1509 Nicosia
Tel: +357 22889890
Fax: +357 22667593
Email: bigprojects@ccci.org.cy

Lastly, the Cyprus Country Profiler website offers some useful background on Cyprus: https://www.cyprusprofile.com/

AREA ADMINISTERED BY TURKISH CYPRIOTS

Information available on the “Registrar of Companies’” website is available only in Turkish: http://www.rkmmd.gov.ct.tr/.  An online registration process for domestic or foreign companies does not exist and registration needs to be completed in person.

The “YAGA” website ( https://yaga.gov.ct.tr/en-us/ provides explanations and guides in English on how to register a company in the area administrated by Turkish Cypriots.

As of August 2020, the “Registrar of Companies Office” statistics indicated there were 21,626 registered companies, of which 16,557 were Turkish Cypriot majority-owned limited liability companies; 433 foreign companies; and 493 offshore companies.

The area administered by Turkish Cypriots defines MSMEs as entities having fewer than 250 employees.  There are several grant programs financed through Turkish aid and EU aid targeting MSMEs.

The Turkish Cypriot Chamber of Commerce (KTTO) publishes an annual Competitiveness Report on the Turkish Cypriot economy, based on the World Economic Forum’s methodology.  KTTO’s 2019-2020 report ranked Northern Cyprus 107 among 141 economies, dropping eighteen places from its ranking in 2019.

For more information and requirements on establishing a company, obtaining licenses, and doing business visit:

“Turkish Cypriot Development Agency” (“YAGA”)
Tel: +90 392 – 22 82317
Website: https://yaga.gov.ct.tr/en-us/

Turkish Cypriot Chamber of Commerce (KTTO)
https://www.ktto.net/en/
Tel: +90 392 – 228 37 60 / 228 36 45
Fax: +90 392 – 227 07 82

Outward Investment

REPUBLIC OF CYPRUS

The ROC does not restrict outward investment, other than in compliance with international obligations such as specific UN Security Council Resolutions.  In terms of programs to encourage investment, businesses in Cyprus have access to several EU programs promoting entrepreneurship, such as the European Commission’s InvestEU Programme (2021-2027) aiming to support sustainable infrastructure, innovation and small businesses, or the Erasmus program for Young Entrepreneurs, in addition to the European Investment Bank’s guarantee facilities for SMEs for projects under USD 4.8 million (EUR 4 million)^[1].

AREA ADMINISTERED BY TURKISH CYPRIOTS

Turkish Cypriot “officials” do not incentivize or promote outward investment.  The Turkish Cypriot authorities do not restrict domestic investors.

[1] Converted at EUR 1 = USD 1.20 per the exchange rate March 5, 2021.

Transparency of the Regulatory System

REPUBLIC OF CYPRUS

The ROC achieved a score of 4 out of 6 in the World Bank’s composite Global Indicators of Regulatory Governance score (based on data collected December 2015 to April 2016) designed to explore good regulatory practices in three core areas: publication of proposed regulations, consultation around their content, and the use of regulatory impact assessments.  For more information, please see: http://rulemaking.worldbank.org/en/data/explorecountries/cyprus.

U.S. companies competing for ROC government tenders have noted concerns about opaque rules and possible bias by technical committees responsible for preparing specifications and reviewing tender submissions.  Overall, however, procedures and regulations are transparent and applied in practice by the government without bias towards foreign investors.  The ROC actively promotes good governance and transparency as part of its administrative reform action plan.

In line with the above plan and EU requirements, the ROC launched in 2016 the National Open Data Portal (www.data.gov.cy) to increase transparency in government services.  Government agencies are now required to post publicly available information, data, records, on the entire spectrum of their activities.  The number of data sets available through this portal has been growing rapidly in recent months, although much of it is in Greek only.

Several agencies and non-governmental organizations (NGOs) share competency on fostering competition and transparency, including the ROC Commission for the Protection of Competition (www.competition.gov.cy), the Competition and Consumer Protection Service, under MECI (https://meci.gov.cy/en/departments-services/consumer-protection-service), the Cyprus Consumers Association (www.cyprusconsumers.org.cy), and the Cyprus Securities and Exchange Commission (www.cysec.gov.cy).

Most laws and regulations are published only in Greek and obtaining official English translations can be difficult, but expert analysis in English is generally available from local law and accounting firms when the regulation affects international investment or business activity.  When passing new legislation or regulations, Cypriot authorities follow the EU acquis communautaire – the body of common rights and obligations that is binding on all EU members.  A formal procedure of public notice and comment is not required in Cyprus, except for specific types of laws.  In general, the ROC will seek stakeholder feedback directly.  Draft legislation must be published in the Official Gazette before it is debated in the House to allow stakeholders an opportunity to submit comments.  The ROC House of Representatives typically invites specific stakeholders to offer their feedback when debating bills.  Draft regulations, on the other hand, need not be published in the Official Gazette prior to being approved.

In an effort to contribute to global tax transparency, the ROC has adopted the Standard of Automatic Exchange of Information developed by the Organization for Economic Co-Operation and Development (OECD) known as Common Reporting Standard (CRS).  Since January 1, 2016, the ROC Tax Department requires all financial institutions to confirm their clients’ jurisdiction(s) of Tax Residence and Respective Tax Identification Number, if applicable.  Additionally, the ROC has signed the U.S. Foreign Account Tax Compliance Act (FATCA), allowing Cypriot tax authorities to share information with U.S. counterparts.

Public finances and debt obligations are published as part of the annual budget process.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The level of transparency for “lawmaking” and adoption of “regulations” in the “TRNC” lags behind U.S. and EU standards.  There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.  Draft legislation or regulations are made available for public comment for 21 days after the legislation is sent to “parliament.”  Almost all legislation and regulations are published only in Turkish.

International Regulatory Considerations

REPUBLIC OF CYPRUS

As an EU member state since May 1, 2004, the Republic of Cyprus must ensure compliance with the acquis communautaire.  The acquis is constantly evolving and comprises of Treaties, international agreements, legislation, declarations, resolutions, and other legal instruments.  EU legislation, for its part, is subdivided into:

• Regulations, which are directly applicable to member states and require no further action to have legal effect;
• Directives, which are addressed to and are binding on member states, but the member state may choose the method by which to implement the directive.  Generally, a member state must enact national legislation to comply with a directive;
• Decisions, which are binding on those parties to whom they are addressed; and
• Recommendations and opinions, which have no binding force.

When there is conflict between European law and the law of any member state, European law prevails; the norms of national law have to be set aside, under the principle of EU law primacy or supremacy.  The ROC is often slow to transpose EU directives into local law, but transposition is generally consistent with EU intent when it happens.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The entire island of Cyprus is considered EU territory, but the acquis communautaire is suspended in the areas administered by Turkish Cypriots and the north is not considered to be within the EU customs area.

Legal System and Judicial Independence

REPUBLIC OF CYPRUS

Cyprus is a common law jurisdiction and its legal system is based on English Common Law for both substantive and procedural matters.  Cyprus inherited many elements of its legal system from the United Kingdom, including the presumption of innocence, the right to due process, the right to appeal, and the right to a fair public trial.  Courts in Cyprus possess the necessary powers to enforce compliance by parties who fail to obey judgments and orders made against them.  Public confidence in the integrity of the Cypriot legal system remains strong, although long delays in courts, and the perceived failure of the system collectively to punish those responsible for the island’s financial troubles in 2013 have tended to undermine this trust in recent years.

International disputes are resolved through litigation in Cypriot courts or by alternative dispute resolution methods such as mediation or arbitration.  Businesses often complain of court gridlock and judgments on cases generally taking years to be issued, particularly for claims involving property foreclosure.

AREA ADMINISTERED BY TURKISH CYPRIOTS

Investors should note the EU’s acquis communautaire is suspended in the area administered by the Turkish Cypriots.

The “TRNC” is a common law jurisdiction.  Judicial power other than the “Supreme Court” is exercised by the “Heavy Penalty Courts,” “District Courts,” and “Family Courts.”  Turkish Cypriots inherited many elements of their legal system from the British colonial rule before 1960, including the right to appeal and the right to a fair public trial.  There is a high level of public confidence in the judicial system in the area administrated by Turkish Cypriots.  The judicial process is procedurally competent, fair, and reliable.

Foreign investors can make use of all the rights guaranteed to Turkish Cypriots.  Commercial courts and alternative dispute resolution mechanisms are not available in the “TRNC.”  The resolution of commercial or investment disputes through the “judicial system” can take several years.  The Turkish Cypriot administration has trade and industry “law” and contractual “law.”  The Turkish Cypriot administration has several trade and economic cooperation agreements with Turkey.  For more information about “legislation,” visit https://yaga.gov.ct.tr/en-us/.   Because the “TRNC” is not recognized internationally, “TRNC court” decisions and orders may be difficult to enforce outside of the area administered by Turkish Cypriots or Turkey.

Laws and Regulations on Foreign Direct Investment

REPUBLIC OF CYPRUS

For more information on laws affecting incoming foreign investment see:

• http://www.investcyprus.org.cy/en/media-center;

AREA ADMINISTERED BY TURKISH CYPRIOTS

Visit the “YAGA” website, for more information about laws and regulations on FDI: https://yaga.gov.ct.tr/en-us/

Competition and Antitrust Laws

REPUBLIC OF CYPRUS

The oversight agency for competition is the Commission for the Protection of Competition:

http://www.competition.gov.cy/competition/competition.nsf/index_en/index_en?OpenDocument

AREA ADMINISTERED BY TURKISH CYPRIOTS

The oversight “agency” for competition is the “Competition Board:”  http://www.rekabet.gov.ct.tr/.

Expropriation and Compensation

REPUBLIC OF CYPRUS

Private property may, in exceptional instances, be expropriated for public purposes, in a non-discriminatory manner, and in accordance with established principles of international law and consistent with EU law, rights, and directives.  The expropriation process entitles investors to proper compensation, whether through mutual agreement, arbitration, or the local courts.  Foreign investors may claim damages resulting from an act of illegal expropriation by means other than litigation.  Investors and lenders to expropriated entities receive compensation in the currency in which the investment was made.  In the event of any delay in the payment of compensation, the Government is also liable for the payment of interest based on the prevailing six-month interest rate for the relevant currency.  Like most other jurisdictions, the ROC is expected to complete the switch from the London Inter-Bank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) by the end of 2021.

Following a financial crisis in 2013, the ROC took extraordinary steps as part of the Memorandum of Understanding (MOU) between the Republic of Cyprus and international lenders (European Commission, European Central Bank, and the IMF – the “troika”).  Depositors in two of the largest Cypriot banks were forced to take a “haircut” on almost half of their deposits exceeding insured limits.  This action sparked 3,000 lawsuits against the ROC and the banks, but the European Court of Justice ruled that the MOU with the troika was not an unlawful act and dismissed actions for compensation.  The ROC has not taken any similar extraordinary actions since.

AREA ADMINISTERED BY TURKISH CYPRIOTS

Private property may be expropriated for public purposes.  The expropriation process entitles investors to proper compensation.  Foreign investors may claim damages resulting from an act of illegal expropriation by means other than litigation.

In expropriation cases involving private owners, they are first notified, the property is then inspected, and, if an agreement is reached regarding the amount, then the owner is compensated.  In cases where the owner declines the compensation package, the case relegated to local “courts” for a final decision.

Because the “TRNC” is not recognized internationally, “TRNC court” decisions and orders may be difficult to enforce outside of the area administered by Turkish Cypriots or Turkey.

Dispute Settlement

ICSID Convention and New York Convention

N/a

Investor-State Dispute Settlement

N/a

International Commercial Arbitration and Foreign Courts

N/a

ICSID Convention and New York Convention

N/a

Investor-State Dispute Settlement

N/a

International Commercial Arbitration and Foreign Courts

N/a

REPUBLIC OF CYPRUS

ICSID Convention and New York Convention

The ROC is a member state to the Convention on the International Centre for the Settlement of Investment Disputes (ICSID Convention), and a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

There have been no reports of investment disputes in Cyprus involving U.S. persons over the past 10 years, and there is no history of extrajudicial action against foreign investors.  Local courts recognize and enforce foreign arbitral awards issued against the government.

International Commercial Arbitration and Foreign Courts

Cyprus offers several different means of Alternative Dispute Resolution (ADR), although, in practice, recourse to ADR is not common.  The ROC Ministry of Justice and Public Order offers a publicly-available Register of Mediators for both commercial and civil disputes at: http://www.mjpo.gov.cy/mjpo/mjpo.nsf/All/093DD5FE0E4342E7C225861400498853?OpenDocument.

Some of the key mediators locally and abroad are the following:

• The Cyprus Chamber of Commerce and Industry (CCCI): http://www.ccci.org.cy/;
• The Scientific and Technical Chamber of Cyprus: http://www.etek.org.cy;
• The ROC Financial Ombudsman’s office, offers mediation services between banks and customers since 2015: www.financialombudsman.gov.cy;
• The European Court of Arbitration in Cyprus: http://cour-europe-arbitrage.org/contacts/;

EU citizens and businesses can also use SOLVIT, a free, online service, to resolve problems pertaining to internal EU market issues, like visa and residence rights, pension rights, and VAT refunds, within 10 weeks from the day the problem is reported: http://ec.europa.eu/solvit/what-is-solvit/.

Under the Arbitration Law of Cyprus, if the parties are unable to reach a settlement an arbitrator can be appointed.  Arbitration rulings are fully enforceable, and the court may settle an arbitral award in the same way as a judgment.  Mediation is not fully enforceable, unless the settlement agreement explicitly stipulates that the parties can apply to court for enforcement.  The ROC honors the enforcement of foreign court judgments and foreign arbitration awards.  Domestic legislation on binding international arbitration is modeled after internationally accepted regulations, such as the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, which the ROC adopted in 1985.  The ROC’s bilateral investment treaties with several countries also include dispute settlement provisions (see Section 3, Bilateral Investment Agreements).

AREA ADMINISTERED BY TURKISH CYPRIOTS

Investor-State Dispute Settlement

Foreign investors can make use of all the rights guaranteed to Turkish Cypriots.  Alternative dispute resolution mechanisms are not available in the “TRNC.”  The resolution of commercial or investment disputes through the “judicial system” can take several years.

Because the “TRNC” is not recognized internationally, “TRNC court” decisions and orders may be difficult to enforce outside of the area administered by Turkish Cypriots or Turkey.

Bankruptcy Regulations

REPUBLIC OF CYPRUS

New insolvency legislation introduced in 2015 has helped overhaul bankruptcy procedures, with a view to resolve the island’s high levels of non-performing loans (NPLs).  Bankruptcy procedures can be initiated by a creditor through compulsory liquidation or by the debtor through voluntary liquidation.  The court can impose debt rescheduling, in cases where aggregate liabilities do not exceed USD 409,500 (EUR 350,000) and individuals with minimal assets and income may apply to the court via the Insolvency Service for a debt relief order of up to USD 29,250 (EUR 25,000).  Discharge from bankruptcy is automatic after three years, provided all debtor assets are sold and the proceeds distributed to creditors.  Fraudulent alienation of assets prior to bankruptcy and non-disclosure of assets draws criminal sanctions under the new legislation.  Cypriot authorities are closely monitoring implementation of the new insolvency framework.  Despite concerted efforts by Cypriot authorities and the banks NPLs remained stubbornly high at 28.5 percent of total loans at the end of 2019, compared to 30.3 percent a year earlier, although two major banks are in the process of selling significant NPL portfolios to investors.

