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Chile

Executive Summary

With the sixth largest GDP per capita in the Western Hemisphere, Chile has historically enjoyed levels of stability and prosperity among the highest in the region. Widespread civil unrest broke out in 2019, however, in response to perceived systemic economic inequality. Pursuant to a political accord, Chile held a plebiscite in October 2020 in which citizens chose to redraft the constitution. Uncertainty about the outcome may impact investment. Chile’s solid macroeconomic policy framework the country boasts one of the strongest sovereign bond ratings in Latin America has provided the fiscal space to respond to the economic effects of the COVID-19 pandemic through economic relief and stimulus packages and other measures. After a 5.8 percent contraction in 2020, the Chilean Central Bank forecasts Chile’s economic growth in 2021 will be in the range of 6.0 to 7.0 percent.

Chile has successfully attracted Foreign Direct Investment (FDI) despite its relatively small domestic market. The country’s market-oriented policies have created significant opportunities for foreign investors to participate in the country’s economic growth. Chile has a sound legal framework and general respect for private property rights. Sectors that attract significant FDI include mining, finance/insurance, energy, telecommunications, chemical manufacturing, and wholesale trade. Mineral, hydrocarbon, and fossil fuel deposits within Chilean territory are restricted from foreign ownership, but companies may enter into contracts with the government to extract these resources. Corruption exists in Chile but on a much smaller scale than in most Latin American countries, ranking 25 – along with the United States – out of 170 countries worldwide and second in Latin America in Transparency International’s 2020 Corruption Perceptions Index.

Although Chile is an attractive destination for foreign investment, challenges remain. Legislative and constitutional reforms proposed in response to the social unrest and the pandemic have generated concern about the potential impact on investments in the mining, energy, healthcare, insurance, and pension sectors. Importantly, the legislation enabling the constitutional reform process requires that the new constitution must respect Chile’s character as a democratic republic, its judicial sentences, and its international treaties (including the U.S.-Chile Free Trade Agreement). Despite a general respect for intellectual property (IP) rights, Chile has not fully complied with its IP obligations set forth in the U.S.-Chile FTA. Environmental permitting processes, indigenous consultation requirements, and cumbersome court proceedings have made large project approvals increasingly time consuming and unpredictable, especially in cases with political sensitivities. The current administration prioritizes attracting foreign investment and implemented measures to streamline the process.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 25 of 170 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 59 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 54 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country (USD billion, historical stock positions) 2019 25.1 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita (USD) 2019 15,010 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

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.

3. Legal Regime

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.

4. Industrial Policies

Investment Incentives

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

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

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

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

5. Protection of Property Rights

Real Property

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

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

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

Intellectual Property Rights

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

Two important IP-related laws that made progress in 2019 in the Chilean Congress and are still pending passage. A draft bill submitted to Congress in October 2018 would reform Chile’s Industrial Property Law. The new IP bill aims to reduce timeframes, modernize procedures, and increase legal certainty for patents and trademarks registration. On April 9, 2019, the bill was passed by the Lower Chamber and sent to the Senate. Meanwhile, a reform bill on Chile’s pharmaceutical drugs law called “Ley de Fármacos II”, originated in the Senate but was extensively amended by the opposition-controlled Lower Chamber, and is under review by a mixed committee of both houses of the Chilean Congress. The pharmaceutical industry contends that the bill, in its current version, could put Chile in non-compliance with its international trade obligations. Industry’s main IP concerns about the bill are related to: a labeling requirement by which a medication must include its International Nonproprietary Name (INN) in a size that occupies at least one-third of one of the main faces of its package, while limiting the size of the trademark to one-fifth of the main faces; a requirement that physicians prescribe a pharmaceutical product exclusively by INN, unless it contains three or more “active ingredients,” regardless of interchangeability and/or bioequivalence; a requirement that drugs may only be distributed if they are double registered under both generic and brand names; a provision allowing the government to issue compulsory licenses permitting the sale of generics based on “economic inaccessibility or lack of supply”; and a pathway toward a system of “price regulation” that will “prevent economic or financial inaccessibility of pharmaceutical products.” A mixed committee of senators and deputies is seeking to reconcile changes to the draft legislation introduced by the Chamber of Deputies. While the pharmaceutical industry reports that the reconciliation process addressed many of their concerns regarding the new regulations, especially those related to compulsory licenses, it identified the lack of coverage being offered in price regulations as the most significant outstanding issue.

The Intellectual Property Brigade (BRIDEPI) of the Chilean Investigative Police (PDI) reported that it seized 39,021 counterfeit products in 2020, worth a total of US$ 850,000, and arrested seven individuals on charges related to intellectual property rights (IPR) infringement. Additionally, the National Customs Service reported that, between January and September 2020 (latest data available), it seized more than 5.2 million counterfeit products worth a total of US$ 49 million.

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

Chile has been included on the U.S. Trade Representative’s (USTR) Special 301 Priority Watch List since January 8, 2007, and remains on the 2021 Priority Watch List. In October 2018, Chile’s Congress successfully passed a law that criminalizes satellite piracy. However, other challenges remain, related to longstanding IPR issues under the U.S.-Chile FTA: the implementation of measures against circumvention of technological protection; pending implementation of UPOV 91; the implementation of an effective patent linkage in connection with applications to market pharmaceutical products; adequate protection for undisclosed data generated to obtain marketing approval for pharmaceutical products; and amendments to Chile’s Internet Service Provider liability regime to permit effective action against Internet piracy.

Chile is not listed in the USTR’s Review of Notorious Markets for Counterfeiting and Piracy. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at: http://www.wipo.int/directory/en/.

6. Financial Sector

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.

7. State-Owned Enterprises

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.

8. Responsible Business Conduct

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

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

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

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

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

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

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

Chile is an OECD member, but is not participating actively in the implementation of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. Chile is not part of the Extractive Industries Transparency Initiative (EITI). Chile joined The Montreux Document on Private Military and Security Companies in 2009.

Additional Resources 

Department of State

Department of Labor

9. Corruption

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

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

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

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

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

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

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

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

Resources to Report Corruption

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

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

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

Pía Mundaca
Executive Director
Espacio Publico
Santa Lucía 188, piso 7, Santiago, Chile
T: (+56) (9) 6258 3871
contacto@espaciopublico.cl

Observatorio Anticorrupción (Run by Espacio Publico and Ciudadania Inteligente)
https://observatorioanticorrupcion.cl/ 

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

10. Political and Security Environment

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

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

Since 2007, Chile has experienced a number of small-scale attacks with explosive and incendiary devices, targeting mostly banks, police stations, and public spaces throughout Santiago, including ATM’s, metro stations, universities, and churches. Anarchist groups often claim responsibility for these acts, as well as violent incidents during student and labor protests. In January 2017, an eco-terrorist group claimed responsibility for a parcel bomb that detonated at the home of the chairman of the board of Chilean state-owned mining giant. The same group detonated a bomb of similar characteristics in 2019 at a bus stop in downtown Santiago, causing five injuries, and sent a letter bomb to the office of the president of the Metro system, which was defused by police. One suspect was arrested in 2019 and the investigation of the crimes is ongoing. Another group sent a package bombs to a police station in the Santiago metro area, wounding 8 police officers, and to a former Interior Minister, which was defused by police. Two suspects were arrested in 2020, and the investigation remains ongoing at the time of this report.

On occasion, illegal activity by striking workers resulted in damage to corporate property or a disruption of operations. Some firms have publicly expressed concern that during a contentious strike, law enforcement has appeared to be reluctant to protect private property.

Chilean civil society is active and demonstrations occur frequently. Although the vast majority of demonstrations are peaceful, protestors have veered off pre-approved routes. In a few instances, criminal elements have taken advantage of civil society protests to loot stores along the protest route and have clashed with the police. Demonstrations to mark March 29, the Day of the Young Combatant, and September 11, the anniversary of the 1973 coup against the government of President Salvador Allende, have resulted in damage to property.

11. Labor Policies and Practices

Unemployment in Chile averaged 10.7 percent of the labor force during 2020, while the labor participation rate was 56.1 percent of the working age population. Data on the labor participation of migrants is still pending. Chilean workers are adequately skilled and some sectors such as mining, agriculture, and fishing employ highly skilled workers. In general, there is an adequate availability of technicians and professionals. Estimates made by the National Institute of Statistics (INE) suggest informal employment in Chile constitutes 25.6 percent of the workforce.

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

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

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

Information on the current number of active unions and collective bargaining agreements is not available. During 2019 (latest data available), the Labor Directorate data showed that 11,926 unions were active. In the same period, 433,381 workers (around 5 percent of Chilean workers) were covered by collective bargaining agreements. Collective bargaining coverage rates are higher in the financial, mining, and manufacturing sectors. Unions can form nationwide labor associations and can affiliate with international labor federations. Contracts are normally negotiated at the company level. Workers in public institutions do not have collective bargaining rights, but national public workers’ associations undertake annual negotiations with the government.

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

Labor Directorate data shows that 845 legal strikes occurred in 2019, involving 124,250 workers during the same period. As legal strikes in Chile have a restricted scope and duration, in general they do not present a risk for foreign investment.

Chile has and generally enforces laws and regulations in accordance with internationally recognized labor rights of: freedom of association and collective bargaining, the elimination of forced labor, child labor, including the minimum age for work, discrimination with respect to employment and occupation, and acceptable conditions of work related to minimum wage, occupational safety and health, and hours of work. The maximum number of labor hours allowed per week in Chile is 45. In September 2020, Chile raised its monthly minimum wage to CLP 326,500 – USD 444 – for all occupations, including household domestic staff, more than twice the official poverty line. Workers older than 64 or younger than 19 years old or younger are eligible for a special minimum wage of CLP 243,561 (USD 331) a month. There are no gaps in compliance with international labor standards that may pose a reputational risk to investors.

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

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

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International
Source of Data: BEA; IMF;
Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $282.318 2018 $298.258 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international
Source of data: BEA; IMF;
Eurostat; UNCTAD, Other
U.S. FDI in partner country (USD billion, stock positions) 2019 $35.46 2019 25.08 BEA data available at
https://apps.bea.gov/
international/factsheet/ 
Host country’s FDI in the United States (USD billion, stock positions) 2019 $13.19 2019 2.9 BEA data available at
https://www.bea.gov/international/
direct-investment-and-
multinational-enterprises-
comprehensive-data 
Total inbound stock of FDI as % host GDP 2019 91.0% 2019 56.6% UNCTAD data available at
https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html 

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

According to the IMF’s Coordinated Direct Investment Survey (CDIS), total stock of FDI in Chile in 2019 amounted to USD 254.3 billion, compared to USD 251.9 billion in 2018. Spain, the United States and Canada are the main sources of FDI to Chile with USD 34.5 billion, USD 34.4 billion and USD 34.2 billion, respectively, concentrating 40.6 percent of the total.

Chile’s outward direct investment stock in 2019 remains concentrated in South America, where Brazil, Peru, Argentina and Colombia together represented 33.4 percent of total Chilean outward FDI. The United States accounted for 9.2 percent of the total.

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

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 254,252 100% Total Outward 130,234 100%
Spain 34,541 13.6% Brazil 21,458 16.5%
Canada 34,426 13.5% Peru 12,909 9.9%
United States 34,213 13.5% United States 11,944 9.2%
The Netherlands 20,494 8.1% Argentina 9,226 7.1%
United Kingdom 18,773 7.4% Colombia 9,071 7.0%
“0” reflects amounts rounded to +/- USD 500,000.

According to the IMF’s Coordinated Portfolio Investment Survey (CPIS), total stock of portfolio investment in Chile as of June 2020 amounted to USD 192.1 billion, of which USD 149.9 billion were equity and investment funds shares, and the rest were debt securities. The United States and Luxembourg (a tax haven) were the main sources of portfolio investment to Chile with US $69.3 billion and $54.3 billion, representing 36.1 percent and 28.3 percent of the total, respectively. Both countries also represent 68 percent of the total of equity investment. Ireland, the United Kingdom and Germany are the following top sources of equity portfolio investment to Chile, while the United States, Mexico and Japan are the top sources of debt securities investment.

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 192,070 100% All Countries 149,887 100% All Countries 42,183 100%
United States 69,304 36.1% Luxembourg 54,115 36.1% United States 21,263 50.4%
Luxembourg 54,327 28.3% United States 48,041 32.1% Mexico 4,018 9.5%
Ireland 17,048 8.9% Ireland 16,995 11.3% Japan 3,068 7.3%
United Kingdom 7,171 3.7% United Kingdom 5,756 3.8% Germany 2,406 5.7%
Germany 5,587 2.9% Germany 3,181 2.1% United Kingdom 1,415 3.4%

14. Contact for More Information

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

Germany

Executive Summary

As Europe’s largest economy, Germany is a major destination for foreign direct investment (FDI) and has accumulated a vast stock of FDI over time.  Germany is consistently ranked as one of the most attractive investment destinations based on its stable legal environment, reliable infrastructure, highly skilled workforce, positive social climate, and world-class research and development.

Foreign investment in Germany mainly originates from other European countries, the United States, and Japan, although FDI from emerging economies (and China) has grown over 2015-2018 from low levels. The United States is the leading source of non-European FDI in Germany.

The German government continues to strengthen provisions for national security screening of inward investment in reaction to an increasing number of high-risk acquisitions of German companies by foreign investors in recent years, particularly from China.  In 2018, the government lowered the threshold for the screening of investments, allowing authorities to screen acquisitions by foreign entities of at least 10 percent of voting rights of German companies that operate or provide services related to critical infrastructure. The amendment also added media companies to the list of sensitive businesses.

Further amendments enacted in 2020 to implement the 2019 EU FDI Screening Regulation, which Germany strongly supported, include to:

a) facilitate a more pro-active screening based on “prospective impairment” of public order or security by an acquisition, rather than a de facto threat, b) take into account the impact on other EU member states, and c) formally suspend transactions during the screening process.

Furthermore, acquisitions by foreign government-owned or -funded entities will now trigger a review, and the healthcare industry will be considered a sensitive sector to which the stricter 10% threshold applies. A further amendment, in force since May 2021, introduced a list of sensitive sectors and technologies (similar to the current list of critical infrastructure) including artificial intelligence, autonomous vehicles, specialized robots, semiconductors, additive manufacturing and quantum technology, among others. Foreign investors who seek to acquire at least 10% of voting rights of a German company in one of those fields would be required to notify the government and potentially become subject to an investment review.

German legal, regulatory, and accounting systems can be complex but are generally transparent and consistent with developed-market norms.  Businesses operate within a well-regulated, albeit relatively high-cost, environment. Foreign and domestic investors are treated equally when it comes to investment incentives or the establishment and protection of real and intellectual property.  Foreign investors can rely on the German legal system to enforce laws and contracts; at the same time, this system requires investors to closely track their legal obligations. New investors should ensure they have the necessary legal expertise, either in-house or outside counsel, to meet all national and EU regulations.

German authorities are committed to fighting money laundering and corruption.  The government promotes responsible business conduct and German SMEs are aware of the need for due diligence.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 9 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 22 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 9 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 148,259 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 USD 48,580 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The German government and industry actively encourage foreign investment. U.S. investment continues to account for a significant share of Germany’s FDI. The 1956 U.S.-Federal Republic of Germany Treaty of Friendship, Commerce and Navigation affords U.S. investors national treatment and provides for the free movement of capital between the United States and Germany. As an OECD member, Germany adheres to the OECD National Treatment Instrument and the OECD Codes of Liberalization of Capital Movements and of Invisible Operations.  The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for the Federal Ministry for Economic Affairs and Energy to review acquisitions of domestic companies by foreign buyers, to assess whether these transactions pose a risk to the public order or national security (for example, when the investment pertains to critical infrastructure).  For many decades, Germany has experienced significant inbound investment, which is widely recognized as a considerable contributor to Germany’s growth and prosperity. The investment-related challenges facing foreign companies are broadly the same as face domestic firms, e.g relatively high tax rates, stringent environmental regulations, and labor laws that complicate hiring and dismissals. Germany Trade and Invest (GTAI), the country’s economic development agency, provides extensive information for investors: https://www.gtai.de/gtai-en/invest

Limits on Foreign Control and Right to Private Ownership and Establishment

Under German law, a foreign-owned company registered in the Federal Republic of Germany as a GmbH (limited liability company) or an AG (joint stock company) is treated the same as a German-owned company. There are no special nationality requirements for directors or shareholders.

Companies which seek to open a branch office in Germany without establishing a new legal entity, (e.g., for the provision of employee placement services, such as providing temporary office support, domestic help, or executive search services), must register and have at least one representative located in Germany.

Germany maintains an elaborate mechanism to screen foreign investments based on national security grounds. The legislative basis for the mechanism (the Foreign Trade and Payments Act and Foreign Trade and Payments Ordinance) has been amended several times in recent years in an effort to tighten parameters of the screening as technological threats evolve, particularly to address growing interest by foreign investors in both Mittelstand (mid-sized) and blue chip German companies. Amendments to implement the 2019 EU Screening Regulation are already in force or have been drafted as of March 2021. One major change in the amendments allows for authorities to make “prospective impairment” of public order and security the new trigger for an investment review, in place of the former standard (which requires a de facto threat).

Other Investment Policy Reviews

The World Bank Group’s “Doing Business 2020” Index provides additional information on Germany’s investment climate. The American Chamber of Commerce in Germany also publishes results of an annual survey of U.S. investors in Germany (“AmCham Germany Transatlantic Business Barometer”, https://www.amcham.de/publications).

Business Facilitation

Before engaging in commercial activities, companies and business operators must register in public directories, the two most significant of which are the commercial register (Handelsregister) and the trade office register (Gewerberegister).

Applications for registration at the commercial register, which is available under  www.handelsregister.de , are electronically filed in publicly certified form through a notary.  The commercial register provides information about all relevant relationships between merchants and commercial companies, including names of partners and managing directors, capital stock, liability limitations, and insolvency proceedings.  Registration costs vary depending on the size of the company. According to the World Bank’s Doing Business Report 2020, the median duration to register a business in Germany is 8 days.

Germany Trade and Invest (GTAI), the country’s economic development agency, can assist in the registration processes ( https://www.gtai.de/gtai-en/invest/investment-guide/establishing-a-company/business-registration-65532 ) and advises investors, including micro-, small-, and medium-sized enterprises (MSMEs), on how to obtain incentives.

In the EU, MSMEs are defined as follows:

  • Micro-enterprises:  less than 10 employees and less than €2 million annual turnover or less than €2 million in balance sheet total.
  • Small enterprises:  less than 50 employees and less than €10 million annual turnover or less than €10 million in balance sheet total.
  • Medium-sized enterprises:  less than 250 employees and less than €50 million annual turnover or less than €43 million in balance sheet total.

U.S.-based traders, who seek to sell in Germany, e.g., via commercial platforms, are required to register with one specific tax authority in Bonn, which can lead to significant delays due to capacity issues.

Outward Investment

Germany’s federal government provides guarantees for investments by Germany-based companies in developing and emerging economies and countries in transition in order to insure them against political risks. In order to receive guarantees, the investment must have adequate legal protection in the host country. The Federal Government does not insure against commercial risks. In 2020, the government issued investment guarantees amounting to €900 million for investment projects in 13 countries, with the majority of those in China and India.

3. Legal Regime

Transparency of the Regulatory System

Germany has transparent and effective laws and policies to promote competition, including antitrust laws. The legal, regulatory, and accounting systems are complex but transparent and consistent with international norms.

Public consultation by federal authorities is regulated by the Joint Rules of Procedure, which specify that ministries must consult early and extensively with a range of stakeholders on all new legislative proposals. In practice, laws and regulations in Germany are routinely published in draft for public comment. According to the Joint Rules of Procedure, ministries should consult the concerned industries’ associations , consumer organizations, environmental, and other NGOs. The consultation period generally takes two to eight weeks.

The German Institute for Standardization (DIN), Germany’s independent and sole national standards body representing Germany in non-governmental international standards organizations, is open to German subsidiaries of foreign companies.

International Regulatory Considerations

As a member of the European Union, Germany must observe and implement directives and regulations adopted by the EU. EU regulations are binding and enter into force as immediately applicable law. Directives, on the other hand, constitute a type of framework law that is to be transposed by the Member States in their respective legislative processes, which is regularly observed in Germany.

EU Member States must transpose directives within a specified period of time. Should a deadline not be met, the Member State may suffer the initiation of an infringement procedure, which could result in steep fines. Germany has a set of rules that prescribe how to break down any payment of fines devolving to the Federal Government and the federal states (Länder). Both bear part of the costs. Payment requirements by the individual states depend on the size of their population and the respective part they played in non-compliance.

The federal states have a say over European affairs through the Bundesrat (upper chamber of parliament). The Federal Government must inform the Bundesrat at an early stage of any new EU policies that are relevant for the federal states.

The Federal Government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT) through the Federal Ministry of Economic Affairs and Energy.

Legal System and Judicial Independence

German law is both stable and predictable.  Companies can effectively enforce property and contractual rights.  Germany’s well-established enforcement laws and official enforcement services ensure that investors can assert their rights.  German courts are fully available to foreign investors in an investment dispute.

The judicial system is independent, and the government does not interfere in the court system.  The legislature sets the systemic and structural parameters, while lawyers and civil law notaries use the law to shape and organize specific situations.  Judges are highly competent and impartial. International studies and empirical data have attested that Germany offers an effective court system committed to due process and the rule of law.

In Germany, most important legal issues and matters are governed by comprehensive legislation in the form of statutes, codes and regulations.  Primary legislation in the area of business law includes: the Civil Code (Bürgerliches Gesetzbuch, abbreviated as BGB), which contains general rules on the formation, performance and enforcement of contracts and on the basic types of contractual agreements for legal transactions between private entities;

  • the Civil Code (Bürgerliches Gesetzbuch, abbreviated as BGB), which contains general rules on the formation, performance and enforcement of contracts and on the basic types of contractual agreements for legal transactions between private entities;
  • the Commercial Code (Handelsgesetzbuch, abbreviated as HGB), which contains special rules concerning transactions among businesses and commercial partnerships;
  • the Private Limited Companies Act (GmbH-Gesetz) and the Public Limited Companies Act (Aktiengesetz), covering the two most common corporate structures in Germany – the ‘GmbH’ and the ‘Aktiengesellschaft’; and
  • the Act on Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, abbreviated as UWG), which prohibits misleading advertising and unfair business practices.

Apart from the regular courts, which hear civil and criminal cases, Germany has specialized courts for administrative law, labor law, social law, and finance and tax law.  Many civil regional courts have specialized chambers for commercial matters. In 2018, the first German regional courts for civil matters (in Frankfurt and Hamburg) established Chambers for International Commercial Disputes introducing the possibility to hear international trade disputes in English.  Other federal states are currently discussing plans to introduce these specialized chambers as well. In November 2020, Baden-Wuerttemberg opened the first commercial court in Germany with locations in Stuttgart and Mannheim, with the option to choose English language proceedings.

The Federal Patent Court hears cases on patents, trademarks, and utility rights which are related to decisions by the German Patent and Trademarks Office.  Both the German Patent Office (Deutsches Patentamt) and the European Patent Office are headquartered in Munich.

Laws and Regulations on Foreign Direct Investment

The Federal Ministry for Economic Affairs and Energy may review acquisitions of domestic companies by foreign buyers in cases where investors seek to acquire at least 25 percent of the voting rights to assess whether these transactions pose a risk to the public order or national security of the Federal Republic of Germany. In the case of acquisitions of critical infrastructure and companies in sensitive sectors, the threshold for triggering an investment review by the government is 10 percent. The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for screening investments. In 2019, the Federal Ministry for Economic Affairs and Energy screened a total of 106 foreign acquisitions. In at least one case it prohibited an acquisition – the planned takeover of German wireless communications technology developer IMST GmbH by Chinese state-owned defense company CASIC in December 2020. However, even without a formal decision, the mere prospect of rejection has reportedly caused foreign investors to pull out of prospective deals in the past. All national security decisions by the ministry can be appealed in administrative courts.

There is no general requirement for investors to obtain approval for any acquisition unless the target company poses a potential national security risk, such as operating or providing services relating to critical infrastructure, , is a media company, or operates in the health sector. The threshold for initiating such an investment review is an acquisition of at least 10 percent of voting rights. The Federal Ministry for Economic Affairs and Energy may launch a review within three months after obtaining knowledge of the acquisition; the review must be concluded within four months after receipt of the full set of relevant documents. An investor may also request a binding certificate of non-objection from the Federal Ministry for Economic Affairs and Energy in advance of the planned acquisition to obtain legal certainty at an early stage. If the Federal Ministry for Economic Affairs and Energy does not open an in-depth review within two months from the receipt of the request, this certificate shall be deemed as granted.

Special rules additionally apply for the acquisition of companies that operate in sensitive security areas, including defense and IT security. In contrast to the cross-sectoral rules described above, all sensitive acquisitions must be notified in written form including basic information of the planned acquisition, the buyer, the domestic company that is subject of the acquisition and the respective fields of business. The Federal Ministry for Economic Affairs and Energy may open a formal review procedure if a foreign investor seeks to acquire at least 10 percent of voting rights of a German company in a sensitive security area within three months after receiving notification, or the acquisition shall be deemed as approved. If a review procedure is opened, the buyer is required to submit further documents. The acquisition may be restricted or prohibited within three months after the full set of documents has been submitted.

The German government has continuously amended domestic investment screening provisions in recent years to transpose the relevant EU framework and address evolving security risks. An amendment in June 2017 clarified the scope for review and gave the government more time to conduct reviews, in reaction to an increasing number of acquisitions of German companies by foreign investors with apparent ties to national governments. The amended provisions provide a clearer definition of sectors in which foreign investment can pose a threat to public order and security, including operators of critical infrastructure, developers of software to run critical infrastructure, telecommunications operators or companies involved in telecom surveillance, cloud computing network operators and service providers, and telematics companies, and which are subject to notification requirements. The new rules also extended the time to assess a cross-sector foreign investment from two to four months, and for investments in sensitive sectors, from one to three months, and introduced the possibility of retroactively initiating assessments for a period of five years after the conclusion of an acquisition. Indirect acquisitions such as those through a Germany- or EU-based affiliate company are now also explicitly subject to the new rules.

With further amendments in 2020, Germany implemented the 2019 EU Screening Regulation.

The amendments a) introduced a more pro-active screening based on “prospective impairment” of public order or security by an acquisition, rather than a de facto threat, b) take into account the impact on other EU member states, and c) formally suspend transactions during the screening process.

a) introduced a more pro-active screening based on “prospective impairment” of public order or security by an acquisition, rather than a de facto threat, b) take into account the impact on other EU member states, and c) formally suspend transactions during the screening process.

Furthermore, acquisitions by foreign government-owned or -funded entities now trigger a review, and the healthcare industry is now considered a sensitive sector to which the stricter 10% threshold applies. In May 2021, a further amendment entered into force which introduced a list of sensitive sectors and technologies (similar to the current list of critical infrastructures), including artificial intelligence, autonomous vehicles, specialized robots, semiconductors, additive manufacturing and quantum technology. Foreign investors who seek to acquire at least 10% of ownership rights of a German company in one those fields would be required to notify the government and potentially become subject to an investment review. The screening can now also take into account “stockpiling acquisitions” by the same investor, “atypical control investments” where an investor seeks additional influence in company operations via side contractual agreements, or combined acquisitions by multiple investors, if all are controlled by one foreign government.

The Ministry for Economic Affairs and Energy provides comprehensive information on Germany’s investment screening regime on its website in English: https://www.bmwi.de/Redaktion/EN/Artikel/Foreign-Trade/investment-screening.html 

https://www.bmwi.de/Redaktion/EN/Artikel/Foreign-Trade/investment-screening.html 

The German Economic Development Agency (GTAI) provides extensive information for investors, including about the legal framework, labor-related issues and incentive programs, on their website: http://www.gtai.de/GTAI/Navigation/EN/Invest/investment-guide.html .

4. Industrial Policies

Investment Incentives

Federal and state investment incentives – including investment grants, labor-related and R&D incentives, public loans, and public guarantees – are available to domestic and foreign investors alike. Different incentives can be combined. In general, foreign and German investors must meet the same criteria for eligibility.

Germany Trade & Invest (GTAI), Germany’s federal economic development agency, provides comprehensive information on incentives in English at: https://www.gtai.de/gtai-en/invest/investment-guide/incentive-programs .

Foreign Trade Zones/Free Ports/Trade Facilitation

There are currently two free ports in Germany operating under EU law: Bremerhaven and Cuxhaven. The duty-free zones within the ports also permit value-added processing and manufacturing for EU-external markets, albeit with certain requirements. All are open to both domestic and foreign entities. In recent years, falling tariffs and the progressive enlargement of the EU have eroded much of the utility and attractiveness of duty-free zones.

Performance and Data Localization Requirements

In general, there are no requirements for local sourcing, export percentage, or local or national ownership. In some cases, however, there may be performance requirements tied to an incentive, such as creation of jobs or maintaining a certain level of employment for a prescribed length of time.

U.S. companies can generally obtain the visas and work permits required to do business in Germany. U.S. citizens may apply for work and residential permits from within Germany. Germany Trade & Invest offers detailed information online at https://www.gtai.de/gtai-en/invest/investment-guide/coming-to-germany .