The World Bank’s 2020 Doing Business report ranked Cyprus 31st from the top among 190 countries in terms of the ease with which it resolves insolvency.  For additional information, please see: https://www.doingbusiness.org/en/data/exploreeconomies/cyprus#DB_ri .

AREA ADMINISTERED BY TURKISH CYPRIOTS

In 2013, the “TRNC” passed a debt restructuring “law” aimed at providing incentives to restructure debts and NPLs separately.  Turkish Cypriots also have a bankruptcy “law” that defines “collecting power;” conditions under which a creditor can file a bankruptcy application; and the debtor’s bankruptcy application, and agreement plans.

As of the end of the third quarter of 2020, NPLs increased by 34.3 percent, reaching 1.4 billion Turkish Lira (USD 20 million) compared to the same period of the previous year.

Capital Markets and Portfolio Investment

REPUBLIC OF CYPRUS

The Cyprus Stock Exchange (CSE), launched in 1996, is one of the EU’s smallest stock exchanges, with a capitalization of USD 4.2 billion (EUR 3.5 billion) as of March 2021.  The CSE and the Athens Stock Exchange (ASE) have operated from a joint trading platform since 2006, allowing capital to move more freely from one exchange to the other, even though both exchanges retain their autonomy and independence.  The joint platform has increased capital available to Cypriot firms and improved the CSE’s liquidity, although its small size remains a constraint.  The private sector has access to a variety of credit instruments, which has been enhanced through the operation of private venture capital firms.  Credit is allocated on market terms to foreign and local investors alike.  Foreign investors may acquire up to 100 percent of the share capital of Cypriot companies listed on the CSE with the notable exception of companies in the banking sector.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There is no stock exchange in the area administrated by Turkish Cypriots and no foreign portfolio investment.  Foreign investors are able to get credit from the local market, provided they have established domestic legal presence, majority-owned (at least 51 percent) by domestic companies or persons.

Money and Banking System

REPUBLIC OF CYPRUS

At the end of November 2020, the value of total deposits in ROC banks was USD 54.7 billion (EUR 48.0 billion), and the value of total loans was USD 35.7 billion (EUR 31.3 billion).  More details on local monetary and financial statistics are available at: https://www.centralbank.cy/en/publications/monetary-and-financial-statistics/year-2020.  Currently, there are seven local banks in Cyprus offering a full range of retail and corporate banking services – the largest two of which are the Bank of Cyprus and Hellenic Bank – plus another two dozen or so subsidiaries or branches of foreign banks offering more specialized services.  The full list of authorized credit institutions in Cyprus is available on the Central bank of Cyprus website: https://www.centralbank.cy/en/licensing-supervision/banks/register-of-credit-institutions-operating-in-cyprus.

The banking sector has made significant progress since the 2013 financial crisis resulted in a “haircut” of uninsured deposits, followed by numerous bankruptcies and consolidation.  The island’s two largest banks – Bank of Cyprus and Hellenic – are now adequately capitalized and have returned to profitability.  However, the profitability of the banking sector as a whole is challenged by low interest margins, a high level of liquidity, and a still elevated volume of NPLs.  NPLs in Cyprus are the second highest in the EU at 19.1 percent of total loans at the end of November 2020, compared to 28.6 percent a year earlier, albeit considerably lower than in 2014, when they reached 47.8 percent.  Banks continue striving to reduce NPLs further, either by selling off portfolios of NPLs or using recently amended insolvency and foreclosure frameworks.  The economic impacts of the COVID-19 pandemic and political pressure to protect citizens under current extraordinary circumstances makes reducing NPLs difficult at this time.

Cyprus has a central bank – the Central Bank of Cyprus – which forms part of the European Central Bank.  Foreign banks or branches are allowed to establish operations in Cyprus.  They are subject to Central Bank of Cyprus supervision, just like domestic banks.  JPMorgan, Citibank, Bank of New York Mellon, and HSBC currently provide U.S. dollar correspondent banking services to ROC banks.

Opening a personal or corporate bank account in Cyprus is straightforward, requiring routine documents.  But because of a history of money-laundering concerns, banks now carefully scrutinize these documents and can conduct extensive due diligence checks on sources of wealth and income.  A local bank account is not necessary for personal household expenses.  Opening a corporate bank account is mandatory when registering a company in Cyprus.

Cyprus has taken steps since 2018 to address recognized regulatory shortcomings in combatting illicit finance in its international banking and financial services sector, tightening controls over non-resident shell companies and bank accounts.  Cyprus’ first National Risk Assessment (NRA) of money laundering and terrorist financing, released in November 2018, is available at: http://mof.gov.cy/en/press-office/announcements/national-risk-assessment-of-money-laundering-and-terrorist-financing-risks-cyprus.  Cyprus is a member of the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body.  Its most recent mutual evaluation report of the Cypriot banking sector, released February 2, 2020, can be found at: https://www.coe.int/en/web/moneyval/-/cyprus-should-pursue-money-laundering-from-criminal-proceeds-generated-outside-of-the-country-more-aggressively.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The “Central Bank” oversees and regulates local, foreign, and private banks.  In addition to the “Central Bank” and the “Development Bank”, there are 21 banks in the area administrated by Turkish Cypriots, of which 16 are Turkish Cypriot-owned banks, and five are branch banks from Turkey.  Banks are required to follow “know-your-customer” (KYC) and AML “laws,” which are regulated by the “Ministry of Economy and Energy,” and supervised by the “Central Bank,” but AML practices do not meet international standards.  Due to non-recognition issues, Turkish Cypriot banks do not qualify for a SWIFT number to facilitate international transactions.  All international transfers depend on routing through Turkish banks.  According to a September 2020 “Central Bank” report, the total number of deposits increased by 32.74 percent in one year and amounted to 40 billion Turkish Lira (USD 5.2 billion) at the end of September 2020. The “Central Bank” claimed 96.7 percent liquidity, assessing this as sufficient to withstand a crisis.  As of the end of the third quarter of 2020, NPLs increased by 34.3 percent, reaching 1.4 billion Turkish Lira (USD 20 million) compared to the same period the previous year.

More information is available at the “Central Bank” website: http://www.kktcmerkezbankasi.org/.

Foreign Exchange and Remittances

Foreign Exchange

REPUBLIC OF CYPRUS

The ROC is a member of the Eurozone.  The Eurozone has no restrictions on the transfer or conversion of its currency, and the exchange rate is freely determined in the foreign exchange market.  There is no difficulty in obtaining foreign exchange.  Since the 2008 global financial crisis, the European Commission has pursued several initiatives aimed at creating a safer and sounder financial sector, known as the Banking Union.  These initiatives, which include stronger prudential requirements for banks, improved depositor protection and rules for managing failing banks, form a single rulebook for all financial actors in the member states of the EU.  For more info, please refer to: http://ec.europa.eu/finance/general-policy/banking-union/index_en.htm.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The “TRNC” has a separate financial system from the ROC, linked closely with that of Turkey.  The Turkish Lira is the main currency in use, although the Euro, U.S. dollar, and British pound are commonly accepted.  The vast majority of business borrowing is derived from domestic and Turkish sources.

A devaluation of the Turkish Lira against foreign exchange rates (or the opposite) has a strong effect on the economy of the area administered by Turkish Cypriots.  Wages across sectors are generally paid in Turkish Lira, but almost all real estate, rents, electronic goods, vehicles, and other expensive products are valued in foreign currency.  Banks in the Turkish Cypriot administered areas provide lower interest rates for Euro or British pound loans than for Turkish Lira loans.  Foreign investors are authorized to repatriate all proceeds from their investments and business.

Banks are free to keep foreign currency, act as intermediary in import and export transactions, accept foreign currency savings, engage in purchase and sale of foreign currency, and give foreign currency loans.  All international correspondent banking services must route through Turkish banks.

Remittance Policies

REPUBLIC OF CYPRUS

There are no restrictions or delays on investment remittances or the inflow or outflow of profits.  Remittances may be moved through the regular banking system or through licensed Payment Institutions (PIs) or Electronic Money Institutions (EMIs), also regulated by the Central Bank of Cyprus.

The Central Bank of Cyprus maintains two public registers, listing both PIs and EMIs, whether authorized by the Central Bank of Cyprus or authorized in other EU Member States with the right of freedom to provide services in the ROC.

The two relevant CBC registers are:

Register of Licensed Payment Institutions: https://www.centralbank.cy/en/licensing-supervision/payment-institutions/licensing-and-supervision-of-payment-institutions

Register of Electronic Money Institutions: https://www.centralbank.cy/en/licensing-supervision/electronic-money-institutions/licensing-and-supervision-of-electronic-money-institutions

Sovereign Wealth Funds

REPUBLIC OF CYPRUS

The Parliament passed legislation March 1, 2019 providing for the establishment of a National Investment Fund (NIF) to manage future offshore hydrocarbons and other natural resources revenue.  Section 29 of the NIF Law specifies that the Corporation to be set up shall invest the Fund in a diversified manner with a view to maximizing risk-adjusted financial returns and in a manner consistent with the portfolio management by a prudent institutional investor.  The Fund is precluded from investing in securities issued by a Cypriot issuer (including the state) or in real estate located in Cyprus.  This provision safeguards against the possibility of speculative development catering to the Fund and political interference favoring domestic investments for purposes other than the best interests of the Fund and the Cypriot people as a whole.  Additionally, Section 30 of the law provides that the fund cannot invest, directly or indirectly, to acquire more than five percent of any one company or legal entity. The fund is not yet operational.  Regulations for the NIF are being drafted and will require legislative approval, and it will be several years before there are any revenues generated from the ROC’s hydrocarbon assets.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There is no established sovereign wealth fund.

REPUBLIC OF CYPRUS

The ROC maintains exclusive or majority-owned stakes in more than 40 SOEs and is making slow progress towards privatizing some of them (see sections on Privatization and OECD Guidelines on Corporate Governance of SOEs).  There is no comprehensive list of all SOEs available but the most significant are the following:

• Electricity Authority of Cyprus (EAC)
• Cyprus Telecommunications Authority (CyTA)
• Cyprus Sports Organization
• Cyprus Ports Authority
• Cyprus Broadcasting Corporation (CyBC)
• Cyprus Theatrical Organization
• Cyprus Agricultural Payments Organization

These SOEs operate in a competitive environment (domestically and internationally) and are increasingly responsive to market conditions.  The state-owned EAC monopoly on electricity generation and distribution ended in 2014, although competition remains difficult given the small market size and delays in implementing new market rules.  As an EU Member State, Cyprus is a party to the WTO Government Procurement Agreement (GPA).

OECD Guidelines on Corporate Governance are not mandatory for ROC SOEs, although some of the larger SOEs have started adopting elements of corporate governance best practices in their operating procedures.  Each of the SOEs is subject to dedicated legislation.  Most are governed by a board of directors, typically appointed by the government at the start of its term, and for the duration of its term in office.  SOE board chairs are typically technocrats, affiliated with the ruling party.  Representatives of labor unions and minority shareholders contribute to decision making.  Although they enjoy a fair amount of independence, they report to the relevant minister.  SOEs are required by law to publish annual reports and submit their books to the Auditor General.

AREA ADMINISTERED BY TURKISH CYPRIOTS

In the area administrated by Turkish Cypriots, there are several “state-owned enterprises” and “semi-state-owned enterprises,” usually common utilities and essential services.

In the Turkish Cypriot administered area, the below-listed institutions are known as “public economic enterprises” (POEs), “semi-public enterprises” and “public institutions,” which aim to provide common utilities and essential services.

Some of these organizations include:

• Turkish Cypriot Electricity Board (KIBTEK);
• BRTK – State Television and Radio Broadcasting Corporation;
• Cyprus Turkish News Agency;
• Turkish Cypriot Milk Industry;
• Cypruvex Ltd. – Citrus Facility;
• EMU – Eastern Mediterranean Foundation Board;
• Agricultural Products Corporation;
• Turkish Cypriot Tobacco Products Corporation;
• Turkish Cypriot Alcoholic Products LTD;
• Coastal Safety and Salvage Services LTD; and
• Turkish Cypriot Development Bank.

Privatization Program

REPUBLIC OF CYPRUS

The ROC has made limited progress towards privatizations, despite earlier commitments to international creditors in 2013 to raise  USD 1.6 billion (EUR 1.4 billion) from privatizations by 2018.  In July 2017, opposition parties passed legislation abolishing the Privatizations Unit, an independent body established March 2014.  A bill providing the transfer of Cyprus Telecommunications Authority (CyTA) commercial activities to a private legal entity, with the government retaining majority ownership, has been pending since March 2018.  In December 2015, under the threat of strikes, the government reversed earlier plans to privatize the Electricity Authority of Cyprus (EAC).  However, in recent years, the EAC has been forced to unbundle its operations in line with Cyprus Energy Regulatory Authority (CERA) recommendations and EU regulations.  The EAC has created independent units for its core regulated activities, namely Transmission, Distribution, Generation, and Supply.  Private firms have been offering renewable energy generation since 2003 and electricity supply since January 1, 2021.

Despite slow progress in electricity and telecommunications, the current administration continues pursuing privatizations in other areas.  On August 3, 2020, the ROC announced an agreement with a Cyprus-Israeli consortium for a USD 1.2 billion (EUR 1.0 billion) Larnaca marina and port privatization project and related mixed-use development.  The government also continues efforts to sell the state lottery, find long-term investors to lease state-owned properties in the Troodos area, and forge a strategic plan on how to handle the Cyprus Stock Exchange.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The airport at Ercan and K-Pet Petroleum Corporation have been converted into public-private partnerships.  The concept of privatization continues to be controversial in the Turkish Cypriot community.

In March 2015, Turkish Cypriot authorities signed a public-private partnership agreement with Turkey regarding the management and operation of the water obtained from an underwater pipeline funded by Turkey.  Within the area administrated by Turkish Cypriots, there has also been discussion about privatizing the electricity authority “KIBTEK”, Turkish Cypriot telecommunications operations, and the seaports.

Policies Towards Foreign Direct Investment

The Czech government actively seeks to attract foreign investment via policies that make the country a competitive destination for companies to locate, operate, and expand.  The Czech investment incentives legislation (amended Act No. 72/2000 Coll., effective as of September 6, 2019) creates incentive payments for high value-added investments that focus on R&D and create jobs for university graduates.  The law eliminates incentives for investments targeting low-skilled labor and establishes more favorable rules for technological investments in sectors such as aerospace, information and communication technology, life sciences, nanotechnology, and advanced segments of the automotive industry.  In addition, due to COVID-19, the government approved November 30, 2020 an amendment to this statute, which enables producers of personal protective equipment, medical devices, and pharmaceuticals to more easily obtain investment incentives.

CzechInvest, the government investment promotion agency that operates under the Ministry of Industry and Trade (MOIT), negotiates on behalf of the Czech government with foreign investors.  In addition, CzechInvest provides assistance during implementation of investment projects, consulting services for foreign investors entering the Czech market, support for suppliers, and assistance for the development of innovative start-up firms.  There are no laws or practices that discriminate against foreign investors.