There are no general localization requirements for data storage in Germany. However, the invalidation of the Privacy Shield by the European Court of Justice in July 2020 has led to increased calls for data storage in Germany, e.g., with regard to U.S. cloud service providers used by digital health app developers. In recent years, German and European cloud providers have also sought to market the domestic location of their servers as a competitive advantage.

5. Protection of Property Rights

Real Property

The German Government adheres to a policy of national treatment, which considers property owned by foreigners as fully protected under German law. In Germany, mortgage approvals are based on recognized and reliable collateral. Secured interests in property, both chattel and real, are recognized and enforced. According to the World Bank’s Doing Business Report, it takes an average of 52 days to register property in Germany.

The German Land Register Act dates back to 1897. The land register mirrors private real property rights and provides information on the legal relationship of the estate. It documents the owner, rights of third persons, as well as liabilities and restrictions. Any change in property of real estate must be registered in the land registry to make the contract effective. Land titles are now maintained in an electronic database and can be consulted by persons with a legitimate interest.

Intellectual Property Rights

Germany has a robust regime to protect intellectual property rights (IPR). Legal structures are strong and enforcement is good. Nonetheless, internet piracy and counterfeit goods remain issues, and specific infringing websites are occasionally included in USTR’s Notorious Markets Reviews. Germany has been a member of the World Intellectual Property Organization (WIPO) since 1970. The German Central Customs Authority annually publishes statistics on customs seizures of counterfeit and pirated goods. The statistics for 2019 can be found under: https://www.zoll.de/SharedDocs/Broschueren/DE/Die-Zollverwaltung/jahresstatistik_2019.html.

Germany is party to the major international IPR agreements: the Berne Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention, the Patent Cooperation Treaty (PCT), the Brussels Satellite Convention, the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, and the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Many of the latest developments in German IPR law are derived from European legislation with the objective to make applications less burdensome and allow for European IPR protection. Germany is currently drafting legislation to implement EU Directive 2019/790 on Copyright and Related Rights in the Digital Single Market, including an ancillary copyright law for publishers.

The following types of protection are available:

Copyrights: National treatment is granted to foreign copyright holders, including remuneration for private recordings. Under the TRIPS Agreement, Germany grants legal protection for U.S. performing artists against the commercial distribution of unauthorized live recordings in Germany. Germany is party to the World Intellectual Property Organization (WIPO) Copyright Treaty and WIPO Performances and Phonograms Treaty, which came into force in 2010. Most rights holder organizations regard German authorities’ enforcement of IP rights as effective. In 2008, Germany implemented the EU Directive (2004/48/EC) on IPR enforcement with a national bill, thereby strengthening the privileges of rights holders and allowing for improved enforcement action. Germany is currently drafting legislation to implement EU Directive 2019/790 on Copyright and Related Rights in the Digital Single Market.

Trademarks: National treatment is granted to foreigners seeking to register trademarks at the German Patent and Trade Mark Office. Protection is valid for a period of ten years and can be extended in ten-year periods. It is possible to register for trademark and design protection nationally in Germany or for an EU Trade Mark and/or Registered Community Design at the EU Intellectual Property Office (EUIPO). These provide protection for industrial design or trademarks in the entire EU market. Both national trademarks and European Union Trade Marks (EUTMs) can be applied for from the U.S. Patent and Trademark Office (USPTO) as part of an international trademark registration system, or the applicant may apply directly for those trademarks from EUIPO at https://euipo.europa.eu/ohimportal/en/home .

Patents: National treatment is granted to foreigners seeking to register patents at the German Patent and Trade Mark Office. Patents are granted for technical inventions that are new, involve an inventive step, and are industrially applicable. However, applicants having neither a domicile nor an establishment in Germany must appoint a patent attorney in Germany as a representative filing the patent application. The documents must be submitted in German or with a translation into German. The duration of a patent is 20 years from the patent application filing date. Patent applicants can request accelerated examination under the Global Patent Prosecution Highway (GPPH) when filing the application, provided that the patent application was previously filed at the USPTO and that at least one claim had been determined to be patentable. There are a number of differences between U.S. and German patent law, including the filing systems (“first-inventor-to-file” versus “first-to-file”, respectively), that a qualified patent attorney can explain to U.S. patent applicants. German law also offers the possibility to register designs and utility models.

If a U.S. applicant seeks to file a patent in multiple European countries, this may be accomplished through the European Patent Office (EPO) which grants European patents for the contracting states to the European Patent Convention (EPC). The 38 contracting states include the entire EU membership and several additional European countries; Germany joined the EPC in 1977. It should be noted that some EPC members require a translation of the granted European patent in their language for validation purposes. The EPO provides a convenient single point to file a patent in as many of these countries as an applicant would like: https://www.epo.org/applying/basics.html . U.S. applicants seeking patent rights in multiple countries can alternatively file an international Patent Coordination Treaty (PCT) application with the USPTO.

Trade Secrets: Trade secrets are protected in Germany by the Law for the Protection of Trade Secrets, which has been in force since April 2019 and implements the 2016 EU Directive (2016/943). According to the law, the illegal accessing, appropriation, and copying of trade secrets, including through social engineering, is prohibited. Explicitly exempt from the law is “reverse engineering” of a publicly available item, and appropriation, usage, or publication of a trade secret to protect a “legitimate interest”, including journalistic research and whistleblowing. The law requires that companies have to implement “adequate confidentiality measures” for information to be protected as a trade secret under the law. Owners of trade secrets are entitled to omission, compensation, and information about the culprit, as well as the destruction, return and recall, and ultimately the removal of the infringing products from the market.

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

Country resources:

For additional information about how to protect IPR in Germany, please see Germany Trade & Invest website at https://www.gtai.de/gtai-en/invest/investment-guide/the-legal-framework/patents-licensing-trade-marks-65372 .

Statistics on the seizure of counterfeit goods are available through the German Customs Authority (Zoll): https://www.zoll.de/SharedDocs/Broschueren/DE/Die-Zollverwaltung/statistik_gew_rechtsschutz_2019.html;jsessionid=F8B0524DFF4F1ADF99DEBB858E4CAD31.internet412?nn=305648

https://www.zoll.de/SharedDocs/Broschueren/DE/Die-Zollverwaltung/statistik_gew_rechtsschutz_2019.html;jsessionid=F8B0524DFF4F1ADF99DEBB858E4CAD31.internet412?nn=305648

Investors can identify IPR lawyers in AmCham Germany’s Online Services Directory: https://www.amcham.de/services/overview/member-services/address-services-directory/  (under “legal references” select “intellectual property.”)

Businesses can also join the Anti-counterfeiting Association (APM) http://www.markenpiraterie-apm.de/index.php?article_id=1&clang=1 

http://www.markenpiraterie-apm.de/index.php?article_id=1&clang=1 

6. Financial Sector

Capital Markets and Portfolio Investment

As an EU member state with a well-developed financial sector, Germany welcomes foreign portfolio investment and has an effective regulatory system. Germany has a very open economy, routinely ranking among the top countries in the world for exports and inward and outward foreign direct investment. As a member of the Eurozone, Germany does not have sole national authority over international payments, which are a shared task of the European Central Bank and the national central banks of the 19 member states, including the German Central Bank (Bundesbank). A European framework for national security screening of foreign investments, which entered into force in April 2019, provides a basis under European law to restrict capital movements into Germany on the basis of threats to national security. Global investors see Germany as a safe place to invest, as the real economy – up until the COVID-19 crisis– continued to outperform other EU countries.German sovereign bonds continue to retain their “safe haven” status.

Listed companies and market participants in Germany must comply with the Securities Trading Act, which bans insider trading and market manipulation. Compliance is monitored by the Federal Financial Supervisory Authority (BaFin) while oversight of stock exchanges is the responsibility of the state governments in Germany (with BaFin taking on any international responsibility). Investment fund management in Germany is regulated by the Capital Investment Code (KAGB), which entered into force on July 22, 2013. The KAGB represents the implementation of additional financial market regulatory reforms, committed to in the aftermath of the global financial crisis. The law went beyond the minimum requirements of the relevant EU directives and represents a comprehensive overhaul of all existing investment-related regulations in Germany with the aim of creating a system of rules to protect investors while also maintaining systemic financial stability.

Money and Banking System

Although corporate financing via capital markets is on the rise, Germany’s financial system remains mostly bank-based. Bank loans are still the predominant form of funding for firms, particularly the small- and medium-sized enterprises that comprise Germany’s “Mittelstand,” or mid-sized industrial market leaders. Credit is available at market-determined rates to both domestic and foreign investors, and a variety of credit instruments are available. Legal, regulatory and accounting systems are generally transparent and consistent with international banking norms. Germany has a universal banking system regulated by federal authorities, and there have been no reports of a shortage of credit in the German economy. After 2010, Germany banned some forms of speculative trading, most importantly “naked short selling.” In 2013, Germany passed a law requiring banks to separate riskier activities such as proprietary trading into a legally separate, fully capitalized unit that has no guarantee or access to financing from the deposit-taking part of the bank. Since the creation of the European single supervisory mechanism (SSM) in November 2014, the European Central Bank directly supervises 21 banks located in Germany (as of January 2021) among them four subsidiaries of foreign banks.

Germany supports a global financial transaction tax and is pursuing the introduction of such a tax along with other EU member states.

Germany has a modern and open banking sector that is characterized by a highly diversified and decentralized, small-scale structure. As a result, it is extremely competitive, profit margins notably in the retail sector are low and the banking sector considered “over-banked” and in need of consolidation. The country’s “three-pillar” banking system consists of private commercial banks, cooperative banks, and public banks (savings banks/Sparkassen and the regional state-owned banks/Landesbanken). This structure has remained unchanged despite marked consolidation within each “pillar” since the financial crisis in 2008/9. The number of state banks (Landesbanken) dropped from 12 to 5, that of savings banks from 446 in 2007 to 374 at the end of 2019 and the number of cooperative banks has dropped from 1,234 to 814. Two of the five large private sector banks have exited the market (Dresdner, Postbank). The balance sheet total of German banks dropped from 304 percent of GDP in 2007 to about 265 percent of end-2019 GDP with banking sector assets worth €9.1 trillion. Market shares in corporate finance of the banking groups remained largely unchanged (all figures for end of 2019): Credit institutions 27 percent (domestic 17 percent, foreign banks 10 percent), savings banks 31 percent, state banks 10 percent, credit cooperative banks 21 percent, promotional banks 6 percent.

The private bank sector is dominated by globally active banks Deutsche Bank (Germany’s largest bank by balance sheet total) and Commerzbank (fourth largest bank), with balance sheets of €1.3 trillion and €466.6 billion respectively (2019 figures). Commerzbank received €18 billion in financial assistance from the federal government in 2009, for which the government took a 25 percent stake in the bank (now reduced to 15.6 percent). Merger talks between Deutsche Bank and Commerzbank failed in 2019. The second largest of the top ten German banks is DZ Bank, the central institution of the Cooperative Finance Group (after its merger with WGZ Bank in July 2016), followed by German branches of large international banks (UniCredit Bank or HVB, ING-Diba), development banks (KfW Group, NRW.Bank), and state banks (LBBW, Bayern LB, Helaba, NordLB).

German banks’ profitability deteriorated in the years prior to the COVID-19 crisis due to the prevailing low and negative interest rate environment that narrowed margins on new loans irrespective of debtors’ credit worthiness, poor trading results and new competitors from the fintech sector, and low cost efficiency. In 2018, according to the latest data by the Deutsche Bundesbank (Germany’s central bank), German credit institutions reported a pre-tax profit of €18.9 billion or 0.23 percent of total assets. Their net interest income remained below its long-term average to €87.2 billion despite dynamic credit growth (19 percent since end-2014 until end-2019 in retail and 23 percent in corporate loans) on ongoing cost-reduction efforts. Thanks to continued favorable domestic economic conditions, their risk provisioning has been at an all time low. Their average return on equity before tax in 2018 slipped to 3.74 percent (after tax: 2.4 percent) (with savings banks generating a higher return, big banks a lower return, and Landesbanken a –2.45 percent return). Both return on equity and return on assets were at their lowest level since 2010.

Brexit promptedsome banking activities to relocate from the United Kingdom to the EU, with many foreign banks (notably U.S. and Japanese banks) choosing Frankfurt as their new EU headquarters. Their Core Tier 1 equity capital ratios improved as did their liquidity ratios, but no German large bank has been able to organically raise its capital for the past decade.

In 2020, the insolvency of financial services provider WireCard revealed certain weaknesses in German banking supervision. WireCard, which many viewed as a promising innovative format for the processing of credit card transactions, managed to conceal inadequate equity from supervisory authorities while also inflating its actual turnover. The Wirecard insolvency led to the replacement of the head of banking supervisory authority BaFin and triggered both an ongoing overhaul of the German banking supervision and a continuing parliamentary investigation.

It remains unclear how the COVID-19 crisis will affect the German banking sector. Prior to the pandemic, the bleaker German economic outlook prompted a greater need for value adjustment and write-downs in lending business. German banks’ ratio of non-performing loans was low going into the crisis (1.24 percent). In March 2020, the German government provided large-scale asset guarantees to banks (in certain instances covering 100 percent of the credit risk) via the German government owned KfW bank to avoid a credit crunch. So far, German banks have come through the crisis unscathed thanks to extensive liquidity assistance from the ECB, moratoria and fiscal support for the economy. Nevertheless, 25 German banks were downgraded in 2020 and many more were put on negative watch, though CDS spreads for the two largest private banks have fallen dramatically since the height of the crisis in March 2020 and are currently around pre-COVID levels. The second and third COVID-waves, however, are likely to take a toll on credit institutions and 2021 could prove to be the toughest test for banks since the 2008/9 global financial crisis. According to the Bundesbank, loan defaults by German banks could quadruple to 0.8 percent of the loan portfolio (or €13 billion). The Bundesbank’s focus in particular is on aircraft loans. According to Bloomberg’s calculations, the major German regional banks have lent €15 billion for aircraft financing. At Deka alone, the asset manager of the savings banks, the ratio of non-performing loans in aircraft financing is at a relatively high 7.7 percent.

Foreign Exchange and Remittances

Foreign Exchange

As a member of the Eurozone, Germany uses the euro as its currency, along with 18 other EU countries. 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.

The Deutsche Bundesbank is the independent central bank of the Federal Republic of Germany. It has been a part of the Eurosystem since 1999, sharing responsibility with the other national central banks and the European Central Bank (ECB) for the single currency, and thus has no scope to manipulate the bloc’s exchange rate. Germany’s persistently high current account surplus – the world’s second largest in 2020 at USD 261 billion (6.9 percent of GDP) – has shrunk for the fifth year in a row. Despite the decrease, the persistence of Germany’s surplus remains a matter of international controversy. German policymakers view the large surplus as the result of market forces rather than active government policies, while the European Commission (EC) and IMF have called on authorities to rebalance towards domestic sources of economic growth by expanding public investment, using available fiscal space, and other policy choices that boost domestic demand.

Germany is a member of the Financial Action Task Force (FATF) and is committed to further strengthening its national system for the prevention, detection and suppression of money laundering and terrorist financing. Federal law is enforced by regional state prosecutors. Investigations are conducted by the Federal and State Offices of Criminal Investigations (BKA/LKA). The administrative authority for imposing anti-money laundering requirements on financial institutions is the Federal Financial Supervisory Authority (BaFin).

The Financial Intelligence Unit (FIU) – located at the General Customs Directorate in the Federal Ministry of Finance – is the national central authority for receiving, collecting and analyzing reports of suspicious financial transactions that may be related to money laundering or terrorist financing. On January 1, 2020, legislation to implement the 5th EU Money Laundering Directive and the European Funds Transfers Regulation (Geldtransfer-Verordnung) entered into force. The Act amends the German Money Laundering Act (Geldwäschegesetz – GwG) and a number of further laws. It provides, inter alia, the FIU and prosecutors with expanded access to data. On March 9, 2021 the Bundestag passed an anti-money laundering law seeking to improve Germany’s criminal legal framework for combating money laundering while simultaneously implementing the EU’s 6th Money Laundering Directive (EU 2018/1673 – hereafter “the Directive”). The Directive lays down minimum rules on the definition of criminal offenses and sanctions to combat money laundering. The law goes beyond the minimum standard set out in the Directive by broadening the definition of activities that could be prosecuted as money laundering offenses. Previously, the money laundering section in the German Criminal Code was designed to criminalize acts in connection with a list of serious “predicate offenses,” the underlying crime generating illicit funds, e.g., drug trafficking. The new law dispenses with the previously defined list, allowing any crime to be considered as a “predicate offense” to money laundering (the “All- Crimes Approach”). This is a paradigm shift in German criminal law, and implements an additional priority laid out in Germany’s “Strategy to Combat Money Laundering and Terrorist Financing” adopted in 2019.

The number of suspected money laundering and terrorist financing cases rose sharply in 2019 from 77.000 suspicious activity reports (SARs) to 114.914 according to the 2019 annual report of FIU (a new record and 12-fold that of 2009). The vast majority (98 percent) of suspicious transaction reports were filed by German banks and other financial institutions in order to avoid legal risks after a court ruling that held anti-money laundering (AML) officers personally liable, thus including many “false positives”. At the same time, the activities resulted in just 156 criminal charges, 133 indictments and only 54 verdicts.

In its annual report 2018, the FIU noted an “extreme vulnerability” in Germany’s real estate market to money laundering activities. Transparency International found that about €30 billion in illicit funds were funneled into German real estate in 2017. The results of the first concerted action by supervisory authorities of the German federal states in the automotive industry in 2019, for example, were sobering: only 15 percent of car dealers had implemented AML provisions, the rest had deficiencies, showing the “need for further sensitization.” The report also noted a slight upward trend in the number of SARs related to crypto assets. Around 760 SARs cited “anomalies in connection with cryptocurrencies”, as reporting noted, especially the forwarding of funds to trading platforms abroad for the exchange of funds into cryptocurrencies. However, the FIU itself has come under criticism. Financial institutions deplore the quality of its staff and the effectiveness of its work. The Institute of Public Auditors in Germany (IDW) criticizes that the precautions taken to prevent money laundering in high-risk industries outside the financial sector are monitored much less intensively. A review of the FIU scheduled for 2020 has been postponed due to the pandemic.

There is no difficulty in obtaining foreign exchange.

Remittance Policies

There are no restrictions or delays on investment remittances or the inflow or outflow of profits.

Germany is the largest remittance-sending country in the EU, making up almost 18% of all outbound personal remittances of the EU-27 (Eurostat). Migrants in Germany posted USD 25.1 billion (0.6 percent of GDP) abroad in 2019 (World Bank). Remittance flows into Germany amounted to around USD 16.5 billion in 2019, approximately 0.4 percent of Germany’s GDP.

The issue of remittances played a role during the German G20 Presidency in 2017. During its presidency, Germany passed an updated version of its “G20 National Remittance Plan.” The document states that Germany’s focus will remain on “consumer protection, linking remittances to financial inclusion, creating enabling regulatory frameworks and generating research and data on diaspora and remittances dynamics.” The 2017 “G20 National Remittance Plan” can be found at https://www.gpfi.org/publications/2017-g20-national-remittance-plans-overview 

Sovereign Wealth Funds

The German government does not currently have a sovereign wealth fund or an asset management bureau.

7. State-Owned Enterprises

The formal term for state-owned enterprises (SOEs) in Germany translates as “public funds, institutions, or companies,” and refers to entities whose budget and administration are separate from those of the government, but in which the government has more than 50 percent of the capital shares or voting rights. Appropriations for SOEs are included in public budgets, and SOEs can take two forms, either public or private law entities. Public law entities are recognized as legal personalities whose goal, tasks, and organization are established and defined via specific acts of legislation, with the best-known example being the publicly-owned promotional bank KfW (Kreditanstalt für Wiederaufbau). KfW’s mandate is to promote global development. The government can also resort to ownership or participation in an entity governed by private law if the following conditions are met: doing so fulfills an important state interest, there is no better or more economical alternative, the financial responsibility of the federal government is limited, the government has appropriate supervisory influence, and yearly reports are published.

Government oversight of SOEs is decentralized and handled by the ministry with the appropriate technical area of expertise. The primary goal of such involvement is promoting public interests rather than generating profits. The government is required to close its ownership stake in a private entity if tasks change or technological progress provides more effective alternatives, though certain areas, particularly science and culture, remain permanent core government obligations. German SOEs are subject to the same taxes and the same value added tax rebate policies as their private sector competitors. There are no laws or rules that seek to ensure a primary or leading role for SOEs in certain sectors or industries. However, a white paper drafted by the Ministry of Economic Affairs and Energy in November 2019 outlines elements of a national industrial strategy, which includes the option of a temporary state participation in key technology companies as “last resort”. Private enterprises have the same access to financing as SOEs, including access to state-owned banks such as KfW.

The Federal Statistics Office maintains a database of SOEs from all three levels of government (federal, state, and municipal) listing a total of 18,566 entities for 2018, or 0.5 percent of the total 3.5 million companies in Germany. SOEs in 2018 had €609 billion in revenue and €583 billion in expenditures. 41 percent of SOEs’ revenue was generated by water and energy suppliers, 12 percent by health and social services, and 11 percent by transportation-related entities. Measured by number of companies rather than size, 88 percent of SOEs are owned by municipalities, 10 percent are owned by Germany’s 16 states, and 2 percent are owned by the federal government.

The Federal Finance Ministry is required to publish a detailed annual report on public funds, institutions, and companies in which the federal government has direct participation (including a minority share) or an indirect participation greater than 25 percent and with a nominal capital share worth more than €50,000. The federal government held a direct participation in 104 companies and an indirect participation in 433 companies at the end of 2018, most prominently Deutsche Bahn (100 percent share), Deutsche Telekom (32 percent share), and Deutsche Post (21 percent share). Federal government ownership is concentrated in the areas of infrastructure, economic development, science, administration/increasing efficiency, defense, development policy, culture. As the result of federal financial assistance packages from the federally-controlled Financial Market Stability Fund during the global financial crisis of 2008/9, the federal government still has a partial stake in several commercial banks, including a 15.6 percent share in Commerzbank, Germany’s second largest commercial bank. In 2020, in the wake of the COVID-19 pandemic, the German government acquired shares of several large German companies, including CureVac, TUI and Lufthansa, in an attempt to prevent companies from filing for insolvency or, in the case of CureVac, support vaccine research in Germany.

The 2019 annual report (with 2018 data) can be found here: https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/2020-05-14-beteiligungsbericht-des-bundes-2019.pdf?__blob=publicationFile&v=28

https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/2020-05-14-beteiligungsbericht-des-bundes-2019.pdf?__blob=publicationFile&v=28

Publicly-owned banks constitute one of the three pillars of Germany’s banking system (cooperative and commercial banks are the other two). Germany’s savings banks are mainly owned by the municipalities, while the so-called Landesbanken are typically owned by regional savings bank associations and the state governments. Given their joint market share, about 40 percent of the German banking sector is publicly owned. There are also many state-owned promotional/development banks which have taken on larger governmental roles in financing infrastructure. This increased role removes expenditures from public budgets, particularly helpful in light of Germany’s balanced budget rules, which took effect for the states in 2020.

A longstanding, prominent case of a partially state-owned enterprise is automotive manufacturer Volkswagen, in which the state of Lower Saxony owns the third-largest share in the company of around 12 percent but controls 20 percent of the voting rights. The so-called Volkswagen Law, passed in 1960, limited individual shareholder’s voting rights in Volkswagen to a maximum of 20 percent regardless of the actual number of shares owned, so that Lower Saxony could veto any takeover attempts. In 2005, the European Commission successfully sued Germany at the European Court of Justice (ECJ), claiming the law impeded the free flow of capital. The law was subsequently amended to remove the cap on voting rights, but Lower Saxony’s 20 percent share of voting rights was maintained, preserving its ability to block hostile takeovers.

Privatization Program

Germany does not have any privatization programs at this time. German authorities treat foreigners equally in privatizations of state-owned enterprises.

8. Responsible Business Conduct

In December 2016, the Federal Government passed the National Action Plan for Business and Human Rights (NAP). The action plan aims to apply the UN Guiding Principles for Business and Human Rights to the activities of German companies nationally as well as globally in their value and supply chains. The 2018 coalition agreement for the 19th legislative period between the governing Christian Democratic parties, CDU/CSU, and the Social Democratic Party of Germany (SPD) stated its commitment to the action plan, including the principles on public procurement. It further stated that, if the NAP 2020’s effective and comprehensive review came to the conclusion that the voluntary due diligence approach of enterprises was insufficient, the government would initiate legislation for an EU-wide regulation. With results of the review showing a majority of companies do not sufficiently fulfill due diligence requirements, the government has since sought to pass a national supply chain law to ensure businesses take responsibility for their supply chains and their operations do not impinge upon human rights. Draft legislation passed by the government in March 2021 is currently in the parliamentary process.

Germany adheres to the OECD Guidelines for Multinational Enterprises; the National Contact Point (NCP) is housed in the Federal Ministry of Economic Affairs and Energy. The NCP is supported by an advisory board composed of several ministries, business organizations, trade unions, and NGOs. This working group usually meets once a year to discuss all Guidelines-related issues. The German NCP can be contacted through the Ministry’s website: https://www.bmwi.de/Redaktion/EN/Textsammlungen/Foreign-Trade/national-contact-point-ncp.html .

There is general awareness of environmental, social, and governance issues among both producers and consumers in Germany, and surveys suggest that consumers increasingly care about the ecological and social impacts of the products they purchase. In order to encourage businesses to factor environmental, social, and governance impacts into their decision-making, the government provides information online and in hard copy. The federal government encourages corporate social responsibility (CSR) through awards and prizes, business fairs, and reports and newsletters. The government also organizes so called “sector dialogues” to connect companies and facilitate the exchange of best practices, and offers practice days to help nationally as well as internationally operating small- and medium-sized companies discern and implement their entrepreneurial due diligence under the NAP. To this end it has created a website on CSR in Germany ( http://www.csr-in-deutschland.de/EN/Home/home.html  in English). The German government maintains and enforces domestic laws with respect to labor and employment rights, consumer protections, and environmental protections. The German government does not waive labor and environmental laws to attract investment.

Social reporting is voluntary, but publicly listed companies frequently include information on their CSR policies in annual shareholder reports and on their websites.

Civil society groups that work on CSR include Amnesty International Germany, Bund für Umwelt und Naturschutz Deutschland e. V. (BUND), CorA Corporate Accountability – Netzwerk Unternehmensverantwortung, Forest Stewardship Council (FSC), Germanwatch, Greenpeace Germany, Naturschutzbund Deutschland (NABU), Sneep (Studentisches Netzwerk zu Wirtschafts- und Unternehmensethik), Stiftung Warentest, Südwind – Institut für Ökonomie und Ökumene, TransFair – Verein zur Förderung des Fairen Handels mit der „Dritten Welt“ e. V., Transparency International, Verbraucherzentrale Bundesverband e.V., Bundesverband Die Verbraucher Initiative e.V., and the World Wide Fund for Nature (WWF, known as the „World Wildlife Fund“ in the United States).

Additional Resources 

Department of State

Department of Labor

9. Corruption

Among industrialized countries, Germany ranks 9th out of 180, according to Transparency International’s 2020 Corruption Perceptions Index. Some sectors including the automotive industry, construction sector, and public contracting, exert political influence and political party finance remains only partially transparent. Nevertheless, U.S. firms have not identified corruption as an impediment to investment in Germany. Germany is a signatory of the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery.

Over the last two decades, Germany has increased penalties for the bribery of German officials, corrupt practices between companies, and price-fixing by companies competing for public contracts. It has also strengthened anti-corruption provisions on financial support extended by the official export credit agency and has tightened the rules for public tenders. Government officials are forbidden from accepting gifts linked to their jobs. Most state governments and local authorities have contact points for whistle-blowing and provisions for rotating personnel in areas prone to corruption. There are serious penalties for bribing officials and price fixing by companies competing for public contracts.

According to the Federal Criminal Office, in 2019, 50 percent of all corruption cases were directed towards the public administration (down from 73 percent in 2018), 39 percent towards the business sector (up from 18 percent in 2018), 9 percent towards law enforcement and judicial authorities (up from 7 percent in 2018), and 2 percent to political officials (unchanged compared to 2018).

Parliamentarians are subject to financial disclosure laws that require them to publish earnings from outside employment. Disclosures are available to the public via the Bundestag website (next to the parliamentarians’ biographies) and in the Official Handbook of the Bundestag. Penalties for noncompliance can range from an administrative fine to as much as half of a parliamentarian’s annual salary. In early 2021, several parliamentarians stepped down due to inappropriate financial gains made through personal relationships to businesses involved in the procurement of face masks during the initial stages of the pandemic.

Donations by private persons or entities to political parties are legally permitted. However, if they exceed €50,000, they must be reported to the President of the Bundestag, who is required to immediately publish the name of the party, the amount of the donation, the name of the donor, the date of the donation, and the date the recipient reported the donation. Donations of €10,000 or more must be included in the party’s annual accountability report to the President of the Bundestag.

State prosecutors are generally responsible for investigating corruption cases, but not all state governments have prosecutors specializing in corruption. Germany has successfully prosecuted hundreds of domestic corruption cases over the years, including large scale cases against major companies.