The Czech Republic is a recipient of substantial FDI.  Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD171.3 billion at the end of 2019, compared to USD164 billion in 2018.

As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from EU partners.  In 2020, 83.5 percent of Czech exports went to fellow EU member states, with 32.6 percent to the Czech Republic’s largest trading partner, Germany, according to the Czech Statistical Office.  Since emerging from recession in 2013, the economy had enjoyed some of the highest GDP growth rates of the European Union until the COVID-19 outbreak. While GDP growth reached 2.4 percent in 2019, there was a 5.6 percent GDP decline in 2020.  The Ministry of Finance is forecasting 3.1 percent growth for 2021.

The Czech Republic has no plans to adopt the euro as it believes having its own currency and independent monetary policy is helpful to manage an economic crisis like the current one caused by the COVID-19 pandemic.

The slow pace of legislative and judicial reforms has posed obstacles to investment, competitiveness, and company restructuring.  The Czech government has harmonized its laws with EU legislation and the acquis communautaire.  This effort involved positive reforms of the judicial system, civil administration, financial markets regulation, protection and enforcement of intellectual property rights, and in many other areas important to investors.

While there have been many success stories involving American and other foreign investors, a handful have experienced problems, for example in the media industry.   Both foreign and domestic businesses voice concerns about corruption.

Long-term economic challenges include dealing with an aging population and diversifying the economy away from  manufacturing toward a more high-tech, services-based, knowledge economy.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign individuals or entities can operate a business under the same conditions as Czechs.  Foreign entities need to register their permanent branches with the Czech Commercial Register.  Some professionals, such as architects, physicians, lawyers, auditors, and tax advisors, must register for membership in the appropriate professional chamber.  In general, licensing and membership requirements apply equally to foreign and domestic professionals.

In response to the European Commission’s September 2017 investment screening directive, the Czech government drafted foreign investment screening legislation.  The law will come into effect on May 1, 2021 and gives the government the ability to review greenfield investments and acquisitions by non-EU foreign investors.  The law allows MOIT to screen FDI in virtually any sector of the Czech economy but specifies four high-risk sectors for which investment screening is mandatory: critical infrastructure, ICT systems used for critical infrastructure, military equipment, and sensitive dual use items.  Outside these critical sectors, non-EU investors are under no obligation to report acquisitions or greenfield investments, but MOIT can retroactively review investments at any point within five years according to security concerns that may arise.  Screening of acquisitions is triggered when a non-EU buyer attempts to make a purchase that would give it at least 10% of the voting rights of a Czech company.  However, screening is possible at an even lower threshold in cases where the foreign investor has additional means of exerting potentially malign control over a Czech company, such as through appointment of staff to key positions.  Furthermore, the law gives regulators considerable leeway to designate an investor as “non-EU” if the investor is “indirectly controlled” by non-EU business or individuals.

As of early 2012, U.S. and other non-EU nationals could purchase real estate, including agricultural land, in the Czech Republic without restrictions.  However, following the implementation of the investment screening law as of May 1, 2021, land purchases by non-EU investors may be screened if located near critical infrastructure, such as military installations.  Enterprises are permitted to engage in any legal activity with the previously noted limitations in sensitive sectors.  The right of foreign and domestic private entities to establish and own business enterprises is guaranteed by law.  Laws on auditing, accounting, and bankruptcy are in force, including the use of international accounting standards (IAS).

Other Investment Policy Reviews

The OECD last conducted an economic survey of the government in 2020.

Business Facilitation

Individuals must complete a number of bureaucratic requirements to set up a business or operate as a freelancer or contractor.  MOIT provides an electronic guide on obtaining a business license, presenting step-by-step assistance, including links to related legislation and statistical data, and specifying authorities with whom to work (such as business registration, tax administration, social security, and municipal authorities), available at: https://www.mpo.cz/en/business/licensed-trades/guide-to-licensed-trades/.  MOIT also has established regional information points to provide consulting services related to doing business in the Czech Republic and EU.  A list of contact points is available at:  https://www.businessinfo.cz/en/starting-a-business/starting-up-points-of-single-contact-psc/addresses-points-of-single-contact-psc/.

The average time required to start a business is 25 days according to the World Bank’s ‘Doing Business’ Index.  The Czech Republic’s Business Register is publicly accessible and provides details on business entities including legal addresses and major executives.  An application for an entry into the Business Register can be submitted in a hard copy, via a direct entry by a public notary, or electronically, subject to meeting online registration criteria requirements.  The Business Register is publicly available at:  https://or.justice.cz/ias/ui/rejstrik.  The Czech Republic’s Trade Register is an online information system that collects and provides information on entities facilitating small trade and craft-oriented business activities, as specifically determined by related legislation.  It is available online at:  http://www.rzp.cz/eng/index.html.

Outward Investment

The Czech government does not incentivize outward investment.  The volume of outward investment is lower than incoming FDI.  According to the latest data from the Czech National Bank, Czech outward investments amounted to USD 45.1 billion in 2019, compared to inward investments of USD 171.3 billion.  However, according to the Export Guarantee and Insurance Corporation (EGAP), Czech companies increasingly invest abroad to get closer to their customers, save on transport costs, and shorten delivery times. As part of EU sanctions, there is a total ban on EU investment in North Korea as of 2017.

Transparency of the Regulatory System

Tax, labor, environment, health and safety, and other laws generally do not distort or impede investment.  Policy frameworks are consistent with a market economy.  Fair market competition is overseen by the Office for the Protection of Competition (UOHS) (http://www.uohs.cz/en/homepage.html).  UOHS is a central administrative body entirely independent in its decision-making practice.  The office is mandated to create conditions for support and protection of competition and to supervise public procurement and state aid.

All laws and regulations in the Czech Republic are published before they enter into force.  Opportunities for prior consultation on pending regulations exist, and all interested parties, including foreign entities, can participate.  A biannual governmental plan of legislative and non-legislative work is available online, along with information on draft laws and regulations (often only in the Czech language).  Business associations, consumer groups, and other non-governmental organizations, including the American Chamber of Commerce, can submit comments on laws and regulations.  Laws on auditing, accounting, and bankruptcy are in force.  These laws include the use of international accounting standards (IAS) for consolidated corporate groups.  Public finances are transparent.  The government’s budget and information on debt obligations are publicly available and published online.

International Regulatory Considerations

Membership in the EU requires the Czech Republic to adopt EU laws and regulations, including rulings by the European Court of Justice (ECJ).

Czechoslovakia was a founding member of the GATT in 1947 and a member of the World Trade Organization (WTO).  Since the Czech Republic’s entry into the EU in 2004, the European Commission – an independent body representing all EU members – oversees Czech equities in the WTO and in trade negotiations.

Legal System and Judicial Independence

The Czech Commercial Code and Civil Code are largely based on the German legal approach, which follows a continental legal system where the principal areas of law and procedures are codified.  The commercial code details rules pertaining to legal entities and is analogous to corporate law in the United States.  The civil code deals primarily with contractual relationships among parties.

The Czech Civil Code, Act. No. 89/2012 Coll. and the Act on Business Corporations, Act No. 90/2012 Coll. (Corporations Act) govern business and investment activities.  The Act on Business Corporations introduced substantial changes to Czech corporate law such as supervision over the performance of a company’s management team, decision-making process, and remuneration and damage liability.  Detailed provisions for mergers and time limits on decisions by the authorities on registration of companies are covered, as well as protection of creditors and minority shareholders.

The judiciary is independent of the executive branch.  Regulations and enforcement actions are appealable, and the judicial process is procedurally competent, fair, and reliable.

Laws and Regulations on Foreign Direct Investment

The Foreign Direct Investment agenda is governed by the Civil Code and by the Act on Business Corporations.  In addition, the newly adopted investment screening law, which comes into effect on May 1, 2020, will give the government the ability to screen greenfield investments and acquisitions by non-EU investors for national security considerations.

The Czech Ministry of Industry and Trade maintains a “one-stop-shop” website available in Czech only at https://www.businessinfo.cz/ which aids foreign companies in establishing and managing a foreign-owned business in the Czech Republic, including navigating the legal requirements, licensing, and operating in the EU market.

Competition and Anti-Trust Laws

The Office for the Protection of Competition (UOHS) is the central authority responsible for creating conditions that favor and protect competition.  UOHS also supervises public procurement and monitors state aid (subsidy) programs.  UOHS is led by a chairperson who is appointed by the president of the Czech Republic for a six-year term.

Expropriation and Compensation

Government acquisition of property is done only for public purposes in a non-discriminatory manner and in full compliance with international law.  The process of tracing the history of property and land acquisition can be complex and time-consuming, but it is necessary to ensure clear title.  Investors participating in privatization of state-owned companies are protected from restitution claims through a binding contract with the government.

Dispute Settlement

ICSID Convention and New York Convention

The Czech Republic is a signatory and contracting state to the Convention on the Settlement of Investment Disputes between States and Nations of Other States (ICSID Convention).  It also has ratified the Convention on the Recognition and Enforcement of Arbitral Awards (New York Convention of 1958), which obligates local courts to enforce a foreign arbitral award if it meets the legal criteria.

Investor-State Dispute Settlement

The 1993 U.S.-Czech Bilateral Investment Treaty contains provisions regarding the settling of disputes through international arbitration.  In the past 10 years the Czech Republic has been involved in 29 known arbitral disputes with foreign investors.

International Commercial Arbitration and Foreign Courts

Mediation is an option in nearly every area of law including family, commercial, and criminal.  Mediators can be contracted between the parties to the dispute and found through such sources as the Czech Mediators Association, the Czech Bar Association, or the Union for Arbitration and Mediation Procedures of the Czech Republic.  A number of other non-governmental organizations (NGOs) and entities work in the area of mediation.  Directive 2008/52/EC allows those involved in a dispute to request that a written agreement arising from mediation be made enforceable.  The results of mediation may be taken into account by the public prosecutor and the court in their decision in a given case.  The local courts recognize and enforce foreign arbitral awards issued against the government.

Bankruptcy Regulations

The government amended the bankruptcy law on June 1, 2019, expanding the categories of debtors qualified for debt discharge.   In addition, to protect businesses affected by COVID-19 from bankruptcy, the government passed in April 2020 a law that puts a moratorium on filings for debt collection against all companies until the end of August 2020. This period was later extended through June 30, 2021.  The law also suspended companies’ obligations to file for bankruptcy until the end of June 2021 if they are not able to meet their liabilities.  Furthermore, in response to an EU directive on insolvency, the Czech government proposed an amendment to the bankruptcy law which is currently subject to approval by the Parliament.  The amendment would shorten the debt relief period for individuals from five to three years.  The directive requires the Czech Republic to update its legislation by July 17, 2021.

The Czech Republic ranked 16th in the 2020 edition of the World Bank’s Doing Business Report for ease of resolving insolvency.

Capital Markets and Portfolio Investment

The Czech Republic is open to portfolio investment.  There are 55 companies listed on the Prague Stock Exchange (PSE).  The overall trade volume of stocks decreased from CZK142.55 billion (USD6.5 billion) in 2018 to CZK108.78 billion (USD5 billion) in 2019, with an average daily trading volume of CZK435.12 million (USD19.9 million).

In March 2007, the PSE created the Prague Energy Exchange (PXE), which was later re-named to Power Exchange Central Europe, to trade electricity in the Czech Republic and Slovakia and, later, Hungary, Poland, and Romania.  PXE’s goal is to increase liquidity in the electricity market and create a standardized platform for trading energy.  In 2016, the German power exchange EEX acquired two thirds of PXE shares.  Following the acquisition, the PXE benefited from both an increased number of traders and increased trade volume.

The Czech National Bank, as the financial market supervisory authority, sets rules to safeguard the stability of the banking sector, capital markets, and insurance and pension scheme industries, and systematically regulates, supervises and, where appropriate, issues penalties for non-compliance with these rules.

The Central Credit Register (CCR) is an information system that pools information on the credit commitments of individual entrepreneurs and legal entities, facilitating the efficient exchange of information between CCR participants.  CCR participants consist of all banks and branches of foreign banks operating in the Czech Republic, as well as other individuals included in a special law.

As an EU member country, the local market provides credits and credit instruments on market terms that are available to foreign investors.

The Czech Republic respects IMF Article VIII.

Money and Banking System

Large domestic banks belong to European banking groups.  Most operate conservatively and concentrate almost exclusively on the domestic Czech market.  Despite the COVID-19 crisis, Czech banks remain healthy.  Results of regular banking sector stress tests, as conducted by the Czech National Bank, repeatedly confirm the strong state of the Czech banking sector which is deemed resistant to potential shocks.  Results of the most recent stress test conducted by the Czech National Bank are available at https://www.cnb.cz/en/financial-stability/stress-testing/banking-sector/.  As of January 31, 2021, the total assets of commercial banks stood at CZK8,661 billion (approximately USD395 billion), according to the Czech National Bank.  Foreign investors have access to bank credit on the local market, and credit is generally allocated on market terms.

The Czech National Bank has 10 correspondent banking relationships, including JP Morgan Chase Bank in New York and the Royal Bank of Canada in Toronto.  The Czech Republic has not lost any correspondent banking relationships in the past three years, and there are no relationships in jeopardy.

The Czech Republic does not currently regulate cryptocurrencies.

Foreign Exchange and Remittances

Foreign Exchange Policies

The COVID-19 outbreak caused the Czech crown to significantly depreciate, primarily in Q1 – Q2 2020.  Between February and May 2020, the Crown depreciated from CZK25 to CZK27.3 per EUR and from CZK22.9 to CZK25 per USD.  However, the crown recovered to CZK25.8 per EUR and CZK21.4 per USD by February 2021.

The CZK is fully convertible and floats freely.  The Czech National Bank supervises the foreign exchange market and its compliance with foreign exchange regulations.  The law permits conversion into any currency.

Remittance Policies

All international transfers of investment-related profits and royalties can be carried out freely.  The U.S.-Czech Bilateral Investment Treaty guarantees repatriation of earnings from U.S. investments in the Czech Republic.  However, a 15 percent withholding tax is charged on the repatriation of profits from the Czech Republic.  This tax is reduced under the terms of applicable double taxation treaties.  There are no administrative obstacles to removing capital.  The average delay for remitting investment returns meets the international standard of three working days.

Sovereign Wealth Funds

The Czech government does not operate a sovereign wealth fund.

The Ministry of Finance administers state ownership policies.  State-owned enterprises (SOEs) are structured as joint-stock companies, state enterprises, national enterprises, limited liability companies, and limited partnerships.  SOEs are owned by the individual ministries but are managed according to their business organizational structure as defined by law and are required to publish an annual report, disclose their accounting books, and submit to an independent audit.  Potential conflicts of interest are covered by existing Act No. 159/2006 on Conflicts of Interest, and Act No. 14/2017 on Amendments to the Act on Conflict of Interest.  Legislation on the civil service, which took effect January 1, 2015, established measures to prevent political influence over public administration, including operation of SOEs.