Media reports in past years about bribery investigations against Siemens, Daimler, Deutsche Telekom, Deutsche Bank, and Ferrostaal have increased awareness of the problem of corruption. As a result, listed companies and multinationals have expanded compliance departments, tightened internal codes of conduct, and offered more training to employees.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Germany was a signatory to the UN Anti-Corruption Convention in 2003. The Bundestag ratified the Convention in November 2014.

Germany adheres to and actively enforces the OECD Anti-Bribery Convention which criminalizes bribery of foreign public officials by German citizens and firms. The necessary tax reform legislation ending the tax write-off for bribes in Germany and abroad became law in 1999.

Germany participates in the relevant EU anti-corruption measures and signed two EU conventions against corruption. However, while Germany ratified the Council of Europe Criminal Law Convention on Corruption in 2017, it has not yet ratified the Civil Law Convention on Corruption.

Resources to Report Corruption

There is no central government anti-corruption agency in Germany. Responsibilities in fighting corruption lies with the federal states.

Contact at “watchdog” organization:

Hartmut Bäumer, Chair
Transparency International Germany
Alte Schönhauser Str. 44, 10119 Berlin
+49 30 549 898 0
office@transparency.de 
https://www.transparency.de/en/ 

The Federal Criminal Office publishes an annual report on corruption: “Bundeslagebild Korruption” – the latest one covers 2019. https://www.bka.de/DE/AktuelleInformationen/StatistikenLagebilder/Lagebilder/Korruption/korruption_node.html;jsessionid=95B370E07C3C5702B4A4AAEE8EAC8B3F.live0601

https://www.bka.de/DE/AktuelleInformationen/StatistikenLagebilder/Lagebilder/Korruption/korruption_node.html;jsessionid=95B370E07C3C5702B4A4AAEE8EAC8B3F.live0601

10. Political and Security Environment

Political acts of violence against either foreign or domestic business enterprises are extremely rare. Isolated cases of violence directed at certain minorities and asylum seekers have not targeted U.S. investments or investors.

11. Labor Policies and Practices

The German labor force is generally highly skilled, well-educated, and productive. Before the economic downturn caused by COVID-19, employment in Germany had risen for the thirteenth consecutive year and reached an all-time high of 45.3 million in 2019, an increase of 402,000 (or 0.9 percent) from 2018—the highest level since German reunification in 1990. As a result of the COVID-19 pandemic, employment fell to 44.8 million in 2020.

Simultaneously, unemployment had fallen by more than half since 2005, and, in 2019, reached the lowest average annual value since German reunification. In 2019, around 2.34 million people were registered as unemployed, corresponding to an unemployment rate of 5.2 percent, according to Germany Federal Employment Agency calculations. Using internationally comparable data from the European Union’s statistical office Eurostat, Germany had an average annual unemployment rate of 3.2 percent in 2019, the second lowest rate in the European Union. For the pandemic year 2020, the Federal Employment Agency reports an average unemployment rate of 5.9% with an average 2.7 million unemployed in 2020. This is an increase of 429,000 over 2019. However, long-term effects on the labor market, and the economy as a whole, due to COVID-19 are not yet fully observable. All employees are by law covered by the federal unemployment insurance that compensates for the lack of income for up to 24 months. A government-funded temporary furlough program allows companies to decrease their workforce and labor costs with layoffs and has helped mitigate a negative labor market impact in the short term. The government made intense use of this program, which enrolled at peak times in 2020 more than six million employees. The government, through the national employment agency, has spent more than 22 billion euros on this program, which it considers the main tool to keep unemployment low during the COVID-19 economic crisis. The government extended the program for all companies already meeting its conditions by the end of 2020 to December 31, 2021.

Germany’s national youth unemployment rate was 5.8 percent in 2019, the lowest in the EU. The German vocational training system has gained international interest as a key contributor to Germany’s highly skilled workforce and its sustainably low youth unemployment rate. Germany’s so-called “dual vocational training,” a combination of theoretical courses taught at schools and practical application in the workplace, teaches and develops many of the skills employers need. Each year, there are more than 500,000 apprenticeship positions available in more than 340 recognized training professions, in all sectors of the economy and public administration. Approximately 50 percent of students choose to start an apprenticeship. The government is promoting apprenticeship opportunities, in partnership with industry, through the “National Pact to Promote Training and Young Skilled Workers.”

An element of growing concern for German business is the aging and shrinking of the population, which (absent large-scale immigration) will likely result in labor shortages. Official forecasts at the behest of the Federal Ministry of Labor and Social Affairs predict that the current working age population will shrink by almost 3 million between 2010 and 2030, resulting in an overall shortage of workforce and skilled labor. Labor bottlenecks already constrain activity in many industries, occupations, and regions. The government has begun to enhance its efforts to ensure an adequate labor supply by improving programs to integrate women, elderly, young people, and foreign nationals into the labor market. The government has also facilitated the immigration of qualified workers.

Labor Relations

Germans consider the cooperation between labor unions and employer associations to be a fundamental principle of their social market economy and believe this has contributed to the country’s resilience during the economic and financial crisis. Insofar as job security for members is a core objective for German labor unions, unions often show restraint in collective bargaining in weak economic times and often can negotiate higher wages in strong economic conditions. In an international comparison, Germany is in the lower midrange with regards to strike numbers and intensity. All workers have the right to strike, except for civil servants (including teachers and police) and staff in sensitive or essential positions, such as members of the armed forces.

Germany’s constitution, federal legislation, and government regulations contain provisions designed to protect the right of employees to form and join independent unions of their choice. The overwhelming majority of unionized workers are members of one of the eight largest unions — largely grouped by industry or service sector — which are affiliates of the German Trade Union Confederation (Deutscher Gewerkschaftsbund, DGB). Several smaller unions exist outside the DGB. Overall trade union membership has, however, been in decline over the last several years. In 2020, total DGB union membership amounted to less than 6 million. IG Metall is the largest German labor union with 2.2 million members, followed by the influential service sector union Ver.di (1.9 million members).

The constitution and enabling legislation protect the right to collective bargaining, and agreements are legally binding to the parties. In 2019, 52 percent of non-self-employed workers were covered by a collective wage agreement.

By law, workers can elect a works council in any private company employing at least five people. The rights of the works council include the right to be informed, to be consulted, and to participate in company decisions. Works councils often help labor and management to settle problems before they become disputes and disrupt work. In addition, “co-determination” laws give the workforce in medium-sized or large companies (corporations, limited liability companies, partnerships limited by shares, co-operatives, and mutual insurance companies) significant voting representation on the firms’ supervisory boards. This co-determination in the supervisory board extends to all company activities.

From 2010 to 2019, real wages grew by 1.2 percent on average. Generous collective bargaining wage increases in 2019 (+3.2 percent) and the increase of the federal Germany-wide statutory minimum wage to €9.35 (USD 10.15) on January 1, 2020, led to 2.6 percent nominal wage increase. Real wages grew by 1.2 percent in 2019. As a result of the COVID-19 pandemic, real wages fell in 2020 by 1% over the previous year (preliminary figures).

Labor costs increased by 3.4 percent in 2019. With an average labor cost of €35 (USD 41.20) per hour, Germany ranked seventh among the 27 EU-members states (EU average: €27.40/USD 32.26) in 2019.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2020 €3.332,230 2019 $3.861,000 Federal Statistical Office, www.destatis.de

www.worldbank.org/en/country

Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 €98,909 2019 $148,259 Bundesbank
BEA data available at https://apps.bea.gov/
international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2018 €361,401 2019 $521,979 Bundesbank,
BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2018 1.6% 2019 1.0% Federal Statistical Office, Bundesbank,
UNCTAD data available at
https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html   

* Source for Host Country Data: Federal Statistical Office, www.destatis.de; Bundesbank, www.bundesbank.de   

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $1,023,358 100% Total Outward $1,754,585 100%
Luxembourg $189,366 18.5% United States $310,971 17.7%
The Netherlands $178,883 17.5% Luxembourg $213,181 12.1%
United States $119,195 11.6% The Netherlands $201,183 11.5%
Switzerland $84,618 8.3% United Kingdom $140,310 8.0%
United Kingdom $74,000 7.2% France $101,516 5.8%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries $3,706,904 100% All Countries $1,346,852 100% All Countries $2,360,052 100%
Luxembourg $688,255 19% Luxembourg $558,479 41% France $365,233 15%
United States $485,817 13% United States $211,170 16% United States $274,648 12%
France $459,604 12% Ireland $151,491 11% The Netherlands $266,276 11%
The Netherlands $307,341 8% France $94,371 7% United Kingdom $148,535 6%
Ireland $221,856 6% Switzerland $60,256 4% Spain $133,980 6%

14. Contact for More Information

Foreign Commercial Service
Pariser Platz 2, 14191 Berlin, Germany
+49-(0)30-8305-2940
Email: feedback@usembassy.de 

Israel

Executive Summary

Israel has an entrepreneurial spirit and a creative, highly educated, skilled, and diverse workforce. It is a leader in innovation in a variety of sectors, and many Israeli start-ups find good partners in U.S. companies. Popularly known as “Start-Up Nation,” Israel invests heavily in education and scientific research. U.S. firms account for nearly two-thirds of the more than 300 research and development (R&D) centers established by multinational companies in Israel. Israel has the third most companies listed on the NASDAQ, after the United States and China. Various Israeli government agencies, led by the Israel Innovation Authority, fund incubators for early stage technology start-ups, and Israel provides extensive support for new ideas and technologies while also seeking to develop traditional industries. Private venture capital funds have flourished in Israel in recent years.

The economic impact of the COVID-19 pandemic on Israel is unprecedented but successful pre-pandemic economic policy buffers – steady/strong growth, low debt, a resilient tech sector among them — mean Israel entered the COVID-19 crisis with relatively low vulnerabilities, according to the International Monetary Fund’s Staff Report for the 2020 Article IV Consultation. The fundamentals of the Israeli economy remain strong, and Israel’s economy enjoyed strong growth prior to the COVID-19 pandemic. With low inflation and fiscal deficits that have usually met targets pre-pandemic, most analysts consider Israeli government economic policies as generally sound and supportive of growth. Israel seeks to provide supportive conditions for companies looking to invest in Israel, through laws that encourage capital and industrial R&D investment. Incentives and benefits include grants, reduced tax rates, tax exemptions, and other tax-related benefits.

The U.S.-Israeli bilateral economic and commercial relationship is strong, anchored by two-way trade in goods that reached USD 25.5 billion in 2020 and USD 33.9 billion in 2019, according to the U.S. Census Bureau, and extensive commercial ties, particularly in high-tech and R&D. The total stock of Israeli foreign direct investment (FDI) in the United States was USD 36.6 billion in 2019, according to the U.S. Department of Commerce. Since the signing of the U.S.-Israel Free Trade Agreement in 1985, the Israeli economy has undergone a dramatic transformation, moving from a protected, low-end manufacturing and agriculture-led economy to one that is diverse, open, and led by a cutting-edge high-tech sector.

The Israeli government generally continues to take slow, deliberate actions to remove some trade barriers and encourage capital investment, including foreign investment. The continued existence of trade barriers and monopolies, however, have contributed significantly to the high cost of living and the lack of competition in key sectors. The Israeli government maintains some protective trade policies, usually in favor of domestic producers.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 35 of 175 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 35 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 13 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $28.5 billion https://www.bea.gov/sites/default/files/2020-07/dici0720_0.pdf
World Bank GNI per capita 2019 $43,100 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Israel is open to foreign investment and the government actively encourages and supports the inflow of foreign capital.

The Israeli Ministry of Economy and Industry’s ‘Invest in Israel’ office serves as the government’s investment promotion agency facilitating foreign investment. ‘Invest in Israel’ offers a wide range of services including guidance on Israeli laws, regulation, taxes, incentives, and costs, and facilitation of business connections with peer companies and industry leaders for new investors. ‘Invest in Israel’ also organizes familiarization tours for potential investors and employs a team of advisors for each region of the world.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Israeli legal system protects the rights of both foreign and domestic entities to establish and own business enterprises, as well as the right to engage in remunerative activity. Private enterprises are free to establish, acquire, and dispose of interests in business enterprises. As part of ongoing privatization efforts, the Israeli government encourages foreign investment in privatizing government-owned entities.

Israel’s policies aim to equalize competition between private and public enterprises, although the existence of monopolies and oligopolies in several sectors, including communications infrastructure, food manufacturing and marketing, and some manufacturing segments, stifles competition. In the case of designated monopolies, defined as entities that supply more than 50 percent of the market, the government controls prices.

Israel established a centralized investment screening (approval) mechanism for certain inbound foreign investments in October 2019. Investments in regulated industries (e.g., banking and insurance) require approval by the relevant regulator. Investments in certain sectors may require a government license. Other regulations may apply, usually on a national treatment basis.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducted its fifth and latest trade policy review of Israel in July 2018. In the past three years, the Israeli government has not conducted any investment policy reviews through the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD). The OECD concluded an Economic Survey of Israel in 2020.

The 2020 OECD Economic Survey of Israel can be found at https://www.gov.il/BlobFolder/news/press_23092020_b/he/PressReleases_files_press_23092020_b_file.pdf 

Business Facilitation

The Israeli government is fairly open and receptive to companies wishing to register businesses in Israel. Israel ranked 28th in the “Starting a Business” category of the World Bank’s 2020 Doing Business Report, rising seventeen places from its 2019 ranking. Israel continues to institute reforms to make it easier to do business in Israel, but some challenges remain.

The business registration process in Israel is relatively clear and straightforward. Four procedures are required to register a standard private limited company and take 12 days to complete, on average, according to the Israeli Ministry of Finance. The foreign investor must obtain company registration documents through a recognized attorney with the Israeli Ministry of Justice and obtain a tax identification number for company taxation and for value added taxes (VAT) from the Israeli Ministry of Finance. The cost to register a company averages around USD 1,000 depending on attorney and legal fees.

The Israeli Ministry of Economy and Industry’s “Invest in Israel” website provides useful information for companies interested in starting a business or investing in Israel. The website is http://www.investinisrael.gov.il/Pages/default.aspx .

2. Bilateral Investment Agreements and Taxation Treaties

The Israel Export and International Cooperation Institute is an Israeli government agency operating independently, under the Ministry of Economy, that helps facilitate trade and business opportunities between Israeli and foreign companies. More information on their activities is available at http://www.export.gov.il/eng/About/About/ .

In general, there are no restrictions on Israeli investors seeking to invest abroad. However, investing abroad may be restricted on national security grounds or in certain countries or sectors where the Israeli government deems such investment is not in the national interest.

Israel has bilateral investment treaties in force with Japan, Myanmar, Ukraine, Azerbaijan, Guatemala, China, Ethiopia, Serbia, Montenegro, Uruguay, Mongolia, Thailand, Belarus, Romania, Croatia, El Salvador, Armenia, Slovakia, South Korea, Cyprus, Slovenia, Czech Republic, Moldova, Turkey, Argentina, Kazakhstan, Albania, Georgia, Turkmenistan, Uzbekistan, Bulgaria, Lithuania, Estonia, Latvia, and Poland. Israel has signed bilateral investment treaties with the United Arab Emirates, South Africa, and Germany that are not yet in force.

Israel has free trade agreements with the European Union (EU), European Free Trade Association (a regional trade organization and free trade area consisting of Iceland, Liechtenstein, Norway, and Switzerland), Turkey, Mexico, Canada, Jordan, Egypt, Panama, Ukraine, Colombia, the United Kingdom, and Mercosur (an economic and political bloc comprising Argentina, Brazil, Paraguay, and Uruguay).

The United States and Israel signed a free trade agreement in 1985.

Israel has a bilateral tax treaty with United States. Israel signed its Income Tax Treaty with the United States in 1975.

3. Legal Regime

Transparency of the Regulatory System

Israel promotes open governance and has joined the International Open Government Partnership. The government’s policy is to pursue the goals of transparency and active reporting to the public, public participation, and accountability.

Israel’s regulatory system is transparent. Ministries and regulatory agencies give notice of proposed regulations to the public on a government web site: http://www.knesset.gov.il . The texts of proposed regulations are also published (in Hebrew) on this web site. The government requests comments from the public about proposed regulations.

Israel is a signatory to the WTO Agreement on Government Procurement (GPA), which covers most Israeli government entities and government-owned corporations. Most of the country’s open international public tenders are published in the local press. U.S. companies have won a limited number of government tenders, notably in the energy and communications sectors. However, government-owned corporations make extensive use of selective tendering procedures. In addition, the lack of transparency in the public procurement process discourages U.S. companies from participating in major projects and disadvantages those that choose to compete. Enforcement of the public procurement laws and regulations is not consistent.

Israel is a member of UNCTAD’s international network of transparent investment procedures. ( http://unctad.org/en/pages/home.aspx  ). Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations 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 basis justifying the procedures.

International Regulatory Considerations

Israel is not a member of any major economic bloc but maintains strong economic relations with other economic blocs.

Israeli regulatory bodies in the Ministry of Economy (Standards Institute of Israel), Ministry of Health (Food Control Services), and the Ministry of Agriculture (Veterinary Services and the Plant Protection Service) often adopt standards developed by European standards organizations. Israel’s adoption of European standards rather than international standards results in the market exclusion of certain U.S. products and added costs for U.S. exports to Israel.

Israel became a member of the WTO in 1995. The Ministry of Economy and Industry’s Standardization Administration is responsible for notifying the WTO Committee on Technical Barriers to Trade, and regularly does so.

Legal System and Judicial Independence

Israel has a written and consistently applied commercial law based on the British Companies Act of 1948, as amended. The judiciary is independent, but businesses complain about the length of time required to obtain judgments. The Supreme Court is an appellate court that also functions as the High Court of Justice. Israel does not employ a jury system. Israel established other tribunals to regulate specific issues and disputes in a specific area of law, including labor courts, antitrust issues, and intellectual property related issues.

Laws and Regulations on Foreign Direct Investment

There are few restrictions on foreign investors, except for parts of defense or other industries closed to outside investors on national security grounds. Foreign investors are welcome to participate in Israel’s privatization program.

Israeli courts exercise authority in cases within the jurisdiction of Israel. However, if an agreement between involved parties contains an exclusively foreign jurisdiction, the Israeli courts will generally decline to exercise their authority.

Israel’s Ministry of Economy sponsors the web site “Invest in Israel” at www.investinisrael.gov.il 

The Investment Promotion Center of the Ministry of Economy seeks to encourage investment in Israel. The center stresses Israel’s high marks in innovation, entrepreneurship, and Israel’s creative, skilled, and ambitious workforce. The center also promotes Israel’s strong ties to the United States and Europe.

Competition and Antitrust Laws

Israel adopted its comprehensive competition law in 1988. Israel created the Israel Competition Authority (originally called the Israel Antitrust Authority) in 1994 to enforce the competition law.

Expropriation and Compensation

There have been no known expropriations of U.S.-owned businesses in Israel. Israeli law requires adequate payment, with interest from the day of expropriation until final payment, in cases of expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Israel is a member of the International Center for the Settlement of Investment Disputes (ICSID) of the World Bank and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Israel ratified the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958 in 1959.

Investor-State Dispute Settlement

The Israeli government accepts binding international arbitration of investment disputes between foreign investors and the state. Israel’s Arbitration Law of 1968 governs both domestic and international arbitration proceedings in the country. The Israeli Knesset amended the law most recently in 2008. There are no known extrajudicial actions against foreign investors.

International Commercial Arbitration and Foreign Courts

Israel formally institutionalized mediation in 1992 with the amendment of the Courts Law of 1984. The amendment granted courts the authority to refer civil disputes to mediation or arbitration with party consent. The Israeli courts tend to uphold and enforce arbitration agreements. Israel’s Arbitration Law predates the United Nations Commission on International Trade Law.

Bankruptcy Regulations

Israeli Bankruptcy Law is based on several layers, some rooted in Common Law, when Palestine was under the British mandate in 1917-1948. Bankruptcy Law in Israel is mostly based on British law enacted in Palestine in 1936 during the British mandate.

Bankruptcy proceedings are based on the bankruptcy ordinance (1980), which replaced the mandatory ordinance enacted in 1936. Therefore, the bankruptcy law in Israel resembles the British law as it was more or less in 1936. Israel ranks 29th in the World Bank’s 2020 Doing Business Report’s “resolving insolvency” category.

4. Industrial Policies

Investment Incentives

The State of Israel encourages both local and foreign investment by offering a wide range of incentives and benefits to investors in industry, tourism, and real estate. Israel’s Ministry of Economy places a priority on investments in hi-tech companies and R&D activities.

Most investment incentives available to Israeli citizens are also available to foreign investors. Israel’s Encouragement of Capital Investments Law, 5719-1959, outlines Israel’s investment incentive programs. The Israel Investment Center (IIC) coordinates the country’s investment incentive programs.

For complete information, potential investors should contact:

Investment Promotion Center
Ministry of Economy
5 Bank of Israel Street,
Jerusalem 91036
Tel: +972-2-666-2607
Website: www.investinisrael.gov.il 
E-mail: investinisrael@economy.gov.il 

Israel Investment Center
Ministry of Economy
5 Bank of Israel Street,
Jerusalem 91036 490
http://economy.gov.il/English/About/Units/Pages/IsraelInvestmentCenter.aspx 
Tel: +972-2-666-2828
Fax: +972-2-666-2905

Foreign Trade Zones/Free Ports/Trade Facilitation

Israel has bilateral Qualifying Industrial Zone (QIZ) Agreements with Egypt and Jordan. The QIZ initiative allows Egypt and Jordan to export products to the United States duty-free, as long as these products contain inputs from Israel (8 percent in the Israel-Jordan QIZ agreement, 10.5 percent in the Israel-Egypt QIZ agreement). Products manufactured in QIZs must comply with strict rules of origin. More information is available at the Israeli Ministry of Economy’s Foreign Trade Administration website: http://economy.gov.il/English/InternationalAffairs/ForeignTradeAdministration/Pages/RegionalCooperation.aspx 

Israel has one free trade zone, the Red Sea port city of Eilat. More information on the Eilat Free Zone is available at: http://economy.gov.il/English/Industry/DevelopmentZoneIndustryPromotion/ZoneIndustryInfo/Pages/EilatNShachoret.aspx  

Performance and Data Localization Requirements

There are no universal performance requirements on investments, but “offset” requirements are often included in sales contracts with the government. In some sectors, there is a requirement that Israelis own a percentage of a company. Israel’s visa and residency requirements are transparent. The Israeli government does not impose preferential policies on exports by foreign investors.

5. Protection of Property Rights

Real Property

Israel has a modern legal system based on British common law that provides effective means for enforcing property and contractual rights. Courts are independent. Israeli civil procedures provide that judgments of foreign courts may be accepted and enforced by local courts. The Israeli judicial system recognizes and enforces secured interests in property. A reliable system of recording such secured interests exists. The Israeli Land Administration, which manages land in Israel on behalf of the government, registers property transactions. Registering or obtaining land rights is a cumbersome process and Israel currently ranks 75th in “Registering Property” according to the World Bank’s 2020 Doing Business Report.

Intellectual Property Rights

The Intellectual Property Law Division and the Israel Patent Office (ILPO), both within the Ministry of Justice, are the principal government authorities overseeing the legal protection and enforcement of intellectual property rights (IPR) in Israel. IPR protection in Israel has undergone many changes in recent decades as the Israeli economy has rapidly transformed into a knowledge-based economy.

In recent years, Israel revised its IPR legal framework several times to comply with newly signed international treaties. Israel took stronger, more comprehensive steps towards protecting IPR, and the government acknowledges that IPR theft costs rights holders millions of dollars per year, reducing tax revenues and slowing economic growth.

The United States removed Israel from the United States Trade Representative (USTR) Special 301 Report in 2014 after Israel passed patent legislation that satisfied the remaining commitments Israel made in a Memorandum of Understanding with the United States in 2010 concerning several longstanding issues regarding Israel’s IPR regime for pharmaceutical products. Israel has not been included in the Special 301 Report or the Notorious Markets List since.

Israel’s Knesset approved Amendment No. 5 to Israel’s Copyright Law of 2007 on January 1, 2019. The amendment aims to establish measures to combat copyright infringement on the internet while preserving the balance among copyright owners, internet users, and the free flow of information and free speech.

In July 2017, the Israeli Knesset passed the New Designs Bill, replacing Israel’s existing but obsolete ordinance governing industrial design. The bill, which came into force in August 2018, brings Israel into compliance with The Hague System for International Registration of Industrial designs.

Nevertheless, the United States remains concerned with the limitations of Israel’s copyright legislation, particularly related to digital copyright matters and with Israel’s interpretation of its commitment to protect data derived from pharmaceutical testing conducted in anticipation of the future marketing of biological products, also known as biologics.

While Israel has instituted several legislative improvements in recent years, the United States continues to urge Israel to strengthen and improve its IPR enforcement regime. Israel lacks specialized courts, common in other countries with advanced IPR regimes. General civil or administrative courts in Israel typically adjudicate IPR cases.

IPR theft, including trade secret misappropriation, can be common and relatively sophisticated in Israel. The European Commission “closely monitors” IP enforcement in Israel. The EC cites inadequate protection of innovative pharmaceutical products and end-user software piracy as the main issues with IPR enforcement in Israel.

Israel is a member of the WTO and the World Intellectual Property Organization (WIPO). It is a signatory to the Berne Convention for the Protection of Literary and Artistic Works, the Universal Copyright Convention, the Paris Convention for the Protection of Industrial Property, and the Patent Cooperation Treaty.

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

Resources for Rights Holders

Mr. Peter Mehravari
Intellectual Property Attaché for the Middle East & North Africa
U.S. Embassy Abu Dhabi
Tel: +965 2259 1455
E-mail: Peter.Mehravari@trade.gov 

6. Financial Sector

Capital Markets and Portfolio Investment

The Israeli government is supportive of foreign portfolio investment. The Tel Aviv Stock Exchange (TASE) is Israel’s only public stock exchange.

Financial institutions in Israel allocate credit on market terms. For many years, banks issued credit to only a handful of individuals and corporate entities, some of whom held controlling interests in banks. However, in recent years, banks significantly reduced their exposure to large borrowers following the introduction of stronger regulatory restrictions on preferential lending practices.

The primary profit center for Israeli banks is consumer-banking fees. Various credit instruments are available to the private sector and foreign investors can receive credit on the local market. Legal, regulatory, and accounting systems are transparent and conform to international norms, although the prevalence of inflation-adjusted accounting means there are differences from U.S. accounting principles.

In the case of publicly traded firms where ownership is widely dispersed, the practice of “cross-shareholding” and “stable shareholder” arrangements to prevent mergers and acquisitions is common, but not directed particularly at preventing potential foreign investment. Israel has no laws or regulations regarding the adoption by private firms of articles of incorporation or association that limit or prohibit foreign investment, participation, or control.

Money and Banking System

The Bank of Israel (BOI) is Israel’s Central Bank and regulates all banking activity and monetary policy. In general, Israel has a healthy banking system that offers most of the same services as the U.S. banking system. Fees for normal banking transactions are significantly higher in Israel than in the United States and some services do not meet U.S. standards. There are 12 commercial banks and four foreign banks operating in Israel, according to the BOI. Five major banks, led by Bank Hapoalim and Bank Leumi, the two largest banks, dominate Israel’s banking sector. Bank Hapoalim and Bank Leumi control nearly 60 percent of Israel’s credit market. The State of Israel holds 6 percent of Bank Leumi’s shares. All of Israel’s other banks are privatized.

Foreign Exchange and Remittances

Foreign Exchange

Israel completed its foreign exchange liberalization process on January 1, 2003, when it removed the last restrictions on the freedom of institutional investors to invest abroad. The Israeli shekel is a freely convertible currency and there are no foreign currency controls. The BOI maintains the option to intervene in foreign currency trading in the event of movements in the exchange rate not in line with fundamental economic conditions, or if the BOI assesses the foreign exchange market is not functioning appropriately. Israeli citizens can invest without restriction in foreign markets. Foreign investors can open shekel accounts that allow them to invest freely in Israeli companies and securities. These shekel accounts are fully convertible into foreign exchange. Israel’s foreign exchange reserves totaled USD 185 billion at the end of February 2021.

Transfers of currency are protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement: http://www.imf.org/External/Pubs/FT/AA/index.htm#art7 

Remittance Policies

Most foreign currency transactions must be carried out through an authorized dealer. An authorized dealer is a banking institution licensed to arrange, inter alia, foreign currency transactions for its clients. The authorized dealer must report large foreign exchange transactions to the Controller of Foreign Currency. There are no limitations or significant delays in the remittance of profits, debt service, or capital gains.

Sovereign Wealth Funds

Israel passed legislation to establish the Israel Citizens’ Fund, a sovereign wealth fund managed by the BOI, in 2014 to offset the effect of natural gas production on the exchange rate. The original date for beginning the fund’s operations was 2018 but has been postponed until late 2021. The law establishing the fund states that it will begin operating a month after the state’s tax revenues from natural gas exceed USD 307 million (1 billion New Israeli Shekels).