Private enterprises are generally allowed to compete with public enterprises under the same terms and conditions with respect to access to markets, credit, government contracts and other business operations.  SOEs purchase or supply goods and services from private sector and foreign firms.  SOEs are subject to the same domestic accounting standards, rules, and taxation policies as their private competitors, and are not given any material advantages compared to private entities.  State-owned or majority state-owned companies are present in several (strategic) sectors, including the energy, postal service, information and communication, and transport sectors.

The Czech Republic has 52 wholly owned SOEs and three majority owned SOEs (excluding those in liquidation).  Wholly owned SOEs employ roughly 78,000 people and own more than CZK487 billion (approximately USD 22.2 billion) in assets.  A list of all companies with a percentage of state ownership is available in Czech at:  https://www.komora.cz/legislation/167-19-strategie-vlastnicke-politiky-statu-t-20-12-2019/.

As an OECD member, the Czech Republic promotes the OECD Principles of Corporate Governance and the affiliated Guidelines on Corporate Governance for SOEs.  SOEs are subject to the same legislation as private enterprises regarding their commercial activities.

Privatization Program

As a result of several waves of privatization, the vast majority of the Czech economy is now in private hands.  Privatizations have generally been open to foreign investors.  In fact, most major SOEs were privatized with foreign participation.  The government evaluates all investment offers for SOEs.  Many competitors have alleged non-transparent or unfair practices in connection with past privatizations.

Policies Towards Foreign Direct Investment

The ascension of Felix Tshisekedi to the Presidency in January 2019 and his welcoming attitude toward foreign direct investment (FDI), particularly from the United States, have raised hopes that the DRC government (GDRC) can impose and follow through on favorable FDI policies.  Favorable FDI laws exist, but the judicial system is slow to protect investors’ rights and is susceptible to political pressure and corruption.  Investors hope Tshisekedi can create a more favorable enabling environment by business climate reform, better rule of law, and tackling corruption. The DRC’s rich endowment of natural resources, large population and generally open trading system provide significant potential opportunities for U.S. investors.

The major regulations governing FDI are found in the Investment Code Act (No. 004/2002 of 21 February 2002). Current regulations reserve the practice of small retail commerce in DRC to nationals and ban foreign majority-ownership of agricultural concerns.  The ordinance of August 8, 1990, clearly stipulates that “small business can only be carried out by Congolese.”  Foreign investors should limit themselves to import trade as well as wholesale and semi-wholesale trade. Investors have expressed concern that the ban on foreign agricultural ownership will stifle any attempts to kick-start the agrarian sector.

The National Investment Promotion Agency (ANAPI) is the official investment agency, which provides investment facilitation services for initial investments over USD 200,000.  It is mandated to promote the positive image of the DRC and specific investment opportunities; advocate for the improvement of the business climate in the country and provide administrative support to new foreign investors who decide to establish or expand their economic activities on the national territory.  More information is available at https://www.investindrc.cd/.

The GDRC maintains an ongoing dialogue with investors to hear their concerns. There are several public and private sector forums which speak to the government on the investment climate in specific sectors.  In 2019 President Tshisekedi created the business climate cell (CCA) to monitor the improvement of the economic environment and the business climate in the DRC, and to interface with the business community.  The CCA in June 2020 presented a roadmap for reform.  The public-private Financial and Technical Partners (PTF) mining group represents countries with significant mining investments in the DRC. The Federation of Congolese Enterprises (FEC), which is a privileged partner of the government and the workers’ unions, has a dialogue on business interests with the government.  The FEC has relayed information to the government about the effects of the COVID-19 pandemic on the private sector.  The FEC is also tracking post-Covid-19 investment sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

The GDRC provides the right for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity.

The DRC law reserves small commerce exclusively for Congolese nationals and does not allow foreign investors to own more than 49 percent of an agribusiness.  Many investors note that in practice the GDRC requires foreign investors to hire local agents and participate in a joint venture with the government or local partners.

The GDRC promulgated a mining code in 2018 which increased royalty rates from two to ten percent, raised tax rates on “strategic” metals, and imposed a surcharge on “super profits” of mining companies.  The government unilaterally removed a stability clause contained in the previous mining code protecting investors from any new fees or taxes for ten years.  Removal of the stability clause may deter future investment in the mining sector.  The Tshisekedi government has indicated that it is willing to reopen discussions on the new mining code.

The GDRC does not maintain an organization to screen inbound investment.  The Presidency and the ministries serve this purpose de facto.

Other Investment Policy Reviews

The DRC has not undergone a World Trade Organization (WTO), Organization for Economic Cooperation and Development (OECD), or a United Nations Conference on Trade and Development (UNCTAD) Investment Policy Review in the last three years.  Cities with high custom clearance traffic use Sydonia https://asycuda.org/wp-content/uploads/Etude-de-Cas-SYDONIA-Contr%C3%B4le-de-la-Valeur-RDC.pdf, which is an advanced software system for custom administrations in compliance with ASYCUDA WORLD. (ASYCUDA is a large technical assistance software program recommended by UNCTAD for custom clearance management.)

Business Facilitation

The GDRC operates a “one-stop-shop” for Business Creation (GUCE) that brings together all the government entities involved in the registration of a company in the DRC.  The goal is to permit the quick and simple registration of companies through one office in one location.  In October 2020, President Tshisekedi instructed the government to restructure GUCE in order to ease its work with the various state organizations involved in its operation.  More information is available at https://guichetunique.cd/.

At the one-stop-shop, companies fill in a “formulaire unique” in order to register with the: Commercial Registry (GUCE); tax administration (Direction Générale des Impots); Ministry of Labor; and National Institute for Social Security (Institut National de Sécurité Sociale (“INSS”)).  The Labor Inspection Department and the National Office of Employment (l’Office National de l’Emploi (“ONEM”)) are also to be notified of the establishment of the company.  Companies may also need to obtain an operating permit, as required from some municipal councils.  The registration process now officially takes three days, but in practice it can take much longer.  Some businesses have reported that the GUCE has considerably shortened and simplified the overall process of business registration.

Outward Investment

The GDRC does not prohibit outward investment, nor does it particularly promote or incentivize it.

There are no current government restrictions preventing domestic investors from investing abroad, and there are no currently blacklisted countries with which domestic investors are precluded from doing business.

Transparency of the Regulatory System

Passed in 2019, the Law on Pricing, Freedom and Competition (the “Competition Act”) created a new Competition Commission charged with limiting control by one party over a market.  DRC law mandates review if the turnover achieved is equal to or exceeds the amount determined by Decree of the Prime Minister upon proposal of the Minister of the Economy; if the parties hold a combined market share of 25% or more; or if the contemplated transaction creates / reinforces an already dominant position.  DRC law requires notification prior to a corporate merger. It is unclear what penalties apply if there is no pre-notification.

The DRC is a member of the regional competition bodies, COMESA and OHADA. OHADA does not have an operational merger control regime in place, while COMESA does have merger control. Merger activities in the DRC should be conducted with COMESA in mind.

There are no informal regulations run by private or nongovernmental organizations that discriminate against foreign investors.  However, some U.S. investors perceive the regulations in the mining code on local content as discriminatory against foreign investment.

The GDRC authority on business standards, the Congolese Office of Control (OCC), oversees and develops regulations relevant to foreign businesses engaged in the DRC.

There are no formal or informal provisions systematically employed by the GDRC to impede foreign investment.  Companies most often complain of facing administrative hurdles as laws and regulations are often poorly or unevenly applied.

Proposed laws and regulations are rarely published in draft format for public discussion and comment; discussion is typically limited to the governmental entity that proposes the draft law and Parliament prior to enactment.  Sometimes the government will hold a public hearing after public appeals.

The Official Gazette of the DRC is a specialized service of the Presidency of the Republic, which publishes and disseminates legislative and regulatory texts, judicial decisions, acts of companies, associations and political parties, designs, industrial models, trademarks as well as any other act referred to in the law.  More information is available at http://www.leganet.cd/.

There are no formal or informal provisions systematically employed by the GDRC to impede foreign investment.  Companies often complain of facing administrative hurdles as laws and regulations are often poorly or unevenly applied.

By implementing the OHADA system, the GDRC strengthened its legal framework in the areas of contract, company, and bankruptcy law and set up an accounting system better aligned to international standards.  For this purpose, a Coordination Committee was established internally in the GDRC to monitor OHADA implementation.

Tshisekedi created the Business Climate Unit (CCA) by a presidential order issued in February 2020. The mission of the CCA is to monitor the national business climate and enact regulatory reforms.  The CCA announced a roadmap for reform in June 2020, but has yet to implement the recommended reforms.

In November 2020, the GDRC launched the construction of the first Special Economic Zone, with the aim of attracting foreign investment and stimulating the creation of local businesses. This free zone offers tax and regulatory advantages for investors and entrepreneurs including a 5-to-10-year tax exemption. More information is available at https://www.azes-rdc.com/.

The roadmap details priority and urgent reforms and awaits action by the Prime Minister and the new cabinet. In the long term, the first Special Economic Zone will promote exports and create 3,500 direct jobs.

The DRC is a member of the Extractive Industries Transparency Initiative (EITI), a multi-stakeholder initiative to increase transparency in transactions between governments and companies in the extractive industries.  The DRC’s validation process for compliance with the EITI Standard commenced in November 2018.  The initial report published by the International EITI Secretariat in April 2019 stated that the DRC EITI failed to adequately address 13 of the requirements of the EITI Standard, with two of these assessed as unmet with inadequate progress.  The report also stressed the need to clarify the financial flows of state-owned enterprises (SOEs) in the DRC’s extractive sector.

In 2020, the DRC failed to meet the minimum requirements of fiscal transparency according to the State Department’s Fiscal Transparency report.  While the DRC publishes budgets that are publicly available and timely, the published budgets were not reliable indicators of actual government spending.

International Regulatory Considerations

The DRC is a member of several regional economic blocs, including the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA), the Organization for the Harmonization of Business Law in Africa (“OHADA”), the Economic Community of Central African States (ECCAS), and the Economic Community of the Great Lakes Countries (ECGLC).

According to the Congolese National Standardization Committee, the DRC has adopted 470 harmonized COMESA standards, which are based on the European system.

The DRC is a member of the World Trade Organization (WTO) and seeks to comply with Trade Related Investment Measures (TRIM) requirements, including notifying regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

The DRC is a civil law country, and the main provisions of its private law can be traced to the Napoleonic Civil Code.  The general characteristics of the Congolese legal system are similar to those of the Belgian system.  Various local customary laws regulate both personal status laws and property rights, especially the inheritance and land tenure systems in traditional communities throughout the country.  The Congolese legal system is divided into three branches: public law, private law, and economic law.  Public law regulates legal relationships involving the state or state authority; private law regulates relationships between private persons; and economic law regulates interactions in areas such as labor, trade, mining, and investment.

The DRC has written commercial and contractual law.  In 2018, the DRC established thirteen commercial courts located in DRC’s main business cities, including Kinshasa, Lubumbashi, Matadi, Boma, Kisangani, and Mbuji-Mayi.  These courts are designed to be led by professional judges specializing in commercial matters and exist in parallel to the judicial system.  A lack of qualified personnel and reluctance by some DRC jurisdictions to fully recognize OHADA law and institutions have hindered the development of commercial courts.  Legal documents in the DRC can be found at: http://www.leganet.cd/index.htm.

The current executive branch has generally not interfered with judicial proceedings.  The current judicial process is not procedurally reliable and its rulings are not always respected.

The national court system provides an appeals mechanism under the OHADA framework.

Laws and Regulations on Foreign Direct Investment

The 2002 Investment Code governs most foreign direct investment (FDI), providing for the protection of investments.  In practice, an inadequate legal system has insufficiently protected foreign investors in the event of a dispute.  Mining, hydrocarbons, finance, and other sectors have sector-specific investment laws.

ANAPI is the DRC agency with the mandate to simplify the investment process, make procedures more transparent, assist new foreign investors, and improve the image of the country as an investment destination (www.investindrc.cd).

The GDRC has a “Guichet Unique,” which is a one-stop shop to simplify business creation, cutting processing time from five months to three days, and reducing incorporation fees from $3,000 to $120. (www.guichetunique.cd ). A “one-stop-shop” also exists for import-export business, covering aspects such as the collection of taxes and transshipment operations. (https://segucerdc.cd/ ).

Competition and Antitrust Laws

There is no national agency that reviews transactions for competition or antitrust-related concerns.  As a member of COMESA, the DRC follows the COMESA Competition Regulations and rules, and the COMESA competition body regulates competition.  In May 2020, Tshisekedi instructed the cabinet to better defend the GDRC’s interests in outstanding investor disputes, including if necessary, by agreeing to a settlement.  This decision followed the announcement of two international court decisions unfavorable to the GDRC, which put the government liable for hundreds of millions of dollars.

Expropriation and Compensation

The GDRC may proceed with an expropriation when it benefits the public interest, and the person or entity subject to an expropriation should receive fair compensation.

Companies report that the GDRC levies heavy fines in a form of financial expropriation.  A government agency imposes fines due to a company’s failure to pay a tax, though often the tax regime is unclear and multiple government bodies impose different taxes.  Companies that appeal these fines through the courts often encounter a long wait.  There has not been an expropriation of property in the past three years, but there are a number of existing and long-standing claims made against the GDRC.

Some claims have been taken to arbitration, though many arbitral judgments against the GDRC are not paid in a timely manner, if at all.

Dispute Settlement

ICSID Convention and New York Convention

The DRC is a member of the International Center for Settlement of Investment Disputes (ICSID) Convention and a Contracting State to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

There is no specific domestic legislation providing for the enforcement of awards under the New York Convention.  It is important to note that the New York Convention does not apply toward disputes relating to immovable property, which includes mining rights.

Investor-State Dispute Settlement

The DRC is subject to international arbitration.  A U.S. mining company sued under the BIT to recover losses suffered when FARDC troops sacked its mine in Kasai Central Province in 1995. The arbitration courts ruled the GDRC liable for damages totaling $13 million, and the GDRC started paying back the awarded amount plus interest to the U.S. Company.

There have been charges of extrajudicial action against foreign investors, including levying fines and imprisonment.  In one case an investor left the country after being jailed on charges of corruption.

International Commercial Arbitration and Foreign Courts

The DRC adopted the OHADA Uniform Act on Arbitration (the UAA).  The UAA sets out the basic rules applicable to any arbitration where the seat of arbitration is located in an OHADA member state.  The requirements set out under Article 5 of the New York Convention for the recognition and enforcement of foreign awards applies where the seat of any arbitration is outside an OHADA member state, or where the parties choose arbitration rules outside the UAA.

OHADA‘s UAA offers an alternative dispute resolution mechanism for settling disputes between two parties where the place of arbitration is situated in a Member State.  Disputes must be submitted to the Common Court of Justice and Arbitration (CCJA) in Abidjan in accordance with the provisions of the OHADA Treaty and the OHADA Arbitration Rules.

The UAA, while not directly based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law, is similar in that it provides for the recognition and enforcement of arbitration agreements and arbitral awards and supersedes the national laws on arbitration to the extent that any conflict arises.  Arbitral awards with a connection to an OHADA member state are given final and binding status in all OHADA member states, on par with a national court judgment.  Support is provided by the CCJA which can rule on the application and interpretation of the UAA.