7. State-Owned Enterprises

Israel established the Government Companies Authority (GCA) following the passage of the Government Companies Law. The GCA is an auxiliary unit of the Ministry of Finance. It is the administrative agency for state-owned companies in charge of supervision, privatization, and implementation of structural changes. The Israeli state only provides support for commercial SOEs in exceptional cases. The GCA leads the recruitment process for SOE board members. Board appointments are subject to the approval of a committee, which confirms whether candidates meet the minimum board member criteria set forth by law.

The GCA oversees some 100 companies, including commercial and noncommercial companies, government subsidiaries, and companies under mixed government-private ownership. Among these companies are some of the biggest and most complex in the Israeli economy, such as the Israel Electric Corporation, Israel Aerospace Industries, Rafael Advanced Defense Systems, Israel Postal Company, Mekorot Israel National Water Company, Israel Natural Gas Lines, the Ashdod, Haifa, and Eilat Port Companies, Israel Railways, Petroleum and Energy Infrastructures and the Israel National Roads Company. The GCA does not publish a publicly available list of SOEs.

Israel is party to the Government Procurement Agreement (GPA) of the World Trade Organization.

Privatization Program

In late 2014, Israel’s cabinet approved a privatization plan allowing the government to issue minority stakes of up to 49 percent in state-owned companies on the Tel Aviv Stock Exchange over a three-year period, a plan estimated to increase government revenue by USD 4.1 billion. The plan aimed to sell stakes in Israel’s electric company, water provider, railway, post office and some defense-related contractors. The GCA will likely auction minority stakes in a public bidding process without formal restrictions on the participation of foreign investors. Restrictions on foreign investors could be possible in the case of companies deemed to be of strategic significance.

Israel’s interministerial privatization committee approved plans in January 2020 to sell off the Port of Haifa, Israel’s largest shipping hub. The privatization process is underway now. The incoming owner will be required to invest approximately USD 280 million (1 billion NIS) in the port, including the cost of upgrading infrastructure and financing the layoff of an estimated 200 workers. That same committee voted to enable private investment in Israel Post in an effort to sell up to 40 percent of the government’s shares in Israel Post.

8. Responsible Business Conduct

There is awareness of responsible business conduct among enterprises and civil society in Israel. Israel adheres to the OECD Guidelines for Multinational Enterprises and a National Contact Point is operating in the Foreign Trade Administration. Israel is not a member of the Extractive Industries Transparency Initiative.

Israel’s National Contact Point sits in the Responsible Business Conduct unit in the OECD Department of the Foreign Trade Administration in the Ministry of Economy and Industry. An advisory committee, including representatives from the Ministries of Economy, Finance, Foreign Affairs, Justice, and the Environment, assist the National Contact Point. The National Contact Point also works in cooperation with the Manufacturer’s Association of Israel, workers’ organizations, and civil society to promote awareness of the guidelines.

Israel is not a signatory of the Montreux Document on Private Military and Security Companies. One Israeli company is a member of the International Code of Conduct for Private Security Service Providers’ Association.

Additional Resources

Department of State

Department of Labor

9. Corruption

Bribery and other forms of corruption are illegal under several Israeli laws and Civil Service regulations. Israel became a signatory to the OECD Bribery convention in November 2008 and a full member of the OECD in May 2010. Israel ranks 35 out of 180 countries in Transparency International’s 2019 Corruption Perceptions Index, dropping one place from its 2018 ranking. Several Israeli NGOs focus on public sector ethics in Israel and Transparency International has a local chapter.

Israel is a signatory of the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

The Israeli National Police, state comptroller, Attorney General, and Accountant General are responsible for combating official corruption. These entities operate effectively and independently and are sufficiently resourced. NGOs that focus on anticorruption efforts operate freely without government interference.

The international NGO Transparency International closely monitors corruption in Israel.

Resources to Report Corruption

Ministry of Justice
Office of the Director General
29 Salah a-Din Street Jerusalem
02-6466533, 02-6466534, 02-6466535
mancal@justice.gov.il 

Transparency International IsraelIfat Zamir
Tel Aviv University, Faculty of Management
+972 3 640 9176
ifat@ti-israel.org 

10. Political and Security Environment

For the latest safety and security information regarding Israel and the current travel advisory level, see the Travel Advisory for Israel, the West Bank, and Gaza ( https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/israel-west-bank-and-gaza-travel-advisory.html).

The security situation remains complex in Israel and the West Bank, and can change quickly depending on the political environment, recent events, and geographic location. Terrorist groups and lone-wolf terrorists continue plotting possible attacks in Israel, the West Bank, and Gaza. Terrorists may attack with little or no warning, targeting tourist locations, transportation hubs, markets or shopping malls, and local government facilities. Violence can occur in Jerusalem and the West Bank without warning. Terror attacks in Jerusalem and the West Bank have resulted in the deaths and injury of U.S. citizens and others. Hamas, a U.S. government-designated foreign terrorist organization, controls security in Gaza. The security environment within Gaza and on its borders is dangerous and volatile.

11. Labor Policies and Practices

The most recent Central Bureau of Statistics data from the fourth quarter of 2020 indicate there are 4.1 million people active in the Israeli labor force. According to OECD data, 48 percent of Israelis aged between 25 and 34 years have a tertiary education. Many university students specialize in fields with high industrial R&D potential, including engineering, computer science, mathematics, physical sciences, and medicine. According to the Investment Promotion Center, there are more than 145 scientists out of every 10,000 workers in Israel, one of the highest rates in the world. The rapid growth of Israel’s high-tech sector in the late 1990s increased the demand for workers with specialized skills.

The unemployment rate among 25-64 year-olds was 4.7 percent at the end of the fourth quarter of 2020, according to the Israeli Central Bureau of Statistics.

According to the Bank of Israel, at the end of the fourth quarter of 2020 there were 283,600 non-Israelis employed in Israel.

The national labor federation, the Histadrut, organizes about 17 percent of all Israeli workers. Collective bargaining negotiations in the public sector take place between the Histadrut and representatives from the Ministry of Finance. The number of strikes has declined significantly as the public sector has gotten smaller. However, strikes remain a common and viable negotiating vehicle in many difficult wage negotiations.

Israel strictly observes the Friday afternoon to Saturday afternoon Jewish Sabbath and special permits must be obtained from the government authorizing Sabbath employment. At the age of 18, most Israelis are required to perform 2-3 years of national service in the military or in select civilian institutions. Until their mid-40s, Israeli males are required to perform about a month of military reserve duty annually, during which time they receive compensation from national insurance companies.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2020/Q4 $40,900 per capita 2019 $394.6 billion www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $29,800 2019 $28,543 BEA data available at https://www.bea.gov/sites/default/files/
2020-07/dici0720_0.pdf
 
Host country’s FDI in the United States ($M USD, stock positions) 2018 $12,000 2019 $36,641 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP N/A N/A 2019 4.7% UNCTAD data available at
https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html  
 

* Source for Host Country Data:

Israel’s Central Bureau of Statistics released final 2018 FDI data on March 23, 2020.

https://www.cbs.gov.il/en/mediarelease/Pages/2020/Foreign-Direct-Investment-in-Israel-and-Direct-Investment-Abroad-by-Industries-and-Countries-2016-2018.aspx

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 164,424 100% Total Outward 112,055 100%
United States 31,881 19% The Netherlands 48,903 44%
The Netherlands 12,850 8% United States 12,911 12%
Cayman Islands 12,302 7% Switzerland 3,177 3%
Canada 5,275 3% Japan 3,032 3%
China, P.R. 4,389 3% Canada 2,253 2%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Destinations (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 175,628 100% All Countries 101,968 100% All Countries 73,660 100%
United States 97,245 55% United States 60,950 60% United States 36,295 49%
United Kingdom 12,977 7% United Kingdom 10,390 10% United Kingdom 2,587 4%
Luxembourg 9,205 5% Luxembourg 8,491 8% France 1,984 3%
France 6,159 4% Ireland 4,797 5% Netherlands, The 1,571 2%
Ireland 4,942 3% France 4,175 4% Germany 1,482 2%

14. Contact for More Information

Russ Headlee
Economic Officer
U.S. Embassy Jerusalem – Tel Aviv Branch Office
HeadleeRC@state.gov

Japan

Executive Summary

Japan is the world’s third largest economy, the United States’ fourth largest trading partner, and, as of 2019, the top provider of foreign direct investment (FDI) in the United States. The Japanese government actively welcomes and solicits inward foreign investment and has set ambitious goals for increasing inbound FDI. Despite Japan’s wealth, high level of development, and general acceptance of foreign investment, however, inbound FDI stocks, as a share of GDP, are the lowest in the OECD.

Japan’s legal and regulatory climate is highly supportive of investors in many respects. Courts are independent, but attorney-client privilege does not exist in civil, criminal or administrative matters, with the exception of limited application in cartel anti-trust investigations. There is no right to have counsel present during criminal or administrative interviews. The country’s regulatory system is improving transparency and developing new regulations in line with international norms. Capital markets are deep and broadly available to foreign investors. Japan maintains strong protections for intellectual property rights with generally robust enforcement. The country remains a large, wealthy, and sophisticated market with world-class corporations, research facilities, and technologies. Nearly all foreign exchange transactions, including transfers of profits, dividends, royalties, repatriation of capital, and repayment of principal, are freely permitted. The sectors that have historically attracted the largest foreign direct investment in Japan are electrical machinery, finance, and insurance.

On the other hand, foreign investors in the Japanese market continue to face numerous challenges. A traditional aversion towards mergers and acquisitions within corporate Japan has inhibited foreign investment, and weak corporate governance, among other factors, has led to low returns on equity and cash hoarding among Japanese firms, although business practices are improving in both areas. Investors and business owners must also grapple with inflexible labor laws and a highly regimented labor recruitment system that can significantly increase the cost and difficulty of managing human resources. The Japanese government has recognized many of these challenges and is pursuing initiatives to improve investment conditions.

Levels of corruption in Japan are low, but deep relationships between firms and suppliers may limit competition in certain sectors and inhibit the entry of foreign firms into local markets.

Future improvement in Japan’s investment climate is largely contingent on the success of structural reforms to raise economic growth, and, in the near term, the implementation of COVID-19 recovery measures.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 19 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 29 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 16 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 131,793 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 USD 41,710 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Direct inward investment into Japan by foreign investors has been open and free since amendment of the Foreign Exchange and Foreign Trade Act (FEFTA) in 1998. In general, the only requirement for foreign investors making investments in Japan is to submit an ex post facto report to the relevant ministries. The Act was amended in 2019, updating Japan’s foreign investment review regime.  The legislation became effective in May 2020 and lowered the ownership threshold for pre-approval notification to the government for foreign investors from ten percent to one percent in industries that could pose risks to Japanese national security. There are waivers for certain categories of investors.

The Japanese Government explicitly promotes inward FDI and has established formal programs to attract it. In 2013, the government of Prime Minister Shinzo Abe announced its intention to double Japan’s inward FDI stock to JPY 35 trillion (USD 318 billion) by 2020 and reiterated that commitment in its revised Japan Revitalization Strategy issued in August 2016. At the end of 2019, Japan’s inward FDI stock was JPY 33.9 trillion (USD 310 billion), a 10.4 percent increase over the previous year. The Suga Administration’s interest in attracting FDI is one component of the government’s strategy to reform and revitalize the Japanese economy, which continues to face the long-term challenges of low growth, an aging population, and a shrinking workforce.

The government’s “FDI Promotion Council,” composed of government ministers and private sector advisors, releases recommendations on improving Japan’s FDI environment. In a May 2018 report ( http://www.invest-japan.go.jp/documents/pdf/support_program_en.pdf ), the council decided to launch the Support Program for Regional Foreign Direct Investment in Japan, recommending that local governments formulate a plan to attract foreign companies to their regions.

The Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) are the lead agencies responsible for assisting foreign firms wishing to invest in Japan. METI and JETRO have together created a “one-stop shop” for foreign investors, providing a single Tokyo location—with language assistance—where those seeking to establish a company in Japan can process the necessary paperwork (details are available at http://www.jetro.go.jp/en/invest/ibsc/ ). Prefectural and city governments also have active programs to attract foreign investors, but they lack many of the financial tools U.S. states and municipalities use to attract investment.

Foreign investors seeking a presence in the Japanese market or seeking to acquire a Japanese firm through corporate takeovers may face additional challenges, many of which relate more to prevailing business practices rather than to government regulations, although this varies by sector. These challenges include an insular and consensual business culture that has traditionally resisted unsolicited mergers and acquisitions (M&A), especially when initiated by non-Japanese entities; a lack of multiple independent directors on many company boards (even though board composition is changing); exclusive supplier networks and alliances between business groups that can restrict competition from foreign firms and domestic newcomers; cultural and linguistic challenges; and labor practices that tend to inhibit labor mobility. Business leaders have communicated to the Embassy that regulatory and governmental barriers are more likely to exist in mature, heavily regulated sectors than in new industries.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private enterprises have the right to establish and own business enterprises and engage in all forms of remunerative activity. Japan has gradually eliminated most formal restrictions governing FDI. One remaining restriction limits foreign ownership in Japan’s former land-line monopoly telephone operator, Nippon Telegraph and Telephone (NTT), to 33 percent. Japan’s Radio Law and separate Broadcasting Law also limit foreign investment in broadcasters to 20 percent, or 33 percent for broadcasters categorized as providers of broadcast infrastructure. Foreign ownership of Japanese companies invested in terrestrial broadcasters will be counted against these limits. These limits do not apply to communication satellite facility owners, program suppliers or cable television operators.

The Foreign Exchange and Foreign Trade Act, as amended, governs investment in sectors deemed to have national security or economic stability implications. If a foreign investor wants to acquire over one percent of the shares of a listed company in the sectors set out below, it must provide prior notification and obtain approval from the Ministry of Finance and the ministry that regulates the specific industry. Designated sectors include weapons manufacturers, nuclear power, agriculture, aerospace, forestry, petroleum, electric/gas/water utilities, telecommunications, and leather manufacturing. There are waivers for certain categories of investors.

U.S. investors, relative to other foreign investors, are not disadvantaged or singled out by any ownership or control mechanisms, sector restrictions, or investment screening mechanisms.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducted its most recent review of Japan’s trade policies in November 2020 (available at directdoc.aspx (wto.org) ).

The OECD released its biennial Japan economic survey results on April 15, 2019 (available at http://www.oecd.org/japan/economic-survey-japan.htm ).

Business Facilitation

The Japan External Trade Organization is Japan’s investment promotion and facilitation agency. JETRO operates six Invest Japan Business Support Centers (IBSCs) across Japan that provide consultation services on Japanese incorporation types, business registration, human resources, office establishment, and visa/residency issues. Through its website ( https://www.jetro.go.jp/en/invest/setting_up/ ), the organization provides English-language information on Japanese business registration, visas, taxes, recruiting, labor regulations, and trademark/design systems and procedures in Japan. While registration of corporate names and addresses can be completed online, most business registration procedures must be completed in person. In addition, corporate seals and articles of incorporation of newly established companies must be verified by a notary, although there are indications of change underway. When he took office in September 2020, Prime Minister Suga called for reforms to eliminate use of seals and paper-based process along with establishment of a new Digital Agency as part of his policy agenda of digitizing the provision of government services.

According to the 2020 World Bank “Doing Business” Report, it takes eleven days to establish a local limited liability company in Japan. JETRO reports that establishing a branch office of a foreign company requires one month, while setting up a subsidiary company takes two months. While requirements vary according to the type of incorporation, a typical business must register with the Legal Affairs Bureau (Ministry of Justice), the Labor Standards Inspection Office (Ministry of Health, Labor, and Welfare), the Japan Pension Service, the district Public Employment Security Office, and the district tax bureau. JETRO operates a one-stop business support center in Tokyo so that foreign companies can complete all necessary legal and administrative procedures in one location. In 2017, JETRO launched an online business registration system that allows businesses to register company documents but not immigration documentation.

No laws exist to explicitly prevent discrimination against women and minorities regarding registering and establishing a business. Neither special assistance nor mechanisms exist to aid women or underrepresented minorities.

Outward Investment

The Japan Bank for International Cooperation (JBIC) provides a variety of support for outward Japanese foreign direct investment. Most such support comes in the form of “overseas investment loans,” which can be provided to Japanese companies (investors), overseas Japanese affiliates (including joint ventures), and foreign governments in support of projects with Japanese content, typically infrastructure projects. JBIC often supports outward FDI projects to develop or secure overseas resources that are of strategic importance to Japan, for example, construction of liquefied natural gas (LNG) export terminals to facilitate sales to Japan and third countries in Asia. More information is available at https://www.jbic.go.jp/en/index.html .

Nippon Export and Investment Insurance (NEXI) supports outward investment by providing exporters and investors insurance that protects them against risks and uncertainty in foreign countries that is not covered by private-sector insurers. Together, JBIC and NEXI act as Japan’s export credit agency.

Japan also employs specialized agencies and public-private partnerships to target outward investment in specific sectors.  For example, the Fund Corporation for the Overseas Development of Japan’s Information and Communications Technology and Postal Services (JICT) supports overseas investment in global telecommunications, broadcasting, and postal businesses.

Similarly, the Japan Overseas Infrastructure Investment Corporation for Transport and Urban Development (JOIN) is a government-funded corporation to invest and participate in transport and urban development projects that involve Japanese companies.  The fund specializes in overseas infrastructure investment projects such as high-speed rail, airports, and smart city projects with Japanese companies, banks, governments, and other institutions (e.g., JICA, JBIC, NEXI).

Finally, the Japan Oil, Gas and Metals National Corporation (JOGMEC) is a Japanese government entity administered by the Agency for Natural Resources and Energy under METI.  JOGMEC provides equity capital and liability guarantees to Japanese companies for oil and natural gas exploration and production projects.

Japan places no restrictions on outbound investment.

2. Bilateral Investment Agreements and Taxation Treaties

The 1953 U.S.-Japan Treaty of Friendship, Commerce, and Navigation gives national treatment and most favored nation treatment to U.S. investments in Japan.

On January 1, 2021, the Japan-UK Comprehensive Economic Partnership Agreement entered into force, which includes a chapter on investment liberalization. The text of the agreement is available online ( https://www.mofa.go.jp/files/100111408.pdf ). In November 2020, Japan signed the Regional Comprehensive Economic Partnership (RCEP) with the ten ASEAN nations, Australia, China, the Republic of Korea, and New Zealand. RCEP also includes a chapter on investment. The text of the agreement is available online (https://rcepsec.org/legal-text/).

As of February 2021, Japan had concluded 35 bilateral investment treaties (BITs) (Argentina, Armenia, Bangladesh, Cambodia, China, Colombia, Egypt, Georgia, Hong Kong SAR, Iran, Iraq, Israel, Jordan, Kazakhstan, the Republic of Korea, Kuwait, Laos, Mongolia, Morocco, Mozambique, Myanmar, Pakistan, Papua New Guinea, Peru, Russia, Saudi Arabia, Sri Lanka, Turkey, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Vietnam, Oman, and Kenya). In addition, Japan has a trilateral investment agreement with China and the Republic of Korea. Japan also has 18 economic partnership agreements (EPA) that include investment chapters (with Singapore, ASEAN, Mexico, Malaysia, Philippines, Chile, Thailand, Brunei, Indonesia, Switzerland, Vietnam, India, Peru, Australia and Mongolia, the Comprehensive and Progressive Partnership for Trans-Pacific Partnership (CPTPP), UK and RCEP).

On February 1, 2019, the Japan – European Union Economic Partnership Agreement entered into force, which includes provisions related to investment. The text of the agreement is available online ( http://trade.ec.europa.eu/doclib/press/index.cfm?id=1684&title=EU-Japan-Economic-Partnership-Agreement-texts-of-the-agreement ). The Comprehensive and Progressive Agreement for Trans-Pacific Partnership went into effect on December 30, 2018. This agreement includes an investment chapter. The United States is not a signatory to this agreement. Japan is the current chair of the CPTPP commission, its second time since the agreement went into effect.

The United States and Japan have a double taxation treaty, which allows Japan to tax the business profits of a U.S. resident only to the extent that those profits are attributable to a permanent establishment in Japan. It also provides measures to mitigate double taxation. This permanent establishment provision, combined with Japan’s corporate tax rate that nears 30 percent, serves to encourage foreign and investment funds to keep their trading and investment operations offshore.

In January 2013, the United States and Japan signed a revision to the bilateral income tax treaty, to bring it into closer conformity with the current tax treaty policies of the United States and Japan. The revision went into effect in August 2019 after ratification by the U.S Congress.

Japan has concluded 79 double taxation treaties that cover 142 countries and jurisdictions, as of February 1, 2021. More information is available from the Ministry of Finance: http://www.mof.go.jp/english/tax_policy/tax_conventions/international_182.htm .

3. Legal Regime

Transparency of the Regulatory System

Japan operates a highly centralized regulatory system in which national-level ministries and government organs play a dominant role. Regulators are generally sophisticated and there is little evidence of explicit discrimination against foreign firms. Most draft regulations and impact assessments are released for public comment before implementation and are accessible through a unified portal ( http://www.e-gov.go.jp/ ). Law, regulations, and administrative procedures are generally available online in Japanese along with regular publication in an official gazette. The Japanese government also actively maintains a body of unofficial English translations of some Japanese laws ( http://www.japaneselawtranslation.go.jp/ ).

Some members of the foreign business community in Japan continue to express concern that Japanese regulators do not seek sufficient formal input from industry stakeholders, instead relying on formal and informal connections between regulators and domestic firms to arrive at regulatory decisions. This may have the effect of disadvantaging foreign firms that lack the benefit of deep relationships with local regulators. The United States has encouraged the Japanese government to improve public notice and comment procedures to ensure consistency and transparency in rule-making, and to give fair consideration to comments received. The National Trade Estimate Report on Foreign Trade Barriers (NTE), issued by the Office of the U.S. Trade Representative (USTR), contains a description of Japan’s regulatory regime as it affects foreign exporters and investors.

International Regulatory Considerations

The Japanese Industrial Standards Committee (JISC), administered by the Ministry of Economy, Trade, and Industry, plays a central role in maintaining Japan Industrial Standards (JIS). JISC aims to align JIS with international standards. According to JISC, as of March 31, 2020, 58 percent of Japan’s standards were harmonized with their international counterparts. Nonetheless, Japan maintains a large number of Japan-specific standards that can complicate efforts to introduce new products to the country. Japan is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade (TBT) of proposed regulations.

Legal System and Judicial Independence

Japan is primarily a civil law country based on codified law. The Constitution and the five major legal codes (Civil, Civil Procedure, Commercial, Criminal, and Criminal Procedure) form the legal basis of the system. Japan has a fully independent judiciary and a consistently applied body of commercial law. An Intellectual Property High Court was established in 2005 to expedite trial proceedings in IP cases. Foreign judgments are recognized and enforced by Japanese courts under certain conditions.

Laws and Regulations on Foreign Direct Investment

Major laws affecting foreign direct investment into Japan include the Foreign Exchange and Foreign Trade Act, the Companies Act, and the Financial Instruments and Exchange Act. The Japanese government actively encourages FDI into Japan and has sought over the past decades to ease legal and administrative burdens on foreign investors, including with major reforms to the Companies Act in 2005 and the Financial Instruments and Exchange Act in 2008. The Japanese government amended the Foreign Exchange and Foreign Trade Act in 2019.

Competition and Antitrust Laws

The Japan Fair Trade Commission (JFTC) holds sole responsibility for enforcing Japanese competition and anti-trust law, although public prosecutors may file criminal charges related to a JFTC finding. In fiscal year 2019, the JFTC investigated 99 suspected Antimonopoly Act (AMA) violations and completed 81 investigations. During this same time period, the JFTC issued 11 cease and desist orders and issued a total of 69.2 billion yen (USD 659 million) surcharge payment orders to 37 companies. In 2019, an amendment to the AMA passed the Diet that granted the JFTC discretion to incentivize cooperation with investigations and adjust surcharges according to the nature and extent of the violation.

The JFTC also reviews proposed “business combinations” (i.e., mergers, acquisitions, increased shareholdings, etc.) to ensure that transactions do not “substantially … restrain competition in any particular field of trade.” In December 2019, amended merger guidelines and policies were put into force to “deal with business combinations in the digital market.” Data is given consideration as a competitive asset under these new guidelines along with the network effects characteristic of digital businesses. The JFTC has expanded authority to review merger cases, including “Non-Notifiable Cases,” when the transaction value is more than JPY40 billion (USD 370 million) and the merger is expected to affect domestic consumers. Further, the amended policies suggest that parties consult with the JFTC voluntarily when the transaction value exceeds JPY40 billion and when one or more of the following factors is met: (i) When an acquired company has an office in Japan and/or conducts research and development in Japan;

(i) When an acquired company has an office in Japan and/or conducts research and development in Japan; (ii) When an acquired company conducts sales activities targeting domestic consumers, such as developing marketing materials (website, brochures, etc.) in the Japanese language; or

(ii) When an acquired company conducts sales activities targeting domestic consumers, such as developing marketing materials (website, brochures, etc.) in the Japanese language; or (iii) When the total domestic sales of an acquired company exceed JPY100 million (USD 920,000)

(iii) When the total domestic sales of an acquired company exceed JPY100 million (USD 920,000)

Expropriation and Compensation

Since 1945, the Japanese government has not expropriated any enterprise, and the expropriation or nationalization of foreign investments in Japan is highly unlikely.

Dispute Settlement

ICSID Convention and New York Convention

Japan has been a member of the International Centre for the Settlement of Investment Disputes (ICSID Convention) since 1967 and is also a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Enforcement of arbitral awards in Japan are provided for in Japan’s Arbitration Law. Enforcement in other contracting states is also possible. The Supreme Court of Japan has denied the enforceability of awards for punitive damages, however. The Arbitration Law provides that an arbitral award (irrespective of whether or not the seat of arbitration is in Japan) has the same effect as a final and binding judgment. The Arbitration Law does not distinguish awards rendered in contracting states of the New York Convention and in non-contracting states.

Investor-State Dispute Settlement

International Commercial Arbitration and Foreign Courts

The Japan Commercial Arbitration Association (JCAA) is the sole permanent commercial arbitral institution in Japan. Japan’s Arbitration Law is based on the United Nations Commission on International Trade Law “Model Law on International Commercial Arbitration” (UNCITRAL Model Law). Local courts recognize and enforce foreign arbitral awards.

A wide range of Alternate Dispute Resolution (ADR) organizations also exist in Japan. The Ministry of Justice (MOJ) has responsibility for regulating and accrediting ADR groups. A Japanese-language list of accredited organizations is available on the MOJ website: http://www.moj.go.jp/KANBOU/ADR/index.html .

Bankruptcy Regulations

The World Bank 2020 “Doing Business” Report ranked Japan third worldwide for resolving insolvency. An insolvent company in Japan can face liquidation under the Bankruptcy Act or take one of four roads to reorganization: the Civil Rehabilitation Law; the Corporate Reorganization Law; corporate reorganization under the Commercial Code; or an out-of-court creditor agreement. The Civil Rehabilitation Law focuses on corporate restructuring in contrast to liquidation, provides stronger protection of debtor assets prior to the start of restructuring procedures, eases requirements for initiating restructuring procedures, simplifies and rationalizes procedures for the examination and determination of liabilities, and improves procedures for approval of rehabilitation plans.

Out-of-court settlements in Japan tend to save time and expense but can lack transparency. In practice, because 100 percent creditor consensus is required for out-of-court settlements and courts can sanction a reorganization plan with only a majority of creditors’ approval, the last stage of an out-of-court settlement is often a request for a judicial seal of approval.

There are three domestic credit reporting/ credit-monitoring agencies in Japan. They are not government-run.  They are: Japan Credit Information Reference Center Corp. (JICC, https://www.jicc.co.jp/english/index.html ‘, member companies deal in consumer loans, finance, and credit); Credit Information Center (CIC, https://www.cic.co.jp/en/index.html , member companies deal in credit cards and credit); and Japan Bankers Association (JBA, https://www.zenginkyo.or.jp/pcic/ , member companies deal in banking and bank-issued credit cards). Credit card companies, such as Japan Credit Bureau (JCB), and large banks, such as Mitsubishi UFJ Financial Group (MUFG), also maintain independent databases to monitor and assess credit.

Per Japan’s Banking Act, data and scores from credit reports and credit monitoring databases must be used solely by financial institutions for financial lending purposes.  This information is provided to credit card holders themselves through services provided by credit reporting/credit monitoring agencies.   Increasingly, however, to get around the law, real estate companies partner with a “credit guarantee association” and encourage or effectively require tenants to use its services. According to a 2017 report from the Japan Property Management Association (JPMA), roughly 80 percent of renters in Japan used such a service. While financial institutions can share data to the databases and receive credit reports by joining the membership of a credit monitoring agency, the agencies themselves, as well as credit card companies and large banks, generally do not necessarily share data with each other.  As such, consumer credit information is generally underutilized and vertically siloed.

A government-operated database, the Juminhyo or the “citizen documentation database,” is used for voter registration; confirmation of eligibility for national health insurance, national social security, and child allowances; and checks and registrations related to scholarships, welfare protection, stamp seals (signatures), and immunizations. The database is strictly confidential, government-controlled, and not shared with third parties or private companies.

For the credit rating of businesses, there are at least seven credit rating agencies (CRAs) in Japan, including Moody’s Japan, Standard & Poor’s Ratings Japan, Tokyo Shoko Research, and Teikoku Databank. See Section 9 for more information on business vetting in Japan.

4. Industrial Policies

Investment Incentives

The Japan External Trade Organization (JETRO) maintains an English-language list of national and local investment incentives available to foreign investors on their website: https://www.jetro.go.jp/en/invest/incentive_programs/ .

Foreign Trade Zones/Free Ports/Trade Facilitation

Japan no longer has free-trade zones or free ports. Customs authorities allow the bonding of warehousing and processing facilities adjacent to ports on a case-by-case basis.

The National Strategic Special Zones Advisory Council chaired by the Prime Minister has established a total of ten National Strategic Special Zones (NSSZ) to implement selected deregulation measures intended to attract new investment and boost regional growth. Under the NSSZ framework, designated regions request regulatory exceptions from the central government in support of specific strategic goals defined in each zone’s “master plan,” which focuses on a potential growth area such as labor, education, technology, agriculture, or healthcare. Foreign-owned businesses receive equal treatment in the NSSZs; some measures aim specifically to ease customs and immigration restrictions for foreign investors, such as the “Startup Visa” adopted by the Fukuoka NSSZ.

The Japanese government has also sought to encourage investment in the Tohoku (northeast) region, which was devastated by the earthquake, tsunami, and nuclear “triple disaster” of March 11, 2011. Areas affected by the disaster have been included in a “Special Zone for Reconstruction” that features eased regulatory burdens, tax incentives, and financial support to encourage heightened participation in the region’s economic recovery.

A revision to add “advanced data technologies” as one of targeted growth areas for NSSZs, was approved by the Diet in May 2020 and went into effect on September 1, 2020. The revision will allow regions to create “Super City National Strategic Zones,” on the condition that the zone will provide advanced services to its citizens through utilizing artificial intelligence (AI), big data or other data linkage platforms. The Cabinet Office website cited remote schooling/healthcare, cashless payment services, and one-stop administrative services as examples of such projects. The Japanese government is accepting applications for “Super City Strategic Zone Project ” as well as requests for related regulatory reforms until April 16, 2021.

Performance and Data Localization Requirements

Japan does not maintain performance requirements or requirements for local management participation or local control in joint ventures.

Japan has no general restrictions on data storage. On January 1, 2020, the U.S.-Japan Digital Trade Agreement went into effect and specifically prohibits data localization measures that restrict where data can be stored and processed. These rules are extended to financial service suppliers, in circumstances where a financial regulator has the access to data needed to fulfill its regulatory and supervisory mandate.

5. Protection of Property Rights

Real Property

Secured interests in real property are recognized and enforced. Mortgages are a standard lien on real property and must be recorded to be enforceable. Japan has a reliable recording system. Property can be rented or leased but no sub-lease is legal without the owner’s consent. In the World Bank 2020 “Doing Business” Report, Japan ranks 43 out of 190 economies in the category of Ease of Registering Property. There are bureaucratic steps and fees associated with purchasing improved real property in Japan, even when it is already registered and has a clear title. The required documentation for property purchases can be burdensome. Additionally, it is common practice in Japan for property appraisal values to be lower than the actual sale value, increasing the deposit required of the purchaser, as the bank will provide financing only up to the appraisal value.

The Japanese Government is unsure of the titleholders to 4.1 million hectares of land in Japan, roughly 20 percent of all land and an area equivalent in size to the island of Kyushu. According to a think tank expert on land use, 25 percent of all the land in Japan is registered to people who are no longer alive or otherwise unreachable. In 2015, the Ministry of Land, Infrastructure, Transportation and Tourism (MLIT) found that, of 400 randomly selected tracts of land, 46 percent was registered more than 30 years ago, and 20 percent was registered more than 50 years ago. A similar survey by the Ministry of Agriculture, Forestry and Fisheries (MAFF) found that 20 percent of farmland had a deceased owner and had not been re-registered. The government appointed a group of experts to study the matter, and the Unknown Land Owners Problem Study Group announced the results in a midterm report on June 26, 2017, and in a final report on December 13, 2017 ( http://www.kok.or.jp/project/fumei.html ). It estimated that by 2040 the amount of land without titleholders will increase to 7.2 million hectares. There are a number of reasons beyond the administrative difficulties of a title transfer as to why land lacks a clear title holder. They include: population decline, especially in rural areas; the difficulty of locating heirs, particularly if there are multiple heirs or if the deceased had no children; and the cost of reregistering land under a new name due to tax costs. Virtually all the large banks, as well as some other private companies, offer loans to purchase property in Japan.

Intellectual Property Rights

Japan maintains a comprehensive and sophisticated intellectual property (IP) regime recognized as among the strongest in the world. In 2020, Japan ranked sixth out of 53 countries evaluated by the U.S. Chamber of Commerce on the strength of IP environments. The government has operated a dedicated “Intellectual Property High Court” to adjudicate IP-related cases since 2005, providing judges with enhanced access to technical experts and the ability to specialize in intellectual property law. However, certain shortcomings remain, notably in the transparency and predictability of its system for pricing on-patent pharmaceuticals. The discriminatory effect of healthcare reimbursement pricing measures implemented by the Japanese government continues to raise serious concerns about the ability of U.S. pharmaceutical companies to have full and fair opportunity to use and profit from their IP in the Japanese market. More generally, the weak deterrent effect of Japan’s relatively modest penalties for IP infringement remains a cause for concern.

U.S. Embassy Tokyo is aware of isolated claims of U.S. IP misappropriation by Japanese state-owned or affiliated entities and presumes, given the vast volume of bilateral trade, that additional cases across public and private sectors may exist. That said, the Japanese government has taken several steps in recent years to improve protection of trade secrets. Revisions to the Unfair Competition Prevention Act (UCPA) went into effect July 2019, which classifies the improper acquisition, disclosure, and use of specified protected data as an act of unfair competition, offering civil and criminal remedies to stakeholders. The revisions also extend the scope of unfair competition to include attempts to circumvent technological restriction measures. Japan has taken a leading role in promoting the expansion of IP rights in recent regional trade agreements, including:

  • RCEP: On November 15, 2020, Japan joined 10 ASEAN member states, plus Australia, China, New Zealand, and the Republic of Korea, in signing the Regional Comprehensive Economic Partnership. This regional trade agreement includes a comprehensive IP chapter, much of it repeating norms set out in TRIPS, but also offering unique protections for genetic resources, traditional knowledge, and folklore.
  • Japan-UK CEPA: The Japan-UK Comprehensive Economic Partnership Agreement signed on October 23, 2020, and in force beginning January 1, 2021, contains an IP chapter including provisions on copyrights, trademarks, geographical indications, industrial designs, patents, regulatory test data exclusivity, new plant varieties, trade secrets, domain names, and enforcement.
  • Japan-EU EPA: The Japan-EU Economic Partnership Agreement, which went into effect February 1, 2019, also includes a substantial IP chapter.
  • CPTPP: As part of its 2018 accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Japan passed several substantive amendments to its copyright law, including measures that extended the term of copyright protection and strengthened technological protection rules.

Japan’s Customs and Tariff Bureau publishes a yearly report on goods seizures, available online in English ( http://www.customs.go.jp/mizugiwa/chiteki/pages/g_001_e.htm ). Japan seized an estimated $121.2 million worth of IP-infringing goods in 2019, a decrease of 5.2 percent over 2018. In June 2020, the Customs and Tariff Bureau of the Ministry of Finance announced the “SMART Customs Initiative 2020,” which aims to utilize cutting-edge technologies such as AI to improve the sophistication and efficiency of its operations. For additional information about national laws and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/ .

6. Financial Sector

Capital Markets and Portfolio Investment

Japan maintains no formal restrictions on inward portfolio investment except for certain provisions covering national security. Foreign capital plays an important role in Japan’s financial markets, with foreign investors accounting for the majority of trading shares in the country’s stock market. Historically, many company managers and directors have resisted the actions of activist shareholders, especially foreign private equity funds, potentially limiting the attractiveness of Japan’s equity market to large-scale foreign portfolio investment, although there are signs of change. Some firms have taken steps to facilitate the exercise of shareholder rights by foreign investors, including the use of electronic proxy voting. The Tokyo Stock Exchange (TSE) maintains an Electronic Voting Platform for Foreign and Institutional Investors. All holdings of TSE-listed stocks are required to transfer paper stock certificates into electronic form.

The Japan Exchange Group (JPX) operates Japan’s two largest stock exchanges – in Tokyo and Osaka – with cash equity trading consolidated on the TSE since July 2013 and derivatives trading consolidated on the Osaka Exchange since March 2014.

In January 2014, the TSE and Nikkei launched the JPX Nikkei 400 Index. The index puts a premium on company performance, particularly return on equity (ROE). Companies included are determined by such factors as three-year average returns on equity, three-year accumulated operating profits and market capitalization, along with others such as the number of external board members. Inclusion in the index has become an unofficial “seal of approval” in corporate Japan, and many companies have taken steps, including undertaking share buybacks, to improve their ROE. The Bank of Japan has purchased JPX-Nikkei 400 exchange traded funds (ETFs) as part of its monetary operations, and Japan’s massive Government Pension Investment Fund (GPIF) has also invested in JPX-Nikkei 400 ETFs, putting an additional premium on membership in the index.

Japan does not restrict financial flows and accepts obligations under IMF Article VIII.

Credit is available via multiple instruments, both public and private, although access by foreigners often depends upon visa status and the type of investment.

Money and Banking System

Banking services are easily accessible throughout Japan; it is home to many of the world’s largest private commercial banks as well as an extensive network of regional and local banks. Most major international commercial banks are also present in Japan, and other quasi-governmental and non-governmental entities, such as the postal service and cooperative industry associations, also offer banking services. For example, the Japan Agriculture Union offers services through its bank (Norinchukin Bank) to members of the organization. Japan’s financial sector is generally acknowledged to be sound and resilient, with good capitalization and with a declining ratio of non-performing loans. While still healthy, most banks have experienced pressure on interest margins and profitability as a result of an extended period of low interest rates capped by the Bank of Japan’s introduction of a negative interest rate policy in 2016.

The country’s three largest private commercial banks, often collectively referred to as the “megabanks,” are Mitsubishi UFJ Financial, Mizuho Financial, and Sumitomo Mitsui Financial. Collectively, they hold assets approaching close to USD 8 trillion at 2020 year end. Japan’s third largest bank by assets – with more than USD 2 trillion – is Japan Post Bank, a financial subsidiary of the Japan Post Group that is still majority state-owned, 56.9 percent as of September 2020. Japan Post Bank offers services via 23,831 Japan Post office branches, at which Japan Post Bank services can be conducted, as well as Japan Post’s network of about 32,000 ATMs nationwide.

A large number of foreign banks operate in Japan offering both banking and other financial services. Like their domestic counterparts, foreign banks are regulated by the Japan Financial Services Agency (FSA). According to the IMF, there have been no observations of reduced or lost correspondent banking relationships in Japan. There are 518 correspondent financial institutions that have current accounts at the country’s central bank (including 123 main banks; 11 trust banks; 50 foreign banks; and 247 credit unions).

Foreigners wishing to establish bank accounts must show a passport, visa, and foreigner residence card; temporary visitors may not open bank accounts in Japan. Other requirements (e.g., evidence of utility registration and payment, Japanese-style signature seal, etc.) may vary according to institution. Language may be a barrier to obtaining services at some institutions; foreigners who do not speak Japanese should research in advance which banks are more likely to offer bilingual services.

Japanese regulators are encouraging “open banking” interactions between financial institutions and third-party developers of financial technology applications through application programming interfaces (“APIs”) when customers “opt-in” to share their information.  As a result of the government having set a target to have 80 banks adopt API standards by 2020, more than 100 subject banks reportedly have done so  Many of the largest banks are participating in various proofs of concept using blockchain technology.  While commercial banks have not yet formally adopted blockchain-powered systems for fund settlement, they are actively exploring options, and the largest banks have announced intentions to produce their own virtual currencies at some point.  The Bank of Japan is researching blockchain and its applications for national accounts and established a “Fintech Center” to lead this effort.  The main banking regulator, the Japan Financial Services Agency also encourages innovation with financial technologies, including sponsoring an annual conference on “fintech” in Japan.  In April 2017, amendments to the Act on Settlements of Funds went into effect, permitting the use of virtual currencies as a form of payment in Japan, but virtual currency is still not considered legal tender (e.g., commercial vendors may opt to accept virtual currencies for transactional payments, though virtual currency cannot be used as payment for taxes owed to the government).  The law also requires the registration of virtual currency exchange businesses.  There are currently 27-registered virtual currency exchanges in Japan. In 2017, Japan accounted for approximately half of the world’s trades of Bitcoin, the most prevalent blockchain currency (digital decentralized cryptographic currency).

Foreign Exchange and Remittances

Foreign Exchange

Generally, all foreign exchange transactions to and from Japan—including transfers of profits and dividends, interest, royalties and fees, repatriation of capital, and repayment of principal—are freely permitted. Japan maintains an ex-post facto notification system for foreign exchange transactions that prohibits specified transactions, including certain foreign direct investments (e.g., from countries under international sanctions) or others that are listed in the appendix of the Foreign Exchange and Foreign Trade Act.

Japan has a floating exchange rate and has not intervened in the foreign exchange markets since November 2011. It has joined statements of the G-7 and G-20 affirming that countries would not target exchange rates for competitive purposes.

Remittance Policies

Investment remittances are freely permitted.

Sovereign Wealth Funds

Japan does not operate a sovereign wealth fund.

7. State-Owned Enterprises

Japan has privatized most former state-owned enterprises (SOEs). Under the Postal Privatization Law, privatization of Japan Post group started in October 2007 by turning the public corporation into stock companies. The stock sale of the Japan Post Holdings Co. and its two financial subsidiaries, Japan Post Insurance (JPI) and Japan Post Bank (JPB), began in November 2015 with an IPO that sold 11 percent of available shares in each of the three entities. The postal service subsidiary, Japan Post Co., remains a wholly owned subsidiary of JPH. The Japanese government conducted an additional public offering of stock in September 2017, reducing the government ownership in the holding company to approximately 57 percent. There were no additional offerings of the stock in the bank, but there was an offering in the insurance subsidiary in April 2019. JPH currently owns 88.99 percent of the banking subsidiary and 64.48 percent of the insurance subsidiary. Follow-on sales of shares in the three companies will take place over time, as the Postal Privatization Law requires the government to sell a majority share (up to two-thirds of all shares) in JPH, and JPH to sell all shares of JPB and JPI, as soon as possible. The government planned to implement the third sale of its JPH share holdings in 2019 but did not do so due to sluggish share performance.

These offerings mark the final stage of Japan Post privatization begun under former Prime Minister Junichiro Koizumi more than a decade ago and respond to long-standing criticism from commercial banks and insurers—both foreign and Japanese—that their government-owned Japan Post rivals have an unfair advantage.

While there has been significant progress since 2013 with regard to private suppliers’ access to the postal insurance network, the U.S. government has continued to raise concerns about the preferential treatment given to Japan Post and some quasi-governmental entities compared to private sector competitors and the impact of these advantages on the ability of private companies to compete on a level playing field. A full description of U.S. government concerns with regard to the insurance sector and efforts to address these concerns is available in the annual United States Trade Representative’s National Trade Estimate on Foreign Trade Barriers report for Japan.

Privatization Program

In sectors previously dominated by state-owned enterprises but now privatized, such as transportation, telecommunications, and package delivery, U.S. businesses report that Japanese firms sometimes receive favorable treatment in the form of improved market access and government cooperation.

Deregulation of Japan’s power sector took a step forward in April 2016 with the full liberalization of the retail electricity sector. This change has led to increased competition from new entrants. While the generation and transmission of electricity remain mostly in the hands of the legacy power utilities, new electricity retailers reached a 20- percent market share of the total volume of electricity sold as of January 2021. Japan implemented the third phase of its power sector reforms in April 2020 by requiring vertically integrated regional monopolies to “legally unbundle” the electricity transmission and distribution portions of their businesses from the power generation and retailing portions. The transmission and distribution businesses retain ownership of, and operational control over, the power grid in their regional service territories. In addition, many of the former vertically integrated regional monopolies created electricity retailers to compete in the fully deregulated retail market.

American energy companies have reported increased opportunities in this sector, but also report that the regional power utilities have advantages over new entrants with regard to understanding the regulatory regime, securing sufficient low-cost generation in the wholesale market, and accessing infrastructure. For example, while a wholesale market allows new retailers to buy electricity for sale to customers, legacy utilities, which control most of the generation, sell very little power into that market. This limits the supply and increases the cost of electricity that new retailers can sell to consumers. While the liquidity of the wholesale electricity market has increased in recent years, new entrants — including American companies — report that they have few other options for cost-effectively securing the electricity they need to meet their supply obligations. These market dynamics were exacerbated in January 2021, when high electricity demand and constrained LNG supply during a cold spell led to record-high wholesale electricity prices over the course of several days. In addition, as the large power utilities still control transmission and distribution lines, new entrants in power generation are not able to compete due to limited access to power grids.

More information on the power sector from the Japanese Government can be obtained at: http://www.enecho.meti.go.jp/en/category/electricity_and_gas/electric/electricity_liberalization/what/ 

8. Responsible Business Conduct

Progress has been made through efforts by the Financial Services Agency (FSA) and Tokyo Stock Exchange (TSE) to introduce non-binding reforms through changes to Japan’s Companies Act in 2014 and adoption of a Corporate Governance Code (CSR) in 2015. Together with the Stewardship Code for institutional investors launched by the FSA in 2014, these initiatives have encouraged companies to put cash stockpiles to better use by increasing investment, raising dividends, and taking on more risk to boost Japan’s growth. Positive results of these efforts are evidenced by rising shareholder returns, unwinding of cross-shareholdings, and increasing numbers of independent board members.  According to a TSE survey conducted in December 2018, 85.3 percent of companies had a compliance rate of 90 percent out of the 66 principles of the new code. As of May 2019,  93.6 percent of TSE listed firms  have at least one independent director, according to TSE’s most recent White Paper on Corporate Governance. In December 2019, the Diet approved a revision of the Companies Act, which will enable companies to provide documents for shareholders’ meetings electronically. Listed companies will be obligated to have at least one outside director. The bill went into effect on March 1, 2021.

Following Stewardship Code revision in March 2020, TSE and FSA plan to revise the Corporate Governance Code in spring of 2021 to reflect the realignment of the TSE segmentations, which will be implemented in 2022. The revised guidelines are expected to require companies, to be listed in the “Prime Section,” a top-tier TSE section, to have more than one-third external directors. The guidelines are also expected to urge listed companies to have more diversity in mid-level and managerial posts, by hiring and training female and foreign workers. Awareness of corporate social responsibility (CSR) among both producers and consumers in Japan is high, and foreign and local enterprises generally follow accepted CSR principles. Business organizations also actively promote CSR. Japan encourages adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.

Additional Resources 

Department of State

Department of Labor

9. Corruption

Japan’s penal code covers crimes of official corruption, and an individual convicted under these statutes is, depending on the nature of the crime, subject to prison sentences and possible fines. With respect to corporate officers who accept bribes, Japanese law also provides for company directors to be subject to fines and/or imprisonment, and some judgments have been rendered against company directors.

The direct exchange of cash for favors from government officials in Japan is extremely rare. However, the web of close relationships between Japanese companies, politicians, government organizations, and universities has been criticized for fostering an inwardly “cooperative”—or insular—business climate that is conducive to the awarding of contracts, positions, etc. within a tight circle of local players. This phenomenon manifests itself most frequently and seriously in Japan through the rigging of bids on government public works projects. However, instances of bid rigging appear to have decreased over the past decade. Alleged bid rigging between construction companies was discovered on the Tokyo-Nagoya-Osaka maglev high-speed rail project in 2017, and the case was prosecuted in March 2018.

Japan’s Act on Elimination and Prevention of Involvement in Bid-Rigging authorizes the Japan Fair Trade Commission to demand that central and local government commissioning agencies take corrective measures to prevent continued complicity of officials in bid rigging activities and to report such measures to the JFTC. The Act also contains provisions concerning disciplinary action against officials participating in bid rigging and compensation for overcharges when the officials caused damage to the government due to willful or grave negligence. Nevertheless, questions remain as to whether the Act’s disciplinary provisions are strong enough to ensure officials involved in illegal bid rigging are held accountable.

Japan has ratified the Organisation for Economic Co-Operation and Development (OECD) Anti-Bribery Convention, which bans bribing foreign government officials.

For vetting potential local investment partners, companies may review credit reports on foreign companies available from many private-sector sources, including, in the United States, Dun & Bradstreet and Graydon International.  Additionally, a company may inquire about the International Company Profile (ICP), which is a background report on a specific foreign company that is prepared by commercial officers of the U.S. Commercial Service at the U.S. Embassy, Tokyo.

Resources to Report Corruption

Businesses or individuals may contact the Japan Fair Trade Commission (JFTC), with contact details at: http://www.jftc.go.jp/en/about_jftc/contact_us.html .

10. Political and Security Environment

Political violence is rare in Japan. Acts of political violence involving U.S. business interests are virtually unknown.

11. Labor Policies and Practices

The Government of Japan has provided extensive and expanded employment subsidies to companies to encourage them to maintain employment during the COVID-19 pandemic. Despite the pandemic, worker shortages still remain in sectors such as construction, transportation, and nursing care. The unemployment rate as of December 2020 was 2.9 percent. The fact that Japan’s unemployment rate has risen so slowly during the pandemic is remarkable and likely due to the social contract between worker and employer in Japan, as well as the continued government subsidies. Traditionally, Japanese workers have been classified as either regular or non-regular employees. Companies recruit regular employees directly from schools or universities and provide an employment contract with no fixed duration, effectively guaranteeing them lifetime employment. Non-regular employees are hired for a fixed period. Companies have increasingly relied on such non-regular workers to fill short-term labor requirements and to reduce labor costs. The pandemic has particularly hurt non-regular workers whose employment was concentrated in hard-hit service sectors such as tourism, hospitality, restaurants, and entertainment.

Major employers and labor unions engage in collective bargaining in nearly every industry. Union members as of June 2020 made up 17.1 percent of employees (“koyo-sha”), up slightly compared to 2019 and an increase for the first time in 11 years, but still in decline from 25 percent of the workforce in 1990. The government provides benefits for workers laid off for economic reasons through a national employment insurance program. Some National Strategic Special Zones allow for special employment of foreign workers in certain fields, but those and all other foreign workers are still subject to the same national labor laws and standards as Japanese workers. Japan has comprehensive labor dispute resolution mechanisms, including labor tribunals, mediation, and civil lawsuits. A Labor Standards Bureau oversees the enforcement of labor standards through a national network of Labor Bureaus and Labor Standards Inspection Offices.

The number of foreign workers is rising, but at just over 1.72 million as of October 2020, they still represent a fraction of Japan’s 69-million-worker labor force. The Japanese government has made changes to labor and immigration laws to facilitate the entry of larger numbers of skilled foreign workers in selected sectors. A revision to the Immigration Control and Refugee Recognition Law in December 2018, implemented in April 2019, created the “Specified Skilled” worker program designed specifically for lower-skilled foreign workers. Prior to this change, Japan had never created a visa category for lower-skilled foreign workers and this law created two. Category 1 grants five-year residency to low-skilled workers who pass skills exams and meet Japanese language criteria and permits them to work in 14 designated industries identified by the Japanese government to be experiencing severe labor shortage. Category 2 is for skilled workers with more experience, granting them long-term residency and a path to long-term employment, but currently permitted only in a few designated industries.

The Japanese government also operates the Technical Intern Training Program (TITP). Originally intended as an international skills-transfer program for workers from developing countries, TITP is currently used to address immediate labor shortages in over 80 designated occupations , such as jobs in the construction, agriculture, fishery, and elderly nursing care industries. As noted previously, the 2018 Immigration Control Law revision enabled TITP beneficiaries with at least three years of experience to qualify to apply for the Category 1 status of the Specified Skilled worker program without any exams.

To address the labor shortage resulting from population decline and a rapidly aging society, Japan’s government has pursued measures to increase participation and retention of older workers and women in the labor force. A law that went into force in April 2013 requires companies to introduce employment systems allowing employees reaching retirement age (generally set at 60) to continue working until 65. The law was revised again in March 2020 and will enter into force in April 2021, asking companies to “make efforts” to secure employment for workers between 65 and 70. Since 2013, the government has committed to increasing women’s economic participation. The Women’s Empowerment Law passed in 2015 requires large companies to disclose statistics about the hiring and promotion of women and to adopt action plans to improve the numbers. The COVID-19 pandemic has, however, had a disproportionate effect on women in Japan. Women were more likely than men to occupy non-regular positions, work in industries hardest hit by the downturn, and face greater pressure to prioritize family over work. As a result, women have experienced reductions in working hours, departure from the labor force, or furloughs in greater numbers than men, erasing part of the rise in their workforce participation through 2019. The Government of Japan has acknowledged this impact on women’s economic participation and has convened a study group to consider solutions.

In May 2019, a package law that revised the Women’s Empowerment Law, expanded the reporting requirements to SMEs that employ at least 101 persons (starting in April 2022) and increasing the number of disclosure items for larger companies ( as of June 2020). The package law also included several labor law revisions requiring companies to take preventive measures for power and sexual harassment in the workplace.

In June 2018, the Diet passed the Workstyle Reform package.  The three key provisions are:  (1) the “white collar exemption,” which eliminates overtime for a small number of highly paid professionals; (2) a formal overtime cap of 100 hours/month or 720 hours/year, with imprisonment and/or fines for violators; and (3) new “equal-pay-for-equal-work” principles to reduce gaps between regular and non-regular employees.

Japan has ratified 49 International Labor Organization (ILO) Conventions (including six of the eight fundamental conventions). As part of its agreement in principle on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership Japan agreed to adopt the fundamental labor rights stated in the ILO Declaration including freedom of association and the recognition of the right to collective bargaining, the elimination of forced labor and employment discrimination, and the abolition of child labor. The CPTPP entered into force on December 30, 2018.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs 

U.S. International Development Finance Corporation (DFC) insurance and finance programs are not available in Japan. However, U.S. companies seeking to invest in other foreign countries with Japanese partners may have access to DFC programs and benefit from cooperative memorandums that the DFC has signed with Japanese Government entities to fund projects in third countries.

Japan is a member of the Multilateral Investment Guarantee Agency (MIGA). Japan’s capital subscription to MIGA is the second largest, after the United States.

Other foreign governments have very limited involvement in Japan’s domestic infrastructure development, and most financing and insurance is managed domestically.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $5,148,609 2019 $5,081,770 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $58,188 2019 $131,793 BEA data available at
https://apps.bea.gov/
international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2019 $518,205  2019 $619,259 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 6.03% 2019 4.34% UNCTAD data available at
https://stats.unctad.org/
handbook/EconomicTrends/Fdi.html    

* Source for Host Country Data: *2019 Nominal GDP data from “Annual Report on National Accounts for 2019”, Economic and Social Research Institute, Cabinet Office, Japanese Government.  December, 2020. (Note: uses exchange rate of 109.01 Yen to 1 U.S. Dollar and Calendar Year Data)

The discrepancy between Japan’s accounting of U.S. FDI into Japan and U.S. accounting of that FDI can be attributed to methodological differences, specifically with regard to indirect investors, profits generated from reinvested earnings, and differing standards for which companies must report FDI. 

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (IMF CDIS, 2019)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 220,785 100% Total Outward 1,769,193 100%
United States 58,220 26% United States 518,490 29%
France 34,805 16% United Kingdom 163,594 9%
Singapore 23,428 11% China 127,517 7%
Netherlands 18,966 9% Netherlands 116,189 7%
Cayman Islands 17,448 8% Singapore 81,874 5%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Portfolio Investment
Portfolio Investment Assets (IMF CPIS, 2019 end)
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 4,610,836 100% All Countries 1,904,423 100% All Countries 2,706,413 100%
United States 1,806,516 39% Cayman Islands 735,339 39% United States 1,186,071 44%
Cayman Islands 948,100 21% United States 620,445 33% France 257,881 10%
France 294,758 6% Luxembourg 100,164 5% Cayman Islands 212,761 8%
United Kingdom 175,336 4% Ireland 50,507 3% United Kingdom 127,514 5%
Australia 153,130 3% United Kingdom 47,822 3% Australia 125,861 5%

14. Contact for More Information

Jerome Ryan
Economic Section
U.S. Embassy Tokyo
1-10-5 Akasaka, Minato-ku,
Tokyo 107-8420
Japan
+81 03-3224-5485
ryanej@state.gov

Singapore

Executive Summary

Singapore maintains an open, heavily trade-dependent economy. The economy is supported through unprecedented government spending and strong supply chains in key sectors, despite the COVID-19 pandemic. The government’s predominantly open investment policies support a free market economy while actively managing and sustaining Singapore’s economic development. U.S. companies regularly cite transparency, business-friendly laws, tax structure, customs facilitation, intellectual property protection, and well-developed infrastructure as attractive investment climate features. The World Bank’s Doing Business 2020 report ranked Singapore second overall in “ease of doing business,” while the World Economic Forum ranked Singapore as the most competitive economy globally. Singapore actively enforces its robust anti-corruption laws and typically ranks as the least corrupt country in Asia. In addition, Transparency International’s 2020 Corruption Perception Index placed Singapore as the third-least corrupt nation globally. The U.S.-Singapore Free Trade Agreement (USSFTA), which came into force in 2004, expanded U.S. market access in goods, services, investment, and government procurement, enhanced intellectual property protection, and provided for cooperation in promoting labor rights and environmental protections.