Arbitral awards rendered in any OHADA Member State are enforceable in in the domestic courts of any other OHADA member state, subject to obtaining an exequatur (a legal document issued by a sovereign authority allowing a right to be enforced in the authority’s domain of competence) of the competent court of the State in which the award is to be made.  Exequaturs are granted unless the award clearly affects public order in that State.  Decisions granting or refusing to grant an exequatur may be appealed to the CCJA.

In general, companies which fail to find a favorable judgment in domestic courts go to international courts for relief.  This often drags the judicial process on for years.  For domestic cases involving SOEs the courts often rule in favor of the SOEs.  One attorney estimated that  about five percent of cases have any transparency.

Bankruptcy Regulations

The OHADA Uniform Act on Insolvency Proceedings provides a comprehensive framework not only for companies encountering financial difficulties and seeking relief from the pressing demands of creditors, but also for creditors to file their claims.  The GDRC judiciary system has agreed to enforce the OHADA Insolvency Act.  Bankruptcy is not criminalized.

According to the World Bank’s Doing Business Report, there were no foreclosure, liquidation or reorganization proceedings filed in the country in 2020, making it impossible to assess the time, cost or outcome for an insolvency proceeding.  According to the World Bank, the DRC ranked 168th out of 190 countries on ease of resolving insolvency.

Capital Markets and Portfolio Investment

Portfolio investment is nonexistent in the DRC and there is no domestic stock market.  A small number of private equity firms are actively investing in the mining industry.  The institutional investor base is not well developed, with only an insurance company and a state pension fund as participants.  There is no market for derivatives in the country.  Cross-shareholding and stable shareholding arrangements are also not common.  Credit is allocated on market terms, but there are occasional complaints about unfair privileges extended to certain investors in profitable sectors such as mining and telecommunications.

Although reforms have been initiated, the Congolese financial system remains small, heavily dollarized, characterized by fragile balance sheets, and cumbersome to use.  Further reforms are needed to strengthen the financial system, support its expansion, and spur economic growth.  Inadequate risk-based controls, weak enforcement of regulations, low profitability, and excessive reliance on demand deposit undermine the shock resilience of the financial system.

The Central Bank of Congo (BCC) refrains from payments and transfers on current international transactions.  The DRC’s capital market remains underdeveloped and consists mainly of the issuance of treasury bonds.  In 2019, the BCC issued its first domestic bond in 24 years, which was oversubscribed.  Most of the buyers were local Congolese banks.

It is possible for foreign firms to borrow from local banks, but their options are limited.  Maturities for loans are usually limited to 3-6 months, and interest rates are typically around 16-21 percent.  The inconsistency of the legal system, the often-cumbersome business climate, and the difficulty in obtaining inter-bank financing discourages banks from providing long-term loans.  There are limited possibilities to finance major projects in the domestic currency, the Congolese franc (CDF).

Money and Banking System

The Congolese financial system is improving but remains fragile.  The BCC controls monetary policy and regulates the banking system.  Banks are concentrated primarily in Kinshasa, Kongo Central, North and South Kivu, and Haut Katanga provinces. Banking rate penetration is roughly 7 percent or about 4.1 million accounts, which places the country among the most under-banked nations in the world.  Mobile banking has the potential to greatly increase banking customers as an estimated 35 million Congolese use mobile phones.

There is no debt market. The financial health of DRC banks is fragile, reflecting high operating costs and exchange rates. The situation improved in a weak economic environment in 2019 as deposits have increased, which could point to a better year in 2020 considering the asset quality measures taken by the BCC, allowing banks to absorb the economic impact of the covid-19 pandemic.  Fees charged by banks are a major source of revenue.

The financial system is mostly banking-based with aggregate asset holdings estimated at USD 5.1 billion.  Among the five largest banks, four are local and one is controlled by foreign holdings.  The five largest banks hold almost 65 percent of bank deposits and more than 60 percent of total banks assets, about $3.1 billion.  There are no statistics on non-performing loans, as many banks only record the balance due instead of the total amount of their non-performing loans.

Citigroup is the only correspondent bank. All foreign banks accredited by the BCC are considered Congolese banks with foreign capital and fall under the provisions and regulations covering the credit institutions’ activities in the DRC.  There are no restrictions on foreigners establishing an account in a DRC bank.

Foreign Exchange and Remittances

Foreign Exchange

The international transfer of funds is permitted when channeled through local commercial banks.  On average, bank declaration requirements and payments for international transfers take less than one week to complete.  The Central Bank is responsible for regulating foreign exchange and trade.  The only currency restriction imposed on travelers is a $10,000 limit on the amount an individual can carry when entering or leaving the DRC.

The GDRC requires the BCC to license exporters and importers.  The DRC’s informal foreign exchange market is large and unregulated and offers exchange rates slightly more favorable than the official rate.  BCC regulations set the Congolese franc (CDF) as the main currency in all transactions within the DRC, required for the payment of fees in education, medical care, water and electricity consumption, residential rents, and national taxes.  Exceptions to this rule occur where both parties involved, and the appropriate monetary officials, agree to use another currency.  The CDF exchange rate floats freely, but the BCC carefully monitors the rate and intervenes to shore up the exchange rate.

Remittance Policies

There are no legal restrictions on converting or transferring funds.  Exchange regulations require a 60-day waiting period for in-country foreigners to remit income.  Foreign investors may remit through parallel markets when they are legally established and recognized by the Central Bank.

Sovereign Wealth Funds

The DRC does not have any reported Sovereign Wealth Funds, though the 2018 Mining Code discusses a Future Fund to be capitalized by a percentage of mining revenues.

There are 20 DRC state-owned enterprises (SOEs) operating in the mining, transportation, energy, telecommunications, finance, and hospitality sectors.  In the past, Congolese SOEs have stifled competition and have been unable to provide reliable electricity, transportation, and other important services over which they have monopolies.  Some SOEs and other Congolese parastatal organizations are in poor financial and operational state due to indebtedness and the mismanagement of resources and employees.  The list of SOEs can be found at: http://www.leganet.cd/Legislation/Droit%20Public/EPub/d.09.12.24.04.09.htm

There is limited reporting on the assets of SOEs and other parastatal enterprises, making valuation difficult.  DRC law does not grant SOEs an advantage over private companies in bidding for government contracts or obtaining preferential access to land and raw materials.  The government is often accused of favoring SOEs over private companies in contracting and bidding.

The DRC is not a party to the WTO’s procurement agreement (GPA), but nominally adheres to the OECD guidelines on Corporate Governance for SOEs. The DRC is a Participating Country in the Southern Africa SOE network, with the Ministry of Portfolio and the Steering Committee for SOE reforms designated as Regularly Participating Institutions.

Privatization Program

The DRC has no official privatization program.

Policies Towards Foreign Direct Investment

As a small country with an open economy, Denmark is highly dependent on foreign trade and investment. Exports comprise the most significant component (55 percent) of GDP. The Economist Intelligence Unit (EIU) ranks Denmark as the world’s second-most attractive business location after Singapore and the leading nation in the Nordic region. The EIU characterizes Denmark’s business environment as among the most attractive globally, reflecting an excellent infrastructure, a friendly policy towards private enterprise and competition, low bureaucracy, and a well-developed digital sector. Principal concerns include low productivity growth, a high personal tax burden, and limited competition in the retail sector. Overall, however, operating conditions for companies are broadly favorable. Denmark ranks highly in multiple categories, including its political and institutional environment, macroeconomic stability, foreign investment policy, private enterprise policy, financing, and infrastructure.

As of January 2021, the EIU rated Denmark an “AA” country on its Country Risk Service, with a stable outlook. Sovereign risk is rated “A,” and political risk “AAA.” Denmark ranked tenth out of 140 on the World Economic Forum’s 2019 Global Competitiveness Report, fourth on the World Bank’s 2020 Doing Business ranking, and seventh on the EIU 2020 Democracy Index. Denmark has an AAA rating from Standard & Poor’s, Moody’s, and Fitch Group. “Invest in Denmark,” an agency of the Ministry of Foreign Affairs and part of the Danish Trade Council, provides detailed information to potential investors. Invest in Denmark has prioritized six sectors in its strategy to attract foreign investment: Tech, Cleantech, Life Science, Food, Maritime, and Design & Innovation. The website for the agency is www.investindk.com .

Corporate tax records of all companies, associations, and foundations that pay taxes in Denmark were made public beginning in December 2012 and are updated annually. The corporate tax rate is 22 percent.

Limits on Foreign Control and Right to Private Ownership and Establishment

As an EU member state, Denmark is bound by EU rules on the free movement of goods, capital, persons, and certain services. Denmark welcomes foreign investment and does not distinguish between EU and other investors. There are no additional permits required by foreign investors, nor any reported bias against foreign companies from municipal or national authorities.

Denmark’s central and regional governments actively encourage foreign investment on a national-treatment basis, with relatively few foreign control limits. The Danish government has presented legislation to establish a foreign investment screening mechanism, which is expected to come into force on July 1, 2021.

A foreign or domestic private entity may freely establish, own, and dispose of a business enterprise in Denmark. The capital requirement for establishing a corporation (Aktieselskab A/S) or Limited Partnership (Partnerselskab P/S) is DKK 400,000 (approx. USD 61,000) and for establishing a private limited liability company (Anpartsselskab ApS) DKK 40,000 (approx. USD 6,100).

As of April 15, 2019, it is no longer possible to set up an “Entrepreneurial Company” (IVS). This company type, which required a starting capital of only DKK 1 (USD 0.15), was structured to allow entrepreneurs a cheap and straightforward way to incorporate with limited liability. Due to repeated instances of fraud and unintended use of the IVS, this vehicle was abolished within Denmark but is still available in Greenland. In 2019, the capital requirements to set up a Private Limited Company were lowered, which brought Denmark more in line with other Scandinavian countries. No restrictions apply regarding the residency of directors and managers.

Since October 2004, any private entity may establish a European public limited company (SE company) in Denmark. The legal framework of an SE company is subject to Danish corporate law, but it is possible to change the nationality of the company without liquidation and re-founding. An SE company must be registered at the Danish Business Authority if its official address is in Denmark. The minimum capital requirement is EUR 120,000 (approx. USD 137,000).

Danish professional certification and/or local Danish experience are required to provide professional services in Denmark. In some instances, Denmark may accept equivalent professional certification from other EU or Nordic countries on a reciprocal basis. EU-wide residency requirements apply to the provision of legal and accountancy services.

Ownership restrictions apply to the following sectors:

• Oil and Gas: Requires 20 percent Danish government participation on a “non-carried interest” basis.

• Defense: The Minister of Justice must approve foreign investment in defense companies doing business in Denmark if such investment exceeds 40 percent of the equity or more than 20 percent of the voting rights, or if the investment gives the foreign interest a controlling share. This approval is generally granted unless there are security or other foreign policy considerations weighing against approval.

• Maritime Services: There are foreign (non-EU resident) ownership requirements on Danish-flagged vessels other than those owned by an enterprise incorporated in Denmark. Ships owned by Danish citizens, Danish partnerships, or Danish limited liability companies are eligible for registration in the Danish International Ships Register (DIS). Vessels owned by EU or European Economic Area (EEA) entities with a genuine, demonstrable link to Denmark are also eligible for registration. Foreign companies with a significant Danish interest can register a ship in the DIS.

• Civil Aviation: For an airline to be established in Denmark, it must have majority ownership and be effectively controlled by an EU state or a national of an EU state, unless otherwise provided for through an international agreement to which the EU is a signatory.

• Financial Services: Non-resident financial institutions may engage in securities trading on the Copenhagen Stock Exchange only through subsidiaries incorporated in Denmark.

• Real Estate: Ownership of holiday homes, also known as summer houses, is restricted to Danish citizens. Such homes are generally located along the Danish coastline and may not be used as full-year residences. On a case-by-case basis, the Ministry of Justice may waive the citizenship requirement for those with close familial, linguistic, cultural, or other close connections to Denmark or the specific property. In general, EU and EEA citizens may purchase full-year residential property or real estate that supports self-employment without obtaining prior authorization from the Ministry of Justice. Companies domiciled in an EU or an EEA Member State that have set up or will set up subsidiaries or agencies or will provide services in Denmark may, in general, also purchase real property in Denmark without prior authorization. Non-EU/EEA citizens must obtain authorization from the Ministry of Justice to purchase real estate in Denmark, which is generally granted to those with permanent residence in Denmark or who have lived in Demark for a consecutive period of five years.

Other Investment Policy Reviews

The most recent United Nations Conference on Trade and Development (UNCTAD) review of Denmark occurred in March 2013 and is available here:  unctad.org/en/PublicationsLibrary/webdiaeia2013d2_en.pdf . There is no specific mention of Denmark in the latest WTO Trade Policy Review of the European Union, revised in December 2019.

The EU Commission’s European Semester documents for Denmark are available here:  ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester/european-semester-your-country/denmark_en  while a 2017 Foreign Investment Regulation review by DLA Piper can be found here:  www.dlapiper.com/~/media/files/insights/publications/2017/11/denmark.pdf

Denmark ranked first out of 180 in Transparency International’s 2020 Corruption Perceptions Index. It received a ranking of four out of 190 for “Ease of Doing Business” in the World Bank’s 2020 Doing Business Report, placing it first in Europe. In the World Economic Forum’s Global Competitiveness report for 2019, Denmark was ranked 10 out of 141 countries.

The World Intellectual Property Organization’s (WIPO) Global Innovation Index ranked Denmark 6 out of 131 in 2020.

Business Facilitation

The Danish Business Authority (DBA) is responsible for business registrations in Denmark. As a part of the Danish Business Authority, “Business in Denmark,” provides information on relevant Danish rules and online registrations to foreign companies in English. The Danish business registration website, www.virk.dk , is the principal digital tool for licensing and registering companies in Denmark and offers a business registration process that is clear and complete.

Registration of sole proprietorships and partnerships is free of charge. For other types of businesses, online registration costs DKK 670 (approx. USD 103). Registration by email or post costs DKK 2150 (approx. USD 329).

The process for establishing a new business is distinct from that of registration. The Ministry of Foreign Affairs’ “Invest in Denmark” program provides a step-by-step guide to establishing a business at www.investindk.com/-/media/invest-in-denmark/publications/business-conditions/investindk-fact-sheet-step-by-step-web.ashx , along with other relevant resources at . The services are free of charge and available to all investors, regardless of country of origin.www.investindk.com/Downloads. The services are free of charge and available to all investors, regardless of country of origin.

Processing time for establishing a new business varies depending on the chosen business entity. Establishing a Danish Limited Liability Company (ApS), for example, generally takes four to six weeks for a standard application. Establishing a sole proprietorship (Enkeltmandsvirksomhed) is more straightforward, with processing generally taking about one week.

Those providing temporary services in Denmark must provide their company details to the Registry of Foreign Service Providers (RUT). The website ( www.virk.dk ) provides English guidance on registering a service with RUT. A digital employee’s signature, referred to as a NemID, is required for those wishing to register a foreign company in Denmark. A CPR number (a 10-digit personal identification number) and valid ID are needed to obtain a NemID. Danish citizenship is not a requirement.

Denmark defines small enterprises as those with fewer than 50 employees. Annual revenue or the yearly balance sheet total must be lower than DKK 89 million (approx. USD 13.6 million) or DKK 44 million (approx. USD 6.7 million), respectively. Medium-sized enterprises cannot have more than 250 employees. Limits on annual revenue or the yearly balance sheet total are DKK 313 million (approx. USD 47.9 million) or DKK 156 million (approx. USD 23.9 million).

Outward Investment

Danish companies are not restricted from investing abroad, and Danish outward investment has exceeded inward investments for more than a decade.

Transparency of the Regulatory System

Denmark’s judicial system is highly regarded and considered fair. Its legal system is independent of the government’s legislative branch and includes written and consistently applied commercial and bankruptcy laws. Secured interests in property are recognized and enforced. The World Economic Forum’s (WEF) 2019 Global Competitiveness Report ranked Denmark as the world’s tenth most competitive economy and fourth among EU member states, characterizing it as having among the best functioning and most transparent institutions in the world. Denmark ranks high on specific WEF indices related to macroeconomic stability (1st), labor market (3rd), business dynamism (3rd), institutions (7th), ICT adoption (9th), and skills (3rd).

To facilitate business administration, Denmark maintains only two “legislative days” per year—January 1 and July 1—as the only days when new laws and regulations affecting the business sector can come into effect. Danish laws and policies granting national treatment to foreign investments are designed to increase FDI in Denmark. Denmark consistently applies high standards to health, environment, safety, and labor laws. Danish corporate law is generally in conformity with current EU legislation. The legal, regulatory, and accounting systems are relatively transparent and follow international standards.

Bureaucratic procedures are streamlined and transparent; proposed laws and regulations are published in draft form for public comment. Public finances and debt obligations are transparent.

The Ministry of Taxation publishes and updates annually all companies’ corporate tax records. Greenland and the Faroe Islands retain autonomy for their respective tax policies.

The government uses transparent policies and effective laws to foster competition and establish “clear rules of the game,” consistent with international norms and applicable equally to Danish and foreign entities. The Danish Competition and Consumer Authority works to make markets well-functioning so that businesses compete efficiently on all parameters. The Authority is a government agency under the Danish Ministry of Industry, Business, and Financial Affairs. It enforces the Danish Competition Act. This Act, along with Danish consumer legislation, aims to promote efficient resource allocation in society, promote efficient competition, create a level playing field for enterprises, and protect consumers.

Publicly listed companies in Denmark must adhere to the Danish Financial Statements Act when preparing their annual reports. The accounting principles are International Accounting Standards (IAS), International Financial Reporting Standards (IFRS), and Danish Generally Accepted Accounting Principles (GAAP). Financial statements must be prepared annually. The Danish Financial Statements Act covers all businesses.

Private limited companies, public limited companies, and corporate funds are obliged to prepare financial statements under accounting classes determined by company size:

• Small businesses (Class B): Less than an annual average of 50 full-time employees and total assets not exceeding DKK 44 million (USD 6.7 million) or net revenue not exceeding DKK 89 million (USD 13.6 million) during the fiscal year.

• Medium-sized enterprises (Class C medium): Less than an annual average of 250 full-time employees and total assets not exceeding DKK 156 million (USD 23.9 million) or net revenue not exceeding DKK 313 million (USD 47.9 million) during the fiscal year.

• Large companies (Class C large): Companies that are neither small nor medium companies.

According to the Danish Financial Statements Act, personally owned businesses, personally owned general partnerships (multiple owners), and general funds are characterized as Class A; there is no requirement to prepare financial statements unless the owner voluntarily chooses to do so.

All government draft proposed regulations are published at “Høringsportalen” ( www.hoeringsportalen.dk ) and are available for comment from interested parties. Following the comment period, the government may revise draft regulations before publication on the Danish Parliament’s website ( www.ft.dk ). Final regulations are published at www.lovtidende.dk  and www.ft.dk . All ministries and agencies are required to publish proposed regulations. Denmark has a World Bank composite score of 4.75″ for the Global Indicators of Regulatory Governance, on a zero to five scale. Concerning governance, the World Bank suggests the following areas for improvement:

• Affected parties cannot request reconsideration or appeal adopted regulations to the relevant administrative agency.

• There is no existing requirement that regulations be periodically reviewed to see whether they should be revised or eliminated.

International Regulatory Considerations

Denmark adheres to the WTO Agreement on Trade-Related Investment Measures (TRIMs); no inconsistencies have been reported.

Legal System and Judicial Independence

Denmark’s decision-making power is divided into the legislative, executive, and judicial branches. The principles of separation of power and an independent judiciary help ensure democracy and Danish citizens’ legal rights. The district courts, the high courts, and the Supreme Court represent the Danish legal system’s three basic levels. The legal system also comprises other institutions with special functions, e.g., the Maritime and Commercial Court.

For further information, please see:  domstol.dk/om-os/english/the-danish-judicial-system/  

Laws and Regulations on Foreign Direct Investment

The government agency “Invest in Denmark” is part of the Danish Trade Council and is situated within the Ministry of Foreign Affairs. The agency provides detailed information to potential investors. The website for the agency is  investindk.com . The Faroese government promotes Faroese trade and investment through its website  faroeislands.fo/economy-business . For further information concerning Greenland’s investment potential, please see Greenland Holding at  www.venture.gl  or the Greenland Tourism & Business Council at  visitgreenland.com .

As an EU member state, Denmark is bound by EU rules on the free movement of goods, capital, persons, and certain services. Denmark welcomes foreign investment and does not distinguish between EU and other investors. There are no additional permits required of foreign investors, nor any reported biases against foreign companies from municipal or national authorities.

The Danish government has presented legislation to establish a foreign investment screening mechanism, which is expected to enter into force on July 1, 2021. The screening mechanism would be in line with the EU investment screening framework encouraging member states to screen foreign investments in critical infrastructure and other sensitive sectors.

Competition and Anti-Trust Laws

The Danish Competition and Consumer Authority (CCA) reviews transactions for competition-related concerns. According to the Danish Competition Act, the CCA requires notification of mergers and takeovers if the aggregate annual revenue in Denmark of all undertakings involved is more than DKK 900 million (USD 137.7 million) and the aggregate yearly revenue in Denmark of each of at least two of the undertakings concerned is more than DKK 100 million (USD 15.3 million), or if the aggregate annual revenue in Denmark of at least one of the undertakings involved is more than DKK 3.8 billion (USD 581.5 million) and the aggregate yearly worldwide revenue of at least one of the other undertakings concerned is more than DKK 3.8 billion (581.5 million). When a merger results from the acquisition of parts of one or more undertakings, the calculation of the revenue referred to shall only comprise the share of the revenue of the seller or sellers that relates to the assets acquired. Merger control provisions are contained in Part Four of the  Danish Competition Act and in the Executive Order on the Notification of Mergers . Revenue is calculated under the Executive Order on the Calculation of Turnover in the Competition Act .

A full notification of a merger must include the information and documents specified in the full notification form, Annex 1 – Information for Full Notification of Mergers . A simplified notification of a merger must include the information and documents specified in the simplified notification form, Annex 2 – Information for Simplified Notification of Mergers . From August 1, 2013, merger fees are payable for merger notifications submitted to the Competition and Consumer Authority. The fee for a simplified notification amounts to DKK 50,000 (USD 7,650). The fee for a full notification amounts to 0.015 percent of the aggregate annual turnover in Denmark of the undertakings involved; this fee is capped at DKK 1,500,000 (USD 230,000).

Additional information concerning notification of mergers is available in the Guidelines to the Executive Order on Notification of Mergers and on Merger Fees . More general information on Danish merger control can be found in the Merger Guidelines .

A merger or takeover is subject to approval by the CCA. Large-scale mergers also require approval from EU competition authorities.

Expropriation and Compensation

By law, private property can only be expropriated for public purposes, in a non-discriminatory manner, with reasonable compensation, and under established principles of international law. There have been no recent expropriations of significance in Denmark.

Dispute Settlement

ICSID Convention and New York Convention

There have been no significant investment disputes in Denmark in recent years. Denmark has been a member of the World Bank-based International Center for the Settlement of Investment Disputes (ICSID) since 1968. The ICSID Convention has been extended to include the Faroe Islands. Denmark is a party to the 1958 (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning local courts must enforce international arbitration awards that meet specific criteria. Subsequent Danish legislation makes international arbitration of investment disputes binding in Denmark. Denmark declared in 1976 that the New York Convention applies to the Faroe Islands and Greenland. Denmark is a party to the 1961 European Convention on International Commercial Arbitration and to the 1962 Agreement relating to the application of this Convention. Denmark adopted the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration in 1985.

Investor-State Dispute Settlement

N/A

International Commercial Arbitration and Foreign Courts

N/A

Bankruptcy Regulations

Monetary judgments under the bankruptcy law are made in freely convertible Danish Kroner. The bankruptcy law addresses creditors’ claims in the following order: (1) costs and debt accrued during the treatment of the bankruptcy; (2) costs, including the court tax, relating to attempts to find a solution other than bankruptcy; (3) wage claims and holiday pay; (4) excise taxes owed to the government; and (5) all other claims. In the World Bank’s 2020 Doing Business Report, Denmark ranks 6th in “resolving insolvency.”

Capital Markets and Portfolio Investment

Denmark has fully liberalized foreign exchange flows, including those for direct and portfolio investment purposes. Credit is allocated on market terms and is freely available. Denmark adheres to its IMF Article VIII obligations. The Danish banking system is under the regulatory oversight of the Financial Supervisory Authority. Differentiated voting rights – A and B stocks – are used to some extent, and several Danish companies are controlled by foundations, which can restrict potential hostile takeovers, including foreign takeovers.

The Danish stock market functions efficiently. In 2005, the Copenhagen Stock Exchange became part of the integrated Nordic and Baltic marketplace, OMX Exchanges, which is headquartered in Stockholm. Besides Stockholm and Copenhagen, OMX also includes the stock exchanges in Helsinki, Tallinn, Riga, and Vilnius. To increase the access to capital for primarily small companies, the OMX in December 2005 opened a Nordic alternative marketplace – “First North” – in Denmark. In February 2008, the exchanges were acquired by the NASDAQ-OMX Group. In the World Economic Forum 2019 report, Denmark ranks 11th out of 141 on the metric “Financial System”.

The Danish stock market is divided into four different branches/indexes. The C25 index contains the 25 most valuable companies in Denmark. Other large companies with a market value exceeding EUR 1 billion (USD 1.1 billion) are in the group of “Large Cap,” companies with a market value between EU 150 million (USD 171) and 1 billion Euro (USD 1.14 billion) belong to the “Mid Cap” segment, while companies with a market value smaller than EU 150 million belong to “Small Cap” group.

Money and Banking System

The major Danish banks are rated by international agencies, and their creditworthiness is rated as high by international standards. The European Central Bank and the Danish National Bank reported that Denmark’s major banks have passed stress tests by considerable margins.

Denmark’s banking sector is relatively large; based on the ratio of consolidated banking assets to GDP, the sector is three times bigger than the national economy. By January 2021, the total of Danish shares valued DKK 3.82 trillion (USD 584 billion) and were owned 52.5 percent by foreign owners and 47.5 percent by Danish owners, including 13 percent held by households and 7 percent by the government. The three largest Danish banks – Danske Bank, Nordea Bank Danmark, and Jyske Bank – hold approximately 75 percent of the total assets in the Danish banking sector.

The primary goal of the Central Bank (Nationalbanken) is to maintain the peg of the Danish currency to the Euro – with allowed fluctuations of 2.25 percent. It also functions as the general lender to Danish commercial banks and controls the money supply in the economy.

As occurred in many countries, Danish banks experienced significant turbulence in 2008 – 2009. The Danish Parliament subsequently passed a series of measures to establish a “safety net” program, provide government lending to financial institutions in need of capital to uphold their solvency requirements, and ensure the orderly winding down of failed banks. The Parliament passed an additional measure, the fourth Bank Package, in August 2011, which sought to identify systemically important financial institutions, ensure the liquidity of banks which assume control of a troubled bank, support banks acquiring troubled banks by allowing them to write off obligations of the troubled bank to the government, and change the funding mechanism for the sector-funded guarantee fund to a premiums-based, pay-as-you-go system. According to the Danish Government, Bank Package 4 provides mechanisms for a sector solution to troubled banks without senior debt holder losses but does not supersede earlier legislation. As such, senior debt holder losses are still a possibility in the event of a bank failure.

On October 10, 2013, the Danish Minister for Business and Growth concluded a political agreement with broad political support which, based on the most recent financial statements, identified specific financial institutions as “systemically important” (SIFI). The SIFI in Denmark at the end of 2019 were Danske Bank A/S, Nykredit Realkredit A/S, Jyske Bank A/S, Nordea Kredit Realkredit A/S, Sydbank A/S, Spar Nord Bank A/S and DLR Kredit A/S. These were identified based on three quantitative measures: 1) a balance sheet to GDP ratio above 6.5 percent; 2) market share of lending in Denmark above 5 percent; or 3) market share of deposits in Denmark above three percent. If an institution is above the requirement of any one of the three measures, it will be considered systemically important and must adhere to the stricter requirements on capitalization, liquidity, and resolution. The Faroese SIFI are P/F BankNordik, Betri Banki P/F and Norðoya Sparikassi, while Grønlandsbanken is the only SIFI in Greenland.

Experts expect a revision of the Danish system of troubled financial institution resolution mechanisms in connection with a decision to join the EU Banking Union. The national payment system, “Nets” was sold to a consortium consisting of Advent International Corp., Bain Capital LLC, and Danish pension fund ATP in March 2014 for DKK 17 billion (USD 2.60 billion). Nets went public with an IPO late 2016.

Foreign Exchange and Remittances

Foreign Exchange

Exchange rate conversions throughout this document are based on the 2020 average exchange rate where Danish Kroner (DKK) 6.5343703 = 1 USD.

There are no restrictions on converting or transferring funds associated with an investment into or out of Denmark. Policies in place are intended to facilitate the free flow of capital and to support the flow of resources in the product and services markets. Foreign investors can obtain credit in the local market at normal market terms, and a wide range of credit instruments is available.

Denmark has not adopted the Euro currency. The country meets the EU’s economic convergence criteria for membership and can join if it wishes to do so. Denmark conducts a fixed exchange rate policy with the Danish Krone linked closely to the Euro within the ERM II framework. The Danish Krone (DKK; plural: Kroner, in English, “the Crown”) has a fluctuation band of +/- 2.25 percent of the central rate of DKK 746.038 per 100 Euro. The Danish Government supports inclusion in a European Banking Union, if it can be harmonized with the Danish Euro opt-out and there is a guarantee that the Danish mortgage finance system will be allowed to continue in its present form.

The Danish political reservation concerning Euro participation can only be abolished by national referendum, and Danish voters have twice (in 1992 and 2000) voted it down. The government has stated that it supports adopting the Euro in principle, but no referendum is expected for the foreseeable future. Regular polling on this issue shows a majority of public opinion remains in favor of keeping the Krone. According to the Stability and Growth Pact, a Euro country’s debt to GDP ratio cannot exceed 60 percent and budget deficit to GDP ratio cannot exceed three percent.