Singapore has a diversified economy that attracts substantial foreign investment in manufacturing (petrochemical, electronics, pharmaceuticals, machinery, and equipment) and services (financial, trade, and business). The government actively promotes the country as a research and development (R&D) and innovation center for businesses by offering tax incentives, research grants, and partnership opportunities with domestic research agencies. U.S. direct investment in Singapore in 2019 totaled USD 288 billion, primarily in non-bank holding companies, manufacturing, finance, and insurance. Singapore received more than double the U.S. FDI invested in any other Asian nation. The investment outlook was positive due to Singapore’s proximity to Southeast Asia’s developing economies. Singapore remains a regional hub for thousands of multinational companies and continues to maintain its reputation as a world leader in dispute resolution, financing, and project facilitation for regional infrastructure development. In 2020, U.S. companies pledged USD 6.9 billion in future investments (over half of all-investment commitments) in the country’s manufacturing and services sectors.

Singapore is poised to attract future foreign investments in digital innovation, pharmaceutical manufacturing, sustainable development, and cybersecurity. The Government of Singapore (hereafter, “the government”) is investing heavily in automation, artificial intelligence, and integrated systems under its Smart Nation banner and seeks to establish itself as a regional hub for these technologies. Singapore is also a well-established hub for medical research and device manufacturing.

Singapore relies heavily on foreign workers who make up more than 20 percent of the workforce. The COVID-19 pandemic was initially concentrated in dormitories for low-wage foreign workers in the construction and marine industries, which resulted in strict quarantine measures that brought the construction sector to a near standstill. The government tightened foreign labor policies in 2020 to encourage firms to improve productivity and employ more Singaporean workers, and lowered most companies’ quotas for mid- and low-skilled foreign workers. Cuts, which primarily target the service sector and foreign workers’ dependents, were taken despite industry concerns about skills gaps. During the COVID-19 pandemic, the government has introduced more programs to partially subsidize wages and the cost to firms of recruiting, hiring, and training local workers

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 3 of 178 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 2 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 8 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 287,951 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 59,590 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Singapore maintains a heavily trade-dependent economy characterized by an open investment regime, with some licensing restrictions in the financial services, professional services, and media sectors. The government was committed to maintaining a free market, but also actively plans Singapore’s economic development, including through a network of state wholly-owned and majority-owned enterprises (SOEs). As of March 31, 2021, the top three Singapore-listed SOEs accounted for 12.3 percent of total capitalization of the Singapore Exchange (SGX). Some observers have criticized the dominant role of SOEs in the domestic economy, arguing that they have displaced or suppressed private sector entrepreneurship and investment.

Singapore’s legal framework and public policies are generally favorable toward foreign investors. Foreign investors are not required to enter joint ventures or cede management control to local interests, and local and foreign investors are subject to the same basic laws. Apart from regulatory requirements in some sectors (See also: Limits on National Treatment and Other Restrictions), eligibility for various incentive schemes depends on investment proposals meeting the criteria set by relevant government agencies. Singapore places no restrictions on reinvestment or repatriation of earnings or capital. The judicial system, which includes international arbitration and mediation centers and a commercial court, upholds the sanctity of contracts, and decisions are generally considered to be transparent and effectively enforced.

The Economic Development Board (EDB) is the lead promotion agency that facilitates foreign investment into Singapore ( https:www.edb.gov.sg ). EDB undertakes investment promotion and industry development and works with foreign and local businesses by providing information and facilitating introductions and access to government incentives for local and international investments. The government maintains close engagement with investors through the EDB, which provides feedback to other government agencies to ensure that infrastructure and public services remain efficient and cost-competitive. The EDB maintains 18 international offices, including Chicago, Houston, New York, San Francisco, and Washington D.C.

Exceptions to Singapore’s general openness to foreign investment exist in sectors considered critical to national security, including telecommunications, broadcasting, domestic news media, financial services, legal and accounting services, ports, airports, and property ownership. Under Singaporean law, articles of incorporation may include shareholding limits that restrict ownership in such entities by foreign persons.

Telecommunications 

Since 2000, the Singapore telecommunications market has been fully liberalized. This move has allowed foreign and domestic companies seeking to provide facilities-based (e.g., fixed line or mobile networks) or services-based (e.g., local and international calls and data services over leased networks) telecommunications services to apply for licenses to operate and deploy telecommunication systems and services. Singapore Telecommunications (Singtel) – majority owned by Temasek, a state-owned investment company with the Minister for Finance as its sole shareholder – faces competition in all market segments. However, its main competitors, M1 and StarHub, are also SOEs. In April 2019, Australian company TPG Telecom began rolling out telecommunications services.  Approximately 30 mobile virtual network operator services (MVNOs) have also entered the market. The four Singapore telecommunications companies compete primarily on MVNO partnerships and voice and data plans.

As of April 2021, Singapore has 76 facilities-based operators offering telecommunications services. Since 2007, Singtel has been exempted from dominant licensee obligations for the residential and commercial portions of the retail international telephone services. Singtel is also exempted from dominant licensee obligations for wholesale international telephone services, international managed data, international intellectual property transit, leased satellite bandwidth (including VSAT, DVB-IP, satellite TV Downlink, and Satellite IPLC), terrestrial international private leased circuit, and backhaul services. The Infocomm Media Development Authority (IMDA) granted Singtel’s exemption after assessing the market for these services had effective competition. IMDA operates as both the regulatory agency and the investment promotion agency for the country’s telecommunications sector. IMDA conducts public consultations on major policy reviews and provides decisions on policy changes to relevant companies.

To facilitate the 5th generation mobile network (5G) technology and service trials, IMDA waived frequency fees for companies interested in conducting 5G trials for equipment testing, research, and assessment of commercial potential. In April 2020, IMDA granted rights to build nationwide 5G networks to Singtel and a joint venture between StarHub and M1. IMDA announced a goal of full 5G coverage by the end of 2025.  These three companies, along with TPG Telecom, are also now permitted to launch smaller, specialized 5G networks to support specialized applications, such as manufacturing and port operations.  Singapore’s government did not hold a traditional spectrum auction, instead charging a moderate, flat fee to operate the networks and evaluating proposals from the MVNOs based on their ability to provide effective coverage, meet regulatory requirements, invest significant financial resources, and address cybersecurity and network resilience concerns. The announcement emphasized the importance of the winning MVNOs using multiple vendors, to ensure security and resilience.  Singapore has committed to being one of the first countries to make 5G services broadly available, and its tightly managed 5G-rollout process continues apace, despite COVID-19.  The government views this as a necessity for a country that prides itself on innovation, even as these private firms worry that the commercial potential does not yet justify the extensive upfront investment necessary to develop new networks.

Media  

The local free-to-air broadcasting, cable, and newspaper sectors are effectively closed to foreign firms. Section 44 of the Broadcasting Act restricts foreign equity ownership of companies broadcasting in Singapore to 49 percent or less, although the act does allow for exceptions. Individuals cannot hold shares that would make up more than five percent of the total votes in a broadcasting company without the government’s prior approval. The Newspaper and Printing Presses Act restricts equity ownership (local or foreign) of newspaper companies to less than five percent per shareholder and requires that directors be Singapore citizens. Newspaper companies must issue two classes of shares, ordinary and management, with the latter available only to Singapore citizens or corporations approved by the government. Holders of management shares have an effective veto over selected board decisions.

Singapore regulates content across all major media outlets through IMDA. The government controls the distribution, importation, and sale of media sources and has curtailed or banned the circulation of some foreign publications. Singapore’s leaders have also brought defamation suits against foreign publishers and local government critics, which have resulted in the foreign publishers issuing apologies and paying damages. Several dozen publications remain prohibited under the Undesirable Publications Act, which restricts the import, sale, and circulation of publications that the government considers contrary to public interest. Examples include pornographic magazines, publications by banned religious groups, and publications containing extremist religious views. Following a routine review in 2015, the IMDA predecessor, Media Development Authority, lifted a ban on 240 publications, ranging from decades-old anti-colonial and communist material to adult interest content.

Singaporeans generally face few restrictions on the internet, which is readily accessible. The government, however, subjected all internet content to similar rules and standards as traditional media, as defined by the IMDA’s Internet Code of Practice. Internet service providers are required to ensure that content complies with the code. The IMDA licenses the internet service providers through which local users are required to route their internet connections. However, the IMDA has blocked various websites containing objectionable material, such as pornography and racist and religious-hatred sites. Online news websites that report regularly on Singapore and have a significant reach are individually licensed, which requires adherence to requirements to remove prohibited content within 24 hours of notification from IMDA. Some view this regulation as a way to censor online critics of the government.

In April 2019, the government introduced legislation in Parliament to counter “deliberate online falsehoods.” The legislation, called the Protection from Online Falsehoods and Manipulation Act (POFMA) entered into force on October 2, 2019, requires online platforms to publish correction notifications or remove online information that government ministers classify as factually false or misleading, and which they deem likely to threaten national security, diminish public confidence in the government, incite feelings of ill will between people, or influence an election. Non-compliance is punishable by fines and/or imprisonment and the government can use stricter measures such as disabling access to end-users in Singapore and forcing online platforms to disallow persons in question from using its services in Singapore. Opposition politicians, bloggers, and alternative news websites have been the target of the majority of POFMA cases thus far and many of them used U.S. social media platforms. Besides those individuals, U.S. social media companies were issued most POFMA correction orders and complied with them. U.S. media and social media sites continue to operate in Singapore, but a few major players have ceased running political ads after the government announced that it would impose penalties on sites or individuals that spread “misinformation,” as determined by the government.

Pay-Television 

Mediacorp TV is the only free-to-air TV broadcaster and is 100 percent owned by the government via Temasek Holdings (Temasek). Mediacorp reported that its free-to-air channels are viewed weekly by 80 percent of residents. Local pay-TV providers are StarHub and Singtel, which are both partially owned by Temasek or its subsidiaries. Local free-to-air radio broadcasters are Mediacorp Radio Singapore, which is also owned by Temasek Holdings, SPH Radio, owned by the publicly held Singapore Press Holdings, and So Drama! Entertainment, owned by the Singapore Ministry of Defense. BBC World Services is the only foreign free-to-air radio broadcaster in Singapore.

To rectify the high degree of content fragmentation in the Singapore pay-TV market and shift the focus of competition from an exclusivity-centric strategy to other aspects such as service differentiation and competitive packaging, the IMDA implemented cross-carriage measures in 2011, requiring pay-TV companies designated by IMDA to be Receiving Qualified Licensees (RQL) – currently Singtel and StarHub – to cross-carry content subject to exclusive carriage provisions. Correspondingly, Supplying Qualified Licensees (SQLs) with an exclusive contract for a channel are required to carry that content on other RQL pay-TV companies. In February 2019, the IMDA proposed to continue the current cross-carriage measures. The Motion Picture Association (MPA) has expressed concern this measure restricts copyright exclusivity. Content providers consider the measures an unnecessary interference in a competitive market that denies content holders the ability to negotiate freely in the marketplace, and an interference with their ability to manage and protect their intellectual property. More common content is now available across the different pay-TV platforms, and the operators are beginning to differentiate themselves by originating their own content, offering subscribed content online via personal and tablet computers, and delivering content via fiber networks.

Streaming services have entered the market, which MPA has found leads to a significant reduction in intellectual property infringements. StarHub and Singtel have both partnered with multiple content providers, including U.S. companies, to provide streaming content in Singapore and around the region.

Banking and Finance 

The Monetary Authority of Singapore (MAS) regulates all banking activities as provided for under the Banking Act. Singapore maintains legal distinctions between foreign and local banks and the type of license (i.e., full service, wholesale, and offshore banks) held by foreign commercial banks. As of April 2021, 30 foreign full-service licensees and 90 wholesale banks operated in Singapore. An additional 24 merchant banks are licensed to conduct corporate finance, investment banking, and other fee-based activities. Offshore and wholesale banks are not allowed to operate Singapore dollar retail banking activities. Only full banks and “Qualifying Full Banks” (QFBs) can operate Singapore dollar retail banking activities but are subject to restrictions on their number of places of business, ATMs, and ATM networks. Additional QFB licenses may be granted to a subset of full banks, which provide greater branching privileges and greater access to the retail market than other full banks. As of April 2021, there are 10 banks operating QFB licenses. China Construction Bank received the most recent QFB award in December 2020.

Following a series of public consultations conducted by MAS over a three year period, the Banking Act 2020 came into operation on February 14, 2020. The amendments include, among other things, the removal of the Domestic Banking Unit (DBU) and Asian Currency Unit (ACU) divide, consolidation of the regulatory framework of merchant banks, expansion of the grounds for revoking bank licenses and strengthening oversight of banks’ outsourcing arrangements. Newly granted digital banking licenses under foreign ownership apply only to wholesale transactions.

The government initiated a banking liberalization program in 1999 to ease restrictions on foreign banks and has supplemented this with phased-in provisions under the USSFTA, including removal of a 40 percent ceiling on foreign ownership of local banks and a 20 percent aggregate foreign shareholding limit on finance companies. The minister in charge of MAS must approve the merger or takeover of a local bank or financial holding company, as well as the acquisition of voting shares in such institutions above specific thresholds of 5, 12, or 20 percent of shareholdings.

Although Singapore’s government has lifted the formal ceilings on foreign ownership of local banks and finance companies, the approval for controllers of local banks ensures that this control rests with individuals or groups whose interests are aligned with the long-term interests of the Singapore economy and Singapore’s national interests. Of the 30 full-service licenses granted to foreign banks, three have gone to U.S. banks. U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, only one U.S.-licensed full-service banks has obtained QFB status. U.S. and foreign full-service banks with QFB status can freely relocate existing branches and share ATMs among themselves. They can also provide electronic funds transfer and point-of-sale debit services and accept services related to Singapore’s compulsory pension fund. In 2007, Singapore lifted the quota on new licenses for U.S. wholesale banks.

Locally and non-locally incorporated subsidiaries of U.S. full-service banks with QFB status can apply for access to local ATM networks. However, no U.S. bank has come to a commercial agreement to gain such access. Despite liberalization, U.S. and other foreign banks in the domestic retail-banking sector still face barriers. Under the enhanced QFB program launched in 2012, MAS requires QFBs it deems systemically significant to incorporate locally. If those locally incorporated entities are deemed “significantly rooted” in Singapore, with a majority of Singaporean or permanent resident members, Singapore may grant approval for an additional 25 places of business, of which up to ten may be branches. Local retail banks do not face similar constraints on customer service locations or access to the local ATM network. As noted above, U.S. banks are not subject to quotas on service locations under the terms of the USSFTA.

Credit card holders from U.S. banks incorporated in Singapore cannot access their accounts through the local ATM networks. They are also unable to access their accounts for cash withdrawals, transfers, or bill payments at ATMs operated by banks other than those operated by their own bank or at foreign banks’ shared ATM network. Nevertheless, full-service foreign banks have made significant inroads in other retail banking areas, with substantial market share in products like credit cards and personal and housing loans.

In January 2019, MAS announced the passage of the Payment Services Bill after soliciting public feedback. The bill requires more payment services such as digital payment tokens, dealing in virtual currency, and merchant acquisition, to be licensed and regulated by MAS. In order to reduce the risk of misuse for illicit purposes, the new law also limits the amount of funds that can be held in or transferred out of a personal payment account (e.g., mobile wallets) in a year. Regulations are tailored to the type of activity preformed and addresses issues related to terrorism financing, money laundering, and cyber risks. In December 2020, MAS granted four digital bank licenses: two to Sea Limited and a Grab/Singtel consortium for full retail banking and two to Ant Group and the Greenland consortium (a China-based conglomerate).

Singapore has no trading restrictions on foreign-owned stockbrokers. There is no cap on the aggregate investment by foreigners regarding the paid-up capital of dealers that are members of the SGX. Direct registration of foreign mutual funds is allowed provided MAS approves the prospectus and the fund. The USSFTA relaxed conditions foreign asset managers must meet in order to offer products under the government-managed compulsory pension fund (Central Provident Fund Investment Scheme).

Legal Services 

The Legal Services Regulatory Authority (LSRA) under the Ministry of Law oversees the regulation, licensing, and compliance of all law practice entities and the registration of foreign lawyers in Singapore. Foreign law firms with a licensed Foreign Law Practice (FLP) may offer the full range of legal services in foreign law and international law, but cannot practice Singapore law except in the context of international commercial arbitration. U.S. and foreign attorneys are allowed to represent parties in arbitration without the need for a Singapore attorney to be present. To offer Singapore law, FLPs require either a Qualifying Foreign Law Practice (QFLP) license, a Joint Law Venture (JLV) with a Singapore Law Practice (SLP), or a Formal Law Alliance (FLA) with a SLP. The vast majority of Singapore’s 130 foreign law firms operate FLPs, while QFLPs and JLVs each number in the single digits.

The QFLP licenses allow foreign law firms to practice in permitted areas of Singapore law, which excludes constitutional and administrative law, conveyancing, criminal law, family law, succession law, and trust law. As of December 2020, there are nine QFLPs in Singapore, including five U.S. firms. In January 2019, the Ministry of Law announced the deferral to 2020 of the decision to renew the licenses of five QFLPs, which were set to expire in 2019, so the government can better assess their contribution to Singapore along with the other four firms whose licenses were also extended to 2020. Decisions on the renewal considers the firms’ quantitative and qualitative performance such as the value of work that the Singapore office will generate, the extent to which the Singapore office will function as the firm’s headquarter for the region, the firm’s contributions to Singapore, and the firm’s proposal for the new license period.

A JLV is a collaboration between a Foreign Law Practice and Singapore Law Practice, which may be constituted as a partnership or company. The director of legal services in the LSRA will consider all the relevant circumstances including the proposed structure and its overall suitability to achieve the objectives for which Joint Law Ventures are permitted to be established. There is no clear indication on the percentage of shares that each JLV partner may hold in the JLV.

Law degrees from designated U.S., British, Australian, and New Zealand universities are recognized for purposes of admission to practice law in Singapore. Under the USSFTA, Singapore recognizes law degrees from Harvard University, Columbia University, New York University, and the University of Michigan. Singapore will admit to the Singapore Bar law school graduates of those designated universities who are Singapore citizens or permanent residents, and ranked among the top 70 percent of their graduating class or have obtained lower-second class honors (under the British system).

Engineering and Architectural Services 

Engineering and architectural firms can be 100 percent foreign-owned. Engineers and architects are required to register with the Professional Engineers Board and the Board of Architects, respectively, to practice in Singapore. All applicants (both local and foreign) must have at least four years of practical experience in engineering, of which two are acquired in Singapore. Alternatively, students can attend two years of practical training in architectural works and pass written and/or oral examinations set by the respective board.

Accounting and Tax Services 

Many major international accounting firms operate in Singapore. Registration as a public accountant under the Accountants Act is required to provide public accountancy services (i.e., the audit and reporting on financial statements and other acts that are required by any written law to be done by a public accountant) in Singapore, although registration as a public accountant is not required to provide other accountancy services, such as accounting, tax, and corporate advisory work. All accounting entities that provide public accountancy services must be approved under the Accountants Act and their supply of public accountancy services in Singapore must be under the control and management of partners or directors who are public accountants ordinarily resident in Singapore. In addition, if the accounting entity firm has two partners or directors, at least one of them must be a public accountant. If the business entity has more than two accounting partners or directors, two-thirds of the partners or directors must be public accountants.

Energy 

Singapore further liberalized its gas market with the amendment of the Gas Act and implementation of a Gas Network Code in 2008, which were designed to give gas retailers and importers direct access to the onshore gas pipeline infrastructure. However, key parts of the local gas market, such as town gas retailing and gas transportation through pipelines remain controlled by incumbent Singaporean firms. Singapore has sought to grow its supply of liquefied natural gas (LNG), and BG Singapore Gas Marketing Pte Ltd (acquired by Royal Dutch Shell in February 2016) was appointed in 2008 as the first aggregator with an exclusive franchise to import LNG to be sold in its re-gasified form in Singapore. In October 2017, Shell Eastern Trading Pte Ltd and Pavilion Gase Pte Ltd were awarded import licenses to market up to 1 million tons per annum or for three years, whichever occurs first. This also marked the conclusion of the first exclusive franchise awarded to BG Singapore Gas Marketing Pte Ltd.

Beginning in November 2018 and concluding in May 2019, Singapore launched an open electricity market (OEM). Previously, Singapore Power was the only electricity retailer. As of October 2019, 40 percent of resident consumers had switched to a new electricity retailer and were saving between 20 and 30 percent on their monthly bills.  During the second half of 2020, the government significantly reduced tariffs for household consumption and encouraged consumer OEM adoption. To participate in OEM, licensed retailers must satisfy additional credit, technical, and financial requirements set by Energy Market Authority in order to sell electricity to households and small businesses. There are two types of electricity retailers: Market Participant Retailers (MPRs) and Non-Market Participant Retailers (NMPRs). MPRs have to be registered with the Energy Market Company (EMC) to purchase electricity from the National Electricity Market of Singapore (NEMS) to sell to contestable consumers. NMPRs need not register with EMC to participate in the NEMS since they will purchase electricity indirectly from the NEMS through the Market Support Services Licensee (MSSL). As of April 2020, there were 12 retailers in the market, including foreign and local entities.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and local entities may readily establish, operate, and dispose of their own enterprises in Singapore subject to certain requirements. A foreigner who wants to incorporate a company in Singapore is required to appoint a local resident director; foreigners may continue to reside outside of Singapore. Foreigners who wish to incorporate a company and be present in Singapore to manage its operations are strongly advised to seek approval from the Ministry of Manpower (MOM) before incorporation. Except for representative offices (where foreign firms maintain a local representative but do not conduct commercial transactions in Singapore) there are no restrictions on carrying out remunerative activities. As of October 2017, foreign companies may seek to transfer their place of registration and be registered as companies limited by shares in Singapore under Part XA (Transfer of Registration) of the Companies Act ( https://sso.agc.gov.sg/Act/CoA1967 ). Such transferred foreign companies are subject to the same requirements as locally incorporated companies.

All businesses in Singapore must be registered with the Accounting and Corporate Regulatory Authority (ACRA). Foreign investors can operate their businesses in one of the following forms: sole proprietorship, partnership, limited partnership, limited liability partnership, incorporated company, foreign company branch or representative office. Stricter disclosure requirements were passed in March 2017 requiring foreign company branches registered in Singapore to maintain public registers of their members. All companies incorporated in Singapore, foreign companies, and limited liability partnerships registered in Singapore are also required to maintain beneficial ownership in the form of a register of controllers (generally individuals or legal entities with more than 25 percent interest or control of the companies and foreign companies) aimed at preventing money laundering.

While there is currently no cross-sectional screening process for foreign investments, investors are required to seek approval from specific sector regulators for investments in certain firms. These sectors include energy, telecommunications, broadcasting, the domestic news media, financial services, legal services, public accounting services, ports and airports, and property ownership. Under Singapore law, Articles of Incorporation may include shareholding limits that restrict ownership in corporations by foreign persons.

Singapore does not maintain a formalized investment screening mechanism for inbound foreign investment. There are no reports of U.S. investors being especially disadvantaged or singled out relative to other foreign investors.

Other Investment Policy Reviews

Singapore underwent a trade policy review with the World Trade Organization (WTO) in July 2016, after which no major policy recommendations were raised. (https://www.wto.org/english/thewto_e/countries_e/singapore_e.htm )

The OECD and United Nations Industrial Development Organization (UNIDO) released a joint report in February 2019 on the ASEAN-OECD Investment Program. The program aims to foster dialogue and experience sharing between OECD countries and Southeast Asian economies on issues relating to the business and investment climate. The program is implemented through regional policy dialogue, country investment policy reviews, and training seminars. (http://www.oecd.org/investment/countryreviews.htm )

The OECD released a Transfer Pricing Country Profile for Singapore in June 2018. The country profiles focus on countries’ domestic legislation regarding key transfer pricing principles, including the arm’s length principle, transfer pricing methods, comparability analysis, intangible property, intra-group services, cost contribution agreements, transfer pricing documentation, administrative approaches to avoiding and resolving disputes, safe harbors and other implementation measures. (https://www.oecd.org/tax/transfer-pricing/transfer-pricing-country-profile-singapore.pdf)

The OECD released a peer review report in March 2018 on Singapore’s implementation of internationally agreed tax standards under Action Plan 14 of the base erosion and profit shifting (BEPS) project. Action 14 strengthens the effectiveness and efficiency of the mutual agreement procedure, a cross-border tax dispute resolution mechanism. (http://www.oecd.org/corruption-integrity/reports/singapore-2018-peer-review-report-transparency-exchange-information-aci.html )

As of April 2021, the United Nations Conference on Trade and Development (UNCTAD) has not conducted a policy review of Singapore’s intellectual property rights regime. (http://unctad.org/en/Pages/DIAE/Investment%20Policy%20Reviews/Investment-Policy-Reviews.aspx )

Business Facilitation

Singapore’s online business registration process is clear and efficient and allows foreign companies to register branches. All businesses must be registered with ACRA through Bizfile, its online registration and information retrieval portal ( https://www.bizfile.gov.sg/),  including any individual, firm or corporation that carries out business for a foreign company. Applications are typically processed immediately after the application fee is paid, but could take between 14 to 60 days, if the application is referred to another agency for approval or review. The process of establishing a foreign-owned limited liability company in Singapore is among the fastest in the world.

ACRA ( www.acra.gov.sg ) provides a single window for business registration. Additional regulatory approvals (e.g., licensing or visa requirements) are obtained via individual applications to the respective ministries or statutory boards. Further information and business support on registering a branch of a foreign company is available through the EDB ( https://www.edb.gov.sg/en/how-we-help/setting-up.html ) and GuideMeSingapore, a corporate services firm Hawskford ( https://www.guidemesingapore.com /).

Foreign companies may lease or buy privately or publicly held land in Singapore, though there are some restrictions on foreign property ownership. Foreign companies are free to open and maintain bank accounts in foreign currency. There is no minimum paid-in capital requirement, but at least one subscriber share must be issued for valid consideration at incorporation.

Business facilitation processes provide for fair and equal treatment of women and minorities, and there are no mechanisms that provide special assistance to women and minorities.

Outward Investment

Singapore places no restrictions on domestic investors investing abroad. The government promotes outward investment through Enterprise Singapore, a statutory board under the Ministry of Trade and Industry. It provides market information, business contacts, and financial assistance and grants for internationalizing companies. While it has a global reach and runs overseas centers in major cities across the world, a large share of its overseas centers are located in major trading and investment partners and regional markets like China, India, the United States, and ASEAN.

3. Legal Regime

Transparency of the Regulatory System

The government establishes clear rules that foster competition. The USSFTA enhances transparency by requiring regulatory authorities to consult with interested parties before issuing regulations, and to provide advance notice and comment periods for proposed rules, as well as to publish all regulations. Singapore’s legal, regulatory, and accounting systems are transparent and consistent with international norms.

Rule-making authority is vested in the parliament to pass laws that determine the regulatory scope, purpose, rights and powers of the regulator and the legal framework for the industry. Regulatory authority is vested in government ministries or in statutory boards, which are organizations that have been given autonomy to perform an operational function by legal statutes passed as acts of parliament, and report to a specific ministry. Local laws give regulatory bodies wide discretion to modify regulations and impose new conditions, but in practice agencies use this positively to adapt incentives or other services on a case-by-case basis to meet the needs of foreign as well as domestic companies. Acts of parliament also confer certain powers on a minister or other similar persons or authorities to make rules or regulations in order to put the act into practice; these rules are known as subsidiary legislation.  National-level regulations are the most relevant for foreign businesses. Singapore, being a city-state, has no local or state regulatory layers.

Before a ministry instructs the Attorney-General’s Chambers (AGC) to draft a new bill or make an amendment to a bill, the ministry has to seek in-principle approval from the cabinet for the proposed bill. The AGC legislation division advises and helps vet or draft bills in conjunction with policymakers from relevant ministries.  Public and private consultations are often requested for proposed draft legislative amendments. Thereafter, the cabinet’s approval is required before the bill can be introduced in parliament.  All bills passed by parliament (with some exceptions) must be forwarded to the Presidential Council for Minority Rights for scrutiny, and thereafter presented to the President for assent. Only after the President has assented to the bill does it become law.

While ministries or regulatory agencies do conduct internal impact assessments of proposed regulations, there are no criteria used for determining which proposed regulations are subjected to an impact assessment, and there are no specific regulatory impact assessment guidelines. There is no independent agency tasked with reviewing and monitoring regulatory impact assessments and distributing findings to the public. The Ministry of Finance publishes a biennial Singapore Public Sector Outcomes Review (http://www.mof.gov.sg/Resources/Singapore-Public-Sector-Outcomes-Review-SPOR ), focusing on broad outcomes and indicators rather than policy evaluation. Results of scientific studies or quantitative analysis conducted in review of policies and regulations are not made publicly available.