Denmark’s debt to GDP ratio is projected to have increased from 33.3 percent in 2019 to 43.5 percent in 2020 (final statistics for 2020 were pending when this report was published). Denmark is also projected to have run a 3.5 percent budget deficit in 2020, after running a 3.8 percent budget surplus in 2019 and a 0.7 percent surplus in 2018.

Remittance Policies

N/A

Sovereign Wealth Funds

Denmark maintains no sovereign wealth funds.

Denmark is party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO). State owned entities (SOEs) hold dominant positions in rail, energy, utilities, and broadcast media in Denmark. Large-scale public procurement must go through public tender in accordance with EU legislation. Competition from SOEs is not considered a barrier to foreign investment in Denmark. As an OECD member, Denmark promotes and upholds the OECD Corporate Governance Principals and subsidiary SOE Guidelines.

Privatization Program

Denmark has no current plans to privatize its SOEs.

Policies Towards Foreign Direct Investment

Djibouti’s laws encourage FDI, with state-run media providing favorable coverage of projects funded by foreign entities. The government sees FDI as a driving force behind Djibouti’s economic growth. Faced with a high unemployment rate of over 47%, FDI is expected to generate jobs.

There are no laws, practices, or mechanisms that discriminate against foreign investors. Navigating the bureaucracy, however, can be complicated. Certain sectors, most notably public utilities, are state-owned and are not open to investors. The state-owned enterprise (SOE) Djibouti Electricity (EDD) had a monopoly on electricity production for decades, however in July 2015, the Djiboutian government approved a bill liberalizing the production of electricity. The energy sector is now open to competition through Power Purchase Agreements, however EDD retains all rights to the transmission and distribution of electricity. The liberalization of production has resulted in the private development of wind, solar, and waste to energy resources.

Djibouti’s National Investment Promotion Agency (NIPA), created in 2001 under the Ministry of Finance, promotes private-sector investment, facilitates investment operations, and works to modernize the country’s regulatory framework. NIPA assists foreign and domestic investors by disseminating information and streamlining administrative procedures. In March 2017, NIPA’s one-stop-shop was officially inaugurated. The NIPA is the main coordinator of the one-stop-shop which houses several agencies. NIPA has identified several priority sectors for investment, including infrastructure and renewable energy.

A new Minister of Investment position was created in 2016 to further attract and reach out to potential investors. The Minister reports directly to the presidency.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have equal rights in establishing and owning business enterprises and engaging in all forms of remunerative activity. Furthermore, foreign investors are not required by law to have a local partner except in the insurance industry, and there, only if the company is registered as a local company and not a branch of an existing foreign company. There is no established screening process for FDI; it is encouraged and given favorable tax status. Specific terms are negotiated on a case-by-case basis. Many companies therefore have a unique status created by agreement with varying preferences and advantages. Some foreign companies choose to have a local partner to help them better navigate the local bureaucracy and cultural sensitivities.

Other Investment Policy Reviews

The OECD, WTO, and the UNCTAD have not conducted an investment policy review (IPR) for Djibouti in the last three years. Post is not aware of any other multilateral organization having an IPR for Djibouti in the last three years.

Business Facilitation

The government of Djibouti has facilitated the registration of business by reducing the capital needed for investment, simplifying the formalities needed to register with the Intellectual Property office, and simplifying certain tax procedures. The most important result is the finalization of a one-stop shop, called Guichet Unique, managed by NIPA. The Guichet Unique ( http://www.guichet-unique.dj ) brings together all the agencies with which a company must register.

Typically, a company registers with the following Djiboutian offices: Office of Intellectual Property, Tax office, and the Social Security office. Online registration is not possible; the normal registration process takes 14 days, according to the World Bank. In Djibouti, new businesses must have every document notarized to begin operations.

Outward Investment

The government neither promotes nor restricts outward investment.

Transparency of the Regulatory System

Government policies are sometimes not transparent, and do not foster competition on a non-discriminatory basis. Likewise, the legal, regulatory, and accounting systems are not always transparent nor are they consistent with international norms. Rule-making and regulatory authority exists at the state level.

The Djiboutian accounting system is loosely based on the French accounting system as it existed at independence (1977) and has been updated since that time. Legal and regulatory procedures are complex and unevenly enforced. Draft bills are initiated in a process of public consultation in which stakeholders participate. Regulatory actions including laws and decrees are available online at the following site: https://www.presidence.dj/recherchetexte.php .

The State General Inspection (SGI) is tasked with ensuring human and material resources in the public sector are properly utilized. It also acts as the enforcement mechanism.

The regulatory regime is written in a way that promotes open competition, at least in the sectors that are open to private investment. Implementation of the law is sometimes not transparent, and public functions such as licensing and issuing permits are not always done in a systematic fashion. Application of the rules is not always consistent. The laws are proposed by the ministry, and then debated and passed by the parliament. The promulgation by the president is the last stage. Public finances and the terms of debt obligations are opaque. Ministries and regulatory agencies do not develop forward regulatory plans – that is, a public list of anticipated regulatory changes or proposals intended to be adopted/implemented within a specified time frame

International Regulatory Considerations

Djibouti is a member of the Intergovernmental Authority on Development (IGAD) and the Common Market for Eastern and Southern Africa (COMESA). The regulatory systems in these countries are not yet harmonized. European norms and standards, especially French, are referenced in Djibouti. Djibouti is a member of the WTO.

Legal System and Judicial Independence

Djibouti’s legal system is based on Civil law, inherited from the French Napoleonic Code. It consists of three courts: a Court of First Instance presided over by a single judge; a Court of Appeals, with three judges; and the Supreme Court. In addition, Islamic law (shariah) and traditional law is practiced. Djibouti has a written commercial code and specialized courts, including commercial, criminal, administrative, and civilian courts.

The court system is de jure independent from executive power. However, this is not always the case in practice so most investors in the market request the right to counsel, including agreements for arbitration, in a recognized international court. International lawyers practicing in Djibouti have reported effective application of maritime and other commercial laws, but in the past, foreign companies operating in Djibouti have reported that court deliberations were biased or delayed.

Laws and Regulations on Foreign Direct Investment

The country’s legal system has no discriminatory policy against foreign investment, and frequently negotiates extended tax breaks and other incentives to attract larger investments. The NIPA website has useful information and acts as a guide for investors:  www.djiboutinvest.com. The agency oversees the “guichet unique”, which acts as the one stop shop for investing in Djibouti: www.guichet-unique.dj .

The Djibouti Office of Industrial and Commercial Protection (ODPIC) is the agency in charge of registering businesses. Its website contains information about the registration process:  https://odpic.net/ .

Competition and Antitrust Laws

In 2008, Djibouti adopted a law on competition and consumer protection, which does not cover state-owned enterprises. Under this law, the Government of Djibouti regulates prices in areas where competition remains limited. For example, the government regulates postal services, telecommunications, utilities, and urban transport services. Djibouti does not have an agency that specifically promotes competition and does not have a comprehensive strategy to restrict market monopolies

Expropriation and Compensation

Foreign companies enjoy the same benefits as domestic companies under Djibouti’s Investment Code. The Investment Code stipulates that “no partial or total, temporary or permanent expropriation will take place without equitable compensation for the damages suffered.” There are no known recent cases of U.S. companies in Djibouti being subject to expropriation. There have been cases of foreign companies facing de facto expropriation via fines, while other companies have had their concession to run a public service unilaterally revoked. The government may expropriate land when it is needed for public utility. In that case, the government will compensate the landowner by providing land at a different location or by cash settlement.

Dispute Settlement

ICSID Convention and New York Convention

Djibouti recently became a member state of ICSID. On April 12, 2019, Djibouti signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention, also known as the Washington Convention). Djibouti made its deposit of ratification on June 9, 2020 for an entry into force on July 9, 2020.

Djibouti is a contracting member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

Djibouti’s government has had only a few investment disputes in the past several years, none with U.S. businesses. In some cases, the disputes have been settled in international arbitration courts and the government has abided by those decisions. In other cases, there has been de facto expropriation through large fines. As in any country, a strong, enforceable contract is important.

The government passed a law in November 2017 permitting the government to unilaterally alter or terminate contracts. Using this law, in February 2018, Djibouti’s president issued a decree abrogating the government’s contract with the Emirati company, DP World, concerning the Doraleh Container Terminal, later nationalizing the equipment, physical assets, and land. DP World continued to hold 33.33% of shares until July 2018, when the government terminated the shareholders’ agreement with DP World and later nationalized all shares. Throughout, DP World has continued to claim that the 30-year 2006 Doraleh Container Terminal concession agreement remains in force.

In January 2020, the London Court of International Arbitration decided Djibouti should restore DP World’s rights to operate Doraleh Container Terminal for 25 years, in line with the original deal. It was the court’s fifth ruling in favor of DP World since Djibouti nationalized the port. In response, Djibouti’s president released an official communiqué rejecting the court ruling, stating “As the Republic of Djibouti has consistently indicated since the termination of the concession, the only possible outcome is allocation of fair compensation in accordance with international law.”

International Commercial Arbitration and Foreign Courts

There is no domestic arbitration body within the country. In February 2014, the IGAD countries agreed to set up an international Business Arbitration Center in Djibouti. This institution provides a mechanism for resolving business disputes and helps create a more transparent business environment in the region by reinforcing the principles of contract law and increasing the number of lawyers practicing commercial and contract law in Djibouti. Djibouti’s rule of law is weak as it relates to business disputes involving non-Djiboutian. Investment dispute cases are not made public.

Bankruptcy Regulations

Djibouti has bankruptcy laws, and bankruptcy is not criminalized. Insolvency laws are a bright spot in Djibouti’s investment climate, as the country ranked 44 out of 190 by the World Bank in 2020 in this area.

Capital Markets and Portfolio Investment

In recent years, Djibouti has relied heavily on foreign investment, and the government is open and receptive to foreign investors. Portfolio investment in Djibouti is primarily done through private equity. Some multinational companies with investments in Djibouti are publicly traded. Investments in Djibouti are inherently illiquid for that reason, and the purchase or sale of any sizeable investment in Djibouti affects the market accordingly. Djibouti does not have its own stock market. Existing policies facilitate the free flow of financial resources into the product and factor markets.

Credit is allocated on market terms, and foreign companies do not face discrimination in obtaining it. Generally, however, only well-established businesses obtain bank credit, as the cost of credit is high. Credit is available to the private sector, whether foreign or domestic. Where credit is not available, it is primarily due to the associated risk and not structural factors.

Money and Banking System

Three large banks, Bank of Africa, Bank for Commerce and Industry – Mer Rouge, and CAC bank dominate Djibouti’s banking sector. While these 3 banks account for the majority share of deposits in-country, there are 13 total banks, all established in the last 14 years. In 2011 a new banking law went into effect, fixing the minimum capital requirement for financial institutions at DJF 1 billion (USD 5,651,250) and extended the scope of the law to include financial auxiliaries, such as money transfer agencies and Islamic financial institutions. In addition to the three names banks above, foreign banks include Silkroad Bank, Bank of China the Burkina Faso-based International Business Bank.

The banking sector suffers from a lack of consistent supervision, but it has been improving. Non-performing loans decreased from 16.26% in 2019 to 13.31% in 2020. The total assets of all the banks were estimated to be USD 3.1 billion in 2020, of which 80% were held by the 4 largest banks. The country has a Central Bank, which is in charge of delivering licenses to banks and supervising them. Foreign banks or branches are allowed to establish operations in the country. They are subject to the same regulations as local banks. Djibouti has not announced that it intends to implement or allow the implementation of blockchain technologies in its banking transactions. Some banks have begun to provide mobile and e-banking services. In June 2020, Djibouti Telecom launched D-Money, a new Digital Mobile Money service which allows users to make digital money transfers and payments directly from mobile phones.

Foreign Exchange and Remittances

Foreign Exchange

Djibouti has no foreign exchange restrictions. Businesses are free to repatriate profits. There are no limitations on converting or transferring funds, or on the inflow and outflow of cash. The Djiboutian franc, which has been pegged to the U.S. dollar since 1949, is stable. The fixed exchange rate is 177.71 Djiboutian francs to the U.S. dollar. Funds can be transferred by using banks or international money transfer companies such as Western Union, all monitored by the Central Bank.

Remittance Policies

There are no recent changes or plans to change investment remittance policies. There are no time limitations on remittances. The government does not issue bonds on the open market, and cash-like instruments are not in common use in Djibouti, so direct currency transfers are the only practical method of remitting profits.

Sovereign Wealth Funds

In mid-2020 the Djiboutian government announced the creation of a Sovereign Wealth Fund. According to a government statement, the state-owned fund will target investments locally and in neighboring countries in the Horn of Africa. It will focus on industries including telecommunications, technology, energy, and logistics. The fund will act as a long-term investor and is required to reinvest the entire net profits of its activity. The government aims to fund it to $1.5 billion within ten years. Article 12 of Law N° 75/AN/20/8th L creating the Sovereign Fund of Djibouti states the fund adopts and implements best practice in terms of transparency and performance reporting in accordance with the Santiago Principles. As of mid-2021, the fund was not yet operational.

• Law No. 75/AN/20/8th L establishing the Sovereign Fund of Djibouti – https://www.presidence.dj/texte.php?ID=75&ID2=2020-03-29&ID3=Loi&ID4=6&ID5=2020-03-31&ID6=n
• Decree No. 2020-127/PRE approving the statutes and determining certain initial resources of the Sovereign Fund of Djibouti – https://www.presidence.dj/texte.php?ID=2020-127&ID2=2020-06-30&ID3=D%E9cret&ID4=12&ID5=2020-06-30&ID6=n
• Decree No. 2020-111/PRE appointing the members of the Board of Directors and the Director General of the Sovereign Fund of Djibouti – https://www.presidence.dj/texte.php?ID=2020-111&ID2=2020-06-24&ID3=D%E9cret&ID4=12&ID5=2020-06-30&ID6=n

Wholly owned SOEs control telecommunications, water, and electricity distribution in Djibouti. Major print, television, and radio outlets are also state-run. Additionally, Djibouti’s ports, airport, and free zones are managed by an SOE. There is a state-owned national airline that is wholly managed by the ports and free zones authority. SOEs are required by law to publish an annual report. The Court of Auditors is charged with auditing SOEs, but they have not yet released assets, income, employment, or other details about the SOEs. There is no publicly available list of SOEs.

State-run services, such as municipal garbage collection and real estate, do not hold legal monopolies, but are afforded material advantages by the government, e.g., government-backed loan guarantees for the real estate sector. Djibouti is not party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).

In order to exercise ownership in SOEs, the government uses several laws and decrees, most of which were promulgated in the 1990s. The established practices are not consistent with OECD guidelines. No centralized ownership entity exists. SOE senior management reports directly to the relevant line ministry. There is also an independent board of directors whose members are chosen from other ministries

Privatization Program

A few SOEs have been privatized, such as a milk factory several years ago and a water bottling plant in 2015. No particular sector is targeted. The bidding process is not clear and transparent, which makes the participation of foreign investors difficult.