Industry self-regulation occurs in several areas, including advertising and corporate governance.  Advertising Standards Authority of Singapore (ASAS) (https://asas.org.sg/), an advisory council under the Consumers Association of Singapore, administers the Singapore Code of Advertising Practice, which focuses on ensuring that advertisements are legal, decent, and truthful. Listed companies are required under the Singapore Exchange (SGX) Listing Rules to describe in their annual reports their corporate governance practices with specific reference to the principles and provisions of the Code. Listed companies must comply with the principles of the Code, and, if their practices vary from any provisions of the Code, they must note the reason for the variation and explain how the practices they have adopted are consistent with the intent of the relevant principle. The SGX plays the role of a self-regulatory organization (SRO) in listings, market surveillance, and member supervision to uphold the integrity of the market and ensure participants’ adherence to trading and clearing rules. There have been no reports of discriminatory practices aimed at foreign investors.

Singapore’s legal and accounting procedures are transparent and consistent with international norms and rank similar to the U.S. in international comparisons (http://worldjusticeproject.org/rule-of-law-index ). The prescribed accounting standards for Singapore-incorporated companies applying to be or are listed in the public market, Singapore Exchange, are known as Singapore Financial Reporting Standards (SFRS(I)), which are identical to those of the International Accounting Standards Board (IASB). Non-listed Singapore-incorporated companies can voluntarily apply for SFRS(I). Otherwise, they are required to comply with Singapore Financial Reporting Standards (SFRS), which are also aligned with those of IASB. For the use of foreign accounting standards, the companies are required to seek approval of the Accounting and Corporate Regulatory Authority (ACRA).

For foreign companies with primary listings on the Singapore Exchange, the SGX Listing Rules allow the use of alternative standards such as International Financial Reporting Standards (IFRS) or the U.S. Generally Accepted Accounting Principles (U.S. GAAP). Accounts prepared in accordance with IFRS or U.S. GAAP need not be reconciled to SFRS(1). Companies with secondary listings on the Singapore Exchange need only reconcile their accounts to SFRS(I), IFRS, or U.S. GAAP.

Notices of proposed legislation to be considered by parliament are published, including the text of the laws, the dates of the readings, and whether or not the laws eventually pass. The government has established a centralized Internet portal (www.reach.gov.sg ) to solicit feedback on selected draft legislation and regulations, a process that is being used with increasing frequency. There is no stipulated consultative period.  Results of consultations are usually consolidated and published on relevant websites. As noted in the “Openness to Foreign Investment” section, some U.S. companies, in particular in the telecommunications and media sectors, are concerned about the government’s lack of transparency in its regulatory and rule-making process.  However, many U.S. firms report they have opportunities to weigh in on pending legislation that affects their industries.  These mechanisms also apply to investment laws and regulations.

The Parliament of Singapore website (https://www.parliament.gov.sg/parliamentary-business/bills-introduced ) publishes a database of all bills introduced, read, and passed in Parliament in chronological order as of 2006. The contents are the actual draft texts of the proposed legislation/legislative amendments. All statutes are also publicly available in the Singapore Statutes Online website (https://sso.agc.gov.sg ). However, there is no centralized online location where key regulatory actions are published. Regulatory actions are published separately on websites of Statutory Boards.

Enforcement of regulatory offences is governed by both acts of parliament and subsidiary legislation. Enforcement powers of government statutory bodies are typically enshrined in the act of Parliament constituting that statutory body. There is accountability to Parliament for enforcement action through question time, where members of parliament may raise questions with the ministers on their respective ministries’ responsibilities.

Singapore’s judicial system and courts serve as the oversight mechanism in respect of executive action (such as the enforcement of regulatory offences) and dispense justice based on law. The Supreme Court, which is made up of the Court of Appeal and the High Court, hears both civil and criminal matters. The Chief Justice heads the Judiciary. The President appoints the Chief Justice, the Judges of Appeal and the Judges of the High Court if she, acting at her discretion, concurs with the advice of the Prime Minister.

No systemic regulatory reforms or enforcement reforms relevant to foreign investors were announced in 2020. The Monetary Authority of Singapore focuses enforcement efforts on timely disclosure of corporate information, business conduct of financial advisors, compliance with anti-money laundering/combatting the financing of terrorism requirements, deterring stock market abuse, and insider trading. In March 2019, MAS published its inaugural Enforcement Report detailing enforcement measures and publishes recent enforcement actions on its website (https://www.mas.gov.sg/regulation/enforcement/enforcement-actions ).

International Regulatory Considerations

Singapore was the 2018 chair of the Association of Southeast Asian Nations (ASEAN). ASEAN is working towards the 2025 ASEAN Economic Community (AEC) Blueprint aimed at achieving a single market and production base, with a free flow of goods, services, and investment within the region. While ASEAN is working towards regulatory harmonization, there are no regional regulatory systems in place; instead, ASEAN agreements and regulations are enacted through each ASEAN Member State’s domestic regulatory system.  While Singapore has expressed interest in driving intra-regional trade, the dynamics of ASEAN economies are convergent.

The WTO’s 2016 trade policy review notes that Singapore’s guiding principle for standardization is to align national standards with international standards, and Singapore is an elected member of the International Organization of Standardization (ISO) and International Electrotechnical Commission (IEC) Councils. Singapore encourages the direct use of international standards whenever possible. Singapore standards (SS) are developed when there is no appropriate international standard equivalent, or when there is a need to customize standards to meet domestic requirements. At the end of 2015, Singapore had a stock of 553 SS, about 40 percent of which were references to international standards. Enterprise Singapore, the Singapore Food Agency, and the Ministry of Trade and Industry are the three national enquiry points under the TBT Agreement. There are no known reports of omissions in reporting to TBT.

A non-exhaustive list of major international norms and standards referenced or incorporated into the country’s regulatory systems include Base Erosion and Profit Shifting (BEPS) project, Common Reporting Standards (CRS), Basel III, EU Dual-Use Export Control Regulation, Exchange of Information on Request, 27 International Labor Organization (ILO) conventions on labor rights and governance, UN conventions, and WTO agreements.

Singapore is signatory to the Trade Facilitation Agreement (TFA). The WTO reports that Singapore has fully implemented the TFA (https://www.tfadatabase.org/members/singapore ).

Legal System and Judicial Independence

Singapore’s legal system has its roots in English common law and practice and is enforced by courts of law. The current judicial process is procedurally competent, fair, and reliable. In the 2020 Rule of Law Index by World Justice Project, it is ranked overall twelfth in the world, first on order and security, third on regulatory enforcement, third in absence of corruption, sixth on civil and criminal justice, twenty-ninth on constraints on government powers, twenty-sixth on open government, and thirty-second on fundamental rights. Singapore’s legal procedures are ranked first in the world in the World Bank’s 2020 Ease of Doing Business sub-indicator on contract enforcement which measures speed, cost, and quality of judicial processes to resolve a commercial dispute. The judicial system remains independent of the executive branch and the executive does not interfere in judiciary matters.

Laws and Regulations on Foreign Direct Investment

Singapore strives to promote an efficient, business-friendly regulatory environment. Tax, labor, banking and finance, industrial health and safety, arbitration, wage, and training rules and regulations are formulated and reviewed with the interests of both foreign investors and local enterprises in mind. Starting in 2005, a Rules Review Panel, comprising senior civil servants, began overseeing a review of all rules and regulations; this process will be repeated every five years. A Pro-Enterprise Panel of high-level public sector and private sector representatives examines feedback from businesses on regulatory issues and provides recommendations to the government. (https://www.mti.gov.sg/PEP/About)

The Cybersecurity Act, which came into force in August 2018, establishes a comprehensive regulatory framework for cybersecurity. The Act provides the Commissioner of Cyber Security with powers to investigate, prevent, and assess the potential impact of cyber security incidents and threats in Singapore.  These can include requiring persons and organizations to provide requested information, requiring the owner of a computer system to take any action to assist with cyber investigations, directing organizations to remediate cyber incidents, and, if safeguards have been met, authorizing officers to enter premises, and installing software and take possession of computer systems to prevent serious cyber-attacks in the event of severe threat. The Act also establishes a framework for the designation and regulation of Critical Information Infrastructure (CII). Requirements for CII owners include a mandatory incident reporting regime, regular audits and risk assessments, and participation in national cyber security stress tests. In addition, the Act will establish a regulatory regime for cyber security service providers and required licensing for penetration testing and managed security operations center (SOC) monitoring services. U.S. business chambers have expressed concern about the effects of licensing and regularly burdens on compliance costs, insufficient checks and balances on the investigatory powers of the authorities, and the absence of a multidirectional cyber threat sharing framework that includes protections from liability. Under the law, additional measures, such as the Cybersecurity Labelling Scheme, continue to be introduced.  Authorities stress that, “in view of the need to strike a good balance between industry development and cybersecurity needs, the licensing framework will take a light-touch approach.”

Competition and Antitrust Laws

The Competition and Consumer Commission of Singapore (CCCS) is a statutory board under the Ministry of Trade and Industry and is tasked with administering and enforcing the Competition Act. The act contains provisions on anti-competitive agreements, decisions, and practices; abuse of dominance; enforcement and appeals process; and mergers and acquisitions. The Competition Act was enacted in 2004 in accordance with U.S-Singapore FTA commitments, which contains specific conduct guarantees to ensure that Singapore’s government linked companies (GLC) will operate on a commercial and non-discriminatory basis towards U.S. firms. GLCs with substantial revenues or assets are also subject to enhanced transparency requirements under the FTA. A 2018 addition to the act gives the CCCS additional administrative power to protect consumers against unfair trade practices.

The most recent infringement decision issued by CCCS occurred in January 2019 when three competing hotel operators, including a major British hospitality company, exchanged “commercially sensitive” information. The operators were fined a total financial penalty of $1.1 million for conduct potentially resulting in reduced competitive pressure on the market. No other cases tied to commercial behavior in 2019 or the first quarter of 2020 have received penalties from CCCS.

Expropriation and Compensation

Singapore has not expropriated foreign-owned property and has no laws that force foreign investors to transfer ownership to local interests. Singapore has signed investment promotion and protection agreements with a wide range of countries. These agreements mutually protect nationals or companies of either country against certain non-commercial risks, such as expropriation and nationalization and remain in effect unless otherwise terminated. The USSFTA contains strong investor protection provisions relating to expropriation of private property and the need to follow due process; provisions are in place for an owner to receive compensation based on fair market value. No disputes are pending.

Dispute Settlement

ICSID Convention and New York Convention

Singapore is party to the Convention on the Settlement of Investment Disputes (ICSID Convention) and the convention on the Recognition and Enforcement of Foreign Arbitration Awards (1958 New York Convention). Singapore passed an Arbitration (International Investment Disputes) Act to implement the ICSID Convention in 1968. Singapore acceded to the 1958 New York Convention in August 1986 and gives effect to it via the International Arbitration Act (IAA). The 1958 New York Convention is annexed to the IAA as the Second Schedule. Singapore is bound to recognize awards made in any other country that is a signatory to the 1958 New York Convention. ( http://www.lexology.com/library/detail.aspx?g=3f833e8e-722a-4fca-8393-f35e59ed1440 )

Domestic arbitration in Singapore is governed by the Arbitration Act (Cap 10). The Arbitration Act was enacted to align the laws applicable to domestic arbitration with the model law.

Singapore is also a party to the United Nations Convention on International Settlement Agreements Resulting from Mediation, further referred to as the “Convention.” This Convention provides a process for parties to enforce or invoke an international commercial mediated settlement agreement once the conditions and requirements of the Convention are met. Singapore has put in place domestic legislation, the Singapore Convention on Mediation Bill 2020, which was passed in Parliament on 4 February 2020. On 25 February 2020, Singapore and Fiji were the first two countries to deposit their respective instruments of ratification of the Convention at the United Nations Headquarters. The Convention will enter into force six months after the third State deposits its instrument of ratification, acceptance and approval or accession. Singapore’s arbitration center settled a record high number of cases in 2020 and opened a New York City office.

Investor-State Dispute Settlement

After Singapore’s accession to the New York Convention of 1958 on August 21, 1986, it re-enacted most of its provisions in Part III of the IAA. By acceding to the New York Convention, Singapore is bound to recognize awards made in any other country that is a signatory to the Convention. Singapore is a member of the Commonwealth of Nations and, under the Reciprocal Enforcement of Commonwealth Judgments Act (RECJA), recognizes judgments made in the United Kingdom, as well as jurisdictions that are part of the Commonwealth and with which Singapore has reciprocal arrangements for the recognition and enforcement of judgments. The Act lists the countries with which such arrangements exist, and of the 53 countries that are members of the Commonwealth, nine have been listed. ( https://sso.agc.gov.sg/SL/RECJA1921-N1?DocDate=19990701 ) Singapore also has reciprocal recognition of foreign judgements with Hong Kong Special Administrative Region of the People’s Republic of China.

Singapore is party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). Singapore passed an Arbitration (International Investment Disputes) Act to implement the ICSID Convention in 1968. The ICSID Convention has an enforcement mechanism for arbitration awards rendered pursuant to ICSID rules that is separate from the 1958 arbitration awards rendered pursuant to ICSID rules that is separate from the 1958 New York Convention. Investor-State dispute settlement provisions in Singapore’s trade agreements, including the USSFTA, refer to ICSIID rules as one of the possible options for resolving disputes. Investor-State arbitration under rules other than ICSID’s would result in an arbitration award that may be enforced using the 1958 New York Convention.

Singapore has had no investment disputes with U.S. persons or other foreign investors in the past ten years that have proceeded to litigation. Any disputes settled by arbitration/mediation would remain confidential. There have been no claims made by U.S. investors under the USSFTA. There is no history of extrajudicial action against foreign investors. The government is investing in establishing Singapore as a global mediation hub.

International Commercial Arbitration and Foreign Courts

Dispute resolution (DR) institutions include the Singapore International Arbitration Centre (SIAC), Singapore International Mediation Centre (SIMC), Singapore International Commercial Court (SICC), and the Singapore Chamber of Maritime Arbitration (SCMA). Singapore’s extensive dispute resolution institutions and integrated dispute resolution facilities at Maxwell Chambers have contributed to its development as a regional hub for alternative dispute resolution mechanisms. The SIAC is the major arbitral institution and its increasing caseload reflects Singapore’s policy of encouraging the use of alternative modes of dispute resolution, including arbitration.

Arbitral awards in Singapore, for either domestic or international arbitration, are legally binding and enforceable in Singapore domestic courts, as well as in jurisdictions that have ratified the 1958 New York Convention.

The International Arbitration Act (IAA) regulates international arbitrations in Singapore. Domestic arbitrations are regulated by the Arbitration Act (AA). The IAA is heavily based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law, with a few significant differences. For example, arbitration agreements must be in writing. This requirement is deemed to be satisfied if the content is recorded in any form, including electronic communication, regardless of whether the arbitration agreement was concluded orally, by conduct, or by other means (e.g. an arbitration clause in a contract or a separate agreement can be incorporated into a contract by reference). The AA is also primarily based on the UNCITRAL Model Law. There have been no reported complaints about the partiality or transparency of court processes in investment and commercial disputes.

Bankruptcy Regulations

Singapore has bankruptcy laws allowing both debtors and creditors to file a bankruptcy claim. Singapore ranks number 27 for resolving insolvency in the World Bank’s 2020 Doing Business Index. While Singapore performed well in recovery rate and time of recovery following bankruptcies, the country did not score well on cost of proceedings or insolvency frameworks. In particular, the insolvency framework does not require approval by the creditors for sale of substantial assets of the debtor or approval by the creditors for selection or appointment of the insolvency representative.

Singapore has made several reforms to enhance corporate rescue and restructuring processes, including features from Chapter 11 of the U.S. Bankruptcy Code. Amendments to the Companies Act, which came into force in May 2017, include additional disclosure requirements by debtors, rescue financing provisions, provisions to facilitate the approval of pre-packaged restructurings, increased debtor protections, and cram-down provisions that will allow a scheme to be approved by the court even if a class of creditors oppose the scheme, provided the dissenting class of creditors are not unfairly prejudiced by the scheme.

The Insolvency, Restructuring and Dissolution Act passed in 2018, but the expected effective date of the bill has been delayed from the first half of 2019 into 2020. It updates the insolvency legislation and introduces a significant number of new provisions, particularly with respect to corporate insolvency. It mandates licensing, qualifications, standards, and disciplinary measures for insolvency practitioners. It also includes standalone voidable transaction provisions for corporate insolvency and, a new wrongful trading provision. The act allows ‘out of court’ commencement of judicial management, permits judicial managers to assign the proceeds of certain insolvency related claims, restricts the operation of contractual ‘ipso facto clauses’ upon the commencement of certain restructuring and insolvency procedures, and modifies the operation of the scheme of arrangement cross class ‘cram down’ power. Authorities continue to seek public consultations of subsidiary legislation to be drafted under the act.

Two MAS-recognized consumer credit bureaus operate in Singapore: the Credit Bureau (Singapore) Pte Ltd and Experian Credit Bureau Singapore Pte Ltd. U.S. industry advocates enhancements to Singapore’s credit bureau system, in particular, adoption of an open admission system for all lenders, including non-banks. Bankruptcy is not criminalized in Singapore. ( https://www.acra.gov.sg/CA_2017/ )

4. Industrial Policies

Investment Incentives

The EDB is the lead investment promotion agency facilitating foreign investment into Singapore ( https://www.edb.gov.sg ). The EDB undertakes investment promotion and industry development, and works with international businesses, both foreign and local, by providing information, connection to partners, and access to government incentives for their investments. The Agency for Science, Technology, and Research (A*STAR) is Singapore’s lead public sector agency focused on economic-oriented research to advance scientific discovery and innovative technology. ( https://www.a-star.edu.sg ) The National Research Foundation (NRF) provides competitive grants for applied research through an integrated grant management system. ( https://researchgrant.gov.sg/pages/index.aspx ) Various government agencies (including Intellectual Property Office of Singapore (IPOS, NRF, and EDB) provide venture capital co-funding for startups and commercialization of intellectual property.

Foreign Trade Zones/Free Ports/Trade Facilitation

Singapore has nine free-trade zones (FTZs) in five geographical areas operated by three FTZ authorities. The FTZs may be used for storage and repackaging of import and export cargo, and goods transiting Singapore for subsequent re-export. Manufacturing is not carried out within the zones. Foreign and local firms have equal access to the FTZ facilities.

Performance and Data Localization Requirements

Performance requirements are applied uniformly and systematically to both domestic and foreign investors. Singapore has no forced localization policy requiring domestic content in goods or technology. The government does not require investors to purchase from local sources or specify a percentage of output for export. There are no rules forcing the transfer of technology. There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption. The industry regulator is the IMDA, a statutory board under the Ministry of Communications and Information.

In May 2020, Singapore tightened requirements for hiring foreign workers, including raising minimum salary thresholds and additional enforcement of penalties for employers not giving “fair consideration” to local applicants before hiring foreign workers. Personal data matters are independently overseen by the Personal Data Protection Commission, which administers and enforces the Personal Data Protection Act (PDPA) of 2012. The PDPA governs the collection, use, and disclosure of personal data by the private sector and covers both electronic and non-electronic data. Singapore is currently reviewing the PDPA to ensure that it keeps pace with the evolving needs of businesses and individuals in a digital economy such as introducing an enhanced framework for the collection, use, and disclosure of personal data and a mandatory data breach notification regime.

Singapore does not have a data localization policy. Singapore participates in various regional and international frameworks that promote interoperability and harmonization of rules to facilitate cross-border data flows. The ASEAN Framework on Digital Data Governance (FDFG) is one example. Under FDFG, Singapore will focus on developing model contractual clauses and certification for cross border data flows within the ASEAN region. Another is Singapore’s participation in the Asia-Pacific Economic Cooperation (APEC) Cross-Border Privacy Rules (CBPR) and Privacy Recognition for Processors systems, to facilitate data transfers for certified organizations across APEC economies.

5. Protection of Property Rights

Real Property

Property rights and interests are enforced in Singapore. Residents have access to mortgages and liens, with reliable recording of properties. In the 2020 World Bank Doing Business Report, Singapore ranks first in the world in enforcing contracts and number 21st in registering property.

Foreigners are not allowed to purchase public housing in Singapore, and prior approval from the Singapore Land Authority is required to purchase landed residential property and residential land for development. Foreigners can purchase non-landed, private sector housing (e.g., condominiums or any unit within a building) without the need to obtain prior approval. However, they are not allowed to acquire all the apartments or units in a development without prior approval. These restrictions also apply to foreign companies.

There are no restrictions on foreign ownership of industrial and commercial real estate. Since July 2018, foreigners who purchase homes in Singapore are required to pay an additional effective 20 percent tax on top of standard buyer’s taxes. However, U.S. citizens are accorded national treatment under the FTA, meaning only second and subsequent purchases of residential property will be subject to 12 and 15 percent additional duties, equivalent to Singaporean citizens.

The availability of covered bond legislation under MAS Notice 648 has provided an incentive for Singapore financial institutions to issue covered bonds. Under Notice 648, only a bank incorporated in Singapore may issue covered bonds. The three main Singapore banks: DBS, OCBC, and UOB, all have in place covered bond programs, with the issues offered to private investors. The banking industry has made suggestions to allow the use of covered bonds in repossession transactions with the central bank and to increase the encumbrance limit, currently at four percent. ( http://www.mas.gov.sg/regulations/notices/notice-648 )

Intellectual Property Rights

Singapore maintains one of the strongest intellectual property rights regimes in Asia. The chief executive of Singapore’s Intellectual Property Office was elected director general of the World Intellectual Property Organization (WIPO) in April 2020. However, some concerns remain in certain areas such as business software piracy, online piracy, and enforcement.

Effective January 1, 2020, all patent applications must be fully examined by the Intellectual Property Office of Singapore (IPOS) to ensure that any foreign-granted patents fully satisfy Singapore’s patentability criteria. The Registered Designs (Amendment) Act broadens the scope of registered designs to include virtual designs and color as a design feature and will stipulate the default owner of designs to be the designer of a commissioned design, rather than the commissioning party.

The USSFTA ensures that government agencies will not grant regulatory approvals to patent- infringing products, but Singapore does allow parallel imports. Under the Patents Act, with regards to pharmaceutical products, the patent owner has the right to bring an action to stop an importer of “grey market goods” from importing the patent owner’s patented product, provided that the product has not previously been sold or distributed in Singapore, the importation results in a breach of contract between the proprietor of the patent and any person licensed by the proprietor of the patent to distribute the product outside Singapore and the importer has knowledge of such.

The USSFTA ensures protection of test data and trade secrets submitted to the government for regulatory approval purposes. Disclosure of such information is prohibited. Such data may not be used for approval of the same or similar products without the consent of the party who submitted the data for a period of five years from the date of approval of the pharmaceutical product and 10 years from the date of approval of an agricultural chemical. Singapore has no specific legislation concerning protection of trade secrets. Instead, it protects investors’ commercially valuable proprietary information under common law by the Law of Confidence as well as legislation such as the Penal Code (e.g., theft) and the Computer Misuse Act (e.g., unauthorized access to a computer system to download information). U.S. industry has expressed concern that this provision is inadequate.

As a WTO member, Singapore is party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). It is a signatory to other international intellectual property rights agreements, including the Paris Convention, the Berne Convention, the Patent Cooperation Treaty, the Madrid Protocol, and the Budapest Treaty. The WIPO Secretariat opened a regional office in Singapore in 2005. ( http://www.wipo.int/about-wipo/en/offices/singapore/)  Amendments to the Trademark Act, which were passed in January 2007, fulfilled Singapore’s obligations in WIPO’s revised Singapore Treaty on the Law of Trademarks.

Singapore ranked 11th out of 53 in the world in the 2020 U.S. Chamber of Commerce’s International Intellectual Property (IP) Index. The index noted that Singapore’s key strengths include an advanced national IP framework and efforts to accelerate research, patent examination, and grants. The index also lauded Singapore as a global leader in patent protection and online copyright enforcement. Despite a decrease in estimated software piracy from 35 percent in 2009 to 27 percent in 2020, the index noted that piracy levels remain high for a developed, high-income country. Lack of transparency and data on customs seizures of IP-infringing goods is also noted as a key area of weakness.

Singapore does not publicly report the statistics on seizures of counterfeit goods and does not rate highly on enforcement of physical counterfeit goods, online sales of counterfeit goods or digital online piracy, according to the 2018 U.S. Chamber of Commerce’s International IP Index. Singapore is not listed in USTR’s 2020 Special 301 Report, but some Singapore-based online retailers are named in USTR’s 2019 Review of Notorious Markets. For additional information about national laws and points of contact at local IP offices, see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

6. Financial Sector

Capital Markets and Portfolio Investment

The government takes a favorable stance towards foreign portfolio investment and fixed asset investments. While it welcomes capital market investments, the government has introduced macro-prudential policies aimed at reducing foreign speculative inflows in the real estate sector since 2009. The government promotes Singapore’s position as an asset and wealth management center, and assets under management grew 5.4 percent in 2018 to USD 2.4 trillion (SD 3.4 trillion) – the latest year for which MAS conducted a survey.

The Government of Singapore facilitates the free flow of financial resources into product and factor markets, and the Singapore Exchange (SGX) is Singapore’s stock market. An effective regulatory system exists to encourage and facilitate portfolio investment. Credit is allocated on market terms and foreign investors can access credit, U.S. dollars, Singapore dollars (SGD), and other foreign currencies on the local market. The private sector has access to a variety of credit instruments through banks operating in Singapore. The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Money and Banking System

Singapore’s banking system is sound and well regulated by MAS, and the country serves as a financial hub for the region. Banks have a very high domestic penetration rate, and according to World Bank Financial Inclusion indicators, over 97 percent of persons held a financial account in 2017. (latest year available). Local Singapore banks saw net profits rise 27 percent in the last quarter of 2019. Banks are statutorily prohibited from engaging in non-financial business. Banks can hold 10 percent or less in non-financial companies as an “equity portfolio investment.” At the end of 2019, the non-performing loans ratio (NPL ratio) of the three local banks remained at an averaged 1.5 percent since the last quarter of 2018.

Foreign banks require licenses to operate in the country. The tiered licenses, for Merchant, Offshore, Wholesale, Full Banks and Qualifying Full Banks (QFBs) subject banks to further prudential safeguards in return for offering a greater range of services. U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, U.S.-licensed full-service banks that are also QFBs have been able to operate at an unlimited number of locations (branches or off-premises ATMs) versus 25 for non-U.S. full service foreign banks with QFB status.

Under the OECD Common Reporting Standards (CRS), which has been in effect since January 2017, Singapore-based Financial Institutions (SGFIs) – depository institutions such as banks, specified insurance companies, investment entities, and custodial institutions – are required to: 1) establish the tax residency status of all their account holders; 2) collect and retain CRS information for all non-Singapore tax residents in the case of new accounts; and 3) report to tax authorities the financial account information of account holders who are tax residents of jurisdictions with which Singapore has a Competent Authority Agreement (CAA) to exchange the information. As of December 2019, Singapore has established more than 80 exchange relationships, include with the United States, established in September 2018.

U.S. financial regulations do not restrict foreign banks’ ability to hold accounts for U.S. citizens. U.S. citizens are encouraged to alert the nearest U.S. Embassy of any practices they encounter with regard to the provision of financial services.

Fintech investments in Singapore rose from USD 365 million in 2018 to USD 861 million in 2019. To strengthen Singapore’s position as a global Fintech hub, MAS has created a dedicated Fintech Office as a one-stop virtual entity for all Fintech-related matters to enable experimentation and promote an open-API (Application Programming Interfaces) in the financial industry. Investment in payments start-ups accounted for about 40 percent of all funds. Singapore has more than 50 innovation labs established by global financial institutions and technology companies.

MAS also aims to be a regional leader in blockchain technologies and has worked to position Singapore as a financial technology center. MAS and the Association of Banks in Singapore are prototyping the use of Distributed Ledger Technology (DLT) for inter-bank clearing and settlement of payments and securities. Following a five-year collaborative project to understand the technology, a test network launched to facilitate collaboration in the cross-border blockchain ecosystem. Technical specifications for the functionalities and connectivity interfaces of the prototype network are publicly available. ( https://www.mas.gov.sg/schemes-and-initiatives/Project-Ubin ).

Alternative financial services include retail and corporate non-bank lending via finance companies, cooperative societies, and pawnshops; and burgeoning financial technology-based services across a wide range of sectors including: crowdfunding, initial coin offerings, and payment services and remittance. In January 2020, the Payment Services Bill went into effect, which will require all cryptocurrency service providers to be licensed with the intent to provide more user protection. Smaller payment firms will receive a different classification from larger institutions and will be less heavily regulated. Key infrastructure supporting Singapore’s financial market include interbank (MEP), Foreign exchange (CLS, CAPS), retail (SGDCCS, USDCCS, CTS, IBG, ATM, FAST, NETS, EFTPOS), securities (MEPS+-SGS, CDP, SGX-DC) and derivatives settlements (SGX-DC, APS) ( https://www.mas.gov.sg/regulation/payments/payment-systems )

Foreign Exchange and Remittances

Foreign Exchange

The USSFTA commits Singapore to the free transfer of capital, unimpeded by regulatory restrictions. Singapore places no restrictions on reinvestment or repatriation of earnings and capital, and maintains no significant restrictions on remittances, foreign exchange transactions and capital movements.

Singapore’s monetary policy has been centered on the management of the exchange rate since 1981, with the stated primary objective of promoting medium term price stability as a sound basis for sustainable economic growth. As described by MAS, there are three main features of the exchange rate system in Singapore: 1) MAS operates a managed float regime for the Singapore dollar with the trade-weighted exchange rate allowed to fluctuate within a policy band; 2) the Singapore dollar is managed against a basket of currencies of its major trading partners; and 3) the exchange rate policy band is periodically reviewed to ensure that it remains consistent with the underlying fundamentals of the economy.

Remittance Policies

There are no time or amount limitations on remittances. No significant changes to investment remittance were implemented or announced over the past year. Local and foreign banks may impose their own limitations on daily remittances.

Sovereign Wealth Funds

The Government of Singapore has three key investment entities: GIC Private Limited (GIC) is the sovereign wealth fund in Singapore that manages the government’s substantial foreign investments, fiscal, and foreign reserves, with the stated objective to achieve long-term returns and preserve the international purchasing power of the reserves. Temasek is a holding company wholly owned by the Ministry of Finance with investments in Singapore and abroad. MAS, as the central bank of Singapore, manages the Official Foreign Reserves, and a significant proportion of its portfolio is invested in liquid financial market instruments.

GIC does not publish the size of the funds under management, but some industry observers estimate its managed assets may exceed $400 billion. GIC does not invest domestically, but manages Singapore’s international investments, which are generally passive (non-controlling) investments in publicly traded entities. The United States is its top investment destination, accounting for 34 percent of GIC’s portfolio as of March 2020, while Asia (excluding Japan) accounts for 19 percent, the Eurozone 13 percent, Japan 13 percent, and UK 6 percent. Investments in the United States are diversified and include industrial and commercial properties, student housing, power transmission companies, and financial, retail and business services. GIC is a member of the International Forum of Sovereign Wealth Funds. Although not required by law, GIC has published an annual report since 2008.

Temasek began as a holding company for Singapore’s state-owned enterprises, now GLCs, but has since branched out to other asset classes and often holds significant stake in companies. As of March 2020, Temasek’s portfolio value reached $226 billion, and its asset exposure to Singapore is 24 percent; 42 percent in the rest of Asia, and 17 percent in North America. According to the Temasek Charter, Temasek delivers sustainable value over the long term for its stakeholders. Temasek has published a Temasek Review annually since 2004. The statements only provide consolidated financial statements, which aggregate all of Temasek and its subsidiaries into a single financial report. A major international audit firm audits Temasek Group’s annual statutory financial statements. GIC and Temasek uphold the Santiago Principles for sovereign investments.

Other investing entities of government funds include EDB Investments Pte Ltd, Singapore’s Housing Development Board, and other government statutory boards with funding decisions driven by goals emanating from the central government.

7. State-Owned Enterprises

Singapore has an extensive network of full and partial SOEs held under the umbrella of Temasek Holdings, a holding company with the Ministry of Finance as its sole shareholder. Singapore SOEs play a substantial role in the domestic economy, especially in strategically important sectors including telecommunications, media, healthcare, public transportation, defense, port, gas, electricity grid, and airport operations. In addition, the SOEs are also present in many other sectors of the economy, including banking, subway, airline, consumer/lifestyle, commodities trading, oil and gas engineering, postal services, infrastructure, and real estate.

The Government of Singapore emphasizes that government-linked entities operate on an equal basis with both local and foreign businesses without exception. There is no published list of SOEs.

Temasek’s annual report notes that its portfolio companies are guided and managed by their respective boards and management, and Temasek does not direct their business decisions or operations. However, as a substantial shareholder, corporate governance within government linked companies typically are guided or influenced by policies developed by Temasek. There are differences in corporate governance disclosures and practices across the GLCs, and GLC boards are allowed to determine their own governance practices, with Temasek advisors occasionally meeting with the companies to make recommendations. GLC board seats are not specifically allocated to government officials, although it “leverages on its networks to suggest qualified individuals for consideration by the respective boards,” and leaders formerly from the armed forces or civil service are often represented on boards and fill senior management positions. Temasek exercises its shareholder rights to influence the strategic directions of its companies but does not get involved in the day-to-day business and commercial decisions of its firms and subsidiaries.

GLCs operate on a commercial basis and compete on an equal basis with private businesses, both local and foreign. Singapore officials highlight that the government does not interfere with the operations of GLCs or grant them special privileges, preferential treatment or hidden subsidies, asserting that GLCs are subject to the same regulatory regime and discipline of the market as private sector companies. However, observers have been critical of cases where GLCs have entered into new lines of business or where government agencies have “corporatized” certain government functions, in both circumstances entering into competition with already existing private businesses. Some private sector companies have said they encountered unfair business practices and opaque bidding processes that appeared to favor incumbent, government-linked firms. In addition, they note that the GLC’s institutional relationships with the government give them natural advantages in terms of access to cheaper funding and opportunities to shape the economic policy agenda in ways that benefit their companies.

The USSFTA contains specific conduct guarantees to ensure that GLCs will operate on a commercial and non-discriminatory basis towards U.S. firms. GLCs with substantial revenues or assets are also subject to enhanced transparency requirements under the USSFTA. In accordance with its USSFTA commitments, Singapore enacted the Competition Act in 2004 and established the Competition Commission of Singapore in January 2005. The Competition Act contains provisions on anti-competitive agreements, decisions, and practices, abuse of dominance, enforcement and appeals process, and mergers and acquisitions.

Privatization Program

The government has privatized GLCs in multiple sectors and has not publicly announced further privatization plans, but is likely to retain controlling stakes in strategically important sectors, including telecommunications, media, public transportation, defense, port, gas, electricity grid, and airport operations. The Energy Market Authority is extending the liberalization of the retail market from commercial and industrial consumers with an average monthly electricity consumption of at least 2,000 kWh to households and smaller businesses. The Electricity Act and the Code of Conduct for Retail Electricity Licensees govern licensing and standards for electricity retail companies.

8. Responsible Business Conduct

The awareness and implementation of corporate social responsibility (CSR) in Singapore has been increasing since the formation of the Global Compact Network Singapore (GCNS) under the United Nations Global Compact network, with the goals of encouraging companies to adopt sustainability principles related to human and labor rights, environmental conservation, and anti-corruption. GCNS facilitates exchanges, conducts research, and provides training in Singapore to build capacity in areas including sustainability reporting, supply chain management, ISO 26000, and measuring and reporting carbon emissions.

A 2019 World Wide Fund (WWF) for Nature survey showed a lack of transparency by Singapore companies in disclosing palm oil sources. However, there is growing awareness and the Southeast Asia Alliance for Sustainable Palm Oil (Saspo) has received additional pledges in by companies to adhere to standards for palm oil sourcing set by the Roundtable for Sustainable Palm Oil (RSPO). A group of food and beverage, retail, and hospitality companies announced in January 2019 what the WWF calls “the most impactful business response to-date on plastics.” The pact, initiated by WWF and supported by the National Environment Agency, is a commitment to significantly reduce plastic production and usage by 2030.

In June 2016, the Singapore Exchange (SGX) introduced mandatory, comply-or-explain, sustainability reporting requirements for all listed companies, including material environmental, social and governance practices, from the financial year ending December 31, 2017 onwards. The Singapore Environmental Council (SEC) operates a green labeling scheme, which endorses environmentally friendly products, numbering over 3,000 from 2729 countries. The Association of Banks in Singapore has issued voluntary guidelines to banks in Singapore last updated in July 2018 encouraging them to adopt sustainable lending practices, including the integration of environmental, social and governance (ESG) principles into their lending and business practices. Singapore-based banks are listed in a 2018 Market Forces report as major lenders in regional coal financing.

Singapore has not developed a National Action Plan on business and human rights, but promotes responsible business practices, and encourages foreign and local enterprises to follow generally accepted CSR principles. The government does not explicitly factor responsible business conduct (RBC) policies into its procurement decisions.

The host government effectively and fairly enforces domestic laws with regard to human rights, labor rights, consumer protection, environmental protections, and other laws/regulations intended to protect individuals from adverse business impacts. The private sector’s impact on migrant workers and their rights, and domestic migrant workers in particular (due to the latter’s exemption from the Employment Act which stipulates the rights of workers), remains an area of advocacy by civil society groups. The government has taken incremental steps to improve the channels of redress and enforcement of migrant workers’ rights; however, key concerns about legislative protections remain unaddressed for domestic migrant workers. The government generally encourages businesses to comply with international standards. However, there are no specific mentions of the host government encouraging adherence to the OECD Due Diligence Guidance, or supply chain due diligence measures.

The Companies Act principally governs companies in Singapore. Key areas of corporate governance covered under the act include separation of ownership from management, fiduciary duties of directors, shareholder remedies, and capital maintenance rules. Limited liability partnerships are governed by the Limited Liability Partnerships Act. Certain provisions in other statutes such as the Securities and Futures Act are also relevant to listed companies. Listed companies are required under the Singapore Exchange Listing Rules to describe in their annual reports their corporate governance practices with specific reference to the principles and provisions of the Code of Corporate Governance (“Code”). Listed companies must comply with the principles of the Code and if their practices vary from any provision in the Code, they must explain the variation and demonstrate the variation is consistent with the relevant principle. The revised Code of Corporate Governance will impact Annual Reports covering financial years from January 1, 2019 onward. The revised code encourages board renewal, strengthens director independence, increases transparency of remuneration practices, enhances board diversity, and encourages communication with all stakeholders. MAS also established an independent Corporate Governance Advisory Committee (CGAC) to advocated good corporate governance practices in February 2019. The CGAC monitors companies’ implementation of the code and advises regulators on corporate governance issues.

There are independent NGOs promoting and monitoring RBC. Those monitoring or advocating around RBC are generally able to do their work freely within most areas. However, labor unions are tightly controlled and legal rights to strike are granted with restrictions under the Trade Disputes Act.

Singapore has no oil, gas, or mineral resources and is not a member of the Extractive Industries Transparency Initiative (EITI). A small sector in Singapore processes rare minerals and complies with responsible supply chains and conflict mineral principles. Under the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) framework, it is a requirement for Corporate Service Providers to develop and implement internal policies, procedures and controls to comply with Financial Action Task Force (FATF) recommendations on combating of money laundering and terrorism financing.

Additional Resources 

Department of State

Department of Labor

9. Corruption

Resources to Report Corruption

Singapore actively enforces its strong anti-corruption laws, and corruption is not cited as a concern for foreign investors. Transparency International’s 2020 Corruption Perception Index ranks Singapore third of 178 countries globally, the highest-ranking Asian country. The Prevention of Corruption Act (PCA), and the Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act provide the legal basis for government action by the Corrupt Practices Investigation Bureau (CPIB), which is the only agency authorized under the PCA to investigate corruption offences and other related offences. These laws cover acts of corruption within Singapore as well as those committed by Singaporeans abroad. The anti-corruption laws extend to family members of officials, and to political parties. The CPIB is effective and non-discriminatory. Singapore is generally perceived to be one of the least corrupt countries in the world, and corruption is not identified as an obstacle to foreign direct investment in Singapore. Recent corporate fraud scandals, particularly in the commodity trading sector, have been publicly, swiftly, and firmly reprimanded by the government. Singapore is a signatory to the UN Anticorruption Convention, but not the OECD Anti-Bribery Convention.

Resources to Report Corruption

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

Corrupt Practices Investigation Bureau
2 Lengkok Bahru, Singapore 159047
+65 6270 0141  info@cpib.gov.sg

Contact at a “watchdog” organization:

Transparency International
Alt-Moabit 96
10559 Berlin, Germany +49 30 3438 200

10. Political and Security Environment

Singapore’s political environment is stable and there is no recent history of incidents involving politically motivated damage to foreign investments in Singapore. The ruling People’s Action Party (PAP) has dominated Singapore’s parliamentary government since 1959 and currently controls 83 of the 89 regularly contested parliamentary seats. Singaporean opposition parties, which currently hold six regularly contested parliamentary seats and three additional seats reserved to the opposition by the constitution, do not usually espouse views that are radically different from mainstream public opinion.

11. Labor Policies and Practices

In December 2020, Singapore’s labor market totaled 3.6 million workers; this includes about 1.4 million foreigners, of whom about 85 percent are basic skilled or semi-skilled workers. The labor market continues to be tight, with overall unemployment rate averaging in the 3.04 percent in 2020. The 2020 budget, announced in February and two subsequent supplementary budgets announced in March and April, provided for substantial wage and training support for all firms during the COVID-19 outbreak. In sectors, such as travel and tourism, the government offered temporary employment or training for workers placed on unpaid leave due to COVID-19. The 2021 budget continues this support, although at lower levels and in a more focused manner, since the government expects overall GDP growth to return. Local labor laws allow for relatively free hiring and firing practices. Either party can terminate employment by giving the other party the required notice. The Ministry of Manpower (MOM) must approve employment of foreigners.

Since 2011, the government has introduced policy measures to support productivity increases coupled with reduced dependence on foreign labor. In Budget 2019, MOM announced a decrease in the foreign worker quota ceiling from 40 percent to 38 percent on January 1, 2020 and to 35 percent on January 1, 2021. The quota reduction does not apply to those on Employment Passes (EPs) which are high skilled workers making above $33,100 per year. In Budget 2020, the foreign worker quota was cut further for mid-skilled (“S Pass”) workers in construction, marine shipyards, and the process sectors from 20 to 18 percent by January 1, 2021. The quota will be further reduced to 15 percent on January 1, 2023. Singapore’s labor force fell for the first time in a decade and is expected to face significant demographic headwinds from an aging population and low birth rates, alongside restrictions on foreign workers. Singapore’s local workforce growth is slowing, heading for stagnation over the next ten years.

To address concerns over an aging and shrinking workforce, MOM has expanded its training and grant programs. The government included a number of individual and company subsidies for existing and new programs in the Budget 2020 and 2021, as well as an unprecedented number of supplementary budgets during the COVID-19 outbreak. An example of an existing program is SkillsFuture, a government initiative managed by SkillsFuture Singapore (SSG), a statutory board under the Ministry of Education, designed to provide all Singaporeans with enhanced opportunities and skills-capacity building. SSG also administers the Singapore Workforce Skills Qualifications (WSQ), a national credential system that trains, develops, assesses, and certifies skills and competencies for the workforce.

All foreigners must have a valid work pass before they can start work in Singapore, with EPs (for professionals, managers and executives), S Pass (for mid-level skilled staff), and Work Permits (for semi-skilled workers), among the most widely issued. Workers need to have a job with minimum fixed monthly salary and acceptable qualifications to be eligible for the Employment Pass and S Pass. MOM has increased minimum salaries restricting the ability of some companies to hire foreign workers, including spouses of employment pass holders. The government further regulates the inflow of foreign workers through the Foreign Worker Levy (FWL) and the Dependency Ratio Ceiling (DRC). The DRC is the maximum permitted ratio of foreign workers to the total workforce that a company can hire and serves as a quota on the hiring of foreign workers. The DRC varies across sectors. Employers of S Pass and Work Permit holders are required to pay a monthly FWL to the government. The FWL varies according to the skills, qualifications and experience of their employees. The FWL is set on a sector-by-sector basis and is subject to annual revisions. FWLs have been progressively increased for most sectors since 2012.

MOM requires employers to consider Singaporeans before hiring skilled professional foreigners. The Fair Consideration Framework, implemented in August 2014, affects employers who apply for EPs, the work pass for foreign professionals working in professional, manager, and executive (PME) posts. Companies have noted inconsistent and increasingly burdensome documentation requirements and excessive qualification criteria to approve EP applications. Under the rules, firms making new EP applications must first advertise the job vacancy in a new jobs bank administered by Workforce Singapore (WSG), ( http://www.mycareersfuture.gov.sg ) for at least 28 days. The jobs bank is free for use by companies and job seekers and the job advertisement must be open to all, including Singaporeans. Employers are encouraged to keep records of their interview process as proof that they have done due diligence in trying to look for a Singaporean worker. If an EP is still needed, the employer will have to make a statutory declaration that a job advertisement on http://www.mycareersfuture.gov.sg had been made. Smaller firms with 10 or fewer employees and jobs, which pay a fixed monthly salary of $10,609 or more, are exempt from the requirements, which were newly tightened and took effect from July 2018. The minimum fixed salary will be raised to $14,145 on May 1, 2021.

Consistent with Singapore’s WTO obligations, intra-corporate transfers (ICT) are allowed for managers, executives, and specialists who had worked for at least one year in the firm before being posted to Singapore. ICT would still be required to meet all EP criteria, but the requirement for an advertisement on http://www.mycareersfuture.gov.sg would be waived. In April 2016, MOM outlined measures to refine the work pass applications process, looking not only at the qualifications of individuals, but at company-related factors. Companies found not to have a “healthy Singaporean core, lacking a demonstrated commitment to developing a Singaporean core, and not found to be “relevant” to Singapore’s economy and society, will be labeled “triple weak” and put on a watch list. Companies unable to demonstrate progress may have work pass privileges suspended after a period of scrutiny. Since 2016, MOM has placed approximately 1,200 companies on the FCF Watchlist. The Tripartite Alliance for Fair and Progressive Employment Practices have worked with 260 companies to be successfully removed from the watchlist.

The Employment Act covers all employees under a contract of service, and under the act, employees who have served the company for at least two years are eligible for retrenchment benefits, and the amount of compensation depends on the contract of service or what is agreed collectively. Employers have to abide by notice periods in the employment contract before termination and stipulated minimum periods in the Employment Act in the absence of a notice period previously agreed upon, or provide salary in lieu of notice. Dismissal on grounds of wrongful conduct by the employee is differentiated from retrenchments in the labor laws and is exempted from the above requirements. Employers must notify MOM of retrenchments within five working days after they notify the affected employees to enable the relevant agencies to help affected employees find alternative employment and/or identify relevant training to enhance employability. Singapore does not provide unemployment benefits, but provides training and job matching services to retrenched workers.

Labor laws are not waived in order to attract or retain investment in Singapore. There are no additional or different labor law provisions in free trade zones.

Collective bargaining is a normal part of labor-management relations in all sectors. As of 2018 about 20 percent of the workforce was unionized. Foreign workers constituted approximately 15 percent of union members. Almost all unions are affiliated with the National Trades Union Congress (NTUC), the sole national federation of trade unions in Singapore, which has a close relationship with the PAP ruling party and the government. The current NTUC Secretary General is also a Minister in the Prime Minister’s Office. Given that nearly all unions are NTUC affiliates, the NTUC has almost exclusive authority to exercise collective bargaining power on behalf of employees. Union members may not reject collective agreements negotiated between their union representatives and an employer. Although transfers and layoffs are excluded from the scope of collective bargaining, employers consult with unions on both problems, and the Taskforce for Responsible Retrenchment and Employment Facilitation issues guidelines calling for early notification to unions of layoffs. Data on coverage of collective bargaining agreements is not publicly available. The Industrial Relations Act (IRA) regulates collective bargaining. The Industrial Arbitration Courts must certify any collective bargaining agreement before it is deemed in effect and can deny certification on public interest grounds. Additionally, the IRA restricts the scope of issues over which workers may bargain, excluding bargaining on hiring, transfer, promotion, dismissal, or reinstatement of workers.

Most labor disagreements are resolved through conciliation and mediation by MOM. Since April 2017, the Tripartite Alliance for Dispute Management (TADM) under MOM provides advisory and mediation services, including mediation for salary and employment disputes. Where the conciliation process is not successful, the disputing parties may submit their dispute to the IAC for arbitration. Depending on the nature of the dispute, the court may be constituted either by the President of the IAC and a member of the Employer and Employee Panels, or by the President alone. The Employment Claims Tribunals (ECT) was established under the Employment Claims Act (2016). To bring a claim before the ECT, parties must first register their claims at the TADM for mediation. Mediation at TADM is compulsory. Only disputes which remain unresolved after mediation at TADM may be referred to the ECT.

The ECT hears statutory salary-related claims, contractual salary-related claims, dismissal claims from employees, and claims for salary in lieu of notice of termination by all employers. There is a limit of $21,200 on claims for cases with TADM mediation, and $14,100 for all other claims. In March 2019, MOM announced that 85 percent of salary claims had been resolved by TADM between April 2017 and December 2018. Salary-related disputes that are not resolved by mediation are covered by the Employment Claims Tribunals under the State Courts. Industrial disputes may also submit their case be referred to the tripartite Industrial Arbitration Court (IAC). The IAC composed has two panels: an employee panel and a management panel. For a majority of dispute hearings, a court is constituted comprising the President of the IAC and a member each from the employee and employer panels’ representatives and chaired by a judge. In some situations, the law provides for compulsory arbitration. The court must certify collective agreements before they go into effect. The court may refuse certification at its discretion on the ground of public interest.

The legal framework in Singapore provides for some restrictions in the registration of trade unions, labor union autonomy and administration, the right to strike, who may serve as union officers or employees, and collective bargaining. Under the Trade Union Act (TUA), every trade union must register with the Registrar of Trade Unions, which has broad discretion to grant, deny, or cancel union registration. The TUA limits the objectives for which unions can spend their funds, including for contributions to a political party or for political purposes, and allows the Registrar to inspect accounts and funds “at any reasonable time.” Legal rights to strike are granted with restrictions under TUA. The law requires the majority of affected unionized workers to vote in favor of a strike by secret ballot, as opposed to the majority of those participating in the vote. Strikes cannot be conducted for any reason apart from a dispute in the trade or industry in which the strikers are employed, and it is illegal to conduct a strike if it is “designed or calculated to coerce the government either directly or by inflicting hardship on the community.” Workers in “essential services” are required to give 14 days’ notice to an employer before conducting a strike. Although workers, other than those employed in the three essential services of water, gas and electricity, may strike, no workers did so since 1986 with the exception of a strike by bus drivers in 2012, but NTUC threatened to strike over concerns in a retrenchment process in July 2020. The law also restricts the right of uniformed personnel and government employees to organize, although the president may grant exemptions. Foreigners and those with criminal convictions generally may not hold union office or become employees of unions, but the ministry may grant exemptions.

The Employment Act, which prohibits all forms of forced or compulsory labor and the Prevention of Human Trafficking Act (PHTA), strengthens labor trafficking victim protection, and governs labor protections. Other acts protecting the rights of workers include the Occupational Safety and Health Act and Employment of Foreign Manpower Act. Labor laws set the standard legal workweek at 44 hours, with one rest day each week, and establish a framework for workplaces to comply with occupational safety and health standards, with regular inspections designed to enforce the standards. MOM effectively enforces laws and regulations establishing working conditions and comprehensive occupational safety and health (OSH) laws and implements enforcement procedures and promoted educational and training programs to reduce the frequency of job-related accidents. Changes to the Employment Act took effect on April 1, 2019, including for extension of core provisions to managers and executives, increasing the monthly salary cap, transferring adjudication of wrongful dismissal claims from MOM to the ECT, and increasing flexibility in compensating employees working during public holidays (for more detail see https://www.mom.gov.sg/employment-practices/employment-act  ). All workers, except for public servants, domestic workers and seafarers are covered by the Employment Act, and additional time-based provisions for more vulnerable employees.

Singapore has no across the board minimum wage law, although there are some exceptions in certain low skill industries. Generally, the government follows a policy of allowing free market forces to determine wage levels. In specific sectors where wages have stagnated and market practices such as outsourcing reduce incentive to upskill workers and limit their bargaining power, the government has implemented Progressive Wage Models to uplift wages. These are currently implementing in the cleaning, security, elevator maintenance, and landscape sectors. The National Wage Council (NWC), a tripartite body comprising representatives from the government, employers and unions, recommends non-binding wage adjustments on an annual basis. The NWC recommendations apply to all employees in both domestic and foreign firms, and across the private and public sectors. While the NWC wage guidelines are not mandatory, they are published under the Employment Act and form the basis of wage negotiations between unions and management. The NWC recommendations apply to all employees in both domestic and foreign law firms, and across the public and private sectors. The level of implementation is generally higher among unionized companies compared to non-unionized companies.

MOM is responsible for combating labor trafficking and improving working conditions for workers, and generally enforces anti-trafficking legislation, although some workers in low-wage and unskilled sectors are vulnerable to labor exploitation and abuse. PHTA sets out harsh penalties (including up to nine strokes of the cane and 15 years’ imprisonment) for those found guilty of trafficking, including forced labor, or abetting such activities. The government developed a mechanism for referral of potential trafficking-in-persons activities, to the interagency taskforce, co-chaired by the Ministry of Home Affairs and the Ministry of Manpower. Some observers note that the country’s employer sponsorship system made legal migrant workers vulnerable to forced labor, because they cannot change employers without the consent of the current employer. MOM effectively enforces laws and regulations pertaining to child labor. Penalties for employers that violated child labor laws were subject to fines and/or imprisonment, depending on the violation. Government officials assert that child labor is not a significant issue. The incidence of children in formal employment is low, and almost no abuses are reported.

The USSFTA includes a chapter on labor protections. The labor chapter contains a statement of shared commitment by each party that the principles and rights set forth in Article 17.7 of the ILO Declaration on Fundamental Principles and Rights at Work and its follow-up are recognized and protected by domestic law, and each party shall strive to ensure it does not derogate protections afforded in domestic labor law as an encouragement for trade or investment purposes. The chapter includes the establishment of a labor cooperation mechanism, which promotes the exchange of information on ways to improve labor law and practice, and the advancement of effective implementation.

See the U.S. State Department Human Rights Report as well as the U.S. State Department’s Trafficking in Persons Report. (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/)

Under the 1966 Investment Guarantee Agreement with Singapore, the Overseas Private Investment Corporation (OPIC) offers insurance to U.S. investors in Singapore against currency inconvertibility, expropriation, and losses arising from war. Singapore became a member of the Multilateral Investment Guarantee Agency (MIGA) in 1998. In March 2019, Singapore and the United States signed a MOU aimed at strengthening collaboration between the infrastructure agency of Singapore, Infrastructure Asia, and OPIC. Under the agreement, both countries will work together on information sharing, deal facilitation, structuring and capacity building initiatives in sectors of mutual interest such as energy, natural resource management, water, waste, transportation, and urban development. The aim is to enhance Singapore-based and U.S. companies’ access to project opportunities, while building on Singapore’s role as an infrastructure hub in Asia.

Singapore’s domestic public infrastructure projects are funded primarily via Singapore government reserves or capital markets, reducing the scope for direct project financing subsidies by foreign governments. 12. U.S. International Development Finance Corporation (DFC) and Other Investment  Insurance and Development Finance Programs

12. U.S. International Development Finance Corporation (DFC) and Other Investment  Insurance and Development Finance Programs  

Under the 1966 Investment Guarantee Agreement with Singapore, the Overseas Private Investment Corporation (OPIC) offers insurance to U.S. investors in Singapore against currency inconvertibility, expropriation, and losses arising from war.  Singapore became a member of the Multilateral Investment Guarantee Agency (MIGA) in 1998.  In March 2019, Singapore and the United States signed a MOU aimed at strengthening collaboration between the infrastructure agency of Singapore, Infrastructure Asia, and OPIC.  Under the agreement, both countries will work together on information sharing, deal facilitation, structuring and capacity building initiatives in sectors of mutual interest such as energy, natural resource management, water, waste, transportation, and urban development.  The aim is to enhance Singapore-based and U.S. companies’ access to project opportunities, while building on Singapore’s role as an infrastructure hub in Asia.

Singapore’s domestic public infrastructure projects are funded primarily via Singapore government reserves or capital markets, reducing the scope for direct project financing subsidies by foreign governments.

DFC maintains a regional office in Singapore to better coordinate with Southeast Asia’s leading financial institutions but has no projects in Singapore.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $374,131 2019 $372,063 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $358,888 2019 $287,951 BEA data available at https://apps.bea.gov/international/factsheet/ 
Host country’s FDI in the United States ($M USD, stock positions) 2018 $18,295 2019 $21,060 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP 2019 394.3% 2020 469.3% UNCTAD data available at https://unctad.org/topic/investment/world-investment-report  

* Source for Host Country Data: https://www.singstat.gov.sg/ 

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 1,465,070 100% Not Available Amount 100%
United States 297,065 20% Not Available Amount X%
Cayman Islands 157,225 11% Not Available Amount X%
British Virgin Islands 107,393 7% Not Available Amount X%
Japan 96,282 7% Not Available Amount X%
Bermuda 66,395 5% Not Available Amount X%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 1,421,608 100% All Countries 681,831 100% All Countries 739,777 100%
United States 376,454 26% United States 137,354 20% United States 239,100 32%
China 174,975 12% China 111,997 16% China 62,978 9%
Republic of Korea 60,368 4% Japan 39,856 6% Korea 33,534 5%
India 53,899 4% Cayman Islands 38,030 6% United Kingdom 23,488
Caymen Islands 52,216 4% India 31,684 5% India 22,215 3%

14. Contact for More Information

Martha Tipton
Economic Specialist
U.S. Embassy
27 Napier Road
Singapore 258508  +65 9069-8592
+65 9069-8592
Tiptonm@state.gov