Policies Towards Foreign Direct Investment

The Government of Dominica strongly encourages foreign direct investment, particularly in industries that create jobs, earn foreign currency, and have a positive impact on local citizens.

Through the Invest Dominica Authority (IDA), the government instituted a number of investment incentives for businesses considering locating in Dominica.  Government policies provide liberal tax holidays, duty-free import of equipment and materials, exemption from value added tax on some capital investments, and withholding tax exemptions on dividends, interest payments, and some external payments and income.  The IDA additionally provides support to approved citizenship by investment (CBI) projects.

In late December 2020, the IDA announced plans to launch a new Investment Promotion Strategy in 2021.  The new strategy will focus on four broad areas: agriculture and agri-business, renewable energy, tourism and knowledge services such as business processing operations.  Other sectors include film, music, and video production, manufacturing, bulk water export and bottled water operations, medical and nursing schools, and English language training services.  The government continuously reviews these sectors and has signaled that it is also willing to consider additional sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign control in Dominica.  Foreign investment in Dominica is not subject to any restrictions, and foreign investors are entitled to receive the same treatment as nationals of Dominica.  Foreign investors are entitled to hold up to 100 percent of their investment.  The only restriction is the requirement to obtain an Alien Landholders License for foreign investors seeking to purchase property for residential or commercial purposes.  Local enterprises generally welcome joint ventures with foreign investors in order to access technology, expertise, markets, and capital.

Other Investment Policy Reviews

The OECS, of which Dominica is a member, has not conducted a World Trade Organization (WTO) trade policy review since 2014.

Business Facilitation

The IDA is Dominica’s main business facilitation unit.  It facilitates foreign direct investment into priority sectors and advises the government on the formation and implementation of policies and programs to attract investment in Dominica.  The IDA provides business support services and market intelligence to all investors.  It offers an online tool useful for navigating laws, rules, procedures, and registration requirements for foreign investors.  Its website is http://investdominica.com.

All potential investors applying for government incentives must submit their proposals for review by the IDA to ensure the project is consistent with the national interest and provides economic benefits to the country.

The Companies and Intellectual Property Office (CIPO) maintains an e-filing portal for most of its services, including company registration on its website.  However, this only allows for the preliminary processing of applications prior to the investor physically making a payment at the Supreme Court office.  Investors are advised to seek the advice of a local attorney prior to starting the process.  Further information is available at http://www.cipo.gov.dm.

The World Bank’s Doing Business Report for 2020 ranks Dominica 71st out of 190 countries in the ease of starting a business.  It takes five procedures and about 12 days to complete the process.  The general practice is to retain an attorney who prepares all the relevant incorporation documents.  A business must register with CIPO, the Tax Authority, and the Social Services Institute.

Outward Investment

There is no restriction on domestic investors seeking to do business abroad.  Local companies in Dominica 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), which enhance the competitiveness of the local and regional private sectors across traditional and emerging high-potential markets.

Transparency of the Regulatory System

The Government of Dominica provides a legal framework to foster competition and establish clear rules for foreign and domestic investors in the areas of tax, labor, environment, health, and safety.  The Ministry of Finance and the IDA provide oversight of the transparency of the system as it relates to investment.

Rule-making and regulatory authority lies within the unicameral parliament.  The parliament has 21 members elected for a five-year term in single-seat constituencies, nine appointed members, one Speaker, and one clerk.

Relevant ministries develop laws which are drafted by the Ministry of National Security and Home Affairs.  FDI is governed principally through the laws that oversee the IDA and CBI.  Laws are available online at http://www.dominica.gov.dm/laws-of-dominica.

Although some draft bills are not subject to public consultation, the government generally solicits input from various stakeholder groups in the formulation of laws.  In some instances, the government convenes a special committee to make recommendations on provisions outlined in the law.  The government uses public awareness campaigns to sensitize the general population on legislative reforms.  Copies of proposed regulations are published in the official gazette just before the bills are taken to parliament.  Although Dominica does not have legislation guaranteeing access to information or freedom of expression, access to information is generally available in practice.  The government maintains a website and an information service on which it posts information such as directories of officials and a summary of laws and press releases.

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 in Dominica.

The Office of the Parliamentary Commissioner or Ombudsman guards against excesses by government officers in the performance of their duties.  The Ombudsman is responsible for investigating any complaint relating to any decision or act of any government officer or body in any case in which a member of the public claims to be aggrieved or appears to the Ombudsman to be the victim of injustice as a result of the exercise of the administrative function of that officer or body.

Dominica’s membership in regional organizations, particularly the OECS and its Economic Union, commits it to implement all appropriate measures to ensure the fulfillment of its various treaty obligations.  For example, the Banking Act, which establishes a single banking space and the harmonization of banking regulations in the Economic Union, is uniformly in force in the eight member territories of the ECCU, although there are some minor differences in implementation from country to country.

The enforcement mechanisms of these regulations include penalties or legal sanctions.  The IDA can revoke an issued Investment Certificate if the holder fails to comply with certain stipulations detailed in the Act and its regulations.

International Regulatory Considerations

As a member of the OECS and the ECCU, Dominica subscribes to a set of 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, Dominica is obligated to implement regionally developed regulations, such as legislation passed under OECS authority, unless specific concessions are sought.

The Dominica Bureau of Standards develops, maintains, and promotes standards for improving industrial development, industrial efficiency, promoting the health and safety of consumers, protecting the environment, and facilitating trade.  It also conducts national training and consultations in international standards practices.  As a signatory to the World Trade Organization (WTO) Agreement on the Technical Barriers to Trade, Dominica, through the Dominica Bureau of Standards, is obligated to harmonize all national standards to international norms to avoid creating technical barriers to trade.

Dominica ratified the WTO Trade Facilitation Agreement (TFA) in 2016.  Ratification of the Agreement is an important signal to investors of the country’s commitment to improving its business environment for trade.  The TFA aims to improve the speed and efficiency of border procedures, facilitate trade costs reduction, and enhance participation in the global value chain.  Dominica has already implemented a number of TFA requirements.  A full list is available at https://tfadatabase.org/members/dominica/measure-breakdown.

As a member of CARICOM, Dominica utilizes the Advanced Cargo Information System which is a computer-based system developed by the United Nations Conference on Trade and Development (UNCTAD) to harmonize and standardize electronic cargo information to improve the capability to track cargo efficiently and to support regional and international trade. The Advance Cargo Information System forms a critical part of the World Customs Organization SAFE Framework of Standards. Dominica has also fully implemented the Automated System for Customs Data (ASYCUDA).

Legal System and Judicial Independence

Dominica bases its legal system on British common law.  The Attorney General, the Chief Justice of the Eastern Caribbean Supreme Court, junior judges, and magistrates administer justice in the country.  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 makes determinations on the interpretation of the Constitution.  Parties may appeal to the Eastern Caribbean Supreme Court, an itinerant court that hears appeals from all OECS members.

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.  In 2015, Dominica acceded to the CCJ, making the CCJ its final court of appeal.

The United States and Dominica 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

The main laws concerning investment in Dominica are the Invest Dominica Authority Act (2007), the Tourism Act (2005), and the Fiscal Incentives Act.  Regulatory amendments have been made to the Income Tax Act, the Value Added Tax Act, the Title by Registration Act, the Alien Landholding Regulation Act, and the Residential Levy Act. The IDA provides a full list of the relevant legislation on their website.

The IDA reviews all proposals for investment concessions and incentives to ensure the project is consistent with the national interest and provides economic benefits to the country.  The Cabinet makes the final decision on investment proposals.

Under Dominica’s CBI program, qualified foreign investors may obtain citizenship without voting rights.  Applicants can contribute a minimum of $100,000 to the Economic Diversification Fund for a single person or invest in designated real estate with a value of at least $200,000.  Applicants must also provide a full medical certificate, undergo a background check, and provide evidence of the source of funds before proceeding to the final stage of an interview.  The government introduced a Citizen by Investment Certificate in order to minimize the risk of unlawful duplication.  Further information is available at http://cbiu.gov.dm.

Competition and Anti-Trust 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 to apply rules of competition regarding anti-competitive cross-border business conduct.  CARICOM competition policy addresses anti-competitive 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 CARICOM, and actions by which an enterprise abuses its dominant position within CARICOM.  Dominica does not have domestic legislation to regulate competition.

Expropriation and Compensation

There are no known pending expropriation cases involving American citizens.  In such an event, Dominica would employ a system of eminent domain to pay compensation when property must be acquired in the public interest.  There were no reported tendencies of the government to discriminate against U.S. investments, companies, or landholdings.  There are no laws mandating local ownership in specified sectors.

Dispute Settlement

ICSID Convention and New York Convention

Dominica is not a party to the Convention on the Settlement of Investment Disputes.  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.  The Arbitration Act of 1988 is the main legislation that governs arbitration in Dominica.  It adheres to the New York Arbitration Convention.

Investor-State Dispute Settlement

Investors are permitted to use national or international arbitration for contracts entered into with the state.  Dominica does not have a Bilateral Investment Treaty or a Free Trade Agreement with an investment chapter within the United States.

The country ranks 95^th out of 190 countries in resolving contract disputes in the 2020 World Bank Doing Business Report, twelve spots lower than the previous year.  Dispute resolution in Dominica takes an average of 741 days.  The slow court system and bureaucracy are widely seen as the main hindrances to timely resolution of commercial disputes.  Through the Arbitration Act of 1988, the local courts recognize and enforce foreign arbitral awards issued against the government.  Dominica does not have a recent history of investment disputes involving a U.S. person or other foreign investors.

International Commercial Arbitration and Foreign Courts

The Eastern Caribbean Supreme Court is the domestic arbitration body.  Local courts recognize and enforce foreign arbitral awards.  The Eastern Caribbean Supreme Court’s Court of Appeal also provides mediation.

Bankruptcy Regulations

Under the Bankruptcy Act (1990), Dominica has a bankruptcy framework that grants certain rights to debtor and creditor.  The 2020 Doing Business Report ranks Dominica 136th out of 190 countries in resolving insolvency.

Capital Markets and Portfolio Investment

Dominica is a member of the ECCU.  As such, it is a member of the Eastern Caribbean Securities 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 the buying and selling of financial products for the eight member territories.  In 2020, the ECSE listed 155 securities, comprising 135 sovereign debt instruments, 13 equities, and seven corporate debt securities.  Market capitalization stood at $1.8 billion. Dominica is open to portfolio investment.

Dominica has accepted the obligations of Article VIII of the International Monetary Fund (IMF) Agreement, Sections 2, 3, and 4 and maintains an exchange system free of restrictions on making payments and transfers for current international transactions.  Dominica does not normally grant foreign tax credits except in the case of taxes paid in a British Commonwealth country that grants similar relief for Dominica 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 securities, and trade credits and other accounts receivable that establish a claim for repayment.

Money and Banking System

The eight participating governments of the ECCU have passed the Eastern Caribbean Central Bank Agreement Act.  The Act provides for the establishment of the ECCB, its management and administration, its currency, relations with financial institutions, relations with the participating governments, foreign exchange operations, external reserves, and other related matters. Dominica is a signatory to this agreement and the ECCB controls Dominica’s currency and regulates its domestic banks.

The Banking Act is a harmonized piece of legislation across the ECCU.  The Minister of Finance usually acts in consultation with, and on the recommendation of, the ECCB with respect to those areas of responsibility within the Minister of Finance’s portfolio.

Domestic and foreign banks can establish operations in Dominica.  The Banking Act requires all commercial banks and other institutions to be licensed in order to conduct any banking business.  The ECCB regulates financial institutions.  As part of ongoing 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 in Dominica as stable.  Assets of commercial banks totaled $781.8 million (2.1 billion Eastern Caribbean dollars) at the end of 2019. Dominica is well served by bank and non-financial institutions.  There are minimal alternative financial services.

The Caribbean region has witnessed a withdrawal of correspondent banking services by the U.S. and European banks.  CARICOM remains committed to engaging with key stakeholders on the issue and appointed a Committee of Ministers of Finance on Correspondent Banking to monitor the issue.

In 2019, the ECCB launched an 18-month financial technology pilot to launch a Digital Eastern Caribbean dollar (DXCD) with its partner, Barbados-based Bitt Inc.  An accompanying mobile application, DCash was officially launched on March 31, 2021 in four pilot countries.  The DCash pilot phase will run for 12 months.  The pilot program is expected to become operational in Dominica later in the year.  The digital Eastern Caribbean currency will operate alongside physical Eastern Caribbean currency.  Dominica does not have any specific legislation to regulate cryptocurrencies.

Foreign Exchange and Remittances

Foreign Exchange

Dominica is a member of the ECCU and the ECCB.  The currency of exchange is the Eastern Caribbean dollar (denoted as XCD).  As a member of the OECS, Dominica has a fully liberalized foreign exchange system.  The XCD has been pegged to the United States dollar at a rate of 2.7 to $1.00 since 1976.  As a result, the XCD does not fluctuate, creating a stable currency environment for trade and investment in Dominica.

Remittance Policies

Companies registered in Dominica have the right to repatriate all capital, royalties, dividends, and profits free of all taxes or any other charges on foreign exchange transactions.  There are no restrictions on the repatriation of dividends for totally foreign-owned firms.  However, a mixed foreign-domestic company may repatriate profits to the extent of its foreign participation.

As a member of the OECS, there are no exchange controls in Dominica and the invoicing of foreign trade transactions are allowed in any currency.  Importers are not required to make prior deposits in local funds and export proceedings do not have to be surrendered to government authorities or to authorized banks.  There are no controls on transfers of funds.  Dominica is a member of the Caribbean Financial Action Task Force (CFATF).

Sovereign Wealth Funds

Neither the Government of Dominica, nor the ECCB, of which Dominica is a member, maintains a sovereign wealth fund.

State-owned enterprises (SOEs) in Dominica work in partnership with ministries, or under their remit to carry out certain specific ministerial responsibilities.  There are currently 20 SOEs in Dominica operating in areas such as tourism, investment services, broadcasting and media, solid waste management, and agriculture.  There is no published list of these SOEs.  They are all wholly owned government entities.  Each is headed by a board of directors to which senior management reports.  The SOE sector is affected by financial sustainability challenges, with resources insufficient to cover capital replacement.

Privatization Program

Dominica does not currently have a targeted privatization program.

Policies Towards Foreign Direct Investment

The Dominican Republic presents both opportunities and challenges for foreign investment. The government strongly promotes inward FDI and has prioritized creating a sound enabling environment for foreign investors. While the government has established formal programs to attract FDI, a lack of clear rules and uneven enforcement of existing rules can lead to difficulties.

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

There are two main government agencies responsible for attracting foreign investment, the Export and Investment Center of the Dominican Republic (CEI-RD) and the National Council of Free Trade Zones for Export (CNZFE). CEI-RD promotes foreign investment and aids prospective foreign investors with business registration, matching services, and identification of investment opportunities. It publishes an annual “Investment Guide of the Dominican Republic,” highlighting many of the tools, incentives, and opportunities available for prospective investors. The CEI-RD also oversees “ProDominicana,” a branding and marketing program for the country launched in 2017 that promotes the DR as an investment destination and exporter. CNZFE aids foreign companies looking to establish operations in the country’s 75 free trade zones for export outside Dominican territory.

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